Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of our financial condition and results of operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K.
Our financial information may not be indicative of our future performance.
Overview
We are a leading national provider of professional temporary staffing services 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 in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017 and Smart in September 2017. 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 operate through 75 branch offices and 19 on-site locations located across 27 states.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings, in 24 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 and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
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 consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
December 25,
2016
|
|
|
|
52 week
|
|
53 week
|
|
52 Week
|
|
|
|
(dollars in thousands)
|
Revenues
|
|
$
|
286,863
|
|
|
$
|
272,600
|
|
|
$
|
253,852
|
|
Cost of services
|
|
210,268
|
|
|
204,198
|
|
|
193,779
|
|
|
Gross Profit
|
|
76,595
|
|
|
68,402
|
|
|
60,073
|
|
Selling, general and administrative expenses
|
|
47,291
|
|
|
44,350
|
|
|
37,804
|
|
Depreciation and amortization
|
|
5,044
|
|
|
6,292
|
|
|
6,733
|
|
|
Operating income
|
|
24,260
|
|
|
17,760
|
|
|
15,536
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
(404
|
)
|
Interest expense, net
|
|
(2,850
|
)
|
|
(3,253
|
)
|
|
(3,962
|
)
|
|
Income before income tax
|
|
21,410
|
|
|
14,507
|
|
|
11,170
|
|
Income tax expense
|
|
3,860
|
|
|
8,659
|
|
|
4,288
|
|
|
Net income
|
|
$
|
17,550
|
|
|
$
|
5,848
|
|
|
$
|
6,882
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
December 25,
2016
|
Revenues
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of services
|
|
73.3
|
|
|
74.9
|
|
|
76.3
|
|
|
Gross Profit
|
|
26.7
|
|
|
25.1
|
|
|
23.7
|
|
Selling, general and administrative expenses
|
|
16.5
|
|
|
16.3
|
|
|
14.9
|
|
Depreciation and amortization
|
|
1.8
|
|
|
2.3
|
|
|
2.7
|
|
|
Operating income
|
|
8.5
|
|
|
6.5
|
|
|
6.1
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
Interest expense, net
|
|
(1.0
|
)
|
|
(1.2
|
)
|
|
(1.6
|
)
|
|
Income before income tax
|
|
7.5
|
|
|
5.3
|
|
|
4.4
|
|
Income tax expense
|
|
1.3
|
|
|
3.2
|
|
|
1.7
|
|
|
Net income
|
|
6.1
|
%
|
|
2.1
|
%
|
|
2.7
|
%
|
Fifty-two
Week Fiscal Year Ended
December 30, 2018
(Fiscal
2018
) Compared with
Fifty-three
Week Fiscal Year Ended
December 31, 2017
(Fiscal
2017
)
The Fiscal 2017 consolidated statement of operations includes 39 weeks of Zycron operations and 15 weeks of Smart operations.
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(dollars in thousands)
|
Revenues by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
86,874
|
|
|
30.3
|
%
|
|
$
|
71,807
|
|
|
26.3
|
%
|
Professional
|
|
119,300
|
|
|
41.6
|
%
|
|
126,641
|
|
|
46.5
|
%
|
Light Industrial
|
|
80,689
|
|
|
28.1
|
%
|
|
74,152
|
|
|
27.2
|
%
|
Total Revenues
|
|
$
|
286,863
|
|
|
100.0
|
%
|
|
$
|
272,600
|
|
|
100.0
|
%
|
Real Estate Revenues
: Real Estate revenues
in
creased approximately
$15.1 million
(
21.0%
) due to our continued geographic expansion plan and continued growth in existing offices. Revenue from branches outside of Texas accounted for approximately
$12.6 million
of the
in
crease. The
in
crease was due to a
14.0%
in
crease in billed hours and a
5.3%
in
crease in average bill rate. Revenue from existing offices accounted for approximately
$14.2 million
of the
in
crease and revenue from new offices provided approximately
$0.9 million
. Revenues from the commercial buildings group contributed
$2.7 million
of the increases and revenues from the apartment group contributed
$12.4 million
.
Professional Revenues
: Professional revenues
de
creased approximately
$7.3 million
(
5.8%
). The IT group
de
creased
$9.6 million
. This
de
crease was offset by a
n in
crease in the finance and accounting group of
$2.2 million
even with their decrease of
$6.0 million
in revenues from a single client partner. The Zycron acquisition contributed an additional
$5.8 million
and the Smart acquisition contributed an additional
$8.4 million
increase over 2017. The overall
de
crease was due to a
10.8%
in
crease in billed hours and a
de
crease of
13.8%
in average bill rate that was offset by a
n in
crease in permanent placements of
$0.8 million
.
Light Industrial Revenues
:
Light Industrial revenues
in
creased approximately
$6.5 million
(
8.8%
). Texas branches
in
creased revenues
$0.9 million
and other branches outside of the Midwest
in
creased
$5.6 million
, while the Illinois and Wisconsin locations were flat. The overall revenue
in
crease was due to a
2.6%
in
crease in billed hours and a
6.4%
in
crease 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.
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|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(dollars in thousands)
|
Gross Profit by Segment:
|
|
|
|
|
Real Estate
|
|
$
|
32,955
|
|
|
$
|
27,138
|
|
Professional
|
|
31,566
|
|
|
30,626
|
|
Light Industrial
|
|
12,074
|
|
|
10,638
|
|
Total Gross Profit
|
|
$
|
76,595
|
|
|
$
|
68,402
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Gross Profit Percentage by Segment:
|
|
|
|
|
Real Estate
|
|
37.9
|
%
|
|
37.8
|
%
|
Professional
|
|
26.5
|
%
|
|
24.2
|
%
|
Light Industrial
|
|
15.0
|
%
|
|
14.3
|
%
|
Company Gross Profit Percentage
|
|
26.7
|
%
|
|
25.1
|
%
|
Overall, our gross profit
in
creased approximately
$8.2 million
(
12.0%
) due primarily to
in
creased revenues in our Real Estate segment of
$5.8 million
and our Professional segment's addition of Zycron of
$1.4 million
and Smart of
$3.1 million
. As a percentage of revenue, gross profit has
in
creased to
26.7%
from
25.1%
, primarily due to
higher
gross profits across all segments.
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit:
Real Estate gross profit
in
creased approximately
$5.8 million
(
21.4%
) consistent with the
in
crease in revenue. The
in
crease in gross profit was due primarily to
4.6%
in
crease in average spread.
Professional Gross Profit:
Professional gross profit
in
creased approximately
$1.0 million
(
3.1%
) due to the
de
crease in cost of services which was offset by a
7.0%
de
crease in average spread. The Zycron acquisition contributed
$1.4 million
, which was offset by a
$2.8 million
de
crease in the remaining IT group. The Smart acquisition contributed
$3.1 million
, which was partially offset by a
$0.8 million
de
crease in the remaining finance and accounting group including the decrease of
$1.0 million
from a single client partner.
Light Industrial Gross Profit:
Light Industrial gross profit
in
creased approximately
$1.4 million
(
13.5%
) from a
n in
crease of
6.3%
in the average spread.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses
in
creased approximately
$2.9 million
(
6.6%
) related to a
n in
crease in Real Estate of
$2.5 million
from growth, including
$0.1 million
of new office expansion, and a
n in
crease in Professional of
$1.0 million
from Zycron and
$2.4 million
from Smart offset by a
$0.8 million
de
crease in the remaining Professional segment, and a
n in
crease in Light Industrial of
$0.4 million
from
in
creased revenues. Share-based compensation
in
creased
$0.6 million
from the issuance of restricted stock, a stock option cancellation agreement (the "Option Cancellation Agreement") with the Company's former President and Chief Executive Officer, and options granted. Also, other various costs associated with our revenue growth including
in
creased headcount, commissions and bonuses. These
in
creases were offset by a
de
crease of
$3.5 million
in contingent consideration adjustments related to the 2017 Zycron and Smart acquisitions.
Depreciation and Amortization:
Depreciation and amortization charges
de
creased approximately
$1.2 million
(
19.8%
). The
de
crease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the
2012 American Partners acquisition of
$1.7 million
that was partially offset by an
in
crease in the Professional segment intangible assets acquired in the 2017 Zycron and Smart acquisitions of
$0.6 million
.
Interest Expense, net:
Interest expense, net
de
creased
$0.4 million
primarily due to the
de
crease in the interest of
$0.6 million
related to the amortization of contingent consideration discounts from the 2015 VTS acquisition which was offset by the
in
crease of
$0.2 million
in amortization of the deferred financing fees related to the Amended Credit Agreement (as defined below).
Income Taxes:
Income tax
expense
de
creased approximately
$4.8 million
primarily due to the rate change impact of the 2017 Tax Cuts and Jobs Act ("TCJA"), the Option Cancellation Agreement, and share-based compensation exercises that are deductible for tax purposes, which resulted in a
de
crease in the effective rate, offset by
higher
pre-tax
income
of
$6.9 million
.
Non-GAAP Same Day Revenues:
Same Day Revenues are defined as a fifty-three week fiscal year ended
December 31, 2017
(Fiscal 2017) revenues less five revenue days. The Fiscal 2017 revenues of
$272.6 million
would be less
$5.7 million
for five revenue days resulting in Same Day Revenues of
$266.9 million
. Same Day Revenues increased
$20.0 million
(
7%
) to
$286.9 million
in Fiscal 2018. Same Day Revenues and GAAP revenues were equal for Fiscal 2018.
Non-GAAP Same Day Gross Profit:
Same Day Gross Profit is defined as a fifty-three week fiscal year ended
December 31, 2017
(Fiscal 2017) gross profit less five gross profit days. The Fiscal 2017 gross profit of
$68.4 million
would be less
$1.4 million
for five gross profit days resulting in Same Day Gross Profit of
$67.0 million
. Same Day Gross Profit increased
$9.6 million
(
14%
) to
$76.6 million
in Fiscal 2018. Same Day Gross Profit and GAAP gross profit were equal for Fiscal 2018.
Fifty-three
Week Fiscal Year Ended
December 31, 2017
(Fiscal
2017
) Compared with
Fifty-two
Week Fiscal Year Ended
December 25, 2016
(Fiscal
2016
)
The Fiscal 2017 consolidated statement of operations includes 39 weeks of Zycron operations and 15 weeks of Smart operations.
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 31,
2017
|
|
December 25,
2016
|
|
|
(dollars in thousands)
|
Revenues by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
71,807
|
|
|
26.3
|
%
|
|
$
|
57,995
|
|
|
22.8
|
%
|
Professional
|
|
126,641
|
|
|
46.5
|
%
|
|
107,037
|
|
|
42.2
|
%
|
Light Industrial
|
|
74,152
|
|
|
27.2
|
%
|
|
88,820
|
|
|
35.0
|
%
|
Total Revenues
|
|
$
|
272,600
|
|
|
100.0
|
%
|
|
$
|
253,852
|
|
|
100.0
|
%
|
Real Estate Revenues
: Real Estate revenues increased approximately $13.8 million (23.8%) due to our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately $8.9 million of the increase and revenue from branches in Texas increased approximately $4.9 million. The increase was due to a 16.4% increase in billed hours and a 6.0% increase in average bill rate. Revenue from existing offices accounted for approximately $11.5 million of the increase and revenue from new offices provided approximately $2.3 million.
Professional Revenues
: Professional revenues increased approximately $19.6 million (18.3%), primarily from Zycron, which contributed approximately $27.1 million of new revenues and from Smart, which contributed approximately $3.2 million of new revenues. The remaining IT group decreased $6.9 million and the remaining finance and accounting group decreased $3.7 million. The overall increase was due to a 23.7% increase in billed hours, offset by decrease of 4.7% in average bill rate.
Light Industrial Revenues
:
Light Industrial revenues decreased approximately $14.7 million (16.5%) primarily from operations in Texas. Texas branches decreased revenues $8.3 million and other branches outside of the Midwest decreased $6.9 million, which were offset by Illinois and Wisconsin locations increased $0.5 million. The overall revenue decrease was due to a 20.6% decrease in billed hours that was offset by a 5.0% 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.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 31,
2017
|
|
December 25,
2016
|
|
|
(dollars in thousands)
|
Gross Profit by Segment:
|
|
|
|
|
Real Estate
|
|
$
|
27,138
|
|
|
$
|
21,547
|
|
Professional
|
|
30,626
|
|
|
25,728
|
|
Light Industrial
|
|
10,638
|
|
|
12,798
|
|
Total Gross Profit
|
|
$
|
68,402
|
|
|
$
|
60,073
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 31,
2017
|
|
December 25,
2016
|
Gross Profit Percentage by Segment:
|
|
|
|
|
Real Estate
|
|
37.8
|
%
|
|
37.2
|
%
|
Professional
|
|
24.2
|
%
|
|
24.0
|
%
|
Light Industrial
|
|
14.3
|
%
|
|
14.4
|
%
|
Company Gross Profit Percentage
|
|
25.1
|
%
|
|
23.7
|
%
|
Overall, our gross profit increased approximately $8.3 million (13.9%) due primarily to the Zycron ($5.7 million) and Smart ($1.1 million) acquisitions and increased revenues in our Real Estate segment, offset by decreased revenues in our Light Industrial segment. As a percentage of revenue, gross profit has increased to 25.1% from 23.7%, primarily due to higher percentage of our revenues from our Real Estate and Professional segments.
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit:
Real Estate gross profit increased approximately $5.6 million (25.9%) consistent with the increase in revenue. The increase in gross profit percentage of 0.6% was due primarily to 6.1% increase in average spread.
Professional Gross Profit:
Professional gross profit increased approximately $4.9 million (19.0%) due to Zycron of $5.7 million, Smart of $1.1 million, a 1.2% increase in average spread, offset by a $0.8 million decrease in the remaining finance and accounting group and a $1.2 million decrease in the remaining IT group.
Light Industrial Gross Profit:
Light Industrial gross profit decreased approximately $2.2 million (16.9%) due to the corresponding decreased revenue offset by an increase of 5.0% in the average spread.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased approximately $6.5 million (17.3%) related to an increase in Real Estate of $2.8 million from growth, including $0.7 million of new office expansion, and an increase in Professional of $3.1 million from Zycron and $0.9 million from Smart.
Depreciation and Amortization:
Depreciation and amortization charges decreased approximately $0.4 million (6.5%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the
2011 Extrinsic, LLC acquisition of $1.1 million that was partially offset by an increase in the Professional segment intangible
assets acquired in the Zycron acquisition of $0.7 million.
Interest Expense, net:
Interest expense, net decreased approximately $0.7 million (17.9%) primarily due to the decrease in the interest of $1.2 million related to the payoff of the 13% subordinated debt, the decrease in contingent consideration discounts of $0.6 million, partially offset by the increase of $0.7 million in the new Term Loan described below and the increase of $0.3 million in the revolver.
Income Taxes:
Income tax expense, net increased approximately $4.4 million primarily due to the impact of the TCJA which resulted in a re-measurement of the net deferred tax assets of $3.3 million and an increase of $1.1 million from increased pretax income.
Non-GAAP Same Day Revenues:
Same Day Revenues are defined as a fifty-three week fiscal year ended
December 31, 2017
(Fiscal 2017) revenues less five revenue days. The Fiscal 2017 revenues of
$272.6 million
would be less
$5.7 million
for five revenue days resulting in Same Day Revenues of
$266.9 million
. Same Day Revenues increased
$13.0 million
(
5%
) from
$253.9 million
in Fiscal 2016. Same Day Revenues and GAAP revenues were equal for Fiscal 2016.
Non-GAAP Same Day Gross Profit:
Same Day Gross Profit is defined as a fifty-three week fiscal year ended
December 31, 2017
(Fiscal 2017) gross profit less five gross profit days. The Fiscal 2017 gross profit of
$68.4 million
would be less
$1.4 million
for five gross profit days resulting in Same Day Gross Profit of
$67.0 million
. Same Day Gross Profit increased
$6.9 million
(
11%
) from
$60.1 million
in Fiscal 2016. Same Day Gross Profit and GAAP gross profit were equal for Fiscal 2016.
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 (the “Amended Credit Agreement”) with Texas Capital Bank, National Association (“TCB”) as amended and restated that provides for a revolving credit facility maturing April 3, 2022 (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 and 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.
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.
A summary of our operating, investing and financing activities are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
December 25,
2016
|
|
|
(dollars in thousands)
|
Net cash provided by operating activities
|
|
$
|
18,426
|
|
|
$
|
18,064
|
|
|
$
|
9,534
|
|
Net cash used in investing activities
|
|
(924
|
)
|
|
(25,644
|
)
|
|
(931
|
)
|
Net cash (used in) provided by financing activities
|
|
(17,502
|
)
|
|
7,580
|
|
|
(8,603
|
)
|
Net change in cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating Activities
Cash
provided
by operating activities consists of
net income
adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense on contingent consideration payable, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses.
During Fiscal
2018
, net cash
provided
by operating activities was
$18.4 million
, a
n in
crease of
$0.4 million
compared with
$18.1 million
for Fiscal
2017
. This
in
crease is primarily attributable to higher net income, which was partially offset by a decrease in contingent consideration adjustments, the timing of payments on operating assets and liabilities, amortization expense, and net deferred tax assets.
During Fiscal
2017
, net cash provided by operating activities was
$18.1 million
, a
n in
crease of
$8.5 million
compared with
$9.5 million
for Fiscal
2016
. This
in
crease is primarily attributable to the re-measurement of the net deferred tax assets as a result of the TCJA, timing of payments on accounts receivables and accrued payroll and expenses.
Investing Activities
Cash
used in
investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
In Fiscal
2018
, we made capital expenditures of
$0.9 million
mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business. In Fiscal
2017
, we paid
$18.5 million
in connection with the Zycron acquisition,
$6.0 million
in connection with the Smart acquisition and we made capital expenditures of
$1.1 million
mainly related to computer equipment and software purchased in the ordinary course of business. In Fiscal
2016
, we made capital expenditures of
$0.9 million
mainly related to computer equipment purchased in the ordinary course of business.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our Amended Credit Agreement, payment of dividends and contingent consideration paid.
For Fiscal
2018
, we paid down
$13.8 million
in principal payments on the Term Loan described below, paid
$10.9 million
in cash dividends on our common stock, we reduced our revolving line of credit by
$10.7 million
, we paid
$3.3 million
related to Option Cancellation Agreement, and we paid
$1.0 million
of contingent consideration related to the 2015 VTS and 2017 Zycron acquisitions. We received net proceeds from the issuance of common stock of
$22.2 million
and used the net proceeds to reduce outstanding indebtedness under our Revolving Facility and Term Loan with TCB and to cancel outstanding options pursuant to the Option Cancellation Agreement, as noted above.
For Fiscal
2017
, we received proceeds from the issuance of the
$25.0 million
term loan mainly to fund the Zycron acquisition. We paid
$8.7 million
in cash dividends on our common stock, paid
$4.0 million
of contingent consideration related to the fiscal October 2015 VTS acquisition, we reduced our revolving line of credit by
$2.5 million
, paid
$1.1 million
in principal payments on the term loan, and paid
$1.1 million
in deferred financing costs related to the Amended Credit Agreement
For Fiscal 2016, we increased borrowings on our revolving credit facility by $7.7 million and received net proceeds from issuance of common stock of $15.3 million to pay off amounts owing under a senior subordinated credit agreement of $15.3 million. We also paid $8.0 million in cash dividends on our common stock and $7.6 million of contingent consideration related to the fiscal March 2015 D&W acquisition & fiscal October 2015 VTS acquisition.
Credit Agreements
The Company had a credit agreement with TCB providing for a Revolving Facility, maturing August 21, 2019, permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts receivable, and TCB’s commitment of $35.0 million.
In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts receivable, and TCB’s commitment of $35.0 million and also provides for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement originally provided for the Company to increase the commitment by $20.0 million ($15.0 million remaining) with an accordion feature. Proceeds from the foregoing loan arrangements were used to pay off existing indebtedness of the Company on the revolving credit facility under the credit agreement, dated as of August 21, 2015, as amended, with TCB.
The Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.
The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement. The Company is subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. As of December 30, 2018, the Company was in compliance with these covenants.
The Company borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquisition on April 3, 2017. The Company borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017. Proceeds from the May 2018 common stock issuance (see Note 12 to the consolidated financial statements in this Annual Report on Form 10-K) were used to pay down $10.7 million of the principal outstanding under the Term Loan without a repayment fee and reduce the Revolving Facility by $7.5 million.
Contractual Obligations
The following table summarizes our cash contractual obligations as of
December 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
Total
|
|
Less than 1
year
|
|
1–3 years
|
|
3–5 years
|
|
More than 5
years
|
|
|
(dollars in thousands)
|
Long-term debt obligations
|
|
$
|
20,771
|
|
|
$
|
4,288
|
|
|
$
|
5,834
|
|
|
$
|
10,650
|
|
|
$
|
—
|
|
Contingent consideration
|
|
2,500
|
|
|
2,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
|
|
6,265
|
|
|
1,837
|
|
|
2,443
|
|
|
1,569
|
|
|
417
|
|
Contractual cash obligations
|
|
$
|
29,536
|
|
|
$
|
8,624
|
|
|
$
|
8,276
|
|
|
$
|
12,219
|
|
|
$
|
417
|
|
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. The preparation of 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 at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, collectability of accounts receivable, impairment of goodwill and intangible assets, contingencies, litigation, income taxes, stock option expense, and put option liabilities. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements.
Revenue Recognition
We derive our revenues from three segments: Real Estate, Professional, and Light Industrial. We provide temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration we expect 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 variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalent amounts of reimbursable expenses are included in cost of services.
We record revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. We have concluded that gross reporting is appropriate because we (i) have the risk of identifying and hiring qualified workers, (ii) have the discretion to select the workers and establish their price and duties and (iii) we bear 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 we have a right to invoice, when the services are rendered by our field talent.
Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. We estimate the effect of permanent placement candidates who do not remain with our 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 permanent placement services are charged to employment candidates.
Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant.
Goodwill and Intangible Assets
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. Intangible assets consist of the value of contract-related intangible assets, trade names and non-compete agreements acquired in acquisitions and purchased software and internal payroll costs directly incurred in the modification of software for internal use. We amortize on a straight-line basis intangible assets over their estimated useful lives unless their useful lives are determined to be indefinite. We review goodwill and other intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.
Contingent Consideration
We have obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. Prior to Fiscal 2017, the calculation of the fair value of the expected future payments uses a discount rate that approximates our weighted average cost of capital. For acquisitions beginning in Fiscal 2017, based on a new valuation methodology, 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.
Financial Instruments
We use 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 TCB that provides for the revolving credit facility and term loan and current rates available to us for debt with similar terms and risk.
Share-Based Compensation
The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options 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.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.
Interest Rates
Our Revolving Facility and Term Loan are priced at variable interest rates. Accordingly, future interest rate increases could potentially put us at risk for an adverse impact on future earnings and cash flows.
Item 8. Financial Statements and Supplementary Data.
|
|
|
|
Page
|
|
|
Audited Consolidated Financial Statements of BG Staffing, Inc.
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 30, 2018 and December 31, 2017
|
|
|
|
Consolidated Statements of Operations for each of the three fiscal years ended December 30, 2018
|
|
|
|
Consolidated Statements of Changes in Stockholders' Equity for the three fiscal years ended December 30, 2018
|
|
|
|
Consolidated Statements of Cash Flows for each of the three fiscal years ended December 30, 2018
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of BG Staffing, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BG Staffing, Inc. (the “Company”) as of
December 30, 2018
and
December 31, 2017
, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended
December 30, 2018
, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 30, 2018
and
December 31, 2017
, and the results of their operations and their cash flows for each of the three years in the period ended
December 30, 2018
, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 30, 2018, based on criteria established in
2013 Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 12, 2019
expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Whitley Penn LLP
We have served as the Company’s auditor since 2013.
Dallas, Texas
March 12, 2019
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Accounts receivable (net of allowance for doubtful accounts of $468,233 and $473,573 at 2018 and 2017, respectively)
|
|
$
|
37,606,721
|
|
|
$
|
36,707,885
|
|
|
Prepaid expenses
|
|
984,219
|
|
|
947,968
|
|
|
Income taxes receivable
|
|
—
|
|
|
190,912
|
|
|
Other current assets
|
|
22,733
|
|
|
143,237
|
|
|
|
Total current assets
|
|
38,613,673
|
|
|
37,990,002
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
2,556,992
|
|
|
2,039,935
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
Deposits
|
|
3,209,419
|
|
|
2,907,104
|
|
|
Deferred income taxes, net
|
|
4,870,997
|
|
|
6,402,513
|
|
|
Intangible assets, net
|
|
33,034,173
|
|
|
37,323,286
|
|
|
Goodwill
|
|
17,983,549
|
|
|
17,970,049
|
|
|
|
Total other assets
|
|
59,098,138
|
|
|
64,602,952
|
|
|
Total assets
|
|
$
|
100,268,803
|
|
|
$
|
104,632,889
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Long-term debt, current portion (net of deferred finance fees of $44,920 and $138,801 for 2018 and 2017, respectively)
|
|
$
|
4,242,580
|
|
|
$
|
2,923,699
|
|
|
Accrued interest
|
|
308,547
|
|
|
330,630
|
|
|
Accounts payable
|
|
146,257
|
|
|
1,909,612
|
|
|
Accrued payroll and expenses
|
|
10,411,374
|
|
|
11,540,806
|
|
|
Accrued workers’ compensation
|
|
530,980
|
|
|
592,121
|
|
|
Contingent consideration, current portion
|
|
2,363,512
|
|
|
4,299,184
|
|
|
Other current liabilities
|
|
—
|
|
|
74,052
|
|
|
Income taxes payable
|
|
55,841
|
|
|
—
|
|
|
|
Total current liabilities
|
|
18,059,091
|
|
|
21,670,104
|
|
|
|
|
|
|
|
|
Line of credit (net of deferred finance fees of $571,782 and $747,716 for 2018 and 2017, respectively)
|
|
10,078,507
|
|
|
20,620,352
|
|
Long-term debt, less current portion (net of deferred finance fees of $65,850 and $246,030 for 2018 and 2017, respectively)
|
|
5,767,650
|
|
|
20,578,970
|
|
Contingent consideration, less current portion
|
|
—
|
|
|
2,178,486
|
|
Other long-term liabilities
|
|
661,542
|
|
|
450,298
|
|
|
|
Total liabilities
|
|
34,566,790
|
|
|
65,498,210
|
|
|
|
|
|
|
|
|
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, 10,227,247 and 8,759,376 shares issued and outstanding for 2018 and 2017, respectively, net of treasury stock, at cost, 828 shares and -0- shares for 2018 and 2017, respectively
|
|
78,246
|
|
|
87,594
|
|
Additional paid in capital
|
|
57,624,379
|
|
|
37,675,329
|
|
Retained earnings
|
|
7,999,388
|
|
|
1,371,756
|
|
|
|
Total stockholders’ equity
|
|
65,702,013
|
|
|
39,134,679
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
100,268,803
|
|
|
$
|
104,632,889
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
December 30, 2018
,
December 31, 2017
and
December 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
286,862,926
|
|
|
$
|
272,600,050
|
|
|
$
|
253,852,214
|
|
Cost of services
|
|
210,267,734
|
|
|
204,198,052
|
|
|
193,778,848
|
|
|
Gross profit
|
|
76,595,192
|
|
|
68,401,998
|
|
|
60,073,366
|
|
Selling, general and administrative expenses
|
|
47,291,020
|
|
|
44,349,272
|
|
|
37,804,208
|
|
Depreciation and amortization
|
|
5,044,487
|
|
|
6,291,958
|
|
|
6,733,341
|
|
|
Operating income
|
|
24,259,685
|
|
|
17,760,768
|
|
|
15,535,817
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
(404,119
|
)
|
Interest expense, net
|
|
(2,850,405
|
)
|
|
(3,253,134
|
)
|
|
(3,961,617
|
)
|
|
Income before income taxes
|
|
21,409,280
|
|
|
14,507,634
|
|
|
11,170,081
|
|
Income tax expense
|
|
3,859,739
|
|
|
8,659,200
|
|
|
4,287,674
|
|
|
Net income
|
|
$
|
17,549,541
|
|
|
$
|
5,848,434
|
|
|
$
|
6,882,407
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.83
|
|
|
$
|
0.67
|
|
|
$
|
0.85
|
|
|
Diluted
|
|
$
|
1.79
|
|
|
$
|
0.65
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
9,577,498
|
|
|
8,733,941
|
|
|
8,107,637
|
|
|
Diluted
|
|
9,808,080
|
|
|
9,038,187
|
|
|
8,399,883
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
1.15
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended
December 30, 2018
,
December 31, 2017
and
December 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Shares
|
|
Par
Value
|
|
Treasury Stock Amount
|
|
Additional Paid in Capital
|
|
Retained
Earnings
|
|
Total
|
Stockholders’ equity, December 27, 2015
|
|
—
|
|
|
7,387,955
|
|
|
$
|
73,880
|
|
|
$
|
—
|
|
|
$
|
20,446,948
|
|
|
$
|
5,407,596
|
|
|
$
|
25,928,424
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
313,988
|
|
|
—
|
|
|
313,988
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
1,191,246
|
|
|
11,912
|
|
|
—
|
|
|
15,096,844
|
|
|
—
|
|
|
15,108,756
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
89,284
|
|
|
893
|
|
|
—
|
|
|
284,908
|
|
|
—
|
|
|
285,801
|
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,030,922
|
)
|
|
(8,030,922
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,882,407
|
|
|
6,882,407
|
|
Stockholders’ equity, December 25, 2016
|
|
—
|
|
|
8,668,485
|
|
|
86,685
|
|
|
—
|
|
|
36,142,688
|
|
|
4,259,081
|
|
|
40,488,454
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447,301
|
|
|
—
|
|
|
447,301
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
70,670
|
|
|
707
|
|
|
—
|
|
|
991,793
|
|
|
—
|
|
|
992,500
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
20,221
|
|
|
202
|
|
|
—
|
|
|
93,547
|
|
|
—
|
|
|
93,749
|
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,735,759
|
)
|
|
(8,735,759
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,848,434
|
|
|
5,848,434
|
|
Stockholders’ equity, December 31, 2017
|
|
—
|
|
|
8,759,376
|
|
|
87,594
|
|
|
—
|
|
|
37,675,329
|
|
|
1,371,756
|
|
|
39,134,679
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,069,482
|
|
|
—
|
|
|
1,069,482
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
1,293,750
|
|
|
12,938
|
|
|
—
|
|
|
21,347,200
|
|
|
—
|
|
|
21,360,138
|
|
Issuance of restricted shares, net of 828 shares of treasury stock
|
|
—
|
|
|
41,172
|
|
|
412
|
|
|
(24,027
|
)
|
|
(412
|
)
|
|
—
|
|
|
(24,027
|
)
|
Exercise of common stock options and warrants
|
|
—
|
|
|
132,949
|
|
|
1,329
|
|
|
—
|
|
|
867,949
|
|
|
—
|
|
|
869,278
|
|
Option cancellation agreement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,335,169
|
)
|
|
—
|
|
|
(3,335,169
|
)
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,921,909
|
)
|
|
(10,921,909
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,549,541
|
|
|
17,549,541
|
|
Stockholders’ equity, December 30, 2018
|
|
—
|
|
|
10,227,247
|
|
|
$
|
102,273
|
|
|
$
|
(24,027
|
)
|
|
$
|
57,624,379
|
|
|
$
|
7,999,388
|
|
|
$
|
65,702,013
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
December 30, 2018
,
December 31, 2017
and
December 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,549,541
|
|
|
$
|
5,848,434
|
|
|
$
|
6,882,407
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
746,443
|
|
|
592,317
|
|
|
486,682
|
|
|
|
Amortization
|
|
4,298,044
|
|
|
5,699,641
|
|
|
6,246,659
|
|
|
|
Loss on disposal of property and equipment
|
|
17,765
|
|
|
17,373
|
|
|
10,192
|
|
|
|
Loss on extinguishment of debt, net
|
|
—
|
|
|
—
|
|
|
404,119
|
|
|
|
Contingent consideration adjustment
|
|
(3,775,307
|
)
|
|
(225,743
|
)
|
|
(167,393
|
)
|
|
|
Amortization of deferred financing fees
|
|
453,513
|
|
|
251,376
|
|
|
104,847
|
|
|
|
Amortization of debt discounts
|
|
—
|
|
|
—
|
|
|
43,159
|
|
|
|
Interest expense on contingent consideration payable
|
|
624,145
|
|
|
1,208,095
|
|
|
1,839,429
|
|
|
|
Provision for doubtful accounts
|
|
40,618
|
|
|
760,633
|
|
|
389,319
|
|
|
|
Share-based compensation
|
|
1,069,482
|
|
|
447,301
|
|
|
313,988
|
|
|
|
Deferred income taxes
|
|
1,531,516
|
|
|
3,109,942
|
|
|
(1,100,663
|
)
|
|
|
Net changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(939,454
|
)
|
|
1,434,308
|
|
|
(1,393,935
|
)
|
|
|
|
Prepaid expenses
|
|
(36,251
|
)
|
|
102,443
|
|
|
(89,550
|
)
|
|
|
|
Other current assets
|
|
120,504
|
|
|
27,425
|
|
|
(20,503
|
)
|
|
|
|
Deposits
|
|
(302,315
|
)
|
|
(245,018
|
)
|
|
(424,107
|
)
|
|
|
|
Accrued interest
|
|
(22,083
|
)
|
|
229,762
|
|
|
(296,363
|
)
|
|
|
|
Accounts payable
|
|
(1,763,355
|
)
|
|
(555,971
|
)
|
|
(620,523
|
)
|
|
|
|
Accrued payroll and expenses
|
|
(1,129,431
|
)
|
|
284,667
|
|
|
(1,927,592
|
)
|
|
|
|
Accrued workers’ compensation
|
|
(61,141
|
)
|
|
(162,435
|
)
|
|
(34,322
|
)
|
|
|
|
Other current liabilities
|
|
(87,553
|
)
|
|
(299,691
|
)
|
|
(945,382
|
)
|
|
|
|
Income taxes receivable and payable
|
|
246,753
|
|
|
(384,177
|
)
|
|
(110,750
|
)
|
|
|
|
Other long-term liabilities
|
|
(154,959
|
)
|
|
(76,959
|
)
|
|
(55,878
|
)
|
|
|
Net cash provided by operating activities
|
|
18,426,475
|
|
|
18,063,723
|
|
|
9,533,840
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Businesses acquired, net of cash received
|
|
—
|
|
|
(24,500,000
|
)
|
|
—
|
|
|
Capital expenditures
|
|
(923,994
|
)
|
|
(1,145,757
|
)
|
|
(938,943
|
)
|
|
Proceeds from sale of property and equipment
|
|
—
|
|
|
2,350
|
|
|
7,587
|
|
|
|
Net cash used in investing activities
|
|
(923,994
|
)
|
|
(25,643,407
|
)
|
|
(931,356
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended
December 30, 2018
,
December 31, 2017
and
December 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net (payments) borrowings under line of credit
|
|
(10,717,778
|
)
|
|
(2,514,646
|
)
|
|
7,665,714
|
|
|
Proceeds from issuance of long-term debt
|
|
—
|
|
|
25,000,000
|
|
|
—
|
|
|
Principal payments on long-term debt
|
|
(13,766,500
|
)
|
|
(1,112,500
|
)
|
|
(15,281,657
|
)
|
|
Payments on other current liabilities
|
|
—
|
|
|
—
|
|
|
(500,000
|
)
|
|
Payments of dividends
|
|
(10,921,909
|
)
|
|
(8,735,759
|
)
|
|
(8,030,922
|
)
|
|
Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises
|
|
22,205,389
|
|
|
86,249
|
|
|
15,254,406
|
|
|
Option cancellation agreement
|
|
(3,335,169
|
)
|
|
—
|
|
|
—
|
|
|
Contingent consideration paid
|
|
(962,996
|
)
|
|
(4,024,257
|
)
|
|
(7,556,162
|
)
|
|
Deferred financing costs
|
|
(3,518
|
)
|
|
(1,119,403
|
)
|
|
(153,863
|
)
|
|
|
Net cash (used in) provided by financing activities
|
|
(17,502,481
|
)
|
|
7,579,684
|
|
|
(8,602,484
|
)
|
Net change in cash and cash equivalents
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, beginning of year
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, end of year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,764,960
|
|
|
$
|
1,447,138
|
|
|
$
|
2,440,757
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
2,012,325
|
|
|
$
|
5,909,250
|
|
|
$
|
5,500,076
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Leasehold improvements funded by landlord incentives
|
|
$
|
366,202
|
|
|
$
|
255,493
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
BG Staffing, Inc. is a national provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP and BG Finance and Accounting, Inc. ("BGFA") (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 24 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 and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
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 Year
The Company has a 52/53 week fiscal year. Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended
December 30, 2018
, the 53 weeks ended
December 31, 2017
, and the 52 weeks ended
December 25, 2016
, referred to herein as Fiscal
2018
,
2017
and
2016
, respectively.
Reclassifications
Certain reclassifications have been made to the
2016
and
2017
financial statements to conform with the
2018
presentation.
Management Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 goodwill, intangible assets 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 Texas Capital Bank, National Association (“TCB”) that provides 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.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 30, 2018
and
December 31, 2017
or revenue in Fiscal
2018
,
2017
and
2016
. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal
2018
and the related percentage for Fiscal
2017
and
2016
was generated in the following areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Maryland
|
|
11
|
%
|
|
12
|
%
|
|
13
|
%
|
Tennessee
|
|
14
|
%
|
|
12
|
%
|
|
5
|
%
|
Texas
|
|
29
|
%
|
|
29
|
%
|
|
32
|
%
|
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 doubtful accounts 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 means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.
Changes in the allowance for doubtful accounts for the fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Beginning balance
|
|
$
|
473,573
|
|
|
$
|
473,573
|
|
Provision for doubtful accounts
|
|
40,618
|
|
|
760,633
|
|
Amounts written off, net
|
|
(45,958
|
)
|
|
(760,633
|
)
|
Ending balance
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
Property and Equipment
The Company depreciates the cost of property and equipment over the estimated useful lives of the assets using the straight-line method ranging from
five
to
seven
years. The costs of leasehold improvements are amortized over the shorter of the estimated useful life or lease term. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of properties sold, or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any gains or losses are reflected in current operations.
Deposits
The Company maintains guaranteed costs policies for workers' compensation coverage in the Texas, Washington, and Ohio and minimal loss retention coverage for team members and field talent in the Light Industrial segment and other non-Texas employees. Under these policies, the Company is required to maintain refundable deposits of
$2.9 million
and
$2.7 million
, which are included in Deposits the accompanying consolidated balance sheets, as of
December 30, 2018
and
December 31, 2017
, 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
2018
,
2017
and
2016
.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 were 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 determined that there were
no
impairment indicators for these assets in Fiscal
2018
,
2017
and
2016
.
Goodwill
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on annual testing, the Company has determined that there was
no
goodwill impairment in Fiscal
2018
,
2017
or
2016
.
The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.
In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value.
The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, a reporting unit shall recognize an impairment loss in an amount equal to that excess.
The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
Deferred Rent
The Company recognizes rental expense on a straight-line basis over the life of the agreement. Deferred rent is recognized as the difference between cash payments and rent expense, including any landlord incentives.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. Prior to Fiscal 2017, the calculation of the fair value of the expected future payments uses a discount rate that approximates the Company's weighted average cost of capital. For acquisitions beginning in Fiscal 2017, based on a new valuation methodology, 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 adopted the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") ASU 2014-09, Revenue from Contracts with Customers on January 1, 2018 on a modified retrospective basis. As the initial adoption of the standard did not have a material impact on the Company's financial condition or results of operations, no cumulative effect was recognized at the date of initial application. The Company also had no significant changes to systems, processes, or controls.
The Company derives its revenues from three segments: Real Estate, Professional, and Light Industrial. The Company provides temporary staffing and permanent 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.
Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. The Company estimates the effect of permanent 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 permanent placement services are charged to employment candidates.
Refer to Note 17 for disaggregated revenues by segment.
Payment terms in our contracts vary by the type and location of our 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
December 30, 2018
. There were no revenues recognized during Fiscal
2018
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 Fiscal
2018
.
Advertising
The Company recognizes advertising expense in selling, general and administrative expenses as the services are incurred. Total advertising expense for Fiscal
2018
,
2017
and
2016
was
$1.9 million
,
$1.5 million
, and
$1.3 million
, respectively.
Share-Based Compensation
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
December 25,
2016
|
Weighted-average number of common shares outstanding:
|
|
9,577,498
|
|
|
8,733,941
|
|
|
8,107,637
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
186,995
|
|
|
268,765
|
|
|
258,617
|
|
|
Warrants
|
|
43,587
|
|
|
35,481
|
|
|
33,629
|
|
Weighted-average number of diluted common shares outstanding
|
|
9,808,080
|
|
|
9,038,187
|
|
|
8,399,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
175,000
|
|
|
178,000
|
|
|
50,000
|
|
|
Warrants
|
|
—
|
|
|
32,250
|
|
|
32,250
|
|
Anti-dilutive shares
|
|
175,000
|
|
|
210,250
|
|
|
82,250
|
|
Income Taxes
The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general and administrative expenses. Goodwill is deductible for tax purposes.
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“TCJA”) into law. Effective January 1, 2018, among other changes, TCJA reduced the federal corporate tax rate to 21 percent. Accounting Standards Codification ("ASC") Topic 740-25 and 35 prescribes that the impact of changes in laws or rates shall be recognized at the date of enactment. Accordingly, in Fiscal 2017, we recorded a
$3.3 million
dollar reduction to our net deferred tax assets with an offsetting increase in income tax expense.
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 net 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 does not have any net operating loss carry forwards.
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 believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of
December 30, 2018
or
December 31, 2017
.
The Company follows the guidance of 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.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 Leases, which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees will be required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. In July 2018, the FASB issued ASU No. 2018-10 Codification Improvements to Topic 842, Leases. The amendments are intended to address narrow aspects of the guidance issued in the amendments in ASU 2016-02. Also in July 2018, the FASB issued ASU No. 2018-11 Leases (Topic 842): Targeted Improvements, which provides an additional (and optional) transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. These new provisions are effective for annual and interim periods beginning after December 15, 2018. Early application is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company estimates that the adoption will result in the recognition of right-of-use assets and lease liabilities for operating leases of approximately
$4 million
on its Consolidated Balance Sheet, with no material impact to its Consolidated Statements of Operations.
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 standard 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 June 2018, the FASB issued ASU 2018-07 Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) that expands the scope to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements to nonemployee awards except for certain exemptions specified in the amendment. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2018-07 will have a material impact on the Company's financial condition or results of operations.
In July 2018, the FASB issued ASU No. 2018-09 Codification Improvements, which facilitates amendments to a variety of topics to clarify, correct errors in, or make minor improvements to the accounting standards codification. The new guidance is effective beginning after December 15, 2018. The Company does not anticipate the adoption of ASU 2018-09 will have a material impact on the Company's financial statements or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): 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 new guidance is effective after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15 Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The new guidance is effective after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.
NOTE 3 - ACQUISITIONS
Zycron, Inc.
On
April 3, 2017
, the Company acquired substantially all of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”) for an initial cash consideration paid of
$18.5 million
and issued
$1.0 million
(
70,670
shares privately placed) of the Company's common stock at closing. An additional
$0.5 million
was held back as partial security for post-closing purchase price adjustments and indemnification obligations, which was paid on October 24, 2017 net of a working capital adjustment. The purchase agreement further provides for contingent consideration of up to
$3.0 million
based on the performance of the acquired business for the
two
years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital
120
days after the closing date.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net assets acquired were assigned to the Professional segment. The acquisition of Zycron allows the Company to strengthen and expand its IT operations throughout the southeastern U.S. region and selected markets across the country with talent and project management services.
The Fiscal 2017 consolidated statement of operations includes
39
weeks of Zycron operations, which is approximately
$27.1 million
of revenue and
$2.2 million
of operating income. The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes. The allocation is as follows:
|
|
|
|
|
|
Accounts receivable
|
|
$
|
4,345,312
|
|
Prepaid expenses and other assets
|
|
82,122
|
|
Property and equipment
|
|
128,431
|
|
Intangible assets
|
|
13,818,475
|
|
Goodwill
|
|
7,037,271
|
|
Liabilities assumed
|
|
(2,997,027
|
)
|
Total net assets acquired
|
|
$
|
22,414,584
|
|
Cash
|
|
$
|
18,500,000
|
|
Hold back
|
|
500,000
|
|
Common stock
|
|
1,000,000
|
|
Working capital adjustment
|
|
(177,469
|
)
|
Fair value of contingent consideration
|
|
2,592,053
|
|
Total fair value of consideration transferred for acquired business
|
|
$
|
22,414,584
|
|
The allocation of the intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
Estimated Fair
Value
|
|
Estimated
Useful Lives
|
Covenants not to compete
|
|
$
|
475,000
|
|
|
5 years
|
Trade name
|
|
5,006,000
|
|
|
Indefinite
|
Client partner list
|
|
8,337,475
|
|
|
10 years
|
Total
|
|
$
|
13,818,475
|
|
|
|
Smart Resources, Inc.
On
September 18, 2017
, the Company acquired substantially all of the assets and assumed certain liabilities of Smart Resources, Inc. and Accountable Search, LLC (collectively, "Smart") for an initial cash consideration paid of
$6.0 million
. The purchase agreement provides for contingent consideration of up to
$2.0 million
based on the performance of the acquired business for the
two
years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital
90
days after the closing date.
The net assets acquired were assigned to the Professional segment. The acquisition of Smart allows the Company to strengthen and expand its finance and accounting operations in the Chicago market with temporary and direct hire services.
The Fiscal 2017 consolidated statement of operations includes
15
weeks of Smart operations, which is approximately
$3.2 million
of revenue and
$0.1 million
of operating income. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes. The allocation is as follows:
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Accounts receivable
|
|
$
|
1,228,614
|
|
Prepaid expenses and other assets
|
|
38,150
|
|
Property and equipment
|
|
38,270
|
|
Intangible assets
|
|
4,903,602
|
|
Goodwill
|
|
1,748,119
|
|
Liabilities assumed
|
|
(144,906
|
)
|
Total net assets acquired
|
|
$
|
7,811,849
|
|
Cash
|
|
$
|
6,000,000
|
|
Working capital adjustment
|
|
51,212
|
|
Fair value of contingent consideration
|
|
1,760,637
|
|
Total fair value of consideration transferred for acquired business
|
|
$
|
7,811,849
|
|
The allocation of the intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
Estimated Fair
Value
|
|
Estimated
Useful Lives
|
Covenants not to compete
|
|
$
|
20,000
|
|
|
5 years
|
Client partner list
|
|
4,883,602
|
|
|
10 years
|
Total
|
|
$
|
4,903,602
|
|
|
|
The Company incurred costs of
$0.3 million
related to the Zycron and Smart acquisitions. These costs were expensed as incurred in selling, general and administrative expenses in 2017.
Supplemental Unaudited Pro Forma Information
The Company estimates that the revenues and net income for the period below that would have been reported if the Zycron and Smart acquisitions had taken place on the first day of Fiscal
2017
would be as follows (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
2017
|
Revenues
|
|
$
|
290,359
|
|
Gross profit
|
|
$
|
73,647
|
|
Net income
|
|
$
|
6,117
|
|
Income per share:
|
|
|
|
Basic
|
|
$
|
0.70
|
|
Diluted
|
|
$
|
0.68
|
|
Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility at a rate of
4.50%
and tax expense of the pro forma adjustments at an effective tax rate of approximately
36.8%
. The pro forma information presented includes adjustments that will have a continuing impact on the operations that management considers non-recurring in assessing Zycron and Smart's historical performances.
Amounts set forth above are not necessarily indicative of the results that would have been attained had the Zycron and Smart acquisitions taken place on the first day of Fiscal
2017
or of the results that may be achieved by the combined enterprise in the future.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment as of
December 30, 2018
and
December 31, 2017
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Leasehold improvements
|
|
$
|
1,243,270
|
|
|
$
|
720,212
|
|
Furniture and fixtures
|
|
1,062,696
|
|
|
773,268
|
|
Computer systems
|
|
2,273,205
|
|
|
1,827,486
|
|
Vehicles
|
|
96,288
|
|
|
96,288
|
|
|
|
4,675,459
|
|
|
3,417,254
|
|
Accumulated depreciation
|
|
(2,118,467
|
)
|
|
(1,377,319
|
)
|
Property and equipment, net
|
|
$
|
2,556,992
|
|
|
$
|
2,039,935
|
|
Total depreciation expense in Fiscal
2018
,
2017
and
2016
was
$746,443
,
$592,317
and
$486,682
, respectively.
NOTE 5 - INTANGIBLE ASSETS
Finite and indefinite lived intangible assets consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
Gross Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Finite lives:
|
|
|
|
|
|
|
Client partner lists
|
|
$
|
51,609,561
|
|
|
$
|
36,931,448
|
|
|
$
|
14,678,113
|
|
Covenant not to compete
|
|
1,918,000
|
|
|
1,499,005
|
|
|
418,995
|
|
Computer software
|
|
848,111
|
|
|
391,612
|
|
|
456,499
|
|
|
|
54,375,672
|
|
|
38,822,065
|
|
|
15,553,607
|
|
Indefinite lives:
|
|
|
|
|
|
|
Trade names
|
|
18,913,000
|
|
|
1,432,434
|
|
|
17,480,566
|
|
Total
|
|
$
|
73,288,672
|
|
|
$
|
40,254,499
|
|
|
$
|
33,034,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Gross Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Finite lives:
|
|
|
|
|
|
|
Client partner lists
|
|
$
|
51,609,561
|
|
|
$
|
33,072,346
|
|
|
$
|
18,537,215
|
|
Covenant not to compete
|
|
1,918,000
|
|
|
1,289,755
|
|
|
628,245
|
|
Computer software
|
|
839,180
|
|
|
161,920
|
|
|
677,260
|
|
|
|
54,366,741
|
|
|
34,524,021
|
|
|
19,842,720
|
|
Indefinite lives:
|
|
|
|
|
|
|
Trade names
|
|
18,913,000
|
|
|
1,432,434
|
|
|
17,480,566
|
|
Total
|
|
$
|
73,279,741
|
|
|
$
|
35,956,455
|
|
|
$
|
37,323,286
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated future amortization expense for the next five years and thereafter is as follows:
|
|
|
|
|
Fiscal Years Ending:
|
|
2019
|
$
|
3,852,593
|
|
2020
|
2,903,452
|
|
2021
|
1,564,541
|
|
2022
|
1,361,281
|
|
2023
|
1,321,975
|
|
Thereafter
|
4,549,765
|
|
Total
|
$
|
15,553,607
|
|
Total amortization expense for Fiscal
2018
,
2017
and
2016
was
$4.3 million
,
$5.7 million
and
$6.2 million
, respectively.
NOTE 6 - GOODWILL
The changes in the carrying amount of goodwill as of and during the years ended were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
Professional
|
|
Light Industrial
|
|
Total
|
December 25, 2016
|
|
$
|
1,073,755
|
|
|
$
|
3,086,084
|
|
|
$
|
5,024,820
|
|
|
$
|
9,184,659
|
|
additions from acquisitions
|
|
—
|
|
|
8,785,390
|
|
|
—
|
|
|
8,785,390
|
|
December 31, 2017
|
|
1,073,755
|
|
|
11,871,474
|
|
|
5,024,820
|
|
|
17,970,049
|
|
additions from acquisitions
|
|
—
|
|
|
13,500
|
|
|
—
|
|
|
13,500
|
|
December 30, 2018
|
|
$
|
1,073,755
|
|
|
$
|
11,884,974
|
|
|
$
|
5,024,820
|
|
|
$
|
17,983,549
|
|
NOTE 7 - ACCRUED PAYROLL AND EXPENSES, CONTINGENT CONSIDERATION, AND OTHER LONG-TERM LIABILITIES
Accrued payroll and expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Field talent payroll
|
|
$
|
4,236,534
|
|
|
$
|
5,124,908
|
|
Field talent payroll related
|
|
1,402,926
|
|
|
2,454,539
|
|
Accrued bonuses and commissions
|
|
1,673,130
|
|
|
1,172,497
|
|
Other
|
|
3,098,784
|
|
|
2,788,862
|
|
Accrued payroll and expenses
|
|
$
|
10,411,374
|
|
|
$
|
11,540,806
|
|
The following is a schedule of future estimated contingent consideration payments to various parties as of
December 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Cash Payment
|
|
Discount
|
|
Net
|
Due in:
|
|
|
|
|
|
Less than one year
|
$
|
2,500,000
|
|
|
$
|
(136,488
|
)
|
|
$
|
2,363,512
|
|
Other long-term liabilities consisted primarily of deferred rent at
December 30, 2018
and
December 31, 2017
.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company's income tax expense for the fiscal years are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Current federal income tax
|
|
$
|
1,568,308
|
|
|
$
|
4,619,445
|
|
|
$
|
3,570,814
|
|
Current state income tax
|
|
759,915
|
|
|
929,813
|
|
|
1,817,523
|
|
Deferred income tax (credit)
|
|
1,531,516
|
|
|
3,109,942
|
|
(1)
|
(1,100,663
|
)
|
Income tax expense
|
|
$
|
3,859,739
|
|
|
$
|
8,659,200
|
|
|
$
|
4,287,674
|
|
(1)
Fiscal 2017 includes the impact of TCJA.
Significant components of the Company’s deferred income taxes are as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Deferred tax assets:
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
102,980
|
|
|
$
|
104,289
|
|
|
Goodwill and intangible assets
|
|
4,320,035
|
|
|
4,840,582
|
|
|
Workers’ compensation
|
|
85,413
|
|
|
51,115
|
|
|
Contingent consideration
|
|
581,278
|
|
|
1,593,048
|
|
|
Share-based compensation
|
|
276,552
|
|
|
266,094
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Prepaid expenses
|
|
(202,832
|
)
|
|
(268,456
|
)
|
|
Fixed assets
|
|
(292,429
|
)
|
|
(184,159
|
)
|
Deferred income taxes, net
|
|
$
|
4,870,997
|
|
|
$
|
6,402,513
|
|
The income tax provision, reconciled to the tax computed at the statutory federal rate, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Tax expense at federal statutory rate
|
|
$
|
4,495,949
|
|
21.0
|
%
|
|
$
|
4,979,395
|
|
34.3
|
%
|
|
$
|
3,797,828
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
776,984
|
|
3.6
|
%
|
|
610,691
|
|
4.2
|
%
|
|
488,498
|
|
4.4
|
%
|
Re-measurement of deferred assets
|
|
—
|
|
—
|
%
|
|
3,314,037
|
|
22.8
|
%
|
|
—
|
|
—
|
%
|
Equity, permanent differences and other
|
|
(714,845
|
)
|
(3.3
|
)%
|
|
(62,318
|
)
|
(0.4
|
)%
|
|
1,348
|
|
—
|
%
|
Work Opportunity Tax Credit
|
|
(698,349
|
)
|
(3.3
|
)%
|
|
(182,605
|
)
|
(1.2
|
)%
|
|
—
|
|
—
|
%
|
Income tax expense
|
|
$
|
3,859,739
|
|
18.0
|
%
|
|
$
|
8,659,200
|
|
59.7
|
%
|
|
$
|
4,287,674
|
|
38.4
|
%
|
NOTE 9 - DEBT
The Company had a credit agreement with TCB providing for a revolving facility, maturing August 21, 2019, permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is
85%
of eligible accounts receivable, and TCB’s commitment of
$35.0 million
.
In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of
$55.0 million
. The Amended Credit Agreement provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is
85%
of eligible accounts receivable, and TCB’s commitment of
$35.0 million
and also provides for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of
$20.0 million
with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of
$7.5 million
or the aggregate commitment. Additionally, the Amended Credit Agreement originally provided for the Company to increase the commitment by
$20.0 million
(
$15.0 million
remaining) with an accordion feature. Proceeds from the foregoing loan arrangements were used to pay off existing indebtedness of the Company on the revolving credit facility under the credit agreement, dated as of August 21, 2015, as amended, with TCB.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement are
secured by a first priority security interest in substantially all tangible and intangible property of the Company
and its subsidiaries.
The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement. The Company is subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. As of
December 30, 2018
, the Company was in compliance with these covenants.
The Company borrowed
$20.0 million
on the Term Loan in conjunction with the closing of the Zycron acquisition on April 3, 2017. The Company borrowed
$5.0 million
on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017. Proceeds from the May 2018 common stock issuance (see Note 12) were used to pay down
$10.7 million
of the principal outstanding under the Term Loan without a repayment fee and reduce the Revolving Facility by
$7.5 million
.
Line of Credit
At
December 30, 2018
and
December 31, 2017
,
$10.7 million
and
$21.4 million
, respectively, was outstanding on the Revolving Facility with TCB. Average daily balance for Fiscal
2018
,
2017
and
2016
was
$15.6 million
,
$20.3 million
, and
$17.5 million
, respectively.
Borrowings under the Revolving Facility bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Base Rate
|
$
|
650,289
|
|
|
6.50
|
%
|
|
$
|
6,368,068
|
|
|
5.50
|
%
|
LIBOR
|
5,000,000
|
|
|
5.16
|
%
|
|
5,000,000
|
|
|
4.09
|
%
|
LIBOR
|
5,000,000
|
|
|
5.16
|
%
|
|
5,000,000
|
|
|
4.13
|
%
|
LIBOR
|
—
|
|
|
—
|
%
|
|
5,000,000
|
|
|
4.24
|
%
|
Total
|
$
|
10,650,289
|
|
|
|
|
$
|
21,368,068
|
|
|
|
Long Term Debt
Long-term debt bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Base Rate
|
|
$
|
1,121,000
|
|
6.50
|
%
|
|
$
|
687,500
|
|
5.50
|
%
|
LIBOR
|
|
6,500,000
|
|
5.41
|
%
|
|
6,500,000
|
|
4.34
|
%
|
LIBOR
|
|
2,500,000
|
|
5.41
|
%
|
|
6,500,000
|
|
4.38
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
6,000,000
|
|
4.49
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
4,200,000
|
|
4.64
|
%
|
Long-term debt, less current portion
|
|
$
|
10,121,000
|
|
|
|
$
|
23,887,500
|
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities on the Revolving Facility and long-term debt as of
December 30, 2018
, are as follows:
|
|
|
|
|
Fiscal:
|
|
2019
|
$
|
4,287,500
|
|
2020
|
5,512,500
|
|
2021
|
321,000
|
|
2022
|
10,650,289
|
|
|
20,771,289
|
|
Less deferred finance fees
|
(682,552
|
)
|
Total
|
$
|
20,088,737
|
|
NOTE 10 - 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
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
|
|
December 30,
2018
|
|
December 31,
2017
|
Contingent consideration, net
|
|
Contingent consideration, net - current and long-term
|
|
Level 3
|
|
$
|
2,363,512
|
|
|
$
|
6,477,670
|
|
The changes in the Level 3 fair value measurements from
December 31, 2017
to
December 30, 2018
relate to
$0.6 million
in accretion,
$1.0 million
in payments on contingent consideration, and the remaining in gains included in earnings. The changes in the Level 3 fair value measurements from
December 25, 2016
to
December 31, 2017
relate to
$4.4 million
attributable to the Zycron and Smart acquisitions,
$1.2 million
in accretion,
$4.0 million
in payments on contingent consideration, and the remaining in gains included in earnings. Key inputs in determining the fair value of the contingent consideration as of
December 30, 2018
and
December 31, 2017
included discount rates ranging from
8%
to
22%
as well as management's estimates of future sales volumes and EBITDA.
NOTE 11 - 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.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is not currently a party to any material litigation; however, in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are 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.
Employment Agreements
The CEO’s employment agreement was effective as of October 1, 2018 and shall continue through September 30, 2021. The agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms. In the event that her employment is terminated by the Company without cause or by her for good reason, she will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for her and her dependents, grossed-up for federal income taxes. Additionally, she will become 100% vested in any awards outstanding under the 2013 Plan or similar plan. Should there be a sale of the Company that results in the termination of her employment or a material adverse change in her duties and responsibilities, she will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.
The CFO’s employment agreement was effective as of October 1, 2018 and shall continue through September 30, 2021. The agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms. In the event that his employment is terminated by the Company without cause or by him for good reason, he will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for him and his dependents, grossed-up for federal income taxes. Additionally, he will become 100% vested in any awards outstanding under the 2013 Plan or similar plan. Should there be a sale of the Company that results in the termination of his employment or a material adverse change in his duties and responsibilities, he will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.
NOTE 12 - 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.
In August 2018, the Company issued a net of
41,172
shares of restricted common stock,
$0.01
par value per share, to various team members and directors under the 2013 Long-Term Incentive Plan, as amended (the “2013 Plan”). The restricted shares contain a
three
-year service condition. The restricted stock constitutes issued and outstanding shares of the Company’s common stock, except for the right of disposal, for all purposes during the period of restriction including voting rights and dividend distributions. The Company repurchased
828
shares of company stock, or treasury stock, to satisfy the withholding obligation in connection with the vesting of a portion of the restricted stock. Treasury stock is accounted for under the cost method whereby the entire cost of the acquired stock is recorded.
In May 2018, the Company issued and sold
1,293,750
shares of common stock,
$0.01
par value per share, to various investors in a registered offering for an aggregate purchase price (before deducting underwriting discounts and commissions and other estimated offering expenses) of
$23.3 million
in cash. The public offering price was
$18.00
per share. The newly issued shares constituted approximately
14.7%
of the total of issued and outstanding shares of common stock immediately before the initial execution of the Underwriting Agreement. In connection with the closing, the Company incurred
$1.9 million
in offering costs. Proceeds were used to pay off existing indebtedness of the Company under the Amended Credit Agreement and cancel outstanding in-the-money stock options held by L. Allen Baker, Jr., BG Staffing's former President and Chief Executive Officer, as described in Note 13 below.
In April 3, 2017, the Company issued
70,670
shares of common stock,
$0.01
par value per share, in a private placement for a value of
$1.0 million
at the closing of the Zycron acquisition. The Company incurred
$7.5 thousand
in offering costs.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2016, the Company issued and sold
1,191,246
shares of common stock,
$0.01
par value per share, to various investors in a registered underwritten offering for aggregate gross proceeds of
$16.7 million
in cash. The purchase price to the public was
$14.00
per share. The newly issued shares constituted approximately
16.1%
of the total of issued and outstanding shares of common stock immediately before the initial execution of the Underwriting Agreement. In connection with the closing, the Company incurred
$1.6 million
in offering costs, which included a commission of
$0.6 million
paid to Taglich Brothers, Inc. ("Taglich Brothers") the placement co-agent. In connection with the sale, the Company issued to Roth Capital Partners, LLC and Taglich Brothers (and/or their designees), warrants (the “2016 Warrant”) for the purchase of an aggregate of
32,250
shares of common stock. The 2016 Warrant is exercisable, in whole or in part, commencing on a date which is one year after the closing of the offering and expires on the five-year anniversary of the closing, and has an initial exercise price per share of
$16.80
. Proceeds were used to pay off existing indebtedness of the Company under the Senior Subordinated Credit Agreement (See Note 9).
NOTE 13 - SHARE-BASED COMPENSATION
Stock Options and Restricted Stock
In December 2013, the board of directors adopted the 2013 Long-Term Incentive Plan (the "2013 Plan"). Under the 2013 Plan team members, directors and consultants of the Company may receive incentive stock options and other awards. A total of
900,000
shares of common stock of BG Staffing, Inc. were initially reserved for issuance pursuant to the 2013 Plan. To the extent any option or award expires unexercised or is canceled, terminated or forfeited in any manner without the issuance of common stock thereunder, such shares shall again be available for issuance under the 2013 Plan.
On May 16, 2017, stockholders of the Company approved and made effective an amendment to the 2013 Plan to add an additional
250,000
shares of common stock reserved for issuance. The board of directors of the Company had previously approved the amendment subject to stockholder approval.
The term of each option is determined by the board of directors but does not exceed
10
years. Unless otherwise specified in an option agreement, options vest and become exercisable on the following schedule:
20%
immediately and
20%
on each anniversary date of the grant date. Each option shall be designated as an incentive stock option (“ISO”) or a non-qualified option (“NQO”). The exercise price of an ISO shall not be less than the fair market value of the stock covered by the ISO at the grant date; provided, however, the exercise price of an ISO granted to any person who owns, directly or indirectly, stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any affiliate of the Company, shall not be less than 110% of such fair market value.
The fair value of each option award was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions in the following table. Because this option valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed below. The Company bases the estimate of expected volatility on the historical volatility of similar entities whose share prices are publicly available. The volatilities of those entities will continue to be considered unless circumstances change such that the identified entities are no longer similar to the Company or until there is sufficient information available to utilize the Company’s own stock volatility. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company expects to use historical data to estimate team member termination within the valuation model; separate groups of team members that have similar historical termination behavior are considered separately for valuation purposes. The Company believes these estimates and assumptions are reasonable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.
On May 31, 2018, the Company entered into a stock option cancellation agreement (the "Option Cancellation Agreement") with L. Allen Baker, Jr., the Company's former President and Chief Executive Officer, pursuant to which the Company agreed to pay Mr. Baker
$18.00
per share of common stock underlying his vested in-the-money stock options granted under the Company’s 2013 Plan, less the exercise price per share thereof, in exchange for the cancellation and termination of such stock options. Pursuant to the terms of the Option Cancellation Agreement, the Company paid
$3.3 million
to Mr. Baker in exchange for the cancellation of
284,888
stock options granted to him under the 2013 Plan.
For Fiscal
2018
,
2017
and
2016
, the Company recognized
$1.1 million
,
$0.4 million
and
$0.3 million
of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of
December 30, 2018
amounted to
$1.3 million
which is expected to be recognized over the next
3.0 years
.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following assumptions were used to estimate the fair value of share options and restricted stock for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Weighted-average fair value of awards
|
$
|
12.27
|
|
|
$
|
3.94
|
|
|
$
|
4.05
|
|
|
Weighted-average risk-free interest rate
|
2.7
|
|
%
|
1.8
|
|
%
|
1.1
|
|
%
|
Weighted-average dividend yield
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
Weighted-average volatility factor
|
42.3
|
|
%
|
43.2
|
|
%
|
43.2
|
|
%
|
Weighted-average expected life
|
8.6
|
|
yrs
|
6.0
|
|
yrs
|
6.0
|
|
yrs
|
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 Options
(in thousands)
|
Awards outstanding at December 27, 2015
|
|
775,666
|
|
|
$
|
8.19
|
|
|
8.7
|
|
$
|
5,246
|
|
Granted
|
|
50,000
|
|
|
$
|
17.46
|
|
|
|
|
|
Exercised
|
|
(103,055
|
)
|
|
$
|
6.91
|
|
|
|
|
|
Forfeited / Canceled
|
|
(44,200
|
)
|
|
$
|
9.94
|
|
|
|
|
|
Awards outstanding at December 25, 2016
|
|
678,411
|
|
|
$
|
8.95
|
|
|
7.8
|
|
$
|
4,511
|
|
Granted
|
|
128,000
|
|
|
$
|
16.76
|
|
|
|
|
|
Exercised
|
|
(28,800
|
)
|
|
$
|
7.71
|
|
|
|
|
|
Forfeited / Canceled
|
|
(12,200
|
)
|
|
$
|
11.00
|
|
|
|
|
|
Awards outstanding at December 31, 2017
|
|
765,411
|
|
|
$
|
10.27
|
|
|
7.3
|
|
$
|
4,521
|
|
Granted
|
|
217,000
|
|
|
$
|
20.73
|
|
|
|
|
|
Exercised
|
|
(163,338
|
)
|
|
$
|
10.47
|
|
|
|
|
|
Forfeited / Canceled
|
|
(292,088
|
)
|
|
$
|
6.71
|
|
|
|
|
|
Awards outstanding at December 30, 2018
|
|
526,985
|
|
|
$
|
16.49
|
|
|
7.7
|
|
$
|
2,932
|
|
|
|
|
|
|
|
|
|
|
Awards exercisable at December 31, 2017
|
|
498,611
|
|
|
$
|
8.74
|
|
|
6.8
|
|
$
|
3,640
|
|
Awards exercisable at December 30, 2018
|
|
238,085
|
|
|
$
|
13.96
|
|
|
7.2
|
|
$
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Grant Date Fair Value
|
Non-vested outstanding at December 31, 2017
|
|
266,800
|
|
|
$
|
3.09
|
|
Non-vested outstanding at December 30, 2018
|
|
288,900
|
|
|
$
|
8.34
|
|
For Fiscal
2018
,
2017
and
2016
, the Company issued
49,541
,
5,221
, and
55,974
shares of common stock upon the cashless exercise of
86,053
,
13,800
, and
87,655
stock options, respectively.
Included in awards outstanding are
31,500
shares of restricted stock, at a weighted average price per share of
$28.61
, issued under the 2013 Plan as of
December 30, 2018
. For Fiscal
2018
,
2017
and
2016
, the Company recognized
$0.4 million
,
$-0- million
, and
$-0- million
of compensation expense related to restricted stock, respectively.
As of
December 30, 2018
, a total of
864,516
shares remain available for issuance under the 2013 Plan.
Warrant Activity
For Fiscal
2018
,
2017
and
2016
, the Company did not recognize of compensation cost related to warrants. There was no unamortized stock compensation expense remaining to be recognized as of
December 30, 2018
.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following assumptions were used to estimate the fair value of warrants for the years ended:
|
|
|
|
|
|
|
|
|
2016
|
|
Weighted-average fair value of warrants
|
|
$
|
2.48
|
|
|
Weighted-average risk-free interest rate
|
|
0.6
|
|
%
|
Weighted-average dividend yield
|
|
$
|
1.00
|
|
|
Weighted-average volatility factor
|
|
43.2
|
|
%
|
Weighted-average expected life
|
|
3.0
|
|
yrs
|
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 Warrants
(in thousands)
|
Warrants outstanding at December 27, 2015
|
|
133,833
|
|
|
$
|
10.21
|
|
|
3.5
|
|
$
|
634
|
|
Granted
|
|
32,250
|
|
|
$
|
16.80
|
|
|
|
|
|
Exercised
|
|
(42,099
|
)
|
|
$
|
11.42
|
|
|
|
|
|
Expired
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Warrants exercisable at December 25, 2016
|
|
123,984
|
|
|
$
|
11.51
|
|
|
2.8
|
|
$
|
532
|
|
Granted
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Expired
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Warrants outstanding at December 31, 2017
|
|
123,984
|
|
|
$
|
11.51
|
|
|
2.2
|
|
$
|
577
|
|
Granted
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
|
(30,768
|
)
|
|
$
|
11.27
|
|
|
|
|
|
Expired
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Warrants outstanding at December 30, 2018
|
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December 31, 2017
|
|
123,984
|
|
|
$
|
11.51
|
|
|
2.2
|
|
$
|
577
|
|
Warrants exercisable at December 30, 2018
|
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
There were no non-vested warrants outstanding at
December 30, 2018
and
December 31, 2017
.
For Fiscal
2018
,
2017
and
2016
, the Company issued
16,623
,
-0-
and
17,910
shares of common stock upon the cashless exercise of
30,768
,
-0-
and
42,099
warrants, respectively.
The intrinsic value in the table 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.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - OPERATING LEASES
The Company is a party to leases for its facilities, expiring at various dates through fiscal year
2025
. Total rental expense charged to operations amounted to
$2.0 million
,
$1.7 million
and
$1.3 million
for Fiscal
2018
,
2017
and
2016
, respectively.
The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year, as of
December 30, 2018
:
|
|
|
|
|
Fiscal:
|
|
2019
|
$
|
1,836,743
|
|
2020
|
1,280,359
|
|
2021
|
1,162,276
|
|
2022
|
997,489
|
|
2023
|
571,401
|
|
Thereafter
|
416,900
|
|
Total
|
$
|
6,265,168
|
|
NOTE 15 - RELATED PARTY TRANSACTIONS
Some of our equity owners are also principals of Taglich Brothers. The Company paid fees to Taglich Brothers related to
two
equity transactions in 2016 and 2018 (see Note 12).
NOTE 16 - EMPLOYEE BENEFIT PLAN
The Company provides a defined contribution plan (the "401(k) Plan") for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions
100%
up to the first
3%
and
50%
of the next
2%
of an employee’s compensation. The Company contributed
$1.1 million
,
$0.9 million
and
$0.8 million
to the 401(k) Plan for Fiscal
2018
,
2017
and
2016
, respectively.
NOTE 17 - 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 24 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 and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (corporate) expenses. Assets of corporate 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
86,874,241
|
|
|
$
|
71,806,700
|
|
|
$
|
57,995,271
|
|
Professional
|
|
119,299,424
|
|
|
126,641,358
|
|
|
107,037,382
|
|
Light Industrial
|
|
80,689,261
|
|
|
74,151,992
|
|
|
88,819,561
|
|
Total
|
|
$
|
286,862,926
|
|
|
$
|
272,600,050
|
|
|
$
|
253,852,214
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Depreciation:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
169,682
|
|
|
$
|
109,085
|
|
|
$
|
60,818
|
|
Professional
|
|
273,691
|
|
|
179,809
|
|
|
154,447
|
|
Light Industrial
|
|
101,124
|
|
|
106,867
|
|
|
92,701
|
|
Corporate
|
|
201,946
|
|
|
196,556
|
|
|
178,716
|
|
Total
|
|
$
|
746,443
|
|
|
$
|
592,317
|
|
|
$
|
486,682
|
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,847
|
|
Professional
|
|
4,168,463
|
|
|
5,378,992
|
|
|
5,725,711
|
|
Light Industrial
|
|
110,251
|
|
|
312,054
|
|
|
458,101
|
|
Corporate
|
|
19,330
|
|
|
8,595
|
|
|
—
|
|
Total
|
|
$
|
4,298,044
|
|
|
$
|
5,699,641
|
|
|
$
|
6,246,659
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
Real Estate
|
|
$
|
14,775,846
|
|
|
$
|
11,553,163
|
|
|
$
|
8,781,822
|
|
Professional
|
|
7,967,368
|
|
|
8,518,293
|
|
|
6,385,934
|
|
Light Industrial
|
|
5,583,999
|
|
|
4,304,018
|
|
|
5,717,240
|
|
Corporate - selling
|
|
(666,472
|
)
|
|
(541,160
|
)
|
|
(99,242
|
)
|
Corporate - general and administrative
|
|
(3,401,056
|
)
|
|
(6,073,546
|
)
|
|
(5,249,937
|
)
|
Total
|
|
$
|
24,259,685
|
|
|
$
|
17,760,768
|
|
|
$
|
15,535,817
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
124,643
|
|
|
$
|
139,309
|
|
|
$
|
228,153
|
|
Professional
|
|
474,670
|
|
|
564,987
|
|
|
103,864
|
|
Light Industrial
|
|
119,886
|
|
|
53,969
|
|
|
98,077
|
|
Corporate
|
|
204,795
|
|
|
387,492
|
|
|
508,849
|
|
Total
|
|
$
|
923,994
|
|
|
$
|
1,145,757
|
|
|
$
|
938,943
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
12,647,505
|
|
|
$
|
11,678,908
|
|
|
|
Professional
|
|
62,403,104
|
|
|
67,089,681
|
|
|
|
Light Industrial
|
|
18,992,392
|
|
|
18,075,307
|
|
|
|
Corporate
|
|
6,225,802
|
|
|
7,788,993
|
|
|
|
Total
|
|
$
|
100,268,803
|
|
|
$
|
104,632,889
|
|
|
|
|
|
|
|
|
|
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal
Year
|
Revenues
|
$
|
66,855,470
|
|
|
$
|
70,945,438
|
|
|
$
|
77,062,137
|
|
|
$
|
71,999,881
|
|
|
$
|
286,862,926
|
|
Gross Profit
|
$
|
17,309,931
|
|
|
$
|
19,192,279
|
|
|
$
|
21,373,025
|
|
|
$
|
18,719,957
|
|
|
$
|
76,595,192
|
|
Income before income taxes
|
$
|
3,164,213
|
|
|
$
|
5,835,370
|
|
|
$
|
6,429,644
|
|
|
$
|
5,980,053
|
|
|
$
|
21,409,280
|
|
Net income
|
$
|
2,465,571
|
|
|
$
|
5,169,884
|
|
|
$
|
5,061,386
|
|
|
$
|
4,852,700
|
|
|
$
|
17,549,541
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
|
$
|
0.56
|
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
1.83
|
|
Diluted
|
$
|
0.27
|
|
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
0.47
|
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
8,761,292
|
|
|
9,235,353
|
|
|
10,109,791
|
|
|
10,184,652
|
|
|
9,577,498
|
|
Diluted
|
9,087,016
|
|
|
9,538,545
|
|
|
10,342,559
|
|
|
10,365,117
|
|
|
9,808,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal
Year
|
Revenues
|
$
|
56,843,687
|
|
|
$
|
68,773,862
|
|
|
$
|
71,281,674
|
|
|
$
|
75,700,827
|
|
|
$
|
272,600,050
|
|
Gross Profit
|
$
|
13,671,234
|
|
|
$
|
17,227,279
|
|
|
$
|
18,248,059
|
|
|
$
|
19,255,426
|
|
|
$
|
68,401,998
|
|
Income before income taxes
|
$
|
2,134,737
|
|
|
$
|
3,744,537
|
|
|
$
|
4,752,516
|
|
|
$
|
3,875,844
|
|
|
$
|
14,507,634
|
|
Net income (loss)
|
$
|
1,301,831
|
|
|
$
|
2,284,526
|
|
|
$
|
3,136,863
|
|
|
$
|
(874,786
|
)
|
|
$
|
5,848,434
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
$
|
0.36
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.67
|
|
Diluted
|
$
|
0.15
|
|
|
$
|
0.25
|
|
|
$
|
0.35
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
8,668,955
|
|
|
8,746,100
|
|
|
8,759,376
|
|
|
8,759,376
|
|
|
8,733,941
|
|
Diluted
|
8,924,419
|
|
|
9,050,596
|
|
|
9,077,147
|
|
|
8,759,376
|
|
|
9,038,187
|
|
NOTE 19 - SUBSEQUENT EVENTS
On
February 6, 2019
, the Company's board of directors declared a cash dividend in the amount of
$0.30
per share of common stock to be paid on
February 26, 2019
to all shareholders of record as of the close of business on
February 19, 2019
.