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EX-32.2 - EX-32.2 - Staffing 360 Solutions, Inc.staf-ex322_7.htm
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EX-31.2 - EX-31.2 - Staffing 360 Solutions, Inc.staf-ex312_9.htm
EX-31.1 - EX-31.1 - Staffing 360 Solutions, Inc.staf-ex311_8.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 September 30, 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)

 

 

DELAWARE

 

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”, “smaller reporting company” and “emerging growth 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 November 14, 2017, there were 19,359,988 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

 

1

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017, (unaudited) and December 31, 2016

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the period July 2, 2017 to September 30, 2017, for the period July 3, 2016 to October 1, 2016, for the period January 1, 2017 to September 30, 2017, and for the period January 3, 2016 to October 1, 2016

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the period July 2, 2017 to September 30, 2017, for the period July 3, 2016 to October 1, 2016, for the period January 1, 2017 to September 30, 2017, and for the period January 3, 2016 to October 1, 2016

 

3

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

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

 

34

Item 4

 

Mine Safety Disclosures

 

34

Item 5

 

Other Information

 

34

Item 6

 

Exhibits

 

35

 

 

 

 

 

Signatures

 

 

 

36

 

 

 

 


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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,380

 

 

$

650

 

Accounts receivable, net

 

 

33,797

 

 

 

22,274

 

Prepaid expenses and other current assets

 

 

1,174

 

 

 

613

 

Total Current Assets

 

 

40,351

 

 

 

23,537

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,241

 

 

 

919

 

Identifiable intangible assets, net

 

 

16,199

 

 

 

9,149

 

Goodwill

 

 

33,362

 

 

 

15,779

 

Other assets

 

 

2,972

 

 

 

4,573

 

Total Assets

 

$

94,125

 

 

$

53,957

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

22,151

 

 

$

18,110

 

Current portion of debt, net

 

 

367

 

 

 

3,639

 

Accounts receivable financing

 

 

23,076

 

 

 

15,605

 

Other current liabilities

 

 

1,247

 

 

 

1,274

 

Total Current Liabilities

 

 

46,841

 

 

 

38,628

 

 

 

 

 

 

 

 

 

 

Term loan - related party, net

 

 

36,574

 

 

 

 

Long-term debt, net

 

 

 

 

 

3,997

 

Other long-term liabilities

 

 

6,615

 

 

 

3,054

 

Total Liabilities

 

 

90,030

 

 

 

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 September 30, 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 - Related Party, 1,663,008 shares designated, $10.00 stated value, 1,663,008 shares issued and outstanding, as of September 30, 2017 and December 31, 2016

 

 

 

 

 

 

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

   and outstanding, as of September 30, 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 September 30, 2017 and December 31, 2016

 

 

 

 

 

 

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

     September 30, 2017 and December 31, 2016, respectively; 19,188,820 and 9,139,795 shares

     issued and outstanding, as of September 30, 2017 and December 31, 2016, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

60,784

 

 

 

54,658

 

Accumulated other comprehensive income

 

 

662

 

 

 

855

 

Accumulated deficit

 

 

(57,351

)

 

 

(47,847

)

Total Stockholders' Equity

 

 

4,095

 

 

 

7,666

 

Total Liabilities, Mezzanine Equity and Stockholders' Equity

 

$

94,125

 

 

$

53,957

 

 

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

 

1


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(UNAUDITED)

 

 

 

July 2, 2017 to

September 30, 2017

 

 

July 3, 2016 to

October 1, 2016

 

 

January 1, 2017 to

September 30, 2017

 

 

January 3, 2016 to

October 1, 2016

 

Revenue

 

$

50,345

 

 

$

45,950

 

 

$

133,174

 

 

$

135,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, Excluding Depreciation and Amortization

   Stated Below

 

 

40,768

 

 

 

37,545

 

 

 

108,347

 

 

 

111,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

9,577

 

 

 

8,405

 

 

 

24,827

 

 

 

23,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses, excluding

   depreciation and amortization stated below

 

 

9,140

 

 

 

7,795

 

 

 

23,105

 

 

 

24,102

 

Depreciation and amortization

 

 

790

 

 

 

727

 

 

 

2,310

 

 

 

2,059

 

Total Operating Expenses

 

 

9,930

 

 

 

8,522

 

 

 

25,415

 

 

 

26,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss From Operations

 

 

(353

)

 

 

(117

)

 

 

(588

)

 

 

(2,540

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(761

)

 

 

(615

)

 

 

(1,843

)

 

 

(2,007

)

Amortization of beneficial conversion feature

 

 

 

 

 

(183

)

 

 

(184

)

 

 

(550

)

Amortization of debt discount and deferred financing costs

 

 

(1,213

)

 

 

(401

)

 

 

(2,387

)

 

 

(1,310

)

Loss on extinguishment of debt, net

 

 

(2,819

)

 

 

 

 

 

(4,108

)

 

 

 

Gain on settlement of warrants

 

 

 

 

 

 

 

 

 

 

 

485

 

Other expense

 

 

(10

)

 

 

(35

)

 

 

(31

)

 

 

(38

)

Total Other Expenses

 

 

(4,803

)

 

 

(1,234

)

 

 

(8,553

)

 

 

(3,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Before Provision for Income Tax

 

 

(5,156

)

 

 

(1,351

)

 

 

(9,141

)

 

 

(5,960

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision for) benefit from income taxes

 

 

(206

)

 

 

375

 

 

 

(213

)

 

 

(260

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(5,362

)

 

 

(976

)

 

 

(9,354

)

 

 

(6,220

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Preferred Share Dividends

 

 

(5,362

)

 

 

(976

)

 

 

(9,354

)

 

 

(6,257

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock - related party

 

 

(50

)

 

 

(50

)

 

 

(150

)

 

 

(150

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock

 

$

(5,412

)

 

$

(1,026

)

 

$

(9,504

)

 

$

(6,407

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(0.33

)

 

$

(0.13

)

 

$

(0.65

)

 

$

(1.01

)

Net Loss Attributable to Common Stock

 

$

(0.34

)

 

$

(0.13

)

 

$

(0.66

)

 

$

(1.04

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

16,030,315

 

 

 

7,647,407

 

 

 

14,340,445

 

 

 

6,183,678

 

 

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

 

 

2


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

 

 

July 2, 2017 to

September 30, 2017

 

 

July 3, 2016 to

October 1, 2016

 

 

January 1, 2017 to

September 30, 2017

 

 

January 3, 2016 to

October 1, 2016

 

Net Loss

 

$

(5,362

)

 

$

(976

)

 

$

(9,354

)

 

$

(6,220

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

965

 

 

 

169

 

 

 

(193

)

 

 

484

 

Comprehensive Loss

 

 

(4,397

)

 

 

(807

)

 

 

(9,547

)

 

 

(5,736

)

Comprehensive income attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

37

 

Comprehensive Loss attributable to common stock

 

$

(4,397

)

 

$

(807

)

 

$

(9,547

)

 

$

(5,773

)

 

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 CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

January 1, 2017 to

September 30, 2017

 

 

January 3, 2016 to

October 1, 2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,354

)

 

$

(6,220

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

250

 

 

 

132

 

Amortization of identifiable intangible assets

 

 

2,060

 

 

 

1,927

 

Amortization of debt discount, deferred financing and beneficial conversion feature

 

 

2,571

 

 

 

1,860

 

Loss on extinguishment of debt, net

 

 

4,108

 

 

 

 

Gain on settlement of warrants

 

 

 

 

 

(485

)

Stock based compensation

 

 

1,689

 

 

 

668

 

Interest paid in stock

 

 

 

 

 

109

 

Other

 

 

(149

)

 

 

54

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,907

)

 

 

(1,099

)

Prepaid expenses and other current assets

 

 

(552

)

 

 

156

 

Other assets

 

 

196

 

 

 

(828

)

Accounts payable and accrued expenses

 

 

16

 

 

 

4,460

 

Other current liabilities

 

 

(807

)

 

 

(632

)

Other long-term liabilities

 

 

285

 

 

 

357

 

Other

 

 

(193

)

 

 

328

 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

 

(2,787

)

 

 

787

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Posting of surety bond

 

 

 

 

 

(1,405

)

Cash paid for acquisition of businesses, net of cash acquired

 

 

(20,817

)

 

 

(101

)

Payments made for earn-outs

 

 

(1,094

)

 

 

(104

)

Purchase of property and equipment

 

 

(169

)

 

 

(245

)

NET CASH USED IN FROM INVESTING ACTIVITIES

 

 

(22,080

)

 

 

(1,855

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from convertible notes

 

 

400

 

 

 

578

 

Repayment of convertible notes

 

 

(6,635

)

 

 

(1,589

)

Proceeds from promissory notes

 

 

 

 

 

700

 

Repayment of promissory notes

 

 

(441

)

 

 

(1,506

)

Proceeds from term loan

 

 

51,165

 

 

 

783

 

Repayments of term loan

 

 

(14,976

)

 

 

(629

)

Repayment of bonds

 

 

(50

)

 

 

(949

)

Proceeds from (repayments on) accounts receivable financing, net

 

 

5,242

 

 

 

(1,575

)

Proceeds from overadvance of accounts receivable financing

 

 

 

 

 

1,050

 

Proceeds from private placement

 

 

 

 

 

3,347

 

Proceeds from Series D Preferred Stock

 

 

 

 

 

2,000

 

Repayment of Series D Preferred Stock

 

 

(1,500

)

 

 

 

Dividends paid to related parties

 

 

(515

)

 

 

 

Proceeds from At-The-Market Facility

 

 

208

 

 

 

 

Third party financing costs

 

 

(3,299

)

 

 

(777

)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

29,599

 

 

 

1,433

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH

 

 

4,732

 

 

 

365

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

650

 

 

 

991

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

5,380

 

 

$

1,356

 

 

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

 

 

 

 

4


 

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 September 30, 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. On September 15, 2017, the Company completed financing of a $40,000 term loan with Jackson Investment Group, LLC, which among other outcomes, significantly alters the Company’s debt service obligations prospectively. The Company believes it can meet its obligations in the next 12 months from the date these financial statements are issued.  

 

Acquisitions

On September 15, 2017, Staffing 360 Georgia, LLC (“Staffing Georgia”), a wholly-owned subsidiary of the Company entered into an asset purchase agreement with Firstpro Inc. (“FPI”), Firstpro Georgia, LLC (“FPL”), and certain individuals, pursuant to which the FPI and FPL sold substantially all of their assets to Staffing Georgia (“Firstpro Acquisition”). The purchase price in connection with the Staffing Georgia, was $8,000, of which, (a) $4,500 was paid at closing, (b) $825 is payable in quarterly installments of $75 beginning on October 1, 2017, and (c) $2,675 is payable annually in three equal installments beginning on September 15, 2018.

 

On September 15, 2017, the Company and Longbridge Recruitment 360 Limited (“Longbridge”), a wholly-owned subsidiary of the Company, entered into an agreement (“Share Purchase Agreement”) with the holders of share capital of CBS Butler Holdings Limited (“CBS Butler”) and an agreement (“Option Purchase Agreement”) with the holders of outstanding options of CBS Butler, pursuant to which the holders of the share capital of CBS Butler and holders of outstanding options of CBS Butler sold all of their shares and options of CBS Butler to Longbridge (the “CBS Butler Acquisition”), in exchange for (i) an aggregate cash payment of £13,810, (ii) an aggregate of 500,000 shares of the Company’s common stock, (iii) an earn-out payment of up to £4,214 (the final amount to be calculated and paid pursuant to the Share Purchase Agreement, payable in December 2018), and (iv) deferred consideration of £150 less the aggregate amount of each CBS Butler Shareholder’s portion of the net asset shortfall amount, if any, as determined pursuant to the Share Purchase Agreement and the Option Purchase Agreement.

 

To finance the above transactions, the Company entered into an agreement with Jackson Investment Group, LLC (“Jackson”) on September 15, 2017. The Company, as borrower, and certain domestic subsidiaries of the Company, as guarantors, entered into an amended and restated note purchase agreement with Jackson, as lender (the “A&R Note Purchase Agreement”), pursuant to which Jackson made a senior debt investment of $40,000 in the Company in exchange for a senior secured note in the principal amount of

5


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)

 

$40,000 (the “Jackson Note”). The proceeds of the sale of the secured note were used to (i) repay the existing subordinated notes previously issued to Jackson in the aggregate principal amount of $11,165, (ii) to fund the upfront cash portion of the purchase price consideration of the Firstpro Acquisition and the CBS Butler Acquisition, (iii) to repay substantially all other outstanding indebtedness of the Company and (iv) general working capital purposes. The maturity date for the Jackson Note is September 15, 2020.  The Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder. The Company may prepay the amounts due on the Jackson Note in whole or in part from time to time, without penalty or premium, subject to the conditions set forth in the A&R Note Purchase Agreement, and such prepayments, depending on the timing of the prepayments, may result in a discount on the principal amount to be prepaid as set forth in the A&R Note Purchase Agreement.

 

The Company paid a closing fee of $1,000 in connection with its entry into the A&R Note Purchase Agreement and agreed to issue 2,250,000 shares of the Company’s common stock as a closing commitment fee.  These shares are subject to registration rights in favor of Jackson and will be included in a new resale registration statement which must be filed by the Company not later than October 30, 2017.

 

The Jackson Note resulted in the extinguishment of the old notes of $11,165 and recording of the new debt of $40,000 and debt issue costs $3,426. The Company recorded a $2,819 loss upon extinguishment.

 

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 September 30, 2017 and January 3, 2016 to October 1, 2016.

 

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. The Company paid the Midcap Additional Term Loan in full on September 18, 2017.

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 July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016 was 4% and (37.6)%, respectively. The effective income tax rate from continuing operations for the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, was 2.3% and 4.3%, respectively.   

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)

 

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 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.

 

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)

 

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 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 (related parties) 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 September 30, 2017 and October 1, 2016, pursuant to the two-class method, as a result of the net loss, losses were not allocated to the participating securities.

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)

 

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 September 30, 2017 and October 1, 2016 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

 

 

 

September 30,

 

 

October 1,

 

 

 

2017

 

 

2016

 

Convertible bonds - Series B

 

 

 

 

 

5,777

 

Convertible promissory notes

 

 

 

 

 

2,141,077

 

Convertible preferred shares

 

 

216,191

 

 

 

592,191

 

Warrants

 

 

4,661,167

 

 

 

83,764

 

Long term incentive plan (LTIP)

 

 

1,085,602

 

 

 

1,002,265

 

Options

 

 

627,300

 

 

 

320,500

 

Total

 

 

6,590,260

 

 

 

4,145,574

 

 

As of October 1, 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.

 

 

NOTE 4 – ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

On September 15, 2017, the Company entered into an amendment with Midcap Financial Trust, pertaining to its accounts receivable based lending facility. The amendment maintains a total facility of $25,000, with an accordion for an additional $25,000, and interest of LIBOR plus 400 basis points with a LIBOR floor of 100 basis points. The amendment also provides for incremental borrowing against the Company’s unbilled receivables up to 85%, with a borrowing cap of $1,300, of such eligible receivables. In conjunction with closing of the Jackson Note, the Midcap Additional Term Loan was repaid in full.

In conjunction with the closing of the Jackson Note, the Company’s accounts receivable based lending facility with Sterling National Bank was closed.

 

CBS Butler

 

CBS Butler has a revolving accounts receivable financing arrangement with HSBC Invoice Finance (UK) Ltd “HSBC”. The facility, whose maximum capacity is £8,500, had an original expiration of January 2011, provides for termination by either party with 90 days notice. Under the arrangement, CBS Butler may sell eligible short-term trade receivables HSBC in exchange for cash and a subordinated interest. Upon sale, the Company receives cash equal to approximately 90% (varies slightly by geographical location of the receivable) of the value of the sold receivables. The Company continues to service the receivables sold in exchange for a fee. At September 30, 2017, the outstanding principal amount of receivables sold under this facility amounted to £5,486, which is carried as a liability on the balance sheet in Accounts receivable financing.

 

 

 

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)

 

NOTE 5 DEBT

 

 

 

September 30,

 

 

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 10, 2016)

 

 

 

 

 

477

 

8% Convertible Note (July 8, 2015)

 

 

 

 

 

1,960

 

8% Convertible Note (February 8, 2016)

 

 

 

 

 

728

 

Lighthouse- Seller Note #1

 

 

 

 

 

1,874

 

Lighthouse - Seller Note #2

 

 

 

 

 

234

 

 

 

 

 

 

 

 

 

 

Promissory Notes:

 

 

 

 

 

 

 

 

Staffing (UK) - Seller Note

 

 

 

 

 

112

 

PeopleServe - Seller Note

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

Term Loans:

 

 

 

 

 

 

 

 

Jackson Investment Group - related party

 

 

40,000

 

 

 

 

Midcap Financial Trust

 

 

 

 

 

2,025

 

ABN AMRO

 

 

377

 

 

 

694

 

Sterling National Bank

 

 

 

 

 

168

 

 

 

 

 

 

 

 

 

 

Less Debt Discount and Deferred Financing Costs

 

 

(3,436

)

 

 

(1,374

)

 

 

 

 

 

 

 

 

 

Total Debt

 

 

36,941

 

 

 

7,636

 

 

 

 

 

 

 

 

 

 

Less: Current Portion, Net

 

 

(367

)

 

 

(3,639

)

 

 

 

 

 

 

 

 

 

Total Long-Term Debt, Net

 

$

36,574

 

 

$

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 10, 2016)

On September 10, 2016, the Company entered into a non interest bearing convertible note for $477, whereby the Company received cash of $400. 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. The Company paid this in full on September 18, 2017.

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)

 

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, maturing in October 2017. The Company paid this in full on September 18, 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 October 1, 2016, the Company paid $980 in principal on the 8% Convertible Note (July 8, 2015) note.

Lighthouse Seller Note #1

During the period July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $1,624 and $125 in principal, respectively. During the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $1,874 and $375 in principal, respectively.  The Company paid this in full on September 18, 2017.

Lighthouse Seller Note #2

During the period July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $78 and $78 in principal, respectively. During the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $234 and $234, respectively.

Staffing (UK) – Sellers Note

The Company paid this note in full in January 2017.

PeopleSERVE – Sellers Note

During the period from July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $0 and $197 in principal, respectively. During the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $329 and $592 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 Jackson for $7,400. Under the terms of this agreement, the Company issued to Jackson 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 Jackson, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to Jackson 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 Jackson 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 Jackson amended the warrant to include a blocker preventing Jackson from owning more than 19.99% of the Company’s shares outstanding as of January 26, 2017, until such ownership is approved by the shareholders consistent with Nasdaq Rule 5635(b). On June 15, 2017, our stockholders approved the issuance of shares of the Company’s common stock under the warrant to Jackson that may result in Jackson owning in excess of 19.99% of the Company’s outstanding shares.

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)

 

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.

The Company paid this note in full on September 18, 2017 and entered in a new note with Jackson (refer to “Jackson Note”).

Jackson Investment Group Term Loan Note #2

On April 5, 2017, the Company amended the note and warrant purchase agreement with Jackson and entered into a second subordinated secured note with Jackson for $1,650. Under the terms of this amended agreement, the Company issued to Jackson 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 Jackson in excess of the 19.99% limit in June 2017. Also on April 5, 2017, the Company amended the Warrant to allow Jackson 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 Jackson in January 2017 to $1.50. The Warrant was also amended to increase the amount of common stock issuable to Jackson 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 Jackson, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to Jackson 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 Jackson 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.

The Company paid this note in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note – Related Party”)

Jackson Investment Group Term Loan Note #3

In August 2017, the Company entered into a promissory note with Jackson 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.

The Company paid this in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note”).

Jackson Investment Group Term Loan Note #4

On September 1, 2017, the Company into a promissory note with Jackson for $515, with a term of 31 days at interest of 12% per annum. The proceeds of the note were used to fund other debt obligations. The Company paid this in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note”).

Jackson Note – Related Party

On September 15, 2017, the Company entered into a $40,000 note agreement with Jackson (refer to Note 2 above). The proceeds of the sale of the secured note will used to repay the existing subordinated notes previously issued to Jackson pursuant to the existing note purchase agreement in the aggregate principal amount of $11,165 and to fund a portion of the purchase price consideration of the Firstpro Acquisition and the CBS Butler Acquisition and repay certain other outstanding indebtedness of the Company. The maturity date for the amounts due under the Jackson Note is September 15, 2020.  The Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder.

 

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)

 

The Company paid a closing fee of $1,000 in connection with its entry into the A&R Note Purchase Agreement and agreed to issue 2,250,000 shares of the Company’s common stock as a closing commitment fee.  These shares are subject to registration rights in favor of Jackson and will be included in a new resale registration statement which must be filed by the Company not later than October 30, 2017. The Jackson Note resulted in the extinguishment of the old notes of $11,165 and recording of the new debt of $40,000 and debt issue costs $3,426. The Company recorded an initial $2,819 loss upon extinguishment. The Company has estimated that the $11,165 of notes extinguished were replaced by $11,165 which equals its fair value. The Company intends to perform a more thorough analysis of the fair value of the new debt which may result in an adjustment to the loss on extinguishment.

 

Immediately prior to closing the Jackson Note, Jackson owned 2,633,482 shares of common stock and 4,527,537 warrants.

Midcap Financial Trust – Term Loan

During the period July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $1,425 and $113 in principal, respectively. During the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $2,025 and $238 in principal, respectively. The Company paid this note in full on September 18, 2017 with the funding received from the Jackson Note. The Company wrote off $533 in deferred financing costs associated with the settlement of this term loan.

ABN AMRO Term Loan

During the period July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $119 and $131 in principal, respectively. During the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $356 and $391 in principal, respectively. 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. During the period from January 3, 2016 to October 1, 2016, the Company borrowed an additional £219. Since payments on this term loan are denominated GBP, the Company is subject to foreign exchange changes.

Sterling National Bank Promissory Note

During the period ended July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company paid $70 and $44 in principal, respectively. During the period January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company paid $168 and $126 in principal, respectively. The Company paid this note in full on September 18, 2017 with the funding received from the Jackson Note.

 

 

NOTE 6 – EQUITY

Common Stock

The Company issued 10,049,025 shares of common stock during the period ended September 30, 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

 

Jackson Investment Group

 

 

4,727,905

 

 

 

2,580

 

 

 

0.55

 

 

 

0.74

 

Employees

 

 

1,691,200

 

 

 

1,136

 

 

 

0.55

 

 

 

0.94

 

Extension of convertible notes

 

 

600,000

 

 

 

498

 

 

 

0.83

 

 

 

0.83

 

CBS Butler Acquisition

 

 

500,000

 

 

 

430

 

 

 

0.86

 

 

 

0.86

 

Board and Committee members

 

 

224,500

 

 

 

182

 

 

 

0.62

 

 

 

0.94

 

At-the-Market Facility

 

 

309,920

 

 

 

208

 

 

 

0.63

 

 

 

0.70

 

Consultants