STAF Staffing 360 Solutions Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 29, 2024

 

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.)

 

757 3^rd Avenue

27th Floor

New York, New York 10017

(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)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.0001 per share		STAF		NASDAQ

 

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 Regulation S-T (§ 232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 an 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 August 9, 2024, 907,921 shares of common stock, $0.0001 par value, were outstanding.

 

 

 

Form 10-Q Quarterly Report

 

INDEX

 

PART I FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Consolidated Balance Sheets as of June 29, 2024 (Unaudited) and December 30, 2023	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	4
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	5
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) for the three and six months ended June 29, 2024 and July 1, 2023	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 29, 2024 and July 1, 2023	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4	Controls and Procedures	45
PART II OTHER INFORMATION
Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3	Defaults Upon Senior Securities	48
Item 4	Mine Safety Disclosures	48
Item 5	Other Information	48
Item 6	Exhibits	48
Signatures		49

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

		As of				As of
		June 29, 2024				December 30, 2023
		(Unaudited)
ASSETS
Current Assets:
Cash		$	1,264			$	721
Accounts receivable, net			20,067				17,783
Prepaid expenses and other current assets			1,832				1,080
Current assets held for sale			-				9,116
Total Current Assets			23,163				28,700
Property and equipment, net			445				536
Goodwill			19,891				19,891
Intangible assets, net			10,366				11,193
Other assets			4,851				5,592
Right of use asset			4,728				4,813
Total Assets		$	63,444			$	70,725
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		$	15,515			$	13,976
Accrued payroll taxes			11,310				6,193
Accrued expenses - related party			400				257
Current debt - related party			10,005				9,826
Current portion of debt			9,027				8,627
Earnout liabilities			8,854				9,054
Accounts receivable financing			14,822				14,698
Leases - current liabilities			1,115				1,035
Other current liabilities			5				376
Current liabilities held for sale			-				10,077
Total Current Liabilities			71,053				74,119
Leases - non current			4,034				4,213
Other long-term liabilities			331				203
Total Liabilities			75,418				78,535
Commitments and contingencies			—				—
Stockholders’ Deficit:
Preferred stock, $0.00001 par value, 20,000,000 shares authorized;			-				-
Common stock, $0.0001 par value, 250,000,000 shares authorized; 798,219 and 560,102 shares issued and outstanding, as of June 29, 2024 and December 30, 2023, respectively			1				1
Additional paid in capital			119,576				119,214
Accumulated other comprehensive loss			31				31
Accumulated deficit			(131,582	)			(127,056	)
Total Stockholders’ Deficit			(11,974	)			(7,810	)
Total Liabilities and Stockholders’ Deficit		$	63,444			$	70,725

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(UNAUDITED)

 

		June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
		THREE MONTHS ENDED								SIX MONTHS ENDED
		June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
Revenue		$	44,177			$	48,615			$	85,621			$	96,239
Cost of Revenue, excluding depreciation and amortization stated below			38,362				41,588				74,496				81,726
Gross Profit			5,815				7,027				11,125				14,513
Operating Expenses:
Selling, general and administrative expenses			5,933				7,678				13,027				15,469
Depreciation and amortization			472				383				953				873
Total Operating Expenses			6,405				8,061				13,980				16,342
Net Loss From Continuing Operations			(590	)			(1,034	)			(2,855	)			(1,829	)
Other (Expenses)/Income:
Interest expense			(1,371	)			(1,086	)			(2,467	)			(2,141	)
Amortization of debt discount and deferred financing costs			(109	)			(102	)			(260	)			(202	)
Other income, net			150				187				255				174
Total Other (Expenses)/Income, net			(1,330	)			(1,001	)			(2,472	)			(2,169	)
Net Operating Loss			(1,920	)			(2,035	)			(5,327	)			(3,998	)
Discontinued Operations			—				(837	)			901				(1,689	)
Loss Before Benefit from Income Tax			(1,920	)			(2,872	)			(4,426	)			(5,687	)
Provision from Income taxes			(50	)			(7	)			(100	)			(47	)
Net Loss			(1,970	)			(2,879	)			(4,526	)			(5,734	)
Net Loss Attributable to Common Stockholders		$	(1,970	)		$	(2,879	)		$	(4,526	)		$	(5,734	)
Net Operating Loss Attributable to Common Stockholders - Basic		$	(3.55	)		$	(11.61	)		$	(8.70	)		$	(22.99	)
Net Income (Loss) from Discontinued Operations Attributable to Common Stockholders - Basic		$	—			$	(4.76	)		$	1.44			$	(9.60	)
Weighted Average Shares Outstanding – Basic			555,000				175,926				623,875				175,926
Net Loss Attributable to Common Stockholders - Diluted		$	(1,970	)		$	(2,042	)		$	(5,427	)		$	(4,045	)
Net Operating Loss Attributable to Common Stockholders - Diluted		$	(3.55	)		$	(11.61	)		$	(8.70	)		$	(22.99	)
Net Income (Loss) from Discontinued Operations Attributable to Common Stockholders - Diluted		$	—			$	(4.76	)		$	1.44			$	(9.60	)
Weighted Average Shares Outstanding – Diluted			555,000				175,926				623,875				175,926

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

		June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
		THREE MONTHS ENDED								SIX MONTHS ENDED
		June 29, 2024				July 1, 2023				June 29, 2024				July 1, 2023
Net Loss		$	(1,970	)		$	(2,879	)		$	(4,526	)		$	(5,734	)
Other Comprehensive Income (Loss)
Foreign exchange translation adjustment			-				116				-				139
Comprehensive Loss Attributable to the Company		$	(1,970	)		$	(2,763	)		$	(4,526	)		$	(5,595	)

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

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

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

(UNAUDITED)

 

		Shares				Par Value				Additional paid in capital				Accumulated other comprehensive income (loss)				Accumulated Deficit				Total Equity
		Common Stock
Balance, January 1, 2023			262,920			$	1			$	111,586			$	(2,219	)		$	(101,015	)		$	8,353
Shares issued to/for:
Employees, directors and consultants			29,730				—				940				—				—				940
Sale of common stock and warrants			188,452				—				4,113				—				—				4,113
Foreign currency translation gain			—				—				—				139				—				139
Net loss			—				—				—				—				(5,734	)			(5,734	)
Balance July 1, 2023			481,102			$	1			$	116,639			$	(2,080	)		$	(106,749	)		$	7,811

 

		Shares				Par Value				Additional paid in capital				Accumulated other comprehensive income				Accumulated Deficit				Total Equity
		Common Stock
Balance, April 1, 2023			385,602			$	1			$	116,419			$	(2,196	)		$	(103,870	)		$	10,354
Shares issued to/for:
Employees, directors and consultants			6,000				—				221				—				—				221
Sale of common stock and warrants			89,500				—				(1	)			—				—				(1	)
Foreign currency translation gain			—				—				—				116				—				116
Net loss			—				—				—				—				(2,879	)			(2,879	)
Balance, July 1, 2023			481,102			$	1			$	116,639			$	(2,080	)		$	(106,749	)		$	7,811

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

(UNAUDITED)

 

		Shares				Par Value				Additional paid in capital				Accumulated other comprehensive loss				Accumulated Deficit				Total Deficit
		Common Stock
Balance, December 30, 2023			560,102			$	1			$	119,214			$	31			$	(127,056	)		$	(7,810	)
Shares issued to/for:
Employees, directors and consultants			17,000				—				362				—				—				362
Warrants Exercised			221,117				—				—				—				—				—
Foreign currency translation loss			—				—				—				—				—				—
Net loss			—				—				—				—				(4,526	)			(4,526	)
Balance, June 29, 2024			798,219			$	1			$	119,576			$	31			$	(131,582	)		$	(11,974	)

 

		Shares				Par Value				Additional paid in capital				Accumulated other comprehensive income				Accumulated Deficit				Total (Deficit)
		Common Stock
Balance, March 30, 2024			634,219			$	1			$	119,400			$	31			$	(129,612	)		$	(10,180	)
Balance			634,219				1				119,400				31				(129,612	)			(10,180	)
Shares issued to/for:
Employees, directors and consultants			5,000				—				176				—				—				176
Warrants Exercised			159,000				—				—				—				—				—
Foreign currency translation loss			—				—				—				—				—				—
Net loss			—				—				—				—				(1,970	)			(1,970	)
Balance, June 29, 2024			798,219			$	1			$	119,576			$	31			$	(131,582	)		$	(11,974	)
Balance			798,219			$	1			$	119,576			$	31			$	(131,582	)			(11,974	)

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

		June 29, 2024				July 1, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(4,526	)		$	(5,734	)
Adjustments to reconcile net loss income to net cash provided by (used in) operating activities:
Depreciation and amortization			953				873
Amortization of debt discount and deferred financing costs			260				202
Bad debt expense			—				21
Right of use assets depreciation			547				599
Stock based compensation			362				940
Changes in operating assets and liabilities:
Accounts receivable			(2,284	)			(478	)
Prepaid expenses and other current assets			(752	)			(259	)
Other assets			741				4,263
Accounts payable and accrued expenses			1,544				(500	)
Accrued Payroll Taxes			5,118				—
Accounts payable, related party			143				—
Other current liabilities			(373	)			(220	)
Other long-term liabilities and other			(389	)			(380	)
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES			1,344				(673	)
Net cash used in discontinued operating activities:			(3,010	)			(7,611	)
NET CASH USED IN OPERATING ACTIVITIES			(1,666	)			(8,284	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(29	)			(62	)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES			(29	)			(62	)
Net cash provided by discontinued investing activities			2,045				3,196
NET CASH PROVIDED BY INVESTING ACTIVITIES			2,016				3,134
CASH FLOWS FROM FINANCING ACTIVITIES:
Third party financing costs, related party			—				(320	)
Dividend payment in kind			269				—
Financing (repayments) on accounts receivable financing, net			124				(661	)
Proceeds from sale of common stock			—				4,433
Payments made on earnouts			(200	)			—
NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES			193				3,452
Net cash used in discontinued financing activities			—				(252	)
NET CASH PROVIDED BY FINANCING ACTIVITIES			193				3,200
NET INCREASE (DECREASE) IN CASH			543				(1,950	)
Effect of exchange rates on cash			—				34
Cash - Beginning of period			721				1,992
Cash - End of period		$	1,264			$	76

 

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

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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

 

We are a public company in the domestic staffing sector. Our business model is based on finding and acquiring suitable, mature, profitable, operating, U.S.-based staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, information technology (“IT”), engineering, administration (“Professional”) and light industrial (“Commercial”) disciplines. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, we are regularly in discussions and negotiations with various suitable, mature acquisition targets. To date, we have completed ten acquisitions since November 2013. In February 2024, the Company disposed of its UK operations. Accordingly, all of the figures, including share and per share information, except where specifically referenced, have been revised to reflect only the results of continuing operations.

 

The Company focuses on five strategic verticals that represent sub-segments of the staffing industry. These five strategic pillars, accounting & finance, information technology, engineering, administration, and commercial are the basis for the Company’s sales and revenue generation and its growth acquisition targets.

 

The Headway business includes EOR (“Employer of Record”) service contracts. EOR projects are typically large volume, long-term providing HR outsourcing of payroll and benefits for a contingent workforce. EOR projects, while priced with lower gross margin percentages than traditional temporary staffing assignments, yield a comparable contribution as a result of lower costs to deliver these services. Typical contribution for EOR projects would be 80-85% of the gross profit earned, compared to 40-50% for traditional staffing which negates the impact of lower gross margins. This EOR service offering could be easily added to the Company’s other Brands (as defined below), providing for a growth element within the existing client base. The Headway business also brought an active workforce in all 50 states in the US, as well as Puerto Rico and Washington DC. This will provide for potential expansion of accounts for all brands in the group’s portfolio (“Brands”).

 

The Company has developed a centralized, sales and recruitment hub. The addition of Headway, with its single office, and nationwide coverage for operations, supports and accelerates the Company’s objective of driving efficiencies through the use of technology, deemphasizing bricks and mortar, supporting more efficient and cost-effective service delivery for all Brands.

 

The Company has a management team with significant operational and M&A experience. The combination of this management experience and the increased opportunity for expansion of its core Brands with EOR services and nationwide expansion, provide for the opportunity of significant organic growth, while plans to continue its business model, finding and acquiring suitable, mature, profitable, operating, U.S. based staffing companies continues.

 

We effected a one-for-ten reverse stock split on June 25, 2024 (the “Reverse Stock Split”). All share and per share information in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and related notes thereto, has, where applicable, been retroactively adjusted to reflect the Reverse Stock Split.

 

9

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

These condensed consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles in the United States (“GAAP”), expressed in U.S. dollars. All amounts are in thousands, except share, per share and par values, unless otherwise indicated.

 

The accompanying condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Liquidity

 

The accompanying condensed consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us. As shown in the accompanying condensed consolidated financial statements as of the quarter ended June 29, 2024, the Company has an accumulated deficit of $131,582 and a working capital deficit of $47,890. At June 29, 2024, we had total gross debt of $19,385 and $1,264 of cash on hand. We have historically met our cash needs through a combination of cash flows from operating activities, term loans, promissory notes, convertible notes, private placement offerings and sales of equity. Our cash requirements are generally for operating activities and debt repayments.

 

Due to the timing of select liabilities coming due, we are in discussion with our lenders to determine the best manner to settle these liabilities.

 

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.

 

Further, the notes issued to Jackson Investment Group LLC (“Jackson”) includes certain financial customary covenants and the Company is currently not in compliance. We are working with the lenders to bring the Company into compliance with these covenants.

 

The entire outstanding principal balance of the Jackson Notes (as defined herein), which was $10,116 as of June 29, 2024, shall be due and payable on October 14, 2024. The debt represented by the Jackson Note continues to be secured by substantially all of the Company’s domestic subsidiaries’ assets pursuant to the Amended and Restated Security Agreement with Jackson, dated September 15, 2017, as amended. The Company also has a $32,500 revolving loan facility with MidCap Funding X Trust (“MidCap”). The MidCap facility has a maturity date of September 6, 2024.

 

10

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. If the Company is unable to obtain additional capital, such payments may not be made on time.

 

The Board of the Company is reviewing all of the strategic options open to it in determining how to resolve the Going Concern qualification and will update Stockholders as and when any material solution has been determined and ready to be acted upon. These solutions may include, but are not limited to, the restructuring of debt and raising of additional debt, management of expenditures, raising of additional equity, potential dispositions of assets, in addition to what has already happened in disposing of the UK operation to protect cashflows.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from its estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected. Significant estimates for the quarters ended June 29, 2024 and July 1, 2023 include the measurement of credit losses, valuation of intangible assets, including goodwill, borrowing rate consideration for right-of-use (“ROU”), liabilities associated with earn-out obligations, testing long-lived assets for impairment, valuation reserves against deferred tax assets and penalties in connection with outstanding payroll tax liabilities, stock based compensation and fair value of warrants and options.

 

11

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Goodwill

 

Goodwill relates to amounts that arose in connection with various acquisitions and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but it is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator.

 

The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value.

 

Revenue Recognition

 

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

 

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

 

12

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

The Company has primarily two main forms of revenue – temporary contractor revenue and permanent placement revenue. Temporary contractor revenue is accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance on an hourly or daily basis. The contracts stipulate weekly or monthly billing, and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed to date. Permanent placement revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 30 days. The contract with the customer stipulates a guarantee period whereby the customer may be refunded if the employee is terminated within a short period of time, however this has historically been infrequent, and immaterial upon occurrence. As such, the Company’s performance obligations are satisfied upon commencement of the employment, at which point control has transferred to the customer. Revenue for the three and six months ended June 29, 2024 was comprised of $44,077 and $85,246 of temporary contractor revenue and $100 and $375 of permanent placement revenue, respectively compared with $48,389 and $95,512 of temporary contractor revenue and $226 and $727 permanent placement revenue for the three and six months ended July 1, 2023, respectively. Refer to Note 11 – Segment Information for further details on breakdown by segments.

 

Income Taxes

 

The Company utilizes Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company applies the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of the date of this filing, the Company is current on all corporate, federal and state tax returns. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense.

 

The effective income tax rate was (2.61%), (2.27%), (0.77%) and (0.78%) for the three and six months ending June 29, 2024 and July 1, 2023, respectively. The Company’s effective tax rate differs from the U.S. federal statutory rate of 21%, primarily due to changes in valuation allowances in the U.S., which eliminates the effective tax rate on current year losses, offset by current state taxes and changes to goodwill naked credit. The Company may have experienced an IRC Section 382 limitation during 2021, for which it is in process of conducting an analysis to determine the tax consequences of such a limitation.

 

Warrants

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

13

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Refer to Note 9 – Stockholders’ Deficit for further details.

 

Recent Accounting Pronouncements

 

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company does not expect the adoption of this ASU to have a material impact on its financial statements.

 

NOTE 3 – EARNINGS (LOSS) PER COMMON SHARE

 

The Company utilizes the guidance per ASC 260, “Earnings per Share”. Basic earnings per share are calculated by dividing income/loss available to stockholders by the weighted average number of common stock shares outstanding during each period.

 

Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares of common stock issuable upon the conversion of preferred stock, convertible notes, unvested equity awards and the exercise of stock options and warrants (calculated using the modified treasury stock method). Such securities, shown below, presented on a common stock equivalent basis and outstanding as of June 29, 2024 and July 1, 2023 have not been included in the diluted earnings per share computations, as their inclusion would be anti-dilutive due to the Company’s net loss as of June 29, 2024 and July 1, 2023:

 

SCHEDULE OF COMMON SHARE EQUIVALENT BASIS AND OUTSTANDING EXCLUDED FROM PER SHARE COMPUTATIONS OF ANTI-DILUTIVE

		June 29, 2024				July 1, 2023
Warrants			448,703				372,955
Restricted shares – unvested			22,559				18,850
Options			5,118				5,131
Total			476,380				396,936

 

14

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 4 – ACCOUNTS RECEIVABLE FINANCING

 

Midcap Funding X Trust

 

Prior to September 15, 2017, certain U.S. subsidiaries of the Company were party to a $25,000 revolving loan facility with MidCap, with the option to increase the amount by an additional $25,000, with a maturity date of April 8, 2019.

 

On October 26, 2020, the Company entered into Amendment No. 17 to that certain Credit and Security Agreement, dated April 8, 2017, by and among, the Company, as the parent, Monroe Staffing Services, LLC, a Delaware limited liability company, Faro Recruitment America, Inc., a New York corporation, Lighthouse Placement Services, Inc., a Massachusetts corporation, Staffing 360 Georgia, LLC, a Georgia limited liability company, and Key Resources, Inc., a North Carolina corporation, as borrowers (the “Credit Facility Borrowers”), MidCap Funding IV Trust as successor by assignment to MidCap (as agent for lenders), and other financial institutions or other entities from time to time parties thereto as lenders (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit and Security Agreement”) pursuant to which, among other things, the parties agreed to extend the maturity date of our outstanding asset based revolving loan until September 1, 2022. In addition, the Company also agreed to certain amendments to the financial covenants.

 

On October 27, 2022, the Company and the Credit Facility Borrowers entered into Amendment No. 27 and Joinder Agreement to the Credit and Security Agreement (“Amendment No. 27”) with MidCap Funding IV Trust as successor by assignment to MidCap and the lenders party thereto. Amendment No. 27, among other things, (i) increases the revolving loan commitment amount from $25,000 to $32,500 (the “Loan”), (ii) extends the commitment expiry date from October 27, 2022 to September 6, 2024, and (iii) modifies certain of the financial covenants. Pursuant to Amendment No. 27, as long as no default or event of default under the Credit and Security Agreement as amended by Amendment No. 27 exists, upon written request by the Company and with the prior written consent of the agent and lenders, the Loan may be increased by up to $10,000 in minimum amounts of $5,000 tranches each, for an aggregate loan commitment amount of $42,500.

 

In addition, Amendment No. 27 increases the applicable margin from 4.0% to 4.25%, with respect to the Loan (other than Letter of Credit Liabilities (as defined in the Credit and Security Agreement)), and from 3.5% to 3.75% with respect to the Letter of Credit Liabilities. Amendment No. 27 also replaces the interest rate benchmark from LIBOR to SOFR and provides that the Loan shall bear interest at the sum of a term-based SOFR rate (plus a SOFR adjustment of 0.11448%) plus the Applicable Margin, subject to certain provisions for the replacement of SOFR with an alternate benchmark in connection with SOFR no longer being provided by its administrator. Notwithstanding the foregoing, the SOFR interest rate shall not be at any time less than 1.00%.

 

15

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

The facility provides events of default including: (i) failure to make payment of principal or interest on any Loans when required, (ii) failure to perform obligations under the facility and related documents, (iii) not paying its debts as such debts become due and similar insolvency matters, and (iv) material adverse changes in the financial condition of business prospectus of any Borrower (subject to a 10-day notice and cure period). Upon an event of default, the Company’s obligations under the credit facility may, or in the event of insolvency or bankruptcy will automatically, be accelerated. At the election of agent or required lenders (or automatically in case of bankruptcy or insolvency events of default), upon the occurrence of any event of default and for so long as it continues, the facility will bear interest at a rate equal to the lesser of: (i) 3.0% above the rate of interest applicable to such obligations immediately prior to the occurrence of the event of default; and (ii) the maximum rate allowable under law.

 

Under the terms of this agreement, the Company is subject to affirmative covenants which are customary for financings of this type, including covenants to: (i) maintain good standing and governmental authorizations, (ii) provide certain information and notices to MidCap, (iii) deliver monthly reports and quarterly financial statements to MidCap, (iv) maintain insurance, (v) discharge all taxes, (vi) protect its intellectual property, and (vii) generally protect the collateral granted to MidCap. The Company is also subject to negative covenants customary for financings of this type, including that it may not: (i) enter into a merger or consolidation or certain change of control events, (ii) incur liens on the collateral, (iii) except for certain permitted acquisitions, acquire any significant assets other than in the ordinary course of business, (iv) assume certain additional senior debt, or (v) amend any of its organizational documents. The Company is currently not in compliance with certain affirmative covenants contained in its’ debt agreements. We are working with the lenders to bring the Company into compliance with these covenants.

 

On August 30, 2023, the Company and the Credit Facility Borrowers entered into Amendment No. 28 to Credit and Security Agreement with MidCap and the lenders party thereto (the “Lenders”). Amendment No. 28, among other things: (i) increases the applicable margin (a) from 4.25% to 4.50% with respect to revolving loans and other obligations (other than letter of credit liabilities) and (b) from 3.75% to 4.50% with respect to letter of credit liabilities, (ii) revises the definition of borrowing base to include the amount of any reserves and/or adjustments provided for in the Credit and Security Agreement, including, but not limited to, the Additional Reserve Amount (as defined in the in Amendment No. 28), (iii) requires that the Company complies with a fixed charge coverage ratio of at least 1:00 to 1:00, and (iv) waives the existing event of default that occurred under the Credit and Security Agreement due to the Credit Parties’ failure to maintain the Minimum Liquidity amount (as defined in the Credit and Security Agreement) for the fiscal month ending June 30, 2023 (each as defined in the Credit and Security Agreement).

 

In addition, pursuant Amendment No. 28, no later than five (5) business days following the receipt of any cash proceeds from any equity issuance or other cash contribution from the Company’s equity holders, the Company shall prepay the revolving loans by an amount equal to (i) the sum of $1,300, less the current funded Additional Reserve Amount, multiplied by (ii) 50%.

 

In connection with Amendment No. 28, the Company paid to MidCap (i) a modification fee of $68 and (ii) $32 in overdue interest amount, which were paid prior to October 31, 2023.

 

On August 30, 2023, in connection with that certain First Omnibus Amendment and Reaffirmation Agreement, by and among the Company, the guarantor parties thereto and Jackson (the “First Omnibus Amendment Agreement”) the 2023 Jackson Note (as defined herein) and Amendment No. 28, the Company, Jackson, the Lenders and MidCap entered into the Sixth Amendment to Intercreditor Agreement (the “Sixth Amendment”), which amended the Intercreditor Agreement, dated as of September 15, 2017 (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the “Intercreditor Agreement”), by and between the Company, Jackson and MidCap. The Sixth Amendment, among other things, provides for (i) consent by the Lenders to the First Omnibus Amendment Agreement and (ii) consent by Jackson to Amendment No. 28.

 

16

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

The balance of the MidCap facility as of June 29, 2024 and December 30, 2023 was $14,822 and $14,698, respectively, and is included in Accounts receivable financing on the Consolidated Balance Sheets.

 

NOTE 5 – INTANGIBLE ASSETS

 

The following provides a breakdown of intangible assets as of: 

SCHEDULE OF BREAKDOWN OF INTANGIBLE ASSETS 

		Tradenames				Non-Compete				Customer Relationship				Total
		June 29, 2024
		Tradenames				Non-Compete				Customer Relationship				Total
Intangible assets, gross		$	8,282			$	2,215			$	18,953			$	29,450
Accumulated amortization			(5,215	)			(2,215	)			(11,654	)			(19,084	)
Intangible assets, net		$	3,067			$	-			$	7,299			$	10,366

 

		Tradenames				Non-Compete				Customer Relationship				Total
		December 30, 2023
		Tradenames				Non-Compete				Customer Relationship				Total
Intangible assets, gross		$	8,282			$	2,215			$	18,953			$	29,450
Accumulated amortization			(4,928	)			(2,215	)			(11,114	)			(18,257	)
Intangible assets, net		$	3,354			$	-			$	7,839			$	11,193

 

17

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

As of June 29, 2024, estimated annual amortization expense for each of the next five fiscal years is as follows:

 

SCHEDULE OF ESTIMATED ANNUAL AMORTIZATION EXPENSE FOR EACH OF THE NEXT FIVE FISCAL YEARS

Fiscal quarter ended June		Amount
2023		$	833
2024			1,617
2025			1,567
2026			1,567
2027			1,321
Thereafter			3,461
Total		$	10,366

 

Amortization of intangible assets for the three and six months ended June 29, 2024 and July 1, 2023 was $433, $843, $453 and $907, respectively. The weighted average useful life of intangible assets remaining is 5.5 years.

 

NOTE 6 – GOODWILL

 

The following table provides a roll forward of goodwill:

SCHEDULE OF GOODWILL 

		June 29, 2024				December 30, 2023
Beginning balance, gross		$	19,891			$	19,891
Acquisition			—				—
Currency translation adjustment			—				—
Ending balance, net		$	19,891			$	19,891

 

Goodwill by reportable segment is as follows:

SCHEDULE OF GOODWILL REPORTABLE BY SEGMENT 

		June 29, 2024				December 30, 2023
Professional Staffing - US		$	14,031			$	14,031
Commercial Staffing - US			5,860				5,860
Ending balance, net		$	19,891			$	19,891
Goodwill		$	19,891			$	19,891

 

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350, requires that goodwill be tested for impairment at the operating segment level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. ASC 280-10-50-11 states that operating segments often exhibit similar long-term financial performance if they have similar economic characteristics. During the quarter ended June 29, 2024, management concluded the Company has two operating segments for goodwill impairment analysis under ASC 350 such as commercial and professional. Accordingly, goodwill will no longer be tested at the unit level for the five reporting units and will be tested for impairment at the operating segment level.

 

18

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 7– DEBT

SCHEDULE OF DEBT 

		June 29, 2024				December 30, 2023
Jackson Investment Group - related party		$	10,116			$	10,116
Redeemable Series H Preferred Stock			9,269				9,000
Total Debt, Gross			19,385				19,116
Less: Debt Discount and Deferred Financing Costs, Net			(353	)			(663	)
Total Debt, Net			19,032				18,453
Less: Non-Current Portion - Related Party			—				—
Less: Non-Current Portion			—				—
Total Current Debt, Net		$	19,032			$	18,453

 

Jackson Notes

 

On August 30, 2023, the Company and the guarantor parties thereto (together with the Company, the “Obligors”) entered into that certain First Omnibus Amendment and Reaffirmation Agreement to the Note Documents (the “First Omnibus Amendment Agreement”) with Jackson, which First Omnibus Amendment Agreement, among other things: (i) amends the Third A&R Agreement, (ii) provided for the issuance of a new 12% Senior Secured Promissory Note due October 14, 2024 (the “2023 Jackson Note” and together with the 2022 Jackson Note, the “Jackson Notes”) to Jackson, and (iii) joins certain subsidiaries of the Company to (a) that certain Amended and Restated Pledge Agreement, dated as of September 15, 2017 (as amended by the First Omnibus Amendment Agreement, the “Pledge Agreement”) and (b) that certain Amended and Restated Security Agreement, dated as of September 15, 2017 (as amended by the Amendment Agreement, the “Security Agreement”), as either subsidiary guarantors or pledgors (as applicable) and amends certain terms and conditions of each of the Pledge Agreement and the Security Agreement.

 

Pursuant to the First Omnibus Amendment Agreement, interest on the 2022 Jackson Note, evidencing the obligations of the Obligors under the Third A&R Agreement and executed by the Company in favor of Jackson, shall be paid in cash and continue to accrue at a rate per annum equal to 12% until the principal amount of the 2022 Jackson Note has been paid in full. In the event that Company has not repaid in cash at least 50% of the outstanding principal balance of the 2022 Jackson Note as of the date of the First Omnibus Amendment Agreement or on or before October 27, 2023, then interest on the outstanding principal balance of the 2022 Jackson Note will accrue at 16% per annum until the 2022 Jackson Note is repaid in full. All accrued and unpaid interest on the outstanding principal of the 2022 Jackson Note shall be due and payable in arrears in cash on a monthly basis; provided that (i) the interest payment that would be due on September 1, 2023 shall instead be due December 1, 2023 and (ii) the amount of each such deferred interest payment shall be added to the principal amount of the 2022 Jackson Note. Notwithstanding the foregoing, the amount necessary to satisfy such accrued but unpaid interest on the 2022 Jackson Note as of the date of the First Omnibus Amendment was retained by Jackson from the aggregate purchase price of the 2023 Jackson Note, along with certain out-of-pocket fees and expenses, including reasonable attorney’s fees, incurred by Jackson in connection with the First Omnibus Amendment Agreement, the 2023 Jackson Note and related documents thereto.

 

19

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

In addition, pursuant to the terms of the Third A&R Agreement, as amended by the First Omnibus Amendment Agreement, until all principal interest and fees due pursuant to the Third A&R Agreement and the Jackson Note are paid in full by the Company and are no longer outstanding, Jackson shall have a first call over 50% of the net proceeds from all common stock equity raises the Company conducts, which shall be used to pay down any outstanding obligations due pursuant to the Note Documents. The 2022 Jackson Note continues to be secured by substantially all of the Company and its subsidiaries’ assets as a second lien holder to MidCap in the United States, pursuant to the Security Agreement.

 

Redeemable Series H Preferred Stock

 

On May 18, 2022, the Company entered into a Headway purchase agreement with Headway (the “Headway Purchase Agreement”). Consideration for the purchase of 100% of Headway was the issuance of an aggregate of 9,000,000 shares of Series H Convertible Preferred Stock (the “Series H Preferred Stock”). Each share of Series H Preferred Stock shall have a par value of $0.00001 per share and a stated value equal to $1.00 and is convertible at any time into an aggregate of 350,000 shares of common stock. This is determined by dividing the stated value of such share of Preferred Stock by the conversion price. The conversion price equals $25.714. Holders of Series H Preferred Stock are entitled to quarterly cash dividends at a per annum rate of 12%. The shares of the Series H Preferred Stock may be redeemed by the Company through a cash payment at a per share equal to the stated value, plus all accrued but unpaid dividends, at any time. On May 18, 2025, the Company shall redeem all of the shares of the Series H Preferred Stock. The redemption price represents the number of shares of the Preferred Stock (9,000,000), plus all accrued but unpaid dividends, multiplied by the Stated Value ($1). On May 18, 2022, the Company paid $14 towards the Series H Preferred Stock balance. As of June 29, 2024 the redemption price was $9,269.

 

In accordance with ASC 480-10-15-3, the agreement includes certain rights and options including: redemption, dividend, voting, and conversion which have characteristics akin to liability and equity. The Series H Preferred Stock is redeemable and has a defined maturity date upon the third anniversary of the original issue date. As such and based on the authoritative guidance, the Series H Preferred Stock meets the definition of a debt instrument. The Company obtained a third-party valuation report to calculate the fair value of Series H Preferred Stock. As of May 18, 2022, the fair value of the Redemption Price was calculated as $8,265 utilizing the CRR Binomial Lattice model. The difference in fair value was $735 is accounted as a deferred financing charge and will be amortized over the life of the term. The quarterly dividends will be reflected as interest expense.

 

On July 31, 2023, the Company, Chapel Hill Partners, L.P. (“Chapel Hill”) and Jean-Pierre Sakey (“Sakey”) entered into an agreement in connection with the Headway Purchase Agreement.

 

Pursuant to the agreement, if on or prior to September 30, 2023, the Company does not redeem the Series H Preferred Stock and remit the Contingent Payment (as defined in the Headway Purchase Agreement), then the Company shall make the Contingent Payment in the amount of $5,000, as set forth in the Purchase Agreement, in five equal installments of $1,000 each, less $134 per installment to be paid to third-parties to satisfy existing incentives and fees due, with such fees and incentive payments to be allocated at the discretion of Chapel Hill and Sakey (the “Contingent Payment Installments”), with such Contingent Payment Installments to be made on or before December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024 (each such date, a “Contingent Installment Payment Date”). On each Contingent Installment Payment Date, the Company shall additionally redeem 100,000 shares of Series H Preferred Stock at a price per share equal to $0.0000001 per share. The contingent payments due on December 31, 2023, March 31, 2024 and June 30, 2024 were not paid.

 

Pursuant to the Letter Agreement, the Company also had no obligation to pay the Preferred Dividend (as defined in the Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock, as amended) on June 30, 2023, September 30, 2023 and December 31, 2023.

 

20

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 8 – LEASES

 

As of June 29, 2024 we recorded a right of use (“ROU”) lease asset of approximately $4,728 with a corresponding lease liability of approximately $5,149, based on the present value of the minimum rental payments of such leases. The Company’s finance leases are immaterial both individually and in the aggregate.

 

In January 2024, the Company entered into a new lease agreement for an office lease in Worcester, MA for a term of 3 years. This resulted in increases to right of use assets and lease liabilities of $54. In February 2024, the Company entered into a new lease agreement for an office lease in East Hartford for a term of 3 years. This resulted in increases to right of use assets and lease liabilities of $72.

 

Quantitative information regarding the Company’s leases for period ended June 29, 2024 is as follows:

SCHEDULE OF LEASE, COST AND OPERATING LEASE LIABILITY MATURITY 

Lease Cost		Classification		June 29, 2024
Operating lease cost		SG&A Expenses			492
Other information
Weighted average remaining lease term (years)					3.4
Weighted average discount rate					7.00	%

 

Future minimum lease payments under non-cancelable leases as of June 29, 2024, were as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE LEASES 

Future Lease Payments
2024		$	750
2025			1,318
2026			1,130
2027			1,076
2028			1,103
Thereafter			676
Lessee operating lease liability payments due		$	6,053
Less: Imputed Interest			904
Operating lease, liability		$	5,149
Leases - Current		$	1,115
Leases - Non current		$	4,034

 

As most of the Company’s leases do not provide an implicit rate, we use the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This methodology was deemed to yield a measurement of the ROU lease asset and associated lease liability that was appropriately stated in all material respects.

 

21

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 9– STOCKHOLDERS’ DEFICIT

 

The Company issued the following shares of common stock during the six-months ended June 29, 2024:

SCHEDULE OF STOCKHOLDERS DEFICIT 

		Number of				Fair Value				Fair Value at Issuance
		Common Shares				of Shares				(minimum and maximum
Shares issued to/for:		Issued				Issued				per share)
Warrants Exercised			221,117			$	1,835			$	8.30			$	8.30
Board and committee members			17,000				2,142			$	2.80			$	4.10
			238,117			$	3,977

 

The Company issued the following shares of common stock during the six-months ended July 1, 2023:

 

		Number of				Fair Value				Fair Value at Issuance
		Common Shares				of Shares				(minimum and maximum
Shares issued to/for:		Issued				Issued				per share)
Equity raise			188,452			$	4,999			$	26.50			$	26.50
Employees			17,730				531			$	28.20			$	28.20
Board and committee members			12,000				243			$	10.50			$	31.30
			218,182			$