UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION
FILE NUMBER:
(Exact name of registrant as specified in its charter)
(State of incorporation) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
(Registrant’s telephone number)
Securities registered under Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | |
| ☒ | 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 Act): Yes ☐
As of July 14, 2022, shares of common stock, $0.00001 par value, were outstanding.
Form 10-Q Quarterly Report
INDEX
| 2 |
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share and par values)
| As of | As of | |||||||
| April 2, | January 1, | |||||||
| 2022 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Right of use asset | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued expenses - related party | ||||||||
| Current portion of debt | ||||||||
| Accounts receivable financing | ||||||||
| Leases - current liabilities | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long-term debt | ||||||||
| Leases - non current | ||||||||
| Other long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $par value, shares authorized: | ||||||||
| Common stock, $par value, shares authorized; and shares issued and outstanding, as of April 2, 2022, and January 1, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 OPERATIONS
(All amounts in thousands, except share and per share values)
(UNAUDITED)
| QUARTERS ENDED | ||||||||
APRIL 2, 2022 | APRIL 3, 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of Revenue, excluding depreciation and amortization stated below | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Depreciation and amortization | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Income (Expenses): | ||||||||
| Interest expense and amortization of debt discount and deferred financing costs | ( | ) | ( | ) | ||||
| Re-measurement gain (loss) on intercompany note | ( | ) | ||||||
| Other (loss) income, net | ( | ) | ||||||
| Total Other Expenses, net | ( | ) | ( | ) | ||||
| Loss Before Provision for Income Tax | ( | ) | ( | ) | ||||
| Provision for income taxes | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Dividends - Series E Preferred Stock - related party | ||||||||
| Dividends - Series E-1 Preferred Stock - related party | ||||||||
| Deemed Dividend | ||||||||
| Loss Attributable to Common Stockholders - Basic | $ | ( | ) | $ | ( | ) | ||
| Loss per Share Attributable to Common Stockholders - Basic | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding – Basic | ||||||||
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 COMPREHENSIVE LOSS
(All amounts in thousands)
(UNAUDITED)
| QUARTERS ENDED | ||||||||
APRIL 2, 2022 | APRIL 3, 2021 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Other Loss | ||||||||
| Foreign exchange translation adjustment | ( | ) | ( | ) | ||||
| Comprehensive Loss Attributable to the Company | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(All amounts in thousands, except share and par values)
(UNAUDITED)
| Shares | Par
Value | Shares | Par
Value | Shares | Par Value | Shares | Par Value | Additional paid in capital | Accumulated other comprehensive (loss) income | Accumulated Deficit | Total Deficit | |||||||||||||||||||||||||||||||||||||
| Series E-1 | Series A | Series E | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Balance January 2, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares issued to/for: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Employees, directors and consultants | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Conversion | — | ( | ) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Sales of common stock, net | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series E Preferred Stock | — | — | ( | ) | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Dividends - Series E Preferred Stock - Related Party | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends - Series E-1 Preferred Stock - Related Party | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Redeemable portion of Series E Preferred Stock - Related Party | — | — | ( | ) | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature for fair value modification - Series E Preferred Stock - Related Party | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance April 3, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(All amounts in thousands, except share and par values)
(UNAUDITED)
| Shares | Par Value | Additional paid in capital | Accumulated other comprehensive income | Accumulated Deficit | Total Equity | |||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Shares issued to/for: | ||||||||||||||||||||||||
| Employees, directors and consultants | $ | |||||||||||||||||||||||
| Foreign currency translation loss | — | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net loss | — | ( | ) | $ | ( | ) | ||||||||||||||||||
| Balance, April 2, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(UNAUDITED)
| QUARTERS ENDED | ||||||||
| APRIL 2, 2022 | APRIL 3, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization of intangible assets | ||||||||
| Amortization of debt discount and deferred financing costs | ||||||||
| Bad debt expense | ( | ) | ||||||
| Right of use assets depreciation | ||||||||
| Stock based compensation | ||||||||
| Re-measurement (loss) gain on intercompany note | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Interest payable - related party | ||||||||
| Other current liabilities | ( | ) | ||||||
| Other long-term liabilities and other | ( | ) | ||||||
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Collection of UK factoring facility deferred purchase price | ||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Third party financing costs | ( | ) | ||||||
| Repayment of term loan | ( | ) | ( | ) | ||||
| Repayment of term loan - Related party | ( | ) | ||||||
| Repayments on accounts receivable financing, net | ( | ) | ( | ) | ||||
| Dividends paid to related parties | ( | ) | ||||||
| Redemption of Series E preferred stock, related party | ( | ) | ||||||
| Proceeds from sale of common stock | ||||||||
| NET CASH USED IN FINANCING ACTIVITIES | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| Effect of exchange rates on cash | ( | ) | ||||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share, per share and stated value per share)
(UNAUDITED)
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 rapidly growing public company in the international staffing sector. Our high-growth business model is based on finding and acquiring, suitable, mature, profitable, operating, domestic and international 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
These 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 and par values, unless otherwise indicated.
The accompanying 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 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 financial statements have been prepared on a basis which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as
of the quarter ended April 2, 2022, the Company has an accumulated deficit of $
The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.
Further, our note issued to Jackson Investment Group, LLC includes certain financial customary covenants and the Company has had instances of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.
The
entire outstanding principal balance of the 2020 Jackson Note shall be due and payable on
Going Concern
The accompanying 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 Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.
COVID-19
The novel Coronavirus disease 2019 (“COVID-19”), is continuing to impact worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. The nature of work of the contractors we support mostly are on the site of our clients. As a result, we are subject to the plans and approaches of our clients to work during this period. This includes whether they support remote working when they have decided to close their facilities. To the extent that our clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, we would no longer generate revenue and profit from that client. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where we have seen declines in revenues during Fiscal 2021 and 2020. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2022 and the Company’s overall liquidity.
| 9 |
The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022.
The Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic contribute to the substantial doubt about the Company’s ability to continue as a going concern.
Use of Estimates
The preparation of 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 April 2, 2022 and April 3, 2021 include the valuation of intangible assets, including goodwill, liabilities associated with testing long-lived assets for impairment and valuation reserves against deferred tax assets.
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.
In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. During the year ended January 2, 2021 the Company changed its annual measurement date from the first day of the fiscal fourth quarter to the last day of the fiscal year end. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company’s goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.
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.
The
Company recognized an impairment with respect to its Staffing UK reporting unit of $
No impairments to goodwill were recognized during the quarter ended April 2, 2022. In assessing potential impairment to goodwill, management has made assumptions regarding partial recovery from the COVID-19 pandemic. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated, while failing to achieve growth in future periods as a result of the prolonged impact of COVID-19 pandemic, an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of the reporting units, market declines, changes in discount rates or other conditions could result in a material impairment in the future.
| 10 |
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.
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 quarter ended
April 2, 2022 was comprised of $
Income Taxes
The Company’s provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared with those forecasted at the beginning of the fiscal year and each interim period thereafter.
The
effective income tax rate was (
Foreign Currency
The
Company recorded a non-cash foreign currency remeasurement (loss) gain of ($
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.
| 11 |
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. The fair value of the warrants the Company has privately placed were estimated using a Black Scholes model. Refer to Note 8 for further details.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this ASU in this fiscal year. This standard did not have an impact on our financial statements.
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. Our Series A, Series E and Series E-1 Preferred Stockholders (related parties) receive certain dividends or dividend equivalents that are considered participating securities and our loss per share is computed using the two-class method. For the quarters ended April 2, 2022 and April 3, 2021, pursuant to the two-class method, as a result of the net loss attributable to common stockholders, losses were not allocated to the participating securities.
| 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)
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 April 2, 2022 and April 3, 2021 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 April 2, 2022 and April 3,2021:
| April 2, 2022 | April 3, 2021 | |||||||
| Convertible preferred shares | ||||||||
| Warrants | ||||||||
| Restricted shares – unvested | ||||||||
| Options | ||||||||
| Total | ||||||||
NOTE 4 – ACCOUNTS RECEIVABLE FINANCING
Midcap Funding X Trust
Prior
to September 15, 2017, certain U.S. subsidiaries of the Company were parties to a $
On October 26, 2020, the Company entered into Amendment No. 17 to Credit and Security Agreement with MidCap, whereby, among other things, MidCap 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.
The facility provides events of default including: (i) failure to make payment of principal or interest on any MidCap 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 to the Company (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. Upon the occurrence of any event of default, 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 not in compliance with its April 2, 2022 covenants and received a waiver from Midcap. Subsequent to April 2, 2022, the Company is also not in compliance with its financial covenants with Midcap.
| 13 |
The
balance of the Midcap facility as of April 2, 2022 and January 1, 2022 was $
HSBC Invoice Finance (UK) Ltd – New Facility
On
February 8, 2018, CBSbutler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance
(UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount
of £
On
June 28, 2018, CML, the Company’s new subsidiary entered into a new agreement with a minimum term of 12 months for purchase of
debt (“APD”) with HSBC, joining CBSbutler, Staffing 360 Solutions Limited and The JM Group (collectively, with CML, the “Borrowers”)
as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £
Under
ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of
the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities,
while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities. For the quarters ended April 2, 2022 and April 3, 2021, the collection of UK factoring facility deferred purchase price totaled $
NOTE 5 – GOODWILL
The following table provides a roll forward of goodwill:
| April 2, 2022 | January 1, 2022 | |||||||
| Beginning balance, gross | $ | $ | ||||||
| Accumulated disposition | ( | ) | ||||||
| Accumulated impairment losses | ( | ) | ||||||
| Currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance, net | $ | $ | ||||||
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 reporting unit 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.
During the fourth quarter of 2021 the Company identified a triggering event in response the COVID-19 pandemic. In accordance
with ASC 350 the Company tested its goodwill for impairment and the Company recognized an impairment with respect to its Staffing
UK reporting unit of $
| 14 |
NOTE 6 – DEBT
| April 2, 2022 | January 1, 2022 | |||||||
| Jackson Investment Group - related party | $ | $ | ||||||
| HSBC Term Loan | ||||||||
| Total Debt, Gross | ||||||||
| Less: Debt Discount and Deferred Financing Costs, Net | ( | ) | ( | ) | ||||
| Total Debt, Net | ||||||||
| Less: Non-Current Portion | ( | ) | ( | ) | ||||
| Total Current Debt, Net | $ | $ | ||||||
Jackson Debt
On
September 15, 2017, the Company entered into a $
On
August 27, 2018, the Company entered into an amended agreement with Jackson, pursuant to which the note purchase agreement dated as of
September 15, 2017 was amended and made a new senior debt investment of approximately $
On
August 29, 2019, the Company entered into a Fourth Omnibus Amendment and Reaffirmation Agreement with Jackson, as lender, which, among
other things, amends that certain Amended and Restated Note Purchase Agreement, dated as of September 15, 2017, as amended (the “Existing
Note Purchase Agreement”.) Pursuant to the Existing Note Purchase Agreement, the Company agreed to issue and sell to Jackson that
certain
| 15 |
On
October 26, 2020, the Company, certain of its subsidiaries and Jackson entered into the Amended Note Purchase Agreement and the 2020
Jackson Note, which amended and restated the Existing Note Purchase Agreement. The Amended Note Purchase Agreement refinanced an aggregate
of approximately $
Under
the terms of the Amended Note Purchase Agreement and the 2020 Jackson Note,
Under
the terms of the Amended Note Purchase Agreement, the Company was required to make a mandatory prepayment of the principal amount of
the 2020 Jackson Note of not less than $
On
January 4, 2021, the Company used $
On
April 21, 2021, the Company entered into the April 2021 Purchase Agreement. The net proceeds to the Company were approximately $
| 16 |
On
July 20, 2021, the Company entered into the July 2021 Purchase Agreement. As the Company’s Series G Preferred Stock (as defined
below) was outstanding, it was required to use the proceeds of any sales of equity securities, including the common stock offered in
the July 2021 Offerings, exclusively to redeem any outstanding shares of Series G Preferred Stock, subject to certain limitations. The
Company received a waiver from Jackson, the sole holder of the outstanding shares of its Series G Preferred Stock, to pay accrued and
unpaid interest and prepay a portion of the outstanding principal balance of the 2020 Jackson Note and paid accrued and unpaid dividends
on the Series G-1 Convertible Preferred Stock upon conversion of such preferred stock into the New Note (as defined below). The net proceeds
to the Company from the July 2021 Offerings were approximately $
On
July 21, 2021, the Company entered into a non-cash financing transaction whereby it exchanged its outstanding shares of Series
G Convertible Preferred Stock (“Series G Preferred Stock”) and shares of Series G-1 Convertible Preferred Stock for
senior indebtedness by entering into a new
Under
the terms of the New Note, the Company is required to pay interest on the New Note at a per annum rate of
On
August 5, 2021, the Company entered into the First August 2021 Purchase Agreement. The net proceeds to the Company from the First August
2021 Offerings were approximately $
On
October 28, 2021, the Company entered into a securities purchase agreement (the “November 2021 Private Placement”). This
placement closed on November 2, 2021 and was announced on November 3, 2021. The net proceeds of the November 2021 Private Placement were
approximately $
The entire outstanding principal balance of the 2020 Jackson Note shall be due and payable on September 30, 2022. The debt represented by the 2020 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.
The Amended Note Purchase Agreement includes certain customary financial covenants, including a leverage ratio covenant and a minimum adjusted EBITDA covenant. Delivery of financial covenants commenced with the fiscal month ending March 2021. The Company is not in compliance with its April 2, 2022 covenants and received a waiver from Jackson. Subsequent to April 2, 2022, the Company is also not in compliance with its financial covenants with Jackson.
Debt Exchange Agreement
On
November 15, 2018, the Company, entered into a Debt Exchange Agreement with Jackson, pursuant to which, among other things, Jackson
agreed to exchange $
| 17 |
The Series E Preferred Stock ranked senior to the Company’s common stock and any other series or classes of preferred stock issued or outstanding with respect to dividend rights and rights on liquidation, winding up and dissolution. Each share of Series E Preferred Stock was initially convertible into shares of common stock of the Company at any time after October 31, 2020 or the occurrence of a Preferred Default (as defined in the Certificate of Designation for the Series E Preferred Stock (the “Series E Certificate of Designation”)). A holder of Series E Preferred Stock was not required to pay any additional consideration in exchange for conversion of such Series E Preferred Stock into the Company’s common stock. Series E Preferred Stock was redeemable by the Company at any time at a price per share equal to the stated value ($ per share) plus all accrued and unpaid dividends thereon.
The Series E Preferred Stock carried quarterly dividend rights of (a) cash dividends accruing (i) at an annual rate per share equal to 12% from the date of issuance and (ii) 17% after the occurrence of a Preferred Default, and (b) a dividend payable in shares of Series E-1 Convertible Preferred Stock (the “Series E-1 Convertible Preferred Stock” and, collectively with the Series E Convertible Preferred Stock, the “Series E Preferred Stock”). The shares of Series E-1 Convertible Preferred Stock had all the same terms, preferences and characteristics as the Series E Preferred Stock (including, without limitation, the right to receive cash dividends), except (i) Series E-1 Convertible Preferred Stock were mandatorily redeemable by the Company within thirty (30) days after written demand received from any holder at any time after the earlier of the occurrence of a Preferred Default or November 15, 2020, for a cash payment equal to the Liquidation Value (as defined in the Series E Certificate of Designation) plus any accrued and unpaid dividends thereon, (ii) each share of Series E-1 Convertible Preferred Stock was initially convertible into 11 shares of the Company’s common stock, and (iii) Series E-1 Convertible Preferred Stock could be cancelled and extinguished by the Company if all shares of Series E Convertible Preferred Stock are redeemed by the Company on or prior to October 31, 2020.
Under
the terms of the Amendment, shares of Series E-1 Convertible Preferred Stock were convertible into common stock at a conversion rate
equal to the liquidation value of each share of Series E-1 Convertible Preferred Stock divided by $ per share commencing October
31, 2020. Each share of Series E-1 Convertible Preferred Stock had a liquidation value of $
The
Company accounted for the Amendment as a modification to the Series E and E-1 Preferred Stock. The change in fair value as a result of
the modification amounted to $
| 18 |
Under
the terms of the Consent and the Series E Certificate of Designation, in consideration for Jackson’s consent to the firstPRO
Transaction, the Initial Payment was used to redeem a portion of the Series E Preferred Stock, and the Escrow Funds, subject to the forgiveness
of PPP Loan, were agreed to be used to redeem a portion of the Series E Preferred Stock. As this provision results in a contingent redemption
feature, approximately $
Lastly,
under the terms of the Limited Consent and Waiver with Jackson dated February 5, 2021, it was agreed that to the extent that any of the
PPP Loans are forgiven after the February 2021 Offering, Jackson may convert the Series E Convertible Preferred Stock and Series E-1
Convertible Preferred Stock that remains outstanding into a secured note that is substantially similar to the 2020 Jackson Note. As this
provision results in a contingent redemption feature, approximately $
Jackson Waivers
On
February 5, 2021,
Series G Preferred Stock – Related Party
On May 6, 2021, the Company, entered into an Exchange Agreement with Jackson (the “Exchange Agreement”), pursuant to which, among other things, Jackson agreed to exchange shares of the Company’s Series E Convertible Preferred Stock and shares of the Series E-1 Preferred Stock for an equivalent number of shares of the Company’s newly issued Series G Convertible Preferred Stock and Series G-1 Convertible Preferred Stock, respectively (collectively, the “Series G Preferred Stock” and the transaction, the “Exchange”). The Series G Preferred Stock was subject to the same terms stated in the Limited Waiver, as defined herein and described in Note 12.
The
Series G Preferred Stock ranked senior to each of the Company’s common stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock, and any other classes and series of stock of the Company now or hereafter authorized,
issued or outstanding, which by their terms expressly provide that they are junior to the Series G Preferred Stock or which do not specify
their rank (which includes the Series F Convertible Preferred Stock).
| 19 |
On July 20, 2021, the Company entered into the July 2021 Purchase Agreement. As the Company’s Series G Preferred Stock was outstanding, it was required to use the proceeds of any sales of equity securities, including the common stock offered in the July 2021 Registered Direct Offering, exclusively to redeem any outstanding shares of Series G Preferred Stock, subject to certain limitations. The Company received a waiver from Jackson, the sole holder of the outstanding shares of its Series G Preferred Stock, to pay accrued and unpaid interest and prepay a portion of the outstanding principal balance of the 2020 Jackson Note, and paid accrued and unpaid dividends on the Series G-1 Convertible Preferred Stock upon conversion of such preferred stock into the New Note. While under the terms of the Certificate of Designation governing the Series G Preferred Stock and Series G-1 Preferred Stock, shares and shares of common stock were issuable upon the conversion of Series G Preferred Stock and Series G-1 Preferred Stock, respectively, the shares of Series G Preferred Stock and Series G-1 Convertible Preferred Stock were not converted to common stock and instead were converted on July 21, 2021 to debt. The terms of this note match the terms of the Amended Note Purchase Agreement from October 26, 2020.
As of April 2, 2022, there were no shares of Series G or Series G-1 Convertible Preferred Stock outstanding.
HSBC Loan
On
February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited and The JM Group, entered into
a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’
accounts receivable up to an aggregate amount of £
NOTE 7 – LEASES
As
of April 2, 2022 and January 1, 2022, as a result of the adoption of ASC 842, we recorded a right of use (“ROU”) lease asset
of approximately $
In
September 2021, the Company entered into a new lease agreement for an office lease in New York for a term of
| 20 |
Quantitative information regarding the Company’s leases for period ended April 2, 2022 is as follows:
| Lease Cost | Classification | APRIL 2, 2022 | ||||
| Operating lease cost | SG&A Expenses | |||||
| Other information | ||||||
| Weighted average remaining lease term (years) | ||||||
| Weighted average discount rate | % |
| Future Lease Payments | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ | |
|||
| Less: Imputed Interest | ||||
| $ | ||||
| Leases - Current | $ | |||
| Leases - Non current | $ | |||
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 Right of Use Asset and associated lease liability that was appropriately stated in all material respects.
NOTE 8 – STOCKHOLDERS’ EQUITY
The Company issued the following shares of common stock during the quarter ended April 2, 2022:
| Number of Common | Fair Value | Fair Value at Issuance | ||||||||||||
| Shares | of Shares | (minimum and maximum | ||||||||||||
| Shares issued to/for: | Issued | Issued | per share) | |||||||||||
| Board and committee members | ||||||||||||||
| $ | ||||||||||||||
The Company issued the following shares of common stock during the quarter ended April 3, 2021:
| Number of Common | Fair Value | Fair Value at Issuance | ||||||||||||||
| Shares | of Shares | (minimum and maximum | ||||||||||||||
| Shares issued to/for: | Issued | Issued | per share) | |||||||||||||
| Equity raise | $ | $ | $ | |||||||||||||
| Conversion of Series A | ||||||||||||||||
| Employees | ||||||||||||||||
| Long Term Incentive Plan | ||||||||||||||||
| Board and committee members | ||||||||||||||||
| $ | ||||||||||||||||
Reverse Stock Split
The Company effected a one-for-ten reverse stock split on June 24, 2022 (the “Reverse Stock Split”). All share and per share information in this quarterly report have been retroactively adjusted to reflect the Reverse Stock Splits.
Increase of Authorized Common Stock
On December 27, 2021, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation of the Company to effect an increase to its number of shares of authorized common stock, par value $ from to .
| 21 |
Series A Preferred Stock – Related Party
As of April 2, 2022 and April 3, 2021, the Company had $
Restricted Shares
The Company has issued shares of restricted stock to employees and members of the Board under its 2015 Omnibus Incentive Plan, 2016 Omnibus Incentive Plan, 2020 Omnibus Plan and 2021 Omnibus Inventive Plan. Under these plans, the shares are restricted for a period of from issuance. As of Fiscal 2021, the Company has issued a total of restricted shares of common stock to employees and Board members that remain restricted. In accordance with ASC 718, Compensation – Stock Compensation, the Company recognizes stock-based compensation from restricted stock based upon the fair value of the award at issuance over the vesting term on a straight-line basis. The fair value of the award is calculated by multiplying the number of restricted shares by the Company’s stock price on the date of issuance. The impact of forfeitures has historically been immaterial to the financial statements. In Fiscal 2021 and 2020, the Company recorded compensation expense associated with these restricted shares of $ and $, respectively. The table below is a rollforward of unvested restricted shares issued to employees and board of directors.
| Weighted | ||||||||
| Restricted | Average | |||||||
| Shares | Price Per Share | |||||||
| Balance at January 2, 2021 | $ | |||||||
| Granted | ||||||||
| Vested/adjustments | ( | ) | ||||||
| Balance at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested/adjustments | ( | ) | ||||||
| Balance at April 2, 2022 | ||||||||
Warrants
Transactions involving the Company’s warrant issuances are summarized as follows:
| Weighted | ||||||||
| Number of | Average | |||||||
| Shares | Exercise Price | |||||||
| Outstanding at January 2, 2021 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Expired or cancelled | ||||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at April 2, 2022 | ||||||||
The following table summarizes warrants outstanding as of April 2, 2022:
| Weighted Average | ||||||||||||||
| Number | Remaining | Weighted | ||||||||||||
| Outstanding | Contractual | Average | ||||||||||||
| Exercise Price | and Exercisable | Life (years) | Exercise price | |||||||||||
| $ | $ | |||||||||||||
| 22 |
Stock Options
| Weighted | ||||||||
| Average | ||||||||
| Options | Exercise Price | |||||||
| Outstanding at January 2, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at April 2, 2022 | $ | |||||||
The Company recorded share-based payment expense of $and $for the quarters ended April 2, 2022 and April 3, 2021, respectively.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.
On
December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker” or “Plaintiff”),
filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract
and declaratory judgment against Monroe Staffing Services LLC (“Monroe”) and the Company (collectively, the “Defendants”)
arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant
to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI, to Monroe in August 2018. Whitaker sought $
Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020. Briefing on the motion to remand concluded on February 24, 2020. Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc. Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause. Briefing on Defendants’ motion to dismiss concluded on February 18, 2020. On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.
On June 29, 2020, Magistrate Judge Webster issued a Report and Recommendation on the pending motions, recommending that Defendants’ motion to dismiss be granted with regard to Defendants’ request to transfer the matter to the Southern District of New York, and denied in all other regards without prejudice to Defendants raising those arguments again in the new forum. Magistrate Judge Webster also recommended that Plaintiff’s motion to remand be denied and motion to amend be left to the discretion of the Southern District of New York.
Plaintiff filed an objection to the Report and Recommendation on July 9, 2020. Defendants responded on July 23, 2020. On February 19, 2021, the District Court issued a decision that reversed the Magistrate Judge’s Order. The District Court granted Plaintiff’s motion to remand and denied Defendants’ motion to dismiss as moot. Defendants filed a Notice of Appeal to the Fourth Circuit on February 25, 2021 and filed their opening brief on April 21, 2021. Plaintiff filed her response brief on May 21, 2021, and Defendants replied on June 11, 2021. Oral argument was held on March 9, 2022. As of the date of this filing, a decision is pending.
Separately,
on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District
of New York (Case No. 1:20-cv-01716) (the “New York Action”.) The New York Action concerns claims for breach of contract
and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included
in, the share purchase agreement. The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less
than $
| 23 |
On October 13, 2020, the Court denied Whitaker’s motion to dismiss, in part, and granted the motion, in part. The Court rejected Whitaker’s procedural arguments but granted the motion on substantive grounds. However, the Court ordered that Monroe and the Company may seek leave to amend the complaint by letter application by December 1, 2020. Monroe and the Company filed a letter of motion for leave to amend and a proposed Amended Complaint on December 1, 2020. On January 5, 2021, Whitaker filed an opposition to the letter motion. On January 25, 2021, Monroe and the Company filed a reply in further support of the letter motion. On March 9, 2021, the Court granted Monroe and the Company’s motion for leave to amend, in part, and denied the motion, in part. The Court rejected Monroe and the Company’s claim for fraudulent inducement but granted the motion for leave to amend their breach of contract claim. Monroe and the Company filed their amended complaint on March 12, 2021. On April 9, 2021, Whitaker renewed her motion to dismiss on procedural grounds, requesting dismissal of the action or, in the alternative, a stay of the proceeding pending adjudication on the merits of the North Carolina Action. On May 14, 2021, Monroe and the Company filed an opposition to the motion to dismiss. On June 21, 2021, Whitaker filed a reply in further support of the motion. The Court referred the case to Magistrate Judge Moses, who held oral argument on the motion on November 9, 2021. Whitaker’s renewed motion to dismiss remains pending.
Monroe and the Company intend to pursue their claims vigorously.
As of the date of this filing, we are not aware of any other material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, other than as disclosed above.
NOTE 10 – SEGMENT INFORMATION
The Company generated revenue and gross profit by segment as follows:
| QUARTERS ENDED | ||||||||
| APRIL 2, 2022 | APRIL 3, 2021 | |||||||
| Commercial Staffing – US | $ | $ | ||||||
| Professional Staffing – US | ||||||||
| Professional Staffing – UK | ||||||||
| Total Revenue | $ | $ | ||||||
| Commercial Staffing – US | $ | $ | ||||||
| Professional Staffing – US | ||||||||
| Professional Staffing – UK | ||||||||
| Total Gross Profit | $ | $ | ||||||
| Selling, general and administrative expenses | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ( | ) | ( | ) | ||||
| Interest expense and amortization of debt discount and deferred financing costs | ( | ) | ( | ) | ||||
| Re-measurement gain (loss) on intercompany note | ( | ) | ||||||
| Other (expense) income | ( | ) | ||||||
| Loss Before (Provision for) Benefit from Income Tax | $ | ( | ) | $ | ( | ) | ||
| 24 |
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 following table disaggregates revenues by segments:
| QUARTER ENDED APRIL 2, 2022 | ||||||||||||||||
| Commercial Staffing – US | Professional Staffing - US | Professional Staffing - UK | Total | |||||||||||||
| Permanent Revenue | $ | $ | $ | $ | ||||||||||||
| Temporary Revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| QUARTER ENDED APRIL 3, 2021 | ||||||||||||||||
| Commercial Staffing – US | Professional Staffing - US | Professional Staffing - UK | Total | |||||||||||||
| Permanent Revenue | $ | $ | $ | $ | ||||||||||||
| Temporary Revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As of April 2, 2022 and January 1, 2022, the Company has assets in the U.S. and the U.K. as follows:
| April 2, 2022 | January 1, 2022 | |||||||
| United States | $ | $ | ||||||
| United Kingdom | ||||||||
| Total Assets | $ | $ | ||||||
NOTE 11 – RELATED PARTY TRANSACTIONS
In addition to the Series A Preferred Shares and notes and warrants issued to Jackson, the following are other related party transactions:
Board and Committee Members
| QUARTER ENDED APRIL 2, 2022 | ||||||||||||||||
| Cash Compensation | Shares Issued | Value of Shares Issued | Compensation Expense Recognized | |||||||||||||
| Dimitri Villard | $ | $ | $ | |||||||||||||
| Jeff Grout | ||||||||||||||||
| Nick Florio | ||||||||||||||||
| Vincent Cebula | ||||||||||||||||
| Alicia Barker | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
| QUARTER ENDED APRIL 3, 2021 | ||||||||||||||||
| Cash Compensation | Shares Issued | Value of Shares Issued | Compensation Expense Recognized | |||||||||||||
| Dimitri Villard | $ | $ | $ | |||||||||||||
| Jeff Grout | ||||||||||||||||
| Nick Florio | ||||||||||||||||
| Alicia Barker | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
| 25 |
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
| QUARTER ENDED | ||||||||
| April 2, 2022 | April 3, 2021 | |||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Deferred purchase price of UK factoring facility | $ | $ | ||||||
Dividends accrued to related parties | ||||||||
| Deemed dividend | ||||||||
NOTE 13 – SUBSEQUENT EVENTS
On
June 23, 2022,
On
April 18, 2022, the Company entered into a Stock Purchase Agreement with Headway Workforce Solutions (“Headway”), and Chapel
Hill Partners, LP, as the representatives of all the stockholders (collectively, the “Sellers”) of Headway (the “Sellers’
Representative”), pursuant to which, among other things, the Company agreed to purchase all of the issued and outstanding securities
of Headway in exchange for (i) a cash payment of $
The
purchase price in connection with the Headway Acquisition was $
The Stock Purchase Agreement also contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Stock Purchase Agreement. Such representations and warranties are made solely for purposes of the Stock Purchase Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Stock Purchase Agreement and may have been qualified by disclosures that were made in connection with the parties’ entry into the Stock Purchase Agreement.
In connection with the Headway Acquisition, the Sellers’ Representative and certain of the Sellers entered into voting agreements whereby each will agree to, at every meeting of our stockholders, and at every adjournment or postponement thereof, to appear or issue a proxy to a third party to be present for purposes of establishing a quorum, and to vote all applicable shares in favor of each matter proposed and recommended for approval by the Company’s board of directors either in person or by proxy, amongst other provisions.
| 26 |
On July 1, 2022, the Company entered into a securities
purchase agreement with certain institutional and accredited investors for the issuance and sale of a private placement of shares
of common stock or pre-funded warrants to purchase shares of common stock, and warrants (the “July 2022 Warrants”)
to purchase up to
In
connection with the private placement, each investor entered into a warrant amendment agreement with the Company (collectively, the “Warrant
Amendment Agreements”) to amend the exercise prices of certain existing warrants to purchase up to an aggregate of
The Company intends to use the net proceeds received from the private placement for general working capital purposes.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This section includes a number of forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to future events and financial performance. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “can,” “could,” “should,” “intends,” “project,” “predict,” “plans,” “estimates,” “goal,” “target,” “possible,” “potential,” “would,” “seek,” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: negative outcome of pending and future claims and litigation; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to us or at all; and our ability to comply with our contractual covenants, including in respect of our debt; potential cost overruns and possible rejection of our business model and/or sales methods; weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers’ capital projects or the inability of our customers to pay our fees; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; and government policies, legislation or judicial decisions adverse to our businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the entirety of this Quarterly Report, including the “Risk Factors” in Item 1A of this Quarterly Report and the other reports and documents we file from time to time with the Securities and Exchange Commission (“SEC”), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
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Overview
We are incorporated in the State of Delaware. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring suitable, mature, profitable, operating, U.S. and U.K. based staffing companies. Our targeted consolidation model is focused specifically on the Professional Business Stream and Commercial Business Stream disciplines.
The Company effected a one-for-ten reverse stock split on June 24, 2022 (the “Reverse Stock Split”). All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect the Reverse Stock Split.
Recent Developments
COVID-19
In December 2019, a strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has spread globally, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in affected countries. The COVID-19 pandemic is impacting worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. Much of the independent contractor work we provide to our clients is performed at the site of our clients. As a result, we are subject to the plans and approaches our clients have made to address the COVID-19 pandemic, such as whether they support remote working or if they have simply closed their facilities and furloughed employees. To the extent that our clients were to decide or are required to close their facilities, or not permit remote work when they close facilities, we would no longer generate revenue and profit from that client. In addition, in the event that our clients’ businesses suffer or close as a result of the COVID-19 pandemic, we may experience declines in our revenue or write-off of receivables from such clients. Therefore, the ongoing COVID-19 pandemic may continue to affect our operation and to disrupt the marketplace in which we operate and may negatively impact our sales in fiscal year 2022 and our overall liquidity.
While the ultimate economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic has resulted in significant disruptions in general commercial activity and the global economy and caused financial market volatility and uncertainty in significant and unforeseen ways in the recent years. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise needed capital. If we are unsuccessful in raising capital in the future, we may need to reduce activities, curtail, or cease operations.
In addition, the continuation or worsening of the COVID-19 pandemic or an outbreak of other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition, and results of operations.
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Nasdaq Bid Price Requirement
On June 3, 2020, we received a letter from the Staff of Nasdaq (the “Staff”) notifying us that we were no longer in compliance with the minimum stockholders’ equity requirement for continued listing on Nasdaq under Stockholders’ Equity Requirement. A hearing before the Nasdaq Hearings Panel (the “Panel”) was held on January 21, 2021, and we were granted an extension to regain compliance until February 28, 2021, which was subsequently further extended to May 31, 2021. On June 28, 2021, we received a letter from the Staff notifying us that the Panel determined that we had regained compliance with the Stockholders’ Equity Requirement. The Panel also imposed a Panel Monitor under Nasdaq Listing Rule 5815(d)(4)(A) for a period of one year from the date of the June 28, 2021 letter, during which period we are expected to remain in compliance with all of Nasdaq’s continued listing requirements. On February 23, 2022, we received a letter from the Listing Qualifications of Nasdaq notifying us that we were no longer in compliance with the Bid Price Requirement, for continued listing on Nasdaq. Pursuant to the Panel Decision, we were not eligible for the 180-day bid price compliance period set forth in the Listing Rules. On March 2, 2022, we timely requested a hearing before the Panel, which was held on March 31, 2022.
On April 12, 2022, we received a letter from Nasdaq notifying us that the Panel determined to grant our request for continued listing on Nasdaq, subject to the following: (i) on or about May 2, 2022, we advised the Panel of the status of the proxy statement it plans to file to obtain shareholder approval for a reverse stock split, (ii) on or about May 23, 2022, we advised the Panel on the status of the shareholder meeting we plan to hold to obtain approval of the reverse stock split, (iii) on or about May 26, 2022, we will affect a reverse stock split and (iv) on or before about June 22, 2022, we shall demonstrate compliance with the Bid Price Requirement by evidencing a closing bid price above $1.00 per share for the previous ten consecutive trading sessions. On April 19, 2022, we received a letter from the Staff notifying us that as we had not yet filed our Form 10-K for the period ended January 1, 2022, such matter serves as an additional basis for delisting our securities from Nasdaq under Nasdaq Listing Rule 5810(c)(2)(A). On May 4, 2022 the Panel granted us an extension request until July 11, 2022 to demonstrate compliance with the bid price requirement. On May 20, 2022, we received a notice from the Staff notifying us that as we had not yet filed our Form 10-Q for the period ended April 2, 2022, such matter serves as a basis for delisting our securities from Nasdaq in addition to the aforementioned matters.
Although we are taking actions intended to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us will be successful. If Nasdaq delists our common stock from trading on its exchange for failure to meet the listing standards, an investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability to raise future capital through the sale of our shares could be severely limited. We additionally may not be able to list our common stock on another national securities exchange, which could result in our securities being quoted on an over-the-counter market. If this were to occur, our shareholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. There can be no assurance that an active trading market for our common stock will develop or be sustained. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
Nasdaq Minimum Stockholders’ Equity Requirement
On June 3, 2020, we received a letter from the Listing Qualifications Department notifying us that we were no longer in compliance with the minimum stockholders’ equity requirement for continued listing on Nasdaq. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500. Further, as of June 9, 2020, we did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.
In accordance with the Nasdaq Listing Rules, we were afforded the opportunity to submit a plan to regain compliance with the minimum stockholders’ equity standard. Based on our submissions, the Listing Qualifications Department granted us an extension to regain compliance with Rule 5550(b)(1) until November 30, 2020.
On December 1, 2020, we received notice that because we had not met the terms of the extension, our common stock would be subject to delisting from Nasdaq, unless we timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”). We timely requested a hearing before the Panel, which automatically stayed any suspension or delisting action pending the issuance of a decision by the Panel following the hearing and the expiration of any additional extension period granted by the Panel. The hearing occurred on January 21, 2021. At the hearing, we provided the Panel with an update on our compliance plan and requested a further extension of time in which to regain compliance. On February 3, 2021, we received a letter from the Panel noting it had granted our request for an extension until February 28, 2021 to regain compliance with the minimum $2,500 stockholders’ equity requirement, or the alternative compliance standards as set forth in Nasdaq Listing Rule 5550(b)(1). On March 4, 2021 we received a letter extending the deadline for compliance to May 31, 2021.
On June 11, 2021, we received a letter from the Staff notifying us that the Panel had determined to delist our shares from Nasdaq and that trading in our shares would be suspended effective at the open of business on June 15, 2021 but that due to a procedural issue, the Panel had determined not to implement the decision and afforded us an opportunity to make an additional submission for the Panel’s consideration.
On June 28, 2021, we received a letter from the Staff informing us that we had regained compliance with the Rule. As a result, the Panel determined to continue the listing of our securities on Nasdaq. The Panel also determined to impose a Panel Monitor under Listing Rule 5815(d)(4)(A) for a period of one year from the date of the June 28, 2021 letter (the “Monitoring Period”). We are expected to remain in compliance with all of Nasdaq’s continued listing requirements during the Monitoring Period. If at any time during this period we fail to satisfy any continued listing standard, the Staff will issue a Delist Determination Letter, which we may appeal.
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July 2022 Private Placement
On July 1, 2022, we entered into a securities purchase agreement with certain institutional and accredited investors for the issuance and sale of a private placement of 657,858 shares of common stock or pre-funded warrants to purchase shares of common stock, and warrants (the “July 2022 Warrants”) to purchase up to 657,858 shares of common stock, with an exercise price of $5.85 per share. The Warrants are exercisable immediately upon issuance and have a term of exercise equal to five and one-half years from the date of issuance. The combined purchase price for one Common Share (or pre-funded warrant) and one associated warrant to purchase one share of common stock was $6.10.
In connection with the private placement, each investor entered into a warrant amendment agreement with the Company (collectively, the “Warrant Amendment Agreements”) to amend the exercise prices of certain existing warrants to purchase up to an aggregate of 657,858 shares of common stock of the Company that were previously issued to the investors, with exercise prices ranging from $18.50 to $38.00 per share and expiration dates ranging from July 22, 2026 to November 1, 2026. The Warrant Amendment Agreements became effective upon the closing of the private placement and pursuant to the Warrant Amendment Agreements, the amended warrants have a reduced exercise price of $5.85 per share and expire five and one-half years following the closing of the private placement.
The Company intends to use the net proceeds received from the private placement for general working capital purposes.
Headway Acquisition
On April 18, 2022, we entered into a Stock Purchase Agreement with Headway Workforce Solutions, and Chapel Hill Partners, LP, as the representatives of all the stockholders of Headway, pursuant to which, among other things, the Company agreed to purchase all of the issued and outstanding securities of Headway in exchange for (i) a cash payment of $14, and (ii) 9,000,000 shares of our Series H Convertible Preferred Stock, with a value equal to the Closing Payment, as defined in the Stock Purchase Agreement. On May 18, 2022, the Headway Acquisition closed. The purchase price in connection with the Headway Acquisition was approximately $9,000. Pursuant to the Stock Purchase Agreement and in connection with the closing of the Headway Acquisition, on May 17, 2022, the Company filed a certificate of designation with the Secretary of State of Delaware designating the rights, preferences and limitations of the Series H Convertible Preferred Stock, par value $0.00001 per share.
The purchase price in connection with the Headway Acquisition was $9,000, subject to adjustment as provided in the Stock Purchase Agreement. Pursuant to certain covenants in the Stock Purchase Agreement, the Company may be subject to a Contingent Payment of up to $5,000 based on the Adjusted EBITDA (such term as defined in the Stock Purchase Agreement) of Headway during the Contingent Period (such term as defined in the Stock Purchase Agreement).
The Stock Purchase Agreement also contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Stock Purchase Agreement. Such representations and warranties are made solely for purposes of the Stock Purchase Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Stock Purchase Agreement and may have been qualified by disclosures that were made in connection with the parties’ entry into the Stock Purchase Agreement.
In connection with the Headway Acquisition, the Sellers’ Representative and certain of the Sellers entered into voting agreements whereby each will agree to, at every meeting of our stockholders, and at every adjournment or postponement thereof, to appear or issue a proxy to a third party to be present for purposes of establishing a quorum, and to vote all applicable shares in favor of each matter proposed and recommended for approval by the Company’s board of directors either in person or by proxy, amongst other provisions.
Business Model, Operating History and Acquisitions
We are a high-growth international staffing company engaged in the acquisition of U.S. and U.K. based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the Professional and Commercial Business Streams. 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, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets. Since November 2013, the Company has completed eleven acquisitions.
firstPRO Transaction
On September 24, 2020, we and Staffing 360 Georgia, LLC d/b/a firstPRO, our wholly-owned subsidiary (for purposes of this paragraph and the succeeding two paragraphs, the “Seller”), entered into an Asset Purchase Agreement with firstPRO Recruitment, LLC (for purposes of this paragraph, the “Buyer”), pursuant to which the Seller sold to the Buyer substantially all of the Seller’s assets used in or related to the operation or conduct of its professional staffing and recruiting business in Georgia (the “Assets,” and such sale, the “firstPRO Transaction”). In addition, the Buyer agreed to assume certain liabilities related to the Assets. The purchase price in connection with the firstPRO Transaction was $3,300, of which (a) $1,220 was paid at closing (the “Initial Payment”) and (b) $2,080 was held in a separate escrow account (the “Escrow Funds”), which was released upon receipt of the forgiveness of the Seller’s PPP Loans by the SBA. In the event that all or any portion of the PPP Loan is not forgiven by the SBA, all or a portion of the certain funds being held in escrow will be used to repay any unforgiven portion of the PPP Loan in full. The firstPRO Transaction closed on September 24, 2020. As of July 2021, all PPP Loans had been forgiven in full by the SBA.
In connection with the execution of the Asset Purchase Agreement, we and certain of our subsidiaries entered into a Consent Agreement with Jackson (the “Consent”), a noteholder pursuant to that certain Amended and Restated Note Purchase Agreement, dated as of September 15, 2017, as amended (the “Existing Note Purchase Agreement”). Under the terms of the Consent and the Series E Certificate of Designation, in consideration for Jackson’s consent to the firstPRO Transaction, the Initial Payment was used to redeem a portion of the Series E Preferred Stock, and the Escrow Funds, subject to the forgiveness of PPP Loan discussed above, will be used to redeem a portion of the Series E Preferred Stock. As this provision results in a contingent redemption feature, approximately $2.1 million of the Series E Preferred Stock was reclassified to mezzanine equity during the year ended January 1, 2022.
To induce the Buyer to enter into the Asset Purchase Agreement, the Seller also entered into a Transition Services Agreement with the Buyer, pursuant to which each party will provide certain transition services to minimize any disruption to the businesses of the Seller and the Buyer arising from the firstPRO Transaction.
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For the quarters ended April 2, 2022 and April 3, 2021
APRIL 2, 2022 | % of Revenue | April 3, 2021 | % of Revenue | Growth | ||||||||||||||||
| Revenue | $ | 49,893 | 100.0 | % | $ | 48,951 | 100.0 | % | 1.9 | % | ||||||||||
| Cost of revenue | 41,380 | 82.9 | % | 40,936 | 83.6 | % | 1.1 | % | ||||||||||||
| Gross profit | 8,513 | 17.1 | % | 8,015 | 16.4 | % | 6.2 | % | ||||||||||||
| Operating expenses | 9,564 | 19.2 | % | 8,660 | 17.7 | % | 10.4 | % | ||||||||||||
| Loss from operations | (1,051 | ) | (2.1 | )% | (645 | ) | (1.3 | )% | 62.9 | % | ||||||||||
| Other expenses | (1,267 | ) | (2.5 | )% | (1,006 | ) | (2.1 | )% | 25.9 | % | ||||||||||
| Provision for income taxes | (6 | ) | (0.0 | )% | (37 | ) | (0.1 | )% | (83.8 | )% | ||||||||||
| Net Loss | $ | (2,324 | ) | (4.6 | )% | $ | (1,688 | ) | (3.5 | )% | 37.7 | % | ||||||||
Revenue
For the quarter ended April 2, 2022, revenue increased by 1.9% to $49,893 as compared with $48,951 for the quarter ended April 3, 2021. Of that increase, $1,420 was attributable to organic revenue growth, partially offset by $478 of unfavorable foreign currency translation. Within organic revenue, temporary contractor revenue grew $855 and permanent placement grew $565.
Revenue the quarter ended April 2, 2022 was comprised of $48,329 of temporary contractor revenue and $1,564 of permanent placement revenue, compared with $47,918 and $1,033 for the quarter ended April 3, 2021, respectively.
Cost of revenue, Gross profit and Gross margin
Cost of revenue includes the variable cost of labor and various non-variable costs (e.g., workers’ compensation insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the quarter ended April 2, 2022, cost of revenue was $41,380, an increase of 1.1% from $40,936 in the quarter ended April 3, 2021, compared with revenue growth of 1.9%.
Gross profit for the quarter ended April 2, 2022 was $8,513, an increase of 6.2% from $8,015 for the quarter ended April 3, 2021, representing gross margin of 17.1% and 16.4% for each period, respectively. The increase was driven by $568 of organic growth and partially offset by $71 of unfavorable foreign currency translation.
Operating expenses
Total operating expenses for the quarter ended April 2, 2022 were $9,564, an increase of 10.4% from $8,660 for the quarter ended April 3, 2021. The increase in operating expenses was driven primarily by higher non-recurring costs, legal, and other costs associated with acquisitions efforts.
Other expenses
Total other expenses, net for the quarter ended April 2, 2022 were $1,267, an increase of 25.9% from $1,006 in the quarter ended April 3, 2021. The increase was driven by the following: $474 lower interest expense and amortization of debt discount and deferred financing costs in the quarter ended April 2, 2022 compared with the quarter ended April 3, 2021 of $1,241, loss from remeasuring the Company’s intercompany note in the quarter ended April 2, 2022 of $443 compared with gains from remeasuring the Company’s intercompany note in the quarter ended April 3, 2021 of $128. In addition, in the quarter ended April 2, 2022, the Company had other loss of $58.
Non-GAAP Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we also use non-GAAP financial measures and Key Performance Indicators (“KPIs”) in addition to our GAAP results. We believe non-GAAP financial measures and KPIs may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.
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We present the following non-GAAP financial measure and KPIs in this report:
Revenue and Gross Profit by Business Streams We use this KPI to measure the Company’s mix of Revenue and respective profitability between its two main lines of business due to their differing margins. For clarity, these lines of business are not the Company’s operating segments, as this information is not currently regularly reviewed by the chief operating decision maker to allocate capital and resources. Rather, we use this KPI to benchmark the Company against the industry.
The following table details Revenue and Gross Profit by Sector:
APRIL 2, 2022 | Mix | APRIL 3, 2021 | Mix | |||||||||||||
| Commercial Staffing – US | $ | 28,609 | 57 | % | $ | 30,121 | 61 | % | ||||||||
| Professional Staffing – US | 4,329 | 9 | % | 3,771 | 8 | % | ||||||||||
| Professional Staffing – UK | 16,955 | 34 | % | 15,059 | 31 | % | ||||||||||
| Total Revenue | $ | 49,893 | $ | 48,951 | ||||||||||||
| Commercial Staffing – US | $ | 4,719 | 56 | % | $ | 4,838 | 60 | % | ||||||||
| Professional Staffing – US | 1,204 | 14 | % | 954 | 12 | % | ||||||||||
| Professional Staffing – UK | 2,590 | 30 | % | 2,223 | 28 | % | ||||||||||
| Total Gross Profit | $ | 8,513 | $ | 8,015 | ||||||||||||
| Commercial Staffing – US | 16.5 | % | 16.1 | % | ||||||||||||
| Professional Staffing – US | 27.8 | % | 25.3 | % | ||||||||||||
| Professional Staffing – UK | 15.3 | % | 14.8 | % | ||||||||||||
| Total Gross Margin | 17.1 | % | 16.4 | % | ||||||||||||
Adjusted EBITDA This measure is defined as net income (loss) attributable to common stock before: interest expense, benefit from income taxes; depreciation and amortization; acquisition, capital raising and other non-recurring expenses; other non-cash charges; impairment of goodwill; re-measurement gain on intercompany note; restructuring charges; gain from sale of business; PPP Forgiveness Gain; other income; and charges the Company considers to be non-recurring in nature such as legal expenses associated with litigation, professional fees associated potential and completed acquisitions. We use this measure because we believe it provides a more meaningful understanding of the profit and cash flow generation of the Company.
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| TRAILING TWELVE MONTHS | TRAILING TWELVE MONTHS | |||||||||||||||
| APRIL 2, 2022 | APRIL 3, 2021 | APRIL 3, 2022 | APRIL 2, 2021 | |||||||||||||
| Net loss | $ | (2,324 | ) | $ | (1,688 | ) | $ | 7,522 | $ | (10,333 | ) | |||||
| Interest expense and amortization of debt discount and deferred financing costs | 670 | 1,157 | 3,370 | 6,122 | ||||||||||||
| Provision for (Benefit from) income taxes | 6 | 37 | (388 | ) | 108 | |||||||||||
| Depreciation and amortization | 751 | 815 | 3,055 | 3,520 | ||||||||||||
| EBITDA | $ | (897 | ) | $ | 321 | $ | 13,559 | $ | (583 | ) | ||||||
| Acquisition, capital raising, restructuring charges and other non-recurring expenses (1) | 1,188 | 826 | 3,872 | 6,209 | ||||||||||||
| Other non-cash charges (2) | 16 | 220 | 158 | 697 | ||||||||||||
| Re-measurement (gain) loss on intercompany note | 443 | (128 | ) | 831 | (1,387 | ) | ||||||||||
| Restructuring charges | - | - | - | 21 | ||||||||||||
| Gain on business sale | - | - | - | (124 | ) | |||||||||||
| Impairment of goodwill | - | - | 3,104 | - | ||||||||||||
| Other loss (income) | 58 | (107 | ) | (19,412 | ) | (244 | ) | |||||||||
| Adjusted EBITDA | $ | 808 | $ | 1,132 | $ | 2,112 | $ | 4,589 | ||||||||
| Adjusted EBITDA of Divested Business (3) | $ | - | $ | (8 | ) | |||||||||||
| Pro Forma TTM Adjusted EBITDA (4) | $ | 2,112 | $ | 4,581 | ||||||||||||
| Adjusted Gross Profit TTM (5) | $ | 35,938 | $ | 30,365 | ||||||||||||
| TTM Adjusted EBITDA as percentage of adjusted gross profit TTM | 5.9 | % | 15.1 | % | ||||||||||||
| (1) | Acquisition, capital raising, and other non-recurring expenses primarily relate to capital raising expenses, acquisition and integration expenses, and legal expenses incurred in relation to matters outside the ordinary course of business. Due to government mandated restrictions, the Company had to temporarily close some of its offices and, due to social distancing restrictions, could not make full use of these facilities for significant periods of time during the year. | |
| (2) | Other non-cash charges primarily relate to staff option and share compensation expense, expense for shares issued to directors for board services, and consideration paid for consulting services. | |
| (3) | Adjusted EBITDA of Divested Business for the period prior to the divestment date. | |
| (4) | Pro Forma Adjusted EBITDA excludes the Adjusted EBITDA of Divested Business for the period prior to the divestment date. | |
| (5) | Adjusted Gross Profit excludes gross profit of business divested in September 2020, for the period prior to divestment date. |
Operating Leverage This measure is calculated by dividing the growth in Adjusted EBITDA by the growth in Adjusted Gross Profit, on a trailing 12-month basis. We use this KPI because we believe it provides a measure of our efficiency for converting incremental gross profit into Adjusted EBITDA.
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| April 2, 2022 | April 3, 2021 | |||||||
| Adjusted Gross Profit - TTM (Current Period) | $ | 35,938 | $ | 30,365 | ||||
| Adjusted Gross Profit - TTM (Prior Period) | 30,365 | 39,281 | ||||||
| Adjusted Gross Profit – Increase (Decline) | $ | 5,573 | $ | (8,916 | ) | |||
| Adjusted EBITDA - TTM (Current Period) | $ | 2,112 | $ | 4,589 | ||||
| Adjusted EBITDA - TTM (Prior Period) | 4,589 | 8,954 | ||||||
| Adjusted EBITDA - Decline | $ | (2,477 | ) | $ | (4,365 | ) | ||
| Operating Leverage | (44.4 | )% | 49.0 | % | ||||
Leverage Ratio Calculated as Total Debt, Net, gross of any Original Issue Discount, divided by Pro Forma Adjusted EBITDA for the trailing 12-months. We use this KPI as an indicator of our ability to service debt prospectively.
| April 2, 2022 | January 1, 2022 | |||||||
| Total Debt, Net | $ | 9,444 | $ | 9,502 | ||||
| Addback: Total Debt Discount and Deferred Financing Costs | (175 | ) | (256 | ) | ||||
| Total Term Debt | $ | 9,619 | $ | 9,758 | ||||
| TTM Adjusted EBITDA | $ | 2,112 | $ | 4,589 | ||||
| Pro Forma TTM Adjusted EBITDA | $ | 2,112 | $ | 4,589 | ||||
| Pro Forma Leverage Ratio | 4.55x | 4.01x | ||||||
Operating Cash Flow Including Proceeds from Accounts Receivable Financing calculated as net cash (used in) provided by operating activities plus net proceeds from accounts receivable financing. Because much of our temporary payroll expense is paid weekly and in advance of clients remitting payment for invoices, operating cash flow is often weaker in staffing companies where revenue and accounts receivable are growing. Accounts receivable financing is essentially an advance on client remittances and is primarily used to fund temporary payroll. As such, we believe this measure is helpful to investors as an indicator of our underlying operating cash flow.
On February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%. Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities. On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020 to September 2020, and only interest payments will be made during this time. On May 15, 2020, the Company entered into a three-year term loan with HSBC in the UK for £1,000.
| QUARTERS ENDED | ||||||||
| APRIL 2, 2022 | APRIL 3, 2021 | |||||||
| Net cash (used in) provided by operating activities | $ | (2,856 | ) | $ | 167 | |||
| Collection of UK factoring facility deferred purchase price | 1,877 | 1,741 | ||||||
| Repayments on accounts receivable financing, net | (2,036 | ) | (5,475 | ) | ||||
| Net cash used in operating activities including proceeds from accounts receivable financing, net | $ | (3,015 | ) | $ | (3,567 | ) | ||
The Leverage Ratio and Operating Cash Flow Including Proceeds from Accounts Receivable Financing should be considered together with the information in the “Liquidity and Capital Resources” section, immediately below.
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Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Historically, we have funded our operations through term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity.
Our primary uses of cash have been for debt repayments, repayment of deferred consideration from acquisitions, professional fees related to our operations and financial reporting requirements and for the payment of compensation, benefits and consulting fees. The following trends may occur as the Company continues to execute on its strategy:
| ● | An increase in working capital requirements to finance organic growth, | |
| ● | Addition of administrative and sales personnel as the business grows, | |
| ● | Increases in advertising, public relations and sales promotions for existing and new brands as we expand within existing markets or enter new markets, | |
| ● | A continuation of the costs associated with being a public company, and | |
| ● | Capital expenditures to add technologies. |
Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations could significantly increase our legal and financial compliance costs and increase the use of resources.
As of and for the quarter ended April 2, 2022, the Company had a working capital deficiency of $19,449, accumulated deficit of $86,345, and a net loss of $2,324.
The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has unsecured payment due in the next 12 months associated with a historical acquisition and secured current debt arrangements representing approximately $9,223 which are in excess of cash and cash equivalents on hand, in addition to funding operational growth requirements. 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying 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.
In addition, beginning in January 2023 the Company has numerous contractual lease obligations representing an aggregate of approximately $4,454 related to current lease agreements. The Company intends to fund the majority of this by a combination of cash flow from operations, as well as the raising of capital through additional debt or equity.
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The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.
Operating activities
For the quarter ended April 2, 2022, net cash used in operations of $2,856 was primarily attributable to net loss of $2,324 and changes in operating assets and liabilities totaling $2,091 offset by non-cash adjustments of $1,559. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $5,621, increase in payables and accrued expense of $3,999, increase in payables to related parties of $122, increase in prepaid expenses and other current assets of $526, decrease in other assets of $812, decrease in current liabilities of $128 and decrease in long term liabilities and other of $749. Total non-cash adjustments of $1,558 primarily includes depreciation and amortization of intangible assets of $655, stock-based compensation of $42, amortization of debt discounts and deferred financing of $96, right of use assets amortization of $324 and foreign currency re-measurement loss on intercompany loan of $443.
For the quarter ended April 3, 2021, net cash provided by operations of $167 was primarily attributable to net loss of $1,688 and changes in operating assets and liabilities totaling $657 offset by non-cash adjustments of $1,198. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $1,006, increase in payables and accrued expense of $1,451, increase in payables to related parties of $807, increase in prepaid expenses and other current assets of $334, increase in other assets of $784, increase in current liabilities of $80 and decrease in long term liabilities of $158 and increase in other of $601. Total non-cash adjustments of $1,198 primarily includes depreciation and amortization of intangible assets of $731, stock-based compensation of $219, amortization of debt discounts and deferred financing of $84, right of use assets amortization of $292 and foreign currency re-measurement gain on intercompany loan of $128.
Investing activities
For the quarter ended April 2, 2022, net cash flows provided by investing activities totaled $1,835 primarily due to $42 purchase of property and equipment and $1,877 related to collection of UK factoring facility deferred purchase price.
For the quarter ended April 3, 2021, net cash flows provided by investing activities was $1,741 related to collection of UK factoring facility deferred purchase price.
Financing activities
For the quarter ended April 2, 2022, net cash flows used in financing activities totaled $2,153 primarily due to repayments of $2,036 on accounts receivable financing, net and, repayment of term loan of $117.
For the quarter ended April 3, 2021, net cash flows used in financing activities totaled $7,816 primarily due to proceeds from sale of common stock of $19,670 offset by repayments of $5,475 on accounts receivable financing, net, repayment of term loan of $313, repayment of related party term loan of $14,724, dividends paid to Jackson of $420, redemption of Series E preferred stock of $4,908 and third party financing costs of $1,646.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Critical Accounting Policies and Estimates
Refer to the Annual Report on Form 10-K filed with the SEC on June 24, 2022 for the fiscal year ended January 1, 2022. There have been no changes to our critical policies during the three months ended April 2, 2022.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this ASU in this fiscal year. This standard did not have an impact on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (each as defined in Rules) as of the end of the period covered by this quarterly report.
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We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company identified a material weakness related to the lack of a sufficient complement of competent finance personnel to appropriately account for, review and disclose the completeness and accuracy of transactions entered into by the Company. Our management has also identified a material weakness in our internal control over our goodwill assessment relating to the lack of a sufficient process for determining the valuation of goodwill assets.
Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this quarterly report (“Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were ineffective, due to the material weakness in our control environment and financial reporting process discussed above.
Management believes that the condensed consolidated financial statements in this quarterly report on Form 10-Q fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and results of its operations and cash flows for the Evaluation Date, in conformity with GAAP.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the quarter ended April 2, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.
On December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker” or “Plaintiff”), filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract and declaratory judgment against Monroe Staffing Services LLC (“Monroe”) and the Company (collectively, the “Defendants”) arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI, to Monroe in August 2018. Whitaker sought $4,054 in alleged damages.
Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020. Briefing on the motion to remand concluded on February 24, 2020. Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc. Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause. Briefing on Defendants’ motion to dismiss concluded on February 18, 2020. On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.
On June 29, 2020, Magistrate Judge Webster issued a Report and Recommendation on the pending motions, recommending that Defendants’ motion to dismiss be granted with regard to Defendants’ request to transfer the matter to the Southern District of New York, and denied in all other regards without prejudice to Defendants raising those arguments again in the new forum. Magistrate Judge Webster also recommended that Plaintiff’s motion to remand be denied and motion to amend be left to the discretion of the Southern District of New York.
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Plaintiff filed an objection to the Report and Recommendation on July 9, 2020. Defendants responded on July 23, 2020. On February 19, 2021, the District Court issued a decision that reversed the Magistrate Judge’s Order. The District Court granted Plaintiff’s motion to remand and denied Defendants’ motion to dismiss as moot. Defendants filed a Notice of Appeal to the Fourth Circuit on February 25, 2021 and filed their opening brief on April 21, 2021. Plaintiff filed her response brief on May 21, 2021, and Defendants replied on June 11, 2021. Oral argument was held on March 9, 2022. As of the date of this filing, a decision is pending.
Separately, on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District of New York (Case No. 1:20-cv-01716) (the “New York Action”.) The New York Action concerns claims for breach of contract and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included in, the share purchase agreement. The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less than $6,000. On April 28, 2020, Whitaker filed a motion to dismiss the New York Action on both procedural and substantive grounds. On June 11, 2020, Monroe and the Company filed their opposition to Whitaker’s motion to dismiss. On July 9, 2020 Whitaker filed reply papers in further support of the motion.
On October 13, 2020, the Court denied Whitaker’s motion to dismiss, in part, and granted the motion, in part. The Court rejected Whitaker’s procedural arguments but granted the motion on substantive grounds. However, the Court ordered that Monroe and the Company may seek leave to amend the complaint by letter application by December 1, 2020. Monroe and the Company filed a letter of motion for leave to amend and a proposed Amended Complaint on December 1, 2020. On January 5, 2021, Whitaker filed an opposition to the letter motion. On January 25, 2021, Monroe and the Company filed a reply in further support of the letter motion. On March 9, 2021, the Court granted Monroe and the Company’s motion for leave to amend, in part, and denied the motion, in part. The Court rejected Monroe and the Company’s claim for fraudulent inducement but granted the motion for leave to amend their breach of contract claim. Monroe and the Company filed their amended complaint on March 12, 2021. On April 9, 2021, Whitaker renewed her motion to dismiss on procedural grounds, requesting dismissal of the action or, in the alternative, a stay of the proceeding pending adjudication on the merits of the North Carolina Action. On May 14, 2021, Monroe and the Company filed an opposition to the motion to dismiss. On June 21, 2021, Whitaker filed a reply in further support of the motion. The Court referred the case to Magistrate Judge Moses, who held oral argument on the motion on November 9, 2021. Whitaker’s renewed motion to dismiss remains pending.
Monroe and the Company intend to pursue their claims vigorously.
As of the date of this filing, we are not aware of any other material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, other than as disclosed above.
Item 1A. Risk Factors.
There have been no material developments to alter the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
None.
| * | Filed herewith |
| (1) | Certain of the schedules (and similar attachments) to this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K under the Securities Act because they do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the Exhibit or the disclosure document. The registrant hereby agrees to furnish a copy of all omitted schedules (or similar attachments) to the SEC upon its request. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STAFFING 360 SOLUTIONS, INC. | ||
| Date: July 14, 2022 | By: | /s/ Brendan Flood |
| Brendan Flood | ||
| Chairman and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: July 14, 2022 | By: | /s/ Khalid Anwar |
Khalid Anwar Senior Vice President of Corporate Finance (Principal Financial Officer and Principal Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Brendan Flood, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Staffing 360 Solutions, Inc. (“Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 14, 2022 | /s/ Brendan Flood |
| Brendan Flood | |
Chairman and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Khalid Anwar, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Staffing 360 Solutions, Inc. (“Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 14, 2022 | /s/ Khalid Anwar |
| Khalid Anwar | |
Senior Vice President of Corporate Finance (Principal
Financial Officer and |
Exhibit 32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Staffing 360 Solutions, Inc. (“Company”) on Form 10-Q for the period ended April 2, 2022 (“Report”), I, Brendan Flood, Chairman and Chief Executive Officer of the Company, and I, Khalid Anwar, Senior Vice President of Corporate Finance of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: July 14, 2022 | /s/ Brendan Flood |
| Brendan Flood | |
Chairman and Chief Executive Officer (Principal Executive Officer) | |
| Date: July 14, 2022 | /s/ Khalid Anwar |
| Khalid Anwar | |
Senior Vice President of Corporate Finance (Principal
Financial Officer and |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed from within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Apr. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par or stated value per share | $ 0.00001 | $ 0.00001 |
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
| Common stock, par or stated value per share | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 40,000,000 | 40,000,000 |
| Common stock, shares outstanding | 1,759,835 | 1,758,835 |
| Common stock, shares issued | 1,759,835 | 1,758,835 |
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Apr. 02, 2022 |
Apr. 03, 2021 |
|
| Income Statement [Abstract] | ||
| Net Loss | $ (2,324) | $ (1,688) |
| Other Loss | ||
| Foreign exchange translation adjustment | (200) | (8) |
| Comprehensive Loss Attributable to the Company | $ (2,524) | $ (1,696) |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
3 Months Ended |
|---|---|
Apr. 02, 2022 | |
| Accounting Policies [Abstract] | |
| ORGANIZATION AND DESCRIPTION OF BUSINESS | 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 rapidly growing public company in the international staffing sector. Our high-growth business model is based on finding and acquiring, suitable, mature, profitable, operating, domestic and international 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.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended |
|---|---|
Apr. 02, 2022 | |
| Accounting Policies [Abstract] | |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
These 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 and par values, unless otherwise indicated.
The accompanying 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 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 financial statements have been prepared on a basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended April 2, 2022, the Company has an accumulated deficit of $86,345 and a working capital deficit of $19,449. At April 2, 2022, we had total gross debt of $9,444 and $1,355 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. Subsequent to the quarter ended April 2, 2022, we have continued to fund our operations and make required capital payments utilizing our available cash and, as of the date of this filing, we have approximately $4,612 in available cash.
The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.
Further, our note issued to Jackson Investment Group, LLC includes certain financial customary covenants and the Company has had instances of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.
The entire outstanding principal balance of the 2020 Jackson Note shall be due and payable on September 30, 2022. The debt represented by the 2020 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. The Company also has a $25,000 revolving loan facility with MidCap. The MidCap Facility has a maturity date of September 1, 2022 and although we believe we will be able to either renew this agreement or find an alternative lender, this has yet to be completed.
Going Concern
The accompanying 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 Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.
COVID-19
The novel Coronavirus disease 2019 (“COVID-19”), is continuing to impact worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. The nature of work of the contractors we support mostly are on the site of our clients. As a result, we are subject to the plans and approaches of our clients to work during this period. This includes whether they support remote working when they have decided to close their facilities. To the extent that our clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, we would no longer generate revenue and profit from that client. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where we have seen declines in revenues during Fiscal 2021 and 2020. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2022 and the Company’s overall liquidity.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022.
The Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic contribute to the substantial doubt about the Company’s ability to continue as a going concern.
Use of Estimates
The preparation of 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 April 2, 2022 and April 3, 2021 include the valuation of intangible assets, including goodwill, liabilities associated with testing long-lived assets for impairment and valuation reserves against deferred tax assets.
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.
In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. During the year ended January 2, 2021 the Company changed its annual measurement date from the first day of the fiscal fourth quarter to the last day of the fiscal year end. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company’s goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.
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.
The Company recognized an impairment with respect to its Staffing UK reporting unit of $3,104 during the fourth quarter ended January 1, 2022. The impairment resulted from a continued decline in that reporting unit’s revenue which experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples), income approach (discounted cash flow analysis) and prevailing market conditions to derive the fair value of the reporting unit. Under ASU 2017-04, which the Company early adopted, the impairment amount represents the excess of the carrying value over the fair value of the reporting unit.
No impairments to goodwill were recognized during the quarter ended April 2, 2022. In assessing potential impairment to goodwill, management has made assumptions regarding partial recovery from the COVID-19 pandemic. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated, while failing to achieve growth in future periods as a result of the prolonged impact of COVID-19 pandemic, an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of the reporting units, market declines, changes in discount rates or other conditions could result in a material impairment in the future.
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.
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 quarter ended April 2, 2022 was comprised of $48,329 of temporary contractor revenue and $1,564 permanent placement revenue, compared with $47,918 and $1,033 for the quarter ended April 3, 2021, respectively. Refer to Note 10 for further details on breakdown by segments.
Income Taxes
The Company’s provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared with those forecasted at the beginning of the fiscal year and each interim period thereafter.
The effective income tax rate was (0.25%) and (2.20%) for the quarters ending April 2, 2022 and April 3, 2021, 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.
Foreign Currency
The Company recorded a non-cash foreign currency remeasurement (loss) gain of ($443) and $128 for the quarters ended April 2, 2022 and April 3, 2021, respectively, associated with its U.S dollar denominated intercompany note.
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.
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. The fair value of the warrants the Company has privately placed were estimated using a Black Scholes model. Refer to Note 8 for further details.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this ASU in this fiscal year. This standard did not have an impact on our financial statements.
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EARNINGS (LOSS) PER COMMON SHARE |
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| 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. Our Series A, Series E and Series E-1 Preferred Stockholders (related parties) receive certain dividends or dividend equivalents that are considered participating securities and our loss per share is computed using the two-class method. For the quarters ended April 2, 2022 and April 3, 2021, pursuant to the two-class method, as a result of the net loss attributable to common stockholders, losses were not allocated to the participating securities.
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)
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 April 2, 2022 and April 3, 2021 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 April 2, 2022 and April 3,2021:
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ACCOUNTS RECEIVABLE FINANCING |
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| Receivables [Abstract] | |
| ACCOUNTS RECEIVABLE FINANCING | NOTE 4 – ACCOUNTS RECEIVABLE FINANCING
Midcap Funding X Trust
Prior to September 15, 2017, certain U.S. subsidiaries of the Company were parties to a $25,000 revolving loan facility with MidCap, with the option to increase the amount by an additional $25,000, with a maturity of April 8, 2019.
On October 26, 2020, the Company entered into Amendment No. 17 to Credit and Security Agreement with MidCap, whereby, among other things, MidCap 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.
The facility provides events of default including: (i) failure to make payment of principal or interest on any MidCap 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 to the Company (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. Upon the occurrence of any event of default, 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 not in compliance with its April 2, 2022 covenants and received a waiver from Midcap. Subsequent to April 2, 2022, the Company is also not in compliance with its financial covenants with Midcap.
The balance of the Midcap facility as of April 2, 2022 and January 1, 2022 was $13,063 and $13,405, respectively, and is included in Accounts receivable financing on the Consolidated Balance Sheet.
HSBC Invoice Finance (UK) Ltd – New Facility
On February 8, 2018, CBSbutler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500.) The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%.
On June 28, 2018, CML, the Company’s new subsidiary entered into a new agreement with a minimum term of 12 months for purchase of debt (“APD”) with HSBC, joining CBSbutler, Staffing 360 Solutions Limited and The JM Group (collectively, with CML, the “Borrowers”) as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £20,000 across all Borrowers. The obligations of the Borrowers are secured by a fixed charge and a floating charge on the Borrowers’ respective accounts receivable and are subject to cross-company guarantees among the Borrowers. In addition, the secured borrowing line against unbilled receivables was increased to £1,500 for a period of 90 days. In July 2019, the aggregate Facility Limit was extended to £22,500 across all Borrowers.
Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities. For the quarters ended April 2, 2022 and April 3, 2021, the collection of UK factoring facility deferred purchase price totaled $1,877 and $1,741, respectively
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GOODWILL |
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| GOODWILL | NOTE 5 – GOODWILL
The following table provides a roll forward of goodwill:
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 reporting unit 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. During the fourth quarter of 2021 the Company identified a triggering event in response the COVID-19 pandemic. In accordance with ASC 350 the Company tested its goodwill for impairment and the Company recognized an impairment with respect to its Staffing UK reporting unit of $3,104. The impairment resulted from a continued decline in that reporting unit’s revenue which experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples), income approach (discounted cash flow analysis) and prevailing market conditions to derive the fair value of the reporting unit. Under ASU 2017-04, which the Company early adopted, the impairment amount represents the excess of the carrying value over the fair value of the reporting unit.
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DEBT |
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| DEBT | NOTE 6 – DEBT
Jackson Debt
On September 15, 2017, the Company entered into a $40,000 note agreement with Jackson (the “2017 Jackson Note”.) The proceeds of the sale of the 2017 Jackson Note were used to repay the existing subordinated notes previously issued to Jackson pursuant to the existing note purchase agreement in the aggregate principal amount of $11,165 and to fund a portion of the purchase price consideration of the firstPRO Acquisition and the CBSbutler Acquisition and repay certain other outstanding indebtedness of the Company. The maturity date for the amounts due under the 2017 Jackson Note was September 15, 2020. The 2017 Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the 2017 Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder.
On August 27, 2018, the Company entered into an amended agreement with Jackson, pursuant to which the note purchase agreement dated as of September 15, 2017 was amended and made a new senior debt investment of approximately $8,428. Terms of the additional investment were the same as the 2017 Jackson Note. From the proceeds of the additional investment, the Company paid a closing fee of $280 and legal fees of $39 and issued shares of the Company’s common stock as a closing commitment fee.
On August 29, 2019, the Company entered into a Fourth Omnibus Amendment and Reaffirmation Agreement with Jackson, as lender, which, among other things, amends that certain Amended and Restated Note Purchase Agreement, dated as of September 15, 2017, as amended (the “Existing Note Purchase Agreement”.) Pursuant to the Existing Note Purchase Agreement, the Company agreed to issue and sell to Jackson that certain 18% Senior Secured Note due December 31, 2019 in the aggregate principal amount of $2,538 (the “2019 Jackson Note”.) All accrued and unpaid interest on the outstanding principal balance of the 2019 Jackson Note was due and payable monthly on the first day of each month, beginning on October 1, 2019. Pursuant to the terms of the 2019 Jackson Note, if the 2019 Jackson Note was not repaid by December 31, 2019, the Company was required to issue shares of its common stock to Jackson on a monthly basis until the 2019 Jackson Note is fully repaid, subject to certain exceptions to comply with Nasdaq listing standards. The Company booked additional expense of $324 related to the issuances of shares of common stock to Jackson in 2020. The Company paid the 2019 Jackson Note in full on May 28, 2020.
On October 26, 2020, the Company, certain of its subsidiaries and Jackson entered into the Amended Note Purchase Agreement and the 2020 Jackson Note, which amended and restated the Existing Note Purchase Agreement. The Amended Note Purchase Agreement refinanced an aggregate of approximately $35,700 of debt provided by Jackson, extending the maturity to September 30, 2022. In connection with the amendment and restatement, the Company paid Jackson an amendment fee of $488. The Company accounted for the Amended Note Purchase Agreement as a modification of the debt. Accordingly, fees totaling $488 paid to Jackson as well as the modification of 15,092 warrants from a strike price of $99.60 to $60.00 and the extension of the warrant expiration date of January 26, 2024 to January 26, 2026, resulting in a fair value adjustment of $126, were recorded as additional debt discount which will be amortized over the term of the 2020 Jackson Note using the effective interest method.
Under the terms of the Amended Note Purchase Agreement and the 2020 Jackson Note, the Company is required to pay interest on the debt at a per annum rate of 12%. The interest is payable monthly in cash; provided that, the Company may elect to pay up to 50% of monthly interest in-kind (“PIK Interest”) by adding such PIK Interest to the outstanding principal balance of the 2020 Jackson Note. For any month that the Company elects to pay interest in-kind, the Company is required to pay Jackson a fee in shares of our common stock (“PIK Fee Shares”) in an amount equal to $25 divided by the average closing price, as reported by The Nasdaq Capital Market (“Nasdaq”), of such shares of common stock over the 5 trading days prior to the applicable monthly interest payment date. If such average market price is less than $30.00 or is otherwise undeterminable because such shares of common stock are no longer publicly traded or the closing price is no longer reported by Nasdaq, then the average closing price for these purposes shall be deemed to be $30.000, and if such average closing price is greater than $210.00, then the average closing price for these purposes shall be deemed to be $210.00. For the period of November 2020 through and including March 2021, each monthly interest amount due and payable was reduced by $166, and for the period commencing April 2021 through and including September 2021, each monthly interest amount due and payable was increased by $166.
Under the terms of the Amended Note Purchase Agreement, the Company was required to make a mandatory prepayment of the principal amount of the 2020 Jackson Note of not less than $3,000 no later than January 31, 2021. Payments were made in December 2020 and January 2021 totaling $3,029 in full satisfaction of the mandatory prepayment.
On January 4, 2021, the Company used $1,558 in net proceeds from a securities purchase agreement dated December 30, 2020 and redeemed $1,168 of the 2020 Jackson Note with an outstanding principal amount of $33,878 and redeemed shares of the Series E Convertible Preferred Stock with an aggregate value of $390. Following the redemption of the portion of the 2020 Jackson Note and Series E Convertible Preferred Stock, the 2020 Jackson Note balance was $32,710 and the Company had shares of Series E Convertible Preferred Stock outstanding with an aggregate stated value of $10,690.
On February 5, 2021, the Company received the Limited Consent from Jackson, the sole holder of the Company’s outstanding shares of Series E Convertible Preferred Stock, to use approximately (i) 75% of the net proceeds from the February 2021 Offering to redeem a portion of the 2020 Jackson Note, which had an outstanding principal amount of $32,710 as of February 9, 2021, and (ii) 25% of the net proceeds from the February 2021 Offering to redeem a portion of the Company’s Series E Convertible Preferred Stock. Pursuant to the Limited Consent, upon closing of the February 2021 Offering, the Company paid $13,556 of the 2020 Jackson Note and redeemed 4,518 shares of the Series E Convertible Preferred Stock.
On April 21, 2021, the Company entered into the April 2021 Purchase Agreement. The net proceeds to the Company were approximately $4,200, after deducting placement agent fees and estimate offering expenses payable by the Company. The Company used $3,200 of the net proceeds to redeem a portion of the 2020 Jackson Note, which had an outstanding principal amount of $19,154 immediately prior to such redemption.
On July 20, 2021, the Company entered into the July 2021 Purchase Agreement. As the Company’s Series G Preferred Stock (as defined below) was outstanding, it was required to use the proceeds of any sales of equity securities, including the common stock offered in the July 2021 Offerings, exclusively to redeem any outstanding shares of Series G Preferred Stock, subject to certain limitations. The Company received a waiver from Jackson, the sole holder of the outstanding shares of its Series G Preferred Stock, to pay accrued and unpaid interest and prepay a portion of the outstanding principal balance of the 2020 Jackson Note and paid accrued and unpaid dividends on the Series G-1 Convertible Preferred Stock upon conversion of such preferred stock into the New Note (as defined below). The net proceeds to the Company from the July 2021 Offerings were approximately $6,760, after deducting placement agent fees and estimated offering expenses payable by the Company. The Company used $5,000 of the net proceeds to redeem a portion of the 2020 Jackson Note, which had an outstanding principal amount of approximately $21,700 immediately prior to such redemption.
On July 21, 2021, the Company entered into a non-cash financing transaction whereby it exchanged its outstanding shares of Series G Convertible Preferred Stock (“Series G Preferred Stock”) and shares of Series G-1 Convertible Preferred Stock for senior indebtedness by entering into a new 12% Senior Secured Note, in aggregate principal amount of $7,733 (the “New Note”), which amount represented all of the outstanding Series G Preferred Stock, totaling $6,172, and Series G-1 Convertible Preferred Stock, totaling $1,561, held by Jackson as of July 21, 2021, under the Amended Note Purchase Agreement. The New Note was deemed issued pursuant to the Amended Note Purchase Agreement.
Under the terms of the New Note, the Company is required to pay interest on the New Note at a per annum rate of 12%, in cash only, accruing from and after the date of the New Note and until the entire principal balance of the New Note shall have been repaid in full, and on and at all times during which the “Default Rate” (as defined in the Amended Note Purchase Agreement) applies, to the extent permitted by law, at a per annum rate of 17%. The entire outstanding principal balance of the New Note is due and payable in full on September 30, 2022. Upon an Event of Default (as defined in the Amended Note Purchase Agreement), the principal of the New Note and all accrued and unpaid interest thereon may be accelerated and declared or otherwise become due and payable in accordance with the terms of the Amended Note Purchase Agreement.
On August 5, 2021, the Company entered into the First August 2021 Purchase Agreement. The net proceeds to the Company from the First August 2021 Offerings were approximately $3,217, after deducting placement agent fees and offering expenses payable by the Company. The Company used a portion of the net proceeds from the First August 2021 Offerings together with other cash on hand to redeem $3,281 of the 2020 Jackson Note, which had an outstanding principal amount of approximately $16,730 immediately prior to such redemption.
On October 28, 2021, the Company entered into a securities purchase agreement (the “November 2021 Private Placement”). This placement closed on November 2, 2021 and was announced on November 3, 2021. The net proceeds of the November 2021 Private Placement were approximately $9.25 million. The Company used a portion of the net proceeds from the November 2021 Private Placement to redeem $4,500 of the 2020 Jackson Note, which had an outstanding principal amount of approximately $13,449 immediately prior to such redemption.
The entire outstanding principal balance of the 2020 Jackson Note shall be due and payable on September 30, 2022. The debt represented by the 2020 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.
The Amended Note Purchase Agreement includes certain customary financial covenants, including a leverage ratio covenant and a minimum adjusted EBITDA covenant. Delivery of financial covenants commenced with the fiscal month ending March 2021. The Company is not in compliance with its April 2, 2022 covenants and received a waiver from Jackson. Subsequent to April 2, 2022, the Company is also not in compliance with its financial covenants with Jackson.
Debt Exchange Agreement
On November 15, 2018, the Company, entered into a Debt Exchange Agreement with Jackson, pursuant to which, among other things, Jackson agreed to exchange $13,000 (the “Exchange Amount”) of indebtedness of the Company held by Jackson in exchange for shares of Series E Preferred Stock, par value $per share.
The Series E Preferred Stock ranked senior to the Company’s common stock and any other series or classes of preferred stock issued or outstanding with respect to dividend rights and rights on liquidation, winding up and dissolution. Each share of Series E Preferred Stock was initially convertible into shares of common stock of the Company at any time after October 31, 2020 or the occurrence of a Preferred Default (as defined in the Certificate of Designation for the Series E Preferred Stock (the “Series E Certificate of Designation”)). A holder of Series E Preferred Stock was not required to pay any additional consideration in exchange for conversion of such Series E Preferred Stock into the Company’s common stock. Series E Preferred Stock was redeemable by the Company at any time at a price per share equal to the stated value ($ per share) plus all accrued and unpaid dividends thereon.
The Series E Preferred Stock carried quarterly dividend rights of (a) cash dividends accruing (i) at an annual rate per share equal to 12% from the date of issuance and (ii) 17% after the occurrence of a Preferred Default, and (b) a dividend payable in shares of Series E-1 Convertible Preferred Stock (the “Series E-1 Convertible Preferred Stock” and, collectively with the Series E Convertible Preferred Stock, the “Series E Preferred Stock”). The shares of Series E-1 Convertible Preferred Stock had all the same terms, preferences and characteristics as the Series E Preferred Stock (including, without limitation, the right to receive cash dividends), except (i) Series E-1 Convertible Preferred Stock were mandatorily redeemable by the Company within thirty (30) days after written demand received from any holder at any time after the earlier of the occurrence of a Preferred Default or November 15, 2020, for a cash payment equal to the Liquidation Value (as defined in the Series E Certificate of Designation) plus any accrued and unpaid dividends thereon, (ii) each share of Series E-1 Convertible Preferred Stock was initially convertible into 11 shares of the Company’s common stock, and (iii) Series E-1 Convertible Preferred Stock could be cancelled and extinguished by the Company if all shares of Series E Convertible Preferred Stock are redeemed by the Company on or prior to October 31, 2020.
On October 26, 2020, in connection with the entry into the Amended Note Purchase Agreement, the Company filed with the Secretary of State of the State of Delaware the second Certificate of Amendment (the “Amendment”) to the Series E Certificate of Designation. Under the amended terms, holders of Series E Preferred Stock were entitled to monthly cash dividends on Series E Preferred Stock at a per annum rate of 12%. At the Company’s option, up to 50% of the cash dividend on the Series E Convertible Preferred Stock could be paid in kind by adding such 50% portion to the outstanding liquidation value of the Series E Convertible Preferred Stock (the “PIK Dividend Payment”), commencing on October 26, 2020 and ending on October 25, 2020. If the PIK Dividend Payment was elected, a holder of Series E Preferred Stock was entitled to additional fee to be paid in shares of our common stock an amount equal to $10,000 divided by the average closing price, as reported by Nasdaq of such shares of common stock over the 5 trading days prior to the applicable monthly interest payment date. If such average market price was less than $35.00 or was otherwise undeterminable because such shares were no longer publicly traded or the closing price was no longer reported by Nasdaq, then the average closing price for these purposes was to be deemed to be $35.00, and if such average closing price were greater than $210.00 then the average closing price for these purposes would be deemed to be $210.00. Dividends on the Series E-1 Convertible Preferred Stock could only be paid in cash. If the Company failed to make dividend payments on the Series E Convertible Preferred Stock, it would be an event of default under the Amended Note Purchase Agreement.
Under the terms of the Amendment, shares of Series E-1 Convertible Preferred Stock were convertible into common stock at a conversion rate equal to the liquidation value of each share of Series E-1 Convertible Preferred Stock divided by $ per share commencing October 31, 2020. Each share of Series E-1 Convertible Preferred Stock had a liquidation value of $10,000 per share. The shares of Series E Convertible Preferred Stock were also convertible into shares of common stock after October 31, 2022. The conversion rate for the Series E Convertible Preferred Stock was equal to the liquidation value of each share of Series E Convertible Preferred Stock divided by $ per share. Each share of Series E Convertible Preferred Stock had a liquidation value of $10,000 per share. The Amendment resulted in the original conversion price of $106.80 and $99.60 of the Series E Convertible Preferred Stock and E-1 Convertible Preferred Stock, respectively, being reduced to $60.00 for both instruments.
The Company accounted for the Amendment as a modification to the Series E and E-1 Preferred Stock. The change in fair value as a result of the modification amounted to $410 and was recognized as a deemed dividend as of the fiscal year ended January 2, 2021. Further, the Company recognized a beneficial conversion feature (BCF) of $4,280 as a result of the decrease in the conversion price to $60.00 in comparison to the Company’s stock price on the date of the Amendment. The BCF was recognized as a deemed dividend. As the Company lacked retained earnings at the time of determination, the deemed dividend was recorded as a reduction in additional paid-in capital resulting in a net impact to additional paid-in capital of $0.
Under the terms of the Consent and the Series E Certificate of Designation, in consideration for Jackson’s consent to the firstPRO Transaction, the Initial Payment was used to redeem a portion of the Series E Preferred Stock, and the Escrow Funds, subject to the forgiveness of PPP Loan, were agreed to be used to redeem a portion of the Series E Preferred Stock. As this provision results in a contingent redemption feature, approximately $2,100 of the Series E Preferred Stock was reclassified to mezzanine equity during the year ended January 1, 2022. On July 22, 2021, after conversion of the Series G Preferred Stock to the New Note, the Company redeemed $2,080 of the 2020 Jackson Note using the Escrow Funds.
Lastly, under the terms of the Limited Consent and Waiver with Jackson dated February 5, 2021, it was agreed that to the extent that any of the PPP Loans are forgiven after the February 2021 Offering, Jackson may convert the Series E Convertible Preferred Stock and Series E-1 Convertible Preferred Stock that remains outstanding into a secured note that is substantially similar to the 2020 Jackson Note. As this provision results in a contingent redemption feature, approximately $4,100 of the Series E Preferred Stock was reclassified to mezzanine equity. The Company assessed the fair value of the instrument just before and after this modification and recorded a deemed dividend totaling $389 upon remeasurement of the Series E Preferred Stock.
Jackson Waivers
On February 5, 2021, the Company entered into a Limited Consent and Waiver with Jackson whereby, among other things, Jackson agreed that we may use 75% of the proceeds from the offering to redeem a portion of the 2020 Jackson Note, and 25% of the net proceeds from the offering to redeem a portion of the Base Series E Preferred Stock notwithstanding certain provisions of the certificate of designation for the Base Series E Preferred Stock that would have required the Company to use all the proceeds from the offering to redeem the Base Series E Preferred Stock. In addition, the Company also agreed in the Limited Consent and Waiver to additional limits on its ability to incur other indebtedness, including limits on advances under our revolving loan facility with MidCap Funding X Trust. The Company also agreed that to the extent that any of our PPP Loans are forgiven after the offering, Jackson may convert the Base Series E Preferred Stock and Series E-1 Preferred Stock that remains outstanding into a secured note that is substantially similar to the 2020 Jackson Note. On April 8, 2021, the limited waiver was extended to June 17, 2021. On April 18, 2022, the limited waiver was extended to May 2, 2022. On June 23, 2022, the deadline for complying with the waiver was extended to June 30, 2022.
Series G Preferred Stock – Related Party
On May 6, 2021, the Company, entered into an Exchange Agreement with Jackson (the “Exchange Agreement”), pursuant to which, among other things, Jackson agreed to exchange shares of the Company’s Series E Convertible Preferred Stock and shares of the Series E-1 Preferred Stock for an equivalent number of shares of the Company’s newly issued Series G Convertible Preferred Stock and Series G-1 Convertible Preferred Stock, respectively (collectively, the “Series G Preferred Stock” and the transaction, the “Exchange”). The Series G Preferred Stock was subject to the same terms stated in the Limited Waiver, as defined herein and described in Note 12.
The Series G Preferred Stock ranked senior to each of the Company’s common stock, Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock, and any other classes and series of stock of the Company now or hereafter authorized, issued or outstanding, which by their terms expressly provide that they are junior to the Series G Preferred Stock or which do not specify their rank (which includes the Series F Convertible Preferred Stock). Each share of Series G Preferred Stock was initially convertible into 1,000 shares of common stock at any time from and after, (i) with respect to the Series G Preferred Stock, the earlier of October 31, 2022 or the occurrence of a default and, (ii) with respect to the Series G-l Convertible Preferred Stock, October 31, 2020. A holder of Series G Preferred Stock was not required to pay any additional consideration in exchange for conversion of the Series G Preferred Stock into the Company’s common stock.
The Series G Preferred Stock carried monthly dividend rights of (a) cash dividends accruing (i) at an annual rate per share equal to 12% from the date of issuance (plus any accrued dividends with respect to the Series E Preferred Stock unpaid as of the date of the Exchange) and (ii) 17% after the occurrence of a default, and (b) a dividend payable in shares of Series G-1 Convertible Preferred Stock. The shares of Series G-1 Convertible Preferred Stock had all the same terms, preferences and characteristics as the Series G Preferred Stock (including, without limitation, the right to receive cash dividends), except Series G-1 Convertible Preferred Stock were mandatorily redeemable by the Company within thirty (30) days after written demand received from any holder at any time after the earlier of the occurrence of a Preferred Default or September 30, 2022, for a cash payment equal to the liquidation value plus any accrued and unpaid dividends thereon.
On July 20, 2021, the Company entered into the July 2021 Purchase Agreement. As the Company’s Series G Preferred Stock was outstanding, it was required to use the proceeds of any sales of equity securities, including the common stock offered in the July 2021 Registered Direct Offering, exclusively to redeem any outstanding shares of Series G Preferred Stock, subject to certain limitations. The Company received a waiver from Jackson, the sole holder of the outstanding shares of its Series G Preferred Stock, to pay accrued and unpaid interest and prepay a portion of the outstanding principal balance of the 2020 Jackson Note, and paid accrued and unpaid dividends on the Series G-1 Convertible Preferred Stock upon conversion of such preferred stock into the New Note. While under the terms of the Certificate of Designation governing the Series G Preferred Stock and Series G-1 Preferred Stock, shares and shares of common stock were issuable upon the conversion of Series G Preferred Stock and Series G-1 Preferred Stock, respectively, the shares of Series G Preferred Stock and Series G-1 Convertible Preferred Stock were not converted to common stock and instead were converted on July 21, 2021 to debt. The terms of this note match the terms of the Amended Note Purchase Agreement from October 26, 2020.
As of April 2, 2022, there were no shares of Series G or Series G-1 Convertible Preferred Stock outstanding.
HSBC Loan
On February 8, 2018, CBS Butler Holdings Limited (“CBS Butler”), Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%. Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities. On April 20, 2020, the terms of the loan with HSBC were amended such that no capital repayments would be required between April 2020 to September 2020, and only interest payments would be made during such time. Since such time, capital repayments have resumed. On May 15, 2020, the Company entered into a three-year term loan with HSBC in the UK for £1,000.
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| LEASES | NOTE 7 – LEASES
As of April 2, 2022 and January 1, 2022, as a result of the adoption of ASC 842, we recorded a right of use (“ROU”) lease asset of approximately $5,237 with a corresponding lease liability of approximately $5,333 and ROU of approximately $5,578 with a corresponding lease liability of approximately $5,574, respectively, 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 September 2021, the Company entered into a new lease agreement for an office lease in New York for a term of 8 years. This resulted in increases to right of use assets and lease liabilities of $2,735.
Quantitative information regarding the Company’s leases for period ended April 2, 2022 is as follows:
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 Right of Use Asset and associated lease liability that was appropriately stated in all material respects.
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| STOCKHOLDERS’ EQUITY | NOTE 8 – STOCKHOLDERS’ EQUITY
The Company issued the following shares of common stock during the quarter ended April 2, 2022:
The Company issued the following shares of common stock during the quarter ended April 3, 2021:
Reverse Stock Split
The Company effected a one-for-ten reverse stock split on June 24, 2022 (the “Reverse Stock Split”). All share and per share information in this quarterly report have been retroactively adjusted to reflect the Reverse Stock Splits.
Increase of Authorized Common Stock
On December 27, 2021, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation of the Company to effect an increase to its number of shares of authorized common stock, par value $ from to .
Series A Preferred Stock – Related Party
As of April 2, 2022 and April 3, 2021, the Company had $125 and $125 of dividends payable to the Series A Preferred Stockholder, respectively.
Restricted Shares
The Company has issued shares of restricted stock to employees and members of the Board under its 2015 Omnibus Incentive Plan, 2016 Omnibus Incentive Plan, 2020 Omnibus Plan and 2021 Omnibus Inventive Plan. Under these plans, the shares are restricted for a period of from issuance. As of Fiscal 2021, the Company has issued a total of restricted shares of common stock to employees and Board members that remain restricted. In accordance with ASC 718, Compensation – Stock Compensation, the Company recognizes stock-based compensation from restricted stock based upon the fair value of the award at issuance over the vesting term on a straight-line basis. The fair value of the award is calculated by multiplying the number of restricted shares by the Company’s stock price on the date of issuance. The impact of forfeitures has historically been immaterial to the financial statements. In Fiscal 2021 and 2020, the Company recorded compensation expense associated with these restricted shares of $ and $, respectively. The table below is a rollforward of unvested restricted shares issued to employees and board of directors.
Warrants
Transactions involving the Company’s warrant issuances are summarized as follows:
The following table summarizes warrants outstanding as of April 2, 2022:
Stock Options
The Company recorded share-based payment expense of $and $for the quarters ended April 2, 2022 and April 3, 2021, respectively.
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COMMITMENTS AND CONTINGENCIES |
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| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Whitaker v. Monroe Staffing Services, LLC & Staffing 360 Solutions, Inc.
On December 5, 2019, former owner of Key Resources, Inc. (“KRI”), Pamela D. Whitaker (“Whitaker” or “Plaintiff”), filed a complaint in Guilford County, North Carolina (the “North Carolina Action”) asserting claims for breach of contract and declaratory judgment against Monroe Staffing Services LLC (“Monroe”) and the Company (collectively, the “Defendants”) arising out of the alleged non-payment of certain earn-out payments and interest purportedly due under a Share Purchase Agreement pursuant to which Whitaker sold all issued and outstanding shares in her staffing agency, KRI, to Monroe in August 2018. Whitaker sought $4,054 in alleged damages.
Defendants removed the action to the Middle District of North Carolina on January 7, 2020, and Plaintiff moved to remand on February 4, 2020. Briefing on the motion to remand concluded on February 24, 2020. Separately, Defendants moved to dismiss the action on January 14, 2020 based on Plaintiff’s failure to state a claim, improper venue, and lack of personal jurisdiction as to defendant Staffing 360 Solutions, Inc. Alternatively, Defendants sought a transfer of the action to the Southern District of New York, based on the plain language of the Share Purchase Agreement’s forum selection clause. Briefing on Defendants’ motion to dismiss concluded on February 18, 2020. On February 28, 2020, Plaintiff moved for leave to file an amended complaint. Defendants filed their opposition to the motion for leave on March 19, 2020. Plaintiff has filed a reply.
On June 29, 2020, Magistrate Judge Webster issued a Report and Recommendation on the pending motions, recommending that Defendants’ motion to dismiss be granted with regard to Defendants’ request to transfer the matter to the Southern District of New York, and denied in all other regards without prejudice to Defendants raising those arguments again in the new forum. Magistrate Judge Webster also recommended that Plaintiff’s motion to remand be denied and motion to amend be left to the discretion of the Southern District of New York.
Plaintiff filed an objection to the Report and Recommendation on July 9, 2020. Defendants responded on July 23, 2020. On February 19, 2021, the District Court issued a decision that reversed the Magistrate Judge’s Order. The District Court granted Plaintiff’s motion to remand and denied Defendants’ motion to dismiss as moot. Defendants filed a Notice of Appeal to the Fourth Circuit on February 25, 2021 and filed their opening brief on April 21, 2021. Plaintiff filed her response brief on May 21, 2021, and Defendants replied on June 11, 2021. Oral argument was held on March 9, 2022. As of the date of this filing, a decision is pending.
Separately, on February 26, 2020, the Company and Monroe filed an action against Whitaker in the United States District Court for the Southern District of New York (Case No. 1:20-cv-01716) (the “New York Action”.) The New York Action concerns claims for breach of contract and fraudulent inducement arising from various misrepresentations made by Whitaker to the Company and Monroe in advance of, and included in, the share purchase agreement. The Company and Monroe are seeking damages in an amount to be determined at trial but in no event less than $6,000. On April 28, 2020, Whitaker filed a motion to dismiss the New York Action on both procedural and substantive grounds. On June 11, 2020, Monroe and the Company filed their opposition to Whitaker’s motion to dismiss. On July 9, 2020 Whitaker filed reply papers in further support of the motion.
On October 13, 2020, the Court denied Whitaker’s motion to dismiss, in part, and granted the motion, in part. The Court rejected Whitaker’s procedural arguments but granted the motion on substantive grounds. However, the Court ordered that Monroe and the Company may seek leave to amend the complaint by letter application by December 1, 2020. Monroe and the Company filed a letter of motion for leave to amend and a proposed Amended Complaint on December 1, 2020. On January 5, 2021, Whitaker filed an opposition to the letter motion. On January 25, 2021, Monroe and the Company filed a reply in further support of the letter motion. On March 9, 2021, the Court granted Monroe and the Company’s motion for leave to amend, in part, and denied the motion, in part. The Court rejected Monroe and the Company’s claim for fraudulent inducement but granted the motion for leave to amend their breach of contract claim. Monroe and the Company filed their amended complaint on March 12, 2021. On April 9, 2021, Whitaker renewed her motion to dismiss on procedural grounds, requesting dismissal of the action or, in the alternative, a stay of the proceeding pending adjudication on the merits of the North Carolina Action. On May 14, 2021, Monroe and the Company filed an opposition to the motion to dismiss. On June 21, 2021, Whitaker filed a reply in further support of the motion. The Court referred the case to Magistrate Judge Moses, who held oral argument on the motion on November 9, 2021. Whitaker’s renewed motion to dismiss remains pending.
Monroe and the Company intend to pursue their claims vigorously.
As of the date of this filing, we are not aware of any other material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, other than as disclosed above.
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SEGMENT INFORMATION |
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| SEGMENT INFORMATION | NOTE 10 – SEGMENT INFORMATION
The Company generated revenue and gross profit by segment as follows:
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 following table disaggregates revenues by segments:
As of April 2, 2022 and January 1, 2022, the Company has assets in the U.S. and the U.K. as follows:
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | NOTE 11 – RELATED PARTY TRANSACTIONS
In addition to the Series A Preferred Shares and notes and warrants issued to Jackson, the following are other related party transactions:
Board and Committee Members
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SUPPLEMENTAL CASH FLOW INFORMATION |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
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SUBSEQUENT EVENTS |
3 Months Ended |
|---|---|
Apr. 02, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 13 – SUBSEQUENT EVENTS
On June 23, 2022, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the shares of the Company’s common stock, par value $0.00001 per share, either issued and outstanding or held by the Company as treasury stock, effective as of 4:05 p.m. (Delaware time) on June 23, 2022 (the “Reverse Stock Split”). The Company held a special meeting of stockholders on June 23, 2022 (the “Special Meeting”), at which meeting the Company’s stockholders, approved the amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of the Company’s common stock at a ratio in the range of 1-for-2 to 1-for-20, with such ratio to be determined by the Company’s board of directors (the “Board”) and included in a public announcement. Following the Special Meeting, the Board determined to effect the Reverse Stock Split at a ratio of 1-for-10 and approved the corresponding final form of the Certificate of Amendment.
On April 18, 2022, the Company entered into a Stock Purchase Agreement with Headway Workforce Solutions (“Headway”), and Chapel Hill Partners, LP, as the representatives of all the stockholders (collectively, the “Sellers”) of Headway (the “Sellers’ Representative”), pursuant to which, among other things, the Company agreed to purchase all of the issued and outstanding securities of Headway in exchange for (i) a cash payment of $14, and (ii) shares of our Series H Convertible Preferred Stock, with a value equal to the Closing Payment, as defined in the Stock Purchase Agreement (the “Headway Acquisition”). On May 18, 2022, the Headway Acquisition closed. The purchase price in connection with the Headway Acquisition was approximately $9,000. Pursuant to the Stock Purchase Agreement and in connection with the closing of the Headway Acquisition, on May 17, 2022, the Company filed a certificate of designation (the “Certificate of Designation”) with the Secretary of State of Delaware designating the rights, preferences and limitations of the Series H Convertible Preferred Stock, par value $ per share (the “Series H Preferred Stock”).
The purchase price in connection with the Headway Acquisition was $9,000, subject to adjustment as provided in the Stock Purchase Agreement. Pursuant to certain covenants in the Stock Purchase Agreement, the Company may be subject to a Contingent Payment of up to $5,000 based on the Adjusted EBITDA (such term as defined in the Stock Purchase Agreement) of Headway during the Contingent Period (such term as defined in the Stock Purchase Agreement).
The Stock Purchase Agreement also contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Stock Purchase Agreement. Such representations and warranties are made solely for purposes of the Stock Purchase Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Stock Purchase Agreement and may have been qualified by disclosures that were made in connection with the parties’ entry into the Stock Purchase Agreement.
In connection with the Headway Acquisition, the Sellers’ Representative and certain of the Sellers entered into voting agreements whereby each will agree to, at every meeting of our stockholders, and at every adjournment or postponement thereof, to appear or issue a proxy to a third party to be present for purposes of establishing a quorum, and to vote all applicable shares in favor of each matter proposed and recommended for approval by the Company’s board of directors either in person or by proxy, amongst other provisions.
On May 3, 2022, the Board declared a dividend of one one-thousandth (1/1,000th) of a share of Series J Preferred Stock for each outstanding share of Common Stock to stockholders of record of Common Stock as of 5:00 p.m. Eastern Time on May 13, 2022. The holders of Series J Preferred Stock have 1,000,000 votes per whole share of Series J Preferred Stock (i.e., 1,000 votes per one one-thousandth of a share of Series J Preferred Stock) and are entitled to vote with the Common Stock, together as a single class, on the Reverse Stock Split Proposal and Adjournment Proposal, but are not otherwise entitled to vote on the other proposals, if any, to be presented at the Special Meeting. All shares of Series J Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series J Preferred Stock (the “Initial Redemption”). Notwithstanding the foregoing, each share of Series J Preferred Stock redeemed pursuant to the Initial Redemption will have no voting power with respect to the Reverse Stock Split, the Adjournment Proposal or any other matter. When a holder of Common Stock submits a vote on the Reverse Stock Split Proposal and the Adjournment Proposal, the corresponding number of shares of Series J Preferred Stock (or fraction thereof) held by such holder will be automatically cast in the same manner as the vote of the share of Common Stock (or fraction thereof) in respect of which such share of Series J Preferred Stock (or fraction thereof) was issued as a dividend is cast on the Reverse Stock Split, the Adjournment Proposal or such other matter, as applicable, and the proxy or ballot with respect to shares of Common Stock held by any holder on whose behalf such proxy or ballot is submitted will be deemed to include all shares of Series J Preferred Stock (or fraction thereof) held by such holder. Holders of Series J Preferred Stock will not receive a separate ballot or proxy to cast votes with respect to the Series J Preferred Stock on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before the Special Meeting. For example, if a stockholder holds 10 shares of Common Stock (entitled to one vote per share) and votes in favor of the Reverse Stock Split Proposal, then 10,010 votes will be recorded in favor of the Reverse Stock Split Proposal, because the stockholder’s shares of Series J Preferred Stock will automatically be voted in favor of the Reverse Stock Split Proposal alongside such stockholder’s shares of Common Stock.
On July 1, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors for the issuance and sale of a private placement of shares of common stock or pre-funded warrants to purchase shares of common stock, and warrants (the “July 2022 Warrants”) to purchase up to 657,858 shares of common stock, with an exercise price of $5.85 per share. The Warrants are exercisable immediately upon issuance and have a term of exercise equal to five and one-half years from the date of issuance. The combined purchase price for one Common Share (or pre-funded warrant) and one associated warrant to purchase one share of common stock was $.
In connection with the private placement, each investor entered into a warrant amendment agreement with the Company (collectively, the “Warrant Amendment Agreements”) to amend the exercise prices of certain existing warrants to purchase up to an aggregate of 657,858 shares of common stock of the Company that were previously issued to the investors, with exercise prices ranging from $18.50 to $38.00 per share and expiration dates ranging from July 22, 2026 to November 1, 2026. The Warrant Amendment Agreements became effective upon the closing of the private placement and pursuant to the Warrant Amendment Agreements, the amended warrants have a reduced exercise price of $5.85 per share and expire five and one-half years following the closing of the private placement. H.C. Wainwright & Co., LLC (“HCW”) acted as the Company’s exclusive placement agent in connection with the private placement, pursuant to that engagement letter, dated as of June 28, 2022, between the Company and HCW. The Company paid HCW (i) a total cash fee equal to 7.5% of the aggregate gross proceeds of the private placement, (ii) a management fee of 1.0% of the aggregate gross proceeds of the private placement, or $40,129.34, and (iii) a non-accountable expense allowance of $85,000. In addition, the Company issued to HCW warrants to purchase up to 49,339 shares of common stock at an exercise price equal to $7.625. The warrants are exercisable immediately upon issuance and have a term of exercise equal to five and one-half years from the date of issuance.
The Company intends to use the net proceeds received from the private placement for general working capital purposes.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
|---|---|
Apr. 02, 2022 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation
These 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 and par values, unless otherwise indicated.
The accompanying 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.
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| Liquidity | Liquidity
The accompanying 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 financial statements have been prepared on a basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the quarter ended April 2, 2022, the Company has an accumulated deficit of $86,345 and a working capital deficit of $19,449. At April 2, 2022, we had total gross debt of $9,444 and $1,355 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. Subsequent to the quarter ended April 2, 2022, we have continued to fund our operations and make required capital payments utilizing our available cash and, as of the date of this filing, we have approximately $4,612 in available cash.
The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us.
Further, our note issued to Jackson Investment Group, LLC includes certain financial customary covenants and the Company has had instances of non-compliance. Management has historically been able to obtain from Jackson waivers of any non-compliance and management expects to continue to be able to obtain necessary waivers in the event of future non-compliance; however, there can be no assurance that the Company will be able to obtain such waivers, and should Jackson refuse to provide a waiver in the future, the outstanding debt under the agreement could become due immediately, which exceeds our current cash balance.
The entire outstanding principal balance of the 2020 Jackson Note shall be due and payable on September 30, 2022. The debt represented by the 2020 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. The Company also has a $25,000 revolving loan facility with MidCap. The MidCap Facility has a maturity date of September 1, 2022 and although we believe we will be able to either renew this agreement or find an alternative lender, this has yet to be completed.
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| Going Concern | Going Concern
The accompanying 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 Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic raise substantial doubt about the Company’s ability to continue as a going concern.
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| COVID-19 | COVID-19
The novel Coronavirus disease 2019 (“COVID-19”), is continuing to impact worldwide economic activity, and activity in the United States and the United Kingdom where our operations are based. The nature of work of the contractors we support mostly are on the site of our clients. As a result, we are subject to the plans and approaches of our clients to work during this period. This includes whether they support remote working when they have decided to close their facilities. To the extent that our clients have decided to or are required to close their facilities or not permit remote work when they decide to close facilities, we would no longer generate revenue and profit from that client. Developments such as social distancing and shelter-in-place directives have impacted the Company’s ability to deploy its staffing workforce effectively thereby impacting contracts with customers in the Company’s Commercial Staffing and Professional Staffing business streams where we have seen declines in revenues during Fiscal 2021 and 2020. While expected to be temporary, prolonged workforce disruptions can negatively impact sales in fiscal year 2022 and the Company’s overall liquidity.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022.
The Company’s negative working capital and liquidity position combined with the uncertainty generated by the economic reaction to the COVID-19 pandemic contribute to the substantial doubt about the Company’s ability to continue as a going concern.
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| Use of Estimates | Use of Estimates
The preparation of 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 April 2, 2022 and April 3, 2021 include the valuation of intangible assets, including goodwill, liabilities associated with testing long-lived assets for impairment and valuation reserves against deferred tax assets.
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| Goodwill | 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.
In accordance with ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. During the year ended January 2, 2021 the Company changed its annual measurement date from the first day of the fiscal fourth quarter to the last day of the fiscal year end. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company’s goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.
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.
The Company recognized an impairment with respect to its Staffing UK reporting unit of $3,104 during the fourth quarter ended January 1, 2022. The impairment resulted from a continued decline in that reporting unit’s revenue which experienced significant and prolonged declines as a result of the COVID-19 pandemic. To determine the impairment, the Company employed a combination of market approach (valuations using comparable company multiples), income approach (discounted cash flow analysis) and prevailing market conditions to derive the fair value of the reporting unit. Under ASU 2017-04, which the Company early adopted, the impairment amount represents the excess of the carrying value over the fair value of the reporting unit.
No impairments to goodwill were recognized during the quarter ended April 2, 2022. In assessing potential impairment to goodwill, management has made assumptions regarding partial recovery from the COVID-19 pandemic. If the assumptions utilized by management are not achieved and declines to operations are greater than anticipated, while failing to achieve growth in future periods as a result of the prolonged impact of COVID-19 pandemic, an impairment to goodwill could be recorded and such amount could be material to the financial statements. A reduction in the projected long-term operating performance of the reporting units, market declines, changes in discount rates or other conditions could result in a material impairment in the future.
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| Revenue Recognition | 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.
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 quarter ended April 2, 2022 was comprised of $48,329 of temporary contractor revenue and $1,564 permanent placement revenue, compared with $47,918 and $1,033 for the quarter ended April 3, 2021, respectively. Refer to Note 10 for further details on breakdown by segments.
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| Income Taxes | Income Taxes
The Company’s provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared with those forecasted at the beginning of the fiscal year and each interim period thereafter.
The effective income tax rate was (0.25%) and (2.20%) for the quarters ending April 2, 2022 and April 3, 2021, 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.
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| Foreign Currency | Foreign Currency
The Company recorded a non-cash foreign currency remeasurement (loss) gain of ($443) and $128 for the quarters ended April 2, 2022 and April 3, 2021, respectively, associated with its U.S dollar denominated intercompany note.
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| Warrants | 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.
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. The fair value of the warrants the Company has privately placed were estimated using a Black Scholes model. Refer to Note 8 for further details.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this ASU in this fiscal year. This standard did not have an impact on our financial statements.
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EARNINGS (LOSS) PER COMMON SHARE (Tables) |
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| SCHEDULE OF COMMON SHARE EQUIVALENT BASIS AND OUTSTANDING EXCLUDED FROM PER SHARE COMPUTATIONS OF ANTI-DILUTIVE |
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GOODWILL (Tables) |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF GOODWILL | The following table provides a roll forward of goodwill:
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DEBT (Tables) |
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| SCHEDULE OF DEBT |
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LEASES (Tables) |
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| SCHEDULE OF LEASE, COST | Quantitative information regarding the Company’s leases for period ended April 2, 2022 is as follows:
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| SCHEDULE OF OPERATING LEASE LIABILITY MATURITY |
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STOCKHOLDERS’ EQUITY (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCKHOLDERS EQUITY | The Company issued the following shares of common stock during the quarter ended April 2, 2022:
The Company issued the following shares of common stock during the quarter ended April 3, 2021:
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| SCHEDULE OF UNVESTED RESTRICTED SHARES ACTIVITY |
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| SCHEDULE OF WARRANTS ACTIVITY | Transactions involving the Company’s warrant issuances are summarized as follows:
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| SCHEDULE OF STOCKHOLDERS' EQUITY NOTE, WARRANTS OR RIGHTS | The following table summarizes warrants outstanding as of April 2, 2022:
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| SCHEDULE OF SHARE-BASED COMPENSATION, STOCK OPTIONS, ACTIVITY |
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SEGMENT INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT | The Company generated revenue and gross profit by segment as follows:
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 following table disaggregates revenues by segments:
As of April 2, 2022 and January 1, 2022, the Company has assets in the U.S. and the U.K. as follows:
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RELATED PARTY TRANSACTIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 02, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RELATED PARTY TRANSACTIONS |
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SUPPLEMENTAL CASH FLOW INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CASH FLOW, SUPPLEMENTAL DISCLOSURES |
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SCHEDULE OF COMMON SHARE EQUIVALENT BASIS AND OUTSTANDING EXCLUDED FROM PER SHARE COMPUTATIONS OF ANTI-DILUTIVE (Details) - shares |
3 Months Ended | |
|---|---|---|
Apr. 02, 2022 |
Apr. 03, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 1,030,677 | 188,187 |
| Convertible Peferred Shares [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 127,300,000 | |
| Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 972,495 | 54,285 |
| Restricted Shares Unvested [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 6,880 | 5,300 |
| Share-Based Payment Arrangement, Option [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 51,302 | 1,302 |
SCHEDULE OF GOODWILL (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Apr. 02, 2022 |
Jan. 01, 2022 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Beginning balance, gross | $ 23,828 | $ 31,591 |
| Accumulated disposition | (1,577) | |
| Accumulated impairment losses | (6,073) | |
| Currency translation adjustment | (348) | (113) |
| Ending balance, net | $ 23,480 | $ 23,828 |
GOODWILL (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Apr. 02, 2022 |
Mar. 28, 2020 |
Jan. 01, 2022 |
|
| Goodwill [Line Items] | |||
| Goodwill, Impairment Loss | $ 6,073 | ||
| Staffing UK Reporting Unit [Member] | |||
| Goodwill [Line Items] | |||
| Goodwill, Impairment Loss | $ 3,104 | $ 3,104 | |
SCHEDULE OF DEBT (Details) - USD ($) $ in Thousands |
Apr. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Total Debt, Gross | $ 9,619 | $ 9,758 |
| Less: Debt Discount and Deferred Financing Costs, Net | (175) | (256) |
| Total Debt, Net | 9,444 | 9,502 |
| Less: Non-Current Portion | (123) | (279) |
| Total Current Debt, Net | 9,321 | 9,223 |
| Jackson Investment Group Related Party [Member] | ||
| Short-Term Debt [Line Items] | ||
| Total Debt, Gross | 8,949 | 8,949 |
| HSBC Term Loan [Member] | ||
| Short-Term Debt [Line Items] | ||
| Total Debt, Gross | $ 670 | $ 809 |
SCHEDULE OF LEASE, COST (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Apr. 02, 2022
USD ($)
| |
| Weighted average remaining lease term (years) | 3 years 11 months 4 days |
| Weighted average discount rate | 6.70% |
| Selling, General and Administrative Expenses [Member] | |
| Operating lease cost | $ 421 |
SCHEDULE OF OPERATING LEASE LIABILITY MATURITY (Details) - USD ($) $ in Thousands |
Apr. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Leases | ||
| 2022 | $ 795 | |
| 2023 | 1,129 | |
| 2024 | 942 | |
| 2025 | 834 | |
| 2026 | 834 | |
| Thereafter | 2,100 | |
| Total | 6,634 | |
| Less: Imputed Interest | 1,301 | |
| Operating lease, liability | 5,333 | |
| Leases - Current | 879 | $ 1,006 |
| Leases - Non current | $ 4,454 | $ 4,568 |
LEASES (Details Narrative) - USD ($) $ in Thousands |
Apr. 02, 2022 |
Jan. 01, 2022 |
Sep. 30, 2021 |
Jan. 02, 2021 |
|---|---|---|---|---|
| Operating lease, right-of-use asset | $ 5,237 | $ 5,578 | ||
| Operating lease liability | 5,333 | |||
| New Lease Agreement [Member] | ||||
| Operating lease, right-of-use asset | $ 2,735 | |||
| Operating lease liability | $ 2,735 | |||
| Lessee, operating lease, renewal term | 8 years | |||
| Accounting Standards Update 2018-11 [Member] | ||||
| Operating lease, right-of-use asset | 5,237 | $ 5,578 | ||
| Operating lease liability | $ 5,333 | $ 5,574 |
SCHEDULE OF UNVESTED RESTRICTED SHARES ACTIVITY (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Apr. 02, 2022 |
Jan. 01, 2022 |
|
| Equity [Abstract] | ||
| Restricted Shares, Beginning balance | 5,947 | 1,030 |
| Weighted Average Price Per Share, Beginning balance | $ 50.00 | $ 75.00 |
| Restricted Shares, Granted | 1,000 | 19,115 |
| Weighted Average Price Per Share, Granted | $ 9.70 | $ 29.20 |
| Restricted Shares, Vested/adjustments | (67) | (14,198) |
| Weighted Average Price Per Share, Vested/adjustments | $ 107.40 | $ 29.00 |
| Restricted Shares, Ending balance | 6,880 | 5,947 |
| Weighted Average Price Per Share, Ending balance | $ 5.71 | $ 50.00 |
SCHEDULE OF WARRANTS ACTIVITY (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Apr. 02, 2022 |
Jan. 01, 2022 |
|
| Equity [Abstract] | ||
| Number of Shares, Outstanding Beginning Balance | 972,495 | 26,285 |
| Weighted Average Exercise Price, Outstanding Beginning Balance | $ 25.84 | $ 59.40 |
| Number of Shares, Issued | 995,452 | |
| Weighted Average Exercise Price, Issued | $ 25.90 | |
| Number of Shares, Exercised | (49,242) | |
| Weighted Average Exercise Price, Exercised | $ 0.0001 | |
| Number of Shares, Expired or Cancelled | ||
| Weighted Average Exercise Price, Expired or Cancelled | ||
| Number of Shares, Exercised | 49,242 | |
| Number of Shares, Outstanding Ending Balance | 972,495 | 972,495 |
| Weighted Average Exercise Price, Outstanding Ending Balance | $ 25.84 | $ 25.84 |
SCHEDULE OF STOCKHOLDERS' EQUITY NOTE, WARRANTS OR RIGHTS (Details) |
3 Months Ended |
|---|---|
|
Apr. 02, 2022
$ / shares
shares
| |
| Class of Warrant or Right, Number Outstanding and Exercisable | shares | 972,495 |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms | 4 years 2 months 23 days |
| Weighted Average Exercise Price | $ 25.84 |
| Minimum [Member] | |
| Exercise Price | 18.50 |
| Maximum [Member] | |
| Exercise Price | $ 3,750 |
SCHEDULE OF SHARE-BASED COMPENSATION, STOCK OPTIONS, ACTIVITY (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Apr. 02, 2022 |
Jan. 01, 2022 |
|
| Equity [Abstract] | ||
| Options Outstanding, Beginning Balance | 1,302 | 1,302 |
| Weighted Average Exercise Price, Beginning Balance | $ 1,665.60 | $ 1,665.60 |
| Options Granted | 50,000 | |
| Weighted Average Exercise Price, Granted | $ 7.80 | |
| Options Exercised | ||
| Weighted Average Exercise Price, Exercised | ||
| Options Expired or Cancelled | ||
| Weighted Average Exercise Price, Expired or Cancelled | ||
| Options Outstanding, Ending Balance | 51,302 | 1,302 |
| Weighted Average Exercise Price, Ending Balance | $ 50.06 | $ 1,665.60 |
STOCKHOLDERS’ EQUITY (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Apr. 02, 2022 |
Apr. 03, 2021 |
Jan. 01, 2022 |
Jan. 01, 2021 |
Dec. 27, 2021 |
Dec. 26, 2021 |
|
| Class of Stock [Line Items] | ||||||
| Common stock, par value | $ 0.00001 | $ 0.00001 | $ 0.00001 | |||
| Common stock, shares authorized | 40,000,000 | 40,000,000 | 200,000,000 | 40,000,000 | ||
| Grants in period shares | 1,000 | 19,115 | ||||
| Share-Based Payment Arrangement, Expense | $ 42,000 | $ 219,000 | ||||
| 2016 Omnibus Incentive Plan [Member] | ||||||
| Class of Stock [Line Items] | ||||||
| Share-Based Payment Arrangement, Expense | $ 21,000 | 7,000 | ||||
| Restricted Stocks [Member] | ||||||
| Class of Stock [Line Items] | ||||||
| Share-Based Payment Arrangement, Expense | $ 374,000 | $ 539,000 | ||||
| April 2021 Securities Purchase Agreement [Member] | Second Amended and Restated 12% Senior Secured Note [Member] | ||||||
| Class of Stock [Line Items] | ||||||
| Share based payment award vesting period terms | three years | |||||
| Grants in period shares | 1,000 | |||||
| Series A Preferred Stock [Member] | ||||||
| Class of Stock [Line Items] | ||||||
| Dividend payables | $ 125 | $ 125 | ||||
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Feb. 26, 2020 |
Apr. 02, 2022 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Alleged damages | $ 6,000 | |
| New York Action [Member] | Pamela D. Whitaker [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Alleged damages | $ 4,054 |
SCHEDULE OF CASH FLOW, SUPPLEMENTAL DISCLOSURES (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Apr. 02, 2022 |
Apr. 03, 2021 |
|
| Supplemental Cash Flow Elements [Abstract] | ||
| Interest | $ 766 | $ 775 |
| Income taxes | ||
| Deferred purchase price of UK factoring facility | 1,835 | 1,612 |
| Dividends accrued to related parties | 389 | |
| Deemed dividend | $ 389 | |
SUBSEQUENT EVENTS (Details Narrative) - USD ($) |
Jul. 01, 2022 |
Jun. 23, 2022 |
May 18, 2022 |
May 03, 2022 |
Apr. 18, 2022 |
Apr. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|---|---|---|---|---|
| Subsequent Event [Line Items] | |||||||
| Preferred stock, par value | $ 0.00001 | $ 0.00001 | |||||
| Minimum [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Warrant exercise price | 18.50 | ||||||
| Maximum [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Warrant exercise price | $ 3,750 | ||||||
| Engagement Letter [Member] | H C Wainwright And Company L L C [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Percentage of cash fee on gross proceeds | 7.50% | ||||||
| Subsequent Event [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Reverse stock split | the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the shares of the Company’s common stock, par value $0.00001 per share, either issued and outstanding or held by the Company as treasury stock, effective as of 4:05 p.m. (Delaware time) on June 23, 2022 (the “Reverse Stock Split”). The Company held a special meeting of stockholders on June 23, 2022 (the “Special Meeting”), at which meeting the Company’s stockholders, approved the amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of the Company’s common stock at a ratio in the range of 1-for-2 to 1-for-20, with such ratio to be determined by the Company’s board of directors (the “Board”) and included in a public announcement. Following the Special Meeting, the Board determined to effect the Reverse Stock Split at a ratio of 1-for-10 and approved the corresponding final form of the Certificate of Amendment. | ||||||
| Subsequent Event [Member] | Stock Purchase Agreement [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Cash payments for acquisition receivables | $ 14 | ||||||
| Preferred stock, voting rights | On May 3, 2022, the Board declared a dividend of one one-thousandth (1/1,000th) of a share of Series J Preferred Stock for each outstanding share of Common Stock to stockholders of record of Common Stock as of 5:00 p.m. Eastern Time on May 13, 2022. The holders of Series J Preferred Stock have 1,000,000 votes per whole share of Series J Preferred Stock (i.e., 1,000 votes per one one-thousandth of a share of Series J Preferred Stock) and are entitled to vote with the Common Stock, together as a single class, on the Reverse Stock Split Proposal and Adjournment Proposal, but are not otherwise entitled to vote on the other proposals, if any, to be presented at the Special Meeting. All shares of Series J Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series J Preferred Stock (the “Initial Redemption”). Notwithstanding the foregoing, each share of Series J Preferred Stock redeemed pursuant to the Initial Redemption will have no voting power with respect to the Reverse Stock Split, the Adjournment Proposal or any other matter. When a holder of Common Stock submits a vote on the Reverse Stock Split Proposal and the Adjournment Proposal, the corresponding number of shares of Series J Preferred Stock (or fraction thereof) held by such holder will be automatically cast in the same manner as the vote of the share of Common Stock (or fraction thereof) in respect of which such share of Series J Preferred Stock (or fraction thereof) was issued as a dividend is cast on the Reverse Stock Split, the Adjournment Proposal or such other matter, as applicable, and the proxy or ballot with respect to shares of Common Stock held by any holder on whose behalf such proxy or ballot is submitted will be deemed to include all shares of Series J Preferred Stock (or fraction thereof) held by such holder. Holders of Series J Preferred Stock will not receive a separate ballot or proxy to cast votes with respect to the Series J Preferred Stock on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before the Special Meeting. For example, if a stockholder holds 10 shares of Common Stock (entitled to one vote per share) and votes in favor of the Reverse Stock Split Proposal, then 10,010 votes will be recorded in favor of the Reverse Stock Split Proposal, because the stockholder’s shares of Series J Preferred Stock will automatically be voted in favor of the Reverse Stock Split Proposal alongside such stockholder’s shares of Common Stock. | ||||||
| Subsequent Event [Member] | Stock Purchase Agreement [Member] | Series H Convertible Preferred Stock [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Number of conversion of shares | 9,000,000 | ||||||
| Purchase price of acquisition | $ 9,000 | ||||||
| Preferred stock, par value | $ 0.00001 | ||||||
| Business consideration amount | $ 5,000 | ||||||
| Subsequent Event [Member] | Securities Purchase Agreement [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Number of shares sold | 657,858 | ||||||
| Number of warrants to purchase shares | 657,858 | ||||||
| Warrant exercise price | $ 5.85 | ||||||
| Price per share | $ 6.10 | ||||||
| Subsequent Event [Member] | Warrant Amendment Agreements [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Number of warrants to purchase shares | 657,858 | ||||||
| Warrant exercise price | $ 5.85 | ||||||
| Debt Instrument, Payment Terms | expiration dates ranging from July 22, 2026 to November 1, 2026 | ||||||
| Percentage of management fee on gross proceeds | 1.00% | ||||||
| Gross proceeds on management fee | $ 40,129.34 | ||||||
| Subsequent Event [Member] | Warrant Amendment Agreements [Member] | Minimum [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Warrant exercise price | $ 18.50 | ||||||
| Subsequent Event [Member] | Warrant Amendment Agreements [Member] | Maximum [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Warrant exercise price | $ 38.00 | ||||||
| Subsequent Event [Member] | Engagement Letter [Member] | |||||||
| Subsequent Event [Line Items] | |||||||
| Number of warrants to purchase shares | 49,339 | ||||||
| Warrant exercise price | $ 7.625 | ||||||
| Non accountable expense allowance | $ 85,000,000 |