AmrF

 

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 28, 2020

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, every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth 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

 

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 June 26, 2020, there were 9,322,563 outstanding common stock shares, par value $0.00001 per share, of the issuer.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock

 

STAF

 

NASDAQ

 

 

 

 


EXPLANATORY NOTE

 

As previously reported by Staffing 360 Solutions, Inc. (the “Company”) in its Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 11, 2020 (in accordance with the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (Release No. 34-88318) (as modified on March 25, 2020 by Release No. 34-88465, the “Order”), the Company disclosed that it was relying on the relief provided by the Order in connection with the filing of this Quarterly Report on Form 10-Q for the quarter ended March 28, 2020 (the “Report”) due to the circumstances related to coronavirus or COVID-19. Because of government regulations enacted to combat the COVID-19 pandemic, the Company’s offices and systems have been subject to closure and testing and, as a result, its staff were at the time and still are working remotely.  The disturbance in the Company’s operations prevented the Company from making forward projections and determining the value of certain assets on its balance sheet. Therefore, due to COVID-19’s interference in the Company’s operations, the Company was unable to file the Report prior to the due date.

 


Form 10-Q Quarterly Report

INDEX

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

1

 

 

Condensed Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 28, 2019

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 28, 2020 and March 30, 2019  

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 28, 2020 and March 30, 2019  

 

3

 

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 28, 2020 and March 30, 2019  

 

4

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 28, 2020 and March 30, 2019  

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2

 

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

 

22

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

33

Item 1A

 

Risk Factors

 

33

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3

 

Defaults Upon Senior Securities

 

35

Item 4

 

Mine Safety Disclosures

 

35

Item 5

 

Other Information

 

35

Item 6

 

Exhibits

 

36

 

 

 

 

 

Signatures

 

 

 

37

 

 

 


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 28,

 

 

December 28,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

931

 

 

$

1,196

 

Accounts receivable, net

 

 

27,393

 

 

 

26,604

 

Prepaid expenses and other current assets

 

 

1,371

 

 

 

842

 

Total Current Assets

 

 

29,695

 

 

 

28,642

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,442

 

 

 

1,528

 

Intangible assets, net

 

 

18,604

 

 

 

19,511

 

Goodwill

 

 

27,603

 

 

 

31,049

 

Right of use asset - leases

 

 

4,478

 

 

 

4,888

 

Other assets

 

 

2,988

 

 

 

3,223

 

Total Assets

 

$

84,810

 

 

$

88,841

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,050

 

 

$

16,577

 

Payable - related party

 

 

5,718

 

 

 

3,884

 

Current portion of debt

 

 

644

 

 

 

676

 

Current debt - related party

 

 

37,967

 

 

 

37,780

 

Accounts receivable financing

 

 

18,232

 

 

 

19,374

 

Lease liabilities, current

 

 

1,702

 

 

 

1,797

 

Other current liabilities

 

 

4,054

 

 

 

3,907

 

Total Current Liabilities

 

 

87,367

 

 

 

83,995

 

 

 

 

 

 

 

 

 

 

Term loan

 

 

181

 

 

 

360

 

Lease liabilities, non current

 

 

2,855

 

 

 

3,183

 

Other long-term liabilities

 

 

1,499

 

 

 

1,670

 

Total Liabilities

 

 

91,902

 

 

 

89,208

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Series E-1 Preferred Stock, 6,500 designated, $0.00001 par value, 891 and 729 shares issued and outstanding as of March 28, 2020 and December 28, 2019, respectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A Preferred Stock - Related Party, 1,039,380 shares designated, $0.00001 par value, 1,039,380 shares issued and outstanding, as of March 28, 2020 and December 28, 2019, respectively

 

 

 

 

 

 

Series E Preferred Stock - Related Party, 13,000 designated, $0.00001 par value, 13,000 shares issued and outstanding as of March 28, 2020 and December 28, 2019

 

 

13

 

 

 

13

 

Common stock, $0.00001 par value, 40,000,000 shares authorized as of March 28, 2020 and December 28, 2019; 9,107,563 and 8,785,748 shares issued and outstanding, as of March 28, 2020 and December 28, 2019, respectively

 

 

1

 

 

 

1

 

Additional paid in capital

 

 

76,028

 

 

 

76,214

 

Accumulated other comprehensive income (loss)

 

 

400

 

 

 

(58

)

Accumulated deficit

 

 

(83,534

)

 

 

(76,537

)

Total Stockholders' Deficit

 

 

(7,092

)

 

 

(367

)

Total Liabilities and Stockholders' Deficit

 

$

84,810

 

 

$

88,841

 

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 2020 YTD

 

 

Q1 2019 YTD

 

Revenue

 

$

58,692

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, excluding depreciation and amortization stated below

 

 

48,044

 

 

 

61,711

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

10,648

 

 

 

12,118

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

10,961

 

 

 

10,491

 

Impairment of goodwill

 

 

2,969

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

877

 

Total Operating Expenses

 

 

14,715

 

 

 

11,368

 

 

 

 

 

 

 

 

 

 

(Loss) Income From Operations

 

 

(4,067

)

 

 

750

 

 

 

 

 

 

 

 

 

 

Other (Expenses) Income:

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,417

)

 

 

(2,007

)

Re-measurement (loss) gain on intercompany note

 

 

(675

)

 

 

351

 

 

 

 

 

 

 

 

 

 

Gain on settlement of deferred consideration

 

 

 

 

 

847

 

Other (loss) income, net

 

 

(14

)

 

 

286

 

Total Other Expenses, net

 

 

(3,106

)

 

 

(523

)

 

 

 

 

 

 

 

 

 

(Loss) Income Before Provision for Income Tax

 

 

(7,173

)

 

 

227

 

 

 

 

 

 

 

 

 

 

Benefit from income taxes

 

 

176

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Net (Loss) Income

 

 

(6,997

)

 

 

229

 

 

 

 

 

 

 

 

 

 

Dividends - Series A Preferred Stock - related party

 

 

31

 

 

 

50

 

Dividends - Series E Preferred Stock - related party

 

 

390

 

 

 

390

 

Dividends - Series E-1 Preferred Stock - related party

 

 

182

 

 

 

182

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(7,600

)

 

$

(393

)

 

 

 

 

 

 

 

 

 

Basic and Diluted Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(0.90

)

 

$

(0.06

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

8,473,820

 

 

 

6,914,601

 

 

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 2020 YTD

 

 

Q1 2019 YTD

 

Net (Loss) Income

 

$

(6,997

)

 

$

229

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

458

 

 

 

(618

)

Comprehensive Loss Attributable to the Company

 

$

(6,539

)

 

$

(389

)

 

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 CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

(All amounts in thousands)

(UNAUDITED)

 

 

 

 

Shares

 

 

Par

Value

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated Deficit

 

 

Total Deficit

 

 

Series E-1

 

 

 

Series A

 

 

Series E

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 28, 2019

 

729

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

8,785,748

 

 

$

1

 

 

$

76,214

 

 

$

(58

)

 

$

(76,537

)

 

$

(367

)

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,600

 

 

 

 

 

 

173

 

 

 

 

 

 

 

 

 

173

 

Share issuance to Jackson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

244

 

 

 

 

 

 

 

 

 

244

 

Conversion of Series A to common shares

 

 

 

 

 

 

 

 

(623,628

)

 

 

 

 

 

 

 

 

 

 

 

16,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Dividends - Series E Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(390

)

 

 

 

 

 

 

 

 

(390

)

Dividends - Series E-1 Preferred Stock - Related Party

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

 

 

 

458

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,997

)

 

 

(6,997

)

Balance March 28, 2020

 

891

 

 

$

 

 

 

 

1,039,380

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

9,107,563

 

 

$

1

 

 

$

76,028

 

 

$

400

 

 

$

(83,534

)

 

$

(7,092

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

(All amounts in thousands)

(UNAUDITED)

 

 

Shares

 

 

Par

Value

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive loss

 

 

Accumulated Deficit

 

 

Total Equity

 

 

Series E-1

 

 

 

Series A

 

 

Series E

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 29, 2018

 

81

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

5,326,068

 

 

$

 

 

$

73,772

 

 

$

2,053

 

 

$

(71,643

)

 

 

4,195

 

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,600

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

199

 

Sale of common stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,902,680

 

 

 

 

 

 

3,964

 

 

 

 

 

 

 

 

 

3,964

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(50

)

Dividends - Series E Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(390

)

 

 

 

 

 

 

 

 

(390

)

Dividends - Series E-1 Preferred Stock - Related Party

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Dividends - Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

 

 

 

 

 

 

(81

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(618

)

 

 

 

 

 

(618

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

229

 

Balance March 30, 2019

 

243

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

8,234,348

 

 

$

 

 

$

77,232

 

 

$

1,435

 

 

$

(71,414

)

 

$

7,266

 

 

 

 

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

 

5


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net (Loss) Income

 

$

(6,997

)

 

$

229

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

877

 

Amortization of debt discount and deferred financing costs

 

 

187

 

 

 

157

 

Stock based compensation

 

 

173

 

 

 

199

 

Impairment of goodwill

 

 

2,969

 

 

 

 

Gain on settlement of deferred consideration

 

 

 

 

 

(847

)

Re-measurement (loss) gain on intercompany note

 

 

675

 

 

 

(351

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,886

)

 

 

(5,186

)

Prepaid expenses and other current assets

 

 

(551

)

 

 

(212

)

Other assets

 

 

1,172

 

 

 

(79

)

Accounts payable and accrued expenses

 

 

3,012

 

 

 

3,547

 

Interest payable - related party

 

 

1,474

 

 

 

 

Other current liabilities

 

 

149

 

 

 

(118

)

Other long-term liabilities and other

 

 

(835

)

 

 

558

 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

 

(1,673

)

 

 

(1,226

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(95

)

 

 

(44

)

Collection of UK factoring facility deferred purchase price

 

 

2,720

 

 

 

3,469

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

2,625

 

 

 

3,425

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of term loan

 

 

(168

)

 

 

(156

)

Repayments on accounts receivable financing, net

 

 

(1,050

)

 

 

(5,137

)

Dividends paid to related parties

 

 

 

 

 

(245

)

Dividends paid on common stock

 

 

 

 

 

(81

)

Proceeds from sale of common stock

 

 

 

 

 

4,914

 

Payments made for earn-outs

 

 

 

 

 

(1,200

)

Third party financing costs

 

 

 

 

 

(950

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(1,218

)

 

 

(2,855

)

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH

 

 

(266

)

 

 

(656

)

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

1

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

1,196

 

 

 

3,181

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

931

 

 

$

2,523

 

 

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

 

 

 

 

6


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”) was incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation, which changed its name to Staffing 360 Solutions, Inc., ticker symbol “STAF,” on March 16, 2012. On June 15, 2017, the Company changed its state of domicile to Delaware. We are 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, domestic and international staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, information technology (“IT”), engineering, administration (“Professional”) and light industrial (“Commercial”) disciplines.

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 28, 2019 which are included in the Company’s December 28, 2019 Form 10-K (“Fiscal 2019”), filed with the United States Securities and Exchange Commission on May 11, 2020. 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 28, 2020 are not necessarily indicative of results for the entire year ending December 26, 2020. This report is for the period December 29, 2019 to March 28, 2020 (“Q1 2020 YTD”) and December 30, 2018 to March 30, 2019 (“Q1 2019 YTD”).

 

Liquidity

 

The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended March 28, 2020, the Company has an accumulated deficit of $83,534 and a working capital deficit of $57,672. At March 28, 2020, we had total debt of $39,102 and $931 of cash on hand. We have historically met our cash needs through a combination of cash flows from operating activities, term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Our cash requirements are generally for operating activities and debt repayments

 

The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.

 

Further, our note issued to Jackson Investment Group LLC (“Jackson”) includes certain financial customary covenants and the Company has had instances, including as of the period ended March 28, 2020, of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance, including as of March 28, 2020, and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain

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)

 

such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.

 

Due to substantial doubt about the Company’s ability to continue as a going concern as expressed in our Form 10-K filed with the United States Securities and Exchange Commission on May 11, 2020, the Company was not in compliance with its covenant with MidCap for the period ended December 28, 2019, as such amounts due are callable by the lender which exceed our current cash balance. On May 8, 2020, the Company received a notice from Midcap that they would currently not pursue available rights and remedies but reserve the right to do so at a later date.

 

Going concern

 

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company’s debt obligations and certain unsecured payments associated with historical acquisitions are due in the next 12 months, and the Company’s debt obligations with Jackson and MidCap Funding X (“MidCap”) may become due on demand due to certain covenant violations discussed above, which are in excess of cash and cash equivalents on hand. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. If the Company is unable to obtain additional capital, such payments may not be made on time.

 

The Novel Coronavirus Disease 2019 (“COVID-19”), is impacting worldwide economic activity, and activity in the United States and the United Kingdom where the Company’s operations are based. The nature of work of the contractors the Company supports mostly are on the site of the Company’s clients.  As a result, the Company is subject to the plans and approaches of the Company’s clients to work during this period.  This includes whether they support remote working when they have decided to close their facilities.  To the extent that the Company’s clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, the Company would no longer generate revenue and profit from that client.  Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where the Company has seen declines of approximately 33% and 30% in revenues during the months of April and May 2020, respectively. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2020 and the Company’s overall liquidity.

 

These factors combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.

 

COVID-19

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this quarterly report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to generate revenues. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the duration of the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020, however the Company continues to take action to reduce the negative effects of the COVID-19 outbreak on its operations through various cost cutting initiatives including reductions to support personnel, temporary salary reductions, and elimination of other non-essential spend. Should the impact from the pandemic go on for an extended period of time, management has developed further plans to partially mitigate the impact of the pandemic.

 

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

 

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)

 

On May 12, 2020, Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a note (the “May 12 Note”) with Newton Federal Bank (the “Bank”), pursuant to the Paycheck PPP of the CARES Act administered by the U.S. Small Business Administration. The principal amount of the May 12 Note is $10,000.

 

In accordance with the requirements of the CARES Act, the Company and Monroe Staffing (collectively, the “May 12 Note Borrowers”) intends to use the proceeds from the May 12 Note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the May 12 Note at the rate of 1.00% per annum. The May 12 Note Borrowers may apply for forgiveness of the amount due under the May 12 Note, in an amount equal to the sum of qualified expenses under the PPP. The May 12 Note Borrowers intend to use the entire proceeds under the May 12 Note for such qualifying expenses.

 

Subject to any forgiveness under the PPP, the May 12 Note matures two years following the date of issuance of the May 12 Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the May 12 Note, the May 12 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 12 Note may be prepaid at any time prior to maturity. The May 12 Note provides for customary events of default, including, among others, those relating to breaches of obligations under the May 12 Note, including a failure to make payments, any bankruptcy or similar proceedings involving the May 12 Note Borrowers, and certain material effects on the May 12 Note Borrowers’ ability to repay the May 12 Note. The May 12 Note Borrowers did not provide any collateral or guarantees for the May 12 Note.

 

On May 20, 2020, Key Resources Inc. (“KRI”), Lighthouse Placement Services, LLC (“LH”) and Staffing 360 Georgia, LLC (“SG”), each a wholly owned direct or indirect subsidiary of the Company, entered into the following notes, each dated May 20, 2020, with the Bank, pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration. KRI entered into a note (the “KRI Note”) for the principal amount of approximately $5,443, LH entered into a note (the “LH Note”) for the principal amount of approximately $1,890, and SG entered into a note (the “SG Note,” and, together with the KRI Note and LH Note, the “May 20 Notes”) for the principal amount of approximately $2,063. The combined total of the May 20 Notes is approximately $9,395.

 

In accordance with the requirements of the CARES Act, the Company, KRI, LH and SG (collectively, the “May 20 Note Borrowers”) intends to use the proceeds from the May 20 Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on each of the May 20 Notes at the rate of 1.00% per annum. The May 20 Note Borrowers may apply for forgiveness of the amount due under the May 20 Notes, in an amount equal to the sum of qualified expenses under the PPP. The May 20 Note Borrowers intend to use the entire proceeds under the May 20 Notes for such qualifying expenses.

 

Subject to any forgiveness under the PPP, each of the May 20 Notes mature two years following the date of issuance of the May 20 Notes and include a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of each of the May 20 Notes, the May 20 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 20 Notes may be prepaid at any time prior to maturity. The May 20 Notes provide for customary events of default, including, among others, those relating to breaches of obligations under the May 20 Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Borrowers, and certain material effects on the Borrowers’ ability to repay the May 20 Notes. The May 20 Note Borrowers did not provide any collateral or guarantees for the May 20 Notes.

 

The application for these funds required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the adverse impact the pandemic had on our business and the degree of uncertainty introduced to the capital markets. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department.

 

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and

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)

 

wages for employees with salaries of $100 or less annually are reduced by more than 25%. The ultimate forgiveness of the PPP loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal

 

Effective March 27, 2020, the Company is deferring Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act section 2302. Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022.

 

Goodwill

Goodwill relates to amounts that arose in connection with various acquisitions and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but it is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator.

In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company's goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.

The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value.

 

The Company performed its annual goodwill impairment testing as of September 29, 2019 and no impairment was recognized.  In Q1 2020, the Company determined that the COVID-19 outbreak is a triggering event since this could potentially impact industry and market conditions, have negative effect on earnings and cash flows, and overall financial performance. The Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) to derive the fair value of the reporting unit when performing its annual impairment testing. Volatility in the Company’s stock price can result in the net book value of our reporting units approximating, or even temporarily exceeding market capitalization, however, the fair value of our reporting units are driven solely by the market price of our stock. As described above, fair value of our reporting units are derived using a combination of an asset approach, an income approach and a market approach. These valuation techniques consider several other factors beyond our market capitalization, such as the estimated future cash flows of our reporting units, the discount rate used to present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment.

 

The Company recognized an impairment with respect to its FirstPro reporting unit of $2,969 during the quarter ended March 28, 2020. The impairment resulted from a continued decline in that reporting unit’s revenue which has lower margin than other reporting units and experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) and prevailing market conditions 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.

 

The remaining reporting units were not impaired during the quarter ended March 28, 2020 however, in the case of one reporting unit, the fair value exceeded the carrying value by approximately 13%. Goodwill for this reporting unit should be considered at risk given the approximation of the estimated fair value to the carrying value of the respective reporting units. In the assumptions utilized by management, declines to revenue are expected in 2020 and then improve in future years with modest growth rates of between 0% to 2%. Further, management expects to recognize expense synergies in both Reporting Units as the Company continues to integrate recently acquired businesses. The assumed discount rate utilized in the income approach model was considered to be commensurate with the

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)

 

estimation uncertainty for these reporting units. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated in 2020 while failing to achieve growth in future periods an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of these reporting units, market declines, changes in discount rates or other conditions could result in an impairment in the future.

Revenue Recognition

On December 31, 2017, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers for all open contracts and related amendments as of December 31, 2017 using the modified retrospective method.  The adoption had no impact to the reported results.

 

The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict 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 receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

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 of 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 point control has transferred to the customer. Revenue in Q1 2020 YTD was comprised of $55,996 of temporary contractor revenue and $2,696 of permanent placement revenue, compared with $70,998 and $2,831 for Q1 2019 YTD, respectively. Refer to Note 10 for further details on breakdown by segments.  

Reclassifications

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

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 2.4% and (1.06)% for the period ending Q1 2020 YTD and Q1 2019 YTD, respectively.

Foreign Currency

The Company recorded a non-cash foreign currency remeasurement (loss) gain of $(675) and $351 in Q1 2020 YTD and Q1 2019 YTD, respectively, associated with its U.S dollar denominated intercompany note.

Recent Accounting Pronouncements

On December 31, 2019, the FASB issued ASC 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” (Topic 740). The amendments in this update simplify the accounting for income taxes by removing the certain exceptions. For public business entities,

11


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  The Company adopted this guidance effective December 30, 2018. 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 new standard provides a number of optional practical expedients in transition. The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply i) the practical expedient which allows us to not separate lease and non-lease components, and (2) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. The adoption of the new standard resulted in the recognition of additional lease liabilities of approximately $4,980, and right-of-use assets of approximately $4,888 as of December 28, 2019 related to the Company’s operating leases. The new standard did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows.

 

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/loss available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A Preferred Stockholders (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 2020 and Q1 2019, pursuant to the two-class method, as a result of the net loss attributable to common stock holders, 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, unvested equity awards 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 28, 2020 and March 30, 2019 have not been included in the diluted earnings per share computations, as their inclusion would be anti dilutive due to the Company’s net loss as of March 28, 2020 and March 30, 2019:

 

 

 

March 28,

 

 

March 30,

 

 

 

2020

 

 

2019

 

Convertible preferred shares

 

 

7,867,142

 

 

 

7,492,995

 

Warrants

 

 

925,935

 

 

 

925,935

 

Restricted shares - unvested

 

 

450,915

 

 

 

557,184

 

Long term incentive plan (2019 LTIP)

 

 

355,000

 

 

 

375,000

 

Options

 

 

76,500

 

 

 

111,400

 

Total

 

 

9,675,492

 

 

 

9,462,514

 

 

 

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 4 ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

HSBC Invoice Finance (UK) Ltd – New Facility

On February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited 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%.

 

On June 28, 2018, Clement May Limited (“CML”), the Company’s new subsidiary entered into a new agreement with a minimum term of 12 months for purchase of debt (“APD”) with HSBC, joining CBS Butler, Staffing 360 Solutions Limited and The JM Group (collectively, with CML, the “Borrowers”) as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £20,000 across all Borrowers. The obligations of the Borrowers are secured by a fixed charge and a floating charge on the Borrowers’ respective accounts receivable and are subject to cross-company guarantees among the Borrowers. In addition, the secured borrowing line against unbilled receivables was increased to £1,500 for a period of 90 days. In July 2019, the aggregate Facility Limit was extended to £22,500 across all Borrowers.

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, is classified within investing activities.

 

Midcap Funding Trust

On August 2, 2019, the Company amended the facility with Midcap to allow for additional borrowing against the unbilled receivables by $1,000 to a cap of $2,300 and extended the maturity of the facility to August 2020. As of March 28, 2020 and December 28, 2019 approximately $16,283 and $17,298 are outstanding under this facility, respectively.

 

Due to substantial doubt about the Company’s ability to continue as a going concern as expressed in our Form 10-K filed with the United States Securities and Exchange Commission on May 11, 2020, the Company was not in compliance with its covenant with Midcap for the period ended December 28, 2019, as such amounts due are callable by the lender which exceed the Company’s current cash balance. On June 24, 2020, the Company received a notice from Midcap that they would currently not pursue available rights and remedies but reserve the right to do so at a later date.

 

 

NOTE 5 – GOODWILL

 

The following table provides a roll forward of goodwill:

 

 

March 28, 2020

 

 

December 28, 2019

 

Beginning balance, net

$

31,049

 

 

$

32,061

 

Accumulated impairment losses

 

(2,969

)

 

 

-

 

Currency translation

 

(477

)

 

 

(1,012

)

Ending balance, net

$

27,603

 

 

$

31,049

 

 

 

 

 

 

 

 

 

The Company recognized an impairment with respect to its FirstPro reporting unit of $2,969 during the quarter ended March 28, 2020. The impairment resulted from a continued decline in that reporting unit’s revenue which has lower margin than other reporting units and experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) and prevailing market conditions 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.

 

The remaining reporting units were not impaired during the quarter ended March 28, 2020 however, in the case of one reporting unit, the fair value exceeded the carrying value by approximately 13%. Goodwill for this reporting unit should be considered at risk given the approximation of the estimated fair value to the carrying value of the respective reporting units. In the assumptions utilized by management, declines to revenue are expected in 2020 and then improve in future years with modest growth rates of between 0% to

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)

 

2%. Further, management expects to recognize expense synergies in both Reporting Units as the Company continues to integrate recently acquired businesses. The assumed discount rate utilized in the income approach model was considered to be commensurate with the estimation uncertainty for these reporting units. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated in 2020 while failing to achieve growth in future periods an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of these reporting units, market declines, changes in discount rates or other conditions could result in an impairment in the future.

 

NOTE 6 – DEBT

 

 

 

March 28, 2020

 

 

December 28, 2019

 

Jackson Investment Group - related party

 

$

38,278

 

 

$

38,278

 

HSBC Term Loan

 

 

824

 

 

 

1,035

 

Total Debt, Gross

 

 

39,102

 

 

 

39,313

 

Less: Debt Discount and Deferred Financing Costs

 

 

(310

)

 

 

(497

)

Total Debt, Net

 

 

38,792

 

 

 

38,816

 

Less: Non Current Portion

 

 

(181

)

 

 

(360

)

Total Current Debt, Net

 

$

38,611

 

 

$

38,456

 

 

Debt Exchange Agreement

 

On August 29, 2019, the Company entered into a Fourth Omnibus Amendment and Reaffirmation Agreement with Jackson, as lender, which, among other things, amends the Amended and Restated Note Purchase Agreement, dated as of September 15, 2017. Pursuant to this agreement, the Company agreed to issue and sell to Jackson a 18% Senior Secured Note due December 31, 2019 in the aggregate principal amount of $2,538. All accrued and unpaid interest on the outstanding principal balance of this term note will be due and payable monthly on the first day of each month, beginning on October 1, 2019. Pursuant to the terms of this term note, if this term note is not repaid by December 31, 2019, the Company will be required to issue 100,000 shares of its common stock to Jackson on a monthly basis until this term note is fully repaid, subject to certain exceptions to comply with Nasdaq listing standards. This note and all accrued interest remains unpaid. The Company has booked additional expense of $244 related to the issuance of 300,000 shares of common stock to Jackson for the period ended March 28, 2020.

 

The term note includes certain financial customary covenants, including a leverage ratio covenant. As of March 28, 2020, the Company was not in compliance with all covenants. On May 5, 2020, the Company received a waiver from Jackson curing the non-compliance as of March 28, 2020 the past due interest payments that were due on October 1, 2019, January 1, 2020 and April 1, 2020 and the non-payment of the $2,538 loan that was due on December 31, 2019. The Company has booked additional expense of $324 related to the issuances of 500,000 shares of common stock between January 2020 and May 2020 to Jackson. The Company paid the $2,538 loan in full on May 28, 2020.

 

HSBC Loan

 

On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020 to September 2020, and only interest payments will be made during this time.  On May 15, 2020, the Company entered into a 3 year term loan with HSBC in the UK for £1,000.

 

NOTE 7 – LEASES

 

On December 30, 2018, the Company adopted ASC 842 using the modified retrospective transition approach allowed under ASU 2018-11 which releases companies from presenting comparative periods and related disclosures under ASC 842 and requires a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has elected to apply the short-term lease exception to all leases of one year or less. As of March 28, 2020, as a result of the adoption of ASC 842, we have recorded a right of use (“ROU”) lease asset of approximately $4,478 with a corresponding lease liability of approximately $4,557 based on the present value of the minimum rental payments of such leases. The Company’s finance leases are immaterial both individually and in the aggregate.

Quantitative information regarding the Company’s leases for the period ended March 28, 2020 is as follows:

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)

 

Lease Cost

 

Classification

Q1 2020 YTD

 

Operating lease cost

 

SG&A Expenses

 

448

 

 

Other information

 

 

 

 

Weighted average remaining lease term (years)

 

 

3.7

 

Weighted average discount rate

 

 

6.4

%

 

 

 

 

 

Future Lease Payments

 

 

 

 

2020

 

$

1,348

 

2021

 

 

1,443

 

2022

 

 

594

 

2023

 

 

329

 

2024

 

 

321

 

Thereafter

 

 

1,143

 

 

 

$

5,178

 

Less: Imputed Interest

 

 

621

 

 

 

 

4,557

 

 

 

 

 

 

Leases - Current

 

 

1,702

 

Leases  - Non Current

 

 

2,855

 

 

As most of the Company’s leases do not provide an implicit rate, we use the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

NOTE 8 – EQUITY

Common Stock

The Company issued the following shares of common stock during the three-month period ended March 28, 2020:

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Jackson Investment Group

 

 

300,000

 

 

$

244

 

 

$

0.67

 

 

$

0.92

 

Preferred Series A Conversion

 

 

16,215

 

 

 

-

 

 

 

-

 

 

 

-

 

Board and Committee members

 

 

5,600

 

 

 

5

 

 

 

0.85

 

 

 

0.85

 

 

 

 

321,815

 

 

$

249

 

 

 

 

 

 

 

 

 

 

The Company issued the following shares of common stock during the three month period ended March 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Equity raise

 

 

2,902,680

 

 

$

4,914

 

 

$

1.65

 

 

$

2.00

 

Board and Committee members

 

 

5,600

 

 

 

10

 

 

 

1.79

 

 

 

1.79

 

 

 

 

2,908,280

 

 

$

4,924

 

 

 

 

 

 

 

 

 

 

Restricted Shares

The Company has issued shares of restricted stock to employees and members of the board of directors (the “Board”) under its 2015 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan. Under these plans, the shares are restricted for a period of three years from issuance. As of March 28, 2020, the Company has issued a total of 450,915 restricted shares of common stock to employees and Board members that remain restricted. In accordance with ASC 718, Compensation – Stock Compensation, the Company recognizes stock

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)

 

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. The Company recorded compensation expense associated with these restricted shares of $94 and $145, for the periods ended Q1 2020 YTD and Q1 2019 YTD, respectively.

Stock Options

The Company recorded share-based payment expense of $8 and $24 for the periods ended Q1 2020 YTD and Q1 2019 YTD, respectively.

Convertible Preferred Shares

Series A Preferred Stock – Related Party

On May 29, 2015, the Company filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock with the Nevada Secretary of State, whereby the Company designated 1,663,008 shares of preferred stock as Series A Preferred Stock, par value $0.00001 per share. On June 15, 2017, the Company reincorporated in the State of Delaware. The Series A Preferred Stock has a stated value of $1.00 per share and is entitled to a 12% dividend.  

Shares of the Series A Preferred Stock are convertible into shares of common stock at the holder’s election at any time prior to December 31, 2020, at a conversion rate of one and three tenths (1.3) shares of common stock for every 50 shares of Series A Preferred Stock that the holder elects to convert.

In the periods ended Q1 2020 YTD and Q1 2019 YTD, the Company paid $0 and $50, respectively, in dividends to its Series A Preferred Stockholders. On January 21, 2020, the Company converted the shares of Series A Preferred Stock awarded to Mr. Briand into 16,215 shares of common stock.   The Company has $31 and $0 of dividends payable to Series A Preferred Stockholders at the end of Q1 2020 YTD and Q1 2019 YTD.

Series E Preferred Stock - Related Party

 

The Series E Preferred Stock ranks senior to common stock and any other series or classes of preferred stock now or after issued or outstanding with respect to dividend rights and rights on liquidation, winding up and dissolution. Each share of Series E Preferred Stock is initially convertible into 561.8 shares of our common stock at any time after October 31, 2020 or the occurrence of a Preferred Default (as defined in the Certificate of Designation for Series E Preferred Stock, as amended). A holder of Series E Preferred Stock is not required to pay any additional consideration in exchange for conversion of such Series E Preferred Stock into our common stock. Series E Preferred Stock is redeemable by the Company at any time at a price per share equal to the stated value ($1,000 per share) plus all accrued and unpaid dividends thereon. While the Series E Preferred Stock is outstanding, the Company is required to use the proceeds of any sales of equity securities, exclusively to redeem any outstanding shares of Series E Preferred Stock, except that the Company is permitted to use up to an aggregate of $3,000 of the gross proceeds from any equity offering completed on or before November 15, 2019 for working capital purposes.

 

On January 22, 2019, the Company completed a registered direct offering of 387,500 common stock that generated $775 in gross proceeds that were used for working capital purposes. On February 12, 2019, the Company closed its previously announced firm commitment underwritten public offering in which, pursuant to an underwriting agreement between the Company and the underwriter, dated as of February 8, 2019, the Company issued and sold 2,425,000 shares of its common stock, at a public offering price of $1.65 per share. Notwithstanding the terms of the Certificate of Designations for Series E Preferred Stock, Jackson, the holder our outstanding shares of Series E Preferred Stock, did not require us to use the proceeds from our recent offerings in excess of $3,000 to redeem outstanding shares of the Series E Preferred Stock.  Instead, we used such excess proceeds to make a terminal payment to the sellers of FirstPro Inc (“FirstPro”). in final settlement of all deferred consideration due under our asset purchase agreement with such sellers.

As of March 28, 2020, 7,303,371 shares and 536,747 shares of common stock were issuable upon the potential conversion of Series E Preferred Stock and Series E-1 Preferred Stock, respectively. Due to the contingent nature of the cash redemption feature of the Series E-1 Preferred Stock, the Company classified the shares as mezzanine equity on the consolidated balance sheets.

The Company has $1,170 of dividends payable to its holders of Series E Preferred Stock as of March 28, 2020.

 

2019 Long-Term Incentive Plan

 

In January 2019, the Company’s Board approved the 2019 Long-Term Incentive Plan (the “2019 LTIP”).

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)

 

The Board granted 355,000 shares of common stock to adequately motivate the participants and drive performance for the period.  

Units vest upon the following:

 

50% upon the employee being in good standing on December 31, 2020; and,

 

50% upon the average share price of the Company’s common stock during the 90-day period leading up to December 31, 2020, based upon the following Vesting Rate table:

Average 2019 Price

Vesting Rate

<$8 per share

0

>$8 per share

Pro-rated

>=$12 per share

Full Vesting

 

The Company recorded share based expense of approximately $71 and $30 in Q1 2020 YTD and Q1 2019 YTD in connection with these awards.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Earn-out Liabilities and Stock Value Guarantees

Pursuant to the acquisition of CBS Butler on September 15, 2017, the purchase price includes 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 deferred consideration of £150 less the aggregate amount of any net asset shortfall amount, if any, as determined pursuant to the acquisition agreements for the acquisition of CBS Butler. In September 2018, the Company paid the deferred consideration of £150 ($195).

While the Company had recognized the liability for the contingent earn-out due the sellers of CBS Butler within current liabilities as of December 29, 2018, in March 2019 the Company filed a warranty claim against the sellers asserting certain misrepresentations for an amount which approximates the contingent earn-out. In April 2019, the sellers of CBS Butler responded denying the Company’s warranty claim and asserting that the earn-out amount is due. On July 5, 2019, the Company entered into a settlement agreement with the selling shareholders of CBS Butler for the full and final satisfaction of claims in exchange for a payment of approximately £2,150 by the Company to the CBS Butler shareholders.  The payment was due no later than July 26, 2019. The Company did not make the payment on July 26, 2019, as such the parties agreed to adjust the amount payable to £2,500. The Company paid this in full on August 30, 2019 and recorded a gain of approximately £894 ($1,077) on final settlement. The Company used the proceeds from the term note entered into with Jackson on August 29, 2019 for $2,538, to satisfy this obligation.  

Pursuant to the acquisition of FirstPro Inc. on September 15, 2017, the purchase price included deferred quarterly installments of $75 beginning on October 1, 2017, and $2,675 was payable annually in three equal installments beginning on September 15, 2018. The Company made $300 and $892 in quarterly installments and annual installment in Fiscal 2018. On March 1, 2019, the Company paid $1,125 in full satisfaction of the remaining liability, recognizing a gain of $847.

Pursuant to the acquisition of Clement May on June 28, 2018, the purchase price includes an earnout payment of up to £500 to be paid on or around December 28, 2019; and deferred consideration of £350, the amount to be calculated and paid pursuant to the Share Purchase Agreement, on or around June 28, 2019.  The Company paid deferred consideration of £350 ($444) on June 26, 2019. The earnout payment of £500 ($656) was paid in December 2019.

 

Pursuant to the acquisition of Key Resources Inc. (“KRI”) on August 27, 2018, the purchase price includes earnout consideration payable to the seller of $2,027 each on August 27, 2019 and August 27, 2020. The payment of the earnout consideration is contingent on KRI’s achievement of certain trailing gross profit amounts. On September 11, 2019, the Company entered into an amended agreement with the seller to delay the payment of the first year earnout of $2,027 until no later than February 27, 2020. For each full calendar month beyond August 27, 2019, that such payment is delayed, the Company shall pay the seller interest in the amount of $10 with the first such payment of interest due on September 30, 2019.  In addition, the amended agreement was further amended to change the due date for the second

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)

 

year earnout payment of $2,027 from August 27, 2020 to February 27, 2020. The seller of KRI, Pamela D. Whitaker (“Whitaker”) has filed a lawsuit against the Company asserting claims for breach of contract and declaratory judgment against the Company due under a share purchase agreement and is seeking $4,054 in alleged damages. While the Company had recognized the liability for the earnout consideration of $4,054 due to Whitaker, within current liabilities as of March 28, 2020 and December 28, 2019, in February 2020, the Company filed an action against Whitaker for breach of contract which more than approximates the earnout consideration recognized. The Company paid interest of $40 during the quarter ended March 28, 2020. Refer to legal proceedings below for action filed against Whitaker, the former owner of KRI.

Legal Proceedings 

 

Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.

 

On December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker”, “Plaintiff”), filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract and declaratory judgment against Monroe and the Company (the “Defendants” arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI to Staffing 360’s subsidiary, Monroe Staffing Services in August 2018.  Whitaker is seeking $4,054 in alleged damages. 

 

Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020.  Briefing on the motion to remand concluded on February 24, 2020.  Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc.  Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause.  Briefing on Defendants’ motion to dismiss concluded on February 18, 2020.  The parties await decisions from the court on both Plaintiff’s motion to remand and Defendants’ motion to dismiss.  On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.

 

Separately, on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District of New York (Case No. 1:20-cv-01716) (the “New York Action”).  The New York Action concerns claims for breach of contract and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included in, the share purchase agreement.  The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less than $6 million.  On April 28, 2020, Whitaker filed a motion to dismiss the New York Action.  On June 11, 2020, Monroe and the Company filed their opposition to Whitaker’s motion to dismiss.  Whitaker has until June 26, 2020, to file reply papers in further support of the motion.

 

The Company intends to vigorously contest Whitaker’s claims in the North Carolina Action and pursue its claims in the New York Action.

 

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)

 

NOTE 10SEGMENTS

The Company generated revenue and gross profit by segment as follows:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Commercial Staffing - US

 

$

28,743

 

 

$

30,085

 

Professional Staffing - US

 

 

8,660

 

 

 

9,581

 

Professional Staffing - UK

 

 

21,289

 

 

 

34,163

 

Total Revenue

 

$

58,692

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,294

 

 

$

4,632

 

Professional Staffing - US

 

 

3,080

 

 

 

3,714

 

Professional Staffing - UK

 

 

3,274

 

 

 

3,772

 

Total Gross Profit

 

$

10,648

 

 

$

12,118

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(10,961

)

 

$

(10,491

)

Depreciation and amortization

 

 

(785

)

 

 

(877

)

Impairment of goodwill

 

 

(2,969

)

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,417

)

 

 

(2,007

)

Re-measurement (loss) gain on intercompany note

 

 

(675

)

 

 

351

 

Gain on settlement of deferred consideration

 

 

 

 

 

847

 

Other (loss) income, net

 

 

(14

)

 

 

286

 

(Loss) Income Before Provision for Income Tax

 

$

(7,173

)

 

$

227

 

 

 

The following table disaggregates revenues by segments:

 

 

Q1 2020 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

46

 

 

$

1,444

 

 

$

1,206

 

 

$

2,696

 

Temporary Revenue

 

 

28,697

 

 

 

7,216

 

 

 

20,083

 

 

 

55,996

 

Total

 

$

28,743

 

 

$

8,660

 

 

$

21,289

 

 

$

58,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2019 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

65

 

 

$

1,881

 

 

$

885

 

 

$

2,831

 

Temporary Revenue

 

 

30,020

 

 

 

7,700

 

 

 

33,278

 

 

 

70,998

 

Total

 

$

30,085

 

 

$

9,581

 

 

$

34,163

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 28, 2020 and December 29, 2018, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

March 28, 2020

 

 

December 28,

 

 

 

2020

 

 

2019

 

United States

 

$

70,106

 

 

$

74,671

 

United Kingdom

 

 

14,704

 

 

 

14,170

 

Total Assets

 

$

84,810

 

 

$

88,841

 

 

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)

 

 

NOTE 11 – OTHER RELATED PARTY TRANSACTIONS

In addition to the shares of Series E and Series E-1 Preferred Stock and notes issued to Jackson, the following are other related party transactions:

Board and Committee Members

The Company had the following activity with its Board and Committee Members:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

 

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

 

 

$

1

 

 

$

5

 

 

$

19

 

 

 

1,400

 

 

$

3

 

 

$

8

 

Jeff Grout

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Nick Florio

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Alicia Barker

 

-

 

 

 

1,400

 

 

 

1

 

 

 

1

 

 

 

-

 

 

 

1,400

 

 

 

3

 

 

 

-

 

 

$

57

 

 

 

5,600

 

 

$

4

 

 

$

16

 

 

$

57

 

 

 

5,600

 

 

$

12

 

 

$

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Briand Separation Agreement

Matthew Briand, 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 approximately $0 and $17 in Q1 2020 YTD and Q1 2019 YTD, respectively, to Mr. Briand under his separation agreement.

The Faiman Separation Agreement

 

On September 11, 2019, David Faiman, the Company’s former Chief Financial Officer, and the Company entered into an agreement whereby Mr. Faiman agreed to transition his position and responsibilities with the Company (“Faiman Separation Agreement”), and Mr. Faiman’s Employment Agreement, dated February 5, 2016, was terminated. The Company had recognized approximately $190 in severance costs related to Mr. Faiman during the fiscal year ended December 28, 2019, and has paid $90 in Q1 2020 YTD.

 

The Gibbens Separation

 

The Company entered into an Employment Agreement with Mark Gibbens that appoints him as the Company’s Chief Financial Officer effective February 18, 2020, appointing Mr. Gibbens as the Company’s Chief Financial Officer commencing February 18, 2020 for an initial employment term of six months (“Initial Employment Term”).

 

Under the Employment Agreement with Mr. Gibbens, he received an annual base salary of $325. Provided that Mr. Gibbens was employed by the Company through the Initial Employment Term, as soon as administratively possible following the commencement of the first Renewal Term, and in no event later than thirty days following the commencement of the first Renewal Term, Mr. Gibbens was entitled to receive, pursuant to the 2016 Omnibus Incentive Plan, (i) an award covering 40,000 shares of the Company’s common stock, which will vest in three (3) equal annual installments on each of the first three anniversaries of the award’s grant, provided Mr. Gibbens was still employed by the Company through the applicable vesting date, and (ii) an additional award covering 40,000 shares of the Company’s Common Stock, which will vest in accordance with the terms and conditions of the Company’s standard form of performance compensation award agreement. In the event that Mr. Gibbens’ employment continued beyond the Initial Employment Term, for each calendar year or portion thereof during his employment, Mr. Gibbens was eligible for a discretionary bonus prorated for any partial year upon the same terms and criteria as provided for the Company’s Chief Operating Officer, as set forth separately to Mr. Gibbens.

 

As of May 13, 2020, Mark Gibbens, the Company’s former Chief Financial Officer, resigned as an officer and employee of the Company upon mutual agreement with the Company, in accordance with the terms of his employment agreement with the Company dated February

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)

 

17, 2020. Mr. Gibbens also ceased to serve as the Company’s principal accounting officer and principal financial officer, effective as of April 17, 2020.

 

NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

689

 

 

$

2,210

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deferred purchase price of UK factoring facility

 

$

2,270

 

 

$

3,712

 

Shares issued to Jackson Investment Group

 

 

244

 

 

 

 

Dividends accrued to related parties

 

 

603

 

 

 

 

 

 

 

21


 

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: the impact of COVID-19 on our business and operations; 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 Annual Report on Form 10-K, 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.

Recent Development

NASDAQ Minimum Bid Price Requirement

 

On January 24, 2020, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between December 10, 2019, through January 23, 2020, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until July 22, 2020 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

 

In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for additional time to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency, or if the Company is not otherwise eligible for the additional cure period, Nasdaq will provide notice that the Company’s common stock will be subject to delisting.

 

On June 3, 2020, the Company received a letter from the Nasdaq notifying the Company that it is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires

22


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)

 

listed companies to maintain stockholders’ equity of at least $2,500. Further, as of June 9, 2020, the Company did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.

 

Nasdaq has provided the Company with 45 calendar days, or until July 20, 2020, to submit a plan to regain compliance with the minimum stockholders’ equity standard. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the notification letter to regain compliance. If the Company’s plan to regain compliance is not accepted, or if it is accepted and the Company does not regain compliance in the timeframe required by Nasdaq, the Nasdaq staff could provide notice that the Company’s common stock is subject to delisting.

 

The Company is currently evaluating options to regain compliance and intends to timely submit a plan to regain compliance with Nasdaq’s minimum stockholders’ equity standard. Although the Company will use all reasonable efforts to achieve compliance with Rule 5550(b)(1), there can be no assurance that the Company will be able to regain compliance with that rule or will otherwise be in compliance with other Nasdaq listing criteria.

 

The letters have no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on The Nasdaq Capital Market, subject to the Company’s compliance with the other listing requirements of The Nasdaq Capital Market.

 

PPP Loans

 

On May 12, 2020, Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a note (the “May 12 Note”) with Newton Federal Bank (the “Bank”), pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. The May 12 Note is dated May 12, 2020. The principal amount of the May 12 Note is $10,000.

 

In accordance with the requirements of the CARES Act, the Company and Monroe Staffing (collectively, the “May 12 Note Borrower”) intends to use the proceeds from the May 12 Note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the May 12 Note at the rate of 1.00% per annum. The May 12 Note Borrowers may apply for forgiveness of the amount due under the May 12 Note, in an amount equal to the sum of qualified expenses under the PPP. The May 12 Note Borrowers intend to use the entire proceeds under the May 12 Note for such qualifying expenses.

 

Subject to any forgiveness under the PPP, the May 12 Note matures two years following the date of issuance of the May 12 Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the May 12 Note, the May 12 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 12 Note may be prepaid at any time prior to maturity. The May 12 Note provides for customary events of default, including, among others, those relating to breaches of obligations under the May 12 Note, including a failure to make payments, any bankruptcy or similar proceedings involving the May 12 Note Borrowers, and certain material effects on the May 12 Note Borrowers’ ability to repay the May 12 Note. The May 12 Note Borrowers did not provide any collateral or guarantees for the May 12 Note.

 

On May 20, 2020, Key Resources Inc. (“KRI”), Lighthouse Placement Services, LLC (“LH”) and Staffing 360 Georgia, LLC (“SG”), each a wholly owned direct or indirect subsidiary of the Company, entered into the following notes, each dated May 20, 2020, with the Bank, pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration. KRI entered into a note (the “KRI Note”) for the principal amount of approximately $5,443, LH entered into a note (the “LH Note”) for the principal amount of approximately $1,890, and SG entered into a note (the “SG Note,” and, together with the KRI Note and LH Note, the “May 20 Notes”) for the principal amount of approximately $2,063. The combined total of the May 20 Notes is approximately $9,395.

 

In accordance with the requirements of the CARES Act, the Company, KRI, LH and SG (collectively, the “May 20 Note Borrowers”) intends to use the proceeds from the May 20 Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on each of the May 20 Notes at the rate of 1.00% per annum. The May 20 Note Borrowers may apply for forgiveness of the amount due under the May 20 Notes, in an amount equal to the sum of qualified expenses under the PPP. The May 20 Note Borrowers intend to use the entire proceeds under the May 20 Notes for such qualifying expenses.

 

Subject to any forgiveness under the PPP, each of the May 20 Notes mature two years following the date of issuance of the May 20 Notes and include a period for the first six months during which time required payments of interest and principal are deferred. Beginning

23


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)

 

on the seventh month following the date of each of the May 20 Notes, the May 20 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 20 Notes may be prepaid at any time prior to maturity. The May 20 Notes provide for customary events of default, including, among others, those relating to breaches of obligations under the May 20 Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Borrowers, and certain material effects on the Borrowers’ ability to repay the May 20 Notes. The May 20 Note Borrowers did not provide any collateral or guarantees for the May 20 Notes.

 

The application for these funds required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the adverse impact the pandemic had on our business and the degree of uncertainty introduced to the capital markets. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department.

 

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100 or less annually are reduced by more than 25%. The ultimate forgiveness of the PPP loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

Business Model, Operating History and Acquisitions

We are a high-growth international staffing company engaged in the acquisition of United States (“U.S.”) and United Kingdom (“U.K.”) based staffing companies. Our services principally consist of providing temporary contractors, and, to a much lesser extent, the recruitment of candidates for permanent placement. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily accounting and finance, IT, engineering, administration (collectively, the “Professional Business Stream”) and commercial (“Commercial Business Stream”) disciplines. 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, we are regularly in discussions and negotiations with various suitable, mature acquisition targets. To date, we have completed ten acquisitions since November 2013.

For three-month periods ended March 28, 2020 and March 30, 2019  

 

 

Q1 2020 YTD

 

 

% of Revenue

 

 

Q1 2019 YTD

 

 

% of Revenue

 

 

Growth

 

Revenue

 

$

58,692

 

 

 

100.0

%

 

$

73,829

 

 

 

100.0

%

 

 

(20.5

)%

Cost of revenue

 

 

48,044

 

 

 

81.9

%

 

 

61,711

 

 

 

83.6

%

 

 

(22.1

)%

Gross profit

 

 

10,648

 

 

 

18.1

%

 

 

12,118

 

 

 

16.4

%

 

 

(12.1

)%

Operating expenses

 

 

14,715

 

 

 

25.1

%

 

 

11,368

 

 

 

15.4

%

 

 

29.4

%

(Loss) Income from operations

 

 

(4,067

)

 

 

(6.9

)%

 

 

750

 

 

 

1.0

%

 

 

(642.3

)%

Other expenses

 

 

(3,106

)

 

 

(5.3

)%

 

 

(523

)

 

 

(0.7

)%

 

 

493.9

%

Benefit from income taxes

 

 

176

 

 

 

0.3

%

 

 

2

 

 

 

0.0

%

 

 

8700.0

%

Net (Loss) Income

 

$

(6,997

)

 

 

(11.9

)%

 

$

229

 

 

 

0.3

%

 

 

(3155.5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

For Q1 2020 YTD, revenue decreased by 20.5% to $58,692, as compared with $73,829, for Q1 2019 YTD. The decline was driven by $160 of unfavorable foreign currency translation and $14,977 of organic decline.  Within organic decline, temporary contractor revenue declined $14,851 and permanent placement declined $126.  

24


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)

 

Revenue in Q1 2020 YTD was comprised of $55,996 of temporary contractor revenue and $2,696 of permanent placement revenue, compared with $70,998 and $2,831 for Q1 2019 YTD, respectively.

Cost of revenue

Cost of services includes the variable cost of labor and various non-variable costs (e.g., workers’ compensation insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For Q1 2020 YTD, cost of revenue was $48,044, a decrease of 22.1% from $61,711 in Q1 2019 YTD, compared with revenue decline of 20.5%. The decline was driven by $135 of unfavorable foreign currency translation and $13,532 of organic decline.

Gross profit

Gross profit for Q1 2020 YTD was $10,648, a decreased of 12.1% compared with $12,118 in Q1 2019 YTD primarily driven by organic decline.

Operating expenses

Operating expenses for Q1 2020 YTD were $14,715, an increase of 29.4% as compared with $11,368 for Q1 2019 YTD.  The increase in operating expenses was driven by primarily by a goodwill impairment charge at the FirstPro reporting unit of $2,969, higher non-recurring costs, legal, and other costs associated with refinancing/acquisitions efforts.    

Other Expenses

Other expenses for Q1 2020 YTD was $3,106, an increase of 493.9% from $523 in Q1 2019 YTD. The increase was mainly driven higher interest expense and amortization of deferred financing costs in Q1 2020 YTD compared with Q1 2019 YTD of $410, losses from remeasuring the Company’s intercompany note in Q1 2020 YTD of $675 compared with gains from remeasuring the Company’s intercompany note in Q1 2019 YTD of $351. In addition, in Q1 2019 YTD, the Company had gain on settlement of deferred consideration of $847 and other income of $286.

Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we also use non-GAAP financial measures and Key Performance Indicators (“KPIs”) in addition to our GAAP results. We believe non-GAAP financial measures and KPIs may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.

We present the following non-GAAP financial measure and KPIs in this report:

Revenue and Gross Profit by Sector We use this KPI to measure the Company’s mix of Revenue and respective profitability between its two main lines of business due to their differing margins. For clarity, these lines of business are not our operating segments, as this information is not currently regularly reviewed by the chief operating decision maker to allocate capital and resources. Rather, we use this KPI to benchmark us against the industry.

25


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)

 

The following table details Revenue and Gross Profit by Sector:

 

 

Q1 2020 YTD

 

 

Mix

 

 

Q1 2019 YTD

 

 

Mix

 

Commercial Staffing - US

 

$

28,743

 

 

48%

 

 

$

30,085

 

 

41%

 

Professional Staffing - US

 

 

8,660

 

 

15%

 

 

 

9,581

 

 

13%

 

Professional Staffing - UK

 

 

21,289

 

 

37%

 

 

 

34,163

 

 

46%

 

Total Revenue

 

$

58,692

 

 

 

 

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,294

 

 

40%

 

 

$

4,632

 

 

38%

 

Professional Staffing - US

 

 

3,080

 

 

29%

 

 

 

3,714

 

 

31%

 

Professional Staffing - UK

 

 

3,274

 

 

31%

 

 

 

3,772

 

 

31%

 

Total Gross Profit

 

$

10,648

 

 

 

 

 

 

$

12,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

14.9

%

 

 

 

 

 

 

15.4

%

 

 

 

 

Professional Staffing - US

 

 

35.6

%

 

 

 

 

 

 

38.8

%

 

 

 

 

Professional Staffing - UK

 

 

15.4

%

 

 

 

 

 

 

11.0

%

 

 

 

 

Total Gross Margin

 

 

18.1

%

 

 

 

 

 

 

16.4

%

 

 

 

 

 

 


26


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)

 

Adjusted EBITDA This measure is defined as net loss attributable to common stock before: interest expense, benefit from (provision for) income taxes; income (loss) from discontinued operations, net of tax; other (income) expense, net, in operating income (loss); amortization and impairment of intangible assets; impairment of goodwill; depreciation; operational restructuring and other charges; other income (expense), net, below operating income (loss); non-cash expenses associated with stock compensation; and charges we considers to be non-recurring in nature such as legal expenses associated with litigation, professional fees associated potential and completed acquisitions. We use this measure because we believe it provides a more meaningful understanding of our profit and cash flow generation.

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

 

Trailing Twelve Months

Q1 2020

 

 

Trailing Twelve Months

Q1 2019

 

Net (loss) income

 

$

(6,997

)

 

$

229

 

 

$

(12,120

)

 

$

(5,001

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

2,417

 

 

 

2,007

 

 

 

8,894

 

 

 

8,896

 

Benefit from income taxes

 

 

(176

)

 

 

(2

)

 

 

(509

)

 

 

(132

)

Depreciation and amortization

 

 

785

 

 

 

877

 

 

 

3,278

 

 

 

3,203

 

EBITDA

 

$

(3,971

)

 

$

3,111

 

 

$

(457

)

 

$

6,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, capital raising, restructuring charges and other non-recurring expenses (1)

 

 

1,340

 

 

 

211

 

 

 

6,075

 

 

 

2,488

 

Other non-cash charges (2)

 

 

184

 

 

 

197

 

 

 

827

 

 

 

926

 

Re-measurement income (loss) on intercompany note

 

 

675

 

 

 

(351

)

 

 

643

 

 

 

910

 

Gain in fair value of warranty liability

 

 

 

 

 

 

 

 

 

 

 

(341

)

Deferred consideration settlement

 

 

 

 

 

(847

)

 

 

(1,077

)

 

 

(847

)

Impairment of goodwill

 

 

2,969

 

 

 

 

 

 

2,969

 

 

 

 

Gain from sale of business

 

 

 

 

 

 

 

 

 

 

 

(238

)

Other loss (income)

 

 

14

 

 

 

(286

)

 

 

(26

)

 

 

(434

)

Adjusted EBITDA

 

$

1,211

 

 

$

2,035

 

 

$

8,954

 

 

$

9,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trailing Twelve Months ("TTM") Adjusted EBITDA

 

$

8,954

 

 

$

9,429

 

 

$

8,954

 

 

$

9,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition Adjusted EBITDA (3)

 

 

 

 

 

 

 

 

 

 

 

 

$

1,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma TTM Adjusted EBITDA (4)

 

 

 

 

 

 

 

 

 

$

8,954

 

 

$

10,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Gross Profit TTM (5)

 

 

 

 

 

 

 

 

 

$

46,839

 

 

$

48,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TTM Adjusted EBITDA as percentage of adjusted gross profit TTM

 

 

 

 

 

 

 

 

 

 

19.1

%

 

 

19.3

%

 

 

(1)

Acquisition, capital raising and other non-recurring expenses primarily relate to capital raising expenses, acquisition and integration expenses, restructuring charges, and legal expenses incurred in relation to matters outside the ordinary course of business.

 

(2)

Other non-cash charges primarily relate to staff option and share compensation expense, expense for shares issued to directors for board services, and consideration paid for consulting services.

 

(3)

Pre-Acquisition Adjusted EBITDA excludes the Adjusted EBITDA of acquisitions for the period prior to the acquisition date.

 

(4)

Pro Forma TTM Adjusted EBITDA includes the Adjusted EBITDA of acquisitions for the period prior to the acquisition date.

(5) Adjusted Gross Profit EBITDA excludes gross profit of business divested in June 2018, for the period prior to divested date.

 

27


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)

 

 

Operating Leverage This measure is calculated by dividing the growth in Adjusted EBITDA by the growth in Adjusted Gross Profit, on a trailing 12-month basis. We use this KPI because we believe it provides a measure of our efficiency for converting incremental gross profit into Adjusted EBITDA.

 

 

Twelve Months Ended

 

 

March 28, 2020

 

 

March 30, 2019

 

Adjusted Gross Profit - TTM (Current Period)

$

46,839

 

 

$

48,841

 

Adjusted Gross Profit - TTM (Prior Period)

 

48,841

 

 

 

40,996

 

Adjusted Gross Profit - Growth

$

(2,002

)

 

$

7,845

 

 

 

 

 

 

 

 

 

Adjusted EBITDA - TTM (Current Period)

$

8,954

 

 

$

9,429

 

Adjusted EBITDA - TTM (Prior Period)

 

9,429

 

 

 

7,976

 

Adjusted EBITDA - Growth

$

(475

)

 

$

1,453

 

 

 

 

 

 

 

 

 

Operating Leverage

 

-23.7

%

 

 

18.5

%

 

Leverage Ratio Calculated as Total Debt, Net, gross of any Original Issue Discount, divided by Pro Forma Adjusted EBITDA for the trailing 12-months. We use this KPI as an indicator of our ability to service its debt prospectively.

 

 

 

March 28, 2020

 

 

December 28, 2019

 

Total Debt, Net

 

$

38,792

 

 

$

38,816

 

Addback: Total Debt Discount and Deferred Financing Costs

 

 

310

 

 

 

497

 

Total Term Debt

 

$

39,102

 

 

$

39,313

 

 

 

 

 

 

 

 

 

 

TTM Adjusted EBITDA

 

$

8,954

 

 

$

9,778

 

 

 

 

 

 

 

 

 

 

Pro Forma TTM Adjusted EBITDA

 

$

8,954

 

 

$

9,778

 

 

 

 

 

 

 

 

 

 

Pro Forma Leverage Ratio

 

4.4x

 

 

4x

 

 

Operating Cash Flow Including Proceeds from Accounts Receivable Financing calculated as net cash (used in) provided by operating activities plus net proceeds from accounts receivable financing.  Because much of our temporary payroll expense is paid weekly and in advance of clients remitting payment for invoices, operating cash flow is often weaker in staffing companies where revenue and accounts receivable are growing.  Accounts receivable financing is essentially an advance on client remittances and is primarily used to fund temporary payroll.  As such, we believe this measure is helpful to investors as an indicator of our underlying operating cash flow.

 

On February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited 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, is classified within investing activities. On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020 to September 2020, and only interest payments will be made during this time.  On May 15, 2020, the Company entered into a 3 year term loan with HSBC in the UK for £1,000.

28


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)

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Net cash (used) provided by operating activities

 

$

(1,673

)

 

$

(1,226

)

 

 

 

 

 

 

 

 

 

Collection of UK factoring facility deferred purchase price

 

 

2,720

 

 

 

3,469

 

 

 

 

 

 

 

 

 

 

Repayments on accounts receivable financing

 

 

(1,050

)

 

 

(5,137

)

 

 

 

 

 

 

 

 

 

Net cash used in operating activities including proceeds from accounts receivable financing

 

$

(3

)

 

$

(2,894

)

 

 

 

 

 

 

 

 

 

The Leverage Ratio and Operating Cash Flow Including Proceeds from Accounts Receivable Financing should be considered together with the information in the “Liquidity and Capital Resources” section, immediately below.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Historically, we have funded our operations through term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity.

Our primary uses of cash have been for professional fees related to our operations and financial reporting requirements and for the payment of compensation, benefits and consulting fees. The following trends may occur as the Company continues to execute on its strategy:

 

An increase in working capital requirements to finance organic growth,

 

Addition of administrative and sales personnel as the business grows,

 

Increases in advertising, public relations and sales promotions for existing and new brands as we expand within existing markets or enter new markets,

 

A continuation of the costs associated with being a public company, and

 

Capital expenditures to add technologies.

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations could significantly increase our legal and financial compliance costs and increase the use of resources.

As of and for the three-month period ended March 28, 2020, the Company had a working capital deficiency of $57,672 and accumulated deficit of $83,534, and a net loss of $6,997.

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has unsecured payments due in the next 12 months associated with historical acquisitions and secured current debt arrangements which are in excess of cash and cash equivalents on hand, in addition to funding operational growth requirements. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. Although the Company has raised an aggregate of approximately $19,395 through PPP loans, if the Company is unable to obtain additional capital, such unsecured payments may not be made on time. Additionally, with the onset of COVID-19 pandemic, there is further uncertainty related to our future revenues, gross profit and cash flows.

 

The COVID-19, is impacting worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. The nature of work of the contractors we support mostly are on the site of our clients.  As a result, we are subject to the plans and approaches of our clients to work during this period.  This includes whether they support remote working when they have decided to close their facilities.  To the extent that our clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, we would no longer generate revenue and profit from that client.  Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where we have seen declines in revenues during the months of April and May 2020. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2020 and the Company’s overall liquidity.

29


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)

 

These factors combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.

 

The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.

Operating activities

For Q1 2020 YTD, net cash used in operations of $1,673 was primarily attributable to changes in operating assets and liabilities totaling $535 and non-cash adjustments of $4,789 offset by net loss of $6,997. Changes in operating assets and liabilities primarily relates to an increase in accounts payable and accrued expenses of $3,012, decrease in other assets of $1,172, increase in current liabilities of $149; offset by increase in accounts receivable of $3,886, increase in prepaid expenses and other current assets of $551, decrease in interest payable to related parties of $1,474 and decrease in other non-current liabilities and other of $835. Total non-cash adjustments of $4,789 primarily includes impairment of goodwill of $2,969, depreciation and amortization of intangible assets of $785, stock-based compensation of $173, amortization of debt discounts and deferred financing of $187 and foreign currency re-measurement loss on intercompany loan of $675.

For Q1 2019 YTD, net cash provided by operations of $2,243 was primarily attributable changes in operating assets and liabilities totaling $1,979, non-cash adjustments of $35 and net income of $229. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $1,717, increase in prepaid expenses and other current assets of $212, increase other assets of $79, decrease in current liabilities of $118; offset by increase in accounts payable and accrued expenses of $3,547 and increase in other long term liabilities and other of $558. Total non-cash adjustments of $35 primarily includes depreciation and amortization of intangible assets of $877, stock based compensation of $199, amortization of debt discounts and deferred financing of $157; offset by foreign currency re-measurement on intercompany loan of $351 and gain from settlement of the FirstPro Inc. (the “FirstPro”) deferred consideration of $847.

On February 8, 2018, CBS Butler, Staffing 360 Solutions Limited 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. 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, is classified within investing activities. On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020 to September 2020, and only interest payments will be made during this time.  On May 15, 2020, the Company entered into a 3-year term loan with HSBC in the UK for £1,000.

Investing activities

For Q1 2020 YTD, net cash flows provided by investing activities was $2,625, $2,720 related to collection of the beneficial interest from HSBC partially offset by purchase of property and equipment of $95.

For Q1 2019 YTD, net cash flows provided by investing activities was $3,425, $3,469 related to collection of the beneficial interest from HSBC partially offset by purchase of property and equipment of $44.

Financing activities

For Q1 2020 YTD, net cash flows used in financing activities totaled $1,218, of which $1,050 relates to repayments on accounts receivable financing, net, and repayment on HSBC loan of $168.

For Q1 2019 YTD, net cash flows used in financing activities totaled $6,324, of which $8,606 relates to repayments on accounts receivable financing, net, payment on FirstPro deferred consideration for $1,200, third party financing costs of $950, dividends paid to related parties of $245, dividends paid to shareholders of $81, and repayment on HSBC loan of $156; offset by proceeds from equity raise of $4,914.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

30


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)

 

Critical Accounting Policies and Estimates

Refer to the Form 10-K filed with the SEC on May 11, 2020.

Recent Accounting Pronouncements  

 

On December 31, 2019, the FASB issued ASC 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” (Topic 740). The amendments in this update simplify the accounting for income taxes by removing the certain exceptions. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  The Company adopted this guidance effective December 30, 2018. 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 new standard provides a number of optional practical expedients in transition. The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply i) the practical expedient which allows us to not separate lease and non-lease components, and (2) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. The adoption of the new standard resulted in the recognition of additional lease liabilities of approximately $4,980, and right-of-use assets of approximately $4,888 as of December 28, 2019 related to the Company’s operating leases. The new standard did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows.

 

 

31


 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (each as defined in Rules) as of the end of the period covered by this Quarterly Report.

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures.

Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Quarterly Report (“Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were operating effectively.

Management believes that the condensed consolidated financial statements in this quarterly report on Form 10-Q fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and results of its operations and cash flows for the Evaluation Date, in conformity with United States Generally Accepted Accounting Principles (“GAAP”).

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the quarter ended March 28, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There has been no change in our system of internal control over financial reporting occurred during the period ended March 28, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32


 

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

 

Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.

 

On December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker”, “Plaintiff”), filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract and declaratory judgment against Monroe and the Company (the “Defendants” arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI to Staffing 360’s subsidiary, Monroe Staffing Services in August 2018.  Whitaker is seeking $4,054 in alleged damages. 

 

Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020.  Briefing on the motion to remand concluded on February 24, 2020.  Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc.  Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause.  Briefing on Defendants’ motion to dismiss concluded on February 18, 2020.  The parties await decisions from the court on both Plaintiff’s motion to remand and Defendants’ motion to dismiss.  On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.

 

Separately, on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District of New York (Case No. 1:20-cv-01716) (the “New York Action”).  The New York Action concerns claims for breach of contract and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included in, the share purchase agreement.  The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less than $6 million.  On April 28, 2020, Whitaker filed a motion to dismiss the New York Action.  On June 11, 2020, Monroe and the Company filed their opposition to Whitaker’s motion to dismiss.  Whitaker has until June 26, 2020, to file reply papers in further support of the motion.

 

The Company intends to vigorously contest Whitaker’s claims in the North Carolina Action and pursue its claims in the New York Action.

Item 1A. Risk Factors.

Except as otherwise set forth below, there have been no material developments to alter the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, and our Quarterly Report for the fiscal quarter ended March 28, 2020.

The recent COVID-19 outbreak may adversely affect our business.

In December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has spread globally, resulting in government-imposed quarantines, travel restrictions and other public health safety measures. On March 12, 2020, the WHO declared COVID-19 to be a pandemic, and efforts to contain the spread of COVID-19 have intensified. The COVID-19 pandemic is impacting worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. Much of the independent contractor work we provide to our clients is performed at the site of our clients.  As a result, we are subject to the plans and approaches of our clients have made to address the Covid-19 pandemic, such as whether they support remote working or if they have simply closed their facilities and furloughed employees.  To the extent that our clients were to decide or are required to close their facilities, or not permit remote work when they close facilities, we would no longer generate revenue and profit from that client. Moreover, developments such as social distancing and shelter-in-place directives have impacted our ability to deploy our staffing workforce effectively, thereby impacting contracts with customers in our commercial staffing and professional staffing business streams, where we have seen declines in revenues during the months of April and May 2020. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2020 and our overall liquidity.

In addition, the COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise need capital through the sale of our securities or refinancing any of our debt facilities. If we are unsuccessful in raising capital in the future, we may need to reduce activities, curtail or cease operations.

In addition, a significant outbreak of COVID-19 or other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition and results of operations.

33


 

NASDAQ has listing requirements of a minimum closing bid price of $1.00 per share and a minimum stockholders’ equity requirement of $2,500,000. If either our common stock cannot maintain the required minimum closing bid price and we fail to correct the listing requirement deficiency or we fail to maintain stockholders’ equity of at least $2,500,000 within any provided cure period, our common stock may be involuntarily delisted from NASDAQ.

Our common stock is listed on The Nasdaq Capital Market, and the quantitative listing standards of the Nasdaq require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. On January 24, 2020, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between December 10, 2019, through January 23, 2020, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until July 22, 2020 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

We can regain compliance with this requirement if at any time before the expiration of the Compliance Period the closing bid price for our common stock is at least $1.00 per share for a minimum of ten consecutive business days. In the event we do not regain compliance during the Compliance Period, Nasdaq will provide notice that our common stock will be subject to delisting. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Listing Hearings Panel. If we fail to regain compliance within our applicable cure period, or fail to satisfy other listing requirements, our common stock may be subject to delisting.

To resolve the noncompliance, we may consider available options including a reverse stock split, which may not result in a permanent increase in the market price of our common stock, which is dependent on many factors, including general economic, market and industry conditions and other factors detailed from time to time in the reports we file with the SEC. It is not uncommon for the market price of a company’s shares to decline in the period following a reverse stock split.

 

In addition, on June 3, 2020, we received a letter from the Nasdaq notifying us that we are no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500. Further, as of June 9, 2020, we did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.

 

Nasdaq has provided us with 45 calendar days, or until July 20, 2020, to submit a plan to regain compliance with the minimum stockholders’ equity standard. If our plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the notification letter to regain compliance. If our plan to regain compliance is not accepted, or if it is accepted and we do not regain compliance in the timeframe required by Nasdaq, the Nasdaq staff could provide notice that our common stock is subject to delisting.

 

We are currently evaluating options to regain compliance and intends to timely submit a plan to regain compliance with Nasdaq’s minimum stockholders’ equity standard. Although we will use all reasonable efforts to achieve compliance with Rule 5550(b)(1), there can be no assurance that we will be able to regain compliance with that rule or will otherwise be in compliance with other Nasdaq listing criteria.

Although we expect to take actions intended to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us would be successful, or that any such action would stabilize the market price or improve the liquidity of our common stock. Should a delisting occur, an investor would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our common stock, and our ability to raise future capital through the sale of our common stock could be severely limited. Furthermore, we expect these additional reporting rules and regulations would increase our legal and financial compliance costs.

 

We may not be entitled to forgiveness of our recently received Paycheck Protection Program Loan, and our application for the Paycheck Protection Program Loan could in the future be determined to have been impermissible or could result in damage to our reputation.

 

On May 12, 2020, Monroe Staffing Services, LLC, our indirect subsidiary, received loan proceeds of approximately $10,000 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). In addition, on May 20, 2020, Key Resources Inc., Lighthouse Placement Services, LLC and Staffing 360 Georgia, LLC, each of which is our wholly owned direct or indirect subsidiary, received loan proceeds in the aggregate amount of $9,395 pursuant to the PPP (collectively, the “PPP Loans”). We and our subsidiaries intend to use the PPP Loans in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. The PPP Loans are evidenced by promissory notes, dated as of May 12, 2020 and May 20, 2020, as applicable, issued by Newton Federal Bank, which contain customary events of default, including, among others, those relating to breaches of obligations under the PPP Loans, including a failure to make payments, any bankruptcy or similar proceedings, and certain material effects on our

34


 

ability to repay the PPP Loans. The PPP Loans mature two years following the dates of issuance (the “Maturity Dates”), bear interest at a rate of 1.00% per annum, and are subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act.

 

Beginning on the seventh month following the issuance dates, we are required to make 18 monthly payments of principal and interest. The PPP Loans may be prepaid at any time prior to maturity. Under the CARES Act, as amended in June 2020, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the dates of the first disbursement of the PPP Loans. The amount of the PPP Loans eligible to be forgiven may be reduced in certain circumstances, including as a result of certain headcount or salary reductions. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will apply for forgiveness, or that any amount of the PPP Loans will ultimately be forgiven by the SBA.

 

In order to apply for the PPP Loans, we were required to certify, among other things, that the current economic uncertainty made the PPP Loans request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our workforce, our need for additional funding to continue operations, and our ability to access alternative forms of capital in the current market environment to offset the effects of the COVID-19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loans, and that our receipt of the PPP Loans is consistent with the broad objectives of the CARES Act. The certification described above did not contain any objective criteria and is subject to interpretation.

 

On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loans, we are later determined to have violated any applicable laws or regulations that may apply to us in connection with the PPP Loans or it is otherwise determined that we were ineligible to receive the PPP Loans, we may be required to repay the PPP Loans in their entirety and/or be subject to additional penalties, which could also result in adverse publicity and damage to our reputation. Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loans or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we could be required to return the full amount of the PPP Loans. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

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

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

 

35


 

Item 6. Exhibits

 

Exhibit No.

 

Description

3.1

 

Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.3 to the Company’s Form 8-K, filed with the SEC on June 15, 2017)

3.2

 

Amended and Restated By-Laws (previously filed as Exhibit 3.4 to the Company’s Form 8-K, filed with the SEC on June 15, 2017)

3.2

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.1 to the Company’s Form 8-K, filed with the SEC on January 3, 2018)

3.3

 

Amended and Restated By-Laws (previously filed as Exhibit 3.1 to the Company’s Form 8-K, filed with the SEC on March 29, 2018)

10.1

 

Employment Agreement, dated February 17, 2020, by and between the Company and Mark Gibbens (previously filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC on February 21, 2020)

10.2

 

Note between Monroe Staffing Services, LLC and Newton Federal Bank, dated May 12, 2020. (previously filed as Exhibit 10 to the Company’s current report on Form 8-K filed with the SEC on May 15, 2020)

10.3

 

Note among Key Resources Inc., Lighthouse Placement Services, LLC, Staffing 360 Georgia, LLC and Newton Federal Bank, dated May 20, 2020 . (previously filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC on May 26, 2020)

31.1

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1†

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2†

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Schema

101.CAL

 

XBRL Taxonomy Calculation Linkbase

101.DEF

 

XBRL Taxonomy Definition Linkbase

101.LAB

 

XBRL Taxonomy Label Linkbase

101.PRE

 

XBRL Taxonomy Presentation Linkbase

 

 

 

± These exhibits are management contracts.

† In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.

 

 

36


 

SIGNATURES

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

 

Date: June 26, 2020

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ Brendan Flood

 

 

 

 

Brendan Flood

 

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

(Duly Authorized Officer and Principal Executive Officer)

 

Date: June 26, 2020

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ Sharnika Viswakula

 

 

 

 

Sharnika Viswakula

 

 

 

 

Corporate Controller

 

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

37

staf-ex311_9.htm

 

Exhibit 31.1

CERTIFICATION

OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Brendan Flood, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Staffing 360 Solutions, Inc. (the “registrant”):

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 26, 2020

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Chairman and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

staf-ex312_6.htm

 

Exhibit 31.2

CERTIFICATION

OF PRINCIPAL FINANICAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Sharnika Viswakula, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Staffing 360 Solutions, Inc. (the “registrant”):

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 26, 2020

 

/s/ Sharnika Viswakula

 

 

Sharnika Viswakula

 

 

Corporate Controller

 

 

(Principal Financial Officer and

Principal Accounting Officer)

 

 

staf-ex321_7.htm

 

Exhibit 32.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Staffing 360 Solutions, Inc. (the “Company”) on Form 10-Q for the period ended March 28, 2020 (the “Report”), I, Brendan Flood, Executive Chairman of the Company, respectively, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 26, 2020

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Chairman and Chief Executive Officer

 

 

(Principal Executive Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed from within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

staf-ex322_8.htm

 

Exhibit 32.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Staffing 360 Solutions, Inc. (the “Company”) on Form 10-Q for the period ended March 28, 2020 (the “Report”), I, David Faiman, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 26, 2020

 

/s/ Sharnika Viswakula

 

 

Sharnika Viswakula

 

 

Corporate Controller

 

 

(Principal Financial Officer and

Principal Accounting Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed from within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

v3.20.1
EQUITY - Series E Preferred Stock (Details Textual) - USD ($)
3 Months Ended
Feb. 08, 2019
Jan. 22, 2019
Mar. 28, 2020
Mar. 30, 2019
Stockholders Equity [Line Items]        
Common stock shares issued     321,815 2,908,280
Gross proceeds from issuance of common stock       $ 4,914,000
Fair Value of Shares Issued     $ 249,000 $ 4,924,000
Series E Preferred Stock [Member]        
Stockholders Equity [Line Items]        
Number of common stock issuable on conversion of preferred stock     561.8  
Convertible preferred stock, term     Each share of Series E Preferred Stock is initially convertible into 561.8 shares of our common stock at any time after October 31, 2020 or the occurrence of a Preferred Default (as defined in the Certificate of Designation for Series E Preferred Stock, as amended). A holder of Series E Preferred Stock is not required to pay any additional consideration in exchange for conversion of such Series E Preferred Stock into our common stock.  
Preferred stock redemption price per share     $ 1,000  
Fair Value of Shares Issued $ 2,425,000      
Shares Issued, price per share $ 1.65      
Proceeds from offering in excess to redeem preferred stock $ 3,000,000      
Common stock issued to holder     7,303,371  
Preferred stock accrued dividends     $ 1,170,000  
Series E Preferred Stock [Member] | Registered Direct Offering [Member]        
Stockholders Equity [Line Items]        
Common stock shares issued   387,500    
Gross proceeds from issuance of common stock   $ 775,000    
Series E Preferred Stock [Member] | Maximum [Member]        
Stockholders Equity [Line Items]        
Gross proceeds from equity offering     $ 3,000,000  
Series E-1 Preferred Stock [Member]        
Stockholders Equity [Line Items]        
Common stock issued to holder     536,747  
v3.20.1
EQUITY (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Stockholders Equity [Line Items]    
Number of Common Shares Issued 321,815 2,908,280
Fair Value of Shares Issued $ 249 $ 4,924
Equity Raise [Member]    
Stockholders Equity [Line Items]    
Number of Common Shares Issued   2,902,680
Fair Value of Shares Issued   $ 4,914
Jackson Investment Group, LLC [Member]    
Stockholders Equity [Line Items]    
Number of Common Shares Issued 300,000  
Fair Value of Shares Issued $ 244  
Minimum [Member] | Equity Raise [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share)   $ 1.65
Minimum [Member] | Jackson Investment Group, LLC [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share) $ 0.67  
Maximum [Member] | Equity Raise [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share)   $ 2.00
Maximum [Member] | Jackson Investment Group, LLC [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share) $ 0.92  
Preferred Series A Conversion [Member]    
Stockholders Equity [Line Items]    
Number of Common Shares Issued 16,215  
Board and Committee Members [Member]    
Stockholders Equity [Line Items]    
Number of Common Shares Issued 5,600 5,600
Fair Value of Shares Issued $ 5 $ 10
Board and Committee Members [Member] | Minimum [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share) $ 0.85 $ 1.79
Board and Committee Members [Member] | Maximum [Member]    
Stockholders Equity [Line Items]    
Fair Value at Issuance (per share) $ 0.85 $ 1.79
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 28, 2020
Dec. 28, 2019
Current Assets:    
Cash $ 931 $ 1,196
Accounts receivable, net 27,393 26,604
Prepaid expenses and other current assets 1,371 842
Total Current Assets 29,695 28,642
Property and equipment, net 1,442 1,528
Intangible assets, net 18,604 19,511
Goodwill 27,603 31,049
Right of use asset - leases 4,478 4,888
Other assets 2,988 3,223
Total Assets 84,810 88,841
Current Liabilities:    
Accounts payable and accrued expenses 19,050 16,577
Payable - related party 5,718 3,884
Current portion of debt 644 676
Current debt - related party 37,967 37,780
Accounts receivable financing 18,232 19,374
Lease liabilities, current 1,702 1,797
Other current liabilities 4,054 3,907
Total Current Liabilities 87,367 83,995
Term loan 181 360
Lease liabilities, non current 2,855 3,183
Other long-term liabilities 1,499 1,670
Total Liabilities 91,902 89,208
Commitments and contingencies
Series E-1 Preferred Stock, 6,500 designated, $0.00001 par value, 891 and 729 shares issued and outstanding as of March 28, 2020 and December 28, 2019, respectively 0 0
Staffing 360 Solutions, Inc. Equity:    
Common stock, $0.00001 par value, 40,000,000 shares authorized as of March 28, 2020 and December 28, 2019; 9,107,563 and 8,785,748 shares issued and outstanding, as of March 28, 2020 and December 28, 2019, respectively 1 1
Additional paid in capital 76,028 76,214
Accumulated other comprehensive income (loss) 400 (58)
Accumulated deficit (83,534) (76,537)
Total Stockholders' Deficit (7,092) (367)
Total Liabilities and Stockholders' Deficit 84,810 88,841
Series A Preferred Stock - Related Party [Member]    
Staffing 360 Solutions, Inc. Equity:    
Preferred stock value 0 0
Series E Preferred Stock [Member]    
Staffing 360 Solutions, Inc. Equity:    
Preferred stock value $ 13 $ 13
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY (UNAUDITED) - USD ($)
$ in Thousands
Total
Jackson Investment Group, LLC [Member]
Employees, Directors and Consultants [Member]
Series E-1 Preferred Stock [Member]
Series A Preferred Stock - Related Party [Member]
Series E Preferred Stock [Member]
Preferred Stock [Member]
Series E-1 Preferred Stock [Member]
Preferred Stock [Member]
Series A Preferred Stock - Related Party [Member]
Preferred Stock [Member]
Series E Preferred Stock [Member]
Common Stock [Member]
Common Stock [Member]
Jackson Investment Group, LLC [Member]
Common Stock [Member]
Employees, Directors and Consultants [Member]
Additional Paid-in Capital [Member]
Additional Paid-in Capital [Member]
Jackson Investment Group, LLC [Member]
Additional Paid-in Capital [Member]
Employees, Directors and Consultants [Member]
Additional Paid-in Capital [Member]
Series E-1 Preferred Stock [Member]
Additional Paid-in Capital [Member]
Series A Preferred Stock - Related Party [Member]
Additional Paid-in Capital [Member]
Series E Preferred Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Deficit [Member]
Balance at Dec. 29, 2018 $ 4,195               $ 13       $ 73,772           $ 2,053 $ (71,643)
Balance (in shares) at Dec. 29, 2018             81                          
Balance (in shares) at Dec. 29, 2018               1,663,008 13,000 5,326,068                    
Shares issued for services     $ 199                       $ 199          
Shares issued for services, shares                       5,600                
Sale of common stock, net $ 3,964                       3,964              
Sale of common stock, net, shares 2,908,280                 2,902,680                    
Share issuance $ 4,924                                      
Dividends - Preferred Stock - Related Party       $ (182) $ (50) $ (390)                   $ (182) $ (50) $ (390)    
Dividends - Preferred Stock - Related Party (in shares)             162                          
Dividends - Common stockholders (81)                       (81)              
Foreign currency translation gain (618)                                   (618)  
Net income (loss) 229                                     229
Balance at Mar. 30, 2019 7,266               $ 13       77,232           1,435 (71,414)
Balance (in shares) at Mar. 30, 2019             243                          
Balance (in shares) at Mar. 30, 2019               1,663,008 13,000 8,234,348                    
Balance at Dec. 28, 2019 $ (367)               $ 13 $ 1     76,214           (58) (76,537)
Balance (in shares) at Dec. 28, 2019 729           729                          
Balance at Dec. 28, 2019 $ 0                                      
Balance (in shares) at Dec. 28, 2019               1,663,008 13,000 8,785,748                    
Shares issued for services     $ 173                       $ 173          
Shares issued for services, shares                       5,600                
Sale of common stock, net, shares 321,815       16,215           300,000                  
Share issuance $ 249 $ 244                       $ 244            
Conversion of Series A to common shares       536,747   7,303,371   (623,628)   16,215                    
Dividends - Preferred Stock - Related Party       $ (182) $ (31) $ (390)                   $ (182) $ (31) $ (390)    
Dividends - Preferred Stock - Related Party (in shares)             162                          
Foreign currency translation gain 458                                   458  
Net income (loss) (6,997)                                     (6,997)
Balance at Mar. 28, 2020 $ (7,092)               $ 13 $ 1     $ 76,028           $ 400 $ (83,534)
Balance (in shares) at Mar. 28, 2020 891           891                          
Balance at Mar. 28, 2020 $ 0                                      
Balance (in shares) at Mar. 28, 2020               1,039,380 13,000 9,107,563                    
v3.20.1
DEBT (Tables)
3 Months Ended
Mar. 28, 2020
Debt Disclosure [Abstract]  
Schedule of Debt

 

 

 

March 28, 2020

 

 

December 28, 2019

 

Jackson Investment Group - related party

 

$

38,278

 

 

$

38,278

 

HSBC Term Loan

 

 

824

 

 

 

1,035

 

Total Debt, Gross

 

 

39,102

 

 

 

39,313

 

Less: Debt Discount and Deferred Financing Costs

 

 

(310

)

 

 

(497

)

Total Debt, Net

 

 

38,792

 

 

 

38,816

 

Less: Non Current Portion

 

 

(181

)

 

 

(360

)

Total Current Debt, Net

 

$

38,611

 

 

$

38,456

 

v3.20.1
OTHER RELATED PARTY TRANSACTIONS (Tables)
3 Months Ended
Mar. 28, 2020
Related Party Transactions [Abstract]  
Summary of Other Related Party Transactions

The Company had the following activity with its Board and Committee Members:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

 

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

 

 

$

1

 

 

$

5

 

 

$

19

 

 

 

1,400

 

 

$

3

 

 

$

8

 

Jeff Grout

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Nick Florio

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Alicia Barker

 

-

 

 

 

1,400

 

 

 

1

 

 

 

1

 

 

 

-

 

 

 

1,400

 

 

 

3

 

 

 

-

 

 

$

57

 

 

 

5,600

 

 

$

4

 

 

$

16

 

 

$

57

 

 

 

5,600

 

 

$

12

 

 

$

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

v3.20.1
DEBT (Details) - USD ($)
$ in Thousands
Mar. 28, 2020
Dec. 28, 2019
Debt Instrument [Line Items]    
Debt instrument $ 39,102 $ 39,313
Less: Debt Discount and Deferred Financing Costs (310) (497)
Total Debt, Net 38,792 38,816
Less: Non Current Portion (181) (360)
Total Current Debt, Net 38,611 38,456
HSBC Term Loan [Member]    
Debt Instrument [Line Items]    
Debt instrument 824 1,035
Jackson Investment Group - related party [Member]    
Debt Instrument [Line Items]    
Debt instrument $ 38,278 $ 38,278
v3.20.1
ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES- HSBC Invoice Finance (UK) Ltd New Facility (Details Textual) - CBS Butler Holdings Limited, Staffing 360 Solutions Limited and The JM Group [Member] - HSBC Invoice Finance (UK) Ltd - New Facility [Member]
Jun. 28, 2018
GBP (£)
Feb. 08, 2018
GBP (£)
Subsidiary
Jul. 31, 2019
GBP (£)
Accounts Receivable Based Financing Activities [Line Items]      
Lending facility   £ 11,500,000  
Number of subsidiaries | Subsidiary   3  
Factoring Arrangement Advance Percentage Eligible Receivable   90.00%  
Percentage of secured borrowing line of unbilled receivables   70.00%  
Unbilled receivables, maximum secured borrowing   £ 1,000,000  
Arrangement initial term   12 months  
Arrangement automatic rolling extension period   3 months  
Percentage of service charge   1.80%  
Clement May Limited [Member]      
Accounts Receivable Based Financing Activities [Line Items]      
Minimum agreement term for purchase of debt 12 months    
Clement May Limited [Member] | Agreement Purchase Debt [Member]      
Accounts Receivable Based Financing Activities [Line Items]      
Lending facility £ 20,000,000   £ 22,500,000
Unbilled receivables, maximum secured borrowing £ 1,500,000    
Unbilled receivables period 90 days    
v3.20.1
ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES
3 Months Ended
Mar. 28, 2020
Accounts Receivable Based Financing Activities [Abstract]  
Accounts Receivable Based Financing Facilities

NOTE 4 – ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

HSBC Invoice Finance (UK) Ltd – New Facility

On February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited 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%.

 

On June 28, 2018, Clement May Limited (“CML”), the Company’s new subsidiary entered into a new agreement with a minimum term of 12 months for purchase of debt (“APD”) with HSBC, joining CBS Butler, Staffing 360 Solutions Limited and The JM Group (collectively, with CML, the “Borrowers”) as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £20,000 across all Borrowers. The obligations of the Borrowers are secured by a fixed charge and a floating charge on the Borrowers’ respective accounts receivable and are subject to cross-company guarantees among the Borrowers. In addition, the secured borrowing line against unbilled receivables was increased to £1,500 for a period of 90 days. In July 2019, the aggregate Facility Limit was extended to £22,500 across all Borrowers.

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, is classified within investing activities.

 

Midcap Funding Trust

On August 2, 2019, the Company amended the facility with Midcap to allow for additional borrowing against the unbilled receivables by $1,000 to a cap of $2,300 and extended the maturity of the facility to August 2020. As of March 28, 2020 and December 28, 2019 approximately $16,283 and $17,298 are outstanding under this facility, respectively.

 

Due to substantial doubt about the Company’s ability to continue as a going concern as expressed in our Form 10-K filed with the United States Securities and Exchange Commission on May 11, 2020, the Company was not in compliance with its covenant with Midcap for the period ended December 28, 2019, as such amounts due are callable by the lender which exceed the Company’s current cash balance. On June 24, 2020, the Company received a notice from Midcap that they would currently not pursue available rights and remedies but reserve the right to do so at a later date.

v3.20.1
EQUITY
3 Months Ended
Mar. 28, 2020
Stockholders Equity Note [Abstract]  
Equity

 

NOTE 8 – EQUITY

Common Stock

The Company issued the following shares of common stock during the three-month period ended March 28, 2020:

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Jackson Investment Group

 

 

300,000

 

 

$

244

 

 

$

0.67

 

 

$

0.92

 

Preferred Series A Conversion

 

 

16,215

 

 

 

-

 

 

 

-

 

 

 

-

 

Board and Committee members

 

 

5,600

 

 

 

5

 

 

 

0.85

 

 

 

0.85

 

 

 

 

321,815

 

 

$

249

 

 

 

 

 

 

 

 

 

 

The Company issued the following shares of common stock during the three month period ended March 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Equity raise

 

 

2,902,680

 

 

$

4,914

 

 

$

1.65

 

 

$

2.00

 

Board and Committee members

 

 

5,600

 

 

 

10

 

 

 

1.79

 

 

 

1.79

 

 

 

 

2,908,280

 

 

$

4,924

 

 

 

 

 

 

 

 

 

 

Restricted Shares

The Company has issued shares of restricted stock to employees and members of the board of directors (the “Board”) under its 2015 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan. Under these plans, the shares are restricted for a period of three years from issuance. As of March 28, 2020, the Company has issued a total of 450,915 restricted shares of common stock to employees and Board members that remain restricted. 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. The Company recorded compensation expense associated with these restricted shares of $94 and $145, for the periods ended Q1 2020 YTD and Q1 2019 YTD, respectively.

Stock Options

The Company recorded share-based payment expense of $8 and $24 for the periods ended Q1 2020 YTD and Q1 2019 YTD, respectively.

Convertible Preferred Shares

Series A Preferred Stock – Related Party

On May 29, 2015, the Company filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock with the Nevada Secretary of State, whereby the Company designated 1,663,008 shares of preferred stock as Series A Preferred Stock, par value $0.00001 per share. On June 15, 2017, the Company reincorporated in the State of Delaware. The Series A Preferred Stock has a stated value of $1.00 per share and is entitled to a 12% dividend.  

Shares of the Series A Preferred Stock are convertible into shares of common stock at the holder’s election at any time prior to December 31, 2020, at a conversion rate of one and three tenths (1.3) shares of common stock for every 50 shares of Series A Preferred Stock that the holder elects to convert.

In the periods ended Q1 2020 YTD and Q1 2019 YTD, the Company paid $0 and $50, respectively, in dividends to its Series A Preferred Stockholders. On January 21, 2020, the Company converted the shares of Series A Preferred Stock awarded to Mr. Briand into 16,215 shares of common stock.   The Company has $31 and $0 of dividends payable to Series A Preferred Stockholders at the end of Q1 2020 YTD and Q1 2019 YTD.

Series E Preferred Stock - Related Party

 

The Series E Preferred Stock ranks senior to common stock and any other series or classes of preferred stock now or after issued or outstanding with respect to dividend rights and rights on liquidation, winding up and dissolution. Each share of Series E Preferred Stock is initially convertible into 561.8 shares of our common stock at any time after October 31, 2020 or the occurrence of a Preferred Default (as defined in the Certificate of Designation for Series E Preferred Stock, as amended). A holder of Series E Preferred Stock is not required to pay any additional consideration in exchange for conversion of such Series E Preferred Stock into our common stock. Series E Preferred Stock is redeemable by the Company at any time at a price per share equal to the stated value ($1,000 per share) plus all accrued and unpaid dividends thereon. While the Series E Preferred Stock is outstanding, the Company is required to use the proceeds of any sales of equity securities, exclusively to redeem any outstanding shares of Series E Preferred Stock, except that the Company is permitted to use up to an aggregate of $3,000 of the gross proceeds from any equity offering completed on or before November 15, 2019 for working capital purposes.

 

On January 22, 2019, the Company completed a registered direct offering of 387,500 common stock that generated $775 in gross proceeds that were used for working capital purposes. On February 12, 2019, the Company closed its previously announced firm commitment underwritten public offering in which, pursuant to an underwriting agreement between the Company and the underwriter, dated as of February 8, 2019, the Company issued and sold 2,425,000 shares of its common stock, at a public offering price of $1.65 per share. Notwithstanding the terms of the Certificate of Designations for Series E Preferred Stock, Jackson, the holder our outstanding shares of Series E Preferred Stock, did not require us to use the proceeds from our recent offerings in excess of $3,000 to redeem outstanding shares of the Series E Preferred Stock.  Instead, we used such excess proceeds to make a terminal payment to the sellers of FirstPro Inc (“FirstPro”). in final settlement of all deferred consideration due under our asset purchase agreement with such sellers.

As of March 28, 2020, 7,303,371 shares and 536,747 shares of common stock were issuable upon the potential conversion of Series E Preferred Stock and Series E-1 Preferred Stock, respectively. Due to the contingent nature of the cash redemption feature of the Series E-1 Preferred Stock, the Company classified the shares as mezzanine equity on the consolidated balance sheets.

The Company has $1,170 of dividends payable to its holders of Series E Preferred Stock as of March 28, 2020.

 

2019 Long-Term Incentive Plan

 

In January 2019, the Company’s Board approved the 2019 Long-Term Incentive Plan (the “2019 LTIP”).

The Board granted 355,000 shares of common stock to adequately motivate the participants and drive performance for the period.  

Units vest upon the following:

 

50% upon the employee being in good standing on December 31, 2020; and,

 

50% upon the average share price of the Company’s common stock during the 90-day period leading up to December 31, 2020, based upon the following Vesting Rate table:

Average 2019 Price

Vesting Rate

<$8 per share

0

>$8 per share

Pro-rated

>=$12 per share

Full Vesting

 

The Company recorded share based expense of approximately $71 and $30 in Q1 2020 YTD and Q1 2019 YTD in connection with these awards.

 

v3.20.1
SUPPLEMENTAL CASH FLOW INFORMATION
3 Months Ended
Mar. 28, 2020
Supplemental Cash Flow Information [Abstract]  
Supplemental Cash Flow Information

NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

689

 

 

$

2,210

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deferred purchase price of UK factoring facility

 

$

2,270

 

 

$

3,712

 

Shares issued to Jackson Investment Group

 

 

244

 

 

 

 

Dividends accrued to related parties

 

 

603

 

 

 

 

 

v3.20.1
OTHER RELATED PARTY TRANSACTIONS (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Related Party Transaction [Line Items]    
Compensation Expense Recognized $ 173 $ 199
Board and Committee Members [Member]    
Related Party Transaction [Line Items]    
Cash Compensation $ 57 $ 57
Shares Issued 5,600 5,600
Value of Shares Issued $ 4 $ 12
Compensation Expense Recognized 16 24
Board and Committee Members [Member] | Dimitri Villard [Member]    
Related Party Transaction [Line Items]    
Cash Compensation $ 19 $ 19
Shares Issued 1,400 1,400
Value of Shares Issued $ 1 $ 3
Compensation Expense Recognized 5 8
Board and Committee Members [Member] | Jeff Grout [Member]    
Related Party Transaction [Line Items]    
Cash Compensation $ 19 $ 19
Shares Issued 1,400 1,400
Value of Shares Issued $ 1 $ 3
Compensation Expense Recognized 5 8
Board and Committee Members [Member] | Nick Florio [Member]    
Related Party Transaction [Line Items]    
Cash Compensation $ 19 $ 19
Shares Issued 1,400 1,400
Value of Shares Issued $ 1 $ 3
Compensation Expense Recognized $ 5 $ 8
Board and Committee Members [Member] | Alicia Barker [Member]    
Related Party Transaction [Line Items]    
Shares Issued 1,400 1,400
Value of Shares Issued $ 1 $ 3
Compensation Expense Recognized $ 1  
v3.20.1
DEBT - Debt Exchange Agreement (Details Textual) - USD ($)
3 Months Ended
May 05, 2020
Aug. 29, 2019
Mar. 28, 2020
May 28, 2020
May 20, 2020
Subsequent Event [Member]          
Debt Instrument [Line Items]          
Debt Instrument Face Amount         $ 9,395,000
Jackson Investment Group, LLC [Member] | 18% Senior Secured Note Due December 31, 2019 [Member]          
Debt Instrument [Line Items]          
Debt Instrument, Interest Rate, Stated Percentage   18.00%      
Debt instrument maturity date   Dec. 31, 2019      
Debt Instrument Face Amount   $ 2,538,000      
Debt instrument, interest payment description     All accrued and unpaid interest on the outstanding principal balance of this term note will be due and payable monthly on the first day of each month, beginning on October 1, 2019    
Debt instrument, date of first interest payment   Oct. 01, 2019      
Debt instrument, default of payment description     Pursuant to the terms of this term note, if this term note is not repaid by December 31, 2019, the Company will be required to issue 100,000 shares of its common stock to Jackson on a monthly basis until this term note is fully repaid, subject to certain exceptions to comply with Nasdaq listing standards.    
Number of common shares issuable on monthly basis in event of default   100,000      
Additional expense related to issuance of common stock     $ 244,000    
Number of common shares issued in event of default     300,000    
Jackson Investment Group, LLC [Member] | 18% Senior Secured Note Due December 31, 2019 [Member] | Subsequent Event [Member]          
Debt Instrument [Line Items]          
Debt instrument, default of payment description On May 5, 2020, the Company received a waiver from Jackson curing the non-compliance as of March 28, 2020 the past due interest payments that were due on October 1, 2019, January 1, 2020 and April 1, 2020        
Additional expense related to issuance of common stock $ 324,000        
Number of common shares issued in event of default 500,000        
Non payment of loans due $ 2,538,000        
Unpaid loans       $ 2,538,000  
v3.20.1
ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES - Midcap Funding Trust (Details Textual) - Amended Midcap Facility [Member] - USD ($)
Aug. 02, 2019
Mar. 28, 2020
Dec. 28, 2019
Accounts Receivable Based Financing Activities [Line Items]      
Unbilled receivables, minimum incremental borrowing $ 1,000,000    
Unbilled receivables, maximum incremental borrowing $ 2,300,000    
Line of credit facility, extended maturity period 2020-08    
Outstanding credit facility   $ 16,283,000 $ 17,298,000
v3.20.1
OTHER RELATED PARTY TRANSACTIONS
3 Months Ended
Mar. 28, 2020
Related Party Transactions [Abstract]  
Other Related Party Transactions

NOTE 11 – OTHER RELATED PARTY TRANSACTIONS

In addition to the shares of Series E and Series E-1 Preferred Stock and notes issued to Jackson, the following are other related party transactions:

Board and Committee Members

The Company had the following activity with its Board and Committee Members:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

 

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

 

 

$

1

 

 

$

5

 

 

$

19

 

 

 

1,400

 

 

$

3

 

 

$

8

 

Jeff Grout

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Nick Florio

 

19

 

 

 

1,400

 

 

 

1

 

 

 

5

 

 

 

19

 

 

 

1,400

 

 

 

3

 

 

 

8

 

Alicia Barker

 

-

 

 

 

1,400

 

 

 

1

 

 

 

1

 

 

 

-

 

 

 

1,400

 

 

 

3

 

 

 

-

 

 

$

57

 

 

 

5,600

 

 

$

4

 

 

$

16

 

 

$

57

 

 

 

5,600

 

 

$

12

 

 

$

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Briand Separation Agreement

Matthew Briand, 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 approximately $0 and $17 in Q1 2020 YTD and Q1 2019 YTD, respectively, to Mr. Briand under his separation agreement.

The Faiman Separation Agreement

 

On September 11, 2019, David Faiman, the Company’s former Chief Financial Officer, and the Company entered into an agreement whereby Mr. Faiman agreed to transition his position and responsibilities with the Company (“Faiman Separation Agreement”), and Mr. Faiman’s Employment Agreement, dated February 5, 2016, was terminated. The Company had recognized approximately $190 in severance costs related to Mr. Faiman during the fiscal year ended December 28, 2019, and has paid $90 in Q1 2020 YTD.

 

The Gibbens Separation

 

The Company entered into an Employment Agreement with Mark Gibbens that appoints him as the Company’s Chief Financial Officer effective February 18, 2020, appointing Mr. Gibbens as the Company’s Chief Financial Officer commencing February 18, 2020 for an initial employment term of six months (“Initial Employment Term”).

 

Under the Employment Agreement with Mr. Gibbens, he received an annual base salary of $325. Provided that Mr. Gibbens was employed by the Company through the Initial Employment Term, as soon as administratively possible following the commencement of the first Renewal Term, and in no event later than thirty days following the commencement of the first Renewal Term, Mr. Gibbens was entitled to receive, pursuant to the 2016 Omnibus Incentive Plan, (i) an award covering 40,000 shares of the Company’s common stock, which will vest in three (3) equal annual installments on each of the first three anniversaries of the award’s grant, provided Mr. Gibbens was still employed by the Company through the applicable vesting date, and (ii) an additional award covering 40,000 shares of the Company’s Common Stock, which will vest in accordance with the terms and conditions of the Company’s standard form of performance compensation award agreement. In the event that Mr. Gibbens’ employment continued beyond the Initial Employment Term, for each calendar year or portion thereof during his employment, Mr. Gibbens was eligible for a discretionary bonus prorated for any partial year upon the same terms and criteria as provided for the Company’s Chief Operating Officer, as set forth separately to Mr. Gibbens.

 

As of May 13, 2020, Mark Gibbens, the Company’s former Chief Financial Officer, resigned as an officer and employee of the Company upon mutual agreement with the Company, in accordance with the terms of his employment agreement with the Company dated February 17, 2020. Mr. Gibbens also ceased to serve as the Company’s principal accounting officer and principal financial officer, effective as of April 17, 2020.

v3.20.1
LOSS PER COMMON SHARE
3 Months Ended
Mar. 28, 2020
Earnings Per Share [Abstract]  
Loss Per Common Share

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/loss available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A Preferred Stockholders (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 2020 and Q1 2019, pursuant to the two-class method, as a result of the net loss attributable to common stock holders, 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, unvested equity awards 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 28, 2020 and March 30, 2019 have not been included in the diluted earnings per share computations, as their inclusion would be anti dilutive due to the Company’s net loss as of March 28, 2020 and March 30, 2019:

 

 

 

March 28,

 

 

March 30,

 

 

 

2020

 

 

2019

 

Convertible preferred shares

 

 

7,867,142

 

 

 

7,492,995

 

Warrants

 

 

925,935

 

 

 

925,935

 

Restricted shares - unvested

 

 

450,915

 

 

 

557,184

 

Long term incentive plan (2019 LTIP)

 

 

355,000

 

 

 

375,000

 

Options

 

 

76,500

 

 

 

111,400

 

Total

 

 

9,675,492

 

 

 

9,462,514

 

 

v3.20.1
LEASES
3 Months Ended
Mar. 28, 2020
Leases [Abstract]  
Leases

 

NOTE 7 – LEASES

 

On December 30, 2018, the Company adopted ASC 842 using the modified retrospective transition approach allowed under ASU 2018-11 which releases companies from presenting comparative periods and related disclosures under ASC 842 and requires a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has elected to apply the short-term lease exception to all leases of one year or less. As of March 28, 2020, as a result of the adoption of ASC 842, we have recorded a right of use (“ROU”) lease asset of approximately $4,478 with a corresponding lease liability of approximately $4,557 based on the present value of the minimum rental payments of such leases. The Company’s finance leases are immaterial both individually and in the aggregate.

Quantitative information regarding the Company’s leases for the period ended March 28, 2020 is as follows:

Lease Cost

 

Classification

Q1 2020 YTD

 

Operating lease cost

 

SG&A Expenses

 

448

 

 

Other information

 

 

 

 

Weighted average remaining lease term (years)

 

 

3.7

 

Weighted average discount rate

 

 

6.4

%

 

 

 

 

 

Future Lease Payments

 

 

 

 

2020

 

$

1,348

 

2021

 

 

1,443

 

2022

 

 

594

 

2023

 

 

329

 

2024

 

 

321

 

Thereafter

 

 

1,143

 

 

 

$

5,178

 

Less: Imputed Interest

 

 

621

 

 

 

 

4,557

 

 

 

 

 

 

Leases - Current

 

 

1,702

 

Leases  - Non Current

 

 

2,855

 

 

As most of the Company’s leases do not provide an implicit rate, we use the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

v3.20.1
SEGMENTS (Details 1) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Disaggregation Of Revenue [Line Items]    
Total Revenue $ 58,692 $ 73,829
Temporary Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 55,996 70,998
Permanent Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 2,696 2,831
UNITED STATES [Member] | Commercial Staffing [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 28,743 30,085
UNITED STATES [Member] | Commercial Staffing [Member] | Temporary Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 28,697 30,020
UNITED STATES [Member] | Commercial Staffing [Member] | Permanent Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 46 65
UNITED STATES [Member] | Professional Staffing [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 8,660 9,581
UNITED STATES [Member] | Professional Staffing [Member] | Temporary Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 7,216 7,700
UNITED STATES [Member] | Professional Staffing [Member] | Permanent Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 1,444 1,881
UNITED KINGDOM [Member] | Professional Staffing [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 21,289 34,163
UNITED KINGDOM [Member] | Professional Staffing [Member] | Temporary Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue 20,083 33,278
UNITED KINGDOM [Member] | Professional Staffing [Member] | Permanent Revenue [Member]    
Disaggregation Of Revenue [Line Items]    
Total Revenue $ 1,206 $ 885
v3.20.1
EQUITY - Long-Term Incentive Plan (Details Textual) - 2019 Long-Term Incentive Plan [Member] - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended
Jan. 31, 2019
Mar. 28, 2020
Mar. 30, 2019
Stockholders Equity [Line Items]      
Stock options granted 355,000    
Units vesting upon employees being in good standing, Percentages 50.00%    
Units vesting upon average share price, Percentages 50.00%    
Stock based compensation expenses   $ 71 $ 30
v3.20.1
EQUITY - Restricted Shares (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Stockholders Equity [Line Items]    
Stock based compensation $ 173 $ 199
2015 And 2016 Omnibus Incentive Plan [Member] | Restricted Shares [Member]    
Stockholders Equity [Line Items]    
Share-based compensation restricted period 3 years  
Stock based compensation $ 94 $ 145
2015 And 2016 Omnibus Incentive Plan [Member] | Employees and Board Members [Member] | Restricted Shares [Member]    
Stockholders Equity [Line Items]    
Shares issued 450,915  
v3.20.1
GOODWILL (Tables)
3 Months Ended
Mar. 28, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Summary of Goodwill

The following table provides a roll forward of goodwill:

 

 

March 28, 2020

 

 

December 28, 2019

 

Beginning balance, net

$

31,049

 

 

$

32,061

 

Accumulated impairment losses

 

(2,969

)

 

 

-

 

Currency translation

 

(477

)

 

 

(1,012

)

Ending balance, net

$

27,603

 

 

$

31,049

 

 

 

 

 

 

 

 

 

v3.20.1
SEGMENTS (Tables)
3 Months Ended
Mar. 28, 2020
Segments Geographical Areas [Abstract]  
Schedule of Revenue Assets by Geographical Segment

The Company generated revenue and gross profit by segment as follows:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Commercial Staffing - US

 

$

28,743

 

 

$

30,085

 

Professional Staffing - US

 

 

8,660

 

 

 

9,581

 

Professional Staffing - UK

 

 

21,289

 

 

 

34,163

 

Total Revenue

 

$

58,692

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,294

 

 

$

4,632

 

Professional Staffing - US

 

 

3,080

 

 

 

3,714

 

Professional Staffing - UK

 

 

3,274

 

 

 

3,772

 

Total Gross Profit

 

$

10,648

 

 

$

12,118

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(10,961

)

 

$

(10,491

)

Depreciation and amortization

 

 

(785

)

 

 

(877

)

Impairment of goodwill

 

 

(2,969

)

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,417

)

 

 

(2,007

)

Re-measurement (loss) gain on intercompany note

 

 

(675

)

 

 

351

 

Gain on settlement of deferred consideration

 

 

 

 

 

847

 

Other (loss) income, net

 

 

(14

)

 

 

286

 

(Loss) Income Before Provision for Income Tax

 

$

(7,173

)

 

$

227

 

 

 

The following table disaggregates revenues by segments:

 

 

Q1 2020 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

46

 

 

$

1,444

 

 

$

1,206

 

 

$

2,696

 

Temporary Revenue

 

 

28,697

 

 

 

7,216

 

 

 

20,083

 

 

 

55,996

 

Total

 

$

28,743

 

 

$

8,660

 

 

$

21,289

 

 

$

58,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2019 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

65

 

 

$

1,881

 

 

$

885

 

 

$

2,831

 

Temporary Revenue

 

 

30,020

 

 

 

7,700

 

 

 

33,278

 

 

 

70,998

 

Total

 

$

30,085

 

 

$

9,581

 

 

$

34,163

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 28, 2020 and December 29, 2018, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

March 28, 2020

 

 

December 28,

 

 

 

2020

 

 

2019

 

United States

 

$

70,106

 

 

$

74,671

 

United Kingdom

 

 

14,704

 

 

 

14,170

 

Total Assets

 

$

84,810

 

 

$

88,841

 

 

v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 28, 2020
Dec. 28, 2019
Series E-1 Preferred Stock, Shares Designated 6,500 6,500
Series E-1 Preferred Stock, Par Value Per Share (in dollars per share) $ 0.00001 $ 0.00001
Series E-1 Preferred Stock, Shares Issued 891 729
Series E-1 Preferred Stock, Shares Outstanding 891 729
Preferred Stock, Par Value Per Share (in dollars per share) $ 0.00001 $ 0.00001
Preferred Stock, Shares Authorized 20,000,000 20,000,000
Common Stock, Par or Stated Value Per Share (in dollars per share) $ 0.00001 $ 0.00001
Common Stock, Shares Authorized 40,000,000 40,000,000
Common Stock, Shares, Issued 9,107,563 8,785,748
Common Stock, Shares, Outstanding 9,107,563 8,785,748
Series A Preferred Stock - Related Party [Member]    
Preferred Stock, Par Value Per Share (in dollars per share) $ 0.00001 $ 0.00001
Preferred Stock, Shares Designated 1,039,380 1,039,380
Preferred Stock, Shares Issued 1,039,380 1,039,380
Preferred Stock, Shares Outstanding 1,039,380 1,039,380
Series E Preferred Stock [Member]    
Preferred Stock, Par Value Per Share (in dollars per share) $ 0.00001 $ 0.00001
Preferred Stock, Shares Designated 13,000 13,000
Preferred Stock, Shares Issued 13,000 13,000
Preferred Stock, Shares Outstanding 13,000 13,000
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Sep. 28, 2019
Dec. 28, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net (Loss) Income $ (6,997,000) $ 229,000    
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:        
Depreciation and amortization 785,000 877,000    
Amortization of debt discount and deferred financing costs 187,000 157,000    
Stock based compensation 173,000 199,000    
Impairment of goodwill 2,969,000 0 $ 0 $ 0
Gain on settlement of deferred consideration 0 (847,000)    
Re-measurement (loss) gain on intercompany note 675,000 (351,000)    
Changes in operating assets and liabilities:        
Accounts receivable (3,886,000) (5,186,000)    
Prepaid expenses and other current assets (551,000) (212,000)    
Other assets 1,172,000 (79,000)    
Accounts payable and accrued expenses 3,012,000 3,547,000    
Interest payable - related party 1,474,000      
Other current liabilities 149,000 (118,000)    
Other long-term liabilities and other (835,000) 558,000    
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,673,000) (1,226,000)    
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment (95,000) (44,000)    
Collection of UK factoring facility deferred purchase price 2,720,000 3,469,000    
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,625,000 3,425,000    
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayment of term loan (168,000) (156,000)    
Repayments on accounts receivable financing, net (1,050,000) (5,137,000)    
Dividends paid to related parties   (245,000)    
Dividends paid on common stock   (81,000)    
Proceeds from sale of common stock   4,914,000    
Payments made for earn-outs   (1,200,000)    
Third party financing costs   (950,000)    
NET CASH USED IN FINANCING ACTIVITIES (1,218,000) (2,855,000)    
NET DECREASE IN CASH (266,000) (656,000)    
Effect of exchange rates on cash 1,000 (2,000)    
Cash - Beginning of period 1,196,000 3,181,000 $ 3,181,000 3,181,000
Cash - End of period $ 931,000 $ 2,523,000   $ 1,196,000
v3.20.1
GOODWILL
3 Months Ended
Mar. 28, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill

NOTE 5 – GOODWILL

 

The following table provides a roll forward of goodwill:

 

 

March 28, 2020

 

 

December 28, 2019

 

Beginning balance, net

$

31,049

 

 

$

32,061

 

Accumulated impairment losses

 

(2,969

)

 

 

-

 

Currency translation

 

(477

)

 

 

(1,012

)

Ending balance, net

$

27,603

 

 

$

31,049

 

 

 

 

 

 

 

 

 

The Company recognized an impairment with respect to its FirstPro reporting unit of $2,969 during the quarter ended March 28, 2020. The impairment resulted from a continued decline in that reporting unit’s revenue which has lower margin than other reporting units and experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) and prevailing market conditions 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.

 

The remaining reporting units were not impaired during the quarter ended March 28, 2020 however, in the case of one reporting unit, the fair value exceeded the carrying value by approximately 13%. Goodwill for this reporting unit should be considered at risk given the approximation of the estimated fair value to the carrying value of the respective reporting units. In the assumptions utilized by management, declines to revenue are expected in 2020 and then improve in future years with modest growth rates of between 0% to 2%. Further, management expects to recognize expense synergies in both Reporting Units as the Company continues to integrate recently acquired businesses. The assumed discount rate utilized in the income approach model was considered to be commensurate with the estimation uncertainty for these reporting units. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated in 2020 while failing to achieve growth in future periods an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of these reporting units, market declines, changes in discount rates or other conditions could result in an impairment in the future.

v3.20.1
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 28, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Earn-out Liabilities and Stock Value Guarantees

Pursuant to the acquisition of CBS Butler on September 15, 2017, the purchase price includes 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 deferred consideration of £150 less the aggregate amount of any net asset shortfall amount, if any, as determined pursuant to the acquisition agreements for the acquisition of CBS Butler. In September 2018, the Company paid the deferred consideration of £150 ($195).

While the Company had recognized the liability for the contingent earn-out due the sellers of CBS Butler within current liabilities as of December 29, 2018, in March 2019 the Company filed a warranty claim against the sellers asserting certain misrepresentations for an amount which approximates the contingent earn-out. In April 2019, the sellers of CBS Butler responded denying the Company’s warranty claim and asserting that the earn-out amount is due. On July 5, 2019, the Company entered into a settlement agreement with the selling shareholders of CBS Butler for the full and final satisfaction of claims in exchange for a payment of approximately £2,150 by the Company to the CBS Butler shareholders.  The payment was due no later than July 26, 2019. The Company did not make the payment on July 26, 2019, as such the parties agreed to adjust the amount payable to £2,500. The Company paid this in full on August 30, 2019 and recorded a gain of approximately £894 ($1,077) on final settlement. The Company used the proceeds from the term note entered into with Jackson on August 29, 2019 for $2,538, to satisfy this obligation.  

Pursuant to the acquisition of FirstPro Inc. on September 15, 2017, the purchase price included deferred quarterly installments of $75 beginning on October 1, 2017, and $2,675 was payable annually in three equal installments beginning on September 15, 2018. The Company made $300 and $892 in quarterly installments and annual installment in Fiscal 2018. On March 1, 2019, the Company paid $1,125 in full satisfaction of the remaining liability, recognizing a gain of $847.

Pursuant to the acquisition of Clement May on June 28, 2018, the purchase price includes an earnout payment of up to £500 to be paid on or around December 28, 2019; and deferred consideration of £350, the amount to be calculated and paid pursuant to the Share Purchase Agreement, on or around June 28, 2019.  The Company paid deferred consideration of £350 ($444) on June 26, 2019. The earnout payment of £500 ($656) was paid in December 2019.

 

Pursuant to the acquisition of Key Resources Inc. (“KRI”) on August 27, 2018, the purchase price includes earnout consideration payable to the seller of $2,027 each on August 27, 2019 and August 27, 2020. The payment of the earnout consideration is contingent on KRI’s achievement of certain trailing gross profit amounts. On September 11, 2019, the Company entered into an amended agreement with the seller to delay the payment of the first year earnout of $2,027 until no later than February 27, 2020. For each full calendar month beyond August 27, 2019, that such payment is delayed, the Company shall pay the seller interest in the amount of $10 with the first such payment of interest due on September 30, 2019.  In addition, the amended agreement was further amended to change the due date for the second year earnout payment of $2,027 from August 27, 2020 to February 27, 2020. The seller of KRI, Pamela D. Whitaker (“Whitaker”) has filed a lawsuit against the Company asserting claims for breach of contract and declaratory judgment against the Company due under a share purchase agreement and is seeking $4,054 in alleged damages. While the Company had recognized the liability for the earnout consideration of $4,054 due to Whitaker, within current liabilities as of March 28, 2020 and December 28, 2019, in February 2020, the Company filed an action against Whitaker for breach of contract which more than approximates the earnout consideration recognized. The Company paid interest of $40 during the quarter ended March 28, 2020. Refer to legal proceedings below for action filed against Whitaker, the former owner of KRI.

Legal Proceedings 

 

Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.

 

On December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker”, “Plaintiff”), filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract and declaratory judgment against Monroe and the Company (the “Defendants” arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI to Staffing 360’s subsidiary, Monroe Staffing Services in August 2018.  Whitaker is seeking $4,054 in alleged damages. 

 

Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020.  Briefing on the motion to remand concluded on February 24, 2020.  Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc.  Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause.  Briefing on Defendants’ motion to dismiss concluded on February 18, 2020.  The parties await decisions from the court on both Plaintiff’s motion to remand and Defendants’ motion to dismiss.  On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.

 

Separately, on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District of New York (Case No. 1:20-cv-01716) (the “New York Action”).  The New York Action concerns claims for breach of contract and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included in, the share purchase agreement.  The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less than $6 million.  On April 28, 2020, Whitaker filed a motion to dismiss the New York Action.  On June 11, 2020, Monroe and the Company filed their opposition to Whitaker’s motion to dismiss.  Whitaker has until June 26, 2020, to file reply papers in further support of the motion.

 

The Company intends to vigorously contest Whitaker’s claims in the North Carolina Action and pursue its claims in the New York Action.

v3.20.1
LEASES (Details Textual) - USD ($)
$ in Thousands
Mar. 28, 2020
Dec. 28, 2019
Lessee Lease Description [Line Items]    
Operating lease, right-of-use asset $ 4,478 $ 4,888
Operating lease, liability 4,557  
ASU 2016-02 Leases [Member]    
Lessee Lease Description [Line Items]    
Operating lease, right-of-use asset 4,478 4,888
Operating lease, liability $ 4,557 $ 4,980
v3.20.1
GOODWILL (Details Textual)
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 28, 2020
USD ($)
Reporting_Unit
Mar. 30, 2019
USD ($)
Sep. 28, 2019
USD ($)
Dec. 28, 2019
USD ($)
Goodwill [Line Items]        
Impairment of goodwill | $ $ 2,969,000 $ 0 $ 0 $ 0
Number of reporting units | Reporting_Unit 1      
Percent of fair value of reporting unit excess of carrying value 13.00%      
Minimum [Member] | Long-term Revenue Growth Rate [Member]        
Goodwill [Line Items]        
Percent of fair value of reporting unit excess of carrying value 0.00%      
Maximum [Member] | Long-term Revenue Growth Rate [Member]        
Goodwill [Line Items]        
Percent of fair value of reporting unit excess of carrying value 2.00%      
v3.20.1
LOSS PER COMMON SHARE (Details) - shares
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 9,675,492 9,462,514
Convertible preferred shares [Member]    
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 7,867,142 7,492,995
Warrants [Member]    
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 925,935 925,935
Restricted shares - unvested [Member]    
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 450,915 557,184
Long term incentive plan (2019 LTIP) [Member]    
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 355,000 375,000
Options [Member]    
Earnings Per Share Diluted [Line Items]    
Shares excluded in computation of earnings per common share 76,500 111,400
v3.20.1
COMMITMENTS AND CONTINGENCIES - Legal Proceedings (Details Textual) - Whitaker [Member] - USD ($)
3 Months Ended
Mar. 28, 2020
Feb. 26, 2020
North Carolina Action [Member] | North Carolina [Member]    
Commitments And Contingencies [Line Items]    
Alleged damages $ 4,054,000  
New York Action [Member] | New York [Member] | Minimum [Member]    
Commitments And Contingencies [Line Items]    
Estimated claims for breach of contract and fraudulent inducement   $ 6,000,000
v3.20.1
OTHER RELATED PARTY TRANSACTIONS (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Feb. 18, 2020
Mar. 28, 2020
Mar. 30, 2019
Dec. 28, 2019
Mark Gibbens [Member]        
Related Party Transaction [Line Items]        
Initial employment agreement term 6 months      
Officers' compensation $ 325      
Share-based compensation restricted period 3 years      
Mark Gibbens [Member] | 2016 Omnibus Incentive Plan [Member]        
Related Party Transaction [Line Items]        
Number of shares, Issued 40,000      
Mark Gibbens [Member] | 2016 Omnibus Incentive Plan [Member] | Performance Shares [Member]        
Related Party Transaction [Line Items]        
Number of shares, Issued 40,000      
Mr. Briand [Member] | Separation Agreement [Member]        
Related Party Transaction [Line Items]        
Payments for severance costs   $ 0 $ 17  
Mr. Faiman [Member] | Separation Agreement [Member]        
Related Party Transaction [Line Items]        
Severance costs       $ 190
Mr. Faiman [Member] | Separation Agreement [Member] | Employee Severance [Member]        
Related Party Transaction [Line Items]        
Payments for severance costs   $ 90    
v3.20.1
COMMITMENTS AND CONTINGENCIES - Earn-out Liabilities and Stock Value Guarantees (Details Textual)
1 Months Ended 3 Months Ended 12 Months Ended
Aug. 30, 2019
USD ($)
Aug. 30, 2019
GBP (£)
Aug. 29, 2019
USD ($)
Jul. 26, 2019
GBP (£)
Jul. 05, 2019
GBP (£)
Mar. 01, 2019
USD ($)
Feb. 29, 2020
USD ($)
Sep. 28, 2019
USD ($)
Sep. 29, 2018
USD ($)
Sep. 29, 2018
GBP (£)
Mar. 28, 2020
USD ($)
Dec. 29, 2018
USD ($)
Dec. 29, 2018
USD ($)
Dec. 28, 2019
USD ($)
Dec. 28, 2019
GBP (£)
Sep. 11, 2019
USD ($)
Jun. 26, 2019
GBP (£)
Aug. 27, 2018
USD ($)
Jun. 28, 2018
USD ($)
Jun. 28, 2018
GBP (£)
Sep. 15, 2017
USD ($)
Installment
Sep. 15, 2017
GBP (£)
Installment
Whitaker [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration payable                     $ 4,054,000     $ 4,054,000                
CBS Butler Acquisition [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination deferred consideration | £                                           £ 150,000
Business combination earn-out payment payable month and year                     2018-12                      
Business combination deferred consideration paid                 $ 195,000 £ 150,000                        
Accrual final payments | £       £ 2,500,000 £ 2,150,000                                  
Gain on final settlement of litigation $ 1,077,000 £ 894,000                                        
CBS Butler Acquisition [Member] | Jackson Investment Group, LLC [Member]                                            
Commitments And Contingencies [Line Items]                                            
Proceeds from term loans - related party     $ 2,538,000                                      
CBS Butler Acquisition [Member] | Maximum [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earn-out payment | £                                           £ 4,214,000
FirstPro [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination deferred consideration paid                       $ 300,000 $ 892,000                  
Business acquisition cost of acquired entity each quarterly installment payment                                         $ 75,000  
Business acquisition cost of acquired entity annual equal installment payment                                         $ 2,675,000  
Business combination number of equal annual installments. | Installment                                         3 3
Business acquisition quarterly installment payment beginning date                     Oct. 01, 2017                      
Business acquisition annual equal installment payment beginning date                     Sep. 15, 2018                      
Business combination remaining liability paid           $ 1,125,000                                
Business combination purchase gain recognized           $ 847,000                                
Clement May Limited [Member] | Share Purchase Agreement [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination deferred consideration                                 £ 350,000   $ 444,000 £ 350,000    
Clement May Limited [Member] | Maximum [Member] | Share Purchase Agreement [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earn-out payment                           $ 656,000 £ 500,000         £ 500,000    
Key Resources Inc. [Member] | Share Purchase Agreement [Member] | Earnout Consideration on August 27, 2019 [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration payable                                   $ 2,027,000        
Key Resources Inc. [Member] | Share Purchase Agreement [Member] | Earnout Consideration on August 27, 2020 [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration payable                                   $ 2,027,000        
Key Resources Inc. [Member] | Amended Share Purchase Agreement [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration interest payment                     $ 40,000                      
Alleged damages             $ 4,054,000                              
Key Resources Inc. [Member] | Amended Share Purchase Agreement [Member] | Earnout Consideration Postpone Date on February 27, 2020 [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration payable                               $ 2,027,000            
Business combination earnout consideration interest payment               $ 10,000                            
Key Resources Inc. [Member] | Amended Share Purchase Agreement [Member] | Earnout Consideration Prepone Date on February 27, 2020 [Member]                                            
Commitments And Contingencies [Line Items]                                            
Business combination earnout consideration payable                               $ 2,027,000            
Business combination earnout consideration interest payment               $ 10,000                            
v3.20.1
EQUITY - Series A Preferred Stock (Details Textual) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Jan. 21, 2020
May 29, 2015
Mar. 28, 2020
Mar. 30, 2019
Dec. 28, 2019
Stockholders Equity [Line Items]          
Preferred stock, shares authorized     20,000,000   20,000,000
Preferred stock, par value per share     $ 0.00001   $ 0.00001
Dividends paid       $ 245  
Mr. Briand [Member]          
Stockholders Equity [Line Items]          
Preferred stock converted into common stock 16,215        
Series A Preferred Stock - Related Party [Member]          
Stockholders Equity [Line Items]          
Preferred stock, par value per share     $ 0.00001   $ 0.00001
Preferred stock, stated value per share   $ 1.00      
Preferred stock, dividend rate, percentage   1200.00%      
Preferred stock, redemption terms     Shares of the Series A Preferred Stock are convertible into shares of common stock at the holder’s election at any time prior to December 31, 2020, at a conversion rate of one and three tenths (1.3) shares of common stock for every 50 shares of Series A Preferred Stock that the holder elects to convert.    
Conversion of preferred stock to common stock conversion ratio     1.3    
Dividends paid     $ 0 50  
Preferred stock accrued dividends     $ 31 $ 0  
Series A Preferred Stock - Related Party [Member] | Designated Shares [Member]          
Stockholders Equity [Line Items]          
Preferred stock, shares authorized   1,663,008      
Preferred stock, par value per share   $ 0.00001      
v3.20.1
LEASES (Details1) - USD ($)
$ in Thousands
Mar. 28, 2020
Dec. 28, 2019
Leases [Abstract]    
Weighted average remaining lease term (years) 3 years 8 months 12 days  
Weighted average discount rate 6.40%  
Future Lease Payments    
2020 $ 1,348  
2021 1,443  
2022 594  
2023 329  
2024 321  
Thereafter 1,143  
Total 5,178  
Less: Imputed Interest 621  
Operating Lease Liability 4,557  
Lease liabilities, current 1,702 $ 1,797
Lease liabilities, non current $ 2,855 $ 3,183
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Mar. 28, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Principles of Consolidation

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 28, 2019 which are included in the Company’s December 28, 2019 Form 10-K (“Fiscal 2019”), filed with the United States Securities and Exchange Commission on May 11, 2020. 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 28, 2020 are not necessarily indicative of results for the entire year ending December 26, 2020. This report is for the period December 29, 2019 to March 28, 2020 (“Q1 2020 YTD”) and December 30, 2018 to March 30, 2019 (“Q1 2019 YTD”).

Liquidity

Liquidity

 

The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended March 28, 2020, the Company has an accumulated deficit of $83,534 and a working capital deficit of $57,672. At March 28, 2020, we had total debt of $39,102 and $931 of cash on hand. We have historically met our cash needs through a combination of cash flows from operating activities, term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Our cash requirements are generally for operating activities and debt repayments

 

The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.

 

Further, our note issued to Jackson Investment Group LLC (“Jackson”) includes certain financial customary covenants and the Company has had instances, including as of the period ended March 28, 2020, of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance, including as of March 28, 2020, and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.

 

Due to substantial doubt about the Company’s ability to continue as a going concern as expressed in our Form 10-K filed with the United States Securities and Exchange Commission on May 11, 2020, the Company was not in compliance with its covenant with MidCap for the period ended December 28, 2019, as such amounts due are callable by the lender which exceed our current cash balance. On May 8, 2020, the Company received a notice from Midcap that they would currently not pursue available rights and remedies but reserve the right to do so at a later date.

 

Going concern

Going concern

 

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company’s debt obligations and certain unsecured payments associated with historical acquisitions are due in the next 12 months, and the Company’s debt obligations with Jackson and MidCap Funding X (“MidCap”) may become due on demand due to certain covenant violations discussed above, which are in excess of cash and cash equivalents on hand. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. If the Company is unable to obtain additional capital, such payments may not be made on time.

 

The Novel Coronavirus Disease 2019 (“COVID-19”), is impacting worldwide economic activity, and activity in the United States and the United Kingdom where the Company’s operations are based. The nature of work of the contractors the Company supports mostly are on the site of the Company’s clients.  As a result, the Company is subject to the plans and approaches of the Company’s clients to work during this period.  This includes whether they support remote working when they have decided to close their facilities.  To the extent that the Company’s clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, the Company would no longer generate revenue and profit from that client.  Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where the Company has seen declines of approximately 33% and 30% in revenues during the months of April and May 2020, respectively. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2020 and the Company’s overall liquidity.

 

These factors combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.

 

COVID-19

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this quarterly report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to generate revenues. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the duration of the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020, however the Company continues to take action to reduce the negative effects of the COVID-19 outbreak on its operations through various cost cutting initiatives including reductions to support personnel, temporary salary reductions, and elimination of other non-essential spend. Should the impact from the pandemic go on for an extended period of time, management has developed further plans to partially mitigate the impact of the pandemic.

 

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

 

On May 12, 2020, Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a note (the “May 12 Note”) with Newton Federal Bank (the “Bank”), pursuant to the Paycheck PPP of the CARES Act administered by the U.S. Small Business Administration. The principal amount of the May 12 Note is $10,000.

 

In accordance with the requirements of the CARES Act, the Company and Monroe Staffing (collectively, the “May 12 Note Borrowers”) intends to use the proceeds from the May 12 Note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the May 12 Note at the rate of 1.00% per annum. The May 12 Note Borrowers may apply for forgiveness of the amount due under the May 12 Note, in an amount equal to the sum of qualified expenses under the PPP. The May 12 Note Borrowers intend to use the entire proceeds under the May 12 Note for such qualifying expenses.

 

Subject to any forgiveness under the PPP, the May 12 Note matures two years following the date of issuance of the May 12 Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the May 12 Note, the May 12 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 12 Note may be prepaid at any time prior to maturity. The May 12 Note provides for customary events of default, including, among others, those relating to breaches of obligations under the May 12 Note, including a failure to make payments, any bankruptcy or similar proceedings involving the May 12 Note Borrowers, and certain material effects on the May 12 Note Borrowers’ ability to repay the May 12 Note. The May 12 Note Borrowers did not provide any collateral or guarantees for the May 12 Note.

 

On May 20, 2020, Key Resources Inc. (“KRI”), Lighthouse Placement Services, LLC (“LH”) and Staffing 360 Georgia, LLC (“SG”), each a wholly owned direct or indirect subsidiary of the Company, entered into the following notes, each dated May 20, 2020, with the Bank, pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration. KRI entered into a note (the “KRI Note”) for the principal amount of approximately $5,443, LH entered into a note (the “LH Note”) for the principal amount of approximately $1,890, and SG entered into a note (the “SG Note,” and, together with the KRI Note and LH Note, the “May 20 Notes”) for the principal amount of approximately $2,063. The combined total of the May 20 Notes is approximately $9,395.

 

In accordance with the requirements of the CARES Act, the Company, KRI, LH and SG (collectively, the “May 20 Note Borrowers”) intends to use the proceeds from the May 20 Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on each of the May 20 Notes at the rate of 1.00% per annum. The May 20 Note Borrowers may apply for forgiveness of the amount due under the May 20 Notes, in an amount equal to the sum of qualified expenses under the PPP. The May 20 Note Borrowers intend to use the entire proceeds under the May 20 Notes for such qualifying expenses.

 

Subject to any forgiveness under the PPP, each of the May 20 Notes mature two years following the date of issuance of the May 20 Notes and include a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of each of the May 20 Notes, the May 20 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 20 Notes may be prepaid at any time prior to maturity. The May 20 Notes provide for customary events of default, including, among others, those relating to breaches of obligations under the May 20 Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Borrowers, and certain material effects on the Borrowers’ ability to repay the May 20 Notes. The May 20 Note Borrowers did not provide any collateral or guarantees for the May 20 Notes.

 

The application for these funds required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the adverse impact the pandemic had on our business and the degree of uncertainty introduced to the capital markets. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department.

 

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100 or less annually are reduced by more than 25%. The ultimate forgiveness of the PPP loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal

 

Effective March 27, 2020, the Company is deferring Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act section 2302. Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022.

Goodwill

Goodwill

Goodwill relates to amounts that arose in connection with various acquisitions and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but it is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator.

In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company's goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.

The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value.

 

The Company performed its annual goodwill impairment testing as of September 29, 2019 and no impairment was recognized.  In Q1 2020, the Company determined that the COVID-19 outbreak is a triggering event since this could potentially impact industry and market conditions, have negative effect on earnings and cash flows, and overall financial performance. The Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) to derive the fair value of the reporting unit when performing its annual impairment testing. Volatility in the Company’s stock price can result in the net book value of our reporting units approximating, or even temporarily exceeding market capitalization, however, the fair value of our reporting units are driven solely by the market price of our stock. As described above, fair value of our reporting units are derived using a combination of an asset approach, an income approach and a market approach. These valuation techniques consider several other factors beyond our market capitalization, such as the estimated future cash flows of our reporting units, the discount rate used to present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment.

 

The Company recognized an impairment with respect to its FirstPro reporting unit of $2,969 during the quarter ended March 28, 2020. The impairment resulted from a continued decline in that reporting unit’s revenue which has lower margin than other reporting units and experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) and prevailing market conditions 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.

 

The remaining reporting units were not impaired during the quarter ended March 28, 2020 however, in the case of one reporting unit, the fair value exceeded the carrying value by approximately 13%. Goodwill for this reporting unit should be considered at risk given the approximation of the estimated fair value to the carrying value of the respective reporting units. In the assumptions utilized by management, declines to revenue are expected in 2020 and then improve in future years with modest growth rates of between 0% to 2%. Further, management expects to recognize expense synergies in both Reporting Units as the Company continues to integrate recently acquired businesses. The assumed discount rate utilized in the income approach model was considered to be commensurate with the estimation uncertainty for these reporting units. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated in 2020 while failing to achieve growth in future periods an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of these reporting units, market declines, changes in discount rates or other conditions could result in an impairment in the future.

Revenue Recognition

Revenue Recognition

On December 31, 2017, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers for all open contracts and related amendments as of December 31, 2017 using the modified retrospective method.  The adoption had no impact to the reported results.

 

The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict 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 receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

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 of 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 point control has transferred to the customer. Revenue in Q1 2020 YTD was comprised of $55,996 of temporary contractor revenue and $2,696 of permanent placement revenue, compared with $70,998 and $2,831 for Q1 2019 YTD, respectively. Refer to Note 10 for further details on breakdown by segments.  

Reclassifications

Reclassifications

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

Income Taxes

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 2.4% and (1.06)% for the period ending Q1 2020 YTD and Q1 2019 YTD, respectively.

Foreign Currency

Foreign Currency

The Company recorded a non-cash foreign currency remeasurement (loss) gain of $(675) and $351 in Q1 2020 YTD and Q1 2019 YTD, respectively, associated with its U.S dollar denominated intercompany note.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

On December 31, 2019, the FASB issued ASC 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” (Topic 740). The amendments in this update simplify the accounting for income taxes by removing the certain exceptions. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  The Company adopted this guidance effective December 30, 2018. 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 new standard provides a number of optional practical expedients in transition. The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply i) the practical expedient which allows us to not separate lease and non-lease components, and (2) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. The adoption of the new standard resulted in the recognition of additional lease liabilities of approximately $4,980, and right-of-use assets of approximately $4,888 as of December 28, 2019 related to the Company’s operating leases. The new standard did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows.

 

v3.20.1
LEASES (Tables)
3 Months Ended
Mar. 28, 2020
Leases [Abstract]  
Schedule of Quantitative Information Regarding Leases

Quantitative information regarding the Company’s leases for the period ended March 28, 2020 is as follows:

Lease Cost

 

Classification

Q1 2020 YTD

 

Operating lease cost

 

SG&A Expenses

 

448

 

Lessee Operating Lease Liability Maturity and Other Information

Other information

 

 

 

 

Weighted average remaining lease term (years)

 

 

3.7

 

Weighted average discount rate

 

 

6.4

%

 

 

 

 

 

Future Lease Payments

 

 

 

 

2020

 

$

1,348

 

2021

 

 

1,443

 

2022

 

 

594

 

2023

 

 

329

 

2024

 

 

321

 

Thereafter

 

 

1,143

 

 

 

$

5,178

 

Less: Imputed Interest

 

 

621

 

 

 

 

4,557

 

 

 

 

 

 

Leases - Current

 

 

1,702

 

Leases  - Non Current

 

 

2,855

 

 

v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 28, 2020
Accounting Policies [Abstract]  
Summary of significant accounting policies

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 28, 2019 which are included in the Company’s December 28, 2019 Form 10-K (“Fiscal 2019”), filed with the United States Securities and Exchange Commission on May 11, 2020. 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 28, 2020 are not necessarily indicative of results for the entire year ending December 26, 2020. This report is for the period December 29, 2019 to March 28, 2020 (“Q1 2020 YTD”) and December 30, 2018 to March 30, 2019 (“Q1 2019 YTD”).

 

Liquidity

 

The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended March 28, 2020, the Company has an accumulated deficit of $83,534 and a working capital deficit of $57,672. At March 28, 2020, we had total debt of $39,102 and $931 of cash on hand. We have historically met our cash needs through a combination of cash flows from operating activities, term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Our cash requirements are generally for operating activities and debt repayments

 

The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.

 

Further, our note issued to Jackson Investment Group LLC (“Jackson”) includes certain financial customary covenants and the Company has had instances, including as of the period ended March 28, 2020, of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance, including as of March 28, 2020, and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.

 

Due to substantial doubt about the Company’s ability to continue as a going concern as expressed in our Form 10-K filed with the United States Securities and Exchange Commission on May 11, 2020, the Company was not in compliance with its covenant with MidCap for the period ended December 28, 2019, as such amounts due are callable by the lender which exceed our current cash balance. On May 8, 2020, the Company received a notice from Midcap that they would currently not pursue available rights and remedies but reserve the right to do so at a later date.

 

Going concern

 

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company’s debt obligations and certain unsecured payments associated with historical acquisitions are due in the next 12 months, and the Company’s debt obligations with Jackson and MidCap Funding X (“MidCap”) may become due on demand due to certain covenant violations discussed above, which are in excess of cash and cash equivalents on hand. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. If the Company is unable to obtain additional capital, such payments may not be made on time.

 

The Novel Coronavirus Disease 2019 (“COVID-19”), is impacting worldwide economic activity, and activity in the United States and the United Kingdom where the Company’s operations are based. The nature of work of the contractors the Company supports mostly are on the site of the Company’s clients.  As a result, the Company is subject to the plans and approaches of the Company’s clients to work during this period.  This includes whether they support remote working when they have decided to close their facilities.  To the extent that the Company’s clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, the Company would no longer generate revenue and profit from that client.  Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where the Company has seen declines of approximately 33% and 30% in revenues during the months of April and May 2020, respectively. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2020 and the Company’s overall liquidity.

 

These factors combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.

 

COVID-19

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this quarterly report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to generate revenues. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the duration of the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020, however the Company continues to take action to reduce the negative effects of the COVID-19 outbreak on its operations through various cost cutting initiatives including reductions to support personnel, temporary salary reductions, and elimination of other non-essential spend. Should the impact from the pandemic go on for an extended period of time, management has developed further plans to partially mitigate the impact of the pandemic.

 

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

 

On May 12, 2020, Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a note (the “May 12 Note”) with Newton Federal Bank (the “Bank”), pursuant to the Paycheck PPP of the CARES Act administered by the U.S. Small Business Administration. The principal amount of the May 12 Note is $10,000.

 

In accordance with the requirements of the CARES Act, the Company and Monroe Staffing (collectively, the “May 12 Note Borrowers”) intends to use the proceeds from the May 12 Note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the May 12 Note at the rate of 1.00% per annum. The May 12 Note Borrowers may apply for forgiveness of the amount due under the May 12 Note, in an amount equal to the sum of qualified expenses under the PPP. The May 12 Note Borrowers intend to use the entire proceeds under the May 12 Note for such qualifying expenses.

 

Subject to any forgiveness under the PPP, the May 12 Note matures two years following the date of issuance of the May 12 Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the May 12 Note, the May 12 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 12 Note may be prepaid at any time prior to maturity. The May 12 Note provides for customary events of default, including, among others, those relating to breaches of obligations under the May 12 Note, including a failure to make payments, any bankruptcy or similar proceedings involving the May 12 Note Borrowers, and certain material effects on the May 12 Note Borrowers’ ability to repay the May 12 Note. The May 12 Note Borrowers did not provide any collateral or guarantees for the May 12 Note.

 

On May 20, 2020, Key Resources Inc. (“KRI”), Lighthouse Placement Services, LLC (“LH”) and Staffing 360 Georgia, LLC (“SG”), each a wholly owned direct or indirect subsidiary of the Company, entered into the following notes, each dated May 20, 2020, with the Bank, pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration. KRI entered into a note (the “KRI Note”) for the principal amount of approximately $5,443, LH entered into a note (the “LH Note”) for the principal amount of approximately $1,890, and SG entered into a note (the “SG Note,” and, together with the KRI Note and LH Note, the “May 20 Notes”) for the principal amount of approximately $2,063. The combined total of the May 20 Notes is approximately $9,395.

 

In accordance with the requirements of the CARES Act, the Company, KRI, LH and SG (collectively, the “May 20 Note Borrowers”) intends to use the proceeds from the May 20 Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on each of the May 20 Notes at the rate of 1.00% per annum. The May 20 Note Borrowers may apply for forgiveness of the amount due under the May 20 Notes, in an amount equal to the sum of qualified expenses under the PPP. The May 20 Note Borrowers intend to use the entire proceeds under the May 20 Notes for such qualifying expenses.

 

Subject to any forgiveness under the PPP, each of the May 20 Notes mature two years following the date of issuance of the May 20 Notes and include a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of each of the May 20 Notes, the May 20 Note Borrowers are required to make 18 monthly payments of principal and interest. The May 20 Notes may be prepaid at any time prior to maturity. The May 20 Notes provide for customary events of default, including, among others, those relating to breaches of obligations under the May 20 Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Borrowers, and certain material effects on the Borrowers’ ability to repay the May 20 Notes. The May 20 Note Borrowers did not provide any collateral or guarantees for the May 20 Notes.

 

The application for these funds required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the adverse impact the pandemic had on our business and the degree of uncertainty introduced to the capital markets. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department.

 

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100 or less annually are reduced by more than 25%. The ultimate forgiveness of the PPP loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal

 

Effective March 27, 2020, the Company is deferring Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act section 2302. Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022.

 

Goodwill

Goodwill relates to amounts that arose in connection with various acquisitions and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but it is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator.

In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company's goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.

The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value.

 

The Company performed its annual goodwill impairment testing as of September 29, 2019 and no impairment was recognized.  In Q1 2020, the Company determined that the COVID-19 outbreak is a triggering event since this could potentially impact industry and market conditions, have negative effect on earnings and cash flows, and overall financial performance. The Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) to derive the fair value of the reporting unit when performing its annual impairment testing. Volatility in the Company’s stock price can result in the net book value of our reporting units approximating, or even temporarily exceeding market capitalization, however, the fair value of our reporting units are driven solely by the market price of our stock. As described above, fair value of our reporting units are derived using a combination of an asset approach, an income approach and a market approach. These valuation techniques consider several other factors beyond our market capitalization, such as the estimated future cash flows of our reporting units, the discount rate used to present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment.

 

The Company recognized an impairment with respect to its FirstPro reporting unit of $2,969 during the quarter ended March 28, 2020. The impairment resulted from a continued decline in that reporting unit’s revenue which has lower margin than other reporting units and experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples) and income approach (discounted cash flow analysis) and prevailing market conditions 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.

 

The remaining reporting units were not impaired during the quarter ended March 28, 2020 however, in the case of one reporting unit, the fair value exceeded the carrying value by approximately 13%. Goodwill for this reporting unit should be considered at risk given the approximation of the estimated fair value to the carrying value of the respective reporting units. In the assumptions utilized by management, declines to revenue are expected in 2020 and then improve in future years with modest growth rates of between 0% to 2%. Further, management expects to recognize expense synergies in both Reporting Units as the Company continues to integrate recently acquired businesses. The assumed discount rate utilized in the income approach model was considered to be commensurate with the estimation uncertainty for these reporting units. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated in 2020 while failing to achieve growth in future periods an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of these reporting units, market declines, changes in discount rates or other conditions could result in an impairment in the future.

Revenue Recognition

On December 31, 2017, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers for all open contracts and related amendments as of December 31, 2017 using the modified retrospective method.  The adoption had no impact to the reported results.

 

The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict 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 receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

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 of 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 point control has transferred to the customer. Revenue in Q1 2020 YTD was comprised of $55,996 of temporary contractor revenue and $2,696 of permanent placement revenue, compared with $70,998 and $2,831 for Q1 2019 YTD, respectively. Refer to Note 10 for further details on breakdown by segments.  

Reclassifications

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

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 2.4% and (1.06)% for the period ending Q1 2020 YTD and Q1 2019 YTD, respectively.

Foreign Currency

The Company recorded a non-cash foreign currency remeasurement (loss) gain of $(675) and $351 in Q1 2020 YTD and Q1 2019 YTD, respectively, associated with its U.S dollar denominated intercompany note.

Recent Accounting Pronouncements

On December 31, 2019, the FASB issued ASC 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” (Topic 740). The amendments in this update simplify the accounting for income taxes by removing the certain exceptions. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  The Company adopted this guidance effective December 30, 2018. 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 new standard provides a number of optional practical expedients in transition. The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply i) the practical expedient which allows us to not separate lease and non-lease components, and (2) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. The adoption of the new standard resulted in the recognition of additional lease liabilities of approximately $4,980, and right-of-use assets of approximately $4,888 as of December 28, 2019 related to the Company’s operating leases. The new standard did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows.

 

v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 28, 2020
Jun. 26, 2020
Cover [Abstract]    
Entity Registrant Name STAFFING 360 SOLUTIONS, INC.  
Entity Central Index Key 0001499717  
Current Fiscal Year End Date --12-26  
Entity Filer Category Non-accelerated Filer  
Trading Symbol STAF  
Entity Small Business true  
Entity Emerging Growth Company false  
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 28, 2020  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
Entity Common Stock, Shares Outstanding   9,322,563
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-37575  
Entity Tax Identification Number 68-0680859  
Entity Address, Address Line One 641 Lexington Avenue  
Entity Address, Address Line Two Suite 2701  
Entity Address, City or Town New York  
Entity Address, State or Province NY  
Entity Address, Postal Zip Code 10022  
City Area Code 646  
Local Phone Number 507-5710  
Entity Interactive Data Current Yes  
Title of 12(b) Security Common stock  
Security Exchange Name NASDAQ  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
v3.20.1
SUPPLEMENTAL CASH FLOW INFORMATION (Tables)
3 Months Ended
Mar. 28, 2020
Supplemental Cash Flow Information [Abstract]  
Schedule of Cash Flow Supplemental Information

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

689

 

 

$

2,210

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deferred purchase price of UK factoring facility

 

$

2,270

 

 

$

3,712

 

Shares issued to Jackson Investment Group

 

 

244

 

 

 

 

Dividends accrued to related parties

 

 

603

 

 

 

 

v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]    
Net (Loss) Income $ (6,997) $ 229
Other Comprehensive Income (Loss)    
Foreign exchange translation adjustment 458 (618)
Comprehensive Loss Attributable to the Company $ (6,539) $ (389)
v3.20.1
EQUITY - Stock Options (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Stockholders Equity [Line Items]    
Stock based compensation $ 173 $ 199
Stock Options [Member]    
Stockholders Equity [Line Items]    
Stock based compensation $ 8 $ 24
v3.20.1
LEASES (Details)
$ in Thousands
3 Months Ended
Mar. 28, 2020
USD ($)
SG&A Expenses [Member]  
Lessee Lease Description [Line Items]  
Operating lease cost $ 448
v3.20.1
EQUITY (Details 1)
3 Months Ended
Mar. 28, 2020
$ / shares
Less Than 8 Per Share [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Vesting rate 0.00%
Less Than 8 Per Share [Member] | Minimum [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Average share price $ 8
More Than 8 Per Share [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Vesting rate, Description Pro-rated
More Than 8 Per Share [Member] | Maximum [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Average share price $ 8
More Than or Equal to 12 Per Share [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Vesting rate, Description Full Vesting
Average share price $ 12
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Revenue $ 58,692,000 $ 73,829,000
Cost of Revenue, excluding depreciation and amortization stated below 48,044,000 61,711,000
Gross Profit 10,648,000 12,118,000
Operating Expenses:    
Selling, general and administrative expenses 10,961,000 10,491,000
Impairment of goodwill 2,969,000 0
Depreciation and amortization 785,000 877,000
Total Operating Expenses 14,715,000 11,368,000
(Loss) Income From Operations (4,067,000) 750,000
Other (Expenses) Income:    
Interest expense and amortization of debt discount and deferred financing costs (2,417,000) (2,007,000)
Re-measurement (loss) gain on intercompany note (675,000) 351,000
Gain on settlement of deferred consideration 0 847,000
Other (loss) income, net (14,000) 286,000
Total Other Expenses, net (3,106,000) (523,000)
(Loss) Income Before Provision for Income Tax (7,173,000) 227,000
Benefit from income taxes 176,000 2,000
Net (Loss) Income (6,997,000) 229,000
Net Loss Attributable to Common Stock Holders $ (7,600,000) $ (393,000)
Basic and Diluted Loss per Share:    
Net Loss Attributable to Common Stock Holders $ (0.90) $ (0.06)
Weighted Average Shares Outstanding – Basic and Diluted 8,473,820 6,914,601
Series A Preferred Stock - Related Party [Member]    
Other (Expenses) Income:    
Dividends - related party $ 31,000 $ 50,000
Series E Preferred Stock - Related Party [Member]    
Other (Expenses) Income:    
Dividends - related party 390,000 390,000
Series E-1 Preferred Stock - Related Party [Member]    
Other (Expenses) Income:    
Dividends - related party $ 182,000 $ 182,000
v3.20.1
ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Textual)
3 Months Ended
Jan. 03, 2018
Sep. 17, 2015
Mar. 28, 2020
Business Combinations [Abstract]      
Stockholders' Equity, Reverse Stock Split     one-for-ten reverse stock split on September 17, 2015 and a one-for-five reverse stock split on January 3, 2018
Reverse stock split, ratio 0.2 0.1  
v3.20.1
LOSS PER COMMON SHARE (Tables)
3 Months Ended
Mar. 28, 2020
Earnings Per Share [Abstract]  
Schedule of Common Share Equivalent Basis and Outstanding Excluded from per Share Computations of Antidilutive

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, unvested equity awards 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 28, 2020 and March 30, 2019 have not been included in the diluted earnings per share computations, as their inclusion would be anti dilutive due to the Company’s net loss as of March 28, 2020 and March 30, 2019:

 

 

 

March 28,

 

 

March 30,

 

 

 

2020

 

 

2019

 

Convertible preferred shares

 

 

7,867,142

 

 

 

7,492,995

 

Warrants

 

 

925,935

 

 

 

925,935

 

Restricted shares - unvested

 

 

450,915

 

 

 

557,184

 

Long term incentive plan (2019 LTIP)

 

 

355,000

 

 

 

375,000

 

Options

 

 

76,500

 

 

 

111,400

 

Total

 

 

9,675,492

 

 

 

9,462,514

 

v3.20.1
ORGANIZATION AND DESCRIPTION OF BUSINESS
3 Months Ended
Mar. 28, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Description of Business

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. We are 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, domestic and international staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, information technology (“IT”), engineering, administration (“Professional”) and light industrial (“Commercial”) disciplines.

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.

v3.20.1
EQUITY (Tables)
3 Months Ended
Mar. 28, 2020
Stockholders Equity Note [Abstract]  
Schedule of Stockholders Equity

The Company issued the following shares of common stock during the three-month period ended March 28, 2020:

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Jackson Investment Group

 

 

300,000

 

 

$

244

 

 

$

0.67

 

 

$

0.92

 

Preferred Series A Conversion

 

 

16,215

 

 

 

-

 

 

 

-

 

 

 

-

 

Board and Committee members

 

 

5,600

 

 

 

5

 

 

 

0.85

 

 

 

0.85

 

 

 

 

321,815

 

 

$

249

 

 

 

 

 

 

 

 

 

The Company issued the following shares of common stock during the three month period ended March 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to/for:

 

Number of Common Shares Issued

 

 

Fair Value of

Shares Issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

Equity raise

 

 

2,902,680

 

 

$

4,914

 

 

$

1.65

 

 

$

2.00

 

Board and Committee members

 

 

5,600

 

 

 

10

 

 

 

1.79

 

 

 

1.79

 

 

 

 

2,908,280

 

 

$

4,924

 

 

 

 

 

 

 

 

 

Summary of Relationship Between Performance and the Vesting Rate

Average 2019 Price

Vesting Rate

<$8 per share

0

>$8 per share

Pro-rated

>=$12 per share

Full Vesting

 

v3.20.1
DEBT
3 Months Ended
Mar. 28, 2020
Debt Disclosure [Abstract]  
Debt

NOTE 6 – DEBT

 

 

 

March 28, 2020

 

 

December 28, 2019

 

Jackson Investment Group - related party

 

$

38,278

 

 

$

38,278

 

HSBC Term Loan

 

 

824

 

 

 

1,035

 

Total Debt, Gross

 

 

39,102

 

 

 

39,313

 

Less: Debt Discount and Deferred Financing Costs

 

 

(310

)

 

 

(497

)

Total Debt, Net

 

 

38,792

 

 

 

38,816

 

Less: Non Current Portion

 

 

(181

)

 

 

(360

)

Total Current Debt, Net

 

$

38,611

 

 

$

38,456

 

 

Debt Exchange Agreement

 

On August 29, 2019, the Company entered into a Fourth Omnibus Amendment and Reaffirmation Agreement with Jackson, as lender, which, among other things, amends the Amended and Restated Note Purchase Agreement, dated as of September 15, 2017. Pursuant to this agreement, the Company agreed to issue and sell to Jackson a 18% Senior Secured Note due December 31, 2019 in the aggregate principal amount of $2,538. All accrued and unpaid interest on the outstanding principal balance of this term note will be due and payable monthly on the first day of each month, beginning on October 1, 2019. Pursuant to the terms of this term note, if this term note is not repaid by December 31, 2019, the Company will be required to issue 100,000 shares of its common stock to Jackson on a monthly basis until this term note is fully repaid, subject to certain exceptions to comply with Nasdaq listing standards. This note and all accrued interest remains unpaid. The Company has booked additional expense of $244 related to the issuance of 300,000 shares of common stock to Jackson for the period ended March 28, 2020.

 

The term note includes certain financial customary covenants, including a leverage ratio covenant. As of March 28, 2020, the Company was not in compliance with all covenants. On May 5, 2020, the Company received a waiver from Jackson curing the non-compliance as of March 28, 2020 the past due interest payments that were due on October 1, 2019, January 1, 2020 and April 1, 2020 and the non-payment of the $2,538 loan that was due on December 31, 2019. The Company has booked additional expense of $324 related to the issuances of 500,000 shares of common stock between January 2020 and May 2020 to Jackson. The Company paid the $2,538 loan in full on May 28, 2020.

 

HSBC Loan

 

On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020 to September 2020, and only interest payments will be made during this time.  On May 15, 2020, the Company entered into a 3 year term loan with HSBC in the UK for £1,000.

v3.20.1
SEGMENTS
3 Months Ended
Mar. 28, 2020
Segments Geographical Areas [Abstract]  
SEGMENTS

NOTE 10 – SEGMENTS

The Company generated revenue and gross profit by segment as follows:

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Commercial Staffing - US

 

$

28,743

 

 

$

30,085

 

Professional Staffing - US

 

 

8,660

 

 

 

9,581

 

Professional Staffing - UK

 

 

21,289

 

 

 

34,163

 

Total Revenue

 

$

58,692

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,294

 

 

$

4,632

 

Professional Staffing - US

 

 

3,080

 

 

 

3,714

 

Professional Staffing - UK

 

 

3,274

 

 

 

3,772

 

Total Gross Profit

 

$

10,648

 

 

$

12,118

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(10,961

)

 

$

(10,491

)

Depreciation and amortization

 

 

(785

)

 

 

(877

)

Impairment of goodwill

 

 

(2,969

)

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,417

)

 

 

(2,007

)

Re-measurement (loss) gain on intercompany note

 

 

(675

)

 

 

351

 

Gain on settlement of deferred consideration

 

 

 

 

 

847

 

Other (loss) income, net

 

 

(14

)

 

 

286

 

(Loss) Income Before Provision for Income Tax

 

$

(7,173

)

 

$

227

 

 

 

The following table disaggregates revenues by segments:

 

 

Q1 2020 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

46

 

 

$

1,444

 

 

$

1,206

 

 

$

2,696

 

Temporary Revenue

 

 

28,697

 

 

 

7,216

 

 

 

20,083

 

 

 

55,996

 

Total

 

$

28,743

 

 

$

8,660

 

 

$

21,289

 

 

$

58,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2019 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

65

 

 

$

1,881

 

 

$

885

 

 

$

2,831

 

Temporary Revenue

 

 

30,020

 

 

 

7,700

 

 

 

33,278

 

 

 

70,998

 

Total

 

$

30,085

 

 

$

9,581

 

 

$

34,163

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 28, 2020 and December 29, 2018, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

March 28, 2020

 

 

December 28,

 

 

 

2020

 

 

2019

 

United States

 

$

70,106

 

 

$

74,671

 

United Kingdom

 

 

14,704

 

 

 

14,170

 

Total Assets

 

$

84,810

 

 

$

88,841

 

 

v3.20.1
GOODWILL (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Sep. 28, 2019
Dec. 28, 2019
Goodwill And Intangible Assets Disclosure [Abstract]        
Beginning balance, net $ 31,049,000 $ 32,061,000 $ 32,061,000 $ 32,061,000
Accumulated impairment losses (2,969,000) $ 0 $ 0 0
Currency translation (477,000)     (1,012,000)
Ending balance, net $ 27,603,000     $ 31,049,000
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
May 20, 2020
USD ($)
May 12, 2020
USD ($)
May 31, 2020
Apr. 30, 2020
Mar. 28, 2020
USD ($)
Reporting_Unit
Mar. 30, 2019
USD ($)
Sep. 28, 2019
USD ($)
Dec. 28, 2019
USD ($)
Accounting Policies [Line Items]                
Accumulated deficit         $ 83,534,000     $ 76,537,000
Working capital deficit         57,672,000      
Debt instrument carrying amount         39,102,000     39,313,000
Cash         931,000     1,196,000
Percentage of revenue decreased     30.00% 33.00%        
Impairment of goodwill         $ 2,969,000 $ 0 $ 0 0
Number of reporting units | Reporting_Unit         1      
Percent of fair value of reporting unit excess of carrying value         13.00%      
Revenue         $ 58,692,000 $ 73,829,000    
Effective income tax rate         2.40% (1.06%)    
Foreign currency remeasurement (loss) gain         $ (675,000) $ 351,000    
Operating lease, liability         4,557,000      
Operating lease, right-of-use asset         4,478,000     4,888,000
ASU 2016-02 Leases [Member]                
Accounting Policies [Line Items]                
Operating lease, liability         4,557,000     4,980,000
Operating lease, right-of-use asset         4,478,000     $ 4,888,000
Temporary Contractor Revenue [Member]                
Accounting Policies [Line Items]                
Revenue         55,996,000 70,998,000    
Permanent Placement Revenue [Member]                
Accounting Policies [Line Items]                
Revenue         $ 2,696,000 $ 2,831,000    
Maximum [Member] | Long-term Revenue Growth Rate [Member]                
Accounting Policies [Line Items]                
Percent of fair value of reporting unit excess of carrying value         2.00%      
Minimum [Member] | Long-term Revenue Growth Rate [Member]                
Accounting Policies [Line Items]                
Percent of fair value of reporting unit excess of carrying value         0.00%      
PPP Loan [Member] | CARES Act [Member]                
Accounting Policies [Line Items]                
Loan forgiveness description         All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval.      
Compensation of an individual employee prorated annually         $ 100,000      
Maximum percentage of forgiven amount for non-payroll costs         40.00%      
Percentage of minimum reduction in salaries and wages         25.00%      
PPP Loan [Member] | CARES Act [Member] | Maximum [Member]                
Accounting Policies [Line Items]                
Salaries of employees         $ 100,000      
Subsequent Event [Member]                
Accounting Policies [Line Items]                
Principal amount $ 9,395,000              
Subsequent Event [Member] | Key Resources Inc. [Member]                
Accounting Policies [Line Items]                
Principal amount 5,443,000              
Subsequent Event [Member] | Lighthouse Placement Services LLC [Member]                
Accounting Policies [Line Items]                
Principal amount 1,890,000              
Subsequent Event [Member] | Staffing 360 Georgia, LLC [Member]                
Accounting Policies [Line Items]                
Principal amount $ 2,063,000              
Subsequent Event [Member] | May 12 Note [Member]                
Accounting Policies [Line Items]                
Principal amount   $ 10,000,000            
Percentage of interest accrued   1.00%            
Debt instrument maturity term   2 years            
Payments of principal and interest term   18 months            
Subsequent Event [Member] | May 20 Note [Member]                
Accounting Policies [Line Items]                
Percentage of interest accrued 1.00%              
Debt instrument maturity term 2 years              
Payments of principal and interest term 18 months              
v3.20.1
DEBT - HSBC Loan (Details Textual) - Subsequent Event [Member]
£ in Thousands
May 15, 2020
GBP (£)
May 20, 2020
USD ($)
Debt Instrument [Line Items]    
Debt Instrument, Face Amount | $   $ 9,395,000
HSBC Term Loan [Member]    
Debt Instrument [Line Items]    
Debt Instrument, Face Amount | £ £ 1,000  
Debt Instrument, Term 3 years  
v3.20.1
SEGMENTS (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Sep. 28, 2019
Dec. 28, 2019
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Revenue $ 58,692,000 $ 73,829,000    
Total Gross Profit 10,648,000 12,118,000    
Selling, general and administrative expenses (10,961,000) (10,491,000)    
Depreciation and amortization (785,000) (877,000)    
Impairment of goodwill (2,969,000) 0 $ 0 $ 0
Interest expense and amortization of debt discount and deferred financing costs (2,417,000) (2,007,000)    
Re-measurement (loss) gain on intercompany note (675,000) 351,000    
Gain on settlement of deferred consideration 0 847,000    
Other (loss) income, net (14,000) 286,000    
(Loss) Income Before Provision for Income Tax (7,173,000) 227,000    
Total Assets 84,810,000     88,841,000
UNITED STATES [Member]        
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Assets 70,106,000     74,671,000
UNITED STATES [Member] | Commercial Staffing [Member]        
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Revenue 28,743,000 30,085,000    
Total Gross Profit 4,294,000 4,632,000    
UNITED STATES [Member] | Professional Staffing [Member]        
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Revenue 8,660,000 9,581,000    
Total Gross Profit 3,080,000 3,714,000    
UNITED KINGDOM [Member]        
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Assets 14,704,000     $ 14,170,000
UNITED KINGDOM [Member] | Professional Staffing [Member]        
Revenues From External Customers And Long Lived Assets [Line Items]        
Total Revenue 21,289,000 34,163,000    
Total Gross Profit $ 3,274,000 $ 3,772,000    
v3.20.1
SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Cash paid for:    
Interest $ 689 $ 2,210
Income taxes 0 0
Non-Cash Investing and Financing Activities:    
Dividends accrued to related parties 603 0
HSBC Invoice Finance (UK) Ltd Factoring Facility [Member]    
Non-Cash Investing and Financing Activities:    
Deferred purchase price of UK factoring facility 2,270 3,712
Jackson Investment Group, LLC [Member]    
Non-Cash Investing and Financing Activities:    
Shares issued $ 244 $ 0