Quarterly Report (10-q)

Date : 05/13/2019 @ 9:23PM
Source : Edgar (US Regulatory)
Stock : Staffing 360 Solutions Inc (STAF)
Quote : 1.02  -0.0187 (-1.80%) @ 8:59PM

Quarterly Report (10-q)

F

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission File Number: 001-37575

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

68-0680859

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

641 Lexington Avenue, Suite 2701

New York, New York 10022

(Address of principal executive offices) (Zip Code)

(646) 507-5710

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of May 13, 2019, there were 8,239,948 outstanding common stock shares, par value $0.00001 per share, of the issuer.

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock

 

STAF

 

NASDAQ

 

 

 

 


Form 10-Q Quarterly Report

INDEX

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

1

 

 

Condensed Consolidated Balance Sheets as of March 30, 2019 (unaudited) and December 29, 2018

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the periods ended March 30, 2019 and March 31, 2018

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the periods ended March 30, 2019 and March 31, 2018

 

3

 

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the periods ended March 30, 2019 and March 31, 2018

 

4

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the periods ended March 30, 2019 and March 31, 2018

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

10

Item 2

 

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

 

16

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4

 

Controls and Procedures

 

24

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

26

Item 1A

 

Risk Factors

 

26

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

Item 3

 

Defaults Upon Senior Securities

 

26

Item 4

 

Mine Safety Disclosures

 

26

Item 5

 

Other Information

 

26

Item 6

 

Exhibits

 

27

 

 

 

 

 

Signatures

 

 

 

28

 

 

 


PART I-FINANCIA L INFORMATION

Item 1. Financial Statements

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share, par values and stated values)

 

 

 

March 30,

 

 

December 29,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

2,523

 

 

$

3,181

 

Accounts receivable, net

 

 

34,286

 

 

 

32,746

 

Prepaid expenses and other current assets

 

 

1,410

 

 

 

1,197

 

Total Current Assets

 

 

38,219

 

 

 

37,124

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,549

 

 

 

1,639

 

Intangible assets, net

 

 

21,938

 

 

 

22,657

 

Goodwill

 

 

32,061

 

 

 

32,061

 

Right of use asset - leases

 

 

4,548

 

 

 

 

Other assets

 

 

2,998

 

 

 

2,956

 

Total Assets

 

$

101,313

 

 

$

96,437

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

22,199

 

 

$

18,283

 

Interest payable - related party

 

 

1,462

 

 

 

1,457

 

Current portion of debt

 

 

674

 

 

 

657

 

Accounts receivable financing

 

 

17,112

 

 

 

21,979

 

Lease liabilities, current

 

 

1,691

 

 

 

 

Other current liabilities

 

 

8,502

 

 

 

9,642

 

Total Current Liabilities

 

 

51,640

 

 

 

52,018

 

 

 

 

 

 

 

 

 

 

Term loan - related party, net

 

 

34,716

 

 

 

34,568

 

Term loan

 

 

823

 

 

 

997

 

Lease liabilities, non current

 

 

2,938

 

 

 

 

Other long-term liabilities

 

 

3,930

 

 

 

4,659

 

Total Liabilities

 

 

94,047

 

 

 

92,242

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Series E-1 Preferred Stock, 6,500 designated, $1,000 par value, 244 and 81 shares issued and outstanding as of March 30, 2019 and December 29, 2018, respectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A Preferred Stock - Related Party, 1,663,008 shares designated, $1.00 stated value, 1,663,008 shares issued and outstanding, as of March 30, 2019 and December 29, 2018

 

 

 

 

 

 

Series E Preferred Stock, 13,000 designated, $1,000 par value, 13,000 shares issued and outstanding as of March 30, 2019 and December 29, 2018

 

 

13

 

 

 

13

 

Common stock, $0.00001 par value, 40,000,000 and 20,000,000 shares authorized as of

     March 30, 2019 and December 29, 2018, respectively; 8,234,348 and 5,326,068 shares

     issued and outstanding, as of March 30, 2019 and December 29, 2018, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

77,232

 

 

 

73,772

 

Accumulated other comprehensive income

 

 

1,435

 

 

 

2,053

 

Accumulated deficit

 

 

(71,414

)

 

 

(71,643

)

Total Stockholders' Equity

 

 

7,266

 

 

 

4,195

 

Total Liabilities and Stockholders' Equity

 

$

101,313

 

 

$

96,437

 

 

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

1


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts in thousands, except share and per share values)

(UNAUDITED)

 

 

 

Q1 2019

 

 

Q1 2018

 

Revenue

 

$

73,829

 

 

$

55,791

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, excluding depreciation and amortization stated below

 

 

61,711

 

 

 

44,210

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

12,118

 

 

 

11,581

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

10,491

 

 

 

11,188

 

Depreciation and amortization

 

 

877

 

 

 

798

 

Total Operating Expenses

 

 

11,368

 

 

 

11,986

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Operations

 

 

750

 

 

 

(405

)

 

 

 

 

 

 

 

 

 

Other (Expenses) Income:

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,007

)

 

 

(2,077

)

Gain in fair value of warrant liability

 

 

 

 

 

538

 

Re-measurement gain on intercompany note

 

 

351

 

 

 

575

 

Gain on settlement of deferred consideration

 

 

847

 

 

 

 

Other income, net

 

 

286

 

 

 

250

 

Total Other Expenses, net

 

 

(523

)

 

 

(714

)

 

 

 

 

 

 

 

 

 

Income (Loss) Before Provision for Income Tax

 

 

227

 

 

 

(1,119

)

 

 

 

 

 

 

 

 

 

Benefit from (Provision for) income taxes

 

 

2

 

 

 

(152

)

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

229

 

 

 

(1,271

)

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock - related party

 

 

50

 

 

 

50

 

Dividends - Series E preferred stock - related party

 

 

390

 

 

 

 

Dividends - Series E-1 preferred stock - related party

 

 

182

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(393

)

 

$

(1,321

)

 

 

 

 

 

 

 

 

 

Basic and Diluted Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(0.06

)

 

$

(0.33

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

6,914,601

 

 

 

3,988,624

 

 

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

 

 

2


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q1 2019

 

 

Q1 2018

 

Net Income (Loss)

 

$

229

 

 

$

(1,271

)

 

 

 

 

 

 

 

 

 

Other Comprehensive loss

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

(618

)

 

 

(916

)

Comprehensive Loss Attributable to the Company

 

$

(389

)

 

$

(2,187

)

 

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

 

3


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

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

(All amounts in thousands)

(UNAUDITED)

 

 

Shares

 

 

Par

Value

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive loss

 

 

Accumulated Deficit

 

 

Total Equity

 

 

Series E-1

 

 

 

Series A

 

 

Series E

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 29, 2018

 

81

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

5,326,068

 

 

$

 

 

$

73,772

 

 

$

2,053

 

 

$

(71,643

)

 

$

4,195

 

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,600

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

199

 

Sale of common stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,902,680

 

 

 

 

 

 

3,964

 

 

 

 

 

 

 

 

 

3,964

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(50

)

Dividends - Series E Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(390

)

 

 

 

 

 

 

 

 

(390

)

Dividends - Series E-1 Preferred Stock - Related Party

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Dividends - Common Stock holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

 

 

 

 

 

 

(81

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(618

)

 

 

 

 

 

(618

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

229

 

Balance March 30, 2019

 

243

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

8,234,348

 

 

$

 

 

$

77,232

 

 

$

1,435

 

 

$

(71,414

)

 

$

7,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

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

(All amounts in thousands)

(UNAUDITED)

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive loss

 

 

Accumulated Deficit

 

 

Total Equity

 

 

 

Series A

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 30, 2017

 

 

1,663,008

 

 

$

 

 

 

3,909,114

 

 

$

 

 

$

57,574

 

 

$

783

 

 

$

(65,142

)

 

 

(6,785

)

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

18,200

 

 

 

 

 

 

373

 

 

 

 

 

 

 

 

 

373

 

At-Market-Facility, net

 

 

 

 

 

 

 

 

130,545

 

 

 

 

 

 

408

 

 

 

 

 

 

 

 

 

408

 

Additional shares issues on share split

 

 

 

 

 

 

 

 

426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(50

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(914

)

 

 

 

 

 

(914

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,271

)

 

 

(1,271

)

Balance March 31, 2018

 

 

1,663,008

 

 

$

 

 

 

4,058,285

 

 

$

 

 

$

58,305

 

 

$

(131

)

 

$

(66,413

)

 

$

(8,239

)

 

 

 

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

 

5


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q1 2019

 

 

Q1 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

229

 

 

$

(1,271

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

877

 

 

 

798

 

Amortization of debt discount and deferred financing costs

 

 

157

 

 

 

122

 

Gain in fair value of warrants

 

 

 

 

 

(538

)

Stock based compensation

 

 

199

 

 

 

373

 

Gain on settlement of deferred consideration

 

 

(847

)

 

 

 

Re-measurement gain on intercompany note

 

 

(351

)

 

 

(575

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,717

)

 

 

7,026

 

Prepaid expenses and other current assets

 

 

(212

)

 

 

(47

)

Other assets

 

 

(79

)

 

 

(9

)

Accounts payable and accrued expenses

 

 

3,547

 

 

 

2,795

 

Interest payable - related party

 

 

 

 

 

(160

)

Other current liabilities

 

 

(118

)

 

 

447

 

Other long-term liabilities and other

 

 

558

 

 

 

(114

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

2,243

 

 

 

8,847

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(44

)

 

 

(56

)

Collection of UK factoring facility deferred purchase price

 

 

3,469

 

 

 

1,269

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

3,425

 

 

 

1,213

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of term loan

 

 

(156

)

 

 

(254

)

Repayments on accounts receivable financing, net

 

 

(8,606

)

 

 

(9,714

)

Dividends paid to related parties

 

 

(245

)

 

 

(50

)

Dividends paid on common stock

 

 

(81

)

 

 

 

Proceeds from sale of common stock

 

 

4,914

 

 

 

415

 

Payments made for earn-outs

 

 

(1,200

)

 

 

(90

)

Third party financing costs

 

 

(950

)

 

 

(7

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(6,324

)

 

 

(9,700

)

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

(656

)

 

 

360

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

3,181

 

 

 

3,100

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

2,523

 

 

$

3,458

 

 

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

 

 

 

 

6


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”) was incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation, which changed its name to Staffing 360 Solutions, Inc., ticker symbol “STAF,” on March 16, 2012. On June 15, 2017, the Company changed its state of domicile to Delaware.

The Company effected a one-for-ten reverse stock split on September 17, 2015 and a one-for-five reverse stock split on January 3, 2018. All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect these reverse stock splits.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

These condensed consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles in the United States (“GAAP”), expressed in U.S. dollars.

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.  

These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the GAAP.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018 are included in the Company’s December 29, 2018 Form 10-K (“Fiscal 2018”), filed with the United States Securities and Exchange Commission on March 25, 2019. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the period ended March 30, 2019 are not necessarily indicative of results for the entire year ending December 28, 2019. This report is for the period December 30, 2018 to March 30, 2019 (“Q1 2019”) and December 31, 2017 to March 31, 2018 (“Q1 2018”).

 

Liquidity

 

The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended March 30, 2019, the Company has an accumulated deficit of $71,414 and a working capital deficit of $13,421. At March 30, 2019, we had total debt of $37,237 and $2,523 of cash on hand. We have historically met our cash needs through a combination of cash flows from operating activities, term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Our cash requirements are generally for operating activities and debt repayments.   

 

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

 

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

Revenue Recognition

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

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STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

impact to the reported results. Results for reporting periods beginning after December 31, 2017 are presented under ASC 606, while the comparative information will not be restated and will continue to be reported under th e accounting standards in effect for those periods.

 

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

The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.

The Company has primarily two main forms of revenue – temporary contractor revenue and permanent placement revenue.  Temporary contractor revenue is accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance on an hourly basis. The contracts stipulate weekly billing and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed to date. Permanent placement revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 30 days. The contract with the customer stipulates a guarantee period whereby the customer may be refunded if the employee is terminated within a short period of time, however this has historically been infrequent, and immaterial upon occurrence. As such, the Company’s performance obligations are satisfied upon commencement of the employment, at which point control has transferred to the customer. Revenue in Q1 2019 was comprised of $70,998 of temporary contractor revenue and $2,831 of permanent placement revenue, compared with $52,997 and $2,794 for Q1 2018, respectively. Refer to Note 9 for further details on breakdown by segments.  

Reclassifications

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

Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. 

The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, and tax audit settlements.  The effective income tax rate was (1.06)% and (8.8)% for the period ending Q1 2019 and Q1 2018, respectively.  

Foreign Currency

The Company recorded a non cash foreign currency remeasurement gain of $351 and $575 in Q1 2019 and Q1 2018, respectively, associated with its U.S dollar denominated intercompany note.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  The Company adopted this guidance effective December 30, 2018. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less.  All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The new standard provides a number of optional practical expedients in transition. The

8


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply i) the practical expedient which allows us to not separat e lease and non-lease components, and (2) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. The adoption of the new standa rd resulted in the recognition of additional lease liabilities of approximately $4,629, and right-of-use assets of approximately $4,548 million as of March 30, 2019 related to the Company’s operating leases. The new standard did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows.

 

NOTE 3 – LOSS PER COMMON SHARE

The Company utilizes the guidance per ASC 260, “Earnings per Share.”  Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A preferred stock holders (related parties) receive certain dividends or dividend equivalents that are considered participating securities and our loss per share is computed using the two-class method. For Q1 2019 and Q1 2018, pursuant to the two-class method, as a result of the net loss attributable to common stock holders, losses were not allocated to the participating securities.

Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock equivalents consist of common shares issuable upon the conversion of preferred stock, convertible notes, unvested equity awards and the exercise of stock options and warrants (calculated using the modified treasury stock method).  Such securities, shown below, presented on a common share equivalent basis and outstanding as of March 30, 2019 and March 31, 2018 have not been included in the diluted earnings per share computations, as their inclusion would be anti dilutive due to the Company’s net loss as of March 30, 2019 and March 31, 2018:

 

 

 

March 30,

 

 

March 31,

 

 

 

2019

 

 

2018

 

Convertible preferred shares

 

 

7,492,995

 

 

 

43,239

 

Warrants

 

 

925,935

 

 

 

925,935

 

Restricted shares - unvested

 

 

557,184

 

 

 

475,332

 

Long term incentive plan (LTIP)

 

 

375,000

 

 

 

178,728

 

Options

 

 

111,400

 

 

 

125,400

 

Total

 

 

9,462,514

 

 

 

1,748,634

 

 

 

NOTE 4 – ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

HSBC Invoice Finance (UK) Ltd – New Facility

On February 8, 2018, CBS Butler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%.

 

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

9


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Eme rging Issues Task Force ), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities.

 

ABN AMRO Commercial Finance

In conjunction with the HSBC Invoice Finance ( UK) Ltd – New Facility, on February 8, 2018, Staffing 360 Solutions Limited and The JM Group terminated its facility with ABN AMRO Commercial Finance and the remaining balance was paid in full.

 

NOTE 5 – DEBT