BGSF, INC. - FORM 10-Q - August 3, 2015

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - BGSF, INC.	q22015-ex311.htm
EX-32.1 - EXHIBIT 32.1 - BGSF, INC.	q22015-ex321.htm
EX-31.2 - EXHIBIT 31.2 - BGSF, INC.	q22015-ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36704

BG STAFFING, INC.

(exact name of registrant as specified in its charter)



Delaware	26-0656684
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5850 Granite Parkway, Suite 730

Plano, Texas 75024

(972) 692-2400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	¨		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares outstanding of the registrant’s common stock as of August 3, 2015 was 7,389,473.

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Balance Sheets	4
	Unaudited Consolidated Statements of Operations	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34

Forward-Looking Statements

This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:


•	future financial performance and growth targets or expectations;


•	market and industry trends and developments; and


•	the benefits of our completed and future merger, acquisition and disposition transactions.

You can identify these and other forward-looking statements by the use of words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “future,” “continue,” “ongoing,” “forecast,” “project,” “target” and similar expressions, and variations or negatives of these words.

These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:


•	the availability of workers’ compensation insurance coverage at commercially reasonable terms;


•	the availability of qualified temporary personnel;


•	compliance with federal and state labor and employment laws and regulations and changes in such laws and regulations;


•	the ability to compete with new competitors and competitors with superior marketing and financial resources;


•	management team changes;


•	the favorable resolution of current or future litigation;


•	the ability to begin to generate sufficient revenue to produce net profits;


•	the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;


•	the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;


•	adverse changes in the economic conditions of the industries, countries or markets that we serve;


•	disturbances in world financial, credit, and stock markets;


•	unanticipated changes in national and international regulations affecting the company’s business;


•	a decline in consumer confidence and discretionary spending;


•	the general performance of the U.S. and global economies;


•	economic disruptions resulting from the European debt crisis;


•	and continued or escalated conflict in the Middle East; and


•	other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, and in our Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2015.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.

Where You Can Find Other Information

Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BG Staffing, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS



		June 28, 2015		December 28, 2014
		(unaudited)
Current assets
	Accounts receivable (net of allowance for doubtful accounts of $812,964 and $748,187 at 2015 and 2014, respectively)	$	26,644,327	$	22,030,342
	Prepaid expenses	397,602		624,975
	Other current assets	731,469		617,992
	Total current assets	27,773,398		23,273,309

Property and equipment, net		913,106		667,597

Other assets
	Deposits	2,068,452		1,847,029
	Deferred financing charges	478,783		496,608
	Deferred income taxes	7,594,976		7,359,590
	Intangible assets, net	19,673,590		13,724,068
	Goodwill	7,089,257		6,404,367
	Total other assets	36,905,058		29,831,662

	Total assets	$	65,591,562	$	53,772,568

Current liabilities
	Long-term debt, current portion	$	2,718,750	$	2,250,000
	Accrued interest	196,414		266,133
	Accounts payable	633,052		1,114,594
	Accrued expenses	7,940,128		6,045,637
	Accrued payroll	1,847,110		1,044,198
	Accrued workers’ compensation	912,242		1,353,539
	Contingent consideration	1,574,266		840,536
	Other current liabilities	843,103		745,822
	Dividend payable	1,811,161		989,722
	Accrued taxes	718,508		—
	Total current liabilities	19,194,734		14,650,181

Line of credit		8,600,000		4,900,000
Long-term debt, less current portion		13,465,417		14,937,500
Other long-term liabilities		1,917,479		2,921,595
	Total liabilities	43,177,630		37,409,276

Commitments and Contingencies

Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding		—		—
Common stock, $0.01 par value per share, 19,500,000 shares authorized, 7,244,644 and 6,598,145 shares issued and outstanding for 2015 and 2014, respectively		72,447		65,982
Additional paid in capital		18,774,693		10,734,438
Retained earnings		3,566,792		5,562,872
	Total stockholders’ equity	22,413,932		16,363,292

	Total liabilities and stockholders’ equity	$	65,591,562	$	53,772,568

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Thirteen and Twenty-six Week Periods Ended June 28, 2015 and June 29, 2014



	Thirteen Weeks Ended						Twenty-six Weeks Ended
	2015			2014			2015			2014
Revenues	$	49,781,392		$	42,829,920		$	90,665,537		$	81,867,575
Cost of services	38,915,474			34,364,685			71,458,596			65,690,710
Gross profit	10,865,918			8,465,235			19,206,941			16,176,865
Selling, general and administrative expenses	6,877,524			5,658,740			13,225,951			12,164,479
Depreciation and amortization	1,311,683			1,184,318			2,440,277			2,533,173
Operating income	2,676,711			1,622,177			3,540,713			1,479,213
Loss on extinguishment of related party debt	—			—			—			(986,835		)
Interest expense, net	(558,776		)	(636,867		)	(1,090,493		)	(1,220,349		)
Interest expense, net – related party	—			—			—			(213,322		)
Change in fair value of put option	190,470			(239,163		)	169,381			(226,241		)
Income (loss) before income taxes	2,308,405			746,147			2,619,601			(1,167,534		)
Income tax expense	846,399			499,610			993,359			116,029
Net income (loss)	$	1,462,006		$	246,537		$	1,626,242		$	(1,283,563	)

Net income (loss) per share:
Basic	$	0.21		$	0.04		$	0.24		$	(0.23	)
Diluted	$	0.20		$	0.04		$	0.23		$	(0.23	)

Weighted-average shares outstanding:
Basic	6,978,414			5,599,331			6,788,279			5,599,089
Dilutive effect	291,743			76,400			310,486			—
Diluted	7,270,157			5,675,731			7,098,765			5,599,089

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Twenty-six Week Periods ended June 28, 2015 and June 29, 2014



				2015			2014
Cash flows from operating activities
	Net income (loss)			$	1,626,242		$	(1,283,563	)
		Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization		2,440,277			2,533,173
		Loss on disposal of property and equipment		230			894
		Loss on extinguishment of related party debt		—			986,835
		Gain on contingent consideration		—			(212,000		)
		Amortization of deferred financing costs		86,700			92,773
		Amortization of debt discounts		21,570			66,445
		Interest expense on earn out payable		146,812			126,550
		Put option adjustment		(169,381		)	226,241
		Provision for doubtful accounts		225,662			152,407
		Stock-based compensation		182,998			1,026,646
		Deferred income taxes		(337,124		)	(240,789		)
		Net changes in operating assets and liabilities, net of effects of acquisitions:
			Accounts receivable	(2,375,923		)	(1,319,029		)
			Prepaid expenses	232,172			478,061
			Other current assets	(9,397		)	(110,724		)
			Deposits	(221,423		)	(273,481		)
			Accrued interest	51,948			(158,674		)
			Accounts payable	(482,228		)	(280,132		)
			Accrued expenses	1,552,116			(102,252		)
			Accrued payroll	533,542			672,773
			Accrued workers’ compensation	(441,474		)	(93,021		)
			Other current liabilities	97,281			141,664
			Accrued taxes	716,166			319,030
		Net cash provided by operating activities		3,876,766			2,749,827

Cash flows from investing activities
	Business acquired, net of cash received			(8,781,091		)	—
	Capital expenditures			(359,996		)	(166,981		)
	Proceeds from the sale of property and equipment			560			—
		Net cash used in investing activities		(9,140,527		)	(166,981		)

Cash flows from financing activities
	Net borrowings under line of credit			3,700,000			78,529
	Principal payments on long-term debt			(1,125,000		)	(1,135,694		)
	Payments on other long-term liabilities			—			(500,000		)
	Payments of dividends			(2,800,883		)	—
	Net proceeds from issuance of common stock			6,397,396			—
	Contingent consideration paid			(838,876		)	(974,143		)
	Other			—			(6,746		)
	Deferred financing costs			(68,876		)	(44,792		)
		Net cash provided by (used in) financing activities		5,263,761			(2,582,846		)
Net change in cash				—			—
Cash, beginning of period				—			—
Cash, end of period				$	—		$	—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the Twenty-six Week Periods ended June 28, 2015 and June 29, 2014



		2015			2014
Supplemental cash flow information:
	Cash paid for interest	$	705,929		$	1,404,515
	Cash paid for taxes, net of refunds	610,018			149,047
Non-cash transactions:
	Prepaid offering costs	$	(1,500	)	$	87,163
	Contingent consideration paid through relief of accounts receivable	—			596,079
	Paid-in-kind interest	(121,667		)	—
	Dividend payable	3,622,322			—
	Put options liability on detachable warrants	(1,466,326		)	—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS

BG Staffing, Inc. is a provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP and BG Finance and Accounting, Inc. (“BGFA”) (collectively, the “Company”), within the United States of America in three industry segments: Commercial, Multifamily, and Professional Staffing.

The Commercial segment provides temporary workers primarily to distributions and logistics costumers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee, and Mississippi.

The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in Texas and other states, via property management companies responsible for the apartment communities day to day operations.

The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting demands in Texas and Louisiana.

The accompanying unaudited consolidated financial statements for the thirteen and twenty-six week periods ended June 28, 2015 and June 29, 2014, have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future results. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December 28, 2014, included in its Annual Report on Form 10-K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year

The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of June 28, 2015 and December 28, 2014, and include the thirteen and twenty-six week periods ended June 28, 2015 and June 29, 2014.

Reclassifications

Certain reclassifications have been made to the 2014 financial statements to conform with the 2015 presentation.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. Accounts receivable represents unpaid balances due from customers. The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual customers and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

The allowance for doubtful accounts consists of the following:



	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Allowance at beginning of the period	$	676,971		$	450,250		$	748,187		$	439,886
Provision for doubtful accounts	155,906			136,066			225,662			152,407
Amounts written off, net of recoveries	(19,913		)	(67,798		)	(160,885		)	(73,775		)
Allowance at end of the period	$	812,964		$	518,518		$	812,964		$	518,518

Deferred Financing Charges

Deferred financing charges are amortized on a straight-line basis, which approximates the effective interest method, over the term of the respective loans payable. During the thirteen week periods ended June 28, 2015 and June 29, 2014, the Company recognized $43,914 and $40,265, respectively, of amortization expense as a component of interest expense related to deferred financing charges. During the twenty-six week periods ended June 28, 2015 and June 29, 2014, the Company recognized $86,700 and $92,773, respectively of amortization expense as a component of interest expense related to deferred financing charges. At June 28, 2015 and December 28, 2014, there were $478,783 and $496,608, respectively, of unamortized deferred financing charges.

Property and Equipment

The Company’s policy is to depreciate the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortized over their useful lives, or the applicable lease term, if shorter.



	Years
Leasehold improvements	1-5
Furniture and fixtures	5-7
Computer systems	5
Vehicles	5

Intangible Assets

The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to five years, based on a pattern in which the economic benefit of the respective intangible asset is realized.

Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs were used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets were discounted back to their net present value. Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized asset fair values including the identifiable intangible asset values.

The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

Goodwill

Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.

In conducting the qualitative assessment, the Company assesses the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. The Company may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.

For reporting units where the qualitative assessment is not used, goodwill is tested for impairment using a two-step process. In the first step, the estimated fair value of a reporting unit is compared with its carrying value. The fair value of the reporting unit is determined based on discounted cash flow projections. If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required.

If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, a second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to its implied fair value.

Based on our annual testing, the Company has determined that there was no goodwill impairment during the fiscal year ended December 28, 2014 (“Fiscal 2014”). As of June 28, 2015, the Company has allocated $5,024,820, $1,073,755, and $990,682 of total goodwill to our three separate reporting units: Commercial, Multifamily and Professional Staffing, respectively. There were no events or changes in circumstances during the twenty-six week period ended June 28, 2015 that caused the Company to perform an interim impairment assessment.

Revenue Recognition

The Company provides temporary staffing solutions. The Company and its clients enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. The Company considers revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.

Income Taxes

The Company is treated as a C corporation for federal income tax purposes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future event, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to off set future tax benefits that may not be realized. There was no valuation allowance recorded as of June 28, 2015 or December 28, 2014.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements was the largest benefit that had a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assessed all tax positions for which the statute of limitations remain open. The Company had no unrecognized tax benefits as of June 28, 2015 or December 28, 2014. The Company is open to examination by tax authorities for federal, state or local income taxes for periods beginning after 2011. The Company recognizes any penalties and interest when necessary as part of selling, general and administrative expenses.

Stock Based Compensation

On December 20, 2013, the board of directors of BG Staffing, Inc. adopted the 2013 Long-Term Incentive Plan (the “2013 Plan”). Under the 2013 Plan employees and directors may receive incentive stock options and other awards. A total of 900,000 shares of the common stock of BG Staffing, Inc. were initially reserved for issuance pursuant to the 2013 Plan. The Company determines the fair value of options to purchase common stock using the Black-Scholes valuation model. The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Fair Value Measurements

The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt at June 28, 2015 and December 28, 2014 approximated the carrying value as the debt bears market rates of interest. These fair values were estimated based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimates are not necessarily indicative of the amounts that would be realized in a current market exchange.

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.

In connection with the acquisition of substantially all of the assets and assumption of certain liabilities of InStaff Holding Corporation and InStaff Personnel, LLC (collectively, "InStaff") on May 28, 2013, the Company granted a put option liability which is carried at fair market value in other long-term liabilities on the consolidated balance sheets. The fair value of the put option was $861,308 and $2,497,014 at June 28, 2015 and December 28, 2014, respectively. The decrease is partially the result of the sale of 133,741 shares that contained the put right to a third party which caused the put rights on those shares to expire. The put option liability is revalued at each balance sheet date at the greater of an adjusted earning before income taxes, depreciation and amortization (“EBITDA”) method or the fair market value. Changes in fair value are recorded as non-cash, non-operating income (expense) in the Company’s consolidated statements of operations. The liability is classified within Level 3 as the lack of an active market during 2013 with only a slight increase in activity during 2014 and 2015 impacts the calculation of fair market value as an unobservable input used to value the put option. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during the twenty-six weeks ended June 28, 2015.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

The fair value is reviewed on a quarterly basis based on the most recent financial performance of the most recent fiscal quarter. An analysis is performed at the end of each fiscal quarter to compare actual results to forecasted financial performance. If performance has deviated from projected levels, the valuation is updated for the latest information available. For the thirteen week periods ended June 28, 2015 and June 29, 2014, the Company recognized $190,470 of income and $239,163, respectively, of expense related to the change in fair value of the put option liability. For the twenty-six week periods ended June 28, 2015 and June 29, 2014, the Company recognized $169,381 of income and $226,241 of expense related to the change in fair value of the put option liability, respectively.

Earnings Per Share

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. For the thirteen week periods ended June 28, 2015 and June 29, 2014, the Company had 278,012 and 415,942, respectively, common stock equivalents that were antidilutive. For the twenty-six week periods ended June 28, 2015 and June 29, 2014, the Company had 278,012 and 706,297, respectively, common stock equivalents that were antidilutive. As a result, these shares were excluded from the calculation of earnings per share.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-9, Revenue from Contracts with Customers (ASU 2014-9), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-9 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-9 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. The Company is currently evaluating the impact of our pending adoption of ASU 2014-9 on the consolidated financial statements and have not yet determined the method by which the Company will adopt the standard in 2017.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

NOTE 3 - ACQUISITIONS

On February 23, 2015, the Company acquired substantially all of the assets and assumed certain liabilities of D&W Talent, LLC (“D&W”) for an initial cash consideration paid of $8,500,000 and contingent consideration of up to $3,500,000 based on the performance of D&W for the three years following the date of acquisition. The fair value of the contingent consideration at the acquisition date was $2,035,814 based on a discounted cash flow analysis. The purchase agreement contained a provision for a “true up” of acquired working capital 120 days after the closing date. If actual working capital were greater than the target working capital, the Company would pay additional consideration in the amount of the difference. If actual working capital were less than target working capital, D&W would pay the Company the amount of the difference. On June 26, 2015, the Company paid an additional $281,091 for the working capital adjustment. The Company incurred costs of approximately $272,687 related to the acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

The consolidated statements of operations include the operating results of D&W operations from the date of acquisition. D&W operations contributed approximately $7.7 million of revenue for the twenty-six week period ended June 28, 2015. The assets acquired from D&W were assigned to the Professional Staffing segment. The acquisition of D&W allows the Company to strengthen and expand its professional operations through finance and accounting personnel.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

The following table presents the latest preliminary allocation of purchase price as of the date of acquisition. Adjustments made to the opening balance sheet in the thirteen weeks ended June 28, 2015 includes an increase of $1,062,000 to intangible assets with the offset to goodwill based on additional review of information. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:



Accounts receivable	$	2,463,724
Property and equipment	22,100
Prepaid expenses and other current assets	3,299
Intangible assets	8,254,000
Goodwill	684,890
Liabilities assumed	(611,108		)
Total net assets acquired	$	10,816,905

Cash	$	8,781,091
Fair value of contingent consideration	2,035,814
Total fair value of consideration transferred for acquired business	$	10,816,905

The allocation of the intangible assets is as follows:



	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	250,000	5 years
Trade name	$	4,508,000	Indefinite
Customer list	$	3,496,000	5 years
Total	$	8,254,000

The Company estimates that the revenues and net income (loss) for the twenty-six week periods ended June 28, 2015 and June 29, 2014 that would have been reported if the D&W acquisition had taken place on the first day of Fiscal 2014 would be as follows (dollars in thousands):



	Twenty-six Weeks Ended
	June 28, 2015		June 29, 2014
Revenues	$	93,719	$	88,660
Net income (loss)	$	2,140	$	(473	)
Income (loss) per share:
Basic	$	0.32	$	(0.08	)
Diluted	$	0.30	$	(0.08	)

NOTE 4 - INTANGIBLE ASSETS

In May 2014, due to a remarketing launch, the Company identified remaining name recognition and distinctiveness in its Extrinsic and American Partners trade names and decided to continue their use in operations indefinitely. The trade name assets’ useful lives were changed to indefinite lived intangible assets and were no longer amortized. At June 28, 2015 and December 28, 2014, these trade names have a remaining unamortized value of $2,537,566. For the twenty-six week period ended June 28, 2015, the increase in amortization expense associated with this change would have been $397,000 and the decrease in basic and diluted net income per share associated with this change would have been approximately $0.06 per share, respectively.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

Finite and indefinite lived intangible assets consist of the following:



	June 28, 2015
	Gross Value		Accumulated Amortization		Net Carrying Value
Finite lives:
Customer lists	$	29,282,811	$	19,023,037	$	10,259,774
Covenant not to compete	1,323,000		602,750		720,250
	30,605,811		19,625,787		10,980,024
Indefinite lives:
Trade names	10,126,000		1,432,434		8,693,566
Total	$	40,731,811	$	21,058,221	$	19,673,590



	December 28, 2014
	Gross Value		Accumulated Amortization		Net Carrying Value
Finite lives:
Customer lists	$	25,786,810	$	16,842,524	$	8,944,286
Covenant not to compete	1,073,000		478,784		594,216
	26,859,810		17,321,308		9,538,502
Indefinite lives:
Trade names	5,618,000		1,432,434		4,185,566
Total	$	32,477,810	$	18,753,742	$	13,724,068

Estimated future amortization expense for the next five years is as follows:



Fiscal Year Ending:
2015	$	2,392,336
2016	4,238,948
2017	2,872,303
2018	833,468
2019	554,912
Thereafter	88,057
	$	10,980,024

Gross intangible assets increased in the twenty-six weeks ended June 28, 2015 due the D&W acquisition (See Note 3 for details). Total amortization expense for the thirteen week periods ended June 28, 2015 and June 29, 2014 was $1,245,248 and $1,141,437, respectively. Total amortization expense for the twenty-six week periods ended June 28, 2015 and June 29, 2014 was $2,304,479 and $2,450,543, respectively.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following:



	June 28, 2015		December 28, 2014
Temporary worker payable	$	4,059,247	$	3,014,315
Accrued bonuses and commissions	753,327		503,024
Payroll taxes	1,576,144		1,312,975
Other	1,551,410		1,215,323
	$	7,940,128	$	6,045,637

NOTE 6 - DEBT

The Company has a senior credit facility effective May 24, 2010, as amended. On January 29, 2014, the Company entered into an amendment with its lenders under the senior credit facility. The amendment provides for a revolving line of credit (“Revolver”) of $20.0 million, increased the original principal amount of the term loan facility (“Term Loan A”) from $7.1 million to $11.3 million and added $8.0 million of subordinated debt (“Term Loan B”). Borrowings under the Revolver and Term Loan A were partially used to repay certain senior subordinated loans (“Subordinated Loans”) and $1.0 million was recorded as a loss on extinguishment of related party debt in the first quarter of 2014. The senior credit facility matures on January 29, 2018.

In connection with the acquisition of the assets of D&W (see Note 3) on February 23, 2015, the Company entered into an amendment with its lenders under senior credit facility to add BGFA as an additional borrower under the agreement and increased the borrowing base amount from 80% to 85% of eligible receivables. On December 12, 2014, the Company executed an amendment to the senior credit facility that removed the limitation on the Company to pay dividends while the Term Loan B is outstanding.

The Company had Subordinated Loans with two private lenders that also hold equity interests of the Company, and therefore, were related parties. The full amount of the Subordinated Loans was repaid on January 29, 2014 through additional borrowings on the senior credit facility.

As of June 28, 2015 and December 28, 2014, $8.6 million and $4.9 million were outstanding on the Revolver, respectively. Borrowings under the Revolver are subject to a borrowing base, bear interest at the 30-day LIBOR plus a margin that ranges from 3.00% to 3.75% (3.0% at June 28, 2015), and are secured by all assets of the Company.

Long-term debt consists of the following:



	June 28, 2015			December 28, 2014
Term Loan A, payable to a bank in monthly installments of principal and interest with a maturity date of January 29, 2018 and is secured by all assets of the Company. Interest is paid on a monthly basis at an annual interest rate of LIBOR plus a margin of 3.75% to 4.5%, determined by certain thresholds (3.75% at June 28, 2015).	$	8,062,500		$	9,187,500
Term Loan B, payable to a bank with principal due in a one lump-sum payment along with a compounding deferred fee of 1.5% per annum with a maturity date of January 29, 2018 and is secured by all assets of the Company. Interest is paid monthly at an annual rate of 11%.	8,121,667			8,000,000
Total long-term debt	16,184,167			17,187,500
Less current portion	(2,718,750		)	(2,250,000		)
Long-term debt non-current portion	$	13,465,417		$	14,937,500

For all of its borrowings, the Company must comply with certain financial covenants, including a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant. As of June 28, 2015, the Company was in compliance with these covenants.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

Maturities on the Revolver and long-term debt obligations as of June 28, 2015, are as follows:



Fiscal Year Ending:
2015	$	1,125,000
2016	3,281,250
2017	3,375,000
2018	17,002,917
Thereafter	—
	$	24,784,167

NOTE 7 - CONTINGENCIES

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.

NOTE 8 – EQUITY

Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share. As of June 28, 2015 and December 28, 2014, the Company has 7,244,644 and 6,598,145 shares of common stock outstanding and no shares of preferred stock outstanding.

In December 2014, in a series of transactions, various investors (collectively the “Investors”) joined a Securities Purchase Agreement (the “Purchase Agreement”) with the Company pursuant to which the Company issued and sold 963,750 (the “Shares”) of common stock, $0.01 par value per share (the “Common Stock”), to the Investors in a private placement for an aggregate purchase price of approximately $9,396,562 in cash. The purchase price for the Shares under the Purchase Agreement was $9.75 per Share. The Shares constituted approximately 17.2% of the total of issued and outstanding shares of Common Stock immediately before the initial execution of the Purchase Agreement and the subsequent closing of the purchase and sale of the Shares thereunder. In connection with the closing of the purchase and sale of the Shares, the Company paid to Taglich Brothers, Inc. ("Taglich Brothers"), the placement agent, commissions of approximately $751,725. In connection with the sale, the Company issued to designees of Taglich Brothers warrants to purchase 96,375 shares of common stock (the "Private Placement Warrants"). The Private Placement Warrants, as initially issued, were exercisable at any time commencing on the sixth month anniversary of the issuance date in whole or in part, at an initial exercise price per share of $9.75 in cash, or in a cashless exercise. The exercise price and number of shares of common stock issuable under the Private Placement Warrants were subject to adjustments for stock dividends, splits, combinations, and similar events. The Private Placement Warrants were to expire on the fifth anniversary of the date of issuance and the holders of the Private Placement Warrants and shares were entitled to the same registration rights. In connection with the public offering of our common stock described below, the terms of the Private Placement Warrants were amended to decrease the aggregate number of shares issuable upon exercise of the Private Placement Warrants to 77,970, increase the exercise price to $11.85 per share, and to provide that the Private Placement Warrants can be exercised during the period commencing six months after the commencement of sales in the offering and expiring on the fifth anniversary of the commencement of sales in the offering and that the holders will not be entitled to registration rights.

On May 6, 2015, the Company issued and sold 636,500 shares of common stock, $0.01 par value per share, to various investors in a private placement for an aggregate purchase price of $7,001,500 in cash. The purchase price was $11.00 per share, which constituted approximately 9.6% of the total of issued and outstanding shares of common stock immediately before the initial execution of the Securities Purchase Agreement. In connection with the closing, the Company incurred $667,256 in offering costs, which included a commission of $420,090 paid to Taglich Brothers, the placement agent.

On December 19, 2014, the board of directors of BG Staffing, Inc. declared a dividend of $0.15 per share of common stock that was paid on January 30, 2015 to all shareholders of record as of the close of business on December 31, 2014. Prior to that,

the Company had not paid cash dividends on common stock. The Company's ability to pay dividends is restricted under the terms of the senior credit facility and may be restricted under other agreements governing the outstanding indebtedness from time to time.

The board of directors has declared the following cash dividends during the twenty-six week period ended June 28, 2015:



Declared Date	Record Date	Distribution Date	Dividend per Share
May 1, 2015	May 11, 2015	May 25, 2015	$0.25
June 18, 2015	July 20, 2015	July 31, 2015	$0.25

NOTE 9 – STOCK-BASED COMPENSATION

Stock Issued

On June 24, 2014, under the 2013 Plan, the board of directors authorized and issued a total of 8,800 shares of restricted stock to all the Company’s employees with a stock price of $7.40 per share. The shares are fully vested and must be held for a period of one year. For the thirteen and twenty-six week periods ended June 29, 2014, the Company recognized $65,120 of compensation costs related to the stock issuance.

Stock Options

In February 2014, the Company granted 545,321 options to employees and directors with an exercise price of $6.25 of per share, and 21,042 options to employees at an exercise price of $12.50 per share. Of the 566,363 options granted, 234,363 were immediately exercisable, and the remaining 332,000 vest over a period of four years. In August 2014, the Company granted 30,000 options to non-employee directors with an exercise price of $7.10 per share. The options vest over a period of four years. In June 2015, the Company granted 179,000 options to employees at an exercise price of $11.00 per share with 35,800 shares immediately exercisable and the remaining vest over a period of four years.

For the thirteen week periods ended June 28, 2015 and June 29, 2014, the Company recognized $123,062 and $49,683 of compensation cost related to stock awards, respectively. For the twenty-six week periods ended June 28, 2015 and June 29, 2014, the Company recognized $176,475 and $882,888 of compensation cost related to stock awards, respectively. Unamortized stock compensation expense as of June 28, 2015 amounted to $782,795 which is expected to be recognized over the next 3.2 years.

The following assumptions were used to estimate the fair value of share options granted for the twenty-six week periods ended:



	June 28, 2015			June 29, 2014
Weighted-average fair value of options	$	2.61		$	2.82
Weighted-average risk-free interest rate	1.0		%	1.0		%
Dividend yield	23.0		%	—		%
Weighted-average volatility factor	48.0		%	49.0		%
Weighted-average expected life	5.7		yrs	5.6		yrs

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

A summary of stock option activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Total Intrinsic Value of Options (in thousands)
Options outstanding at December 29, 2013	—		$	—	$	—
Granted	566,363		$	6.48	$	293
Options outstanding at June 29, 2014	566,363		$	6.48	$	520

Options exercisable at June 29, 2014	300,763		$	6.69	$	214


Options outstanding at December 28, 2014	585,466		$	6.71	$	3,204
Granted	179,000		$	11.00	$	72
Exercised	(10,000	)	$	6.25	$	(68	)
Forfeited	(15,000	)	$	6.25	$	(101	)
Options outstanding at June 28, 2015	739,466		$	7.61	$	2,801

Options exercisable at June 28, 2015	389,566		$	7.04	$	1,698

The intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated.

Warrant Activity

For the thirteen and twenty-six week periods ended June 28, 2015, the Company recognized $6,523 of compensation cost related to warrants. For the thirteen and twenty-six week periods ended June 29, 2014, the Company recognized $78,638 of compensation cost related to warrants. There was no unamortized stock compensation expense to be recognized as of June 28, 2015.

The following assumptions were used to estimate the fair value of warrants for the twenty-six week periods ended:



	June 28, 2015			June 29, 2014
Weighted-average fair value of warrants	$	1.62		$	1.89
Weighted-average risk-free interest rate	—		%	0.1		%
Dividend yield	32.0		%	—		%
Weighted-average volatility factor	28.0		%	49.0		%
Weighted-average expected life	2.5		yrs	2.6		yrs

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)

A summary of warrant activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Total Intrinsic Value of Options (in thousands)
Warrants outstanding at December 29, 2013 and June 29, 2014	224,205		$	7.08	$	71

Warrants exercisable at June 29, 2014	224,205		$	7.08	$	71


Warrants outstanding at December 28, 2014	326,822		$	8.04	$	1,226
Granted	77,970		$	11.85	$	—
Forfeited	(159,275	)	$	10.85	$	(147	)
Warrants outstanding at June 28, 2015	245,517		$	7.69	$	910

Warrants exercisable at June 28, 2015	167,547		$	5.76	$	945

NOTE 10 - RELATED PARTY TRANSACTIONS

Through ownership of the common stock of BG Staffing, Inc., the Company is affiliated with multiple investors. Two of these investors were private lenders that also held the Subordinated Loans of $14,628,099 at December 29, 2013 (see Note 6), which were repaid on January 29, 2014 and $986,835 was recorded as a loss on extinguishment of related party debt.

NOTE 11 - CONCENTRATION OF CREDIT RISK

Concentration of credit risk is limited due to the Company’s diverse customer base. No single customer accounted for more than 10% of the Company’s revenue or accounts receivable for the twenty-six week periods ended June 28, 2015 and June 29, 2014.

NOTE 12 - EMPLOYEE BENEFIT PLAN

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions 100% up to the first 3% and 50% of the next 2% of an employee’s compensation. The Company contributed $56,978 and $44,586 to the 401(k) Plan in the thirteen week periods ended June 28, 2015 and June 29, 2014, respectively. The Company contributed $118,452 and $99,407 to the 401(k) Plan in the twenty-six week periods ended June 28, 2015 and June 29, 2014, respectively.

NOTE 13 - BUSINESS SEGMENTS

The Company operates within three industry segments: Commercial, Multifamily and Professional Staffing. The Commercial segment provides temporary workers primarily to distribution and logistics customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi. The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in Texas and other states, via property management companies responsible for the apartment communities day to day operations. The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting needs in Texas and Louisiana. The Company provides services to customers primarily within the United States of America.

Segment profit (loss) includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense, and income tax expense and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, deferred tax assets, and other assets.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)



	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Revenue:
Commercial	$	19,827,887		$	19,879,058		$	38,427,395		$	38,433,988
Multifamily	9,842,953			8,054,948			17,669,999			14,364,767
Professional Staffing	20,110,552			14,895,914			34,568,143			29,068,820
Total	$	49,781,392		$	42,829,920		$	90,665,537		$	81,867,575

Income tax expense (benefit):
Commercial	$	823,129		$	496,228		$	961,289		$	102,180
Multifamily	17,670			12,100			26,470			22,567
Professional Staffing	5,600			—			5,600			—
Corporate	—			(8,718		)	—			(8,718		)
Total	$	846,399		$	499,610		$	993,359		$	116,029

Net income (loss):
Commercial	$	337,051		$	509,926		$	1,104,295		$	1,794,484
Multifamily	1,409,858			887,301			2,325,627			1,451,340
Professional Staffing	1,384,350			566,222			1,871,721			945,933
Corporate	(1,110,477		)	(1,080,045		)	(2,584,908		)	(4,041,649		)
Interest expense, net	(558,776		)	(636,867		)	(1,090,493		)	(1,433,671		)
Total	$	1,462,006		$	246,537		$	1,626,242		$	(1,283,563	)

Depreciation:
Commercial	$	22,787		$	17,979		$	45,148		$	35,608
Multifamily	8,963			7,845			28,403			26,124
Professional Staffing	13,318			4,544			24,209			8,385
Corporate	21,367			12,513			38,038			12,513
Total	$	66,435		$	42,881		$	135,798		$	82,630

Amortization:
Commercial	$	184,473		$	267,862		$	381,662		$	571,060
Multifamily	24,887			24,887			49,775			49,775
Professional Staffing	1,023,067			835,867			1,847,400			1,804,066
Corporate	12,821			12,821			25,642			25,642
Total	$	1,245,248		$	1,141,437		$	2,304,479		$	2,450,543

Capital Expenditures:
Commercial	$	49,590		$	41,323		$	106,131		$	50,526
Multifamily	4,184			6,940			58,560			11,363
Professional Staffing	12,551			42,154			54,018			42,154
Corporate	95,085			30,851			141,287			62,938
Total	$	161,410		$	121,268		$	359,996		$	166,981

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2015

(Unaudited)



	June 28, 2015		December 28, 2014
Total Assets:
Commercial	$	19,422,813	$	19,810,747
Multifamily	6,184,036		6,072,296
Professional Staffing	30,689,058		18,810,198
Corporate	9,295,655		9,079,327
Total	$	65,591,562	$	53,772,568

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto. Comparative segment revenues and related financial information are discussed herein and are presented in Note 13 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, for a description of important factors that could cause actual results to differ from expected results.

Basis of Presentation

We operate under a 52/53 week fiscal year. Our last two completed fiscal years ended on December 28, 2014 (“Fiscal 2014”) and December 29, 2013 (“Fiscal 2013”) . Fiscal 2014 and 2013 consist of 52 weeks. The differing length of certain fiscal years may affect the comparability of certain data.

Overview

We are a provider of temporary staffing services and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013 and D&W in March 2015. We operate within three industry segments: Commercial, Multifamily and Professional Staffing. We provide services to customers primarily within the United States of America.

The Commercial segment provides temporary workers primarily to distribution and logistics customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.

The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting needs in Texas and Louisiana.

Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales, and have been derived from our consolidated financial statements.



		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
		(dollars in thousands)
Revenues		$	49,781		$	42,830		$	90,666		$	81,868
Cost of services		38,915			34,365			71,459			65,691
	Gross profit	10,866			8,465			19,207			16,177
Selling, general and administrative expenses		6,877			5,658			13,227			12,165
Depreciation and amortization		1,312			1,184			2,440			2,533
	Operating income	2,677			1,623			3,540			1,479
Loss on extinguishment of related party debt		—			—			—			(987		)
Interest expense, net		(559		)	(637		)	(1,090		)	(1,434		)
Change in fair value of put option		190			(239		)	169			(226		)
	Income (loss) before income tax	2,308			747			2,619			(1,168		)
Income tax expense		846			500			993			116
	Net income (loss)	$	1,462		$	247		$	1,626		$	(1,284	)

Revenues		100.0		%	100.0		%	100.0		%	100.0		%
Cost of services		78.2		%	80.2		%	78.8		%	80.2		%
	Gross profit	21.8		%	19.8		%	21.2		%	19.8		%
Selling, general and administrative expenses		13.8		%	13.2		%	14.6		%	14.9		%
Depreciation and amortization		2.6		%	2.8		%	2.7		%	3.1		%
	Operating income	5.4		%	3.8		%	3.9		%	1.8		%
Loss on extinguishment of related party debt		—		%	—		%	—		%	(1.2		)%
Interest expense, net		(1.1		)%	(1.5		)%	(1.2		)%	(1.8		)%
Change in fair value of put option		0.4		%	(0.6		)%	0.2		%	(0.3		)%
	Income (loss) before income tax	4.7		%	1.7		%	2.9		%	(1.5		)%
Income tax expense		1.7		%	1.1		%	1.1		%	0.1		%
	Net income (loss)	3.0		%	0.6		%	1.8		%	(1.6		)%

Thirteen Week Fiscal Period Ended June 28, 2015 (Fiscal Quarter 2015) Compared with Thirteen Week Fiscal Period Ended June 29, 2014 (Fiscal Quarter 2014)

Revenues:



		Thirteen Weeks Ended
		June 28, 2015		June 29, 2014
		(dollars in thousands)
Revenues by segment:
	Commercial	$	19,828	$	19,879
	Multifamily	9,843		8,055
	Professional Staffing	20,110		14,896
	Total Revenues	$	49,781	$	42,830

Commercial Revenues: Commercial revenues have remained consistent at $19.8 million in Fiscal Quarter 2015 compared with $19.9 million in Fiscal Quarter 2014.

Multifamily Revenues: Multifamily revenues increased approximately $1.9 million (23.8%) to $9.9 million in Fiscal Quarter 2015 from approximately $8.0 million in Fiscal Quarter 2014, due to our continued focus on expansion outside our core market of the state of Texas. Revenue from branches outside of Texas accounted for approximately $0.9 million of the increase and revenue from branches in Texas increased approximately $0.9 million.

Professional Staffing Revenues: Professional Staffing revenues increased approximately $5.2 million (34.9%) to approximately $20.1 million in Fiscal Quarter 2015 from approximately $14.9 million in Fiscal Quarter 2014, primarily from the D&W acquisition, which contributed approximately $5.7 million of new revenues which was partially offset by a decrease of approximately $0.2 million at our American Partners division and a decrease of approximately $0.3 million at our Extrinsic division as a result of fewer IT projects.

Gross Profit:

Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, temporary worker costs, and reimbursable costs.



		Thirteen Weeks Ended
		June 28, 2015		June 29, 2014
		(dollars in thousands)
Gross Profit by segment:
	Commercial	$	2,857	$	2,589
	Multifamily	3,512		2,680
	Professional Staffing	4,497		3,196
	Total Gross Profit	$	10,866	$	8,465



		Thirteen Weeks Ended
		June 28, 2015		June 29, 2014
Gross Profit Percentage by segment:
	Commercial	14.4	%	13.0	%
	Multifamily	35.7	%	33.3	%
	Professional Staffing	22.4	%	21.5	%
	Company Gross Profit Percentage	21.8	%	19.8	%

Overall, our gross profit has increased approximately $2.4 million (28.2%) to approximately $10.9 million in Fiscal Quarter 2015 from approximately $8.5 million in Fiscal Quarter 2014, due primarily to the D&W acquisition and increased sales in the MultiFamily segment. As a percentage of revenue, gross profit has increased to 21.8% in Fiscal Quarter 2015 from 19.8% in Fiscal Quarter 2014 mainly due to higher revenues in our Multifamily segment which had the highest gross margins. The Multifamily segment contributed approximately 32.3% of the gross profit in Fiscal Quarter 2015 and approximately 31.7% of the gross profit in Fiscal Quarter 2014. Our Commercial segment, which had the lowest gross profit percentages, contributed approximately 26.3% of the gross profit in Fiscal Quarter 2015 and approximately 30.6% of the gross profit in Fiscal Quarter 2014. Finally, Professional Staffing contributed approximately 41.4% of the gross profit in Fiscal Quarter 2015 and approximately 37.7% of the gross profit in Fiscal Quarter 2014.

Commercial Gross Profit: Commercial gross profit increased approximately $0.3 million (11.5%) to approximately $2.9 million in Fiscal Quarter 2015 from approximately $2.6 million in Fiscal Quarter 2014. As a percentage of revenue, gross profit increased to 14.4% in Fiscal Quarter 2015 from 13.0% in Fiscal Quarter 2014.

Multifamily Gross Profit: Multifamily gross profit increased approximately $0.8 million (29.6%) to approximately $3.5 million in Fiscal Quarter 2015 from approximately $2.7 million in Fiscal Quarter 2014, mainly due to an increase in volume. As a percentage of revenue, gross profit increased to 35.7% in Fiscal Quarter 2015 from 33.3% in Fiscal Quarter 2014.

Professional Staffing Gross Profit: Professional Staffing gross profit increased approximately $1.3 million (40.6%) to approximately $4.5 million in Fiscal Quarter 2015 from approximately $3.2 million in Fiscal Quarter 2014 due the D&W acquisition. As a percentage of revenue, gross profit increased to 22.4% in Fiscal Quarter 2015 from 21.5% in Fiscal Quarter 2014.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $1.2 million (21.1%) to approximately $6.9 million in Fiscal Quarter 2015 from approximately $5.7 million in Fiscal Quarter 2014, primarily due to increased selling costs in Fiscal Quarter 2015 associated with the increase in revenues.

Depreciation and Amortization: Depreciation and amortization charges increased approximately $0.1 million (8.3%) to approximately $1.3 million during Fiscal Quarter 2015, compared with approximately $1.2 million during Fiscal Quarter 2014. The increase in depreciation and amortization is primarily due to Professional Staffing segment intangible assets acquired in the D&W acquisition in March 2015.

Interest Expense, net: Interest expense, net was flat at approximately $0.6 million in both Fiscal Quarter 2015 and Fiscal Quarter 2014.

Income Taxes: We had an income tax expense of approximately $0.8 million in Fiscal Quarter 2015 compared with approximately $0.5 million in Fiscal Quarter 2014. The increase in income taxes is primarily due to an increase in taxable income to approximately $2.3 million in Fiscal Quarter 2015 from a taxable income of approximately $0.7 million in Fiscal Quarter 2014.

Twenty-six Week Fiscal Period Ended June 28, 2015 (YTD 2015) Compared with Twenty-six Week Fiscal Period Ended June 29, 2014 (YTD 2014)

Revenues:



		Twenty-six Weeks Ended
		June 28, 2015		June 29, 2014
		(dollars in thousands)
Revenues by segment:
	Commercial	$	38,428	$	38,434
	Multifamily	17,670		14,365
	Professional Staffing	34,568		29,069
	Total Revenues	$	90,666	$	81,868

Commercial Revenues: Commercial revenues were flat at approximately $38.4 million in both YTD 2015 and YTD 2014.

Multifamily Revenues: Multifamily revenues increased approximately $3.3 million (22.9%) to approximately $17.7 million in YTD 2015 from approximately $14.4 million in YTD 2014, due to our continued focus on expansion outside our core market of the state of Texas. Revenue from branches outside of Texas accounted for approximately $1.7 million of the increase and revenue from branches in Texas increased approximately $1.6 million.

Professional Staffing Revenues: Professional Staffing revenues increased approximately $5.5 million (18.9%) to $34.6 million in YTD 2015 from approximately $29.1 million in YTD 2014, primarily from the D&W acquisition, which contributed approximately $7.7 million of new revenues which was partially offset by a decrease of approximately $1.4 million at our American Partners division and a decrease of approximately $0.9 million at our Extrinsic division as a result of fewer IT projects.

Gross Profit:

Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, temporary worker costs, and reimbursable costs.



		Twenty-six Weeks Ended
		June 28, 2015		June 29, 2014
		(dollars in thousands)
Gross Profit by segment:
	Commercial	$	5,386	$	5,116
	Multifamily	6,225		4,726
	Professional Staffing	7,596		6,335
	Total Gross Profit	$	19,207	$	16,177



		Twenty-six Weeks Ended
		June 28, 2015		June 29, 2014
Gross Profit Percentage by segment:
	Commercial	14.0	%	13.3	%
	Multifamily	35.2	%	32.9	%
	Professional Staffing	22.0	%	21.8	%
	Company Gross Profit Percentage	21.2	%	19.8	%

Overall, our gross profit has increased approximately $3.0 million (18.5%) to approximately $19.2 million in YTD 2015 from approximately $16.2 million in YTD 2014, due primarily to a revenue mix shift resulting from increased revenues from higher margin customers in the Multifamily segment and the D&W acquisition. As a percentage of revenue, gross profit has increased to 21.2% in YTD 2015 from 19.8% in YTD 2014 mainly due to higher revenues in our Multifamily segment which had the highest gross margins and the D&W acquisition. The Multifamily segment contributed approximately 32.4% of the gross profit in YTD 2015 and approximately 29.2% of the gross profit in YTD 2014. Our Commercial segment, which had the lowest gross profit percentages, contributed approximately 28.0% of the gross profit in YTD 2015 and approximately 31.6% of the gross profit in YTD 2014. Finally, Professional Staffing contributed approximately 39.6% of the gross profit in YTD 2015 and approximately 39.2% of the gross profit in YTD 2014.

Commercial Gross Profit: Commercial gross profit increased approximately $0.3 million (5.9%) to approximately $5.4 million in YTD 2015 from approximately $5.1 million in YTD 2014. As a percentage of revenue, gross profit increased to 14.0% in YTD 2015 from 13.3% in YTD 2014.

Multifamily Gross Profit: Multifamily gross profit increased approximately $1.4 million (29.2%) to approximately $6.2 million in YTD 2015 from approximately $4.8 million in YTD 2014, mainly due to an increase in volume. As a percentage of revenue, gross profit increased to 35.2% in YTD 2015 from 32.9% in YTD 2014.

Professional Staffing Gross Profit: Professional Staffing gross profit increased approximately $1.3 million (20.6%) to approximately $7.6 million in YTD 2015 from approximately $6.3 million in YTD 2014 due to the D&W acquisition which was partially offset by lower IT revenues. As a percentage of revenue, gross profit increased to 22.0% in YTD 2015 from 21.8% in YTD 2014.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $1.0 million (8.2%) to approximately $13.2 million in YTD 2015 from approximately $12.2 million in YTD 2014, primarily due to higher selling costs incurred to generate increased revenues plus approximately $0.3 million in transaction fees related to the D&W acquisition, which were partially offset by a decrease of approximately $0.8 million in stock-based compensation.

Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.1 million (4.0%) to approximately $2.4 million during YTD 2015, compared with approximately $2.5 million during YTD 2014. The decrease in depreciation and amortization is primarily due a policy shift that resulted in categorizing the trade names of Extrinsic and American Partners as indefinite lived assets in the second quarter of 2014.

Interest Expense, net: Interest expense, net decreased approximately $0.3 million (21.4%) to approximately $1.1 million during YTD 2015 compared with approximately $1.4 million during YTD 2014. The decrease in interest expense, net is primarily due the payoff in January 2014 of the related party subordinated notes and lower average daily borrowings and lower borrowing rate in YTD 2015 compared with YTD 2014.

Income Taxes: We had an income tax expense of approximately $1.0 million in YTD 2015, compared with approximately $0.1 million in YTD 2014. The increase in income taxes is primarily due to an increase in taxable income to approximately $2.6 million in YTD 2015 from a taxable loss of approximately $1.2 million in YTD 2014.

Use of Non-GAAP Financial Measures

We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles (non-GAAP), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating

performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for company management. In addition, certain financial covenants in our senior credit facility are based on a measure similar to Adjusted EBITDA.

We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, loss on early extinguishment of related party debt, transaction fees related to our acquisitions, and other non-cash expenses such as the put option adjustment and stock compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.

To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income (loss) to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.



	Thirteen Weeks Ended					Twenty-six Weeks Ended
	June 28, 2015			June 29, 2014		June 28, 2015			June 29, 2014
	(dollars in thousands)
Net income (loss)	$	1,462		$	247	$	1,626		$	(1,284	)
Interest expense, net	559			637		1,090			1,434
Income tax expense	846			500		993			116
Depreciation and amortization	1,312			1,184		2,440			2,533
Loss on extinguishment of related party debt	—			—		—			987
Stock-based compensation	123			115		183			1,027
Transaction fees	2			—		273			—
Put option adjustment	(190		)	239		(169		)	226
Adjusted EBITDA	$	4,114		$	2,922	$	6,436		$	5,039

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility. Our primary uses of cash are payments to temporary workers, operating expenses, capital expenditures, debt service, cash taxes, dividends and contingent liability payments. We believe that the cash generated from operations, together with the borrowing availability under our senior credit facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt. At June 28, 2015 we were in material compliance with all debt covenants.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.

A summary of our operating, investing and financing activities are shown in the following table:



	Twenty-six Weeks Ended
	June 28, 2015			June 29, 2014
	(dollars in thousands)
Net cash provided by operating activities	$	3,877		$	2,750
Net cash used in investing activities	(9,141		)	(167		)
Net cash provided by (used in) financing activities	5,264			(2,583		)
Net change in cash and cash equivalents	$	—		$	—

Operating Activities

Cash provided by operating activities consists of net income (loss) adjusted for non-cash items, including depreciation and amortization, loss on extinguishment of related party debt, stock compensation expense, changes in deferred income taxes, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable, accrued expenses and accrued taxes.

During the twenty-six week period ended June 28, 2015, net cash provided by operating activities was $3.9 million compared with $2.7 million for the corresponding period in 2014. This increase is primarily attributable to higher operating earnings and timing of certain contractor payables, offset timing of payments on accounts receivables.

Investing Activities

Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.

In the twenty-six week period ended June 28, 2015, we paid $8.8 million in connection with the D&W acquisition in March 2015, and we made capital expenditures of $0.4 million mainly related to computer equipment purchased in the ordinary course of business and furniture and fixtures related to the new corporate offices. In the twenty-six week period ended June 29, 2014, we made capital expenditures of approximately $0.2 million mainly related to computer equipment purchased in the ordinary course of business.

Financing Activities

Cash flows from financing activities consisted principally of borrowings and payments under our senior credit facility, payment of other long-term obligations and contingent consideration paid.

For the twenty-six weeks ended June 28, 2015, we increased our borrowings on our revolving line of credit by $3.7 million and received proceeds from issuance of common stock of $6.4 million mainly to fund the D&W acquisition. We paid $2.8 million in cash dividends on our common stock, we decreased our long-term debt and other long-term liabilities by $1.1 million using

excess cash flows from operations, and we paid $0.8 million of contingent consideration primarily related to the June 2013 acquisition of InStaff and the December 2012 acquisition of the American Partners division.

For the twenty-six weeks ended June 29, 2014, we decreased our long-term debt and other long-term liabilities by $1.6 million using excess cash flows from operations and we paid $1.0 million of contingent consideration primarily related to the June 2013 InStaff acquisition and the December 2012 acquisition of the American Partners division.

Senior Credit Facility

On January 29, 2014, we entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Fifth Third Bank. The Loan Agreement amended and restated that certain Loan and Security Agreement, dated as of May 24, 2010, as amended (the “Prior Loan Agreement”), which had until January 29, 2014 governed our senior credit facility.

The Loan Agreement governs our senior credit facility (which now matures on January 29, 2018), which provides a revolving line of credit (“Revolver”) that permits us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base and the revolving loan commitment of $20.0 million. The borrowing base is adjusted on a monthly basis and is based on our accounts receivables. The Loan Agreement further provides for a term loan of approximately $11.3 million (“Term Loan A”) and a term loan of $8.0 million (“Term Loan B”), each of which matures on January 29, 2018. Our obligations under the Loan Agreement are secured by a continuing and unconditional first priority security interest in all of our tangible and intangible property. On February 23, 2015, we executed an amendment to the Loan Agreement to add BG Finance and Accounting, Inc. as an additional borrower under the Loan Agreement and increased the borrowing base amount on the Revolver from 80% to 85% of eligible receivables. On December 12, 2014, we executed an amendment to the senior credit facility that removed the limitation on us to pay dividends while the Term Loan B is outstanding.

Our Revolver and Term Loan A bear interest at the LIBOR Rate plus the Applicable Margin (as those terms are defined in the Loan Agreement). Accrued and unpaid interest on borrowings under our Revolver and Term Loan A are due and payable monthly in arrears and, with respect to Term Loan A, principal payments are required monthly and upon the occurrence of certain events. Term Loan B bears interest at a fixed rate of 11.0% per annum. Accrued and unpaid interest on borrowings under the Term Loan B are due and payable monthly in arrears, a compounding deferred fee of 1.5% per annum is due in a lump-sum payment, and principal payments are required upon the occurrence of certain events. Borrowings under our Revolver and Term Loan A were partially used to prepay our senior subordinated indebtedness (as described below under “Subordinated Loans”).

At closing, we paid commitment fees of $100,000 (with respect to the Revolver and Term Loan A) and $160,000 (with respect to Term Loan B). We must pay an unused commitment fee of 0.25% of the difference between the Revolving Loan Commitment (i.e., $20.0 million) and the average daily balance of the Revolver for each month, payable in arrears, and a Compounding Deferred Fee (as defined in the Loan Agreement) on the earlier of the date Term Loan B matures or is paid in full.

The Loan Agreement contains negative covenants that, among other things, restricts our ability to, with certain exceptions, (i) incur indebtedness, (ii) grant liens, (iii) make investments, (iv) dispose of assets, (v) enter into mergers, consolidations or similar transactions, (vi) issue securities, (vii) pay dividends or make distributions, (viii) enter into transactions with affiliates or (ix) change the nature of our business.

In addition, the Loan Agreement requires us to satisfy certain financial covenants, specifically: (i) we may not permit the Debt Service Coverage Ratio (as defined in the Loan Agreement) for the four fiscal quarter period ending in March 2014 and for the four fiscal quarter period ending in each fiscal quarter thereafter to be less than 1.20 to 1.00; (ii) as of the end of each fiscal quarter for the four fiscal quarter period then ending, we may not permit the Total Funded Indebtedness to Adjusted EBITDA Ratio (as such term is defined in the Loan Agreement) to be greater than 3.50 to 1.00 for the four fiscal quarters ended in March 2014, 3.25 to 1.00 for the four fiscal quarters ended in June 2014, 3.25 to 1.00 for the four fiscal quarters ended in September 2014, 3.00 to 1.00 for the four fiscal quarters ended in December 2014, 3.00 to 1.00 for the four fiscal quarters ended in March 2015, and 2.75 to 1.00 for the four fiscal quarters ended in June 2015, and 2.50 to 1.00 for the four fiscal quarters ended September 29, 2015 and each fiscal quarter thereafter; (iii) we must have, as of the end of each fiscal quarter for the four fiscal quarters then ending, consolidated Adjusted EBITDA (as defined in the Loan Agreement) of least $9.5 million; and (iv) we may not incur capital expenditures in excess of $600,000 in the aggregate in any fiscal year).

We are permitted to prepay in part or in full amounts due under our Revolver and may prepay the Term A Loan and Term B Loan without penalty provided certain conditions are met. Events of default include, among other things, late payment or non-payment, breach of representations, breach of affirmative or negative covenants (including financial covenants), defaults on other indebtedness, default with respect to a material purchase or lease of goods or services where the default might reasonably be expected to have a Material Adverse Effect (as defined in the Loan Agreement), bankruptcy or insolvency, certain judgments, a

Change of Control (as defined in the Loan Agreement) and impairment of collateral. If an event of default occurs, the interest rate applicable to our Revolver and Term Loan A will increase by 2% per annum, and the interest rate applicable to Term Loan B will increase by 2% per annum or to the default interest rate applicable to our Revolver and Term Loan A, whichever is higher.

Subordinated Loans

We had approximately $14.6 million of outstanding Subordinated Loans at December 29, 2013. The Subordinated Loans were prepaid on January 29, 2014 through the use of proceeds obtained pursuant to the Loan Agreement with Fifth Third (discussed above). The Subordinated Loans were expressly junior and subordinated only to the debt outstanding under the senior credit facility. Interest on the Subordinated Loans accrued at a rate of 14.0% per annum (of which 12% was cash and 2% was paid in kind). Accrued interest on the Subordinated Loans was approximately $0.6 million as of December 29, 2013. The Subordinated Loans required, effective December 30, 2012, that an excess cash flow payment to be made if specific thresholds were met. A mandatory principal payment of approximately $0.5 million was made in the first quarter of 2013. The Subordinated Loans were to mature on May 31, 2015. The former holders of the Subordinated Loans currently hold shares of our common stock, and therefore were related parties.

For all of our borrowings, we must comply with various financial covenants. As of June 28, 2015, we were in material compliance with these covenants.

The foregoing is a summary of the material terms with respect to our senior credit facility and Subordinated Loans, and is qualified in its entirety by reference to the actual text of the agreements applicable to our senior credit facility and the Subordinated Loans.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our accounting policies are described in Note 2 to the audited Consolidated Financial Statements for the fiscal year ended December 28, 2014, included in our Annual Report on Form 10-K. The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates. Critical accounting policies reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions.

Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results and the uncertainties that could impact our results of operations, financial condition and cash flows.

Revenue Recognition

We provide temporary staffing solutions. We enter into agreements with our clients that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. We consider revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.

Allowance for doubtful accounts

We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, and expectations of future write-offs. The allowance for doubtful accounts is reviewed quarterly and past due balances are written off after they are deemed to be uncollectible after all means of collection have been exhausted. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Goodwill and intangible assets

Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently if conditions indicate an earlier review is necessary. If we have determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, we may use a qualitative assessment for annual impairment test.

In conducting the qualitative assessment, we assess the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.

Based on our annual testing, we have determined that there was no goodwill impairment in Fiscal 2014. As of June 28, 2015, we have allocated $5.0 million, $1.1 million, and $1.0 million of total goodwill to our three separate reporting units: Commercial, Multifamily and Professional Staffing, respectively. There were no events or changes in circumstances during the twenty-six weeks ended June 28, 2015 that caused us to perform an interim impairment assessment.

We hold intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to five years, based on a pattern in which the economic benefit of the respective intangible asset is realized. In May 2014, due to a recent remarketing launch, we reassessed the useful lives of trade name assets and concluded that these are indefinite lived intangible assets and would no longer amortize them. We annually evaluate the remaining useful lives of our finite intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. We also evaluate the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. We have determined that there were no impairment indicators for these assets in 2015 and 2014.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. We are currently evaluating the impact of our pending adoption of ASU 2014-9 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

JOBS Act

The Jumpstart On Business Startups Act of 2012 provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.

Additionally, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 or (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks relate primarily to changes in interest rates. Borrowings under our existing senior credit facility bear floating interest rates that are tied to LIBOR and, therefore, our results of operations and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR would cause an annual increase to the interest expense on our borrowings under our senior credit facility of approximately $0.4 million.

We do not have any foreign currency or any other derivative financial instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

For the quarter ended June 28, 2015, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In December 2014, we issued and sold 963,750 shares of our common stock to accredited investors in a private placement for an aggregate purchase price of $9,396,562, or $9.75 per share. In connection with the closing of the sale of the shares, we paid to Taglich Brothers, Inc., as placement agent, commissions of $751,725, and we issued to designees of Taglich Brothers warrants to purchase 96,375 shares of common stock (the "Private Placement Warrants"). The Private Placement Warrants, as initially issued, were exercisable at any time commencing on the sixth month anniversary of the issuance date in whole or in part, at an initial exercise price per share of $9.75 in cash, or in a cashless exercise. The exercise price and number of shares of common stock issuable under the Private Placement Warrants were subject to adjustments for stock dividends, splits, combinations, and similar events. The Private Placement Warrants were to expire on the fifth anniversary of the date of issuance and the holders of the Private Placement Warrants and shares were entitled to certain registration rights. In connection with a public offering of our common stock that closed in May 2015, the terms of the Private Placement Warrants were amended to decrease the aggregate number of shares issuable upon exercise of the Private Placement Warrants to 77,970, increase the exercise price to $11.85 per share, and to provide that the Private Placement Warrants can be exercised during the period commencing six months after the commencement of sales in the offering and expiring on the fifth anniversary of the commencement of sales in the offering and that the holders will not be entitled to registration rights. [Note any other shares issued upon the exercise of warrants during the second quarter of 2015.]

Item 6. Exhibits

The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.



Exhibit Number		Description

3.1		Certificate of Incorporation of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed November 4, 2013)

3.2		Bylaws of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed November 4, 2013)

4.1		Form of Common Stock Certificate (incorporated by reference to Amendment No. 1 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed October 28, 2013)

10.1		Form of Subscription Agreement between BG Staffing, Inc. and the investors party thereto (incorporated by reference to the registrant’s Current Report on Form 8-K filed May 5, 2015)

10.2		Placement Agent Agreement, dated May 4, 2015, between BG Staffing, Inc., Taglich Brothers, Inc., and National Securities Corporation (incorporated by reference to the registrant’s Current Report on Form 8-K filed May 5, 2015)

10.3		Form of Nonqualified Stock Option Agreement (incorporated by reference from the registrant’s Current Report on Form 8-K filed February 12, 2014)

10.4		Form of Incentive Stock Option Agreement (incorporated by reference from the registrant’s Current Report on Form 8-K filed February 12, 2014)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.

32.1†		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS *		XBRL Instance Document.
101.SCH *		XBRL Taxonomy Extension Schema Document.
101.CAL *		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *		XBRL Taxonomy Extension Presentation Linkbase Document.



	*	Filed herewith.
	†	This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

SIGNATURES

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



	BG STAFFING, INC.

		/s/ L. Allen Baker, Jr.
	Name:	L. Allen Baker, Jr.
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Michael A. Rutledge
	Name:	Michael A. Rutledge
	Title:	Chief Financial Officer and Secretary
		(Principal Financial Officer)

Date: August 3, 2015

BGSF, INC. - FORM 10-Q - August 3, 2015

Attached files

BGSF, INC. Reports