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EX-32.2 - EX-32.2 - Staffing 360 Solutions, Inc.staf-ex322_9.htm
EX-32.1 - EX-32.1 - Staffing 360 Solutions, Inc.staf-ex321_7.htm
EX-31.2 - EX-31.2 - Staffing 360 Solutions, Inc.staf-ex312_8.htm
EX-31.1 - EX-31.1 - Staffing 360 Solutions, Inc.staf-ex311_11.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended July 1, 2017

or

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: 001-37575

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

DELWARE

 

68-0680859

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

641 Lexington Avenue, Suite 2701

New York, New York 10022

(Address of principal executive offices) (Zip Code)

(646) 507-5710

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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      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 Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).    Yes      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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

  (Do not check if a smaller reporting company)

Smaller Reporting Company

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

As of August 14, 2017, there were 15,503,820 outstanding common stock shares, par value $0.00001 per share, of the issuer.

 

 

 

 

 


 

Form 10-Q Quarterly Report

INDEX

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets as of July 1, 2017 (unaudited) and December 31, 2016

 

3

 

 

Unaudited Condensed Consolidated Statements of Operations for the period April 2, 2017 to July 1, 2017, for the period April 3, 2016 to July 2, 2016, for the period January 1, 2017 to July 1, 2017, and for the period January 3, 2016 to July 2, 2016

 

4

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the period April 2, 2017 to July 1, 2017, for the period April 3, 2016 to July 2, 2016, for the period January 1, 2017 to July 1, 2017, and for the period January 3, 2016 to July 2, 2016

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

33

Item 1A

 

Risk Factors

 

33

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3

 

Defaults Upon Senior Securities

 

33

Item 4

 

Mine Safety Disclosures

 

33

Item 5

 

Other Information

 

33

Item 6

 

Exhibits

 

34

 

 

 

 

 

Signatures

 

 

 

35

 

2


 

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share, par values and stated values)

 

 

 

July 1,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

526

 

 

$

650

 

Accounts receivable, net

 

 

19,993

 

 

 

22,274

 

Prepaid expenses and other current assets

 

 

882

 

 

 

613

 

Total Current Assets

 

 

21,401

 

 

 

23,537

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

891

 

 

 

919

 

Identifiable intangible assets, net

 

 

7,785

 

 

 

9,149

 

Goodwill

 

 

15,779

 

 

 

15,779

 

Other assets

 

 

4,279

 

 

 

4,573

 

Total Assets

 

$

50,135

 

 

$

53,957

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

16,962

 

 

$

18,110

 

Current portion of debt, net

 

 

3,361

 

 

 

3,639

 

Accounts receivable financing

 

 

12,896

 

 

 

15,605

 

Other current liabilities

 

 

852

 

 

 

1,274

 

Total Current Liabilities

 

 

34,071

 

 

 

38,628

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

6,805

 

 

 

3,997

 

Other long-term liabilities

 

 

2,339

 

 

 

3,054

 

Total Liabilities

 

 

43,215

 

 

 

45,679

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Series D Preferred Stock, 5,000 shares designated, $10,000 stated value, 0 and 93

   shares issued and outstanding, as of July 1, 2017 and December 31, 2016, respectively

 

 

 

 

 

612

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value, 20,000,000 shares authorized;

 

 

 

 

 

 

 

 

Series A Preferred Stock, 1,663,008 shares designated, $10.00 stated value, 1,663,008

   shares issued and outstanding, as of July 1, 2017 and December 31, 2016

 

 

 

 

 

 

Series B Preferred Stock, 200,000 shares designated, $10.00 stated value, 0 shares issued

   and outstanding, as of July 1, 2017 and December 31, 2016

 

 

 

 

 

 

Series C Preferred Stock, 2,000,000 shares designated, $1.00 stated value, 0 shares issued

   and outstanding, as of July 1, 2017 and December 31, 2016

 

 

 

 

 

 

Common stock, $0.00001 par value, 40,000,000 and 20,000,000 shares authorized as of July 1,

   2017 and December 31, 2016, respectively; 15,322,820 and 9,139,795 shares issued and

   outstanding, as of July 1, 2017 and December 31, 2016, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

58,307

 

 

 

54,658

 

Accumulated other comprehensive income

 

 

552

 

 

 

855

 

Accumulated deficit

 

 

(51,939

)

 

 

(47,847

)

Total Stockholders' Equity

 

 

6,920

 

 

 

7,666

 

Total Liabilities, Mezzanine Equity and Stockholders' Equity

 

$

50,135

 

 

$

53,957

 

 

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

 

 

3


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts in thousands, except share and per share values)

(UNAUDITED)

 

 

 

April 2, 2017 to

July 1, 2017

 

 

April 3, 2016 to

July 2, 2016

 

 

January 1, 2017 to

July 1, 2017

 

 

January 3, 2016 to

July 2, 2016

 

Revenue

 

$

42,117

 

 

$

46,313

 

 

$

82,829

 

 

$

89,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, Excluding Depreciation and Amortization

   Stated Below

 

 

34,193

 

 

 

38,323

 

 

 

67,579

 

 

 

74,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

7,924

 

 

 

7,990

 

 

 

15,250

 

 

 

15,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses, excluding

   depreciation and amortization stated below

 

 

6,338

 

 

 

8,431

 

 

 

13,965

 

 

 

16,307

 

Depreciation and amortization

 

 

760

 

 

 

839

 

 

 

1,520

 

 

 

1,332

 

Total Operating Expenses

 

 

7,098

 

 

 

9,270

 

 

 

15,485

 

 

 

17,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Operations

 

 

826

 

 

 

(1,280

)

 

 

(235

)

 

 

(2,423

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(580

)

 

 

(792

)

 

 

(1,082

)

 

 

(1,392

)

Amortization of beneficial conversion feature

 

 

 

 

 

(184

)

 

 

(184

)

 

 

(367

)

Amortization of debt discount and deferred financing costs

 

 

(760

)

 

 

(436

)

 

 

(1,095

)

 

 

(909

)

Debt extinguishment costs

 

 

 

 

 

 

 

 

(1,368

)

 

 

 

Other income (expense)

 

 

(23

)

 

 

504

 

 

 

(21

)

 

 

482

 

Total Other Expenses

 

 

(1,363

)

 

 

(908

)

 

 

(3,750

)

 

 

(2,186

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Before Provision for Income Tax

 

 

(537

)

 

 

(2,188

)

 

 

(3,985

)

 

 

(4,609

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision for) benefit from income taxes

 

 

(2

)

 

 

(334

)

 

 

(7

)

 

 

(635

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(539

)

 

 

(2,522

)

 

 

(3,992

)

 

 

(5,244

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to non-controlling interest

 

 

 

 

 

(5

)

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Preferred Share Dividends

 

 

(539

)

 

 

(2,517

)

 

 

(3,992

)

 

 

(5,281

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock

 

 

(50

)

 

 

(50

)

 

 

(100

)

 

 

(100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock

 

$

(589

)

 

$

(2,567

)

 

$

(4,092

)

 

$

(5,381

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(0.04

)

 

$

(0.43

)

 

$

(0.30

)

 

$

(0.97

)

Net Loss Attributable to Common Stock

 

$

(0.04

)

 

$

(0.44

)

 

$

(0.30

)

 

$

(1.00

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

14,797,015

 

 

 

5,847,004

 

 

 

13,490,842

 

 

 

5,396,045

 

 

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

 

 

4


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

 

 

April 2, 2017 to

July 1, 2017

 

 

April 3, 2016 to

July 2, 2016

 

 

January 1, 2017 to

July 1, 2017

 

 

January 3, 2016 to

July 2, 2016

 

Net Loss

 

$

(539

)

 

$

(2,522

)

 

$

(3,992

)

 

$

(5,244

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

(281

)

 

 

170

 

 

 

(303

)

 

 

315

 

Comprehensive Loss

 

 

(820

)

 

 

(2,352

)

 

 

(4,295

)

 

 

(4,929

)

Comprehensive income (loss) attributable to non-controlling

   interest

 

 

 

 

 

(5

)

 

 

 

 

 

37

 

Comprehensive Loss attributable to common stock

 

$

(820

)

 

$

(2,347

)

 

$

(4,295

)

 

$

(4,966

)

 

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

 

 

5


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

January 1, 2017 to

July 1, 2017

 

 

January 3, 2016 to

July 2, 2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,992

)

 

$

(5,244

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

155

 

 

 

54

 

Amortization of identifiable intangible assets

 

 

1,365

 

 

 

1,278

 

Amortization of debt discount, deferred financing and beneficial conversion feature

 

 

1,279

 

 

 

1,276

 

Debt extinguishment costs

 

 

1,368

 

 

 

 

Stock based compensation

 

 

1,006

 

 

 

620

 

Interest paid in common stock

 

 

 

 

 

109

 

Gain on settlement of debt

 

 

(79

)

 

 

(485

)

Modification expense

 

 

(44

)

 

 

48

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,281

 

 

 

(1,609

)

Prepaid expenses and other current assets

 

 

(269

)

 

 

875

 

Other assets

 

 

295

 

 

 

(338

)

Accounts payable and accrued expenses

 

 

(1,148

)

 

 

4,433

 

Other current liabilities

 

 

138

 

 

 

(89

)

Other long-term liabilities

 

 

53

 

 

 

413

 

Other, net

 

 

(304

)

 

 

378

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

2,104

 

 

 

1,719

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Posting of surety bond

 

 

 

 

 

(1,405

)

Payments made for earn-outs

 

 

(1,075

)

 

 

(70

)

Purchase of property and equipment

 

 

(126

)

 

 

(385

)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(1,201

)

 

 

(1,860

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from convertible notes

 

 

400

 

 

 

578

 

Repayment of convertible notes

 

 

 

 

 

(1,386

)

Proceeds from promissory notes

 

 

9,050

 

 

 

300

 

Repayment of promissory notes

 

 

(5,486

)

 

 

(1,142

)

Proceeds from term loan

 

 

 

 

 

500

 

Repayments of term loan

 

 

 

 

 

(516

)

Repayment of bonds

 

 

(50

)

 

 

(949

)

Repayments on accounts receivable financing, net

 

 

(2,709

)

 

 

(1,558

)

Proceeds from private placement

 

 

 

 

 

3,347

 

Proceeds from Series D Preferred Stock

 

 

 

 

 

2,000

 

Repayment of Series D Preferred Stock

 

 

(1,500

)

 

 

 

Proceeds from At-The-Market Facility

 

 

208

 

 

 

 

Third party financing costs

 

 

(938

)

 

 

(777

)

Proceeds from overadvance of accounts receivable financing

 

 

 

 

 

1,050

 

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

 

(1,025

)

 

 

1,447

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

(122

)

 

 

1,306

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

650

 

 

 

991

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

526

 

 

$

2,297

 

 

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

 

 

 

6


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”) was incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation, which changed its name to Staffing 360 Solutions, Inc., ticker symbol “STAF”, on March 16, 2012. On June 25, 2017, the Company changed its state of domicile to Delaware.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

These condensed consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles in the United States (“GAAP”), expressed in U.S. dollars.

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.  

These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the GAAP.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the transition period ended December 31, 2016 and for the years ended May 31, 2016 and 2015, which are included in the Company’s December 31, 2016 Form 10-KT, as amended, filed with the United States Securities and Exchange Commission on April 12, 2017. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the period ended July 1, 2017 are not necessarily indicative of results for the entire year ending December 30, 2017.

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.    

 

As of the date of these financial statements are issued, the Company has $13,988 associated with debt and other amortizing obligations, due in the next 12 months. The Company’s projected cash flows from operations and are not sufficient to address this and its other obligations in the normal course of business.

 

While management’s projected cash flows are forecasted not to be sufficient to meet the Company’s obligations over the next 12 months, management continues to actively pursue capital raising and refinancing efforts. Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, increased gross profit from organic revenue growth and managing and reducing operating and overhead costs.  

 

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.  Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next 12 months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis.

 

However, based upon an evaluation of the Company’s continued growth trajectory, past success in raising capital and meeting its obligations as well as its plans for raising capital discussed above, management believes that the Company is a going concern and will continue to meet its obligations for the next twelve months from the filing date of this report.

 

Change of Year End

 

On February 28, 2017, the Board of Directors of the Company (the “Board”) approved the change of the Company’s fiscal year end from May 31 to a 52-53 week year ending on the Saturday closest to the 31st of December. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. In a 53 week fiscal year, one quarter will consist of 14 weeks. On April 12, 2017, the Company filed a transition report on Form 10-KT, as amended, covering the transition period June 1, 2016 through December 31, 2016. Annual reports on Form 10-K covering 52-53 week years will be filed thereafter. This filing includes comparative unaudited condensed consolidated financial statements for the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016.

7


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

 

Reclassifications

Certain reclassifications have been made to conform the prior period data to the current presentations. In accordance with ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs”, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. These reclassifications had no impact on reported results of operations.

 

The Company has reclassified the Midcap Additional Term Loan from Long-term debt to Other long-term liabilities, as this represents  the long term portion of funds received from the accounts receivable financing facility. These reclassifications had no impact on reported results of operations. Commencing in January 2017, the Company started paying down the Midcap Additional Term Loan and as such has $500 of the Midcap Additional Term Loan classified in Other current liabilities and the remainder is classified in Other long term liabilities.

 

In connection with the change of year end, the Company used results for the period December 27, 2015 to March 25, 2016 in preparing the prior year first quarter results. The reported period of performance should have been January 3, 2016 through April 2, 2016, a one-week differential shift. The impact of this shift was not material and had no impact on the current year performance. As such, the Company has reflected this adjustment cumulatively in the preparation of this quarter’s Form 10-Q for the comparative period from January 3, 2016 through July 2, 2016. The adjustment recorded in the second quarter of 2016 resulted in an increase to Revenue of $783, an increase to Gross Profit of $107, an increase to Operating income of $90, a decrease to Cash Flow Provided by Operating Activities of $548 and an increase to Cash Flow Provided by Financing Activity of $283.

 

Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements. The effective income tax rate from continuing operations for the period April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016 was 8% and 48.9%, respectively. The effective income tax rate from continuing operations for the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, was 12.8% and 39.6%, respectively.   

Recent Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment”. The amendments in this update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The guidance is effective for annual periods fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is

8


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.

 

In March 2016, the FASB issued ASU 2016-09, “Stock Compensation”, regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. The adoption of this standard had no material financial impact.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

 

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement–Period Adjustments”. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for annual reporting periods beginning after December 15, 2015. The Adoption of this guidance had no material impact on the Company’s financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 supersedes the revenue recognition requirements of FASB ASC Topic 605, “Revenue Recognition” and most industry-specific guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606, “Revenue from Contracts with Customers”. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers, Deferral of the Effective Date”. ASU 2015-14 defers the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers, Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts

9


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

with Customers, Identifying Performance Obligations and Licensing”, clarifying the implementation guidance on identifying performance obligations and licensing. The amendments in this ASU clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently assessing the potential impact of adopting ASU 2014-09, ASU 2016-08 and ASU 2016-10 on its financial statements and related disclosures.

 

 

NOTE 3 – LOSS PER COMMON SHARE

The Company utilizes the guidance per ASC 260, “Earnings per Share”.  Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A preferred stock holders receive certain dividends or dividend equivalents that are considered participating securities and our earnings (loss) per share is computed using the two-class method. For the period ended July 1, 2017 and July 2, 2016, pursuant to the two-class method, as a result of the net loss, losses were not allocated to the participating securities.

Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock share equivalents consist of common shares issuable upon the conversion of preferred stock, convertible notes and the exercise of stock options and warrants (calculated using the modified treasury stock method).  Such securities, shown below, presented on a common share equivalent basis and outstanding as of July 1, 2017 and July 2, 2016 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

 

 

 

July 1,

 

 

July 2,

 

 

 

2017

 

 

2016

 

Convertible bonds - Series A

 

 

 

 

 

18,204

 

Convertible bonds - Series B

 

 

 

 

 

19,737

 

Convertible promissory notes

 

 

1,269,423

 

 

 

1,473,879

 

Convertible preferred shares

 

 

216,191

 

 

 

1,384,191

 

Warrants

 

 

4,561,168

 

 

 

83,764

 

Long term incentive plan (LTIP)

 

 

1,002,265

 

 

 

 

Options

 

 

627,300

 

 

 

320,500

 

Total

 

 

7,676,347

 

 

 

3,300,275

 

 

As of July 2, 2016, convertible preferred shares include the Company’s Series D Preferred Stock which contained both a fixed and variable conversion feature that fluctuated with the Company’s stock price. In addition, other restrictions prevented the holders from converting all of the Series D Preferred Stock at the same time. As a result, it was difficult to estimate the exact amount of shares of common stock the Series D Preferred Stock could be converted into at any time. As a result, only the fixed portion of the conversion features were included in the amounts above. In April 2017, the Company redeemed the remaining 62 shares of Series D Preferred Stock and terminated all future conversion rights, for $1,500 in cash and 300,000 shares of common stock.

 

10


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

NOTE 4 DEBT

 

 

 

July 1,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Bonds:

 

 

 

 

 

 

 

 

Bonds - Series B

 

$

 

 

$

50

 

 

 

 

 

 

 

 

 

 

Convertible Notes:

 

 

 

 

 

 

 

 

Non-interest Bearing Convertible Note (January 6, 2016)

 

 

 

 

 

359

 

Non-interest Bearing Convertible Note (September 16,

   2017)

 

 

565

 

 

 

477

 

Non-interest Bearing Convertible Note (April 11, 2017)

 

 

477

 

 

 

 

8% Convertible Note (July 8, 2015)

 

 

 

 

 

1,960

 

8% Convertible Note (February 8, 2016)

 

 

 

 

 

728

 

Lighthouse- Seller Note #1

 

 

1,624

 

 

 

1,874

 

Lighthouse - Seller Note #2

 

 

78

 

 

 

234

 

 

 

 

 

 

 

 

 

 

Promissory Notes:

 

 

 

 

 

 

 

 

Staffing (UK) - Seller Note

 

 

 

 

 

112

 

PeopleServe - Seller Note

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

Term Loans:

 

 

 

 

 

 

 

 

Jackson Investment Group Term Loan Note #1

 

 

7,400

 

 

 

 

Jackson Investment Group Term Loan Note #2

 

 

1,650

 

 

 

 

Midcap Financial Trust - Term Loan

 

 

1,425

 

 

 

2,025

 

ABN AMRO - Term Loan

 

 

489

 

 

 

694

 

Sterling National Bank

 

 

70

 

 

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Debt Discount and Deferred Financing Costs

 

 

(3,612

)

 

 

(1,374

)

 

 

 

 

 

 

 

 

 

Total Debt

 

 

10,166

 

 

 

7,636

 

 

 

 

 

 

 

 

 

 

Less: Current Portion, Net

 

 

(3,361

)

 

 

(3,639

)

 

 

 

 

 

 

 

 

 

Total Long-Term Debt, Net

 

$

6,805

 

 

$

3,997

 

 

Series B Bonds

In April 2017, these bonds were paid in full. During the period ended July 2, 2016, the Company paid $689 in principal.

Non-interest Bearing Convertible Note (January 6, 2016)

This note was paid in full in January 2017. 

Non-interest Bearing Convertible Note (September 16, 2017)

This note was due to mature in March 2017. In March 2017, the Company extended the note to September 2017 with a new maturity value of $565.

11


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

Non-interest Bearing Convertible Note (April 11, 2017)

On April 11, 2017, the Company entered into a non-interest bearing convertible note for $477, whereby the Company received cash of $400. This note will mature in October 2017

8% Convertible Note (July 8, 2015) and 8% Convertible Note (February 8, 2016)

On January 3, 2017, the Company entered into an amendment agreement pursuant to which, the parties refinanced an aggregate amount of $2,688 of indebtedness and extended all amortization payments for the two 8% convertible notes dated July 8, 2015 and February 8, 2016 (collectively, the “Amendment”) to October 1, 2018, which was approximately 21 months from the date of the refinancing.

The Amendment had a new face value of $3,126, and an 8% interest rate per annum, with no interest payments due until October 1, 2017, payable quarterly thereafter, and an overall term of 21 months with principal due at maturity. The Amendment was convertible into shares of common stock at a price of $3.00 per share at holder’s election, and the holder agreed to eliminate the 20% pre-payment penalty for an early redemption. In connection with the refinancing, the Company issued the holder 600,000 shares of common stock, valued at $498. The Amendment resulted in the extinguishment of the old notes of $2,688 and recording of the new debt and debt issue costs. The Company recorded a $870 loss upon extinguishment. On January 26, 2017, the Amendment was paid in full resulting a loss of $498.

During the period ended July 2, 2016, the Company paid $980 in principal on the 8% Convertible Note (July 8, 2015) note.

Lighthouse Seller Note #1

During the period April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $125 and $125 in principal, respectively. During the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, the Company paid $250 and $250 in principal, respectively.  

Lighthouse Seller Note #2

During the period April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $78 and $78 in principal, respectively. During the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, the Company paid $156 and $156, respectively.

Staffing (UK) – Sellers Note

The Company paid this note in full in January 2017.

PeopleSERVE – Sellers Note

During the period from April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $132 and $197 in principal, respectively. During the period from January 1, 2017 to July 1, 2017 and January 2, 2016 to July 2, 2016, the Company paid $329 and $395 in principal, respectively.

Jackson Investment Group Term Loan Note #1

On January 26, 2017, the Company entered into a note and warrant purchase agreement with JIG for $7,400. Under the terms of this agreement, the Company issued to JIG 1,650,000 shares of common stock and a warrant to purchase up to 3,150,000 shares of common stock at an initial exercise price of $1.35 per share (the “Warrant”). The note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of July 25, 2018. No interest or principal is payable until maturity. At any time during the term of the note, upon notice to JIG, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to JIG an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The note’s principal is not convertible into shares of common stock; however 50% of the accrued interest on the note may be converted into shares of common stock, at the sole election of JIG at maturity or upon prepayment by the Company, at a conversion price equal to $2.00 per share. On March 14, 2017, the Company and JIG amended the warrant to include a blocker preventing JIG from owning more than 19.99% of the Company’s shares outstanding as of January 26, 2017, until the such ownership is approved by the shareholders consistent with Nasdaq Rule

12


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

5635(b). On June 15, 2017, our stockholders approved the issuance of shares of the Company’s common stock under the warrant to JIG that may result in JIG owning in excess of 19.99% of the Company’s outstanding shares.

The warrant is exercisable beginning on July 25, 2017 for a term of four and a half (4.5) years thereafter. The exercise price is subject to anti-dilution protection, including protection in circumstances where common stock is issued pursuant to the terms of certain existing convertible securities, provided that the exercise price shall not be adjusted below a price that is less than the consolidated closing bid price of the common stock.

Jackson Investment Group Term Loan Note #2

On April 5, 2017, the Company amended the note and warrant purchase agreement with JIG and entered into a second subordinated secured note with JIG for $1,650. Under the terms of this amended agreement, the Company issued to JIG 296,984 shares of common stock, with an additional 370,921 shares of common stock that was issued after obtaining shareholder approval for issuance of shares to JIG in excess of the 19.99% limit in June 2017. Also on April 5, 2017, the Company amended the Warrant to allow JIG to purchase up to an additional 825,463 shares of common stock, modified the initial exercise price of the Warrant to $1.00 per share and modified the conversion price of accrued interest on the note issued to JIG in January 2017 to $1.50. The Warrant was also amended to increase the amount of common stock issuable to JIG pursuant to the anti-dilution clause contained therein. The second note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of June 8, 2019; however, in the event the Company satisfies all of its outstanding obligations with Midcap Financial Trust, the maturity date will be adjusted to July 25, 2018. No interest or principal is payable on the second note until maturity. At any time during the term of the second note, upon notice to JIG, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to JIG an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The second note’s principal is not convertible into shares of common stock; however, 50% of the accrued interest on the second note can be converted into shares of common stock, at the sole election of JIG at maturity or in the event of a prepayment by the Company, at a conversion price equal to $1.50 per share. The proceeds of this transaction were used to redeem the remaining shares and conversion rights of the Series D Preferred Stock.

Jackson Investment Group Term Loan Note #3

In August 2017, the Company entered into a Promissory Note with JIG for $1,600, with a term of 60 days at interest of 10% per annum and in return for 160,000 shares of common stock. The proceeds of the note were used to fund the satisfaction of a judgment entered in the matter of Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc.

Midcap Financial Trust – Term Loan

During the period April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $300 and $125 in principal, respectively. During the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, the Company paid $600 and $125 in principal, respectively.

ABN AMRO Term Loan

During the period April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $118 and $134 in principal, respectively. During the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, the Company paid $236 and $268 in principal, respectively. Since payments on this term loan are in denominated GBP, the Company is subject to foreign exchange changes.   On March 29, 2017, Longbridge Recruitment 360 Limited and The JM Group each received a reservation of rights letter from ABN AMRO bank with respect to technical noncompliance with certain financial covenants contained in their financing documents with the bank. There was no financial impact of receiving this letter.

Sterling National Bank Promissory Note

During the period ended April 1, 2017 to July 1, 2017 and April 2, 2016 to July 2, 2016, the Company paid $50 and $42 in principal, respectively. During the period January 1, 2017 to July 1, 2017 and January 3, 2016 to July 2, 2016, the Company paid $98 and $82 in principal, respectively.

 

 

13


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

NOTE 5 – EQUITY

Common Stock

The Company issued 6,183,025 shares of common stock during the period ended July 1, 2017 as summarized below:

 

Shares issued to/for:

 

Number of

common

shares

issued

 

 

Fair Value of

shares issued

 

 

Fair Value at

Issuance

(per share)

 

Conversion of Series D Preferred Stock

 

 

1,973,000

 

 

$

1,265

 

 

$

0.56

 

 

$

0.76

 

JIG term loan

 

 

2,317,905

 

 

 

1,251

 

 

 

0.71

 

 

 

0.74

 

Employees

 

 

756,200

 

 

 

586

 

 

 

0.57

 

 

 

0.94

 

Extension of convertible notes

 

 

600,000

 

 

 

498

 

 

 

0.83

 

 

 

0.83

 

Board and Committee members

 

 

203,500

 

 

 

167

 

 

 

0.62

 

 

 

0.94

 

At-the-Market Facility

 

 

309,920

 

 

 

208

 

 

 

0.63

 

 

 

0.70

 

Consultants

 

 

22,500

 

 

 

20

 

 

 

0.70

 

 

 

0.94

 

 

 

 

6,183,025

 

 

$

3,995

 

 

 

 

 

 

 

 

 

 

The difference between the fair value of shares issued and the change in Additional Paid In Capital during the period results from the accounting for conversions of Series D Preferred Stock which uses a historical value versus the fair value of common stock issued on the date of conversion.

As of December 31, 2016, the Company’s authorized common stock consists of 20,000,000 shares having par value of $0.00001. Effective January 26, 2017, after obtaining shareholder approval, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 20,000,000 shares to 40,000,000 shares. The Company had issued and outstanding 15,322,820 and 9,139,795 shares of common stock as of July 1, 2017 and December 31, 2016, respectively.

 

In May 2017, using its effective shelf registration on Form S-3 (No. 333-208910), the Company entered into an at-the-market offering (“ATM”) agreement with Joseph Gunnar & Co., LLC to establish an at-the-market equity offering program pursuant to which they are able, with the Company’s authorization, to offer and sell up to $3 million of the Company’s common stock at prevailing market prices from time to time. As of the date these unaudited condensed consolidated financial statements are issued, the Company had sold 309,920 shares of common stock under this program at a value of $208.

 

In August 2017, the Company issued 160,000 shares to JIG in connection with the Promissory Note of $1,600.

 

14


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share, per share and stated value per share)

(UNAUDITED)

 

Convertible Preferred Shares

Series D Preferred Stock

During the period ended July 1, 2017, holders converted 31 shares of Series D Preferred Stock to 1,673,000 shares of common stock. On April 5, 2017, the Company entered into an agreement with holders of the Series D Preferred shares to redeem the remaining 62 shares of Series D Preferred Stock and terminate all future conversion rights, in return for $1,500 in cash and 300,000 shares of common stock. The Company recorded a gain of $79 on Series D Preferred Stock extinguishment.