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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_8.htm
EX-31.2 - EX-31.2 - Staffing 360 Solutions, Inc.staf-ex312_6.htm
EX-31.1 - EX-31.1 - Staffing 360 Solutions, Inc.staf-ex311_7.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 March 31, 2018

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 May 14, 2018, there were 4,169,172 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 March 31, 2018 (unaudited), and December 30, 2017

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the period ended March 31, 2018 and for the period ended April 1, 2017

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the period ended March 31, 2018 and for the period ended April 1, 2017

 

3

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the period ended March 31, 2018 and period ended April 1, 2017

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2

 

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

 

14

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4

 

Controls and Procedures

 

22

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

24

Item 1A

 

Risk Factors

 

24

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3

 

Defaults Upon Senior Securities

 

24

Item 4

 

Mine Safety Disclosures

 

24

Item 5

 

Other Information

 

24

Item 6

 

Exhibits

 

25

 

 

 

 

 

Signatures

 

 

 

26

 

 

 

 


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)

 

 

 

March 31,

 

 

December 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

3,458

 

 

$

3,100

 

Accounts receivable, net

 

 

25,097

 

 

 

33,392

 

Prepaid expenses and other current assets

 

 

1,490

 

 

 

1,443

 

Total Current Assets

 

 

30,045

 

 

 

37,935

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,499

 

 

 

1,618

 

Identifiable intangible assets, net

 

 

16,494

 

 

 

17,145

 

Goodwill

 

 

27,169

 

 

 

27,169

 

Other assets

 

 

2,890

 

 

 

2,881

 

Total Assets

 

$

78,097

 

 

$

86,748

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,476

 

 

$

16,709

 

Current portion of debt, net

 

 

 

 

 

245

 

Accounts receivable financing

 

 

16,269

 

 

 

25,983

 

Other current liabilities

 

 

6,819

 

 

 

6,372

 

Total Current Liabilities

 

 

42,564

 

 

 

49,309

 

 

 

 

 

 

 

 

 

 

Term loan - related party, net

 

 

38,862

 

 

 

38,749

 

Warrant Liability

 

 

888

 

 

 

1,426

 

Other long-term liabilities

 

 

4,024

 

 

 

4,049

 

Total Liabilities

 

 

86,338

 

 

 

93,533

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

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, $1.00 stated value, 1,663,008 shares issued and outstanding, as of March 31, 2018 and December 30, 2017

 

 

 

 

 

 

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

   and outstanding, as of March 31, 2018 and December 30, 2017

 

 

 

 

 

 

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

   and outstanding, as of March 31, 2018 and December 30, 2017

 

 

 

 

 

 

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

     March 31, 2018 and December 30, 2017, respectively; 4,058,285 and 3,909,114 shares

     issued and outstanding, as of March 31, 2018 and December 30, 2017, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

58,305

 

 

 

57,574

 

Accumulated other comprehensive (loss) income

 

 

(133

)

 

 

783

 

Accumulated deficit

 

 

(66,413

)

 

 

(65,142

)

Total Stockholders' Deficit

 

 

(8,241

)

 

 

(6,785

)

Total Liabilities Stockholders' Deficit

 

$

78,097

 

 

$

86,748

 

 

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)

 

 

 

Q1 2018

 

 

Q1 2017

 

Revenue

 

$

55,791

 

 

$

40,712

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, excluding depreciation and amortization stated below

 

 

44,210

 

 

 

33,386

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

11,581

 

 

 

7,326

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

11,188

 

 

 

7,123

 

Depreciation and amortization

 

 

798

 

 

 

760

 

Total Operating Expenses

 

 

11,986

 

 

 

7,883

 

 

 

 

 

 

 

 

 

 

Loss From Operations

 

 

(405

)

 

 

(557

)

 

 

 

 

 

 

 

 

 

Other Expenses (Income):

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,955

)

 

 

(502

)

Amortization of debt discount and deferred financing costs

 

 

(122

)

 

 

(559

)

Loss on extinguishment of debt, net

 

 

 

 

 

(1,368

)

Change in fair value of warrant liability

 

 

538

 

 

 

(92

)

Foreign currency re-measurement gain on intercompany note

 

 

575

 

 

 

 

Other income

 

 

250

 

 

 

2

 

Total Other Expenses

 

 

(714

)

 

 

(2,519

)

 

 

 

 

 

 

 

 

 

Loss Before Provision for Income Tax

 

 

(1,119

)

 

 

(3,076

)

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

(152

)

 

 

(5

)

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(1,271

)

 

 

(3,081

)

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock - related party

 

 

50

 

 

 

50

 

Deemed Dividends - Series D preferred stock

 

 

 

 

 

880

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(1,321

)

 

$

(4,011

)

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(0.32

)

 

$

(1.36

)

Net Loss Attributable to Common Stock Holders

 

$

(0.33

)

 

$

(1.78

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

3,988,624

 

 

 

2,257,326

 

 

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)

 

 

 

Q1 2018

 

 

Q1 2017

 

Net Loss

 

$

(1,271

)

 

$

(3,081

)

 

 

 

 

 

 

 

 

 

Other Comprehensive loss

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

(916

)

 

 

(22

)

Comprehensive Loss Attributable to the Company

 

$

(2,187

)

 

$

(3,103

)

 

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)

 

 

 

Q1 2018

 

 

Q1 2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,271

)

 

$

(3,081

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

147

 

 

 

78

 

Amortization of identifiable intangible assets

 

 

651

 

 

 

682

 

Amortization of debt discount and deferred financing costs

 

 

122

 

 

 

559

 

Loss on extinguishment of debt, net

 

 

 

 

 

1,368

 

(Gain) loss in fair value of warrants

 

 

(538

)

 

 

92

 

Stock based compensation

 

 

373

 

 

 

294

 

Foreign currency re-measurement gain on intercompany note

 

 

(575

)

 

 

 

Other

 

 

 

 

 

52

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,026

 

 

 

2,658

 

Prepaid expenses and other current assets

 

 

(47

)

 

 

(245

)

Other assets

 

 

(9

)

 

 

360

 

Accounts payable and accrued expenses

 

 

2,795

 

 

 

(397

)

Interest payable - related party

 

 

(160

)

 

 

 

Other current liabilities

 

 

447

 

 

 

36

 

Other long-term liabilities

 

 

50

 

 

 

(45

)

Other

 

 

(164

)

 

 

(10

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

8,847

 

 

 

2,401

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(56

)

 

 

(20

)

Collection of UK factoring facility deferred purchase price

 

 

1,269

 

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

1,213

 

 

 

(20

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments of term loan

 

 

(254

)

 

 

 

Repayments on accounts receivable financing, net

 

 

(9,714

)

 

 

(3,489

)

Dividends paid to related parties

 

 

(50

)

 

 

 

Proceeds from At-The-Market Facility

 

 

415

 

 

 

 

Repayment of promissory notes

 

 

 

 

 

(4,561

)

Proceeds from term loan - related party

 

 

 

 

 

7,400

 

Payments made for earn-outs

 

 

(90

)

 

 

(1,050

)

Third party financing costs

 

 

(7

)

 

 

(842

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(9,700

)

 

 

(2,542

)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

360

 

 

 

(161

)

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

3,100

 

 

 

650

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

3,458

 

 

$

489

 

 

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 15, 2017, the Company changed its state of domicile to Delaware.

The Company effected a one-for-ten reverse stock split on September 17, 2015 and a one-for-five reverse stock split on January 3, 2018. All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect these reverse stock splits.

 

 

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 fiscal year ended December 30, 2017, the transition period ended December 31, 2016 and fiscal year ended May 31, 2016, which are included in the Company’s December 30, 2017 Form 10-K, filed with the United States Securities and Exchange Commission on March 29, 2018. 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 March 31, 2018 are not necessarily indicative of results for the entire year ending December 29, 2018. This report is for the periods January 1, 2017 to April 1, 2017 (“Q1 2017”) and December 31, 2017 to March 31, 2018 (“Q1 2018”).

Revenue Recognition

The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.

The Company has primarily two main forms of revenue – temporary contractor revenue and permanent placement revenue.  Temporary contractor revenue is accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance on an hourly basis. The contracts stipulate weekly billing and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed to date. Permanent placement revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 30 days. The contract with the customer stipulates a guarantee period whereby the customer may be refunded if the employee is terminated within a short period time, however this has historically been infrequent, and immaterial upon occurrence. As such, the Company’s performance obligations are satisfied upon commencement of the employment, at which control has transferred to the customer. Revenue in Q1 2018 was comprised of $52,997 of temporary contractor revenue and $2,794 of permanent placement revenue, compared with $39,927 and $785 for Q1 2017, respectively. Refer to Note 8 for further details on breakdown by segments.  

Reclassifications

We may make certain reclassifications to prior period amounts to conform with the current years’ presentation. These reclassifications did not have a material effect on our consolidated statement of financial position, results of operations or cash flows.

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)

 

Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.  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 was (8.8%) and 16.3% for Q1 2018 and Q1 2017, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. The changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21%, the transition of U.S. international taxation from a worldwide tax system to a territorial system, allowing for immediate expensing of certain qualified property, modifications to many business deductions and credits, and providing various tax incentives. Shortly after the Tax Act was enacted, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 provides that in these cases a registrant should continue to apply Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2009-06, Income Taxes ("Topic 740") based on the provisions of the tax laws that were in effect immediately prior to the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for registrants to complete the accounting under Topic 740

The Company remeasured domestic deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally the 21% rate imposed by the Tax Act.  The Company recorded an expense of $3.7 million to reduce the net deferred tax assets, along with a corresponding benefit for the reduction of the valuation allowance recorded against these balances in our financial statements for the year ended December 30, 2017.

At March 31, 2018, in accordance with SAB 118, the Company has not completed its accounting for the tax effects of the one-time transition tax imposed by the Tax Act.  In order to determine the amount of the liability with respect to the one-time transition tax, the Company must determine, in addition to other factors, the amount of post-1986 Earnings & Profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings.  In order to quantify the liability, we are awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of the transition tax. Therefore, we have not recorded an estimate of the transition tax in our financial statements. 

In addition, the Company is continuing to evaluate whether Global Intangible Low Tax Income taxes (“GILTI”) are recorded as a current period expense when incurred or whether such amounts should be factored into the Company's measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax impacts related to GILTI in the first quarter of 2018. The Company has not elected a method and will only do so after completing their analysis of the GILTI provisions.

Foreign Currency

Staffing 360 Solutions, Inc. has an intercompany note due from Longbridge Recruitment 360 (U.K.) Limited (“Longbridge”), denominated in U.S. dollars. The note matures in September 15, 2022, bears interest at a rate of interest equal to the mid-term monthly Applicable Federal Rate (AFR), as published each month by the U.S. Internal Revenue Service pursuant to Section 1274(d) of the Internal Revenue Code, compounded semiannually. Interest is payable in cash quarterly on the first business day of each calendar quarter. Longbridge may prepay all or any portion of the principal amount of this Note at any time, in whole or in part, without premium or penalty. As the note is denominated in U.S. dollars, the Company recorded a foreign currency remeasurement gain in Q1 2018 of $575.

Recent Accounting Pronouncements

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

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)

 

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 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” (“ASC 606”). 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. 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.

On January 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers for all open contracts and related amendments as of January 1, 2018 using the modified retrospective method.  The adoption had no impact to the reported results. Results for reporting periods beginning after January 1, 2018 will be presented under ASC 606, while the comparative information will not be restated and will continue to be reported under the accounting standards in effect for those periods.

 

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 loss per share is computed using the two-class method. For Q1 2018 and Q1 2017, 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 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 March 31, 2018 and April 1, 2017 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

 

 

 

March 31,

 

 

April 1,

 

 

 

2018

 

 

2017

 

Convertible bonds - Series B

 

 

 

 

 

1,117

 

Convertible promissory notes

 

 

 

 

 

184,138

 

Convertible preferred shares

 

 

43,239

 

 

 

692,838

 

Warrants

 

 

925,935

 

 

 

636,726

 

Restricted shares - unvested

 

 

475,332

 

 

 

246,252

 

Long term incentive plan (LTIP)

 

 

178,728

 

 

 

178,728

 

Options

 

 

125,400

 

 

 

122,400

 

Total

 

 

1,748,634

 

 

 

2,062,199

 

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, the Company could not determine the exact amount of

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)

 

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.

The Series D Preferred Stock contained beneficial conversion features; a portion was quantifiable at the date of issuance in the amount of $615, which was recognized immediately due to the immediate convertibility of the Series D Preferred Stock and that it had no true redemption date. The additional beneficial conversion feature was quantifiable only at the date of each subsequent conversion. Both beneficial conversion features represent additional value to the holders not known at the date of issuance. As such, they represent a dividend on the Series D Preferred Stock and recorded as a Deemed Dividend. These Deemed Dividends are presented on the Statement of Operations for purposes of calculating Earnings Per Share only and have no net impact on Shareholders’ Deficit. In April 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 60,000 shares of common stock. Deemed Dividends recorded were $0 and $880 for the period ended March 31, 2018 and April 1, 2017, respectively.

 

 

NOTE 4 – ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

HSBC Invoice Finance (UK) Ltd – New Facility

On February 8, 2018, CBS Butler, Longbridge and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%.

Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, to be classified within investing activities.

 

ABN AMRO Commercial Finance

In conjunction with the HSBC Invoice Finance (UK) Ltd – New Facility, on February 8, 2018, Longbridge and The JM Group terminated this facility and the remaining balance was paid in full.

 

CBS Butler

In conjunction with the HSBC Invoice Finance (UK) Ltd – New Facility, on February 8, 2018, CBS Butler terminated this facility and the remaining balance was paid in full.

 

NOTE 5 – DEBT

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Jackson Investment Group - related party

 

$

40,000

 

 

$

40,000

 

ABN AMRO

 

 

 

 

 

254

 

Total Debt, Gross

 

 

40,000

 

 

 

40,254

 

Less: Debt Discount and Deferred Financing Costs

 

 

(1,138

)

 

 

(1,260

)

Total Debt, Net

 

 

38,862

 

 

 

38,994

 

Less: Current Portion, Net

 

 

 

 

 

(245

)

Total Long-Term Debt, Net

 

$

38,862

 

 

$

38,749

 

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

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)

 

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.  

 

NOTE 6 – EQUITY

Common Stock

The Company issued the following shares of common stock during the period ended Q1 2018:

 

Shares issued to/for:

 

Number of common

shares issued

 

 

Fair Value of

shares issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

At-the-Market Facility

 

 

130,545

 

 

$

415

 

 

$

2.35

 

 

$

3.50

 

Consultants

 

 

14,000

 

 

 

46

 

 

 

3.22

 

 

 

3.42

 

Board and Committee members

 

 

4,200

 

 

 

15

 

 

 

3.25

 

 

 

3.25

 

Reverse stock split (rounding up shares)

 

 

426

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

149,171

 

 

$

476

 

 

 

 

 

 

 

 

 

 

Subsequent to March 31, 2018, the Company had sold 106,687  shares of common stock through its at-the-market facility at a value of $213, and granted 4,200 shares of common stock valued $8 to the board of directors.  

 

Restricted Shares

The Company has issued shares to employees and board and committee members under its 2015 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan. Under these plans, the shares vest after three years from issuance. As of March 31, 2018, the Company has a total of 475,322 shares unvested issued to employees and Board and committee members. In accordance with ASC 718, Compensation – Stock Compensation, the Company recognizes stock based compensation from restricted stock based upon the fair value of the award at issuance over the vesting term on a straight-line basis. The fair value of the award is calculated by multiplying the number of restricted shares by the Company’s stock price on the date of issuance. The impact of forfeitures has historically been immaterial to the financial statements. For the period ended Q1 2018 and Q1 2017, the Company recorded compensation expense associated with these restricted shares of $245 and $173, respectively.

Stock Options

During the period Q1 2018 and Q1 2017, the Company recorded share based payment expense of $82 and $93, respectively, in connection with all options outstanding.

Convertible Preferred Shares

Series A Preferred Stock – Related Party

In the period ended March 31, 2018 and April 1, 2017, the Company paid $50 and $0, respectively, in dividends to its Series A preferred stock holders.

Series D Preferred Stock

The Series D Preferred Stock contained beneficial conversion features; a portion was quantifiable at the date of issuance in the amount of $615, which was recognized immediately due to the immediate convertibility of the Series D Preferred Stock and that it had no true redemption date. The additional contingent beneficial conversion feature was quantifiable only at the date of each subsequent conversion. Both beneficial conversion features represent additional value to the holders. As such, they represent a dividend on the Series D Preferred Stock and recorded as a Deemed Dividend. These Deemed Dividends are presented on the Statement of Operations for purposes of calculation Earnings Per Share only and have no net impact on Shareholders’ Deficit. Deemed Dividends recorded were $0 and $880 for Q1 2018 and Q1 2017, respectively.

 

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 60,000 shares of common stock.

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)

 

Warrants

The Company has accounted for the warrants issued to Jackson as a liability under ASC 815-40 due to certain anti-dilution protection provisions. The Company recorded a change in fair value of the warrant liability of $538 in Q1 2018 using Black-Scholes valuation model. The warrants issued to Jackson are considered to be Level 3 liabilities under ASC 820.  On April 25, 2018, the Company and Jackson amended the Warrant to remove the anti-dilution clauses. No economic terms were adjusted. These clauses were the basis for recording the warrants as a liability. Therefore, upon execution of this amendment, the Company will record a mark-to-market gain and reclass the remaining liability to Additional paid-in capital. These amounts will be finalized once the Company performs a final Black-Scholes valuation as of the amendment date.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Earn-out Liabilities and Stock Value Guarantees

 

Pursuant to the acquisition of Control Solutions International, Inc. (“CSI”) on November 4, 2013, the purchase price includes monthly cash payments to the former owners and shareholders of CSI for performance-based compensation equal to 20% of CSI’s consolidated gross profit from the date of closing through the end of the sixteenth quarter following the date of closing not to exceed a total of $2,100. During Q1 2018 and Q1 2017, the Company paid $15 and $24, respectively, towards the earn-out liability. No further payments are due.

 

Pursuant to the acquisition of The JM Group on November 5, 2015, the purchase price includes a cash payment to the shareholders for performance-based compensation of (a) £850 if the gross profit for the 12 month period ending on the anniversary date of the date of completion (the “Anniversary TTM Gross Profit”) is equal to 90% or more of the gross profit for the twelve months ending October 31, 2015 (the “Completion TTM Gross Profit”); or (b) if the Anniversary TTM Gross Profit is less than 90% of the Completion TTM Gross Profit, a sum equal to £850 multiplied by the Anniversary TTM Gross Profit/Completion TTM Gross Profit. The Company recorded the maximum contingent liability amount of £850 ($1,180). At December 31, 2016, the remaining balance was $1,026 and was recorded in other current liabilities. While unpaid, the balance accrued interest at 10.25% per annum. The balance was paid in full in January 2017.

Legal Proceedings 

NewCSI, Inc. vs. Staffing 360 Solutions, Inc.

On May 22, 2014, NewCSI, Inc. (“NewCSI”), the former owners of Control Solutions International, filed a complaint in the United States District Court for the Western District of Texas, Austin Division, against the Company arising from the terms of the Stock Purchase Agreement dated August 14, 2013 between the Company and NewCSI. NewCSI claims that the Company breached a provision of the Stock Purchase Agreement (“SPA § 2.7”) that required the Company to calculate and pay to NewCSI 50% of certain “Deferred Tax Assets” within 90 days after December 31, 2013, subject to certain criteria. The Complaint sought payment of the amount allegedly owed under SPA § 2.7 and acceleration of earn-out payments provided for in the Stock Purchase Agreement of $1,400, less amounts paid to date, and attorneys’ fees. The Company responded denying the material allegations and interposing numerous affirmative defenses. On October 8, 2014, NewCSI filed a Motion of Summary Judgment (the “Motion”). On March 30, 2015, a Magistrate Judge of the District Court issued a Report and Recommendation that the District Court deny the Motion. The Recommendation became a final decision on April 13, 2015.

 

On December 31, 2014, NewCSI filed an amended complaint to which NewCSI added an additional count asserting an “Adjustment Event” had occurred requiring an acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $2,100, less amounts paid as of December 31, 2014 totaling $429 (balance of $1,671 at December 31, 2014), should the Company or CSI “be unable, or admit in writing its inability, to pay its debts as they mature.” The Company responded denying the material allegations and interposing numerous affirmative defenses, including that the earn-out liability was fully expensed at the time of the acquisition and fully accrued for on the Company’s balance sheet as part of the purchase accounting at the time of the acquisition. The final pretrial conference in this matter was held April 22, 2015. A jury was selected on May 14, 2015, and the trial was held May 18-20, 2015. On May 20, 2015, the jury rendered a verdict, finding that the Company had not complied with SPA § 2.7 and owed $154, but that NewCSI had not proven that the Company or CSI had become unable to pay debts as they came due. The Court had held that it was not a question for the jury to decide if damages for breach of SPA § 2.7 should include accelerated earn-out payments.

 

On June 3, 2015, NewCSI filed a Motion for Entry of Judgment as Matter of Law seeking entry of a judgment in the amount of $154, plus accelerated earn-out payments in the amount of $1,152, plus statutory interest. NewCSI did not challenge the jury verdict on the ability to pay issue. Also on June 3, 2015, the Company filed a Motion for Entry of Judgment as a Matter of Law seeking entry of

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)

 

judgment against NewCSI on the jury’s finding that the Company had not complied with SPA § 2.7, or, in the alternative, for a reduction of damages to $154 and to hold that NewCSI may not be awarded accelerated earn-out payments as that would result in an illegal penalty.

 

On October 21, 2015, judgment was entered in this action in favor of NewCSI and against the Company in the amount of $1,307, plus pre-judgment interest, post-judgment interest, and costs.

 

On January 26, 2016, the District Court set the bond in respect of the NewCSI litigation at $1,384. The Company has filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit (“Appellate Court”) seeking reversal of the judgment and posted a supersedeas bond to stay the execution of the judgment pending appeal. On April 18, 2016, the Court granted the NewCSI shareholders’ request for payment of attorneys’ fees, but reserved judgment on the amount of fees to award pending the outcome of the Company’s appeal. As of January 2016, the NewCSI shareholders have claimed they have incurred $552 in attorney’s fees, which could increase during the pendency of the appeal. On November 3, 2016, oral arguments for the appeal were heard and on July 26, 2017, the Appellate Court affirmed the trial Court’s decision but left the legal fee award open for determination by further proceedings in the trial court. On August 29, 2017 the surety company released the supersedeas bond to the New CSI shareholders’ counsel, which was amount was approximately $5 less than the judgment amount with accumulated interest. Payment of this remaining balance has been made by the Company.

 

On September 29, 2017 NewCSI filed a Supplemental Motion in the United States District Court for the Western District of Texas, Austin Division, seeking $629 in attorneys’ fees. The Company opposed this motion but the magistrate judge issued a report and recommendation on November 17, 2017 recommending an award of fees in the amount of $606. The Company has filed an objection with the trial judge to the magistrate’s report and recommendation and awaits a ruling. The Company has fully reserved the amount of the magistrate’s report and recommendation.

 

The Company intends to aggressively assert its defenses in the remaining portion of the proceedings with NewCSI. Nevertheless, there can be no assurance that the outcome of this legal fees determination will be favorable to the Company.

 

Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc.

On November 13, 2015, in a separate proceeding, Staffing 360 initiated an arbitration before JAMS entitled Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc., against three officers of Staffing 360, each a former Staffing 360 officer and employee.  In its demand for arbitration and statement of claim, Staffing 360 alleged that these individuals breached their employment agreements with Staffing 360 and the fiduciary duties each owed to the Company.  The three respondents responded with a counterclaim alleging wrongful termination and have moved to dismiss the arbitration, as well as moved for severance in relation to the remainder of their contracts. On July 20, 2016, the arbitrator decided in favor of both of the respondents’ motions.  Further on September 21, 2016 the arbitrator rendered the final award, which was set at $1,433. The former officers brought an action in US District Court in New York City under the caption Dealy et al., v. Staffing 360 Solutions, Inc., requesting that the Court convert this arbitration award into a judgment. On July 11, 2017, the Court entered an order confirming the arbitrator’s award and granting judgement against the Company. In August 2017, the Company paid $1,582 in full satisfaction of this matter.

 

 

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)

 

NOTE 8 – SEGMENTS

For the period ended Q1 2018 and Q1 2017, the Company generated revenue and gross profit by segment as follows:

 

 

 

Q1 2018

 

 

Q1 2017

 

Commercial Staffing - US

 

$

21,396

 

 

$

22,411

 

Professional Staffing - US

 

 

14,667

 

 

 

11,696

 

Professional Staffing - UK

 

 

19,728

 

 

 

6,605

 

Total Revenue

 

$

55,791

 

 

$

40,712

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

3,679

 

 

$

3,802

 

Professional Staffing - US

 

 

4,204

 

 

 

2,086

 

Professional Staffing - UK

 

 

3,698

 

 

 

1,438

 

Total Gross Profit

 

$

11,581

 

 

$

7,326

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(11,188

)

 

$

(7,123

)

Depreciation and amortization

 

 

(798

)

 

 

(760

)

Interest expense

 

 

(1,955

)

 

 

(502

)

Amortization of debt discount and deferred financing costs

 

 

(122

)

 

 

(559

)

Loss on extinguishment of debt, net

 

 

-

 

 

 

(1,368

)

Change in fair value of warrant liability

 

 

538

 

 

 

(92

)

Foreign currency re-measurement gain on intercompany note

 

 

575

 

 

 

-

 

Other expense

 

 

250

 

 

 

2

 

Loss Before Provision for Income Tax

 

$

(1,119

)

 

$

(3,076

)

 

The following table disaggregates revenues by segments for Q1 2018 and Q1 2017:

 

 

Q1 2018

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

72

 

 

$

1,507

 

 

$

1,215

 

 

$

2,794

 

Temporary Revenue

 

 

21,324

 

 

 

13,160

 

 

 

18,513

 

 

 

52,997

 

Total

 

$

21,396

 

 

$

14,667

 

 

$

19,728

 

 

$

55,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2017

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

32

 

 

$

126

 

 

$

627

 

 

$

785

 

Temporary Revenue

 

 

22,379

 

 

 

11,570

 

 

 

5,978

 

 

 

39,927

 

Total

 

$

22,411

 

 

$

11,696

 

 

$

6,605

 

 

$

40,712

 

 

As of March 31, 2018 and April 1, 2017, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

March 31,

 

 

December 30,

 

 

 

2018

 

 

2017

 

United States

 

$

47,446

 

 

$

53,814

 

United Kingdom

 

 

30,603

 

 

 

32,861

 

Canada

 

 

48

 

 

 

73

 

Total Assets

 

$

78,097

 

 

$

86,748

 

 

 

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)

 

NOTE 9 – ACQUISITIONS

 

The following unaudited pro forma consolidated results of operation have been prepared, as if the acquisition of FirstPro and CBS Butler had occurred as of June 1, 2016:

 

 

 

Q1 2017

 

Revenues

 

$

60,320

 

Net loss from continuing operations

 

 

(3,487

)

 

 

NOTE 10 – OTHER RELATED PARTY TRANSACTIONS

In addition to the Series A Preferred Shares and Notes issued to Jackson, the following are other related party transactions:

Board and Committee Members

During Q1 2018 and Q1 2017 the Company incurred the following for Board and Committee Members:

 

 

Q1 2018

 

 

Q1 2017

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

Dimitri Villard

$

19

 

 

 

1,400

 

 

$

5

 

 

$

20

 

 

$

13

 

 

 

8,300

 

 

$

31

 

 

$

17

 

Jeff Grout

 

19

 

 

 

1,400

 

 

 

5

 

 

 

20

 

 

 

13

 

 

 

8,300

 

 

 

31

 

 

 

17

 

Nick Florio

 

19

 

 

 

1,400

 

 

 

5

 

 

 

20

 

 

 

13

 

 

 

8,300

 

 

 

31

 

 

 

17

 

 

$

57

 

 

 

4,200

 

 

$

15

 

 

$

60

 

 

$

39

 

 

 

24,900

 

 

$

93

 

 

$

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has no balances within accrued in accounts payable and accrued expenses – related parties account as of March 31, 2018.

The Briand Separation Agreement

The Company’s former employee, board member and officer resigned from his positions with the Company and subsidiaries. The Company entered into an agreement (the “Briand Separation Agreement”) with Mr. Briand dated December 21, 2017, with an effective date (“Separation Date”) of January 31, 2018, pursuant to which Mr. Briand may provide advisory services, if requested by the Company, through the effective date. The Company paid $462 in Q1 2018 to Mr. Briand as part of this separation agreement. The accrued balance due to Mr. Briand as of March 31, 2018 is $318.

 

 

NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Q1 2018

 

 

Q1 2017

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

1,710

 

 

$

402

 

Income taxes

 

 

22

 

 

 

110

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deferred purchase price of UK factoring facility

 

$

1,144

 

 

$

 

Shares issued in connection with convertible note

 

 

 

 

 

498

 

Shares issued in connection with Jackson term loan

 

 

 

 

 

822

 

Warrants issued in connection with Jackson term loan

 

 

 

 

 

1,613

 

Deemed Dividends

 

 

 

 

 

 

880

 

 

 

 

13


 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This section includes a number of forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to future events and financial performance. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “can,” “could,” “should,” “intends,” “project,” “predict,” “plans,” “estimates,” “goal,” “target,” “possible,” “potential,” “would,” “seek,” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: negative outcome of pending and future claims and litigation; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to us or at all; and our ability to comply with our contractual covenants, including in respect of our debt; potential cost overruns and possible rejection of our business model and/or sales methods; weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers' capital projects or the inability of our customers to pay our fees; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; and government policies, legislation or judicial decisions adverse to our businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (“SEC”), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

Overview

We are incorporated in the State of Delaware. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring suitable, mature, profitable, operating, U.S. and U.K. based staffing companies. Our targeted consolidation model is focused specifically on the Professional Sector and Commercial Sector disciplines.

Business Model, Operating History and Acquisitions

We are a high-growth international staffing company engaged in the acquisition of U.S. and U.K. based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the Professional and Commercial Sectors. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets. To date, the company has completed eight acquisitions, the most recent two were consummated in September 2017.

All share numbers in this section have been adjusted for the one-for-five reverse stock split effective at 5:00 p.m. New York time on January 3, 2018.

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 100,000 shares of the Company’s common stock, (iii) an earn-out payment of up to £4,214 (payable in December

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STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

2018 based upon CBS Butler’s operating performance during the period September 1, 2017 through August 31, 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 $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 almost all other outstanding indebtedness of the Company and (iv) general working capital purposes. The maturity date of 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 450,000 shares of the Company’s common stock as a closing commitment fee.  

For the period ended March 31, 2018 and April 1, 2017

 

 

 

Q1 2018