The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 condensed 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.
This filing includes unaudited condensed consolidated financial statements for the period January 1, 2017 to September 30, 2017 that have been restated, please refer to Note 3 for further details.
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 acquisition, 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 2018, based upon CBS Butler’s operating performance during the period September 1, 2017 through August 31, 2018),
and (iv)
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)
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 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 450,000 shares of the Company’s common stock as a closing commitment fee. These shares are subject to registration rights in favor of Jackson and were included in a new resale registration statement filed by the Company.
In accordance with ASC 470 “Debt”, the Jackson Note resulted in the extinguishment of the old notes of $11,165 and recording of the new debt of $40,000 at fair value. The Company recorded $4,764 loss upon extinguishment of debt, and deferred debt issuance costs of $1,385 to be amortized over the term of the new loan.
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
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)
effective income tax rate for the period July 2, 201
7 to September 30, 2017 and July 3, 2016 to October 1, 2016 was 4% and (37.6)%, respectively. The effective income tax rate 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.
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 early adopted this guidance during impairment testing performed on October 1, 2017.
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, “Si
mplifying 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 th
e 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 ma
y 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 rec
ord 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 t
he 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.
As per ASC 606, Company has two streams of revenue, permanent placement revenue and temporary contractor revenues. Permanent placement revenue is not recognized performance obligations under the agreement is met and the candidate has started employment. Temporary contractor revenue is hourly based, and revenue is recognized as earned.
NOTE 3 –
CORRECTION OF ERRORS IN PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS
We identified errors in our previously issued financial statements for the interim and annual periods prior to December 30, 2017 related to the recognition of compensation expense associated with shares granted to employees and directors, and the recognition of the beneficial conversion features associated with our Series D Preferred Shares. We assessed the materiality of these errors in accordance with the U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), using both the rollover method and the iron curtain method, as defined in SAB 108, and concluded the errors, including other adjustments discussed below, were immaterial to prior years but, if corrected in the current year, would have been material to the current year. Under SAB 108, such prior‑year misstatements which, if corrected in the current year would be material to the current year, must be corrected by adjusting the prior‑year financial statements. Correcting prior year financial statements for such immaterial misstatements does not require previously filed reports to be amended.
In addition to the errors noted above, we also noted errors relating to the classification of warrants issued to Jackson and the recognition of closing fees paid to Jackson in connection with the financing on September 15, 2017, that impact the interim periods in Fiscal 2017. On March 29, 2018 the Company filed an Item 4.02(a) Form 8-K disclosing the existence of a material misstatement within the financial statements included in the Company’s Form 10-Q filed for the third quarter ended September 30, 2017. The impact of these errors disclosed in the tables below, have been reflected in this Form 10-Q/A for the period ended September 30, 2017.
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)
The effects of the corrections of the
errors on our consolidated balance sheets, statements of operations and statements of cash flows for the periods included in this Form 10-Q/A are presented in the tables below:
|
As of September 30, 2017 (unaudited)
|
|
|
As of December 31, 2016
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Current Assets
|
$
|
40,351
|
|
|
$
|
-
|
|
|
$
|
40,351
|
|
|
$
|
23,537
|
|
|
$
|
-
|
|
|
$
|
23,537
|
|
Long-Term Assets
|
|
53,774
|
|
|
|
-
|
|
|
|
53,774
|
|
|
|
30,420
|
|
|
|
-
|
|
|
|
30,420
|
|
Total Assets
|
|
94,125
|
|
|
|
-
|
|
|
|
94,125
|
|
|
|
53,957
|
|
|
|
-
|
|
|
|
53,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
46,841
|
|
|
$
|
(99
|
)
|
|
|
46,742
|
|
|
|
38,628
|
|
|
|
366
|
|
|
|
38,994
|
|
Long-Term Liabilities
|
|
43,189
|
|
|
|
4,359
|
|
|
|
47,548
|
|
|
|
7,051
|
|
|
|
(366
|
)
|
|
|
6,685
|
|
Total Liabilities
|
|
90,030
|
|
|
|
4,260
|
|
|
|
94,290
|
|
|
|
45,679
|
|
|
|
-
|
|
|
|
45,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine Equity
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
612
|
|
|
|
272
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred Stock
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional Paid-In Capital
|
|
60,784
|
|
|
|
(3,793
|
)
|
|
|
56,991
|
|
|
|
54,658
|
|
|
|
(1,468
|
)
|
|
|
53,190
|
|
Accumulated Other Comprehensive Loss
|
|
662
|
|
|
|
-
|
|
|
|
662
|
|
|
|
855
|
|
|
|
-
|
|
|
|
855
|
|
Accumulated Deficit
|
|
(57,351
|
)
|
|
|
(467
|
)
|
|
|
(57,818
|
)
|
|
|
(47,847
|
)
|
|
|
1,196
|
|
|
|
(46,651
|
)
|
Total Equity (Deficit)
|
|
4,095
|
|
|
|
(4,260
|
)
|
|
|
(165
|
)
|
|
|
7,666
|
|
|
|
(272
|
)
|
|
|
7,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity (Deficit)
|
$
|
94,125
|
|
|
$
|
-
|
|
|
$
|
94,125
|
|
|
$
|
53,957
|
|
|
$
|
-
|
|
|
$
|
53,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
Nine Months Ended September 30, 2017
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Revenue
|
$
|
50,345
|
|
|
$
|
-
|
|
|
$
|
50,345
|
|
|
$
|
133,174
|
|
|
$
|
-
|
|
|
$
|
133,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
9,577
|
|
|
|
-
|
|
|
|
9,577
|
|
|
|
24,827
|
|
|
|
-
|
|
|
|
24,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
9,140
|
|
|
|
(340
|
)
|
|
|
8,800
|
|
|
|
23,105
|
|
|
|
(743
|
)
|
|
|
22,362
|
|
Depreciation and amortization
|
|
790
|
|
|
|
-
|
|
|
|
790
|
|
|
|
2,310
|
|
|
|
-
|
|
|
|
2,310
|
|
Other
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Operating Expenses
|
|
9,930
|
|
|
|
(340
|
)
|
|
|
9,590
|
|
|
|
25,415
|
|
|
|
(743
|
)
|
|
|
24,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
(353
|
)
|
|
|
340
|
|
|
|
(13
|
)
|
|
|
(588
|
)
|
|
|
743
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
(4,803
|
)
|
|
|
(2,632
|
)
|
|
|
(7,435
|
)
|
|
|
(8,553
|
)
|
|
|
(2,556
|
)
|
|
|
(11,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes
|
|
(5,156
|
)
|
|
|
(2,292
|
)
|
|
|
(7,448
|
)
|
|
|
(9,141
|
)
|
|
|
(1,813
|
)
|
|
|
(10,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
(206
|
)
|
|
|
-
|
|
|
|
(206
|
)
|
|
|
(213
|
)
|
|
|
-
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(5,362
|
)
|
|
|
(2,292
|
)
|
|
|
(7,654
|
)
|
|
|
(9,354
|
)
|
|
|
(1,813
|
)
|
|
|
(11,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Dividend
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
|
|
150
|
|
|
|
-
|
|
|
|
150
|
|
Series D Deemed Dividend
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,009
|
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stock Holders
|
$
|
(5,412
|
)
|
|
$
|
(2,292
|
)
|
|
$
|
(7,704
|
)
|
|
$
|
(9,504
|
)
|
|
$
|
(3,822
|
)
|
|
$
|
(13,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(1.67
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(2.63
|
)
|
|
$
|
(3.26
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(4.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stock Holders
|
$
|
(1.69
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(2.65
|
)
|
|
$
|
(3.31
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(5.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Basic and Diluted
|
|
3,206,063
|
|
|
|
(295,924
|
)
|
|
|
2,910,139
|
|
|
|
2,868,089
|
|
|
|
(239,176
|
)
|
|
|
2,628,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 1, 2016
|
|
|
Nine Months Ended October 1, 2016
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Revenue
|
$
|
45,950
|
|
|
$
|
-
|
|
|
$
|
45,950
|
|
|
$
|
135,423
|
|
|
$
|
-
|
|
|
$
|
135,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
8,405
|
|
|
|
-
|
|
|
|
8,405
|
|
|
|
23,621
|
|
|
|
-
|
|
|
|
23,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
7,795
|
|
|
|
122
|
|
|
|
7,917
|
|
|
|
24,102
|
|
|
|
92
|
|
|
|
24,194
|
|
Depreciation
|
|
727
|
|
|
|
-
|
|
|
|
727
|
|
|
|
2,059
|
|
|
|
-
|
|
|
|
2,059
|
|
Total Operating Expenses
|
|
8,522
|
|
|
|
122
|
|
|
|
8,644
|
|
|
|
26,161
|
|
|
|
92
|
|
|
|
26,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
(117
|
)
|
|
|
(122
|
)
|
|
|
(239
|
)
|
|
|
(2,540
|
)
|
|
|
(92
|
)
|
|
|
(2,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
(1,234
|
)
|
|
|
-
|
|
|
|
(1,234
|
)
|
|
|
(3,420
|
)
|
|
|
-
|
|
|
|
(3,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes
|
|
(1,351
|
)
|
|
|
(122
|
)
|
|
|
(1,473
|
)
|
|
|
(5,960
|
)
|
|
|
(92
|
)
|
|
|
(6,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from (Provision for) Income Taxes
|
|
375
|
|
|
|
-
|
|
|
|
375
|
|
|
|
(260
|
)
|
|
|
-
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(976
|
)
|
|
|
(122
|
)
|
|
|
(1,098
|
)
|
|
|
(6,220
|
)
|
|
|
(92
|
)
|
|
|
(6,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Preferred Share Dividends
|
|
(976
|
)
|
|
|
(122
|
)
|
|
|
(1,098
|
)
|
|
|
(6,257
|
)
|
|
|
(92
|
)
|
|
|
(6,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Dividend
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
|
|
150
|
|
|
|
-
|
|
|
|
150
|
|
Series D Deemed Dividend
|
|
-
|
|
|
|
927
|
|
|
|
927
|
|
|
|
-
|
|
|
|
1,660
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stock Holders
|
$
|
(1,026
|
)
|
|
$
|
(1,049
|
)
|
|
$
|
(2,075
|
)
|
|
$
|
(6,407
|
)
|
|
$
|
(1,752
|
)
|
|
$
|
(8,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(0.64
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.77
|
)
|
|
$
|
(2.17
|
)
|
|
$
|
(3.10
|
)
|
|
$
|
(5.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stock Holders
|
$
|
(0.67
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(2.23
|
)
|
|
$
|
(4.58
|
)
|
|
$
|
(6.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Basic and Diluted
|
|
1,529,481
|
|
|
|
(102,543
|
)
|
|
|
1,426,938
|
|
|
|
2,868,089
|
|
|
|
(1,670,409
|
)
|
|
|
1,197,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
Nine Months Ended September 30, 2017
|
|
|
Nine Months Ended October 1, 2016
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Net Loss
|
$
|
(9,354
|
)
|
|
$
|
(1,813
|
)
|
|
$
|
(11,167
|
)
|
|
$
|
(6,220
|
)
|
|
$
|
(92
|
)
|
|
$
|
(6,312
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash addbacks
|
|
10,529
|
|
|
|
1,978
|
|
|
|
12,507
|
|
|
|
4,265
|
|
|
|
92
|
|
|
|
4,357
|
|
Changes in operating assets and liabilities
|
|
(3,962
|
)
|
|
|
(153
|
)
|
|
|
(4,115
|
)
|
|
|
2,742
|
|
|
|
-
|
|
|
|
2,742
|
|
Net cash (used in) provided by operating activities
|
|
(2,787
|
)
|
|
|
12
|
|
|
|
(2,775
|
)
|
|
|
787
|
|
|
|
-
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(22,080
|
)
|
|
|
1,094
|
|
|
|
(20,986
|
)
|
|
|
(1,855
|
)
|
|
|
104
|
|
|
|
(1,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
29,599
|
|
|
|
(1,106
|
)
|
|
|
28,493
|
|
|
|
1,433
|
|
|
|
(104
|
)
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
4,732
|
|
|
|
-
|
|
|
|
4,732
|
|
|
|
365
|
|
|
|
-
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
650
|
|
|
|
-
|
|
|
|
650
|
|
|
|
991
|
|
|
|
-
|
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
$
|
5,380
|
|
|
$
|
-
|
|
|
$
|
5,380
|
|
|
$
|
1,356
|
|
|
$
|
-
|
|
|
$
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 –
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.
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
|
|
|
—
|
|
|
|
1,155
|
|
Convertible promissory notes
|
|
|
—
|
|
|
|
428,215
|
|
Convertible preferred shares
|
|
|
43,239
|
|
|
|
118,438
|
|
Warrants
|
|
|
932,234
|
|
|
|
16,753
|
|
Restricted shares - unvested
|
|
|
463,052
|
|
|
|
77,322
|
|
Long term incentive plan (LTIP)
|
|
|
178,728
|
|
|
|
178,728
|
|
Options
|
|
|
122,400
|
|
|
|
62,760
|
|
Total
|
|
|
1,739,653
|
|
|
|
883,371
|
|
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)
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 a
ll of the Series D Preferred Stock at the same time. As a result,
the Company could not
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 convers
ion features wer
e 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 $2,009 for the three and nine months ended September 30, 2017, respectively, and $927 and $1,660 for the three and nine months ended October 1, 2016, respectively.
NOTE 5 –
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.
HSBC Invoice Finance (UK) Ltd
CBS Butler had a revolving accounts receivable financing arrangement with HSBC Invoice Finance (UK) Ltd “HSBC”. The facility, whose maximum capacity was £8,500, had an original expiration of January 2011, and provided for termination by either party with 90 days’ notice. Under the arrangement, CBS Butler could borrow against eligible short-term trade receivables in exchange for cash and a subordinated interest. The Company would receive cash equal to approximately 90% (varies slightly by geographical location of the receivable) of the value of the eligible receivables.
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 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%.
13
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share, per share and stated value per share)
(UNAUDITED)
NOTE 6
–
DEBT
|
|
September 30, 2017
|
|
|
December 31, 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
|
|
Total Debt
|
|
|
40,377
|
|
|
|
9,010
|
|
|
|
|
|
|
|
|
|
|
Less Debt Discount and Deferred Financing Costs
|
|
|
(1,380
|
)
|
|
|
(1,374
|
)
|
|
|
|
|
|
|
|
|
|
Total Debt, Net
|
|
|
38,997
|
|
|
|
7,636
|
|
|
|
|
|
|
|
|
|
|
Less: Current Portion, Net
|
|
|
(367
|
)
|
|
|
(3,639
|
)
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt, Net
|
|
$
|
38,630
|
|
|
$
|
3,997
|
|
Series B Bonds
In April 2017, these bonds were paid in full. During the period ended October 1, 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.
14
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share, per share and stated value per share)
(UNAUDITED)
Non-interest Bearing Convertible Not
e (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 $15.00 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 120,000 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 330,000 shares of common stock and a warrant to purchase up to 630,000 shares of common stock at an initial exercise price of $6.75 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 $10.00 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.
15
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 exercis
e 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 i
s less than the consolidated closing bid price of the common stock
.
The Company has accounted for these warrants as a liability under ASC 815-40 due to certain anti-dilution protection provisions.
The Company paid this note in full on September 18, 2017 and entered in a new note with Jackson (refer to “Jackson Note – Related Party”).
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 59,397 shares of common stock, with an additional 74,184 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 275,508 shares of common stock (subject to the same shareholder approval for issuance of shares to Jackson in excess of the 19.99% limit), modified the initial exercise price of the Warrant to $5.00 per share and modified the conversion price of accrued interest on the note issued to Jackson in January 2017 to $7.50. 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 $7.50 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 has accounted for these warrants as a liability under ASC 815-40 due to certain anti-dilution protection provisions. The Company has recorded a liability of $2,303 at September 30, 2017.
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 32,000 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 – Related Party”).
Jackson Investment Group Term Loan Note #4
On September 1, 2017, the Company entered 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 – Related Party”).
Jackson Note – Related Party
On September 15, 2017, the Company entered into a $40,000 note agreement with Jackson. 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
16
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)
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 ea
ch 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 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.
These shares are subject to registration rights in favo
r of Jackson which was included in a new resale registration statement which was filed by the Company on November 1, 2017. The Jackson Note resulted in the extinguishment of the old notes of $11,165 and recording of the new debt of $40,000 at fair value. The Company recorded $4,764 loss upon extinguishment of debt, and deferred debt issuance costs of $1,385 to be amortized over the term of the new loan.
Immediately prior to closing the Jackson Note, Jackson owned 526,697 shares of common stock and 905,508 warrants.
The Jackson Note includes customary covenants including a leverage ration covenant. The threshold for this covenant assumed that the UK borrowing facilities would be treated as a sale of receivables. However, the refinancing of the UK facilities was not completed until February 2018. As such, Jackson permitted the Company to calculate the leverage ratio as of September 30, 2017, on a pro forma basis as if the UK facilities were indeed treated consistent with the covenant threshold, which kept the Company in compliance with such covenant.
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 in 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.
17
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 7 –
EQUITY
Common Stock
The Company issued 2,009,805 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
|
|
|
394,600
|
|
|
$
|
972
|
|
|
$
|
2.80
|
|
|
$
|
3.80
|
|
Jackson Investment Group
|
|
|
945,581
|
|
|
|
2,527
|
|
|
|
2.75
|
|
|
|
3.70
|
|
Employees
|
|
|
338,240
|
|
|
|
408
|
|
|
|
2.75
|
|
|
|
4.70
|
|
Extension of convertible notes
|
|
|
120,000
|
|
|
|
498
|
|
|
|
4.15
|
|
|
|
4.15
|
|
CBS Butler Acquisition
|
|
|
100,000
|
|
|
|
430
|
|
|
|
4.30
|
|
|
|
4.30
|
|
Board and Committee members
|
|
|
44,900
|
|
|
|
166
|
|
|
|
3.10
|
|
|
|
4.70
|
|
At-the-Market Facility
|
|
|
61,984
|
|
|
|
208
|
|
|
|
3.15
|
|
|
|
3.50
|
|
Consultants
|
|
|
4,500
|
|
|
|
20
|
|
|
|
3.50
|
|
|
|
4.70
|
|
|
|
|
2,009,805
|
|
|
$
|
5,229
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Company’s authorized common stock consists of 20,000,000 shares having par value of $0.00001. Effective January 26, 2017, after obtaining shareholder approval, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 20,000,000 shares to 40,000,000 shares. The Company had issued and outstanding 3,837,764 and 1,827,959 shares of common stock as of September 30, 2017 and December 31, 2016, respectively.
In May 2017, using its effective shelf registration on Form S-3 (No. 333-208910), the Company entered into an at-the-market offering (“ATM”) agreement with Joseph Gunnar & Co., LLC to establish an at-the-market equity offering program pursuant to which they are able, with the Company’s authorization, to offer and sell up to $3 million of the Company’s common stock at prevailing market prices from time to time. Subsequent to period end and through to June 2018, the Company had sold 300,501 shares of common stock under this program at a value of $874.
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 September 30, 2017, the Company has a total of 463,053
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 nine months ended September 30, 2017 and October 1, 2016, the Company recorded compensation expense associated with these restricted shares of $575 and $373, respectively. For the three months ended September 30, 2017 and October 1, 2016, the Company recorded compensation expense associated with these restricted shares of $206 and $134, respectively.
Convertible Preferred Shares
Series A Preferred Stock – Related Party
In the quarter ended September 30, 2017, the Company paid $515 in dividends to its Series A preferred stock holders.
Series D Preferred Stock
On June 24, 2016, the Company entered into a Securities Purchase Agreement with certain purchasers pursuant to which the Company sold to the purchasers 211 shares of the Company’s Series D Preferred Stock at a face value of $10 (whole dollars) per share of Series D Preferred, and Original Issue Discount of 5% and a conversion price into common stock of $2.50 per share, for aggregate proceeds
18
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)
of approximat
ely $2,000 before placement fees and estimated offering expenses. The offering of the Series D Preferred Stock was made under the Company’s Shelf Registration.
Due to the contingent nature of the cash redemption feature of the Series D Preferred Stock, the Company has classified the shares as mezzanine equity on the consolidated balance sheets.
During the period ended October 1, 2016, holders of this series converted 118 shares of Series D Preferred Stock to 268,192 shares of common stock. During the period ended September 30, 2017, holders converted an additional 31 shares of Series D Preferred Stock to 334,600 shares of common 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 $2,009 for the three and nine months ended September 30, 2017, respectively, and $927 and $1,660 for the three and nine months ended October 1, 2016, 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.
Warrants
On January 26, 2017, the Company issued the Warrant to Jackson which entitled Jackson to purchase up to 630,000 shares of common stock at an initial exercise price of $6.75 per share (subject to adjustment). 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 Warrant had anti-dilution provisions which provided the holder with additional warrants and adjusted strike price in the event of stock repurchases by the Company or additional shares being issued in connection with the Series D Preferred Shares or Lighthouse promissory notes. As such, the Company has classified the Warrant as a liability.
On April 5, 2017, the Company amended the Warrant and entered into a second subordinated secured note with Jackson for $1,650. Under the terms of the amended Warrant, Jackson may purchase up
to an additional 275,508 shares of common stock
at $5.00 per share. The Warrant was amended to increase the amount of common stock issuable to Jackson pursuant to the anti-dilution clause contained therein, and to adjust the initial exercise price to $5.00 per share. The modification cost associated with this change was $91. 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 warrant liability. Therefore, upon execution of this amendment, the Company recorded a mark-to-market gain and reclassed the remaining liability to Additional paid-in capital, based on Black-Scholes valuation as of the amended date.
On September 15, 2017, the Company issued 20,000 three-year cashless warrants with an exercise price of $5.00 valued at $28.
Transactions involving the Company’s warrant issuances are summarized as follows:
|
|
Number of
shares
|
|
|
Weighted
Average
Price
Per Share
|
|
Outstanding at December 31, 2016
|
|
|
6,726
|
|
|
$
|
97.62
|
|
Issued
|
|
|
925,508
|
|
|
|
5.00
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired or cancelled
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2017
|
|
|
932,234
|
|
|
$
|
5.67
|
|
Stock Options
19
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)
On October 25, 2016, our Board adopted the 2016 Omnibus Incentive Plan (the “2016 Plan”) to, among other things, attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the suc
cess of the Company’s business. On January 26, 2017, our stockholders approved the 2016 Plan, pursuant to which 500,000 shares of the Company’s common stock will be reserved for issuance under stock and stock option awards. During the period ended Septembe
r 30, 2017 the Company issued
to employees and consultants, 387,640 shares and 62,700 options, with an exercise price of $6.75 per share to purchase shares of common stock
, and therefore has
49,660
remaining
under this plan. The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes
option pricing model:
Exercise price
|
|
$
|
6.75
|
|
Market price at date of grant
|
|
$
|
3.10
|
|
Volatility
|
|
|
99.38
|
%
|
Expected dividend rate
|
|
|
—
|
|
Expected term (years)
|
|
|
5
|
|
Risk-free interest rate
|
|
|
1.93
|
%
|
During the three months ended September 30, 2017 and October 1, 2016, the Company recorded stock compensation expense of $96 and $90, respectively, in connection with all options outstanding. During the nine months ended September 30, 2017 and October 1, 2016, the Company recorded stock compensation expense of $283 and $270, respectively, in connection with all options outstanding.
NOTE 8 –
COMMITMENTS AND CONTINGENCIES
Earn-out Liabilities and Stock Value Guarantees
Pursuant to the acquisition of Control Solutions International, Inc. (“CSI”), 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 the period ended September 30, 2017 and October 1, 2016, the Company paid $68 and $104, respectively, towards the earn-out liability. This accrual is related to the matter of
NewCSI, Inc. vs. Staffing 360 Solutions, Inc.
below. Under the settlement agreement, the Company will continue to pay a total of $45 subsequent to September 30, 2017, with the final payment being made in January 2018.
Pursuant to the acquisition of The JM Group, 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,
20
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)
2015, a Magistrate Judg
e 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 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. On August 29, 2017 the surety company released the supersedeas bond to the New CSI shareholders’ counsel, which was approximately $5 less than the judgment amount with accumulated interest. Payment of this remaining balance has been made subsequent to period end. The amount of the legal fee award was left for final determination by the trail court.
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.
On May 30, 2018 the trial judge issued an order adopting the report and recommendation of the magistrate judge and awarding NewCSI the amount of $606 in legal fees, plus interest at the statutory rate. The Company intends to pay $607 in full settlement of this matter in June 2018.
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
21
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)
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.
NOTE 9 –
SEGMENTS
The Company’s operating segments, which are consistent with its reportable segments, are organized by geography in accordance with its internal management and reporting structure.
For the period ended September 30, 2017 and October 1, 2016, the Company generated revenue and gross profit by segment as follows:
|
|
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
|
|
United States
|
|
$
|
37,830
|
|
|
$
|
38,845
|
|
|
$
|
107,441
|
|
|
$
|
112,557
|
|
United Kingdom
|
|
|
12,452
|
|
|
|
7,074
|
|
|
|
25,634
|
|
|
|
22,790
|
|
Canada
|
|
|
63
|
|
|
|
31
|
|
|
|
99
|
|
|
|
76
|
|
Total Revenue
|
|
$
|
50,345
|
|
|
$
|
45,950
|
|
|
$
|
133,174
|
|
|
$
|
135,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
7,033
|
|
|
$
|
6,815
|
|
|
$
|
19,441
|
|
|
$
|
18,842
|
|
United Kingdom
|
|
|
2,523
|
|
|
|
1,581
|
|
|
|
5,352
|
|
|
|
4,744
|
|
Canada
|
|
|
21
|
|
|
|
9
|
|
|
|
34
|
|
|
|
35
|
|
Total Gross Profit
|
|
$
|
9,577
|
|
|
$
|
8,405
|
|
|
$
|
24,827
|
|
|
$
|
23,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses, excluding
depreciation and amortization stated below
|
|
$
|
(8,800
|
)
|
|
$
|
(7,917
|
)
|
|
$
|
(22,362
|
)
|
|
$
|
(24,194
|
)
|
Depreciation and amortization
|
|
|
(790
|
)
|
|
|
(727
|
)
|
|
|
(2,310
|
)
|
|
|
(2,059
|
)
|
Interest expense
|
|
|
(761
|
)
|
|
|
(615
|
)
|
|
|
(1,843
|
)
|
|
|
(2,007
|
)
|
Amortization of beneficial conversion feature
|
|
|
—
|
|
|
|
(183
|
)
|
|
|
—
|
|
|
|
(550
|
)
|
Amortization of debt discount and deferred financing costs
|
|
|
(1,212
|
)
|
|
|
(401
|
)
|
|
|
(2,610
|
)
|
|
|
(1,310
|
)
|
Loss on extinguishment of debt, net
|
|
|
(4,764
|
)
|
|
|
—
|
|
|
|
(6,132
|
)
|
|
|
—
|
|
Change in fair value of warrants
|
|
|
(688
|
)
|
|
|
—
|
|
|
|
(493
|
)
|
|
|
—
|
|
Gain on settlement of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
485
|
|
Other expense
|
|
|
(10
|
)
|
|
|
(35
|
)
|
|
|
(31
|
)
|
|
|
(38
|
)
|
Loss Before Provision for Income Tax
|
|
$
|
(7,448
|
)
|
|
$
|
(1,473
|
)
|
|
$
|
(10,954
|
)
|
|
$
|
(6,052
|
)
|
As of September 30, 2017, and December 31, 2016, the Company has assets in the U.S., the U.K. and Canada as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
60,795
|
|
|
$
|
44,990
|
|
United Kingdom
|
|
|
33,261
|
|
|
|
8,936
|
|
Canada
|
|
|
69
|
|
|
|
31
|
|
Total Assets
|
|
$
|
94,125
|
|
|
$
|
53,957
|
|
22
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 10 -
ACQUISITIONS
Based upon a preliminary valuation, the Company recorded the following identifiable intangible assets in connection with the acquisition of FirstPro and CBS Butler:
|
|
CBS Butler
|
|
|
FirstPro
|
|
Goodwill
(1)
|
|
$
|
13,754
|
|
|
$
|
3,829
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
Tradenames
|
|
$
|
1,123
|
|
|
$
|
35
|
|
Non-compete
|
|
|
150
|
|
|
|
193
|
|
Customer Relationships
|
|
|
4,473
|
|
|
|
3,136
|
|
|
|
$
|
5,746
|
|
|
$
|
3,364
|
|
|
(1)
|
Goodwill amounts are shown net of adjustments of $811 and $702 for CBS Butler and FirstPro, respectively, for discounting of deferred payment and earnouts and other purchases accounting adjustments.
|
In connection with the acquisition of CBS Butler and FirstPro, the Company performed a preliminary valuation of identifible intangible assets of $5,746 and $3,364, respectively, representing trade names, customer relationships, and non-compete agreements. These assets are being amortized on a straight line basis over their weighted average estimated useful life of 10 years. The Company acquired a total of $8,527 in receivables and fair value of these receivables equals the contract value. The Company finalized its’ purchase price allocation during the fourth quarter of 2017.
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 January 1, 2016:
|
|
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
|
|
Revenues
|
|
$
|
63,854
|
|
|
$
|
66,944
|
|
|
$
|
184,995
|
|
|
$
|
201,611
|
|
Net loss from continuing operations
|
|
|
(7,837
|
)
|
|
|
(1,311
|
)
|
|
|
(11,674
|
)
|
|
|
(8,468
|
)
|
The Company recorded
$6,768 in revenues that came from the acquisitions completed during the quarter.
The Company recorded a total of $384 in third party expenses associated with consummating the two acquisitions, which are included in Selling, general and administrative expenses, excluding depreciation and amortization stated below on the Condensed Consolidated Statement of Operations.
NOTE 11 –
OTHER RELATED PARTY TRANSACTIONS
Consulting Fees – Related Party
Board and Committee Members
During the period from July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company incurred $19 and $13, respectively, in board of director fees to Dimitri Villard. During the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company incurred $50 and $38, respectively, in board of director fees to Dimitri Villard. During the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, Mr. Villard also received 1,700 and 1,200 shares of common stock valued at $6 and $15, respectively for his services as a board and committee member. During the period ended September 30, 2017, Mr. Villard received 13,200 shares valued at $54 as a bonus.
These shares vest over a three year period and as such the Company has recognized expense of $56 and $42 during the period ended September 30, 2017 and period ended October 1, 2016, respectively.
The Company has $
0
in accrued in accounts payable and accrued expenses – related parties account, as of September 30, 2017.
23
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)
During the period from July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company incurred $
19
and $13, respectively, in board of director fees to Jeff Grout. During
the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company incurred $50 and $38, respectively, in board of director fees to Jeff Grout. During the period from January 1, 2017 to September 30, 2017 and January
3, 2016 to October 1, 2016, Mr. Grout also received
1,700 and 1,200 shares of
common stock valued at $6 and $15, respectively, for his service as a board and committee member. Mr. Grout also received 13,200 shares valued at $54 as a bonus during the p
eriod
ended September 30, 2017.
These shares vest over a three year period and as such the Company has recognized expense of $56 and $42 during the period ended September 30, 2017 and period ended October 1, 2016, respectively.
The Company has $0 balance in acc
rued in accounts payable and accrued expenses – related parties account as of September 30, 2017.
During the period from July 2, 2017 to September 30, 2017 and July 3, 2016 to October 1, 2016, the Company incurred $19
and $13, respectively,
in board of director fees to Nick Florio. During the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, the Company incurred $50 and $38, respectively, in board of director fees to Nick Florio. During the period from January 1, 2017 to September 30, 2017 and January 3, 2016 to October 1, 2016, Mr. Florio also received
1,900
and 1,000 shares of common stock valued at $7 and $12, respectively for his services as a board and committee member. In addition, during the period ended September 30, 2017, Mr. Florio received 13,200 shares valued at $54 as a bonus.
These shares vest over a three year period and as such the Company has recognized expense of $54 and $41 during the period ended September 30, 2017 and period ended October 1, 2016, respectively.
At the request of Mr. Florio, all cash payments, common stock issuances and stock option issuances have been made in the name of Citrin Cooperman & Company, LLP. The Company has $0 balance in accrued in accounts payable and accrued expenses – related parties account as of September 30, 2017.
NOTE 12 –
SUPPLEMENTAL CASH FLOW INFORMATION
|
January 1, 2017 to
September 30, 2017
|
|
|
January 3, 2016 to
October 1, 2016
|
|
Cash paid for:
|
|
|
|
|
|
|
|
Interest
|
$
|
1,827
|
|
|
$
|
1,559
|
|
Income taxes
|
|
140
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
Non Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
Shares issued in connection with convertible note
|
$
|
498
|
|
|
$
|
—
|
|
Shares issued in connection with Jackson term loan
|
|
2,527
|
|
|
|
—
|
|
Warrants issued in connection with Jackson term loan
|
|
2,303
|
|
|
|
—
|
|
Shares issued in connection with Series D payoff
|
|
208
|
|
|
|
—
|
|
Shares issued in connection with CBS Butler acquisition
|
|
430
|
|
|
|
—
|
|
Deemed Dividends
|
|
2,009
|
|
|
|
1,660
|
|
Dividends - Series A preferred stock - related party
|
|
—
|
|
|
|
150
|
|
Conversion of a convertible note payable
|
|
—
|
|
|
|
(1,066
|
)
|
Shares issued in connection with convertible notes
|
|
—
|
|
|
|
315
|
|
Shares issued in connection with promissory notes
|
|
—
|
|
|
|
65
|
|
CSI earnout (payment with surety bond)
|
|
1,405
|
|
|
|
—
|
|
NOTE 13 –
SUBSEQUENT EVENTS
Where applicable, all material subsequent events have been disclosed in their respective Notes to these financial statements except as follows:
The Company performed its annual goodwill impairment
testing as of October 1, 2017 and recognized an impairment
with respect to its PeopleServe reporting unit of $4,790, fully impairing the goodwill of this reporting unit. The impairment resulted from a co
ntinued decline in that reporting unit’s revenue which has lower margin than other reporting units. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (disc
ounted cash flow analysis) to derive the fair value of the reporting unit. Under ASU 2017-04, which the Company early adopted, the impairment amount represents the excess of the carrying value over the fair value of the reporting unit.
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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 June 2018, the Company divested its PeopleServe business for an estimated net proceeds of $1,700. The final net proceeds are subject to a net working capital true up.
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