UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended November 30, 2016

or

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

For the transition period from ________ to _________

Commission File Number: 001-37575

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

NEVADA

 

68-0680859

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

641 Lexington Avenue

Suite 1526

New York, New York 10022

(Address of principal executive offices) (Zip Code)

(212) 634-6411

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

 

Large Accelerated Filer

 

Accelerated Filer

 

 

 

 

 

Non-Accelerated Filer

  (Do not check if a smaller reporting company)

Smaller Reporting Company

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

As of January 12, 2017, there were 9,739,795 outstanding common stock shares, par value $0.00001 per share, of the issuer.

 

 

 

 

 


 

Form 10-Q Quarterly Report

INDEX

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets as of November 30, 2016 (unaudited) and May 31, 2016

 

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months ended November 30, 2016 and 2015 (unaudited)

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended November 30, 2016 and 2015 (unaudited)

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended November 30, 2016 and 2015 (unaudited)

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2

 

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

 

18

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4

 

Controls and Procedures

 

28

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

Item 1

 

Legal Proceedings

 

29

Item 1A

 

Risk Factors

 

30

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

Item 3

 

Defaults Upon Senior Securities

 

31

Item 4

 

Mine Safety Disclosures

 

31

Item 5

 

Other Information

 

31

Item 6

 

Exhibits

 

32

 

 

 

 

 

Signatures

 

 

 

33

 

 

2


 

PART I-FINANCIA L INFORMATION

Item 1. Financial Statements

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

November 30,

 

 

May 31,

 

 

 

2016

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,235

 

 

$

1,969

 

Accounts receivable, net

 

 

23,844

 

 

 

20,378

 

Prepaid expenses and other current assets

 

 

680

 

 

 

1,012

 

Total Current Assets

 

 

25,759

 

 

 

23,359

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

938

 

 

 

880

 

Intangible assets, net

 

 

9,377

 

 

 

10,741

 

Goodwill

 

 

15,680

 

 

 

14,833

 

Other assets

 

 

4,511

 

 

 

3,946

 

Total Assets

 

$

56,265

 

 

$

53,759

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

18,575

 

 

$

17,595

 

Current portion of debt, net

 

 

3,716

 

 

 

6,097

 

Accounts receivable financing

 

 

16,665

 

 

 

14,729

 

Other current liabilities

 

 

1,270

 

 

 

1,497

 

Total Current Liabilities

 

 

40,226

 

 

 

39,918

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

3,947

 

 

 

3,186

 

Other long-term liabilities

 

 

3,071

 

 

 

3,143

 

Total Liabilities

 

 

47,244

 

 

 

46,247

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Series D Preferred Stock, 5,000 shares designated, $10,000 stated value, 93 and 0 shares

   issued and outstanding, respectively

 

 

612

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A Preferred Stock, 1,663,008 shares designated, $10.00 stated value, 1,663,008  shares issued and outstanding

 

 

 

 

 

 

Series B Preferred Stock, 200,000 shares designated, $10.00 stated value, 0 and 133,000 shares issued and outstanding, respectively

 

 

 

 

 

 

Series C Preferred Stock, 2,000,000 shares designated, $1.00 stated value, 0 and 175,439 shares issued and outstanding, respectively

 

 

 

 

 

 

Common stock, $0.00001 par value, 20,000,000 shares authorized; 9,115,545 and 6,306,744

   shares issued and outstanding, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

54,589

 

 

 

51,474

 

Accumulated other comprehensive income

 

 

761

 

 

 

159

 

Accumulated deficit

 

 

(46,941

)

 

 

(44,121

)

Total Stockholders' Equity

 

 

8,409

 

 

 

7,512

 

Total Liabilities and Stockholders' Equity

 

$

56,265

 

 

$

53,759

 

 

 

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)

 

 

 

For the Three Months Ended November 30,

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

47,137

 

 

$

41,350

 

 

$

94,887

 

 

$

77,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, Excluding Depreciation and Amortization

   Stated Below

 

 

39,040

 

 

 

33,880

 

 

 

78,301

 

 

 

63,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

8,097

 

 

 

7,470

 

 

 

16,586

 

 

 

13,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses, excluding

   depreciation and amortization stated below

 

 

7,405

 

 

 

8,334

 

 

 

15,090

 

 

 

14,492

 

Depreciation and amortization

 

 

761

 

 

 

800

 

 

 

1,519

 

 

 

1,537

 

Total Operating Expenses

 

 

8,166

 

 

 

9,134

 

 

 

16,609

 

 

 

16,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss From Operations

 

 

(69

)

 

 

(1,664

)

 

 

(23

)

 

 

(2,238

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(553

)

 

 

(755

)

 

 

(1,196

)

 

 

(1,281

)

Amortization of beneficial conversion feature

 

 

(184

)

 

 

(193

)

 

 

(369

)

 

 

(366

)

Amortization of debt discount and deferred financing costs

 

 

(424

)

 

 

(568

)

 

 

(833

)

 

 

(982

)

Other expense

 

 

(168

)

 

 

(40

)

 

 

(202

)

 

 

(10

)

Total Other Expenses

 

 

(1,329

)

 

 

(1,556

)

 

 

(2,600

)

 

 

(2,639

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Before (Provision) Benefit for Income Tax

 

 

(1,398

)

 

 

(3,220

)

 

 

(2,623

)

 

 

(4,877

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) Benefit for income taxes

 

 

(28

)

 

 

42

 

 

 

(97

)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(1,426

)

 

 

(3,178

)

 

 

(2,720

)

 

 

(4,870

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to non-controlling interest

 

 

 

 

 

206

 

 

 

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Preferred Share Dividends

 

 

(1,426

)

 

 

(3,384

)

 

 

(2,720

)

 

 

(5,091

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock

 

 

(50

)

 

 

(50

)

 

 

(100

)

 

 

(100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock

 

$

(1,476

)

 

$

(3,434

)

 

$

(2,820

)

 

$

(5,191

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(0.16

)

 

$

(0.68

)

 

$

(0.34

)

 

$

(1.06

)

Net Loss Attributable to Common Stock

 

$

(0.17

)

 

$

(0.73

)

 

$

(0.36

)

 

$

(1.13

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

8,789,725

 

 

 

4,706,554

 

 

 

7,930,032

 

 

 

4,599,032

 

 

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)

 

 

 

For the Three Months Ended November 30,

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net Loss

 

$

(1,426

)

 

$

(3,178

)

 

$

(2,720

)

 

$

(4,870

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation

 

 

197

 

 

 

80

 

 

 

602

 

 

 

77

 

Comprehensive Loss

 

 

(1,229

)

 

 

(3,098

)

 

 

(2,118

)

 

 

(4,793

)

Comprehensive Loss attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss attributable to common stock

 

$

(1,229

)

 

$

(3,098

)

 

$

(2,118

)

 

$

(4,793

)

 

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

 

 

5


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,720

)

 

$

(4,870

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

155

 

 

 

109

 

Write-off of property and equipment

 

 

 

 

 

49

 

Amortization of intangible assets

 

 

1,364

 

 

 

1,428

 

Amortization of debt discount and beneficial conversion feature

 

 

1,202

 

 

 

1,348

 

Stock based compensation

 

 

344

 

 

 

1,611

 

Loss (gain) on settlement of debt

 

 

169

 

 

 

(36

)

Interest paid in stock

 

 

2

 

 

 

31

 

Other, net

 

 

(89

)

 

 

149

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,466

)

 

 

(469

)

Prepaid expenses and other current assets

 

 

332

 

 

 

74

 

Other assets

 

 

(565

)

 

 

(391

)

Accounts payable and accrued expenses

 

 

980

 

 

 

852

 

Other current liabilities

 

 

(188

)

 

 

(46

)

Other long-term liabilities

 

 

(53

)

 

 

42

 

Other, net

 

 

487

 

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(2,046

)

 

 

(119

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired

 

 

 

 

 

(3,654

)

Acquisition - payments made to seller

 

 

(849

)

 

 

(83

)

Payments made for earn-outs

 

 

(69

)

 

 

(86

)

Purchase of property and equipment

 

 

(213

)

 

 

(98

)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(1,131

)

 

 

(3,921

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Third-party financing costs

 

 

 

 

 

(1,115

)

Proceeds from convertible notes

 

 

400

 

 

 

4,279

 

Repayment of convertible notes

 

 

(1,386

)

 

 

(275

)

Proceeds from promissory notes

 

 

273

 

 

 

1,555

 

Repayment of promissory notes

 

 

(995

)

 

 

(1,052

)

Repayment of bonds

 

 

(5

)

 

 

(100

)

Proceeds from accounts receivable financing

 

 

2,800

 

 

 

1,772

 

Repayment of accounts receivable financing overadvance

 

 

(863

)

 

 

 

Proceeds from sale of equity

 

 

2,495

 

 

 

 

Financing cost associated with private placements

 

 

(274

)

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

2,445

 

 

 

5,064

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

(732

)

 

 

1,024

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

1,969

 

 

 

19

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

1,235

 

 

$

1,041

 

 

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

 

 

 

6


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 1 – ORG ANIZATION 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 (“Golden Fork”), which changed its name to Staffing 360 Solutions, Inc., ticker symbol “STAF”, on March 16, 2012.

The Company effected a one-for-ten reverse stock split on September 17, 2015. Following the reverse split, the Company’s issued and outstanding shares of Common Stock decreased from 45,732,674 to 4,573,360. All share and per share information in these condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.  As of November 30, 2016, the Company had a working capital deficiency of $ (14,467), an accumulated deficit of $ (46,941) , for the six months ended November 30, 2016 a net loss of $(2,720), and, as of the date these unaudited condensed consolidated financial statements are issued, the Company has approximately $5,342 associated with debt and other amortizing obligations, due in the next 12 months. The Company’s projected cash flows from operations for the same period are not sufficient to address these obligations in the normal course of business. As a result, the Company will need to seek additional funding through capital raises to meet these short term obligations.

Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, increased gross profit from organic revenue growth and managing and reducing operating and overhead costs . In addition, the Company has the ability to raise additional capital through private investments. In November of 2016, the Company engaged Source Capital Group, Inc. (‘Source Capital’) to act as a placement agent to conduct a general solicitation private placement offering solely to accredited investors under Rule 506(c) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. The Company is still in discussions with Source Capital regarding funding through private placement. The private placement expires on January 31, 2017.

Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully secure additional sources of financing and increased profitable operations.  Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. However, based upon an evaluation of the Company’s continued growth trajectory, past success in raising capital and meetings its obligations as well as its plans for raising capital discussed above, management believes that the Company is a going concern.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

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

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. As described below, the Company consolidates PeopleSERVE PRS, Inc. (“PRS”), an entity of which it previously owned 49%, since the Company was deemed to be the primary beneficiary of this entity. All inter-company transactions have been eliminated. On April 29, 2016, the Company acquired the remaining 51% for $101. All inter-company transactions have been eliminated.

Interim Financial Statements

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

7


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)

 

These u naudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended May 31, 2016 and 2015, respectively, which are included in the Company’s May 31, 2 016 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on August 29, 2016. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financi al statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and six months ended November 30, 2016 are not necessarily indi cative of results for the entire year ending May 31, 2017.

Reclassifications

Certain reclassifications have been made to conform the prior period data to the current presentations. In accordance with ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs”, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. These reclassifications had no impact on reported results of operations.

 

The Company has reclassified the Midcap Additional Term Loan from Long-term debt to Other long-term liabilities, as this represents the long term portion of funds received from the Accounts receivable financing facility. These reclassifications had no impact on reported results of operations.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.

 

In April 2016, the FASB issued ASU 2016 – 10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”. The amendments in this Update clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance.

In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance.

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)

 

In Febru ary 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years.  Early application is permitted. Un der the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less.  All other leases will fall into one of two categor ies: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability m easured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance.

In January 2016, the FASB issued ASU 2016-01, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer the effective date of ASU 2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is still evaluating the impact of adopting this guidance .

 

NOTE 3 – LOSS PER COMMON SHARE

 

The Company utilizes the guidance per ASC 260, “Earnings per Share”.  Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A preferred stock holders receive certain dividends or dividend equivalents that are considered participating securities and our earnings (loss) per share is computed using the two-class method. For the three and six months ended November 30, 2016 and 2015, pursuant to the two-class method, as a result of the net loss, losses were not allocated to the participating securities.

Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock share equivalents consist of common shares issuable upon the conversion of preferred stock, convertible notes and the exercise of stock options and warrants (calculated using the modified treasury stock method).  Such securities, shown below, presented on a common share equivalent basis and outstanding as of November 30, 2016 and 2015 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

 

 

 

November 30,

 

 

 

2016

 

 

2015

 

Convertible bonds - Series A

 

 

 

 

 

17,500

 

Convertible bonds - Series B

 

 

5,401

 

 

 

89,062

 

Convertible promissory notes

 

 

1,227,416

 

 

 

895,159

 

Convertible preferred shares

 

 

592,191

 

 

 

216,191

 

Warrants

 

 

83,764

 

 

 

1,637,903

 

Options

 

 

319,500

 

 

 

330,000

 

Total

 

 

2,228,272

 

 

 

3,185,815

 

 

 

 

9


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 4 DEBT

 

 

 

November 30,

 

 

May 31,

 

 

 

2016

 

 

2016

 

Bonds:

 

 

 

 

 

 

 

 

Bonds - Series B

 

$

50

 

 

$

55

 

 

 

 

 

 

 

 

 

 

Convertible Notes:

 

 

 

 

 

 

 

 

Non-interest bearing convertible note (January 6, 2016)

 

 

359

 

 

 

359

 

Non-interest bearing convertible note (September 10, 2016)

 

 

477

 

 

 

 

8% Convertible Note (July 8, 2015)

 

 

1,960

 

 

 

3,920

 

8% Convertible Note (February 8, 2016)

 

 

728

 

 

 

728

 

Lighthouse- Seller Note #1

 

 

1,874

 

 

 

2,124

 

Lighthouse - Seller Note #2

 

 

234

 

 

 

390

 

 

 

 

 

 

 

 

 

 

Promissory Notes:

 

 

 

 

 

 

 

 

Sterling National Bank

 

 

184

 

 

 

272

 

Staffing (UK) - Seller Note

 

 

116

 

 

 

144

 

PeopleServe - Seller Note

 

 

395

 

 

 

789

 

Midcap Financial Trust - Term Loan

 

 

2,125

 

 

 

2,375

 

ABN AMRO - Term Loan

 

 

741

 

 

 

821

 

 

 

 

 

 

 

 

 

 

Less Debt Discount and Deferred Financing Costs

 

 

(1,580

)

 

 

(2,694

)

 

 

 

 

 

 

 

 

 

Total Debt

 

 

7,663

 

 

 

9,283

 

 

 

 

 

 

 

 

 

 

Less: Current Portion, Net

 

 

(3,716

)

 

 

(6,097

)

 

 

 

 

 

 

 

 

 

Total Long-Term Debt, Net

 

$

3,947

 

 

$

3,186

 

Bonds – Series B: On September 30, 2016, the Company amended two Series B bonds totaling $50. The holders received a total of 1,250 common stock shares. In addition, the bonds were extended for six months and will mature on March 31, 2017. For the three and six months ended November 30, 2016, the Company paid $0 and $5 in principal, respectively. For the three and six months ended November 30, 2015, the Company paid $0 and $100, in principal, respectively.

 

Non-interest bearing convertible note (January 6, 2016): On July 8, 2016, the Company paid $59 in the form of an extension fee to extend the term for an additional six months.

 

Non-interest bearing convertible note (September 10, 2016): On September 10, 2016, the Company entered into a non interest bearing convertible note for $477, whereby the Company received cash of $400. This note matures in March 2017.

8% Convertible Note (July 8, 2015): During the three and six months ended November 30, 2016, the Company paid cash of $0 and $980 in principal, respectively. During the three months ended November 30, 2016, the Company converted $980 into 890,910 shares of Common Stock. As of the November 30, 2016, all shares had been issued.

On January 3, 2017, the Company entered into an agreement to extend the maturities of the 8% Convertible Note (July 8, 2015) and 8% Convertible Note (February 8, 2016). Under the terms of the extension, the notes will now mature on October 1, 2018 in the amount of $3,126, with 8% interest, first payable on October 1, 2017 and payable quarterly thereafter. The Company also modified the conversion price reducing it from $10.00 per share to $3.00 per share.

Lighthouse Seller Note #1: During the three and six months ended November 30, 2016, the Company paid $125 and $250 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $0 and $125 in principal, respectively.

10


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Lighthouse Seller Note #2: During the three and six months ended November 30, 2016, the Company paid $78 and $156 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $0 and $78 in principal, respectively.

Sterling National Bank Promissory Note: During the three and six months ended November 30, 2016, the Company paid $45 and $88 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $0 and $52 in principal, respectively.

Staffing (UK) – Sellers Note : During the three and six months ended November 30, 2016, the Company paid $14 and $28 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $14 and $28 in principal, respectively.

PeopleSERVE – Sellers Note : During the three and six months ended November 30, 2016, the Company paid $197 and $395 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $197 and $394 in principal, respectively.

Midcap Financial Trust – Term Loan: During the three and six months ended November 30, 2016, the Company paid $175 and $250 in principal, respectively. During the three and six months ended November 30, 2015, the Company paid $188 and $375 in principal, respectively.

ABN AMRO Term Loan: In June 2016, Company borrowed an additional $273. All terms of the original loan remain unchanged. During the three and six months ended November 30, 2016, the Company paid $117 and $234 in principal, respectively.     

In November of 2016, the Company engaged Source Capital Group, Inc. to act as a placement agent to conduct a general solicitation private placement offering solely to accredited investors under Rule 506(c) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. The Company is still in discussions with Source Capital regarding funding through this private placement offering. The private placement expires on January 31, 2017. In connection with the private placement, the Company filed certificates of designation for Series E-1 and E-2 preferred shares. No shares have been issued and in January 2017, the Company had the certificates of designation withdrawn.

 

 

NOTE 5 – EQUITY

Common Stock

The Company issued 2,808,801 common shares during the six months ended November 30, 2016 as summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to/for:

 

Number of common shares issued

 

 

Fair Value of shares issued

 

 

Fair Value at Issuance           (per share)

 

Conversion of Series D preferred Stock

 

 

1,340,960

 

 

$

2,157

 

 

$

1.31

 

 

$

1.74

 

Conversion of debt

 

 

890,910

 

 

 

1,149

 

 

 

1.29

 

 

 

1.29

 

Private placements

 

 

210,645

 

 

 

426

 

 

 

2.35

 

 

 

2.35

 

Conversion of Series C preferred stock

 

 

175,439

 

 

 

332

 

 

 

1.89

 

 

 

1.89

 

Conversion of Series B preferred stock

 

 

133,000

 

 

 

198

 

 

 

1.49

 

 

 

1.49

 

Consultants

 

 

38,297

 

 

 

66

 

 

 

1.56

 

 

 

1.96

 

Employees

 

 

9,800

 

 

 

38

 

 

 

0.69

 

 

 

1.59

 

Board and Committee members

 

 

8,500

 

 

 

15

 

 

 

1.59

 

 

 

1.99

 

Shares issued for extension of Convertible Bonds

 

 

1,250

 

 

 

2

 

 

 

1.36

 

 

 

1.36

 

 

 

 

2,808,801

 

 

$

4,383

 

 

 

 

 

 

 

 

 

 

The Company’s authorized common stock consists of 20,000,000 shares having par value of $0.00001. The Company had issued and outstanding 9,115,545 and 6,306,744 common stock shares as of November 30, 2016 and May 31, 2016, respectively. During the three months ended November 30, 2016, the Company converted $980 into 890,910 shares of Common Stock.

11


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

 

 On January 3, 2017, the Company entered into an agreement to extend the maturities of the 8% Convertible Note (July 8, 2015) and 8% Convertible Note (February 8, 2016). Under the terms of the extension, the notes will now mature on October 1, 2018 in the amount of $3,126, with 8% interest, first payable on October 1, 2017 and payable quarterly thereafter. The Company also modified the conversion price reducing it from $10.00 per share to $3.00 per share.   .

 

On September 27, 2016, the Board of Directors recommended that 790,000 shares of Common Stock, to be issued to management, directors and employees be submitted to shareholders for approval at the next shareholder meeting. These shares were issued erroneously. The Company processed the retraction of these shares in October 2016.

 

Convertible Preferred Shares

Series B Preferred Stock  

On July 8, 2016, holders of Series B Preferred Stock elected to convert all 133,000 shares to 133,000 shares of Common Stock.

The Company had issued and outstanding 0 and 133,000 shares of Series B Preferred Stock, as of November 30, 2016 and May 31, 2016, respectively.

Series C Preferred Stock

On June 16, 2016, the Company filed an Amendment to the Certificate of Designation for the Series C Preferred Stock, par value $0.00001 per share. The Amendment increased the number of Series C Preferred Stock from 500,000 to 2,000,000 shares authorized.

On June 24, 2016, holders of Series C Preferred Stock elected to convert all 175,439 shares to 175,439 shares of Common Stock.

The Company had issued and outstanding 0 and 175,439 shares of Series C Preferred Stock as of November 30, 2016 and May 31, 2016, respectively.

Series D Preferred Stock

On June 24, 2016, the Company entered into a Securities Purchase Agreement with certain purchasers pursuant to which the Company sold to the purchasers 211 shares of the Company’s Series D Preferred Stock at a face value of $10,000 (whole dollars) per share of Series D Preferred, and Original Issue Discount of 5% and a conversion price into common stock of $2.50 per share, for aggregate proceeds of approximately $2,000 before placement fees and estimated offering expenses. The offering of the Series D Preferred Stock was made under the Company’s Shelf Registration.

During the six months ended November 30, 2016, holders of this series converted 118 shares of Series D Preferred Stock to 1,340,960 shares of Common Stock.

 

 

 

Shares

 

 

Balance

 

Face Value

 

 

211

 

 

$

2,110

 

Original Issue Discount

 

 

 

 

 

 

(110

)

Beneficial Conversion Feature

 

 

 

 

 

 

(615

)

Beginning Balance, Net

 

 

 

 

 

 

1,385

 

Conversions

 

 

(118

)

 

 

(773

)

Ending Balance, Net

 

 

93

 

 

$

612

 

 

Due to the contingent nature of the cash redemption feature of the Series D Preferred Stock, the Company has classified the shares as temporary equity on the condensed consolidated balance sheet. In addition, at the commitment date these were issued, the Company determined that a beneficial conversion feature (“BCF”) existed in the amount of $615, which was recorded within Additional Paid-In Capital on the condensed consolidated balance sheet.

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)

 

On September 22, 2016, t he Company and Discover Growth Fund agreed that a Trigger Event, as defined in the Stock Purchase Agreement between Staffing 360 Solutions, Inc. and Discover Growth Fund dated June 24, 2016, filed as an exhibit to our Current Report on Form 8-K on June 27, 2016 (the “Series D Purchase Agreement”), ha d occurred as of September 22, 2016.  A Trigger Event gives the holders of the Series D Preferred Stock certain additional rights and removes certain restrictions in respect of the Series D Preferred Stock, as set forth in the Series D Purchase Agreement. Discover Growth Fund has agreed not to submit any add itional conversion notices until the Company obtains stockholder approval for the transaction, so long as such approval is obtained by January 31, 2017.  The Company intends to seek stockholder approval for the transaction at its annual shareholder meeting in January 2017.

 

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Earn-out Liabilities and Stock Value Guarantees

Pursuant to the acquisition of Control Solutions International, Inc. (“CSI”), the purchase price includes monthly cash payments to the former owners and shareholders of CSI for performance-based compensation equal to 20% of CSI’s consolidated gross profit from the date of closing through the end of the sixteenth quarter following the date of closing not to exceed a total of $2,100. During the six months ended November 30, 2016 and the fiscal year ended May 31, 2016, the Company paid $69 and $160, respectively, towards the earn-out liability. At November 30, 2016 the remaining balance was $1,330 of which approximately $138 is recorded in other current liabilities and $1,192 is recorded in other long-term liabilities.

Legal Proceedings 

NewCSI, Inc. vs. Staffing 360 Solutions, Inc.

On May 22, 2014, NewCSI, the former owners of Control Solutions International, filed a complaint in the United States District Court for the Western District of Texas, Austin Division, against the Company arising from the terms of the CSI Stock Purchase Agreement dated August 14, 2013.  NewCSI claims that the Company breached a provision of the CSI Stock Purchase Agreement (“SPA § 2.7”) that required the Company to calculate and pay to NewCSI 50% of certain “Deferred Tax Assets” within 90 days after December 31, 2013.  The Complaint sought payment of the amount allegedly owed under SPA § 2.7 and acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $1,400, less amounts paid to date, and attorneys’ fees.  The Company responded denying the material allegations and interposing numerous affirmative defenses. On October 8, 2014, NewCSI filed a Motion of Summary Judgment (the “Motion”). On March 30, 2015, a Magistrate Judge of the District Court issued a Report and Recommendation that the District Court deny the Motion.  The Recommendation became a final decision on April 13, 2015.

On December 31, 2014, NewCSI filed an amended complaint to which NewCSI added an additional count asserting an “Adjustment Event” had occurred requiring an acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $2,100, less amounts paid to date ($1,671 at December 31, 2014), should Staffing 360 or CSI “be unable, or admit in writing its inability, to pay its debts as they mature.”  The Company responded denying the material allegations and interposing numerous affirmative defenses, including that the earn-out liability was fully expensed at the time of the acquisition and fully accrued for on the Company’s balance sheet as part of the purchase accounting at the time of the acquisition.  The final pretrial conference in this matter was held April 22, 2015.  A jury was selected on May 14, 2015, and the trial was held May 18-20, 2015.  On May 20, 2015, the jury rendered a verdict, finding that Staffing 360 had not complied with SPA § 2.7 and owed $154, but that NewCSI had not proven that Staffing 360 or CSI had become unable to pay debts as they came due.  The Court had held that it was not a question for the jury to decide if damages for breach of SPA § 2.7 should include accelerated earn-out payments.

On June 3, 2015, NewCSI filed a Motion for Entry of Judgment as Matter of Law seeking entry of a judgment in the amount of $154, plus accelerated earn-out payments in the amount of $1,152, plus statutory interest.  NewCSI did not challenge the jury verdict on the ability to pay issue.  Also on June 3, 2015, Staffing 360 filed a Motion for Entry of Judgment as a Matter of Law seeking entry of judgment against NewCSI on the jury’s finding that Staffing 360 had not complied with SPA § 2.7, or, in the alternative, for a reduction of damages to $54 and to hold that NewCSI may not be awarded accelerated earn-out payments as that would result in an illegal penalty.

On October 21, 2015, judgment was entered in this action in favor of NewCSI and against the Company in the amount of $1,307, plus pre-judgment interest, post-judgment interest, and costs.

On January 26, 2016, the District Court set the bond in respect of the NewCSI litigation at $1,384. The Company has filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit seeking reversal of the judgment and posted a supersedeas bond to

13


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

stay the execution of the judgment pending appeal.  On April 18, 2016, the Court granted the NewCSI shareholders’ request for payment of attorneys’ fees, but reserved judgment on the amount of fees to award pendi ng the outcome of the Company’s appeal.  As of January 2016, the NewCSI shareholders have claimed they have incurred $552 in attorney’s fees, which could increase during the pendency of the appeal.  On November 3, 2016, oral arguments for the appeal were h eard and now the Company is awaiting further instruction from the United States Court of Appeals for the Fifth Circuit.

We believe that the Company acted in a manner consistent with our contractual rights, and we intend to aggressively defend the Company against NewCSI. Nevertheless, there can be no assurance that the outcome of this litigation will be favorable to the Company.

Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc.

On November 13, 2015, in a separate proceeding, Staffing 360 initiated an arbitration before JAMS against three officers of Staffing 360, each a former Staffing 360 officer and employee.  In its demand for arbitration and statement of claim, Staffing 360 alleged that these individuals breached their employment agreements with Staffing 360 and the fiduciary duties each owed to the Company.  The three respondents responded with a counterclaim alleging wrongful termination and have moved to dismiss the arbitration, as well as moved for severance in relation to the remainder of their contracts. On July 20, 2016, the arbitrator decided in favor of both of the respondents’ motions.  Further on September 21, 2016 the arbitrator rendered the final award, which was set at $1,433. The Company is awaiting the respondents’ motion to confirm the award.   In addition, the Company has calculated interest and made a payment towards legal fees included in the final award amount. As of November 30, 2016 the balance is $1,591. This amount has already been fully accrued for and expensed on the Company’s balance sheet.

 

 

NOTE 7 – SEGMENTS

The Company’s operating segments, which are consistent with its reportable segments, are organized by geography in accordance with its internal management and reporting structure.

14


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

For the three and six months ended November 30, 2016 and 2015, the Company generated revenue and gross profit by segment as follows:

 

 

 

For the Three Months Ended November 30,

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

United States

 

$

42,050

 

 

$

36,952

 

 

$

80,583

 

 

$

70,712

 

United Kingdom

 

 

5,031

 

 

 

4,362

 

 

 

14,223

 

 

 

6,461

 

Canada

 

 

56

 

 

 

36

 

 

 

81

 

 

 

61

 

Total Revenue

 

$

47,137

 

 

$

41,350

 

 

$

94,887

 

 

$

77,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended November 30,

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

United States

 

$

6,470

 

 

$

6,255

 

 

$

13,620

 

 

$

11,713

 

United Kingdom

 

 

1,607

 

 

 

1,208

 

 

 

2,950

 

 

 

2,060

 

Canada

 

 

20

 

 

 

7

 

 

 

16

 

 

 

18

 

Total Gross Profit

 

$

8,097

 

 

$

7,470

 

 

$

16,586

 

 

$

13,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses, excluding

   depreciation and amortization stated below

 

$

(7,405

)

 

$

(8,334

)

 

$

(15,090

)

 

$

(14,492

)

Depreciation and amortization

 

 

(761

)

 

 

(800

)

 

 

(1,519

)

 

 

(1,537

)

Interest expense

 

 

(553

)

 

 

(755

)

 

 

(1,196

)

 

 

(1,281

)

Amortization of beneficial conversion feature

 

 

(184

)

 

 

(193

)

 

 

(369

)

 

 

(366

)

Amortization of debt discount and deferred financing costs

 

 

(424

)

 

 

(568

)

 

 

(833

)

 

 

(982

)

Other expense

 

 

(168

)

 

 

(40

)

 

 

(202

)

 

 

(10

)

Loss Before (Provision) Benefit for Income Tax

 

$

(1,398

)

 

$

(3,220

)

 

$

(2,623

)

 

$

(4,877

)

 

As of November 30, 2016 and May 31, 2016, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

November 30,

 

 

May 31,

 

 

 

2016

 

 

2016

 

United States

 

$

47,083

 

 

$

43,683

 

United Kingdom

 

 

9,140

 

 

 

10,067

 

Canada

 

 

42

 

 

 

9

 

Total Assets

 

$

56,265

 

 

$

53,759

 

 

 

NOTE 8 – ACQUISITIONS

 

The following unaudited pro forma consolidated results of operations have been prepared, as if the acquisition of Lighthouse Placement Services, Inc. (“Lighthouse”) and The JM Group had occurred as of June 1, 2015:

 

 

 

 

For the Three Months Ended November 30,

 

 

For the Six Months Ended November 30,

 

 

 

2015

 

 

2015

 

Revenues

 

$

45,706

 

 

$

89,201

 

Net loss from continuing operations

 

$

(3,180

)

 

$

(4,748

)

Net loss per share from continuing operations

 

$

(0.67

)

 

$

(1.02

)

Weighted average number of common stock shares –

   Basic and diluted

 

 

4,734,999

 

 

 

4,646,016

 

 

15


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

Pursu ant to the acquisition of Lighthouse, the sellers received 62,460 shares of Common Stock. In the event that the volume weighted average price (“VWAP”) price for the 90 days prior to the anniversary of the acquisition date, is less than $10.00 per share, then the Company shall pay to the sellers an amount equal to $10.00 per share less the VWAP price multiplied by each share. On the anniversary of the acquisition date, the Company calculated the amount as $500. During the three and six months ended November 30, 2016, the Company paid $100 and $500, respectively. On Septem ber 8, 2016, the Company paid $173 in relation to the 20,000 shares issued with a corresponding increase to Goodwill of $173.

 Pursuant to the acquisition of The JM Group Limited (“The JM Group”), the purchase price includes a cash payment to the shareholders for performance-based compensation of (a) £850 if the gross profit for the 12 month period ending on the anniversary date of the date of completion (the “Anniversary TTM Gross Profit”) is equal to 90% or more of the gross profit for the twelve months ending October 31, 2015 (the “Completion TTM Gross Profit”); or (b) if the Anniversary TTM Gross Profit is less than 90% of the Completion TTM Gross Profit, a sum equal to £850 multiplied by the Anniversary TTM Gross Profit/Completion TTM Gross Profit. The Company recorded the maximum contingent liability amount of £850 ($1,180). At November 30, 2016 the remaining balance was $1,063 and is recorded in other current liabilities. While unpaid, the liability accrues 10.25% interest per annum.

In addition, the Company will issue an aggregate of 20,000 shares of Common Stock valued at $4.70 totaling $94, if the Anniversary Gross Profit (defined) of The JM Group is 100% or more the Completion Gross Profit (defined). If the Anniversary Gross Profit is greater than or equal to 75% of the Completion Gross Profit, but less than 100% of The JM Group’s Completion Gross Profit, an amount of shares equal to the product of (i) the Anniversary Gross Profit divided by the Completion Gross Profit and (ii) 20,000. If the Anniversary Gross Profit is less than 75% of the Completion Gross Profit, no shares are due. Pursuant to the acquisition of The JM Group, in addition to the 20,000 contingent shares discussed above, the sellers received 40,000 shares of Common Stock. In the event that the VWAP price for the 90 days prior to the anniversary of the acquisition date, is less than $10.00 per share, then the Company shall pay to the sellers an amount equal to $10.00 per share less the VWAP price multiplied by each share. As a result of the lower stock price, on November 14, 2016 the Company paid $346 in relation to the 40,000 shares issued and recorded an increase of $346 to Goodwill. On September 8, 2016, the Company paid $173 in relation to the 20,000 shares issued with a corresponding increase to Goodwill of $173.

 

 

NOTE 9 – RELATED PARTY TRANSACTIONS

Consulting Fees – Related Party

Board and Committee Members

During the three and six months ended November 30, 2016, the Company incurred $13 and $25 in board of director fees to Dimitri Villard. Mr. Villard received 1,500 common shares valued at $3 and 1,500 shares valued at $3, respectively, for his services as a board and committee member for the six months ended November 30, 2016. During the three months ended November 30, 2016, Mr. Villard received 750 common shares valued at $1 and 750 common shares valued at $ 1 , respectively, for his service as a board and committee member. During the three and six months ended November 30, 2015, the Company incurred $13 and $25 for his services as a board and committee member. Mr. Villard received 3,000 common shares valued at $19, for his services as a board and committee member for the six months ended November 30, 2015. During the six months ended November 30, 2015, Mr. Villard received 30,000 shares valued at $150 as a bonus. At November 30, 2016, the Company has $ 0 accrued in accounts payable and accrued expenses – related parties account.

During the three and six months ended November 30, 2016, the Company incurred $ 13 and $25 in board of director fees to Jeff Grout. In addition, during the six months ended November 30, 2016, Mr. Grout received 1,500 common stock shares valued at $3  and 1,500 common stock shares valued at $ 3 , respectively, for his service as a board and committee member. In addition, during the three months ended November 30, 2016, Mr. Grout received 750 common stock shares valued at $1 and 750 common stock shares valued at $ 1 , respectively, for his service as a board and committee member.  During the three and six months ended November 30, 2015, the Company incurred $ 13 and $25 in board of director fees and Committee fees to Jeff Grout. During the six months ended November 30, 2015, Mr. Grout 3,000 common shares valued at $19 for his service as board and committee member. My Grout also received 30,000 shares valued at $150 as a bonus during the six months ended November 30, 2015. At November 30, 2016, the Company has $0 accrued in accounts payable and accrued expenses – related parties account.

During the three and six months ended November 30, 2016, the Company incurred $13 and $25 in board of director fees to Nick Florio. In the six months ended November 30, 2016, Mr. Florio received 1,500 common stock shares valued at $3 and 1,000 common

16


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

stock shares valued a $ 2 for his services as a board and committee member. In the three months ended November 30, 2016, Mr. Florio received 750 common stock shares valued at $ 1 and 750 common stock shares valued a $ 1 for his services as a board and committee member. At the request of Mr. Florio, all cash payments, common stock issuances and stock option issuances have been made in the name of Citrin Cooperman & Company, LLP. At November 30, 2016, the Company has accrued $ 0 in accounts payable and accrued expenses – related parties account. During the six months ended November 30, 2015, the Company incurred $25 in board of director and committee fees to Nick Florio. In addition, for the six months ended November 30, 2015, Mr. F lorio received 2,500 common stock shares valued at $16 for his services as a board and committee member. In addition, on October 30, 2015, Mr. Florio received 30,000 shares valued at $150 as a bonus. At the request of Mr. Florio, all cash payments, common stock issuances and stock option issuances have been made in the name of Citrin Cooperman & Company, LLP. At November 30, 2015, the Company has accrued $0 in accounts payable and accrued expenses – related parties account.

 

 

Other Related Party

 

At November 30, 2015, the Company had $50 accrued in accounts payable and accrued expenses – related parties account for advisory services provided by Trilogy Capital Partners, Inc. (“Trilogy”). The Company’s former employee, Vice Chairman, President and Secretary, is the majority owner of Trilogy. Effective December 31, 2014, he voluntarily resigned from his positions with the Company and subsidiaries. The Advisory Agreement terminated by December 31, 2015 and the Company did not renew this advisory agreement.

 

 

NOTE 10 –  SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

944

 

 

$

859

 

Income taxes

 

 

84

 

 

 

52

 

 

 

 

 

 

 

 

 

 

Non Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Common stock issued in connection with purchase of subsidiary

 

$

846

 

 

$

700

 

Promissory notes issued in connection with acquisitions

 

 

 

 

 

3,893

 

Earn-out liability

 

 

 

 

 

1,310

 

Conversion of a convertible note payable

 

 

980

 

 

 

 

 

 

NOTE 11 –  SUBSEQUENT EVENTS

 

Where applicable, all material subsequent events have been disclosed in their respective footnotes.

 

 

17


 

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 statement, 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 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.

Overview

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”), trading symbol “STAF”, is incorporated in the State of Nevada. 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, United States (“U.S.”) and United Kingdom (“U.K.”) based staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, information technology (“IT”), engineering, administration and light industrial disciplines.

Business Model, Operating History and Acquisitions

Our business plan is to expand and grow through multiple acquisitions, which may require additional financing, while continuing to supplement this with organic growth. The Company, excluding discontinued operations, generated revenue of  $41,198, $128,829 and $165,552 for the fiscal years ended May 2014, 2015 and 2016, respectively. This growth has been achieved primarily through acquisitions, while existing operations continue to grow organically.

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 accounting and finance, IT, engineering, administration and light industrial disciplines. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets.

18


 

For the three months ended November 30, 2016 as compared to the three months ended November 30, 2015

The following table sets forth the results of our operations for the three months ended November, 2016 and 2015 indicated as a percentage of revenue:

 

 

 

For the Three Months Ended November 30,

 

 

 

2016

 

 

% of Revenue

 

 

2015

 

 

% of Revenue

 

 

Growth

 

Revenue

 

$

47,137

 

 

 

100.0

%

 

$

41,350

 

 

 

100.0

%

 

 

14.0

%

Direct cost of revenue

 

 

39,040

 

 

 

82.8

%

 

 

33,880

 

 

 

81.9

%

 

 

15.2

%

Gross profit

 

 

8,097

 

 

 

17.2

%

 

 

7,470

 

 

 

18.1

%

 

 

8.4

%

Operating expenses

 

 

8,166

 

 

 

17.3

%

 

 

9,134

 

 

 

22.1

%

 

 

(10.6

)%

Loss from operations

 

 

(69

)

 

 

(0.1

)%

 

 

(1,664

)

 

 

(4.0

)%

 

 

(95.9

)%

Other expenses

 

 

(1,329

)

 

 

(2.8

)%

 

 

(1,556

)

 

 

(3.8

)%

 

 

(14.6

)%

(Provision) benefit for income taxes

 

 

(28

)

 

 

(0.1

)%

 

 

42

 

 

 

0.1

%

 

 

(166.7

)%

Net loss

 

$

(1,426

)

 

 

(3.0

)%

 

$

(3,178

)

 

 

(7.7

)%

 

 

(55.1

)%

 

Revenue

For the three months ended November 30, 2016, revenue grew 14.0% to $47,137 as compared to $41,350 for the three months ended November 30, 2015. Of that growth, 7.2% is organic, 7.5% is from the acquisition of The JM Group, and (0.7%) from foreign currency translation.

 

Direct cost of revenue

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the three months ended November 30, 2016 and 2015, direct cost of revenue was $39,040 and $33,880, respectively, or growth of 15.2%, compared to growth in revenue of 14.0%, and is further discussed in the gross profit and gross margin comments below.

Gross profit and gross margin

Our gross profit for the three months ended November 30, 2016 and 2015 was $8,097 and $7,470, respectively, representing gross margin of 17.2% and 18.1% for each period, respectively. While business mix changed during the course of the year with the addition of The JM Group (at generally lower margins than the Company’s average) underlying contract margins were down approximately 220 basis points on the prior year in the Professional segment, and grew by 60 basis points in the Light Industrial segment.

Operating expenses

For the three months ended November 30, 2016, operating expenses amounted to $8,166 as compared to $9,134 for the three months ended November 30, 2015, a decrease of $968 or 10.6%. In addition to total operating expenses decreasing on an absolute basis, as a percentage of revenue, operating expenses improved from 22.1% for the three months ended November 30, 2015 to 17.3% for the three months ended November 30, 2016. The decrease in our operating expenses for the three months ended November 30, 2016 as compared to the three months ended November 30, 2015 was primarily attributable to a decrease in legal and other professional expenses associated with the Company’s legal proceedings and various financing transactions, as well as a reduction in non-cash compensation expense.

While cash operating expenses, defined as Total operating expenses excluding Depreciation and amortization as well as other non-cash charges, grew on an absolute basis from $6,970 to $7,178 for the three months ended November 30, 2015 and 2016, respectively, primarily from the acquisition from the JM Group, this represents a significant decline as a percentage of revenue from 16.9% to 15.2% for the same periods.  As we continue to grow revenue, and further leverage our existing support functions, we expect operating expenses as a percentage of revenue to continue to trend lower.

 

 

Other Expenses

For the three months ended November 30, 2016 and 2015, Other Expenses primarily includes interest and financing expense of $1,161 and $1,516, respectively, other expense (income) of $164 and $(5), respectively and other restructuring costs totaling $4 and $45,

19


 

respectively. The restructuring charges in the second quarter of 2017 were residual charges as a result of the Company’s implementation of its Restruct uring Plan during fiscal 2015.

For the six months ended November 30, 2016 as compared to the six months ended November 30, 2015

The following table sets forth the results of our operations for the six months ended November, 2016 and 2015 indicated as a percentage of revenue:

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

% of Revenue

 

 

2015

 

 

% of Revenue

 

 

Growth

 

Revenue

 

$

94,887

 

 

 

100.0

%

 

$

77,234

 

 

 

100.0

%

 

 

22.9

%

Direct cost of revenue

 

 

78,301

 

 

 

82.5

%

 

 

63,443

 

 

 

82.1

%

 

 

23.4

%

Gross profit

 

 

16,586

 

 

 

17.5

%

 

 

13,791

 

 

 

17.9

%

 

 

20.3

%

Operating expenses

 

 

16,609

 

 

 

17.5

%

 

 

16,029

 

 

 

20.8

%

 

 

3.6

%

Loss from operations

 

 

(23

)

 

 

(0.0

)%

 

 

(2,238

)

 

 

(2.9

)%

 

 

(99.0

)%

Other expenses

 

 

(2,600

)

 

 

(2.7

)%

 

 

(2,639

)

 

 

(3.4

)%

 

 

(1.5

)%

(Provision) benefit for income taxes

 

 

(97

)

 

 

(0.1

)%

 

 

7

 

 

 

0.0

%

 

 

(1485.7

)%

Net loss

 

$

(2,720

)

 

 

(2.9

)%

 

$

(4,870

)

 

 

(6.3

)%

 

 

(44.1

)%

 

Revenue

For the six months ended November 30, 2016, revenue grew 22.9% to $94,887 as compared to $77,234 for the six months ended November 30, 2015. Of that growth, 10.7% is organic, 12.9% is from the acquisitions of Lighthouse and The JM Group, and (0.7%) from foreign currency translation.

 

Direct cost of revenue

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the six months ended November 30, 2016 and 2015, direct cost of revenue was $94,887 and $77,234, respectively, or growth of 23.4%, compared to growth in revenue of 22.9%, and is further discussed in the gross profit and gross margin comments below.

Gross profit and gross margin

Our gross profit for the six months ended November 30, 2016 and 2015 was $16,586 and $13,791, respectively, representing gross margin of 17.5% and 17.9% for each period, respectively. The decrease in margin is primarily attributable to the acquisition of The JM Group and strong organic growth in the Light Industrial segment (both at lower margins than the Company’s average).

 

Operating expenses

For the six months ended November 30, 2016, operating expenses amounted to $16,609 as compared to $16,029 for the six months ended November 30, 2015, an increase of $580 or 3.6%. Total operating expenses increased on an absolute basis, mainly resulting from the acquisition of Lighthouse and The JM Group, partially offset by decreases in professional fees and non-cash compensation expenses. However, as a percentage of revenue, these amounts were an improvement from 20.8% for the six months ended November 30, 2015 to 17.5% for the six months ended November 30, 2016.

While cash operating expenses, defined as Total operating expenses excluding Depreciation and amortization as well as other non-cash charges, grew on an absolute basis from $12,906 to $14,698 for the six months ended November 30, 2015 and 2016, respectively, this represents a significant decline as a percentage of revenue from 16.7% to 15.5% for the same periods.  As we continue to grow revenue, and further leverage our existing support functions, we expect operating expenses as a percentage of revenue to continue to trend lower.

Other Expenses

For the six months ended November 30, 2016 and 2015, Other Expenses primarily includes interest and financing expense of $2,396 and $2,629, respectively, other expense (income) of $192 and $(40), respectively and other restructuring costs totaling $10 and $50,

20


 

respectively. The restructuring charges in first quarter 2017 were residual char ges as a result of the Company’s implementation of its Restructuring Plan during fiscal 2015.

Non-GAAP Measures

To supplement our condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we may also use non-GAAP financial measures in addition to our GAAP results. We believe non-GAAP financial measures 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.

We present the following non-GAAP financial measure in this report:

Revenue and Gross Profit by Service Segment We use Revenue and Gross Profit by Service Segment to measure the Company’s mix of Revenue and respective profitability between its two main lines of business due to their differing margins and believe this measure is useful to investors for the same purpose. 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 measure to benchmark the Company against the industry.

The following table details Revenue and Gross Profit by Service Segment for the three months ended November 30, 2016 and 2015, respectively:

 

 

 

For the Three Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Mix

 

 

 

 

 

 

Mix

 

Light Industrial

 

$

27,346

 

 

 

58

%

 

$

23,749

 

 

 

57

%

Professional

 

 

19,791

 

 

 

42

%

 

 

17,601

 

 

 

43

%

Total Service Revenue

 

$

47,137

 

 

 

 

 

 

$

41,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Industrial

 

$

4,309

 

 

 

53

%

 

$

3,622

 

 

 

48

%

Professional

 

 

3,788

 

 

 

47

%

 

 

3,848

 

 

 

52

%

Total Gross Profit

 

$

8,097

 

 

 

 

 

 

$

7,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Industrial

 

 

15.8

%

 

 

 

 

 

 

15.3

%

 

 

 

 

Professional

 

 

19.1

%

 

 

 

 

 

 

21.9

%

 

 

 

 

Total Gross Margin

 

 

17.2

%

 

 

 

 

 

 

18.1

%

 

 

 

 

 

 

The increase in Light Industrial revenue as a percentage of total revenue from 57% for the three months ended November 30, 2015 to 58% for the three months ended November 30, 2016 was primarily attributable to strong organic growth in that segment, partially offset by the acquisition of The JM Group, as well as organic growth in the existing Professional businesses.  While Professional revenue as a percentage of total revenue declined from 43% for the three months ended November 30, 2015 to 42% for the three months ended November 30, 2016, revenue in this segment for the three months ended November 30, 2016 increased by 12.4% compared to the three months ended November 30, 2015.

 

Gross margin for the Light Industrial segment increased from 15.3% for the three months ended November 30, 2015 to 15.8% for the three months ended November 30, 2016.  The increase was attributable to changes in client mix and pricing, as well as savings on workers’ compensation costs.

 

Gross margin for the Professional segment decreased from 21.9% for the three months ended November 30, 2015 to 19.1% for the three months ended November 30, 2016.  The decrease was primarily attributable to the acquisition of The JM Group, which has lower margins than much of the U.S. based portion of the Professional staffing segment.  Additionally, permanent placement revenue as a percentage of Professional segment revenue fell from 4.9% for the three months ended November 30, 2015 to 3.8% for the three months ended November 30, 2016 as contract revenue grew.  Contract gross margins for the three months ended November 30, 2016 for most businesses in the Professional segment were approximately in line with gross margins for the three months ended November 30, 2015.

21


 

The following table details Re venue and Gross Profit by Service Segment for the six months ended November 30, 2016 and 2015, respectively:

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Mix

 

 

 

 

 

 

Mix

 

Light Industrial

 

$

51,895

 

 

 

55

%

 

$

45,105

 

 

 

58

%

Professional

 

 

42,992

 

 

 

45

%

 

 

32,129

 

 

 

42

%

Total Service Revenue

 

$

94,887

 

 

 

 

 

 

$

77,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Industrial

 

$

7,978

 

 

 

48

%

 

$

6,658

 

 

 

48

%

Professional

 

 

8,608

 

 

 

52

%

 

 

7,133

 

 

 

52

%

Total Gross Profit

 

$

16,586

 

 

 

 

 

 

$

13,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Industrial

 

 

15.4

%

 

 

 

 

 

 

14.8

%

 

 

 

 

Professional

 

 

20.0

%

 

 

 

 

 

 

22.2

%

 

 

 

 

Total Gross Margin

 

 

17.5

%

 

 

 

 

 

 

17.9

%

 

 

 

 

 

 

The increase in Professional revenue as a percentage of total revenue from 42% for the six months ended November 30, 2015 to 45% for the six months ended November 30, 2016 was primarily attributable to the acquisition of Lighthouse and The JM Group, as well as organic growth in the existing Professional businesses.  While Light Industrial revenue as a percentage of total revenue declined from 58% for the six months ended November 30, 2015 to 55% for the six months ended November 30, 2016, revenue in this segment for the six months ended November 30, 2016 increased by 15% compared to the six months ended November 30, 2015, with the increase attributable solely to organic growth.

 

Gross margin for the Professional segment decreased from 22.2% for the six months ended November 30, 2015 to 20.0% for the six months ended November 30, 2016.  The decrease was primarily attributable to the acquisition of The JM Group, which has lower margins than much of the US based portion of the Professional staffing segment.  Additionally, permanent placement revenue as a percentage of Professional segment revenue fell from 5.4% for the six months ended November 30, 2015 to 3.5% for the six months ended November 30, 2016 as contract revenue grew.  Contract gross margins for the six months ended November 30, 2016 for most businesses in the Professional segment were approximately in line with gross margins for the six months ended November 30, 2015.

 

Gross margin for the Light Industrial segment increased from 14.8% for the six months ended November 30, 2015 to 15.4% for the six months ended November 30, 2016.  The increase was attributable to changes in client mix and pricing, as well as savings on workers’ compensation costs.

 

Adjusted EBITDA This measure is defined as net loss attributable to common stock before: interest expense, benefit from (provision for) income taxes; income (loss) from discontinued operations, net of tax; other (income) expense, net, in operating income (loss); amortization and impairment of identifiable intangible assets; impairment of goodwill; depreciation; operational restructuring and other charges; other income (expense), net, below operating income (loss); non-cash expenses associated with stock compensation; 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 believe this measure is helpful to investors because it provides a more meaningful understanding of the profit and cash flow generation of the Company.

 

The following table provides a reconciliation of Adjusted EBITDA for the three months ended November 30, 2016 and 2015 respectively, to its most directly comparable GAAP measure:

22


 

 

 

 

For the Three Months Ended November 30,

 

 

 

2016

 

 

2015

 

Net Loss Attributable to Common Stock

 

$

(1,476

)

 

$

(3,434

)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

553

 

 

 

755

 

Provision (benefit) for income taxes

 

 

28

 

 

 

(42

)

Depreciation and amortization (1)

 

 

1,369

 

 

 

1,561

 

EBITDA

 

 

474

 

 

 

(1,160

)

 

 

 

 

 

 

 

 

 

Acquisition, capital raising and other non-recurring

   expenses (2)

 

 

474

 

 

 

765

 

Other non-cash charges (3)

 

 

227

 

 

 

1,364

 

Dividends - Series A preferred stock

 

 

50

 

 

 

50

 

Other income / (expense)

 

 

168

 

 

 

40

 

Net loss attributable to non-controlling interest

 

 

 

 

 

206

 

Adjusted EBITDA

 

$

1,393

 

 

$

1,265

 

 

 

 

 

 

 

 

 

 

Trailing Twelve Months ("TTM") Adjusted EBITDA

 

$

5,379

 

 

$

2,435

 

 

(1)  Includes amortization included in other expenses

(2) 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.

(3) 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.

 

Adjusted EBITDA for the three months ended November 30, 2016 of $1,393, grew by 10.1% from $1,265 for the three months ended November 30, 2015. For the trailing 12-months (“TTM”) ended November 30, 2016, AEBITDA of $5,379, grew over 120% from Adjusted EBITDA of $2,435 for the TTM ended November 30, 2015.  This growth is attributable to earnings from the acquisition of Lighthouse and The JM Group, as well as flow through of revenue arising from organic growth.

 

The following table provides a reconciliation of Adjusted EBITDA for the six months ended November 30, 2016 and 2015 respectively, to its most directly comparable GAAP measure:

 

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

Net Loss Attributable to Common Stock

 

$

(2,820

)

 

$

(5,191

)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,196

 

 

 

1,281

 

Provision (benefit) for income taxes

 

 

97

 

 

 

(7

)

Depreciation and amortization (1)

 

 

2,721

 

 

 

2,885

 

EBITDA

 

 

1,194

 

 

 

(1,032

)

 

 

 

 

 

 

 

 

 

Acquisition, capital raising and other non-recurring

   expenses (2)

 

 

1,263

 

 

 

998

 

Other non-cash charges (3)

 

 

392

 

 

 

1,586

 

Dividends - Series A preferred stock

 

 

100

 

 

 

100

 

Other income / (expense)

 

 

202

 

 

 

10

 

Net loss attributable to non-controlling interest

 

 

 

 

 

221

 

Adjusted EBITDA

 

$

3,151

 

 

$

1,883

 

 

 

 

 

 

 

 

 

 

Trailing Twelve Months ("TTM") Adjusted EBITDA

 

$

5,379

 

 

$

2,435

 

 

 

 

 

 

 

 

 

 

23


 

 

 

(1)  Includes amortization included in other expenses

(2) 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.

(3) 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.

Adjusted EBITDA for the six months ended November 30, 2016 of $3,151, grew by 67.3% from $1,883 for the six months ended November 30, 2015. For the trailing 12-months (“TTM”) ended November 30, 2016, AEBITDA of $5,379, grew over 120% from AEBITDA of $2,435 for the TTM ended November 30, 2015.  This growth is attributable to earnings from the acquisition of Lighthouse and The JM Group, as well as flow through of revenue arising from organic growth.

Operating Leverage Operating Leverage is calculated by dividing the growth in Adjusted EBITDA by the growth in Gross Profit, on a trailing 12-month basis (“TTM”). We believe Operating Leverage provides investors with a measure of the Company’s efficiency for converting incremental gross profit into incremental Adjusted EBITDA.

The following table details the Company’s Operating Leverage for the twelve months ended November 30, 2016 and 2015, respectively:

 

 

For the Twelve Months Ended November 30,

 

 

 

2016

 

 

2015

 

Gross Profit - TTM (Current Period)

 

$

31,842

 

 

$

24,333

 

Gross Profit - TTM (Prior Period)

 

 

24,333

 

 

 

20,066

 

Gross Profit - Growth

 

$

7,509

 

 

$

4,267

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA - TTM (Current Period)

 

$

5,379

 

 

$

2,435

 

Adjusted EBITDA - TTM (Prior Period)

 

 

2,435

 

 

 

(991

)

Adjusted EBITDA - Growth

 

$

2,944

 

 

$

3,426

 

 

 

 

 

 

 

 

 

 

Operating Leverage

 

 

39.2

%

 

 

80.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leverage in TTM November 30, 2015 is unusually high due to the reversal from negative AEBITDA – TTM (prior period) to significant positive AEBITDA – TTM (current period).

 

Leverage Ratio Calculated as Total Debt, gross of any debt discount and deferred financing costs, plus earnouts, less surety bonds for such earnouts, divided by Adjusted EBITDA for the trailing 12-months. We believe this measure is helpful to investors as an indicator of the Company’s ability to service its debt.

The following table details the Company’s Leverage Ratio as of November 30, 2016 and 2015, respectively:

 

 

November 30,

 

 

 

2016

 

 

2015

 

Total Debt, Net

 

$

7,663

 

 

$

12,058

 

Addback: Total Debt Discount and Deferred Financing Costs

 

 

1,580

 

 

 

2,490

 

Earnouts

 

 

2,390

 

 

 

2,781

 

Less: Surety Bond

 

 

(1,405

)

 

 

 

Net Debt

 

$

10,228

 

 

$

17,329

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA - TTM

 

$

5,379

 

 

$

2,435

 

 

 

 

 

 

 

 

 

 

Leverage Ratio

 

1.9x

 

 

7.1x

 

24


 

 

Operating Cash Flow Including Proceeds from Accounts Receivable Financing c alculated as net cash (used in) provided by operating activities plus net proceeds from accounts receivable financing.  Because much of the Company’s contractor 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 contractor payroll.  As such, we believe this measure is helpful to investors as an indicator of the Company’s underlying operating cash flow.

 

The following table details the operating cash flow including proceeds from accounts receivable financing for the six months ending November 30, 2016 and 2015, respectively:

 

 

 

For the Six Months Ended November 30,

 

 

 

2016

 

 

2015

 

Net cash (used in) provided by operating activities

 

$

(2,046

)

 

$

(119

)

 

 

 

 

 

 

 

 

 

Proceeds from accounts receivable financing

 

 

2,800

 

 

 

1,772

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities including proceeds from accounts receivable financing

 

$

754

 

 

$

1,653

 

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.

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 promissory notes, bonds, convertible notes, private placement offerings and from advances from our majority shareholders/officers/directors.

As of November 30, 2016, the Company had a working capital deficiency of $(14,467), an accumulated deficit of $(46,941), for the six months ended November 30, 2016 a net loss of $(2,720), and, as of the date these unaudited condensed consolidated financial statements are issued, the Company has approximately $5,342 associated with debt and other amortizing obligations, due in the next 12 months. The Company’s projected cash flows from operations for the same period are not sufficient to address these obligations in the normal course of business. Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, increased gross profit from organic revenue growth and managing and reducing operating and overhead costs. As a result, the Company will need to seek additional funding through capital raises to meet these short term obligations. In November of 2016, the Company engaged Source Capital Group, Inc.(“Source Capital”) to act as a placement agent to conduct a general solicitation private placement offering solely to accredited investors under Rule 506(c) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. The Company is still in discussions with Source Capital regarding funding through this private placement offering. The private placement expires on January 31, 2017. In addition, the Company may seek to raise additional capital through private investments. M anagement continues to have discussions with other potential investors.

Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully secure additional sources of financing and increased profitable operations.   Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. However, based upon an evaluation of the Company’s continued growth trajectory, past success in raising capital and meeting its obligations, as well as its plans for raising capital discussed above, management believes that the Company is a going concern.

Our primary uses of cash have been for 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 targeted acquisitions,

 

Addition of administrative and sales personnel as the business grows,

25


 

 

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.

If we are able to secure potential future financings, we believe that we will be able to implement our business plan and pursue the acquisition of a broad spectrum of staffing agencies primarily in the accounting and finance, IT, engineering, administration and light industrial disciplines. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a potential downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

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 Securities and Exchange Commission. We expect all of these applicable rules and regulations to continue to significantly contribute to our legal and financial compliance costs and to make some activities more time consuming and costly.

On September 22, 2016, the Company and Discover Growth Fund have agreed that a Trigger Event, as defined in the Stock Purchase Agreement between Staffing 360 Solutions, Inc. and Discover Growth Fund dated June 24, 2016, filed as an exhibit to our Current Report on Form 8-K on June 27, 2016 (the “Series D Purchase Agreement”), has occurred as of September 22, 2016.  A Trigger Event gives the holders of the Series D Preferred Stock certain additional rights and removes certain restrictions in respect of the Series D Preferred Stock, as set forth in the Series D Purchase Agreement. Discover Growth Fund has agreed not to submit any additional conversion notices until we obtain stockholder approval for the transaction, so long as such approval is obtained by January 2017.  We intend to seek stockholder approval for the transaction in our proxy statement. 

Operating activities

For the six months ended November 30 , 2016, net cash used in operations of $2,046 was primarily attributable to the net loss of $2,720, changes in operating assets and liabilities totaling $(2,473) offset by non-cash adjustments of $3,147. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $3,466, an increase in other non current assets of $565, a decrease in other current liabilities of $188; a decrease in other long term liabilities of $53, partially offset by an increase in accounts payable and accrued expenses of $980, a decrease in prepaid expenses and other current asset of $332 and an increase in other of $487. Total non-cash adjustments of $3,147 primarily includes amortization of intangible assets of $1,364, amortization of debt discounts and beneficial conversion features of $1,202, other of $(89), stock based compensation of $344, loss on settlement of debt of $169 and depreciation of $155.

For the six months ended November 30, 2015, net cash used in operations of $119 was primarily attributable to the net loss of $4,870 and non-cash adjustments of $4,689 offset by changes in operating assets and liabilities totaling $62. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $469, decrease in prepaid expenses and other current assets of $74, increase in other assets of $391, increase in accounts payable and accrued expenses of $852, increase in other long term liabilities of $42 and a decrease in other current liabilities of $46. Non-cash adjustments totaling $4,689 primarily includes depreciation and amortization totaling $2,885, share based compensation totaling $1,611, gain on settlement of debt of $36, write off of fixed assets of $49 and other of $149.

Operating cash flow including proceeds from accounts receivable financing was $754 and $1,653 for the six months ended November 30, 2016 and November 30, 2015 respectively.  

Investing activities

For the six months ended November 30, 2016, net cash flows used in investing activities was $1,131 which is primarily due to payments made to sellers of $849 for the purchase of JM Group, purchase of property and equipment of $213, and payments made towards earn-out agreements totaling $69.

 

26


 

For the six months ended November 30, 2015, net cash flows used in investing activities was $3,921 and was attributable to the purchase of property and equipment of $98, payments due to sellers of $83, payments of $86 made for the earn-out agreement and cash paid for purchase of subsidiaries (Lighthouse and The JM Group) of $3,654.

Financing activities

For the six months ended November 30, 2016, net cash flows provided by financing activities totaled $2,445 and was attributable to proceeds from accounts receivable financing $2,800, proceeds from sale of equity $2,495, proceeds from convertible notes of $400, proceeds from promissory note of $273; offset by repayment of convertible notes of $(1,386), repayment of promissory notes $(995), payments for over advance of accounts receivable financing $(863), and financing cost associated with private placements $(274).

 

For the six months ended November 30, 2015, net cash flows provided by financing activities totaled $5,064 and was attributable to proceeds of $4,279 from the issuance of convertible note payable, proceeds of $1,555 from the issuance of promissory notes and $1,772 from proceeds from accounts receivable financing. In addition, the Company recorded third party financing costs of $1,115, repaid $275 in convertible notes, and repaid promissory notes of $1,052.

 Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our significant accounting policies are fully described in Note 2 to our consolidated financial statements for the year ended May 31, 2016 filed with the SEC on August 29, 2016.

Recent Accounting Pronouncements

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.

 

In April 2016, the FASB issued ASU 2016 – 10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”. The amendments in this Update clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance.

27


 

In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash fl ows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified re trospectively, or prospectively depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less.  All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance.

In January 2016, the FASB issued ASU 2016-01, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer the effective date of ASU 2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is still evaluating the impact of adopting this guidance.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of D isclosure 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” and “internal control over financial reporting” as of the end of the period covered by this Quarterly Report.

Evaluation of Disclosure Controls and Procedures

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. 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 material weaknesses in our control environment and financial reporting process.

28


 

Notwithstanding the existence of some material weaknesses, described below, management believes that the 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 Generally Accepted Accounting Principles in the Unite d States (“GAAP”).

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Internal control over financial reporting is a process designed 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 and includes those policies and procedures that

 

a)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

b)

provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and

 

c)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. 

Based on our evaluation under the framework described above, our management concluded that our internal controls over financial reporting are not effective in accordance with Item 308(a)(3) of Regulation S-K and we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:

 

1)

inadequate segregation of duties consistent with control objectives;

 

2)

ineffective controls over period end financial disclosure and reporting processes; and

 

3)

lack of accounting personnel with adequate experience and training.

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

As of the date of this Quarterly Report, the Company intends to remedy the foregoing weaknesses. However, a system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s plan for remediating the material weaknesses include the following:

 

Add resources in the form of personnel on an as needed basis;

 

Add additional systems to enhance the controls over financial reporting and limit the manual intervention currently required.

Attestation report of the registered public accounting firm

This Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the six months ended November 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

29


 

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

NewCSI, Inc. vs. Staffing 360 Solutions, Inc.

On May 22, 2014, NewCSI, the former owners of Control Solutions International, filed a complaint in the United States District Court for the Western District of Texas, Austin Division, against the Company arising from the terms of the CSI Stock Purchase Agreement dated August 14, 2013.  NewCSI claims that the Company breached a provision of the CSI Stock Purchase Agreement (“SPA § 2.7”) that required the Company to calculate and pay to NewCSI 50% of certain “Deferred Tax Assets” within 90 days after December 31, 2013.  The Complaint sought payment of the amount allegedly owed under SPA § 2.7 and acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $1,400, less amounts paid to date, and attorneys’ fees.  The Company responded denying the material allegations and interposing numerous affirmative defenses. On October 8, 2014, NewCSI filed a Motion of Summary Judgment (the “Motion”). On March 30, 2015, a Magistrate Judge of the District Court issued a Report and Recommendation that the District Court deny the Motion.  The Recommendation became a final decision on April 13, 2015.

On December 31, 2014, NewCSI filed an amended complaint to which NewCSI added an additional count asserting an “Adjustment Event” had occurred requiring an acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $2,100, less amounts paid to date ($1,671 at December 31, 2014), should Staffing 360 or CSI “be unable, or admit in writing its inability, to pay its debts as they mature.”  The Company responded denying the material allegations and interposing numerous affirmative defenses, including that the earn-out liability was fully expensed at the time of the acquisition and fully accrued for on the Company’s balance sheet as part of the purchase accounting at the time of the acquisition.  The final pretrial conference in this matter was held April 22, 2015.  A jury was selected on May 14, 2015, and the trial was held May 18-20, 2015.  On May 20, 2015, the jury rendered a verdict, finding that Staffing 360 had not complied with SPA § 2.7 and owed $154, but that NewCSI had not proven that Staffing 360 or CSI had become unable to pay debts as they came due.  The Court had held that it was not a question for the jury to decide if damages for breach of SPA § 2.7 should include accelerated earn-out payments.

On June 3, 2015, NewCSI filed a Motion for Entry of Judgment as Matter of Law seeking entry of a judgment in the amount of $154, plus accelerated earn-out payments in the amount of $1,152, plus statutory interest.  NewCSI did not challenge the jury verdict on the ability to pay issue.  Also on June 3, 2015, Staffing 360 filed a Motion for Entry of Judgment as a Matter of Law seeking entry of judgment against NewCSI on the jury’s finding that Staffing 360 had not complied with SPA § 2.7, or, in the alternative, for a reduction of damages to $54 and to hold that NewCSI may not be awarded accelerated earn-out payments as that would result in an illegal penalty.

On October 21, 2015, judgment was entered in this action in favor of NewCSI and against the Company in the amount of $1,307, plus pre-judgment interest, post-judgment interest, and costs.

On January 26, 2016, the District Court set the bond in respect of the NewCSI litigation at $1,384. The Company has filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit seeking reversal of the judgment and posted a supersedeas bond to stay the execution of the judgment pending appeal.  On April 18, 2016, the Court granted the NewCSI shareholders’ request for payment of attorneys’ fees, but reserved judgment on the amount of fees to award pending the outcome of the Company’s appeal.  As of January 2016, the NewCSI shareholders have claimed they have incurred $552 in attorney’s fees, which could increase during the pendency of the appeal.  On November 3, 2016, oral arguments for the appeal were heard and now the Company is awaiting further instruction from the United States Court of Appeals for the Fifth Circuit.

We believe that the Company acted in a manner consistent with our contractual rights, and we intend to aggressively defend the Company against NewCSI. Nevertheless, there can be no assurance that the outcome of this litigation, will be favorable to the Company.

Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc.

On November 13, 2015, in a separate proceeding, Staffing 360 initiated an arbitration before JAMS against three officers of Staffing 360, each a former Staffing 360 officer and employee.  In its demand for arbitration and statement of claim, Staffing 360 alleged that these individuals breached their employment agreements with Staffing 360 and the fiduciary duties each owed to the Company.  The three respondents responded with a counterclaim alleging wrongful termination and have moved to dismiss the arbitration, as well as moved for severance in relation to the remainder of their contracts. On July 20, 2016, the arbitrator decided in favor of both of the respondents’ motions.  Further on September 21, 2016 the arbitrator rendered the final award, which was set at $1,433. The Company is awaiting the respondents’ motion to confirm the award.   In addition, the Company has calculated interest and made a payment towards legal fees included in the final award amount. As of November 30, 2016 the balance is $1,591. This amount has already been fully accrued for and expensed on the Company’s balance sheet.

30


 

Item 1A. Ris k Factors.

Smaller reporting companies are not required to provide the information required by this item.

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.

Item 5. Other Information.

None.

 

31


 

Item 6.  Exhibits

 

Exhibit No.

 

Description

 

 

 

3.1

 

Certificate of Designations, Preferences and Rights of Series E-1 Preferred Stock

3.2

 

Certificate of Designations, Preferences and Rights of Series E-2 Preferred Stock

10.1

 

Letter Agreement, dated October 3, 2016, between Staffing 360 Solutions, Inc. and Hillair Capital Investments L.P. (incorporated by reference from the Company’s Form 8-K filed on October 7, 2016)

10.2

 

Amended Letter Agreement, dated October 14, 2016, between Staffing 360 Solutions, Inc. and Hillair Capital Investments L.P., and described in the Company’s Form 8-K/A filed on October 20, 2016

31.1

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1†

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2†

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Schema

101.CAL

 

XBRL Taxonomy Calculation Linkbase

101.DEF

 

XBRL Taxonomy Definition Linkbase

101.LAB

 

XBRL Taxonomy Label Linkbase

101.PRE

 

XBRL Taxonomy Presentation Linkbase

 

† In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.

 

 

32


 

SIGNAT URES

Pursuant to the requirements 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.

 

Date: January 13, 2017

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ Brendan Flood

 

 

 

 

Brendan Flood

 

 

 

 

Executive Chairman

 

 

 

 

(Duly Authorized Officer and Principal Executive Officer)

 

Date: January 13, 2017

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ David Faiman

 

 

 

 

David Faiman

 

 

 

 

Chief Financial Officer

 

 

 

 

(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

33

 

Exhibit 3.1

 

BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov Certificate of Designation (PURSUANT TO NRS 78.1955) USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY Certificate of Designation For Nevada Profit Corporations (Pursuant to NRS 78.1955 1. Name of corporation: Staffing 360 Solutions, Inc. 2. By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock. RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by provisions of the Articles of Incorporation of the Company, as amended (the “Articles of Incorporation”), there hereby is created out of the 20,000,000 shares of preferred stock of the Company, par value $0.00001 per share, as authorized in Article III of the Articles of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series E-1 Preferred Stock” consisting of 50,000 shares; 1. Designation and Amount.  The shares of such series shall have a par value of $0.00001 per share and shall be designated as “Series E-1 Preferred Stock” and the number of shares constituting the Series E-1 Preferred Stock shall be 50,000.  The Series E-1 Preferred Stock shall mature in three (3) years from the date of this Certificate of Designation (the “Maturity Date”). (Continued on attachment) 3. Effective date of filing: (optional) (must not be later than 90 days after the certificate is filed) 4. Signature: (required) Brendan Flood, Signature of OfficerBrendan Flood, Executive Chairman Filing Fee: $175.00 IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected. This form must be accompanied by appropriate fees. Nevada Secretary of State Stock Designation Revised: 1-5-15

 

 

 


 

1.1 Initial Purchase . Series E-1 Preferred Stock purchased on or prior to November 30, 2016 (the “ Initial Purchased Stock ”) shall have a stated value of $770.02 per share (the “ Initial Stated Value ”).

1.2 Second Purchase . Series E-1 Preferred Stock purchased on or after December 1, 2016 and purchased on or prior to December 21, 2016 (the “ Secondary Purchased Stock ”) shall have a stated value of $777.95 per share (the “ Secondary Stated Value ”).

1.3 Additional Purchase . Series E-1 Preferred Stock purchased on or after December 22, 2016 and purchased on or prior to January 31, 2017 (the “ Additional Purchased Stock ”) shall have a stated value of $793.83 per share (the “ Stated Value ”).

2. Payment and Rank .

2.1 Payment . The holders of the Series E-1 Preferred Stock (each a “ Holder ”) will be entitled to receive an original issue discount yielding eight percent (8%) of the Stated Value per annum, payable on the Maturity Date, prior to and in preference to any declaration or payment of any yield, discount or dividend on the common stock of the Company, par value $0.00001 per share (the “ Common Stock ”).

(a) The Initial Purchased Stock shall have an original issue discount equal to the Initial Stated Value plus $23.81 per share of Series E-1 Preferred Stock.

(b) The Secondary Purchased Stock shall have an original issue discount equal to the Secondary Stated Value plus $15.88 per share of Series E-1 Preferred Stock.

(c) The Additional Purchased Stock shall have an original issue discount equal to the Stated Value.

2.2 Rank . So long as any shares of Series E-1 Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any yield, discount or dividend on any shares of Common Stock or classes and series of preferred securities of the Company which by their terms do not rank senior to the Series E-1 Preferred Stock (“ Junior Stock ”), unless at the time of such yield, discount or dividend the Company shall have paid all accrued and unpaid yields, discounts or dividends on the outstanding shares of Series E-1 Preferred Stock.

3. Redemption .

3.1 Redemption . Within thirty (30) days of November 9, 2019 (the “ Redemption Date ”), the Company shall redeem all of the shares of Series E-1 Preferred Stock (a “ Redemption ”) from each Holder for cash in the amount set forth in this Section 3.1 . The redemption price paid to each Holder shall be e equal to one thousand dollars ($1,000) multiplied by the number of shares of Series E-1 Preferred Stock held by such Holder (the “ Redemption Purchase Price ”). On the Redemption Date, the Company shall confirm the number of shares of Series E-1 Preferred Stock held by each Holder as set forth on Annex A attached hereto.

3.2 No Impairment . The Company will not, through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company.

3.3 Transfer of Preferred Stock .

(i) Unless the Series E-1 Preferred Stock becomes listed or traded on a national securities exchange or on any market run by the OTC Markets Group, the Holder shall not, directly or indirectly, sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of (whether by operation of law or otherwise) (each a “ Transfer ”) the Series E-1 Preferred Stock, in whole or in part, or any right, title or interest herein or hereto, except to the estate of the Holder upon death or to the administrator of the Holder upon complete disability and in accordance with the provisions of this Certificate of Designation. Any attempt to Transfer the Series E-1 Preferred Stock or any rights hereunder in violation of the preceding sentence shall be null and void ab initio and the Company shall not register any such Transfer. Upon the Transfer of the Series E-1 Preferred Stock, in whole or in part, through the use of an assignment form in a form reasonably satisfactory to the Company, and in accordance with applicable law or regulation, and the payment by the Holder of funds sufficient to pay any transfer tax, the Company shall issue and register the Series E-1 Preferred Stock in the name of the estate or administrator of the Holder. Notwithstanding any other provision of this Certificate of Designation, no Transfer may be made pursuant to this Section 3.3 unless (a) the Transfer complies in all respects with the applicable provisions of this Certificate of Designation and (b) the Transfer complies in all respects with applicable federal and state securities laws, including, without limitation, the Securities Act of 1933, as amended.

3.4 Acceleration of Redemption Upon Change in Control . Upon the consummation of any transaction resulting in a Change of Control of the Company, the Holders shall have the right to declare the Redemption Purchase Price due and payable immediately. A “ Change of Control ” means a consolidation or merger of the Company with or into another company or entity in which the Company is not the surviving entity or the sale of all or substantially all of the assets of the Company to another company or entity not controlled by the then existing stockholders of the Company in a transaction or series of transactions.

 


 

3.5 Event of Default . In the event that the Company does not pay the Redemption Purchase Price to the Holders within thirty (30) days following the Redemption Date, there shall be an event of default against the Company (“ Event of Default ”). If an Event of Default occurs, interest shall accrue on each share of Series E-1 Preferred Stock at a rate of eighteen percent (18%) per annum until paid.

4. Liquidation . In the event of a liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive out of the assets of the Company legally available for distribution, prior to and in preference to distributions to the holders of Common Stock or Junior Stock (other than the holders of Series A Preferred Stock or Series D Preferred Stock), and either in preference to or pari pasu with the holders of any other series of preferred stock that may be issued either (a) concurrently with the Series E-1 Preferred Stock or (b) in the future that is expressly made senior or pari pasu the Series E-1 Preferred Stock, as the case may be, an amount equal to the Stated Value of the Series E-1 Preferred Stock less any dividends previously paid out on the Series E-1 Preferred Stock. The remaining assets of the Company shall be distributed to the holders of the outstanding equity securities of the Company in accordance with their liquidation rights.

5. Conversion Rights . The Series E-1 Preferred Stock shall not be convertible into or exchangeable for shares of Common Stock or any other security currently outstanding or subsequently issued by the Company.

6. Voting Rights; Waiver of Dissenters’ Rights . Except as otherwise required by law, the Series E-1 Preferred Stock shall have no voting rights. Each Holder hereby irrevocably and unconditionally waives, and agrees not to exercise, asset or perfect, any rights of dissent and appraisal under Section 92A.380 of the Nevada Statutes to the extent such Holder is entitled to such rights under such Section 92A.380 in connection with any proposed reincorporation of the Company from the State of Nevada to the State of Delaware.

7. No Other Rights . Except as set forth in this Certificate of Designation, the Holders have no preemptive or preferential or other rights to purchase or subscribe to any stock, obligations, warrants or other securities of the Company.

8. Covenants of Company . The Company covenants and agrees that, so long any shares of Series E-1 Preferred Stock are outstanding, it will perform the obligations set forth in this Section 8:

8.1 Taxes and Levies . Except for the payment of taxes pursuant to payment plans or otherwise with governmental taxing authorities that would not, individually or in the aggregate, have or reasonably be expected to result in a material adverse effect on the Company, the Company will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided , however , that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves in accordance with GAAP with respect to any such tax, assessment, charge, levy or claim so contested;

8.2 Maintenance of Existence . The Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company;

8.3 Maintenance of Property . The Company will at all times maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;

8.4 Insurance . The Company will, to the extent necessary for the operation of its business, keep adequately insured by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and

8.5 Books and Records . The Company will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP.

8.6 Notice of Certain Events . The Company will give prompt written notice (with a description in reasonable detail) to the holders of Series E-1 Preferred Stock in the event the Company shall:

(a) become insolvent or generally fail or be unable to pay, or admit in writing its inability to pay, its debts as they become due;

(b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors;

(c) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or

2


 

(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief.

9. Protective Provisions . So long as any shares of Series E-1 Preferred Stock are outstanding, the Company shall not alter or change the rights, preferences or privileges of the Series E-1 Preferred Stock, or increase the authorized number of shares of Series E-1 Preferred Stock without first obtaining the approval (by vote or written consent) of the holders of a majority of the issued and outstanding Series E-1 Preferred Stock. Notwithstanding the foregoing, each Holder hereby irrevocably and unconditionally waives, and agrees not to exercise, asset or perfect, any rights of dissent and appraisal under Section 92A.380 of the Nevada Statutes to the extent such Holder is entitled to such rights under such Section 92A.380 in connection with any proposed reincorporation of the Company from the State of Nevada to the State of Delaware.

10. Miscellaneous .

10.1 Uncertificated Shares . The Series E-1 Preferred Stock may be held in registered book-entry form or through an intermediary, in each case, as determined by the Board in its sole discretion.

10.2 Amendments in Writing . Except as otherwise provided herein, the provisions of the Series E-1 Preferred Stock may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holders representing at least two-thirds of the outstanding Series E-1 Preferred Stock.

10.3 Mutilated, Lost, Stolen or Destroyed Certificate . In case the Series E-1 Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate, or in lieu of and substitution for the certificate, mutilated, lost, stolen or destroyed, a new certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and an indemnity or bond, if requested, also reasonably satisfactory to it.

10.4 Notices . Notice to any Holder of the Series E-1 Preferred Stock shall be given to the registered address set forth in the Company’s records for such Holder. With respect to any notice to a Holder required to be provided herein, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular Holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other Holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, any other corporate action or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice.

10.5 Timing of Payments . Any payments required to be made hereunder on any day that is not a Business Day shall be made on the next succeeding Business Day without interest or additional payment for such delay. Unless otherwise stated herein, any actions required to be made hereunder on any day that is not a Business Day shall be taken on the next succeeding Business Day. As used herein, “ Business Day ” means a day other than Saturday, Sunday or any day on which banks located in the State of Nevada are authorized or obligated to close.

10.6 Lost Certificates . Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any preferred stock certificates representing the shares of Series E-1 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the preferred stock certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

10.7 Amendments . This Certificate of Designation may be amended with the approval of the Board of Directors and the consent of the holders of a majority of the then outstanding shares of the Series E-1 Preferred Stock.

10.8 Effectiveness . This Certificate of Designation shall become effective upon the filing thereof with the Secretary of State of the State of Nevada.

3


 

Annex A

 

Name of Holder

Number of Shares of Series E-1 Preferred Stock Held

 

4

 

Exhibit 3.2

 

Exhibit 3.2 *150103* BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov Certificate of Designation (PURSUANT TO NRS 78.1955) USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY Certificate of Designation For Nevada Profit Corporations (Pursuant to NRS 78.1955) 1. Name of corporation: Staffing 360 Solutions, Inc. 2. By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock. RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by provisions of the Articles of Incorporation of the Company, as amended (the “Articles of Incorporation”), there hereby is created out of the 20,000,000 shares of preferred stock of the Company, par value $0.00001 per share, as authorized in Article III of the Articles of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series E-2 Preferred Stock” consisting of 50,000 shares; 1. Designation and Amount. The shares of such series shall have a par value of $0.00001 per share and shall be designated as “Series E-2 Preferred Stock” and the number of shares constituting the Series E-2 Preferred Stock shall be 50,000. The Series E-2 Preferred Stock shall mature in five (5) years from the date of this Certificate of Designation (the “Maturity Date”). (Continued on attachment) 3. Effective date of filing: (optional) (must not be later than 90 days after the certificate is filed) 4. Signature: (required) /s/ Brendan Flood Signature of Officer Brendan Flood, Executive Chairman Filing Fee: $175.00 IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected. This form must be accompanied by appropriate fees. Nevada Secretary of State Stock Designation Revised: 1-5-15

 

 

 


 

1.1 Initial Purchase . Series E-2 Preferred Stock purchased on or prior to November 30, 2016 (the “ Initial Purchased Stock ”) shall have a stated value of $602.29 per share (the “ Initial Stated Value ”).

1.2 Second Purchase . Series E-2 Preferred Stock purchased on or after December 1, 2016 and purchased on or prior to December 21, 2016 (the “ Secondary Purchased Stock ”) shall have a stated value of $608.50 per share (the “ Secondary Stated Value ”).

1.3 Additional Purchase . Series E-2 Preferred Stock purchased on or after December 22, 2016 and purchased on or prior to January 31, 2017 (the “ Additional Purchased Stock ”) shall have a stated value of $620.92 per share (the “ Stated Value ”).

2. Payment and Rank .

2.1 P ayment .  The holders of the Series E-2 Preferred Stock (each a “ Holder ”) will be entitled to receive an original issue discount yielding ten percent (10%) of the Stated Value per annum, payable on the Maturity Date, prior to and in preference to any declaration or payment of any yield, discount or dividend on the common stock of the Company, par value $0.00001 per share (the “ Common Stock ”).

(a) The Initial Purchased Stock shall have an original issue discount equal to the Initial Stated Value plus $18.63 per share of Series E-2 Preferred Stock.

(b) The Secondary Purchased Stock shall have an original issue discount equal to the Secondary Stated Value plus $12.42 per share of Series E-2 Preferred Stock.

(c) The Additional Purchased Stock shall have an original issue discount equal to the Stated Value.

2.2 Rank .  So long as any shares of Series E-2 Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any yield, discount or dividend on any shares of Common Stock or classes and series of preferred securities of the Company which by their terms do not rank senior to the Series E-2 Preferred Stock (“ Junior Stock ”), unless at the time of such yield, discount or dividend the Company shall have paid all accrued and unpaid yields, discounts or dividends on the outstanding shares of Series E-2 Preferred Stock.

3. Redemption .

3.1 Redemption .  Within thirty (30) days of November 9, 2021 (the “ Redemption Date ”), the Company shall redeem all of the shares of Series E-2 Preferred Stock (a “ Redemption ”) from each Holder for cash in the amount set forth in this Section 3.1 . The redemption price paid to each Holder shall be equal to one thousand dollars ($1,000) multiplied by the number of shares of Series E-2 Preferred Stock held by such Holder (the “ Redemption Purchase Price ”).  On the Redemption Date, the Company shall confirm the number of shares of Series E-2 Preferred Stock held by each Holder as set forth on Annex A attached hereto.

3.2 No Impairment .  The Company will not, through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company.

3.3 Transfer of Preferred Stock .

(i) Unless the Series E-2 Preferred Stock becomes listed or traded on a national securities exchange or on any market run by the OTC markets, the Holder shall not, directly or indirectly, sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of (whether by operation of law or otherwise) (each a “ Transfer ”) the Series E-2 Preferred Stock, in whole or in part, or any right, title or interest herein or hereto, except to the estate of the Holder upon death or to the administrator of the Holder upon complete disability and in accordance with the provisions of this Certificate of Designation. Any attempt to Transfer the Series E-2 Preferred Stock or any rights hereunder in violation of the preceding sentence shall be null and void ab initio and the Company shall not register any such Transfer. Upon the Transfer of the Series E-2 Preferred Stock, in whole or in part, through the use of an assignment form in a form reasonably satisfactory to the Company, and in accordance with applicable law or regulation, and the payment by the Holder of funds sufficient to pay any transfer tax, the Company shall issue and register the Series E-2 Preferred Stock in the name of the estate or administrator of the Holder. Notwithstanding any other provision of this Certificate of Designation, no Transfer may be made pursuant to this Section 3.3 unless (a) the Transfer complies in all respects with the applicable provisions of this Certificate of Designation and (b) the Transfer complies in all respects with applicable federal and state securities laws, including, without limitation, the Securities Act of 1933, as amended.

3.4 Acceleration of Redemption Upon Change in Control .  Upon the consummation of any transaction resulting in a Change of Control of the Company, the Holders shall have the right to declare the Redemption Purchase Price due and payable immediately. A “ Change of Control ” means a consolidation or merger of the Company with or into another company or entity in which the Company is not the surviving entity or the sale of all or substantially all of the assets of the Company to another company or entity not controlled by the then existing stockholders of the Company in a transaction or series of transactions.

 


 

3.5 Event of Default . In the event that the Company does not pay the Redemption Purchase Price to the Holders within thirty (30) days following the Redemption Date, there shall be an event of default against the Company (“ Event of Default ”). If an Event of Default occurs, interest shall accrue on each share of Series E-2 Preferred Stock at a rate of eighteen percent (18%) per annum until paid.

4. Liquidation .  In the event of a liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive out of the assets of the Company legally available for distribution, prior to and in preference to distributions to the holders of Common Stock or Junior Stock (other than the holders of Series A Preferred Stock or Series D Preferred Stock), and either in preference to or pari pasu with the holders of any other series of preferred stock that may be issued either (a) concurrently with the Series E-2 Preferred Stock or (b) in the future that is expressly made senior or pari pasu the Series E-2 Preferred Stock, as the case may be, an amount equal to the Stated Value of the Series E-2 Preferred Stock less any dividends previously paid out on the Series E-2 Preferred Stock. The remaining assets of the Company shall be distributed to the holders of the outstanding equity securities of the Company in accordance with their liquidation rights.

5. Conversion Rights . The Series E-2 Preferred Stock shall not be convertible into or exchangeable for shares of Common Stock or any other security currently outstanding or subsequently issued by the Company.

6. Voting Rights; Waiver of Dissenters’ Rights .  Except as otherwise required by law, the Series E-2 Preferred Stock shall have no voting rights.  Each Holder hereby irrevocably and unconditionally waives, and agrees not to exercise, asset or perfect, any rights of dissent and appraisal under Section 92A.380 of the Nevada Statutes to the extent such Holder is entitled to such rights under such Section 92A.380 in connection with any proposed reincorporation of the Company from the State of Nevada to the State of Delaware.

7. No Other Rights . Except as set forth in this Certificate of Designation, the Holders have no preemptive or preferential or other rights to purchase or subscribe to any stock, obligations, warrants or other securities of the Company.

8. Covenants of Company .  The Company covenants and agrees that, so long any shares of Series E-2 Preferred Stock are outstanding, it will perform the obligations set forth in this Section 8 :

8.1 Taxes and Levies .  Except for the payment of taxes pursuant to payment plans or otherwise with governmental taxing authorities that would not, individually or in the aggregate, have or reasonably be expected to result in a material adverse effect on the Company, the Company will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided , however , that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves in accordance with GAAP with respect to any such tax, assessment, charge, levy or claim so contested;

8.2 Maintenance of Existence .  The Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company;

8.3 Maintenance of Property .  The Company will at all times maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;

8.4 Insurance .  The Company will, to the extent necessary for the operation of its business, keep adequately insured by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations;

8.5 Books and Records .  The Company will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP; and

8.6 Notice of Certain Events .  The Company will give prompt written notice (with a description in reasonable detail) to the holders of Series E-2 Preferred Stock in the event the Company shall:

(a) become insolvent or generally fail or be unable to pay, or admit in writing its inability to pay, its debts as they become due;

(b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors;

(c) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or

2


 

(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief.

9. Protective Provisions . So long as any shares of Series E-2 Preferred Stock are outstanding, the Company shall not alter or change the rights, preferences or privileges of the Series E-2 Preferred Stock, or increase the authorized number of shares of Series E-2 Preferred Stock without first obtaining the approval (by vote or written consent) of the holders of a majority of the issued and outstanding Series E-2 Preferred Stock. Notwithstanding the foregoing, each Holder hereby irrevocably and unconditionally waives, and agrees not to exercise, asset or perfect, any rights of dissent and appraisal under Section 92A.380 of the Nevada Statutes to the extent such Holder is entitled to such rights under such Section 92A.380 in connection with any proposed reincorporation of the Company from the State of Nevada to the State of Delaware.

10. Miscellaneous .

10.1 Uncertificated Shares . The Series E-2 Preferred Stock may be held in registered book-entry form or through an intermediary, in each case, as determined by the Board in its sole discretion.

10.2 Amendments in Writing .  Except as otherwise provided herein, the provisions of the Series E-2 Preferred Stock may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holders representing at least two-thirds of the outstanding Series E-2 Preferred Stock.

10.3 Mutilated, Lost, Stolen or Destroyed Certificate .  In case the Series E-2 Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate, or in lieu of and substitution for the certificate, mutilated, lost, stolen or destroyed, a new certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and an indemnity or bond, if requested, also reasonably satisfactory to it.

10.4 Notices .  Notice to any Holder of the Series E-2 Preferred Stock shall be given to the registered address set forth in the Company’s records for such Holder.  With respect to any notice to a Holder required to be provided herein, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular Holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other Holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, any other corporate action or the vote upon any such action.  Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice.

10.5 Timing of Payments . Any payments required to be made hereunder on any day that is not a Business Day shall be made on the next succeeding Business Day without interest or additional payment for such delay. Unless otherwise stated herein, any actions required to be made hereunder on any day that is not a Business Day shall be taken on the next succeeding Business Day. As used herein, “ Business Day ” means a day other than Saturday, Sunday or any day on which banks located in the State of Nevada are authorized or obligated to close.

10.6 Lost Certificates .  Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any preferred stock certificates representing the shares of Series E-2 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the preferred stock certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

10.7 Amendments .  This Certificate of Designation may be amended with the approval of the Board of Directors and the consent of the holders of a majority of the then outstanding shares of the Series E-2 Preferred Stock.

10.8 Effectiveness .  This Certificate of Designation shall become effective upon the filing thereof with the Secretary of State of the State of Nevada.

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Annex A

 

Name of Holder

 

Number of Shares of Series E-2 Preferred Stock Held

 

 

 

 

4

Exhibit 10.2

 

As of October 14, 2016

 

Re:  Staffing 360 Solutions, Inc.

 

Reference is made to that certain 8% Senior Secured Convertible Debenture (the “ Debenture ”) due April 1, 2017 with an original issue date of July 8, 2015 made by Staffing 360 Solutions, Inc. (“ Staffing ”) in favor of Hillair Capital Investments L.P. or its registered assigns (collectively, “ Hillair ”) in the original principal amount of $3,920,000.  Any terms not otherwise defined in this letter agreement (this “ Agreement ”) shall have the meanings set forth under the Debenture.  This Agreement, amends and restates in its entirety that certain letter agreement, dated October 3, 2016.  

 

Notwithstanding anything to the contrary set forth in the Debenture, Hillair and Staffing hereby agree that:

 

 

(1)

effective as of October 3, 2016, Hillair shall convert an aggregate amount of $980,000.00 of indebtedness under the Debenture (the “ Conversion Amount ”), currently due October 3, 2016, into 890,910 shares of Common Stock of Staffing (the “Conversion Shares”), and

 

 

(2)

upon receipt of the Conversion Shares as set forth hereunder, the aggregate principal amount of the Debenture, and the next Periodic Redemption Amount, shall be reduced by the Conversion Amount (as set forth on the books and records of Staffing).

 

The parties agree that the total cumulative amount of shares issued to Hillair may not exceed the requirements of Nasdaq Listing Rule 5635(d).  Staffing represents and warrants that the conversion of the indebtedness under the Debenture into Conversion Shares pursuant to this Agreement is exempt from registration pursuant to Section 3(a)(9) of the Securities Act.

 

In addition, t he parties also agree that to the extent that Hillair’s conversion would result in Hillair exceeding the Beneficial Ownership Limitation of the Debentures (as set forth in Section 4(d) of the Debenture), then Hillair shall not be entitled to receive the Conversion Shares to such extent (or beneficially own of such shares of Common Stock as a result of such conversion to such extent) and such excess Conversion Shares shall be held in abeyance for Hillair until such time, if ever, as its right thereto would not result in Hillair exceeding the Beneficial Ownership Limitation.

 

Delivery of the Conversion Shares shall be otherwise governed by Section 4 of the Debenture, including the timing of delivery and compensation and/or rescission rights for failure to deliver or delivery on a timely basis.  Except as otherwise provided herein, this agreement shall not modify or amend in any way the terms of the Debenture. 

 

Section 9(d) (Governing Law) of the Debenture is hereby incorporated herein by this reference.

 

HILLAIR CAPITAL INVESTMENTS L.P.

 

/s/ Sean M. McAvoy

By:  Sean M. McAvoy

Title:  Managing Member

Hillair Capital Advisors LLC

STAFFING 360 SOLUTIONS, INC.

 

/s/ Brendan Flood

By: Brendan Flood

Title: Executive Chairman

 

 

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. (the “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. I am 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: January 13, 2017

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Executive Chairman

 

 

(Principal Executive Officer)

 

 

 

Exhibit 31.2

CERTIFICATION

OF PRINCIPAL FINANICAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, David Faiman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Staffing 360 Solutions, Inc. (the “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. I am 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: January 13, 2017

 

/s/ David Faiman

 

 

David Faiman

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and

Principal Accounting Officer)

 

 

 

Exhibit 32.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE 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. (the “Company”) on Form 10-Q for the period ended November 30, 2016 (the “Report”), I, Brendan Flood, Executive Chairman of the Company, respectively, 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: January 13, 2017

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Executive Chairman

 

 

(Principal Executive Officer)

 

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.

 

 

Exhibit 32.2

CERTIFICATION OF

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. (the “Company”) on Form 10-Q for the period ended November 30, 2016 (the “Report”), I, David Faiman, Chief Financial Officer 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: January 13, 2017

 

/s/ David Faiman

 

 

David Faiman

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and

Principal Accounting Officer)

 

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.