AmrF

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 28, 2020

or

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

For the transition period from ________ to _________

Commission File Number: 001-37575

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

68-0680859

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

641 Lexington Avenue, Suite 2701

New York, New York 10022

(Address of principal executive offices) (Zip Code)

(646) 507-5710

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

Emerging Growth Company

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

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

As of June 26, 2020, there were 9,322,563 outstanding common stock shares, par value $0.00001 per share, of the issuer.

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock

 

STAF

 

NASDAQ

 

 

 

 


EXPLANATORY NOTE

 

As previously reported by Staffing 360 Solutions, Inc. (the “Company”) in its Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 11, 2020 (in accordance with the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (Release No. 34-88318) (as modified on March 25, 2020 by Release No. 34-88465, the “Order”), the Company disclosed that it was relying on the relief provided by the Order in connection with the filing of this Quarterly Report on Form 10-Q for the quarter ended March 28, 2020 (the “Report”) due to the circumstances related to coronavirus or COVID-19. Because of government regulations enacted to combat the COVID-19 pandemic, the Company’s offices and systems have been subject to closure and testing and, as a result, its staff were at the time and still are working remotely.  The disturbance in the Company’s operations prevented the Company from making forward projections and determining the value of certain assets on its balance sheet. Therefore, due to COVID-19’s interference in the Company’s operations, the Company was unable to file the Report prior to the due date.

 


Form 10-Q Quarterly Report

INDEX

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

1

 

 

Condensed Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 28, 2019

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 28, 2020 and March 30, 2019  

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 28, 2020 and March 30, 2019  

 

3

 

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 28, 2020 and March 30, 2019  

 

4

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 28, 2020 and March 30, 2019  

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2

 

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

 

22

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

33

Item 1A

 

Risk Factors

 

33

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3

 

Defaults Upon Senior Securities

 

35

Item 4

 

Mine Safety Disclosures

 

35

Item 5

 

Other Information

 

35

Item 6

 

Exhibits

 

36

 

 

 

 

 

Signatures

 

 

 

37

 

 

 


PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

March 28,

 

 

December 28,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

931

 

 

$

1,196

 

Accounts receivable, net

 

 

27,393

 

 

 

26,604

 

Prepaid expenses and other current assets

 

 

1,371

 

 

 

842

 

Total Current Assets

 

 

29,695

 

 

 

28,642

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,442

 

 

 

1,528

 

Intangible assets, net

 

 

18,604

 

 

 

19,511

 

Goodwill

 

 

27,603

 

 

 

31,049

 

Right of use asset - leases

 

 

4,478

 

 

 

4,888

 

Other assets

 

 

2,988

 

 

 

3,223

 

Total Assets

 

$

84,810

 

 

$

88,841

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,050

 

 

$

16,577

 

Payable - related party

 

 

5,718

 

 

 

3,884

 

Current portion of debt

 

 

644

 

 

 

676

 

Current debt - related party

 

 

37,967

 

 

 

37,780

 

Accounts receivable financing

 

 

18,232

 

 

 

19,374

 

Lease liabilities, current

 

 

1,702

 

 

 

1,797

 

Other current liabilities

 

 

4,054

 

 

 

3,907

 

Total Current Liabilities

 

 

87,367

 

 

 

83,995

 

 

 

 

 

 

 

 

 

 

Term loan

 

 

181

 

 

 

360

 

Lease liabilities, non current

 

 

2,855

 

 

 

3,183

 

Other long-term liabilities

 

 

1,499

 

 

 

1,670

 

Total Liabilities

 

 

91,902

 

 

 

89,208

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Series E-1 Preferred Stock, 6,500 designated, $0.00001 par value, 891 and 729 shares issued and outstanding as of March 28, 2020 and December 28, 2019, respectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A Preferred Stock - Related Party, 1,039,380 shares designated, $0.00001 par value, 1,039,380 shares issued and outstanding, as of March 28, 2020 and December 28, 2019, respectively

 

 

 

 

 

 

Series E Preferred Stock - Related Party, 13,000 designated, $0.00001 par value, 13,000 shares issued and outstanding as of March 28, 2020 and December 28, 2019

 

 

13

 

 

 

13

 

Common stock, $0.00001 par value, 40,000,000 shares authorized as of March 28, 2020 and December 28, 2019; 9,107,563 and 8,785,748 shares issued and outstanding, as of March 28, 2020 and December 28, 2019, respectively

 

 

1

 

 

 

1

 

Additional paid in capital

 

 

76,028

 

 

 

76,214

 

Accumulated other comprehensive income (loss)

 

 

400

 

 

 

(58

)

Accumulated deficit

 

 

(83,534

)

 

 

(76,537

)

Total Stockholders' Deficit

 

 

(7,092

)

 

 

(367

)

Total Liabilities and Stockholders' Deficit

 

$

84,810

 

 

$

88,841

 

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

1


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(UNAUDITED)

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Revenue

 

$

58,692

 

 

$

73,829

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, excluding depreciation and amortization stated below

 

 

48,044

 

 

 

61,711

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

10,648

 

 

 

12,118

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

10,961

 

 

 

10,491

 

Impairment of goodwill

 

 

2,969

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

877

 

Total Operating Expenses

 

 

14,715

 

 

 

11,368

 

 

 

 

 

 

 

 

 

 

(Loss) Income From Operations

 

 

(4,067

)

 

 

750

 

 

 

 

 

 

 

 

 

 

Other (Expenses) Income:

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

 

(2,417

)

 

 

(2,007

)

Re-measurement (loss) gain on intercompany note

 

 

(675

)

 

 

351

 

 

 

 

 

 

 

 

 

 

Gain on settlement of deferred consideration

 

 

 

 

 

847

 

Other (loss) income, net

 

 

(14

)

 

 

286

 

Total Other Expenses, net

 

 

(3,106

)

 

 

(523

)

 

 

 

 

 

 

 

 

 

(Loss) Income Before Provision for Income Tax

 

 

(7,173

)

 

 

227

 

 

 

 

 

 

 

 

 

 

Benefit from income taxes

 

 

176

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Net (Loss) Income

 

 

(6,997

)

 

 

229

 

 

 

 

 

 

 

 

 

 

Dividends - Series A Preferred Stock - related party

 

 

31

 

 

 

50

 

Dividends - Series E Preferred Stock - related party

 

 

390

 

 

 

390

 

Dividends - Series E-1 Preferred Stock - related party

 

 

182

 

 

 

182

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(7,600

)

 

$

(393

)

 

 

 

 

 

 

 

 

 

Basic and Diluted Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(0.90

)

 

$

(0.06

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

8,473,820

 

 

 

6,914,601

 

 

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

 

 

2


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

Net (Loss) Income

 

$

(6,997

)

 

$

229

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

458

 

 

 

(618

)

Comprehensive Loss Attributable to the Company

 

$

(6,539

)

 

$

(389

)

 

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

 

3


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

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

(All amounts in thousands)

(UNAUDITED)

 

 

 

 

Shares

 

 

Par

Value

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated Deficit

 

 

Total Deficit

 

 

Series E-1

 

 

 

Series A

 

 

Series E

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 28, 2019

 

729

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

8,785,748

 

 

$

1

 

 

$

76,214

 

 

$

(58

)

 

$

(76,537

)

 

$

(367

)

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,600

 

 

 

 

 

 

173

 

 

 

 

 

 

 

 

 

173

 

Share issuance to Jackson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

244

 

 

 

 

 

 

 

 

 

244

 

Conversion of Series A to common shares

 

 

 

 

 

 

 

 

(623,628

)

 

 

 

 

 

 

 

 

 

 

 

16,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Dividends - Series E Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(390

)

 

 

 

 

 

 

 

 

(390

)

Dividends - Series E-1 Preferred Stock - Related Party

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

 

 

 

458

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,997

)

 

 

(6,997

)

Balance March 28, 2020

 

891

 

 

$

 

 

 

 

1,039,380

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

9,107,563

 

 

$

1

 

 

$

76,028

 

 

$

400

 

 

$

(83,534

)

 

$

(7,092

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

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

(All amounts in thousands)

(UNAUDITED)

 

 

Shares

 

 

Par

Value

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Additional paid in capital

 

 

Accumulated other comprehensive loss

 

 

Accumulated Deficit

 

 

Total Equity

 

 

Series E-1

 

 

 

Series A

 

 

Series E

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 29, 2018

 

81

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

5,326,068

 

 

$

 

 

$

73,772

 

 

$

2,053

 

 

$

(71,643

)

 

 

4,195

 

Shares issued to/for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees, directors and consultants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,600

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

199

 

Sale of common stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,902,680

 

 

 

 

 

 

3,964

 

 

 

 

 

 

 

 

 

3,964

 

Dividends - Series A Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(50

)

Dividends - Series E Preferred Stock - Related Party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(390

)

 

 

 

 

 

 

 

 

(390

)

Dividends - Series E-1 Preferred Stock - Related Party

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Dividends - Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

 

 

 

 

 

 

(81

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(618

)

 

 

 

 

 

(618

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

229

 

Balance March 30, 2019

 

243

 

 

$

 

 

 

 

1,663,008

 

 

$

 

 

 

13,000

 

 

$

13

 

 

 

8,234,348

 

 

$

 

 

$

77,232

 

 

$

1,435

 

 

$

(71,414

)

 

$

7,266

 

 

 

 

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

 

5


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q1 2020 YTD

 

 

Q1 2019 YTD

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net (Loss) Income

 

$

(6,997

)

 

$

229

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

877

 

Amortization of debt discount and deferred financing costs

 

 

187

 

 

 

157

 

Stock based compensation

 

 

173

 

 

 

199

 

Impairment of goodwill

 

 

2,969

 

 

 

 

Gain on settlement of deferred consideration

 

 

 

 

 

(847

)

Re-measurement (loss) gain on intercompany note

 

 

675

 

 

 

(351

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,886

)

 

 

(5,186

)

Prepaid expenses and other current assets

 

 

(551

)

 

 

(212

)

Other assets

 

 

1,172

 

 

 

(79

)

Accounts payable and accrued expenses

 

 

3,012

 

 

 

3,547

 

Interest payable - related party

 

 

1,474

 

 

 

 

Other current liabilities

 

 

149

 

 

 

(118

)

Other long-term liabilities and other

 

 

(835

)

 

 

558

 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

 

(1,673

)

 

 

(1,226

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(95

)

 

 

(44

)

Collection of UK factoring facility deferred purchase price

 

 

2,720

 

 

 

3,469

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

2,625

 

 

 

3,425

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of term loan

 

 

(168

)

 

 

(156

)

Repayments on accounts receivable financing, net

 

 

(1,050

)

 

 

(5,137

)

Dividends paid to related parties

 

 

 

 

 

(245

)

Dividends paid on common stock

 

 

 

 

 

(81

)

Proceeds from sale of common stock

 

 

 

 

 

4,914

 

Payments made for earn-outs

 

 

 

 

 

(1,200

)

Third party financing costs

 

 

 

 

 

(950

)

NET CASH USED IN FINANCING ACTIVITIES