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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 29, 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: 001-36704
BGICON2019A02.JPG
BG STAFFING, INC
(exact name of registrant as specified in its charter)
Delaware
26-0656684
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
5850 Granite Parkway, Suite 730
Plano, Texas 75024
(972) 692-2400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
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    þ      No    ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    þ      No    ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
¨
 
Accelerated Filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with 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    þ
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
BGSF
NYSE

The number of shares outstanding of the registrant’s common stock as of May 6, 2020 was 10,306,986.




TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 

2



Forward-Looking Statements
 
This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:
 
future financial performance and growth targets or expectations;
market and industry trends and developments; and
the benefits of our completed and future merger, acquisition and disposition transactions.

You can identify these and other forward-looking statements by the use of words such as “aim,” “potential,” “may,” “could,” “can,” “would,” “might,” “likely,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “committed,” “future” or “continue” or the negative thereof or similar variations.
 
These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:
 
the availability of field talents’ compensation insurance coverage at commercially reasonable terms;
the availability of qualified field talent;
compliance with federal, state and local labor and employment laws and regulations and changes in such laws and regulations;
the ability to compete with new competitors and competitors with superior marketing and financial resources;
management team changes;
the favorable resolution of current or future litigation;
the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;
the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;
the impact of, and the ability to mitigate or manage disruptions posed by, the novel coronavirus pandemic (“COVID-19”) or other pandemics;
adverse changes in the economic conditions of the industries or markets that we serve;
disturbances in world financial, credit, and stock markets;
unanticipated changes in regulations affecting the company’s business;
a decline in consumer confidence and discretionary spending;
the general performance of the U.S. and global economies;
continued or escalated conflict in the Middle East or elsewhere; and
other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.
 
Where You Can Find Other Information
 
Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Washington, D.C. 20549.

3



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements. 
BG Staffing, Inc. and Subsidiaries
 
UNAUDITED CONSOLIDATED BALANCE SHEETS 
 
 
 
 
March 29,
2020
 
December 29, 2019
ASSETS
 
 
 
 
Current assets
 
 

 
 

 
Accounts receivable (net of allowance for credit losses of $518,481 at 2020 and $468,233 for 2019)
 
$
42,634,730

 
$
39,423,801

 
Prepaid expenses
 
2,452,485

 
1,224,230

 
Income taxes receivable
 

 
69,649

 
Other current assets
 
515,897

 
19,516

 
 
Total current assets
 
45,603,112

 
40,737,196

 
 
 
 
 
 
 
Property and equipment, net
 
4,822,162

 
3,545,049

 
 
 
 
 
 
Other assets
 
 

 
 

 
Deposits
 
3,915,441

 
3,843,023

 
Deferred income taxes, net
 
2,849,646

 
4,071,847

 
Right-of-use asset - operating leases
 
5,696,218

 
4,386,317

 
Intangible assets, net
 
43,875,709

 
33,807,973

 
Goodwill
 
31,372,990

 
25,194,639

 
 
Total other assets
 
87,710,004

 
71,303,799

 
Total assets
 
$
138,135,278

 
$
115,586,044

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 

 
 

 
Long-term debt, current portion
 
$
1,300,000

 
$
375,000

 
Accrued interest
 
181,376

 
73,027

 
Accounts payable
 
226,729

 
479,422

 
Accrued payroll and expenses
 
13,672,842

 
10,079,832

 
Accrued workers’ compensation
 
53,598

 
405,207

 
Contingent consideration, current portion
 
1,159,956

 

 
Lease liability, current portion
 
1,612,277

 
1,277,843

 
Other current liabilities
 
1,000,000

 
1,016,565

 
Income taxes payable
 
330,623

 

 
 
Total current liabilities
 
19,537,401

 
13,706,896

 
 
 
 
 
 
 
Line of credit (net of deferred finance fees of $324,185 and $351,128 for 2020 and 2019, respectively)
 
20,687,209

 
19,993,829

Long-term debt, less current portion
 
24,700,000

 
7,125,000

Contingent consideration, less current portion
 
1,063,783

 
2,174,378

Lease liability, less current portion
 
5,090,893

 
4,128,951

 
Total liabilities
 
71,079,286

 
47,129,054

 
 
 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
 
 
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding
 

 

Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,306,986 and 10,309,236 shares issued and outstanding for 2020 and 2019, respectively, net of treasury stock, at cost, 1,004 shares for 2020 and 2019
 
75,752

 
75,775

Additional paid in capital
 
59,810,723

 
59,617,787

Retained earnings
 
7,169,517

 
8,763,428

 
Total stockholders’ equity
 
67,055,992

 
68,456,990

 
Total liabilities and stockholders’ equity
 
$
138,135,278

 
$
115,586,044

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

4



BG Staffing, Inc. and Subsidiaries
 
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
 
For the Thirteen Week Periods Ended March 29, 2020 and March 31, 2019
 
 
 
 
Thirteen Weeks Ended
 
 
 
2020
 
2019
Revenues
 
$
74,067,429

 
$
68,776,067

Cost of services
 
53,791,698

 
50,337,427

 
Gross profit
 
20,275,731

 
18,438,640

Selling, general and administrative expenses
 
16,203,624

 
13,620,423

Depreciation and amortization
 
1,414,713

 
1,231,509

 
Operating income
 
2,657,394


3,586,708

Interest expense, net
 
456,025

 
353,237

 
Income before income taxes
 
2,201,369

 
3,233,471

Income tax expense
 
702,509

 
737,447

 
Net income
 
$
1,498,860

 
$
2,496,024

 
 
 
 
 
 
Net income per share:
 
 

 
 

 
Basic
 
$
0.15

 
$
0.24

 
Diluted
 
$
0.14

 
$
0.24

 
 
 
 
 
 
Weighted-average shares outstanding:
 
 

 
 

 
Basic
 
10,308,445

 
10,229,462

 
Diluted
 
10,382,999

 
10,404,355

 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.30

 
$
0.30

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

5



BG Staffing, Inc. and Subsidiaries 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirteen Week Periods Ended March 31, 2019 and March 29, 2020
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Shares
 
Par
Value
 
 Treasury Stock Amount
 
Additional Paid in Capital
 
Retained
Earnings
 
Total
Stockholders’ equity, December 30, 2018
 
$

 
10,227,247

 
$
102,273

 
$
(24,027
)
 
$
57,624,379

 
$
7,999,388

 
$
65,702,013

Share-based compensation
 

 

 

 

 
320,084

 

 
320,084

Cancellation of restricted shares
 

 
(2,250
)
 
(23
)
 

 
23

 

 

Exercise of common stock options and warrants
 

 
4,916

 
49

 

 
(49
)
 

 

Change in accounting principal - operating leases
 

 

 

 

 

 
(200,607
)
 
(200,607
)
Cash dividend declared
 

 

 

 

 

 
(3,068,847
)
 
(3,068,847
)
Net income
 

 

 

 

 

 
2,496,024

 
2,496,024

Stockholders’ equity, March 31, 2019
 
$

 
10,229,913

 
$
102,299

 
$
(24,027
)
 
$
57,944,437

 
$
7,225,958

 
$
65,248,667


Stockholders’ equity, December 29, 2019
 
$

 
10,309,236

 
$
103,093

 
$
(27,318
)
 
$
59,617,787

 
$
8,763,428

 
$
68,456,990

Share-based compensation
 

 

 

 

 
192,913

 

 
192,913

Cancellation of restricted shares
 

 
(2,250
)
 
(23
)
 

 
23

 

 

Cash dividend declared
 

 

 

 

 

 
(3,092,771
)
 
(3,092,771
)
Net income
 

 

 

 

 

 
1,498,860

 
1,498,860

Stockholders’ equity, March 29, 2020
 
$

 
10,306,986

 
$
103,070

 
$
(27,318
)
 
$
59,810,723

 
$
7,169,517

 
$
67,055,992


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

6




BG Staffing, Inc. and Subsidiaries
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirteen Week Periods Ended March 29, 2020 and March 31, 2019
 
 
 
 
 
2020
 
2019
Cash flows from operating activities
 
 

 
 

 
Net income
 
$
1,498,860

 
$
2,496,024

 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

 
 
Depreciation
 
227,271

 
202,426

 
 
Amortization
 
1,187,442

 
1,029,083

 
 
Amortization of deferred financing fees
 
18,703

 
68,991

 
 
Interest expense on contingent consideration payable
 
49,360

 
48,874

 
 
Provision for credit losses
 
31,658

 
(53,457
)
 
 
Share-based compensation
 
192,913

 
320,084

 
 
Deferred income taxes
 
311,700

 
543,023

 
 
Net changes in operating assets and liabilities, net of effects of acquisitions:
 
 

 
 

 
 
 
Accounts receivable
 
3,488,673

 
1,951,758

 
 
 
Prepaid expenses
 
(1,197,668
)
 
(1,475,294
)
 
 
 
Other current assets
 
(6,381
)
 

 
 
 
Deposits
 
(72,417
)
 
(325,480
)
 
 
 
Accrued interest
 
108,349

 
(207,343
)
 
 
 
Accounts payable
 
(272,290
)
 
7,902

 
 
 
Accrued payroll and expenses
 
1,100,437

 
748,466

 
 
 
Accrued workers’ compensation
 
(351,609
)
 
(79,436
)
 
 
 
Other current liabilities
 
(16,565
)
 

 
 
 
Income taxes receivable and payable
 
344,488

 
128,812

 
 
 
Operating leases
 
5,298

 
(22,891
)
 
 
Net cash provided by operating activities
 
6,648,222

 
5,381,542

 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 

 
 

 
Business acquired, net of cash received
 
(21,680,455
)
 

 
Capital expenditures
 
(1,049,673
)
 
(341,464
)
 
 
Net cash used in investing activities
 
(22,730,128
)
 
(341,464
)
Cash flows from financing activities
 
 

 
 

 
Net borrowings (payments) under line of credit
 
674,677

 
(133,731
)
 
Proceeds from issuance of long-term debt
 
18,500,000

 

 
Principal payments on long-term debt
 

 
(1,837,500
)
 
Payments of dividends
 
(3,092,771
)
 
(3,068,847
)
 
 
Net cash provided by (used in) financing activities
 
16,081,906

 
(5,040,078
)
Net change in cash and cash equivalents
 

 

Cash and cash equivalents, beginning of period
 

 

Cash and cash equivalents, end of period
$

 
$

 
 
 
 
 
 
 
 
Supplemental cash flow information:
 
 

 
 

 
Cash paid for interest
 
$
235,493

 
$
510,280

 
Cash paid for taxes, net of refunds
 
$
30,624

 
$
54,201


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

7

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 




NOTE 1 - NATURE OF OPERATIONS
 
BG Staffing, Inc. is a national provider of workforce solutions that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP, BG Finance and Accounting, Inc., BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., BG California Finance & Accounting Staffing, Inc., EdgeRock Technology Holdings, Inc. and EdgeRock Technologies, LLC (collectively, the “Company”), primarily within the United States of America in three industry segments: Real Estate, Professional, and Light Industrial.

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
 
The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects.

The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.
 
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our client partners’ business. Demand for our Real Estate staffing services typically increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our Light Industrial staffing services typically increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of its knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December 29, 2019, included in its Annual Report on Form 10-K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
 
Fiscal Periods
 
The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of March 29, 2020 and December 29, 2019, and include the thirteen week periods ended March 29, 2020 and March 31, 2019, referred to herein as Fiscal 2020 and 2019, respectively.
 
Reclassifications
 
Certain reclassifications have been made to the 2019 financial statements to conform with the 2020 presentation.

8

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



 Management Estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include allowances for credit losses, goodwill, intangible assets, income taxes, leave liability, and contingent consideration obligations related to acquisitions. Additionally, the valuation of share-based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.

Financial Instruments
 
The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with BMO Harris Bank, N.A. (“BMO”) that provided for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.

Cash and Cash Equivalents
 
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Concentration of Credit Risk
 
Concentration of credit risk is limited due to the Company's diverse client partner base and their dispersion across many different industries and geographic locations nationwide. No single client partner accounted for more than 10% of the Company’s accounts receivable as of March 29, 2020 and December 29, 2019 or revenue for the thirteen week periods ended March 29, 2020 (“Fiscal 2020”) and March 31, 2019 (“Fiscal 2019”). Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal 2020 and the related percentage for Fiscal 2019 was generated in the following areas:     
 
 
Thirteen Weeks Ended
 
 
March 29,
2020
 
March 31,
2019
Maryland
 
11
%
 
11
%
Massachusetts
 
10
%
 
1
%
Tennessee
 
16
%
 
16
%
Texas
 
24
%
 
29
%


Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.

Accounts Receivable
 
The Company extends credit to its client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. The Company maintains an allowance for credit losses for expected losses resulting from client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received. The Company will continue to actively monitor the impact of the recent coronavirus pandemic (“COVID-19”) on expected credit losses.

9

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Changes in the allowance for credit losses are as follows:
 
 
Thirteen Weeks Ended
 
 
March 29, 2020
 
March 31, 2019
Beginning balance
 
$
468,233

 
$
468,233

EdgeRock Technology Holdings, Inc. (“EdgeRock”) acquisition
 
47,498

 

Provision for (recovery of) credit losses, net
 
31,658

 
(53,457
)
Amounts (written off) collected, net
 
(28,908
)
 
53,457

Ending balance
 
$
518,481

 
$
468,233


 
Property and Equipment
 
Property and equipment are stated net of accumulated depreciation and amortization of $3.6 million and $2.8 million at March 29, 2020 and December 29, 2019, respectively.

Deposits
 
The Company maintains guaranteed costs policies for workers' compensation coverage in Texas, Washington, and Ohio and minimal loss retention coverage for team members and field talent in the Light Industrial segment and its other non-Texas workforce. Under these policies, the Company is required to maintain refundable deposits of $3.7 million and $3.6 million, which are included in Deposits in the accompanying consolidated balance sheets as of March 29, 2020 and December 29, 2019, respectively.

Long-Lived Assets
 
The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal 2020 or Fiscal 2019.

Leases
 
The Company leases all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.

Right of use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.

Intangible Assets
 
The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible asset is realized.


10

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value.

The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.

The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount in the 2019 impairment test. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.
 
Goodwill
 
Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.

Deferred Financing Fees
 
Deferred financing fees are amortized using the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.
 
Contingent Consideration

The Company had obligations, to be paid in cash, related to its acquisitions if certain operating and financial goals were met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.
Revenue Recognition
 
The Company derives its revenues from three segments: Real Estate, Professional, and Light Industrial. The Company provides workforce solutions and placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.

The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.

Temporary staffing revenues - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s field talent.


11

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Contingent placement staffing revenues - Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the client partner, usually when employment candidates start their employment.

Retained search placement staffing revenues - any revenues from these services are recognized based on the contractual amount for services completed to date which best depicts the transfer of control of services, which is less than 1% of consolidated revenues.

The Company estimates the effect of placement candidates who do not remain with its client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for placement services are charged to employment candidates. These assumptions determine the timing of revenue recognition for the reported period.

Refer to Note 13 for disaggregated revenues by segment.

Payment terms in the Company's contracts vary by the type and location of its client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of March 29, 2020. There were no revenues recognized during the thirteen week period ended March 29, 2020 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during the thirteen week period ended March 29, 2020.

Share-Based Compensation
 
The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

Earnings Per Share
 
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of earnings per share.

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:
 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2020
 
March 31,
2019
Weighted-average number of common shares outstanding:
 
10,308,445

 
10,229,462

Effect of dilutive securities: 
 
 
 
 
 
Stock options and restricted stock
 
61,859

 
127,104

 
Warrants 
 
12,695

 
47,789

Weighted-average number of diluted common shares outstanding
 
10,382,999

 
10,404,355

 
 
 
 
 
 
 
Stock options and restricted stock
 
423,150

 
243,750

Antidilutive shares
 
423,150

 
243,750




12

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Income Taxes

The effective tax rates of 31.9% and 22.8% for the thirteen week periods ended March 29, 2020 and March 31, 2019, respectively, were primarily due to state taxes offset by the Work Opportunity Tax Credit in Fiscal 2019 and Fiscal 2020 and the non-deductibility of transaction costs related to the EdgeRock acquisition in Fiscal 2020.

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. The Company acquired a $6.9 million net operating loss carry forward in the 2020 EdgeRock acquisition.
 
When appropriate, the Company will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. 
 
The Company recognizes any penalties when necessary as part of Selling, general and administrative expenses. Goodwill of $25.2 million is deductible for tax purposes.

The Company follows the guidance of Accounting Standards Codification (“ASC”) Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. 

Recent Accounting Pronouncements
 
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The Company adopted this ASU in the first quarter of fiscal 2020 which did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new guidance is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The Company adopted this ASU on a prospective basis in the first quarter of fiscal 2020 which did not have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting, caused by reference rate reform. The new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is still evaluating the impact, but does not expect the adoption of the standard to have a material impact on the Company's financial condition or results of operations.


13

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



NOTE 3 - ACQUISITIONS
 
L.J. Kushner & Associates, L.L.C.

On December 13, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of L.J. Kushner & Associates, L.L.C. (“LJK”) for cash consideration of $8.5 million and issued $1.0 million (47,403 shares privately placed) of the Company's common stock at closing. $1.0 million was held back as partial security for certain post-closing liabilities. The purchase agreement further provides for contingent consideration of up to $2.5 million based on the performance of the acquired business for the two years following the date of acquisition.

The net assets acquired were assigned to the Professional segment. The acquisition of LJK allows the Company to strengthen and expand its IT operations through cybersecurity retained search services specializing in recruiting high and mid-level security professionals.

EdgeRock Technology Holding, Inc.

On February 3, 2020, the Company acquired 100% of the equity of EdgeRock for a purchase price cash consideration of $21.7 million, subject to customary purchase price adjustments as specified in the purchase agreement. The purchase price at closing was paid out of available funds under the Company’s credit agreement led by BMO.

The acquired business was assigned to the Professional segment. The acquisition of EdgeRock allows the Company to strengthen its operations in specialized IT consultants and technology professionals specialized in leading software and data ecosystems, as well as expand its IT geographic operations with offices in Arizona, Florida and Massachusetts.

The 2019 consolidated statement of income does not include any operating results of EdgeRock. Eight weeks of EdgeRock operations are included in the thirteen week period ended March 29, 2020, which is approximately $6.5 million of revenue and $0.4 million of operating income. The preliminary acquisition has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:
Accounts receivable
 
$
6,731,260

Prepaid expenses and other assets
 
520,587

Property and equipment, net
 
296,309

Right-of-use asset - operating leases
 
1,714,984

Intangible assets
 
11,274,000

Goodwill (non-deductible for tax purposes)
 
6,178,351

Current liabilities assumed
 
(2,409,551
)
Deferred income taxes, net
 
(910,501
)
Lease liability - operating leases
 
(1,714,984
)
Total net assets acquired
 
$
21,680,455

 
 
 
Cash
 
$
21,680,455

Total fair value of consideration transferred for acquired business
 
$
21,680,455

 
The preliminary allocation of the intangible assets is as follows:
 
 
Estimated Fair
Value
 
Estimated 
Useful Lives
Covenants not to compete
 
$
302,000

 
5 years
Trade name
 
7,000,000

 
Indefinite
Client partner list
 
3,972,000

 
5 years
Total
 
$
11,274,000

 
 


For the thirteen week period ended March 29, 2020, the Company's incurred costs of $0.5 million related to the LJK and EdgeRock acquisitions. These costs were expensed as incurred in selling, general and administrative expenses.


14

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Supplemental Unaudited Pro Forma Information

The Company estimates the revenues and net income for the periods below that would have been reported if the LJK and EdgeRock acquisitions had taken place on the first day of the Company's 2019 fiscal year would be as follows (dollars in thousands, except per share amounts):
 
 
Thirteen Weeks Ended
 
 
March 29,
2020
 
March 31,
2019
Revenues
 
$
77,176

 
$
79,890

Gross profit
 
$
21,184

 
$
22,590

Net income
 
$
1,277

 
$
3,041

Income per share:
 
 
 
 
Basic
 
$
0.12

 
$
0.30

Diluted
 
$
0.12

 
$
0.29



Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility (as defined below) at a rate of 3.41% and tax expense of the pro forma adjustments at an effective tax rates of 31.9% for Fiscal 2020 and 24.5% for Fiscal 2019. The pro forma operating results include adjustments to LJK and EdgeRock related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the LJK and EdgeRock acquisitions taken place on the first day of the Company’s 2019 fiscal year or of the results that may be achieved by the combined enterprise in the future.

NOTE 4 - LEASES
 
At March 29, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.0 years and 5.2%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the thirteen week period ended March 29, 2020, the Company's cash paid for operating leases was $505,531, and operating lease and short-term lease costs were $491,019 and $126,378, respectively.

The undiscounted annual future minimum lease payments consist of the following at:
 
 
March 29,
2020
2020
 
$
1,892,473

2021
 
1,925,177

2022
 
1,745,463

2023
 
1,136,654

2024
 
590,910

Thereafter
 
142,601

Total lease payments
 
7,433,278

Interest
 
(730,108
)
Present value of lease liabilities
 
$
6,703,170




15

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



NOTE 5 - INTANGIBLE ASSETS
 
Intangible assets are stated net of accumulated amortization of $45.5 million and $44.3 million at March 29, 2020 and December 29, 2019, respectively. Amortization expense for the fiscal years are comprised of following:
 
 
Thirteen Weeks Ended
 
 
March 29,
2020
 
March 31,
2019
Client partner lists
 
$
1,050,616

 
$
908,099

Covenant not to compete
 
69,689

 
42,250

Acquisition intangibles
 
1,120,305

 
950,349

Computer software - amortization expense
 
67,137

 
78,734

Amortization expense
 
1,187,442

 
1,029,083

Computer software - selling, general and administrative expense
 
18,822

 
5,806

Total expense
 
$
1,206,264

 
$
1,034,889



NOTE 6 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION
 
Accrued payroll and expenses consist of the following at:
 

March 29,
2020

December 29,
2019
Field talent payroll

$
6,952,089


$
4,505,264

Field talent payroll related

1,503,458


1,246,353

Accrued bonuses and commissions

1,682,872


1,585,681

Other

3,534,423


2,742,534

Accrued payroll and expenses

$
13,672,842


$
10,079,832



The following is a schedule of future estimated contingent consideration payments to various parties as of March 29, 2020
 
Estimated Cash Payment
 
Discount
 
Net
Due in:
 
 
 
 
 
Less than one year
$
1,250,000

 
$
(90,044
)
 
$
1,159,956

One to two years
1,250,000

 
(186,217
)
 
1,063,783

Contingent consideration
$
2,500,000

 
$
(276,261
)
 
$
2,223,739



NOTE 7 - DEBT
 
On July 16, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement. The Company may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.


16

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



The Credit Agreement contains customary affirmative and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of March 29, 2020.

On February 3, 2020, the Company borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition.

Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, the Company entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments. As of March 29, 2020, the Company had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against the Revolving Facility. The Company has no history of default, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any disputes that might arise in the future would not materially affect the Company's consolidated financial statements. Accordingly, no liability has been recorded in respect to these arrangements as of March 29, 2020.

Line of Credit

At March 29, 2020 and December 29, 2019, $21.0 million and $20.3 million, respectively, was outstanding on the revolving facilities. Average daily balance for the thirteen week periods ended March 29, 2020 and March 31, 2019 was $19.2 million and $10.0 million, respectively.

Borrowings under the revolving facilities consisted of and bore interest at:
 
 
March 29,
2020
 
December 29,
2019
Base Rate
 
$
1,011,394

3.75
%
 
$
2,844,957

5.25
%
LIBOR
 
10,000,000

3.13
%
 
17,500,000

3.26
%
LIBOR
 
10,000,000

3.18
%
 

%
Total
 
$
21,011,394

 
 
$
20,344,957

 


Long-Term Debt

Long-term debt consists of and bore interest at:
 
 
March 29,
2020
 
December 29,
2019
Base Rate
 
$
18,500,000

3.75
%
 
$
7,500,000

5.25
%
LIBOR
 
7,500,000

3.18
%
 

%
Long-term debt
 
$
26,000,000

 
 
$
7,500,000

 


NOTE 8 - FAIR VALUE MEASUREMENTS

The accounting standard for fair value measurements defines fair value, and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:
 
Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;

Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and

17

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.
 
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:
Amounts Recorded at Fair Value 
 
Financial Statement Classification 
 
Fair Value
Hierarchy 
 
March 29,
2020
 
December 29,
2019
Contingent consideration, net
 
Contingent consideration, net - current and long-term
 
Level 3
 
$
2,223,739

 
$
2,174,378



The changes in the Level 3 fair value measurements from December 29, 2019 to March 29, 2020 relates to accretion. Key inputs in determining the fair value of the contingent consideration as of March 29, 2020 and December 29, 2019 included the discount rate of 7.5% as well as management's estimates of future sales volumes and EBITDA.

NOTE 9 - CONTINGENCIES
 
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.

The Company insures against, subject to and upon the terms and conditions of various insurance policies, claims or losses from workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability. Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.

NOTE 10 – EQUITY
 
Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share.

NOTE 11 – SHARE-BASED COMPENSATION

Stock Options and Restricted Stock

For the thirteen week periods ended March 29, 2020 and March 31, 2019, the Company recognized $0.2 million and $0.3 million of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of March 29, 2020 amounted to $1.5 million which is expected to be recognized over the next 2.5 years.
 
A summary of stock option and restricted stock activity is presented as follows:
 
Number of
Shares
 
Weighted Average Exercise Price Per Share
 
Weighted Average Remaining Contractual Life
 
Total Intrinsic Value of Awards
(in thousands)
Awards outstanding at December 29, 2019
582,845

 
$
18.32

 
7.5
 
$
2,793

Awards outstanding at March 29, 2020
582,845

 
$
18.32

 
7.3
 
$
241

 
 
 
 
 
 
 
 
Awards exercisable at December 29, 2019
313,645

 
$
16.05

 
6.8
 
$
1,991

Awards exercisable at March 29, 2020
326,395

 
$
16.45

 
6.7
 
$
85



18

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



 
 
Number of
Shares
 
Weighted Average Grant Date Fair Value
Nonvested outstanding at December 29, 2019
 
269,200

 
$
20.96

Nonvested outstanding at March 29, 2020
 
256,450

 
$
20.69



For the thirteen week period ended March 31, 2019, the Company issued 4,493 shares of common stock upon the cashless exercise of 11,840 stock options.

Included in awards outstanding are 18,000 and 20,250 shares of restricted stock, at a grant date price per share of $28.61, issued under the 2013 Plan as of March 29, 2020 and December 29, 2019, respectively. For the thirteen week periods ended March 29, 2020 and March 31, 2019, the Company recognized $0.1 million of compensation expense related to restricted stock.

Warrant Activity
 
For the thirteen week periods ended March 29, 2020 and March 31, 2019, the Company did not recognize compensation cost related to warrants. There was no unamortized stock compensation expense to be recognized as of March 29, 2020.
 
A summary of warrant activity is presented as follows:
 
Number of
Shares
 
Weighted Average Exercise Price Per Share
 
Weighted Average Remaining Contractual Life
 
Total Intrinsic Value of Options
(in thousands)
Warrants outstanding at December 29, 2019
64,482

 
$
13.84

 
0.8
 
$
473

Warrants outstanding at March 29, 2020
64,482

 
$
13.84

 
0.5
 
$

 
 
 
 
 
 
 
 
Warrants exercisable at December 29, 2019
64,482

 
$
13.84

 
0.8
 
$
473

Warrants exercisable at March 29, 2020
64,482

 
$
13.84

 
0.5
 
$



There were no nonvested warrants outstanding at March 29, 2020 and December 29, 2019.

For the thirteen week period ended March 31, 2019, the Company issued 423 shares of common stock upon the cashless exercise of 1,020 warrants.

The intrinsic value in the tables above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.

NOTE 12 - TEAM MEMBER BENEFIT PLAN
 
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible team members and field talent. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches participants contributions 100% up to the first 3% and 50% of the next 2% of a team member or field talent’s compensation. The Company contributed $0.3 million to the 401(k) Plan for the thirteen week periods ended March 29, 2020 and March 31, 2019.


19

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



NOTE 13 - BUSINESS SEGMENTS
 
The Company operates within three industry segments: Real Estate, Professional, and Light Industrial. The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. The Professional segment provides skilled field talent on a nationwide basis for IT and finance, accounting, legal and human resource client partner projects. The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.

Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (home office) expenses. Assets of home office include cash, unallocated prepaid expenses, deferred tax assets, and other assets.

The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results for the periods indicated:
 

Thirteen Weeks Ended
 

March 29,
2020
 
March 31,
2019
Revenue:

 

 
 

Real Estate

$
20,027,833

 
$
19,175,782

Professional

36,343,906

 
30,593,668

Light Industrial
 
17,695,690

 
19,006,617

Total

$
74,067,429

 
$
68,776,067

 
 
 
 
 
Depreciation:

 

 
 

Real Estate

$
55,340

 
$
44,113

Professional

99,432

 
84,483

Light Industrial
 
27,105

 
25,421

Home office

45,394

 
48,409

Total

$
227,271

 
$
202,426

Amortization:
 
 

 
 

Professional
 
$
1,180,834

 
$
1,022,805

Home office
 
6,608

 
6,278

Total
 
$
1,187,442

 
$
1,029,083

 
 
 
 
 
Operating income (expense):
 
 
 
 
Real Estate
 
$
3,039,274

 
$
2,819,711

Professional
 
1,839,783

 
1,833,559

Light Industrial
 
1,097,098

 
1,202,991

Home office - selling
 
(92,662
)
 
(132,428
)
Home office - general and administrative
 
(3,226,099
)
 
(2,137,125
)
Total
 
$
2,657,394

 
$
3,586,708


20

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 



 
 
Thirteen Weeks Ended
 
 
March 29, 2020
 
March 31, 2019
Capital expenditures:
 
 
 
 
Real Estate
 
$
25,724

 
$
10,661

Professional
 
40,972

 
328,648

Light Industrial
 

 
2,155

Home office
 
982,977

 

Total
 
$
1,049,673

 
$
341,464

 

March 29,
2020

December 29,
2019
Total Assets:

 


 

Real Estate

$
15,024,352


$
16,785,163

Professional

96,523,696


72,623,242

Light Industrial
 
13,423,703

 
15,223,581

Home office

13,163,527


10,954,058

Total

$
138,135,278


$
115,586,044



NOTE 14 - SUBSEQUENT EVENTS

Debt

On April 6, 2020, the Company borrowed the remaining $4.0 million on the Term Loan under its Credit Agreement led by BMO, as described in Note 7 above. The proceeds were used to pay down the Revolving Facility.

Dividend

On May 5, 2020, the Company's board of directors declared a cash dividend in the amount of $0.05 per share of common stock to be paid on May 27, 2020 to all shareholders of record as of the close of business on May 20, 2020

COVID-19

The Company has adjusted its operations in response to COVID-19 in all of its segment and Home Office operations. The extent of the impact from the outbreak on its operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on the Company's client partners and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows relief to employers affected by the coronavirus pandemic. In order to provide liquidity and retain employees during this period, the CARES Act allows employers to delay the payment of the employer’s share of Old-Age, Survivors, and Disability Insurance Tax (“Social Security”), which is 6.2% of wages up to the annual wage base ($137,700 in 2020). The CARES Act only applies to taxes incurred from March 27, 2020 through December 31, 2020. Half of the delayed payments are due by December 31, 2021, and the other half by December 31, 2022. The Company has elected to delay the payment of these taxes.


21



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto and our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. Comparative segment revenues and related financial information are discussed herein and are presented in Note 13 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including our Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, for a description of important factors that could cause actual results to differ from expected results.
 
Overview
 
We are a leading national provider of professional workforce solutions and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff Holding Corporation and InStaff Personnel, LLC in June 2013, D&W Talent, LLC in March 2015, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC in October 2015, Zycron, Inc. in April 2017, Smart Resources, Inc. and Accountable Search, LLC in September 2017, and LJK in December 2019, and 100% of the equity of EdgeRock in February 2020. We operate within three industry segments: Real Estate, Professional, and Light Industrial. We provide services to client partners primarily within the United States of America. We now operate through 88 branch offices and 12 on-site locations located across 40 states and D.C.

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
 
The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects.
 
The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.

Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our client partners’ business. Demand for our Real Estate staffing services typically increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our Light Industrial staffing services typically increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
Impact of COVID-19

After the World Health Organization announced the outbreak of COVID-19 on March 11, 2020, we began to observe the negative impact on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments. We expect that the social distancing measures, the reduced operational status of our client partners, reductions in production at certain client partners facilities, and general business uncertainty will continue to significantly effect demand in all our segments in the second quarter, and possibly beyond.

During this uncertain time, our critical priorities are the health and safety of our team members, field talent, candidates and client partners. Our team members began working from home and reduced travel to essential business needs. We launched a new website where candidates can search for open job positions, apply, and get approved using digital interviews. In this changing business atmosphere, we are providing support, resources and innovative solutions to our client partners. We do not believe these protocols have materially adversely impacted our internal controls, financial reporting systems or our operations.

Revenues began declining during the last two weeks of March in all of our segments. In April, the first month of Q2, overall revenues have declined 26% from pre COVID-19 levels. We had significant declines in the Real Estate and Light Industrial segments with declines of 54% and 26%, respectively, while the Professional segment was off 11%. As a result of these workforce trends and the continuing social distancing and “shelter in place” orders, we took actions in March to reduce actual and planned operating costs by approximately 10% compared to the pre COVID-19 levels, as well as manage liquidity.


22



These actions included:

Hiring and Capital Expenditures:
Implemented a hiring freeze;
Laid off lower performing team members;
Delaying non-essential capital expenditures; and
Delaying the start of any new IT Roadmap initiatives.

Working Capital & Liquidity:
Borrowed $4 million on Term Loan and reduced Revolving Facility balance, providing more short-term liquidity;
Increased emphasis on liquidity forecasting;
Strict compliance with vendor payment terms;
Election to delay the payment of the employer's share of Social Security under the CARES Act; and
Reduced our dividend for Q1 2020.

Safety & Cost Containment:
Eliminating all travel, client partner visits, meals and entertainment, as well as any conferences and association events; and
Implemented a Company-wide work-from-home program (only essential office visits are allowed).

Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions (including declared states of emergency and quarantine, “shelter in place” orders, or similar orders), non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets. These effects have had a significant impact on our business, including reduced demand for our services and workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of which have contributed to a decline in revenues and other significant adverse impacts on our financial results. Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our services or workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate. Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise. As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our team members, field talent, client partners, and stockholders. The potential effects are not clear for any such alterations or modifications on our business, our client partners, candidates, vendors, or on our financial results.

Results of Operations
 
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our unaudited consolidated financial statements.
  

23



 
 

Thirteen Weeks Ended
 
 

March 29,
2020
 
March 31,
2019
 
 

(dollars in thousands)
Revenues

$
74,067

 
$
68,776

Cost of services

53,792

 
50,337

 
Gross profit

20,275

 
18,439

Selling, general and administrative expenses

16,203

 
13,621

Depreciation and amortization

1,415

 
1,232

 
Operating income

2,657

 
3,586

Interest expense, net

456

 
353

 
Income before income tax

2,201

 
3,233

Income tax expense

703

 
737

 
Net income

$
1,499

 
$
2,496

 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2020
 
March 31,
2019
 
 
 
 
 
 
Revenues
 
100.0
%
 
100.0
%
Cost of services
 
72.6
%
 
73.2
%
 
Gross profit
 
27.4
%
 
26.8
%
Selling, general and administrative expenses
 
21.9
%
 
19.8
%
Depreciation and amortization
 
1.9
%
 
1.8
%
 
Operating income
 
3.6
%
 
5.2
%
Interest expense, net
 
0.6
%
 
0.5
%
 
Income before income tax
 
3.0
%
 
4.7
%
Income tax expense
 
0.9
%
 
1.1
%
 
Net income
 
2.0
%
 
3.6
%

Thirteen Week Fiscal Period Ended March 29, 2020 (“Fiscal 2020”) Compared with Thirteen Week Fiscal Period Ended March 31, 2019 (“Fiscal 2019”)
 
Revenues:
 
Thirteen Weeks Ended
 
 
 
March 29,
2020
 
March 31,
2019
 
 
 
(dollars in thousands)
Revenues by segment:
 
 

 
 
 
 

 
 
 
Real Estate
 
$
20,028

 
27.0
%
 
$
19,176

 
27.9
%
 
Professional
 
36,344

 
49.1
%
 
30,594

 
44.5
%
 
Light Industrial
 
17,695

 
23.9
%
 
19,006

 
27.6
%
 
Total Revenues
 
$
74,067

 
100.0
%
 
$
68,776

 
100.0
%
 
Real Estate Revenues: Real Estate revenues increased approximately $0.8 million (4.4%) due to our continued geographic expansion plan. The increase was due to a 4.1% increase in average bill rate that was offset by a 0.1% decrease in billed hours. Revenue from new offices provided approximately $1.2 million of the increase. Revenues and billed hours from the commercial buildings group were flat.
 
Professional Revenues: Professional revenues increased approximately $5.7 million (18.8%), primarily from LJK and EdgeRock acquisitions, which contributed $6.9 million of new revenues. The remaining professional group decreased $1.1 million. The overall increase was due to an increase of 23.4% in average bill rate and an increase in permanent placements of $0.6 million that was offset by a 8.9% decrease in billed hours.
 
Light Industrial Revenues: Light Industrial revenues decreased approximately $1.3 million (6.9%). The decrease was due to a 11.3% decrease in billed hours offset by a 4.7% increase in average bill rate.

Gross Profit:
 
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.
 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2020
 
March 31,
2019
 
 
 
(dollars in thousands)
Gross Profit by segment:
 
 

 
 
 
 

 
 
 
Real Estate
 
$
7,628

 
37.6
%
 
$
7,387

 
40.1
%
 
Professional
 
10,108

 
49.9
%
 
8,283

 
44.9
%
 
Light Industrial
 
2,539

 
12.5
%
 
2,769

 
15.0
%
 
Total Gross Profit
 
$
20,275

 
100.0
%
 
$
18,439

 
100.0
%

 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2020
 
March 31,
2019
Gross Profit Percentage by segment:
 
 

 
 

 
Real Estate
 
38.1
%
 
38.5
%
 
Professional
 
27.8
%
 
27.1
%
 
Light Industrial
 
14.3
%
 
14.6
%
 
Company Gross Profit
 
27.4
%
 
26.8
%
 
Overall, our gross profit increased approximately $1.8 million (10.0%). As a percentage of revenue, gross profit has increased to 27.4% from 26.8% primarily due to higher gross profits across our Professional segment.
 
We determine spread as the difference between average bill rate and average pay rate.

Real Estate Gross Profit: Real Estate gross profit increased approximately $0.2 million (3.3%) consistent with the increase in revenue. The increase in gross profit was due primarily to 2.8% increase in average spread.
 
Professional Gross Profit: Professional gross profit increased approximately $1.9 million (22.0%) consistent with the increase in revenue. The increase in gross profit was due to 21.7% increase in average spread.

Light Industrial Gross Profit: Light Industrial gross profit decreased approximately $0.3 million (8.3%) consistent with the decrease in revenue which was offset by a 4.1% increase in average spread.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $2.6 million (19.0%), primarily from LJK and EdgeRock acquisitions, which contributed $1.9 million of new expense and other various costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in the following table.

24



 
 
Thirteen Weeks Ended
 
 
March 29,
2020
 
March 31,
2019
 
 
 
 
 
 
Amount
 
% of Revenue
 
Amount
 
% of Revenue
 
$
Change
 
%
Change
 
 
(dollars in thousands)
Compensation and related
 
$
11,698

 
16
%
 
$
10,280

 
15
%
 
$
1,418

 
14
 %
Advertising and recruitment
 
407

 
1
%
 
473

 
1
%
 
(66
)
 
(14
)%
Occupancy and office operations
 
1,062

 
1
%
 
968

 
1
%
 
94

 
10
 %
Client engagement
 
273

 
%
 
366

 
1
%
 
(93
)
 
(25
)%
Software
 
480

 
1
%
 
513

 
1
%
 
(33
)
 
(6
)%
Professional fees
 
457

 
1
%
 
421

 
1
%
 
36

 
9
 %
Public company related costs
 
132

 
%
 
165

 
%
 
(33
)
 
(20
)%
Bad debt
 
32

 
%
 
(53
)
 
%
 
85

 
(160
)%
Share-based compensation
 
193

 
%
 
320

 
%
 
(127
)
 
(40
)%
Transaction fees
 
541

 
1
%
 
21

 
%
 
520

 
2,476
 %
IT roadmap
 
459

 
1
%
 

 
%
 
459

 
 %
Workers compensation loss retention return
 

 
%
 
(258
)
 
%
 
258

 
(100
)%
Other
 
469

 
1
%
 
405

 
1
%
 
64

 
16
 %
 
 
$
16,203

 
22
%
 
$
13,621

 
20
%
 
$
2,582

 
19
 %

Depreciation and Amortization: Depreciation and amortization charges increased approximately $0.2 million (14.9%). The increase in depreciation and amortization is primarily due to amortized intangible assets in the 2019 LJK and 2020 EdgeRock acquisitions.

Interest Expense, net: Interest expense, net increased $0.1 million (29.2%) primarily due to the recording of annual interest received from our workers compensation loss retention program in the first quarter 2019, increased borrowings under our credit agreement, offset by decreases in deferred financing fees and unused fee.
 
Income Taxes: Income tax expense decreased slightly primarily due to lower pre tax 2020 income, which was partially offset by non-deductible fees related to the 2020 EdgeRock transaction that resulted in a higher 2020 effective rate.

Use of Non-GAAP Financial Measures
 
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles (“non-GAAP”), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for our management. In addition, the financial covenants in our credit agreement are based on EBITDA as defined in the credit agreement.
  
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, transaction fees, and the non-capital information technology improvement project (“IT roadmap”) and certain non-cash expenses such as share-based compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

25



 
The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income. Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.
 
To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect ongoing operating performance.
 
 

Thirteen Weeks Ended
 
Trailing Twelve Months Ended
 

March 29,
2020
 
March 31,
2019
 
March 29,
2020
 

(dollars in thousands)
 
 
Net income

$
1,499

 
$
2,496

 
$
12,250

Interest expense, net

456

 
353

 
1,672

Income tax expense

703

 
737

 
4,271

Loss on extinguishment of debt
 

 

 
541

Operating income
 
2,658

 
3,586

 
18,734

Depreciation and amortization

1,415

 
1,232

 
5,004

Share-based compensation

193

 
320

 
826

Transaction fees
 
541

 
21

 
954

IT roadmap
 
459

 

 
1,180

Adjusted EBITDA

$
5,266

 
$
5,159

 
$
26,698


Liquidity and Capital Resources
 
Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.

Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with BMO Harris Bank, N.A. (“BMO”), that provides for a revolving credit facility maturing July 16, 2024 (the “Revolving Facility”). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
 

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While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
 
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.

During this period of uncertainty of volatility related to COVID-19, we will continue to monitor our liquidity, particularly payments from our client partners.

A summary of our operating, investing and financing activities are shown in the following table:
 

Thirteen Weeks Ended
 

March 29,
2020

March 31,
2019
 

(dollars in thousands)
Net cash provided by operating activities

$
6,648


$
5,382

Net cash used in investing activities

(22,730
)

(341
)
Net cash provided by (used in) financing activities

16,082


(5,041
)
Net change in cash and cash equivalents

$


$