Labor SMART Issues Open Letter to The Staffing Group CEO
Company Seeks to Form Strategic Alliance
ATLANTA, GA-(Marketwired - Dec 1, 2015) - Labor SMART, Inc.
(OTCQB: LTNC) (the "Company"), a leader in providing on-demand blue
collar staffing primarily in the southeastern United States, today
delivered via email the following open letter to the President and
Chief Executive Officer of The Staffing Group, Ltd. (TSGL).
December 1, 2015 400 Poydras St., Suite 1165 New Orleans La
70130 Delivered Via Email
RE: 13D Filing by Labor Smart, Inc.
Mr. McLoone,
As you are now aware, our purchase of 2,000,000 shares of The
Staffing Group Ltd. common stock on November 30, 2015 was followed
by a Schedule 13D filing with the SEC, due to our previously
unannounced acquisition of 1,758, 618 shares of common stock in the
open market and the nature of our intentions. The purpose of this
letter to you today is to clearly state what those intentions are
and seek common ground for a mutually beneficial discussion.
Having launched Labor SMART, Inc. as a publicly traded startup,
I am sensitive to the challenges of building a sustainable business
from scratch with the added fun of engaging the public markets and
all that entails. I am quite familiar with the history of your
company and we've had some discussions over the last two years
regarding potential opportunities, business combinations, etc. I'm
also aware of the burdens you were handed almost immediately upon
becoming CEO of a public company. Given those challenges, I commend
you for the successes you've been able to claim along the way.
At this time, we have three separate, but related proposals that
we would like to discuss with you in a formal setting.
Leveraging Synergies
In your Form 10-Q for the quarter ended June 30, 2015, you
discuss improved gross margins after shedding some high volume
business. This is a tough and gutsy decision to make for the long
term health of the company, and again, I commend you for taking
this action. Still, with gross profit margins under 19%, a lot of
profitability is left on the table. As you may know, Labor SMART
attained a large deductible workers compensation policy in 2014
that drastically reduced our cost of sales. A business combination
with Labor SMART could unlock value and profits hidden behind the
high cost of workers compensation you are incurring. I propose that
we work together to prepare a detailed analysis of the potential
gains that could be had with Labor SMART's strong workers
compensation program as the backbone of a reduction in cost of
sales. This analysis should start with an examination of your loss
runs for the last three years. There may also be a number of
synergies that could be obtained leveraging Labor SMART's corporate
support structure and your company's footprint. Additionally, there
are undoubtedly vertical sales opportunities given the combined
size of our respective customer bases.
Leveraging Experience
Having worked with you at WTS before it was sold to MDT (and
subsequently TrueBlue), I know that you are a solid operator with a
conservative approach to risk. It is my belief that our combined
teams and their experience would offer much to our collective
customers, shareholders, and employees. The first component of this
proposal is that we work together to create a joint venture, or
similar structure, to license the Labor SMART brand, processes, and
methods in addition to a management service agreement whereby Labor
SMART will provide the necessary infrastructure to facilitate an
aggressive growth plan and The Staffing Group provides the day to
day management.
Any growth plan will require capital. I've encountered a number
of challenges to raising capital as a publicly traded company.
Raising startup capital itself is expensive and as our share
structure indicates, extremely dilutive without a substantial
amount of financial engineering from the beginning. I've raised a
small amount of money for Labor SMART and we successfully grew our
business to over $20 million in less than three years. I'm grateful
that we were able to get funding to build the company, but I would
do it differently knowing what I know now. I've expended the better
part of 2015 playing defensive and trying to protect LaborSMART's
shareholders from massive dilution. Fortunately, we have been able
to renegotiate the mechanics of our convertible debt and believe we
can repair the share structure now that we have better control of
conversion rights, but the time lost can never be recovered. And
that leads me to the second part of this specific proposal.
Should we reach mutually beneficial terms to have Labor SMART
license its systems to The Staffing Group, I propose that we take a
"fund from the ground up" approach. Crowd funding legislation is
due to go in to affect next year. I believe there is an opportunity
to crowd fund the startup capital for each new individual branch
that's opened. Labor SMART will agree to be the lead investor with
a minority ownership percentage of each branch opened under the
licensing agreement, but with an option to acquire the branch at
its discretion in the future for a predetermined multiple of
earnings. This structure would insulate your shareholders from
massive dilution and still allow for continued growth of the Labor
SMART brand. For The Staffing Group, this structure offers a runway
to ramp up sales and branch network in a meaningful way and an
equity event as licensed branches are acquired by Labor SMART.
Expand the Board
Lastly, we propose that The Staffing Group increase its Board of
Directors from two directors to a total of five directors, two of
whom will be appointed by Labor SMART, Inc. and a third by mutual
agreement of Labor SMART and The Staffing Group. I do not expect
that this request would be obliged without some consideration. We
are open to exploring a number of different options to get this
request effectuated in a swift manner. I believe you would agree
that one of the most important tasks you currently face is getting
your Form 10-Q filed for the period ended September 30, 2015. We do
not wish to upend that process with added procedural burdens. To be
clear, Labor SMART will take steps to protect its investment if
necessary, but we do not have the intent of becoming a hostile
suitor. Our industry is built on relationships and Labor SMART
believes in creating partnerships and opportunity, not enemies.
In summary, both companies can benefit greatly by engaging in a
mutual partnership, even if the structure is somewhat different
from the ones we have proposed. I believe it is in the best
interest of The Staffing Group's shareholders, with Labor SMART,
Inc. as one of the largest holders, to explore any and every
opportunity that may be present to build value and sustainable
profitability for the benefit of all. As two sizeable regional
players in our industry, we must act boldly to create opportunities
for the future.
I look forward to scheduling a meeting with at your earliest
convenience,
Sincerely,
C. Ryan Schadel President & CEO - Labor SMART, Inc.
Safe Harbor Statement This release contains statements that
constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this release and include all
statements that are not statements of historical fact regarding the
intent, belief or current expectations of Labor SMART, Inc., its
directors or its officers with respect to, among other things: (i)
financing plans; (ii) trends affecting its financial condition or
results of operations; (iii) growth strategy and operating
strategy. The words "may", "would", "will", "expect", "estimate",
"can", "believe", "potential", and similar expressions and
variations thereof are intended to identify forward-looking
statements. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties, many of which are beyond Labor SMART,
Inc.'s ability to control, and that actual results may differ
materially from those projected in the forward-looking statements
as a result of various factors. More information about the
potential factors that could affect the business and financial
results is and will be included in Labor SMART, Inc.'s filings with
the U.S. Securities and Exchange Commission.
Contact Information
Labor SMART, Inc. shareholderrelations@laborsmart.com
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