The Securities and Exchange Commission allows us to incorporate by reference information into this prospectus, which means that we
can disclose important information about us by referring you to another document filed separately with the Securities and Exchange Commission. The information incorporated by reference is an important part of this prospectus, and information that we
file later with the Securities and Exchange Commission will automatically update and supersede this information. This prospectus incorporates by reference the documents and reports listed below and any future filings that we make with the Securities
and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (other than filings or portions of filings that are furnished under applicable Securities and Exchange Commission rules rather than filed) until the date of completion of this offering:
Any reports filed by us with the Securities and Exchange Commission after the date of the registration
statement of which this prospectus forms a part, and prior to effectiveness of such registration statement, and any reports filed by us with the Securities and Exchange Commission after the date of this prospectus and before the date that the
offerings of the securities by means of this prospectus are terminated, will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus.
You may request a copy of the documents incorporated by reference into this prospectus, except exhibits to such documents unless those
exhibits are specifically incorporated by reference in such documents, at no cost, by writing or telephoning us at the following address and telephone number:
You may
also find additional information about us, including the documents mentioned above, on our website at www.staffing360solutions.com. Our website and the information included in, or linked to on, our website are not part of this prospectus. We have
included our website address in this prospectus solely as a textual reference.
RISK FACTORS
Investment in our common stock involves significant risks. In addition to all of the other information contained or incorporated by reference
into this prospectus, you should carefully consider the following risk factors and any other information included in any prospectus supplement. The risks and uncertainties described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, results of operations, and cash flows could be materially
adversely affected. The trading price of shares of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
We have incurred significant losses since our inception and anticipate that we will incur continued losses for the next several years and thus may never
achieve or maintain profitability.
We anticipate that we will incur operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with the staffing industry, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Expected future operating losses will have an adverse effect on our cash
resources, stockholders equity and working capital. Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business, maintain our development efforts, diversify our
portfolio of staffing companies, or continue our operations. A decline in our value could also cause you to lose all or part of your investment.
The number of shares that are eligible for sale under this prospectus could cause the market price for our common stock to decline or make it difficult
for us to sell securities in the future.
There are 13,240,795 shares of our common stock outstanding as of March 10, 2017
(without giving effect to the exercise of any options and warrants currently outstanding). The 7,841,438 shares of our common stock that may be sold by the selling stockholders under this prospectus represent a substantial number of shares relative
to our current shares outstanding. Expectations that shares of our common stock may be sold by the selling stockholders could create a market overhang that may adversely affect the market price for our common stock.
We cannot predict the effect on the market price of our common stock from time to time as a result of (i) sales by the selling
stockholders of some or all of the shares of our common stock under this prospectus, (ii) the availability of such shares of common stock for sale by the selling stockholders, or (iii) the perception that such shares or additional shares
of our common stock may be offered for sale by the selling stockholders. Sales of substantial numbers of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock
to fluctuate or decline or make future offerings of our equity securities more difficult. In addition, the sale of these shares could impair our ability to raise capital, should we wish to do so, through the sale of additional common or preferred
stock.
We have significant debt that could adversely affect our financial health and prevent us from fulfilling our obligations or put us at a
competitive disadvantage.
Our level of debt and the limitations imposed on us by our lenders could have a material impact on
investors, including the requirement to use a portion of our cash flow from operations for debt service rather than for our operations and the need to comply with the various covenants associated with such debt. Additionally, we may not be able to
obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing. We could also be less able to take advantage of significant business opportunities, such as
acquisition opportunities, and to react to changes in market or industry conditions, or we may be disadvantaged compared to competitors with less leverage.
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Our debt instruments contain covenants that could limit our financing options and liquidity position, which
would limit our ability to grow our business.
Covenants in our debt instruments impose operating and financial restrictions on us.
These restrictions prohibit or limit our ability to, among other things:
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pay cash dividends to our stockholders;
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redeem or repurchase our common stock or other equity;
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incur additional indebtedness;
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permit liens on assets;
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make certain investments (including through the acquisition of stock, shares, partnership or limited liability company interests, any loan, advance or capital contribution);
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sell, lease, license, lend or otherwise convey an interest in a material portion of our assets; and
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cease making public filings under the Securities Exchange Act of 1934, as amended.
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Our
failure to comply with the restrictions in our debt instruments could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. The lenders may require fees and
expenses to be paid or other changes to terms in connection with waivers or amendments. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by
increased costs and rates.
In addition, these restrictions may limit our ability to obtain additional financing, withstand downturns in
our business or take advantage of business opportunities. Moreover, additional debt financing we may seek, if permitted, may contain terms that include more restrictive covenants, may require repayment on an accelerated schedule or may impose other
obligations that limit our ability to grow our business, acquire needed assets, or take other actions we might otherwise consider appropriate or desirable.
The exercise of our current debt instruments could be highly dilutive to the holdings of our existing stockholders.
Certain of our current debt instruments are highly dilutive. The number of shares of our common stock that may be issued pursuant to the
conversion premiums in such debt instruments and if we elect to pay such dividends in shares may be significant, but cannot be determined at this time because the applicable calculations are based on our stock price during a period surrounding the
date of the conversion. The exercise of our existing outstanding dilutive Common Stock equivalents, which are exercisable for or convertible into shares of our Common Stock, would dilute the proportionate ownership and voting power of existing
stockholders and may cause the market price for our common stock to decline.
We have significant working capital needs and if we are unable to
satisfy those needs from cash generated from our operations or borrowings under our debt instruments, we may not be able to continue our operations.
We require significant amounts of working capital to operate our business. We often have high receivables from our customers, and as a staffing
company, we are prone to cash flow imbalances because we funnel payroll payments from employers to temporary workers. Cash flow imbalances also occur because we must pay temporary workers even when we have not been paid by our customers. If we
experience a significant and sustained drop in operating profits, or if there are unanticipated reductions in cash inflows or increases in cash outlays, we may be subject to cash shortfalls. If such a shortfall were to occur for even a brief period
of time, it may have a significant adverse effect on our business. In particular, we use working capital to pay expenses relating to our temporary workers and to satisfy our workers compensation liabilities. As a result, we must maintain
sufficient cash availability to pay temporary workers and fund related tax liabilities prior to receiving payment from customers.
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In addition, our operating results tend be unpredictable from quarter to quarter. Demand for our
services is typically lower during traditional national vacation periods in the United States and United Kingdom when customers and candidates are on vacation. No single quarter is predictive of results from future periods. Any extended period of
time with low operating results or cash flow imbalances could have a material adverse effect on our business, financial condition and results of operations.
We derive working capital for our operations through cash generated by our operating activities and borrowings under our debt instruments. We
believe that our current sources of capital are adequate to meet our working capital needs. However, our available sources of capital are limited. If our working capital needs increase in the future, we may be forced to seek additional sources of
capital, which may not be available on commercially reasonable terms. The amount we are entitled to borrow under our debt instruments is calculated monthly based on the aggregate value of certain eligible trade accounts receivable generated from our
operations, which are affected by financial, business, economic and other factors, as well as by the daily timing of cash collections and cash outflows. The aggregate value of our eligible accounts receivable may not be adequate to allow for
borrowings for other corporate purposes, such as capital expenditures or growth opportunities, which could reduce our ability to react to changes in the market or industry conditions.
We will need to raise additional capital to meet our business requirements in the future, which is likely to be challenging, could be highly dilutive
and may cause the market price of our common stock to decline.
As of November 30, 2016, we had a working capital deficiency
of approximately $14.5 million, an accumulated deficit of approximately $46.9 million, and approximately $5.3 million associated with debt and other amortizing obligations due in the next 12 months. In order to operate our business objectives, we
will need to raise additional capital, which may not be available on reasonable terms or at all. Additional capital would be used to accomplish the following:
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financing our current operating expenses;
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pursuing growth opportunities;
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making capital improvements to improve our infrastructure;
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hiring and retaining qualified management and key employees;
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responding to competitive pressures;
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complying with regulatory requirements; and
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maintaining compliance with applicable laws.
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To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital transactions may be more
favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may
issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of
our securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing
stockholders may not agree with our financing plans or the terms of such financings.
In addition, we may incur substantial costs in
pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in
connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
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Furthermore, any additional debt or equity financing that we may need may not be available on
terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would
have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution
on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
A more active, liquid trading market for our common stock may not develop, and the price of our common stock may fluctuate significantly.
Although our common stock is listed on the NASDAQ Capital Market, it has only been traded on the NASDAQ Capital Market since March 31,
2013. Historically, the market price of our common stock has fluctuated over a wide range. Between our stock split occurring on September 17, 2015 and March 7, 2017, our common stock traded in a range from $0.54 to $7.74 per share. There
has been relatively limited trading volume in the market for our common stock, and a more active, liquid public trading market may not develop or may not be sustained. In addition, on January 25, 2017, we received a letter from the Listing
Qualifications Department of the NASDAQ Capital Market notifying us that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the common stock did not meet the minimum bid price of $1.00 per share required
by NASDAQ Listing Rule 5550(a)(2), initiating an automatic 180 calendar-day grace period for us to regain compliance.
Limited liquidity
in the trading market for our common stock may adversely affect a stockholders ability to sell its shares of common stock at the time it wishes to sell them or at a price that it considers acceptable. If a more active, liquid public trading
market does not develop, or if our shares are delisted from the NASDAQ Capital Market, we may be limited in our ability to raise capital by selling shares of common stock and our ability to acquire other companies or assets by using shares of our
common stock as consideration. In addition, if there is a thin trading market or float for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our
common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile and it would be harder for you to liquidate any investment in our common stock.
Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including:
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our quarterly or annual operating results;
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changes in our earnings estimates;
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investment recommendations by securities analysts following our business or our industry;
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additions or departures of key personnel;
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changes in the business, earnings estimates or market perceptions of our competitors;
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our failure to achieve operating results consistent with securities analysts projections;
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changes in industry, general market or economic conditions; and
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announcements of legislative or regulatory changes.
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The stock market has experienced extreme
price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in the staffing industry. The changes often appear to occur without regard to specific
operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially reduce our stock price.
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An investment in our common stock should be considered illiquid and high risk.
An investment in our common stock requires a long-term commitment, with no certainty of return. Because we did not become a public reporting
company by the traditional means of conducting an underwritten initial public offering of our common stock, we may be unable to establish a liquid market for our common stock. In addition, investment banks may be less likely to agree to underwrite
primary or secondary offerings on our behalf or our stockholders in the future than they would if we had become a public reporting company by means of an underwritten initial public offering of common stock. If all or any of the foregoing risks
occur, it would have a material adverse effect on us.
The United States Financial Industry Regulatory Authority, or FINRA, sales practice
requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares. FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before
recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status,
tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our
share price.
Our management has identified material weaknesses in our internal control over financial reporting which could, if not remediated,
result in additional material misstatements in our consolidated financial statements. We may be unable to develop, implement and maintain appropriate controls in future periods. If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our financial results and current and potential stockholders may lose confidence in our financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and the Sarbanes-Oxley Act
of 2002 and the Securities and Exchange Commission rules require that our management report annually on the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Among other things, our management
must conduct an assessment of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As disclosed in our periodic filings with the Securities and Exchange
Commission, we have identified material weaknesses in our internal control over financial reporting relating to inadequate segregation of duties consistent with control objectives; ineffective controls over period end financial disclosure and
reporting processes; and lack of accounting personnel with adequate experience and training. We developed a remediation plan designed to address the material weakness in our internal control over financial reporting. Our plan includes additional
resources in the form of personnel on an as needed basis and additional systems to enhance the controls over financial reporting and limit the manual intervention currently required.
Although we are working to remedy the material weakness in our internal control over financial reporting, there can be no assurance as to when
the remediation plan will be fully developed, when it will be fully implemented or the aggregate cost of implementation. Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these
efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the Securities
and Exchange Commission and that our future consolidated financial statements could contain errors that will be undetected.
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Further and continued determinations that there are material weaknesses in the effectiveness of our internal control over financial reporting could also reduce our ability to obtain financing or
could increase the cost of any financing we obtain and require additional expenditures of both money and our managements time to comply with applicable requirements.
Additional material weaknesses in our internal control over financial reporting may be identified in the future. Any failure to implement or
maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our consolidated financial statements. These
misstatements could result in a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to lose confidence in our reported financial
information, leading to a decline in our stock price.
We face risks associated with litigation and claims.
We are a party to certain legal proceedings that are currently pending, including
NewCSI, Inc. vs. Staffing 360 Solutions, Inc.
and
Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc
., as further described in our most recent Annual Report on Form 10-K. In addition, from time to time, we may become involved in various claims, disputes and legal
or regulatory proceedings that arise in the ordinary course of business and relate to contractual and other obligations. Due to the uncertainties of litigation, we can give no assurance that we will prevail on any claims made against us in any such
lawsuit. Also, we can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results. Adverse outcomes in some or all of these claims may result in
significant monetary damages that could adversely affect our ability to conduct our business.
Our revenue may be adversely affected by fluctuations
in currency exchange rates.
A significant portion of our expenditures are expected to be derived or spent in British pounds.
However, we report our financial condition and results of operations in U.S. dollars. As a result, fluctuations between the U.S. dollar and the British pound will impact the amount of our revenues and net income. For example, if the British pound
appreciates relative to the U.S. dollar, the fluctuation will result in a positive impact on the revenues that we report. However, if the British pound depreciates relative to the U.S. dollar, which was the case during 2016, there will be a negative
impact on the revenues we report due to such fluctuation. It is possible that the impact of currency fluctuations will result in a decrease in reported consolidated sales even though we may have experienced an increase in sales transacted in the
British pound. Conversely, the impact of currency fluctuations may result in an increase in reported consolidated sales despite declining sales transacted in the British pound. The exchange rate from the U.S. dollar to the British pound has
fluctuated substantially in the past and may continue to do so in the future. Though we may choose to hedge our exposure to foreign currency exchange rate changes in the future, there is no guarantee such hedging, if undertaken, will be successful.
We depend on attracting, integrating, managing, and retaining qualified personnel
.
Our success is substantially dependent upon our ability to attract, integrate, manage and retain personnel who possess the skills and
experience necessary to fulfill our customers needs. Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors or modifications to our
total compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified personnel, our business, financial condition and results of operations may suffer. Our future success also depends upon our ability to
manage the performance of our personnel. Failure to successfully manage the performance of our personnel could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income.
We depend on our ability to attract and retain qualified temporary workers.
In addition to the members of our own team, our success is substantially dependent on our ability to recruit and retain qualified temporary
workers who possess the skills and experience necessary to meet the staffing
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requirements of our customers. We are required to continually evaluate our base of available qualified personnel to keep pace with changing customer needs. Competition for individuals with proven
professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available.
Our revenue can vary because our customers can terminate their relationship with us at any time with limited or no penalty.
We focus on providing mid-level professional and light industrial personnel on a temporary assignment-by-assignment basis, which customers can
generally terminate at any time or reduce their level of use when compared to prior periods. To avoid large placement agency fees, large companies may use in-house personnel staff, current employee referrals, or human resources consulting companies
to find and hire new personnel. Because placement agencies typically charge a fee based on a percentage of the first years salary of a new worker, companies with many jobs to fill have a large financial incentive to avoid agencies.
Our business is also significantly affected by our customers hiring needs and their views of their future prospects. Our customers may,
on very short notice, terminate, reduce or postpone their recruiting assignments with us and, therefore, affect demand for our services. As a result, a significant number of our customers can terminate their agreements with us at any time, making us
particularly vulnerable to a significant decrease in revenue within a short period of time that could be difficult to quickly replace. This could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to retain existing customers or attract new customers, our results of operations could suffer.
Increasing the growth and profitability of our business is particularly dependent upon our ability to retain existing customers and capture
additional customers. Our ability to do so is dependent upon our ability to provide high quality services and offer competitive prices. If we are unable to execute these tasks effectively, we may not be able to attract a significant number of new
customers and our existing customer base could decrease, either or both of which could have an adverse impact on our revenues.
We operate in an
intensely competitive and rapidly changing business environment, and there is a substantial risk that our services could become obsolete or uncompetitive.
The markets for our services are highly competitive. Our markets are characterized by pressures to provide high levels of service, incorporate
new capabilities and technologies, accelerate job completion schedules and reduce prices. Furthermore, we face competition from a number of sources, including other executive search firms and professional search, staffing and consulting firms.
Several of our competitors have greater financial and marketing resources than we do. New and existing competitors are aided by technology, and the market has low barriers to entry. Furthermore, Internet employment sites expand a companys
ability to find workers without the help of traditional agencies. Personnel agencies often work as intermediaries, helping employers accurately describe job openings and screen candidates. Increasing the use of sophisticated, automated job
description and candidate screening tools could make many traditional functions of staffing companies obsolete. Specifically, the increased use of the internet may attract technology-oriented companies to the professional staffing industry. Free
social networking sites such as LinkedIn and Facebook are also becoming a common way for recruiters and employees to connect without the assistance of a staffing company.
Our future success will depend largely upon our ability to anticipate and keep pace with those developments and advances. Current or future
competitors could develop alternative capabilities and technologies that are more effective, easier to use or more economical than our services. In addition, we believe that, with continuing development and increased availability of information
technology, the industries in which we compete may attract new competitors. If our capabilities and technologies become obsolete or uncompetitive, our related sales and revenue would decrease. Due to competition, we may experience reduced margins on
our services, loss of
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market share, and loss of customers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business, financial condition and
results of operations could be materially adversely affected.
Our operations may be affected by global economic fluctuations.
Customers demand for our services may fluctuate widely with changes in economic conditions in the markets in which we operate. Those
conditions include slower employment growth or reductions in employment, which directly impact our service offerings. As a staffing company, our revenue depends on the number of jobs we fill, which in turn depends on economic growth. During economic
slowdowns, many customer companies stop hiring altogether. For example, in prior economic downturns, many employers in our operating regions reduced their overall workforce to reflect the slowing demand for their products and services. We may face
lower demand and increased pricing pressures during these periods, which this could have a material adverse effect on our business, financial condition and results of operations.
We could be adversely affected by risks associated with acquisitions and joint ventures
.
We are engaged in the acquisition of U.S. and U.K. based staffing companies, and our typical acquisition model is based on paying consideration
in the form of cash, stock, earn-outs and/or promissory notes. To date, we have completed six acquisitions. We intend to expand our business through acquisitions of complementary businesses, technologies, services or products, subject to our
business plans and managements ability to identify, acquire and develop suitable investments or acquisition targets in both new and existing service categories. In certain circumstances, acceptable investments or acquisition targets might not
be available. Acquisitions involve a number of risks, including:
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difficulty in integrating the operations, technologies, products and personnel of an acquired business, including consolidating redundant facilities and infrastructure;
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potential disruption of our ongoing business and the distraction of management from our day-to-day operations;
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difficulty entering markets in which we have limited or no prior experience and in which competitors have a stronger market position;
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difficulty maintaining the quality of services that such acquired companies have historically provided;
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potential legal and financial responsibility for liabilities of acquired businesses;
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overpayment for the acquired company or assets or failure to achieve anticipated benefits, such as cost savings and revenue enhancements;
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increased expenses associated with completing an acquisition and amortizing any acquired intangible assets;
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challenges in implementing uniform standards, accounting policies, customs, controls, procedures and policies throughout an acquired business;
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failure to retain, motivate and integrate key management and other employees of the acquired business; and
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loss of customers and a failure to integrate customer bases.
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Our business plan for continued
growth through acquisitions is subject to certain inherent risks, including accessing capital resources, potential cost overruns and possible rejection of our business model and/or sales methods. Therefore, we provide no assurance that we will be
successful in carrying out our business plan. We continue to pursue additional debt and equity financing to fund our business plan. We have no assurance that future financing will be available to us on acceptable terms or at all.
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In addition, if we incur indebtedness to finance an acquisition, it may reduce our capacity to
borrow additional amounts and require us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the cash resources available to us to fund capital expenditures, pursue other acquisitions or
investments in new business initiatives and meet general corporate and working capital needs. This increased indebtedness may also limit our flexibility in planning for, and reacting to, changes in or challenges relating to our business and
industry. The use of our common stock or other securities (including those convertible into or exchangeable or exercisable for our common stock) to finance any such acquisition may also result in dilution of our existing shareholders.
The potential risks associated with future acquisitions could disrupt our ongoing business, result in the loss of key customers or personnel,
increase expenses and otherwise have a material adverse effect on our business, results of operations and financial condition.
We are dependent
upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, our customer relationships and our ability to attract new customers may be adversely affected.
Our business could be interrupted by damage to or disruption of our computer and telecommunications equipment and software systems, and we may
lose data. Our customers businesses may be adversely affected by any system or equipment failure we experience. As a result of any of the foregoing, our relationships with our customers may be impaired, we may lose customers, our ability to
attract new customers may be adversely affected and we could be exposed to contractual liability. Precautions in place to protect us from, or minimize the effect of, such events may not be adequate. If an interruption by damage to or disruption of
our computer and telecommunications equipment and software systems occurs, we could be liable and the market perception of our services could be harmed.
We could be harmed by improper disclosure or loss of sensitive or confidential company, employee, associate or customer data, including personal data.
In connection with the operation of our business, we store, process and transmit a large amount of data, including personnel and
payment information, about our employees, customers, associates and candidates, a portion of which is confidential and/or personally sensitive. In doing so, we rely on our own technology and systems, and those of third party vendors we use for a
variety of processes. We and our third party vendors have established policies and procedures to help protect the security and privacy of this information. Unauthorized disclosure or loss of sensitive or confidential data may occur through a variety
of methods. These include, but are not limited to, systems failure, employee negligence, fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties, including a cyberattack by
computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who may develop and deploy viruses, worms or other malicious software programs.
Such disclosure, loss or breach could harm our reputation and subject us to government sanctions and liability under our contracts and laws
that protect sensitive or personal data and confidential information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data and other practices we and our third party vendors
follow may not prevent the improper access to, disclosure of, or loss of such information. The potential risk of security breaches and cyberattacks may increase as we introduce new services and offerings, such as mobile technology. Further, data
privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which we provide services. Any failure or perceived failure to successfully manage the collection, use, disclosure, or
security of personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.
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We may be exposed to employment-related claims and losses, including class action lawsuits, which could
have a material adverse effect on our business.
We employ people internally and in the workplaces of other businesses. Many of
these individuals have access to customer information systems and confidential information. The risks of these activities include possible claims relating to:
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discrimination and harassment;
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wrongful termination or denial of employment;
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violations of employment rights related to employment screening or privacy issues;
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classification of temporary workers;
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assignment of illegal aliens;
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violations of wage and hour requirements;
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retroactive entitlement to temporary worker benefits;
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errors and omissions by our temporary workers;
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misuse of customer proprietary information;
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misappropriation of funds;
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damage to customer facilities due to negligence of temporary workers; and
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We may incur fines and other losses or negative publicity with respect to
these problems. In addition, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to
employment-related claims and litigation. There can be no assurance that the corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. There can
also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on reasonable terms or be sufficient in amount or scope of coverage.
Our compliance with complicated regulations concerning corporate governance and public disclosure has resulted in additional expenses. Moreover, our
ability to comply with all applicable laws, rules and regulations is uncertain given our managements relative inexperience with operating public companies.
We are faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to
corporate governance and public disclosure. In addition, as a staffing company, we are regulated by the U.S. Department of Labor, the Equal Employment Opportunity Commission, and often by state authorities. New or changing laws, regulations and
standards are subject to varying interpretations in many cases due to their lack of specificity, and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing compliance work.
Our failure to comply with all laws,
rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price. Our efforts to comply with evolving laws, regulations and standards are
likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
The requirements of being a public company place significant demands on our resources.
As a public company, we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, as well as rules
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subsequently implemented by the Securities and Exchange Commission and the NASDAQ Capital Market, have imposed various requirements on public companies. New laws and regulations as well as
changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, and changes in required accounting practices and rules adopted by the Securities and Exchange Commission and the by
NASDAQ Capital Market, would likely result in increased costs to us as we respond to their requirements.
Shareholder activism, the
current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in
which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal
and financial compliance costs and will make some activities more time consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain and maintain director and officer liability insurance
and we may be required to incur substantial costs to maintain our current levels of such coverage.
We do not intend to pay dividends on our common
stock. Consequently, your ability to achieve a return on your investment will depend on the appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings, if any, for
the development, operation, and expansion of our business, and we do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Any return to holders of our common stock would therefore be limited to the
appreciation of their stock.
We are limited in our ability to pay dividends by certain of our existing agreements. In addition, so long
as any shares of Series A Preferred Stock are outstanding, as they are at this time, we are not able to declare, pay or set apart for payment any dividend on any shares of common stock, unless at the time of such dividend we have paid all accrued
and unpaid dividends on the outstanding shares of Series A Preferred Stock. Therefore, we cannot be certain if we will pay any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of
their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which
our stockholders have purchased their shares.
Upon our dissolution, you may not recoup all or any portion of your investment.
In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our
company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the stockholders of common stock on a pro rata basis. There can be no assurance that we will have available assets
to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our company. In this event, you could lose some or all of your investment.
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