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 September 29, 2018

or

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

For the transition period from ________ to _________

Commission File Number: 001-37575

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

68-0680859

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

641 Lexington Avenue, Suite 2701

New York, New York 10022

(Address of principal executive offices) (Zip Code)

(646) 507-5710

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

Emerging Growth Company

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

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

As of November 13, 2018, there were 5,015,018 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

 

1

 

 

Condensed Consolidated Balance Sheets as of September 29, 2018 (unaudited) and December 30, 2017

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and nine month periods ended September 29, 2018 and for the three and nine month periods ended September 30, 2017

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine month periods ended September 29, 2018 and for the three and nine month periods ended September 30, 2017

 

3

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 29, 2018 and September 30, 2017

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2

 

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

 

20

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4

 

Controls and Procedures

 

30

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

32

Item 1A

 

Risk Factors

 

32

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 3

 

Defaults Upon Senior Securities

 

32

Item 4

 

Mine Safety Disclosures

 

32

Item 5

 

Other Information

 

32

Item 6

 

Exhibits

 

33

 

 

 

 

 

Signatures

 

 

 

34

 

 

 


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)

 

 

 

September 29,

 

 

December 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

2,824

 

 

$

3,100

 

Accounts receivable, net

 

 

34,724

 

 

 

33,392

 

Prepaid expenses and other current assets

 

 

1,295

 

 

 

1,443

 

Total Current Assets

 

 

38,843

 

 

 

37,935

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,732

 

 

 

1,618

 

Identifiable intangible assets, net

 

 

23,376

 

 

 

17,145

 

Goodwill

 

 

32,061

 

 

 

27,169

 

Other assets

 

 

2,873

 

 

 

2,881

 

Total Assets

 

$

98,885

 

 

$

86,748

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

23,700

 

 

$

16,709

 

Current portion of debt, net

 

 

675

 

 

 

245

 

Accounts receivable financing

 

 

19,680

 

 

 

25,983

 

Other current liabilities

 

 

9,350

 

 

 

6,372

 

Total Current Liabilities

 

 

53,405

 

 

 

49,309

 

 

 

 

 

 

 

 

 

 

Term loan - related party, net

 

 

46,697

 

 

 

38,749

 

Term loan, net

 

 

1,185

 

 

 

 

Warrant Liability

 

 

 

 

 

1,426

 

Other long-term liabilities

 

 

4,685

 

 

 

4,049

 

Total Liabilities

 

 

105,972

 

 

 

93,533

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Staffing 360 Solutions, Inc. Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A Preferred Stock - Related Party, 1,663,008 shares designated, $1.00 stated value, 1,663,008 shares issued and outstanding, as of September 29, 2018 and December 30, 2017

 

 

 

 

 

 

Series B Preferred Stock, 200,000 shares designated, $10.00 stated value, 0 shares issued

   and outstanding, as of September 29, 2018 and December 30, 2017

 

 

 

 

 

 

Series C Preferred Stock, 2,000,000 shares designated, $1.00 stated value, 0 shares issued

   and outstanding, as of September 29, 2018 and December 30, 2017

 

 

 

 

 

 

Common stock, $0.00001 par value, 40,000,000 and 20,000,000 shares authorized as of

     September 29, 2018 and December 30, 2017, respectively; 5,003,144 and 3,909,114 shares

     issued and outstanding, as of September 29, 2018 and December 30, 2017, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

61,673

 

 

 

57,574

 

Accumulated other comprehensive income

 

 

1,477

 

 

 

783

 

Accumulated deficit

 

 

(70,237

)

 

 

(65,142

)

Total Stockholders' Deficit

 

 

(7,087

)

 

 

(6,785

)

Total Liabilities and Stockholders' Deficit

 

$

98,885

 

 

$

86,748

 

 

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

 

1


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(UNAUDITED)

 

 

 

Q3 2018

 

 

Q3 2017

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Revenue

 

$

71,317

 

 

$

50,345

 

 

$

186,835

 

 

$

133,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue, excluding depreciation and amortization stated below

 

 

58,821

 

 

 

40,768

 

 

 

150,876

 

 

 

108,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

12,496

 

 

 

9,577

 

 

 

35,959

 

 

 

24,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

11,097

 

 

 

8,800

 

 

 

33,315

 

 

 

22,362

 

Depreciation and amortization

 

 

741

 

 

 

790

 

 

 

2,251

 

 

 

2,310

 

Total Operating Expenses

 

 

11,838

 

 

 

9,590

 

 

 

35,566

 

 

 

24,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Operations

 

 

658

 

 

 

(13

)

 

 

393

 

 

 

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Expenses) Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,279

)

 

 

(761

)

 

 

(6,185

)

 

 

(1,843

)

Amortization of debt discount and deferred financing costs

 

 

(156

)

 

 

(1,212

)

 

 

(393

)

 

 

(2,610

)

Loss on extinguishment of debt, net

 

 

 

 

 

(4,764

)

 

 

 

 

 

(6,132

)

Change in fair value of warrant liability

 

 

 

 

 

(688

)

 

 

879

 

 

 

(493

)

Gain from sale of business

 

 

 

 

 

 

 

 

238

 

 

 

 

Re-measurement loss on intercompany note

 

 

(186

)

 

 

 

 

 

(332

)

 

 

 

Other, net

 

 

(14

)

 

 

(10

)

 

 

227

 

 

 

(31

)

Total Other Expenses, net

 

 

(2,635

)

 

 

(7,435

)

 

 

(5,566

)

 

 

(11,109

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Before Provision for Income Tax

 

 

(1,977

)

 

 

(7,448

)

 

 

(5,173

)

 

 

(10,954

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit from (Provision for) income taxes

 

 

(3

)

 

 

(206

)

 

 

78

 

 

 

(213

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(1,980

)

 

 

(7,654

)

 

 

(5,095

)

 

 

(11,167

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - Series A preferred stock - related party

 

 

50

 

 

 

50

 

 

 

150

 

 

 

150

 

Deemed Dividends - Series D preferred stock

 

 

 

 

 

 

 

 

 

 

 

2,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Stock Holders

 

$

(2,030

)

 

$

(7,704

)

 

$

(5,245

)

 

$

(13,326

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(0.42

)

 

$

(2.63

)

 

$

(1.20

)

 

$

(4.25

)

Net Loss Attributable to Common Stock Holders

 

$

(0.43

)

 

$

(2.65

)

 

$

(1.23

)

 

$

(5.07

)

Weighted Average Shares Outstanding – Basic and Diluted

 

 

4,721,364

 

 

 

2,910,139

 

 

 

4,250,500

 

 

 

2,628,913

 

 

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

 

 

2


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q3 2018

 

 

Q3 2017

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Net Loss

 

$

(1,980

)

 

$

(7,654

)

 

$

(5,095

)

 

$

(11,167

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

356

 

 

 

110

 

 

 

694

 

 

 

(193

)

Comprehensive Loss Attributable to the Company

 

$

(1,624

)

 

$

(7,544

)

 

$

(4,401

)

 

$

(11,360

)

 

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

 

 

3


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONDEN SED CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

(UNAUDITED)

 

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,095

)

 

$

(11,167

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,251

 

 

 

2,310

 

Amortization of debt discount and deferred financing costs

 

 

393

 

 

 

2,610

 

Loss on extinguishment of debt, net

 

 

 

 

 

6,132

 

Gain in fair value of warrants

 

 

(879

)

 

 

493

 

Stock based compensation

 

 

951

 

 

 

962

 

Re-measurement loss on intercompany note

 

 

332

 

 

 

 

Gain from sale of business

 

 

(238

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

6,282

 

 

 

(2,907

)

Prepaid expenses and other current assets

 

 

71

 

 

 

(552

)

Other assets

 

 

165

 

 

 

196

 

Accounts payable and accrued expenses

 

 

2,789

 

 

 

(129

)

Interest payable - related party

 

 

(64

)

 

 

 

Other current liabilities

 

 

(94

)

 

 

(807

)

Other long-term liabilities

 

 

97

 

 

 

285

 

Other

 

 

188

 

 

 

(201

)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

7,149

 

 

 

(2,775

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of business, net of cash acquired

 

 

(9,760

)

 

 

(20,817

)

Disposal of business, net of cash

 

 

1,403

 

 

 

 

Purchase of property and equipment

 

 

(330

)

 

 

(169

)

Collection of UK factoring facility deferred purchase price

 

 

7,086

 

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(1,601

)

 

 

(20,986

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of promissory notes

 

 

 

 

 

(441

)

Proceeds from term loan - related party

 

 

8,428

 

 

 

50,165

 

Repayments of term loan - related party

 

 

 

 

 

(11,165

)

Proceeds from term loan

 

 

2,047

 

 

 

 

Repayments of term loan

 

 

(422

)

 

 

(3,811

)

Proceeds from convertible notes

 

 

 

 

 

400

 

Repayments of convertible notes

 

 

 

 

 

(6,635

)

Repayment of bonds

 

 

 

 

 

(50

)

Repayments (proceeds) on accounts receivable financing, net

 

 

(16,220

)

 

 

5,242

 

Dividends paid to related parties

 

 

(150

)

 

 

(515

)

Proceeds from At-The-Market Facility

 

 

2,286

 

 

 

208

 

Repayment of Series D Preferred Stock

 

 

 

 

 

(1,500

)

Payments made for earn-outs

 

 

(1,402

)

 

 

(1,094

)

Financing costs - related party

 

 

(280

)

 

 

 

Third party financing costs

 

 

(109

)

 

 

(2,311

)

NET CASH  (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

 

(5,822

)

 

 

28,493

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

(274

)

 

 

4,732

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(2

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

Cash - Beginning of period

 

 

3,100

 

 

 

650

 

 

 

 

 

 

 

 

 

 

Cash - End of period

 

$

2,824

 

 

$

5,380

 

 

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

 

 

 

 

4


 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

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

The Company effected a one-for-ten reverse stock split on September 17, 2015 and a one-for-five reverse stock split on January 3, 2018. All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect these reverse stock splits.

 

 

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 unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.  

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.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 30, 2017, the transition period ended December 31, 2016 and fiscal year ended May 31, 2016, which are included in the Company’s December 30, 2017 Form 10-K, filed with the United States Securities and Exchange Commission on March 29, 2018. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial 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 period ended September 29, 2018 are not necessarily indicative of results for the entire year ending December 29, 2018. This report is for the periods July 1, 2018 to September 29, 2018 (“Q3 2018”), July 2, 2017 to September 30, 2017 (“Q3 2017”), December 31, 2017 to September 29, 2018 (“Q3 2018 YTD”)  and January 1, 2017 to September 30, 2017 (“Q3 2017 YTD”).

PeopleServe Disposition

On June 6, 2018, the Company divested the stock of PeopleServe Inc., and PeopleServe PRS, Inc. for a total consideration of $1,502, net of $567 that was remitted back to the buyer on July 31, 2018 in connection with a net working capital true up. The Company recorded a gain of $238 from sale of the business.  

Clement May Acquisition

On June 28, 2018, the Company and Staffing 360 Solutions Limited (formerly known as Longbridge Recruitment 360 Limited), a whollyowned subsidiary of the Company, entered into share purchase agreements (“Share Purchase Agreements”) to acquire all of the share capital of Clement May Limited (“CML”). Consideration for the acquisition of all the shares was (i) an aggregate cash payment of £1,550 ($2,047), (ii) 15,000 shares of the Company’s common stock, (iii) an earn-out payment of up to £500, the amount to be calculated pursuant to that Share Purchase Agreement and to be paid on or around December 28, 2018, and (iv) deferred consideration of £350, to be paid on or around June 28, 2019, depending on the satisfaction of certain conditions set forth in that Share Purchase Agreement. To finance the above transaction, the Company entered into a term loan with HSBC Bank plc. Refer to Note 5 for further details.

Key Resources Inc. Acquisition

On August 27, 2018, the Company and Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a share purchase agreement with Pamela D. Whitaker (“Seller”), pursuant to which the Seller sold 100% of the common shares of Key Resources Inc. (“KRI”) to Monroe Staffing (the “KRI Transaction”).

5


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

The KRI Transaction closed simultaneously with the signing of the share purchase agreement. The purchase price in connection with the KRI Tran saction was approximately $12,163, of which (a) approximately $8, 1 09 was paid to the Seller at closing, ( b) up to approximately $2 ,027 is payable as earnout consideration to the Seller on A ugust 27, 2019 and (c) up to $2,027 is payable as earnout consideration to the Seller on August 27, 2020.  The payment of the Earnout Consideration is contingent on KRI’s a chievement of certain trailing gross profit amounts.

To finance the above transaction, the Company entered into an agreement with Jackson Investment Group, LLC (“Jackson”) on August 27, 2018, pursuant to which the note purchase agreement dated as of September 15, 2017 was amended to add an additional senior debt investment of approximately $8,428 in the Company in exchange for a senior secured note in the principal amount of approximately $8,428.

Revenue Recognition

On January 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers for all open contracts and related amendments as of January 1, 2018 using the modified retrospective method.  The adoption had no impact to the reported results. Results for reporting periods beginning after January 1, 2018 will be presented under ASC 606, while the comparative information will not be restated and will continue to be reported under the accounting standards in effect for those periods.

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

The Company has primarily two main forms of revenue – temporary contractor revenue and permanent placement revenue.  Temporary contractor revenue is accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance on an hourly basis. The contracts stipulate weekly billing and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed to date. Permanent placement revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 30 days. The contract with the customer stipulates a guarantee period whereby the customer may be refunded if the employee is terminated within a short period time, however this has historically been infrequent, and immaterial upon occurrence. As such, the Company’s performance obligations are satisfied upon commencement of the employment, at which point control has transferred to the customer. Revenue in Q3 2018 was comprised of $68,683 of temporary contractor revenue and $2,634 of permanent placement revenue, compared with $48,970 and $1,375 for Q3 2017, respectively. Revenue in Q3 2018 YTD was comprised of $178,518 of temporary contractor revenue and $8,317 of permanent placement revenue, compared with $130,220 and $2,954 for Q3 2017 YTD, respectively. Refer to Note 8 for further details on breakdown by segments.  

Reclassifications

We may make certain reclassifications to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.

Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.  The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, and tax audit settlements.  The effective income tax rate was (0.31)%, 4.0%, 1.59% and 2.3% for the period ending Q3 2018, Q3 2017, Q3 2018 YTD and Q3 2017 YTD, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. The changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21%, the transition of U.S. international taxation from a worldwide tax system to a territorial system, allowing for immediate expensing of certain qualified property, modifications to many business deductions and credits, and providing various tax incentives. Shortly after the Tax Act was enacted, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable

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)

 

detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 provides that in these cases a registrant should continue to apply Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2009-06, I ncome Taxes ("Topic 740") based on the provisions of the tax laws that were in effect immediately prior to the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for registrants to complete the accounting under Topic 740.

The Company remeasured domestic deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally the 21% rate imposed by the Tax Act.  The Company recorded an expense of $3.7 million to reduce the net deferred tax assets, along with a corresponding benefit for the reduction of the valuation allowance recorded against these balances in our financial statements for the year ended December 30, 2017.

At September 29, 2018, in accordance with SAB 118, the Company has not completed its accounting for the tax effects of the one-time transition tax imposed by the Tax Act.  In order to determine the amount of the liability with respect to the one-time transition tax, the Company must determine, in addition to other factors, the amount of post-1986 Earnings & Profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings.  In order to quantify the liability, we are awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of the transition tax. Therefore, we have not recorded an estimate of the transition tax in our financial statements. 

In addition, the Company is continuing to evaluate whether Global Intangible Low Tax Income taxes (“GILTI”) are recorded as a current period expense when incurred or whether such amounts should be factored into the Company's measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax impacts related to GILTI in the third quarter of 2018. The Company has not elected a method and will only do so after completing their analysis of the GILTI provisions.

Foreign Currency

Staffing 360 Solutions, Inc. has an intercompany note due from Staffing 360 Solutions Limited (formerly known as Longbridge Recruitment 360 Limited) , denominated in U.S. dollars. Staffing 360 Solutions Limited ’s functional currency is Pound Sterling. The note matures in September 15, 2022, bears interest at a rate of interest equal to the mid-term monthly Applicable Federal Rate (AFR), as published each month by the U.S. Internal Revenue Service pursuant to Section 1274(d) of the Internal Revenue Code, compounded semiannually. Interest is payable in cash quarterly on the first business day of each calendar quarter. Staffing 360 Solutions Limited may prepay all or any portion of the principal amount of this Note at any time, in whole or in part, without premium or penalty. As the note is denominated in U.S. dollars and due to weakening of the Pound Sterling, the Company recorded a non cash foreign currency remeasurement loss of $186 and $332 in Q3 2018 and Q3 2018 YTD, respectively.

Recent Accounting Pronouncements

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.

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 (related parties) receive certain dividends or dividend equivalents that are considered participating securities and our loss per share is computed using the two-class method. For Q3 2018, Q3 2017, Q3 2018 YTD and Q3 2017 YTD, pursuant to the two-class method, as a result of the net loss, losses were not allocated to the participating securities.

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)

 

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 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 September 29 , 2018 and September 30 , 2017 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

 

 

 

September 29,

 

 

September 30,

 

 

 

2018

 

 

2017

 

Convertible preferred shares

 

 

43,239

 

 

 

43,239

 

Warrants

 

 

925,935

 

 

 

932,234

 

Restricted shares - unvested

 

 

595,272

 

 

 

463,052

 

Long term incentive plan (LTIP)

 

 

123,515

 

 

 

178,728

 

Options

 

 

125,400

 

 

 

122,400

 

Total

 

 

1,813,361

 

 

 

1,739,653

 

 

 

NOTE 4 – ACCOUNTS RECEIVABLE BASED FINANCING FACILITIES

HSBC Invoice Finance (UK) Ltd – New Facility

On February 8, 2018, CBS Butler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%.

 

On June 28, 2018, CML, the Company’s new subsidiary entered into a new agreement with a minimum term of 12 months for purchase of debt (“APD”) with HSBC, joining CBS Butler, Staffing 360 Solutions Limited and The JM Group (collectively, with CML, the “Borrowers”) as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £20,000 across all Borrowers. The obligations of the Borrowers are secured by a fixed charge and a floating charge on the Borrowers’ respective accounts receivable and are subject to cross-company guarantees among the Borrowers. In addition, the secured borrowing line against unbilled receivables was increased to £1,500 for a period of 90 days.

Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force ), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities.

 

ABN AMRO Commercial Finance

In conjunction with the HSBC Invoice Finance ( UK) Ltd – New Facility, on February 8, 2018, Staffing 360 Solutions Limited and The JM Group terminated this facility and the remaining balance was paid in full.

 

CBS Butler

In conjunction with the HSBC Invoice Finance (UK) Ltd – New Facility, on February 8, 2018, CBS Butler terminated this facility and the remaining balance was paid in full.

 

 

 

8


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 5 DEBT

 

 

 

September 29,

 

 

December 30,

 

 

 

2018

 

 

2017

 

Jackson Investment Group - related party

 

$

48,428

 

 

$

40,000

 

HSBC Term Loan

 

 

1,860

 

 

 

 

ABN AMRO

 

 

 

 

 

254

 

Total Debt, Gross

 

 

50,288

 

 

 

40,254

 

Less: Debt Discount and Deferred Financing Costs

 

 

(1,731

)

 

 

(1,260

)

Total Debt, Net

 

 

48,557

 

 

 

38,994

 

Less: Current Portion, Net

 

 

(675

)

 

 

(245

)

Total Long-Term Debt, Net

 

$

47,882

 

 

$

38,749

 

 

HSBC Term Loan

 

On June 26, 2018, the Company’s UK subsidiary, Staffing 360 Solutions Limited (formerly known as Staffing 360 Solutions (Holdings) Limited), entered into a term loan agreement (the “Term Loan”) with HSBC Bank plc (“HSBC plc”). The Term Loan was drawn down on June 28, 2018 in an original principal amount of £1,550 ($2,047) to fund the upfront cash consideration of the Clement May acquisition. The Term Loan matures on June 28, 2021, unless otherwise accelerated or terminated earlier. The interest rate on the Term Loan is 2.35% over the base rate of 0.75%, which is subject to periodic adjustment, and is payable in monthly installments of principal and interest. The obligations of Staffing 360 Solutions Limited under the term Loan are secured by fixed and floating charges in favor of HSBC plc on all of Staffing 360 Solutions Limited and its UK subsidiaries’ assets, undertakings, accounts receivable and certain other assets pursuant to the terms of the Term Loan agreement.

 

Non-interest bearing convertible note - April 11, 2017

 

On April 11, 2017, the Company entered into a non-interest bearing convertible note for $477, whereby the Company received cash of $400, maturing in October 2017. The Company paid this in full on September 18, 2017.

Lighthouse Seller Note #1

During the period Q3 2017 and Q3 2017 YTD, the Company paid $1,624 and $1,874 in principal of notes payable, respectively.  The Company paid this note in full on September 18, 2017.

Lighthouse Seller Note #2

During the period Q3 2017 and Q3 2017 YTD, the Company paid $78 and $234 in principal of notes payable, respectively. This note was paid in full in Q3 2017.

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 was due to mature in March 2017. In March 2017, the Company extended the note to September 2017 with a new maturity value of $565. The Company paid this in full on September 18, 2017.

 

8% Convertible Note (July 8, 2015) and 8% Convertible Note (February 8, 2016)

On January 3, 2017, the Company entered into an amendment agreement pursuant to which, the parties refinanced an aggregate amount of $2,688 of indebtedness and extended all amortization payments for the two 8% convertible notes dated July 8, 2015 and February 8, 2016 (collectively, the “Amendment”) to October 1, 2018, which was approximately 21 months from the date of the refinancing.

The Amendment had a new face value of $3,126, and an 8% interest rate per annum, with no interest payments due until October 1, 2017, payable quarterly thereafter, and an overall term of 21 months with principal due at maturity. The Amendment was convertible into shares of common stock at a price of $15.00 per share at holder’s election, and the holder agreed to eliminate the 20% pre-payment penalty for an early redemption. In connection with the refinancing, the Company issued the holder 120,000 shares of

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)

 

common stock, valued at $498. The Amendment resulted in the extinguishment of the old notes of $2,688 and recording of the new de bt and debt issue costs. The Company recorded a $870 loss upon extinguishment. On January 26, 2017, the Amendment was paid in full resulting a loss of $498.

 

Jackson Investment Group Term Loan Note #2 – Related Party

 

On April 5, 2017, the Company amended the note and warrant purchase agreement and entered into a second subordinated secured note for $1,650. Under the terms of this amended agreement, the Company issued to Jackson 59,397 shares of common stock, with an additional 74,184 shares of common stock that were issued after obtaining shareholder approval for issuance of shares to Jackson in excess of the 19.99% limit in June 2017. Also on April 5, 2017, the Company amended the Warrant to allow Jackson to purchase up to an additional 275,508 shares of common stock, modified the initial exercise price of the Warrant to $5.00 per share and modified the conversion price of accrued interest on the note issued to Jackson in January 2017 to $7.50. The Warrant was also amended to increase the amount of common stock issuable to Jackson pursuant to the anti-dilution clause contained therein. The second note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of June 8, 2019; however, in the event the Company satisfied all of its outstanding obligations with Midcap Financial Trust, the maturity date would have been adjusted to July 25, 2018. No interest or principal is payable on the second note until maturity. At any time during the term of the second note, upon notice to Jackson, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to Jackson an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The second note’s principal is not convertible into shares of common stock; however, 50% of the accrued interest on the second note can be converted into shares of common stock, at the sole election of Jackson at maturity or in the event of a prepayment by the Company, at a conversion price equal to $7.50 per share. The proceeds of this transaction were used to redeem the remaining shares and conversion rights of the Series D Preferred Stock. The Company has accounted for these warrants as a liability under ASC 815-40 due to certain anti-dilution protection provisions. The Company has recorded a liability of $1,426 at December 30, 2017. On April 25, 2018, the Company and Jackson amended the Warrant to remove the anti-dilution clauses. Refer to Note 6 for further details.

The Company paid this note in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note – Related Party”)

Jackson Investment Group Term Loan Note #3 – Related Party

In August 2017, the Company entered into a promissory note with Jackson for $1,600, with a term of 60 days at interest of 10% per annum and in return for 32,000 shares of common stock. The proceeds of the note were used to fund the satisfaction of a judgment entered in the matter of Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc.

The Company paid this in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note – Related Party”).

Jackson Investment Group Term Loan Note #4 – Related Party

On September 1, 2017, the Company entered into a promissory note with Jackson for $515, with a term of 31 days at interest of 12% per annum. The proceeds of the note were used to fund other debt obligations. The Company paid this in full on September 18, 2017 and entered into a new note with Jackson (refer to “Jackson Note – Related Party”).

Jackson Note – Related Party

On September 15, 2017, the Company entered into a $40,000 note agreement with Jackson. The proceeds of the sale of the secured note were used to repay the existing subordinated notes previously issued to Jackson pursuant to the existing note purchase agreement in the aggregate principal amount of $11,165 and to fund a portion of the purchase price consideration of the Firstpro Acquisition and the CBS Butler Acquisition and repay certain other outstanding indebtedness of the Company. The maturity date for the amounts due under the Jackson Note is September 15, 2020.  The Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder.

 

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)

 

The Company paid a closing fee of $1,000 in connection with its entry into the A&R Note Purchase Agreement and agreed to issue 450,000 shares of the Company’s common stock as a closing commitment fee.  These shares are subject to registration rights in favor of Jackson which was included in a new resale registration statement which was filed by the Company on November 1, 2017. The Jackson Note resulted in the extinguishment of the old notes of $11,165 and recording of the new debt of $40,000 at fair value. The Company recorded $4,764 loss upon extinguishment of debt, and deferred debt issuance costs of $1,385 to be amortized over the term o f the new loan.

 

Immediately prior to closing the Jackson Note, Jackson owned 526,697 shares of common stock and 905,508 warrants.

 

On August 27, 2018, Company entered into an amended agreement with Jackson, pursuant to which the note purchase agreement dated as of September 15, 2017 was amended and made a new senior debt investment of approximately $8,428 in the Company in exchange for a senior secured note in the principal amount of approximately $8,428. Terms of the additional investment are the same as the Jackson Note.

 

From the proceed of the additional investment, the Company paid a closing fee of $280 and legal fees of $39, and issued 192,000 shares of the Company’s common stock as a closing commitment fee.

 

In connection with the additional investment, the Company entered into Amendment No. 1 to Amended and Restated Warrant Agreement (“Warrant Agreement”) with Jackson.  The Warrant Amendment amended that certain Amended and Restated Warrant Agreement with Jackson, dated as of April 25, 2018 (the “Warrant”), to reduce the exercise price of the Warrant from $5.00 per share to $3.50 per share.

 

The incremental fair value of repricing the Warrant to $3.50 per share is $135 and was recognized as deferred financing costs to be amortized over the term of the loan.

 

The Jackson Note includes certain financial customary covenants, including a leverage ratio covenant. As of September 29, 2018, the Company was not in compliance with this covenant. On November 13, 2018, the Company received a waiver from Jackson curing the non-compliance as of September 29, 2018.

 

 

NOTE 6 – EQUITY

Common Stock

The Company issued the following shares of common stock during the nine month period ended September 29, 2018:

 

Shares issued to/for:

 

Number of common

shares issued

 

 

Fair Value of

shares issued

 

 

Fair Value at Issuance

(minimum and maximum per share)

 

At-the-Market Facility

 

 

726,821

 

 

$

2,286

 

 

$

1.61

 

 

$

4.23

 

Jackson Investment Group

 

 

192,000

 

 

 

371

 

 

 

1.93

 

 

$

1.93

 

Employees

 

 

125,000

 

 

 

199

 

 

 

1.54

 

 

 

1.61

 

Consultants

 

 

19,383

 

 

 

55

 

 

 

1.40

 

 

 

3.42

 

Acquisition

 

 

15,000

 

 

 

21

 

 

 

1.38

 

 

 

1.38

 

Board and Committee members

 

 

15,400

 

 

 

32

 

 

 

1.40

 

 

 

3.25

 

Reverse stock split (rounding up shares)

 

 

426

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1,094,030

 

 

$

2,964

 

 

 

 

 

 

 

 

 

 

Subsequent to September 29, 2018, the Company sold 5,109 shares of common stock through its at-the-market facility at a value of $10, and granted 5,600 shares of common stock valued $11 to the board of directors, and 1,165 shares of common valued at $2 for consulting services.

 

Restricted Shares

The Company has issued shares to employees and board and committee members under its 2015 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan. Under these plans, the shares are restricted for a period of three years from issuance. As of September 29, 2018, the Company has a total of 597,272 shares unvested issued to employees and Board and committee members. In accordance

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)

 

with ASC 718, Compensation – Stock Compensation, the Company recognizes stock based compensation from restricted stock based upon the fair value of the award at issuance over the vesting term on a straight-line basis. The fair value of the award is calculated by multiplying the number of restricted shares by the Company’s stock price on the date of issuance. The impact of forfeitures has historically been immaterial to the financial statements. The Company recorded compensation expense associated with these restricted shares of $ 248 , $ 206 , $ 728 and $ 575, for the periods ended Q3 2018, Q3 2017, Q3 2018 YTD and Q3 2017 YTD, respectively.

Stock Options

The Company recorded share based payment expense of $33, $101, $168 and $299 for the periods ended Q3 2018, Q3 2017, Q3 2018 YTD and Q3 2017 YTD, respectively.

Convertible Preferred Shares

Series A Preferred Stock – Related Party

In the period ended Q3 2018 YTD and Q3 2017 YTD, the Company paid $150 and $515, respectively, in dividends to its Series A preferred stock holders. The Company did not have any Series A dividends payable to preferred stock holders at the end of Q3 2018 YTD and Q3 2017 YTD.

Series D Preferred Stock

The Series D Preferred Stock contained beneficial conversion features; a portion was quantifiable at the date of issuance in the amount of $615, which was recognized immediately due to the immediate convertibility of the Series D Preferred Stock and that it had no true redemption date. The additional contingent beneficial conversion feature was quantifiable only at the date of each subsequent conversion. Both beneficial conversion features represent additional value to the holders. As such, they represent a dividend on the Series D Preferred Stock and recorded as a Deemed Dividend. These Deemed Dividends are presented on the Statement of Operations for purposes of calculation Earnings Per Share only and have no net impact on Shareholders’ Deficit. Deemed Dividends recorded were $0 and $2,009 for Q3 2018 YTD and Q3 2017 YTD, respectively.

 

On April 5, 2017, the Company entered into an agreement with holders of the Series D Preferred shares to redeem the remaining 62 shares of Series D Preferred Stock and terminate all future conversion rights, in return for $1,500 in cash and 60,000 shares of common stock.

Warrants

The Company had accounted for the warrants issued to Jackson as a liability under ASC 815-40 due to certain anti-dilution protection provisions. The warrants issued to Jackson are considered to be Level 3 liabilities under ASC 820.  On April 25 , 2018, the Company and Jackson amended the Warrant to remove the anti-dilution clauses. No economic terms were adjusted. These clauses were the basis for recording the warrants as a liability. Therefore, upon execution of this amendment, the Company recorded a mark-to-market gain and reclass the remaining liability to Additional paid-in capital. The Company recorded a change in fair value of the warrant liability of $0, $(688), $879 and $(493) in Q3 2018, Q3 2017, Q3 2018 YTD and Q3 2017 YTD, respectively, using Black-Scholes valuation model.

 

In connection with the additional investment from Jackson, the Company entered into Amendment No. 1 to Amended and Restated Warrant Agreement (“Warrant agreement”) with Jackson.  The Warrant Amendment amended that certain Amended and Restated Warrant Agreement with Jackson, dated as of April 25, 2018 (the “Warrant”), to reduce the exercise price of the Warrant from $5.00 per share to $3.50 per share. The incremental fair value of repricing the Warrants to $3.50 per share is $135 and was recognized as deferred financing costs to be amortized over the term of the Jackson Note.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Earn-out Liabilities and Stock Value Guarantees

 

Pursuant to the acquisition of Control Solutions International, Inc. (“CSI”) on November 4, 2013, the purchase price included monthly cash payments to the former owner and shareholder 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 Q2 2018 and Q2 2017, the Company paid $0 and $24, respectively, towards the earn-out liability. During Q3 2018 YTD and Q3 2017 YTD, the Company paid $15 and $68, respectively, towards the earn-out liability. No further payments are due.

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)

 

 

Pursuant to the acquisition of The JM Group on November 5, 2015, 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 December 31, 2016, the remaining balance was $1,026 and was recorded in other current liabilities. While unpaid, the balance accrued interest at 10.25% per annum. The balance was paid in full in January 2017.

 

Pursuant to the acquisition of CBS Butler Holdings Limited (“CBS Butler”) on September 15, 2017, the purchase price includes an earn-out payment of up to £4,214 (payable in December 2018, based upon CBS Butler’s operating performance during the period September 1, 2017 through August 31, 2018), and (iv) deferred consideration of £150 less the aggregate amount of each CBS Butler Shareholder’s portion of the net asset shortfall amount, if any, as determined pursuant to the Share Purchase Agreement and the Option Purchase Agreement. In September 2018, the Company paid the deferred consideration of £150 ($195).

 

Pursuant to the acquisition of FirstPro Inc. (“FirstPro”) on September 15, 2017, the purchase price includes deferred quarterly installments of $75 beginning on October 1, 2017, and $2,675 is payable annually in three equal installments beginning on September 15, 2018. The Company has made $75 and $300 in quarterly installments during the period Q3 2018 and Q3 2018 YTD, respectively. The Company made its annual installment of $892 in September 2018.  

 

Pursuant to the acquisition of Clement May on June 28, 2018, the purchase price includes an earnout payment of up to £500 to be paid on or around December 28, 2018; and deferred consideration of £350, the amount to be calculated and paid pursuant to the Share Purchase Agreement, to be paid on or around June 28, 2019.

 

Pursuant to the acquisition of KRI on August 27, 2018, the purchase price includes earnout consideration payable to the seller of $2,027 and $2,027 on August 27, 2019 and August 27, 2020, respectively.  The payment of the earnout consideration is contingent on KRI’s achievement of certain trailing gross profit amounts.

Legal Proceedings

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

On May 22, 2014, NewCSI, Inc. (“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 Stock Purchase Agreement dated August 14, 2013 between the Company and NewCSI. NewCSI claims that the Company breached a provision of the 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, subject to certain criteria. The Complaint sought payment of the amount allegedly owed under SPA § 2.7 and acceleration of earn-out payments provided for in the Stock Purchase Agreement of $1,400, less amounts paid to date, and attorneys’ fees.

 

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 as of December 31, 2014 totaling $429 (balance of $1,671 at December 31, 2014), should the Company 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. A the trial was held May 18-20, 2015. On May 20, 2015, the jury rendered a verdict, finding that the Company had not complied with SPA § 2.7 and owed $154, but that NewCSI had not proven that the Company or CSI had become unable to pay debts as they came due.

 

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, the Company filed a Motion for Entry of Judgment as a Matter of Law seeking entry of judgment against NewCSI on the jury’s finding that the Company had not complied with SPA § 2.7, or, in the alternative, for a reduction of damages to $154 and to hold that NewCSI may not be awarded accelerated earn-out payments as that would result in an illegal penalty.

 

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)

 

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 (“Appellate Court”) 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. On November 3, 2016, oral arguments for the appeal were heard and on July 26, 2017, the Appellate Court affirmed the trial Court’s decision but left the legal fee award open for determination by further proceedings in the trial court. On August 29, 2017 the surety company released the supersedeas bond to the New CSI shareholders’ counsel, which was amount was approximately $5 less than the judgment amount with accumulated interest. Payment of this remaining balance has been made by the Company.

 

On September 29, 2017 NewCSI filed a Supplemental Motion in the United States District Court for the Western District of Texas, Austin Division, seeking $629 in attorneys’ fees. The Company opposed this motion but the magistrate judge issued a report and recommendation on November 17, 2017 recommending an award of fees in the amount of $606. The Company filed an objection with the trial judge to the magistrate’s report and recommendation. On May 30, 2018 the trial judge issued an order adopting the report and recommendation of the magistrate judge and awarding NewCSI the amount of $606 in legal fees, plus interest at the statutory rate of 2.27% per annum. The Company paid $606 in full settlement of this matter in June 2018.

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 entitled Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc. , 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 former officers brought an action in US District Court in New York City under the caption Dealy et al., v. Staffing 360 Solutions, Inc. , requesting that the Court convert this arbitration award into a judgment . On July 11, 2017, the Court entered an order confirming the arbitrator’s award and granting judgement against the Company. In August 2017, the Company paid $1,582 in full satisfaction of this matter.

 

 

14


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 8 – SEGMENTS

The Company generated revenue and gross profit by segment as follows:

 

 

Q3 2018

 

 

Q3 2017

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Commercial Staffing - US

 

$

28,496

 

 

$

25,635

 

 

$

73,441

 

 

$

71,354

 

Professional Staffing - US

 

 

11,301

 

 

 

12,259

 

 

 

40,034

 

 

 

36,187

 

Professional Staffing - UK

 

 

31,520

 

 

 

12,451

 

 

 

73,360

 

 

 

25,633

 

Total Revenue

 

$

71,317

 

 

$

50,345

 

 

$

186,835

 

 

$

133,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,463

 

 

$

4,642

 

 

$

12,278

 

 

$

12,947

 

Professional Staffing - US

 

 

4,069

 

 

 

2,411

 

 

 

12,268

 

 

 

6,528

 

Professional Staffing - UK

 

 

3,964

 

 

 

2,524

 

 

 

11,413

 

 

 

5,352

 

Total Gross Profit

 

$

12,496

 

 

$

9,577

 

 

$

35,959

 

 

$

24,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(11,097

)

 

$

(8,800

)

 

$

(33,315

)

 

$

(22,362

)

Depreciation and amortization

 

 

(741

)

 

 

(790

)

 

 

(2,251

)

 

 

(2,310

)

Interest expense

 

 

(2,279

)

 

 

(761

)

 

 

(6,185

)

 

 

(1,843

)

Amortization of debt discount and deferred financing costs

 

 

(156

)

 

 

(1,212

)

 

 

(393

)

 

 

(2,610

)

Loss on extinguishment of debt, net

 

 

 

 

 

(4,764

)

 

 

 

 

 

(6,132

)

Change in fair value of warrant liability

 

 

 

 

 

(688

)

 

 

879

 

 

 

(493

)

Gain from sale of business

 

 

 

 

 

 

 

 

238

 

 

 

 

Re-measurement loss on intercompany note

 

 

(186

)

 

 

 

 

 

(332

)

 

 

 

Other (expense) income, net

 

 

(14

)

 

 

(10

)

 

 

227

 

 

 

(31

)

Loss Before Provision for Income Tax

 

$

(1,977

)

 

$

(7,448

)

 

$

(5,173

)

 

$

(10,954

)

15


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

 

 

The following table disaggregates revenues by segments:

 

 

Q3 2018

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

13

 

 

$

1,714

 

 

$

907

 

 

$

2,634

 

Temporary Revenue

 

 

28,483

 

 

 

9,587

 

 

 

30,613

 

 

 

68,683

 

Total

 

$

28,496

 

 

$

11,301

 

 

$

31,520

 

 

$

71,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2017

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

92

 

 

$

291

 

 

$

992

 

 

$

1,375

 

Temporary Revenue

 

 

25,543

 

 

 

11,968

 

 

 

11,459

 

 

 

48,970

 

Total

 

$

25,635

 

 

$

12,259

 

 

$

12,451

 

 

$

50,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2018 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

128

 

 

$

4,887

 

 

$

3,302

 

 

$

8,317

 

Temporary Revenue

 

 

73,313

 

 

 

35,147

 

 

 

70,058

 

 

 

178,518

 

Total

 

$

73,441

 

 

$

40,034

 

 

$

73,360

 

 

$

186,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2017 YTD

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

Professional Staffing - US

 

 

Professional Staffing - UK

 

 

Total

 

Permanent Revenue

 

$

136

 

 

$

570

 

 

$

2,248

 

 

$

2,954

 

Temporary Revenue

 

 

71,218

 

 

 

35,617

 

 

 

23,385

 

 

 

130,220

 

Total

 

$

71,354

 

 

$

36,187

 

 

$

25,633

 

 

$

133,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 29, 2018 and December 30, 2017, the Company has assets in the U.S., the U.K. and Canada as follows:

 

 

 

September 29,

 

 

December 30,

 

 

 

2018

 

 

2017

 

United States

 

$

58,484

 

 

$

53,814

 

United Kingdom

 

 

40,306

 

 

 

32,861

 

Canada

 

 

95

 

 

 

73

 

Total Assets

 

$

98,885

 

 

$

86,748

 

 

 

NOTE 9 – ACQUISITIONS

 

In accordance with ASC 805, the Company accounts for acquisitions using the purchase method under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and, in some instances, may retain the services of an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require the Company to make significant assumptions, including projections of future events and operating performance.

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)

 

 

In connection with the acquisition of KRI and Clement May, the Company recorded the following identifiable intangible assets, based on preliminary valuation.

 

 

KRI

 

 

Clement May

 

Goodwill (1)

$

3,346

 

 

$

1,545

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

 

 

 

 

 

Tradenames

$

1,000

 

 

$

470

 

Non-compete

 

 

 

 

273

 

Customer Relationships

 

6,400

 

 

 

451

 

 

$

7,400

 

 

$

1,194

 

 

(1)

G oodwill amounts for KRI are shown net of adjustments of $627 for discounting of deferred earnouts and other purchase accounting adjustments.

 

Goodwill of Clement May is included in the Company’s Professional-UK reportable segment. Goodwill of KRI is included in the Company’s Professional-US reportable segment.

 

Identified intangible assets for Clement May are being amortized on a straight-line basis over their weighted average estimated useful life of 8.4 years. The Company acquired a total of $14,305 i n receivables and fair value of these receivables equals the contract value; and recorded contingent consideration associated with Clement May of £850 ($1,122).

 

Identified intangible assets of KRI are being amortized on a straight-line basis over their weighted average estimated useful life of 10 y ears. The Company acquired a total of $2,531 i n receivables and fair value of these receivables equals the contract value; and recorded contingent consideration associated with KRI of $3,427, net of discounting.

 

 

The following table summarizes the final allocation of the purchase price to the estimated fair values of net assets acquired at the date of the acquisition:

 

 

KRI

 

 

Clement May

 

Purchase price

$

11,536

 

 

$

3,543

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

Net assets acquired

$

(790

)

 

$

(804

)

Intangible assets

 

(7,400

)

 

 

(1,194

)

 

 

 

 

 

 

 

 

Goodwill

$

3,346

 

 

$

1,545

 

 

The Company recorded a total of $105 and $35 in third party expenses associated with consummating the Clement May and KRI acquisitions, respectively, which are included in Selling, general and administrative expenses, excluding depreciation and amortization stated on the Consolidated Statement of Operations.

 

The following unaudited pro forma consolidated results of operation have been prepared, as if the acquisition of FirstPro and CBS Butler had occurred as of June 1, 2016, and acquisition of KRI and Clement May acquired on January 1, 2017.

 

 

 

Q3 2018

 

 

Q3 2017

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Revenues

 

$

76,749

 

 

$

83,118

 

 

$

234,001

 

 

$

244,485

 

Net loss from continuing operations

 

 

(2,269

)

 

 

(7,683

)

 

 

(5,392

)

 

 

(11,956

)

 

 

 

17


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

NOTE 10 – OTHER RELATED PARTY TRANSACTIONS

In addition to the Series A Preferred Shares and Notes issued to Jackson, the following are other related party transactions:

Board and Committee Members

The Company had the following activity with its Board and Committee Members:

 

 

Q3 2018

 

 

Q3 2017

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

Dimitri Villard

$

19

 

 

 

1,400

 

 

$

2

 

 

$

22

 

 

$

19

 

 

 

1,400

 

 

$

6

 

 

$

19

 

Jeff Grout

 

19

 

 

 

1,400

 

 

 

2

 

 

 

22

 

 

 

19

 

 

 

1,400

 

 

 

6

 

 

 

19

 

Nick Florio

 

19

 

 

 

1,400

 

 

 

2

 

 

 

22

 

 

 

19

 

 

 

1,400

 

 

 

7

 

 

 

19

 

Alicia Barker

 

 

 

 

1,400

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

57

 

 

 

5,600

 

 

$

8

 

 

$

66

 

 

$

57

 

 

 

4,200

 

 

$

19

 

 

$

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

 

Cash Compensation

 

 

Shares Issued

 

 

Value of Shares Issued

 

 

Compensation Expense Recognized

 

Dimitri Villard

$

56

 

 

 

4,200

 

 

$

9

 

 

$

62

 

 

$

50

 

 

 

14,900

 

 

$

60

 

 

$

53

 

Jeff Grout

 

56

 

 

 

4,200

 

 

 

9

 

 

 

62

 

 

 

50

 

 

 

14,900

 

 

 

60

 

 

 

53

 

Nick Florio

 

56

 

 

 

4,200

 

 

 

9

 

 

 

62

 

 

 

50

 

 

 

15,100

 

 

 

61

 

 

 

53

 

Alicia Barker

 

19

 

 

 

2,800

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

187

 

 

 

15,400

 

 

$

31

 

 

$

186

 

 

$

150

 

 

 

44,900

 

 

$

181

 

 

$

159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has no balances in accounts payable and accrued expenses – related parties account as of September 29, 2018.

The Briand Separation Agreement                            The Company’s former employee, board member and officer resigned from his positions with the Company and subsidiaries. The Company entered into an agreement (the “Briand Separation Agreement”) with Mr. Briand dated December 21, 2017, with an effective date (“Separation Date”) of January 31, 2018, pursuant to which Mr. Briand may provide advisory services, if requested by the Company, through the effective date. The Company paid $16 in Q3 2018 to Mr. Briand as part of this separation agreement. The accrued balance due to Mr. Briand as of September 29, 2018 is $284.

Appointment of Officers

On March 28, 2018, the Company appointed Alicia Barker to fill the Class II director vacancy created by the departure of Mr. Briand earlier this year, such appointment was effective April 1, 2018. Ms. Barker joined the company’s board of directors as an independent director and serves on the Board’s Compensation Committee and on the Nominating and Corporate Governance Committee.

 

Effective July 1, 2018, the Company entered into an Employment Agreement with Alicia Barker that appointed her as the Company’s Chief Operating Officer. Ms. Barker will continue as a member of the Company’s board of directors, but effective with her appointment will no longer be a member of any Board committee, nor an independent member of the Board, bringing the number of independent directors to three of five Board members.

 

 

 

18


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

 

 

 

NOTE 11 –  SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

4,775

 

 

$

1,827

 

Income taxes

 

 

104

 

 

 

140

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deferred purchase price of UK factoring facility

 

$

8,418

 

 

$

 

Shares issued in connection with acquisition of business

 

 

21

 

 

 

 

Shares issued in connection with convertible note

 

 

 

 

 

498

 

Shares issued in connection with Jackson term loan

 

 

371

 

 

 

2,527

 

Shares issued in connection with Series D payoff

 

 

 

 

 

208

 

Shares issued in connection with CBS Butler acquisition

 

 

 

 

 

430

 

Warrants issued in connection with Jackson term loan

 

 

682

 

 

 

2,303

 

CSI earnout (payment with Surety bond)

 

 

 

 

 

1,405

 

Deemed Dividends

 

 

 

 

 

2,009

 

 

 

 

19


 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This section includes a number of forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to future events and financial performance. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “can,” “could,” “should,” “intends,” “project,” “predict,” “plans,” “estimates,” “goal,” “target,” “possible,” “potential,” “would,” “seek,” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: negative outcome of pending and future claims and litigation; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to us or at all; and our ability to comply with our contractual covenants, including in respect of our debt; potential cost overruns and possible rejection of our business model and/or sales methods; weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers' capital projects or the inability of our customers to pay our fees; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; and government policies, legislation or judicial decisions adverse to our businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the 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

We are incorporated in the State of Delaware. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring suitable, mature, profitable, operating, U.S. and U.K. based staffing companies. Our targeted consolidation model is focused specifically on the Professional Sector and Commercial Sector disciplines.

Business Model, Operating History and Acquisitions

We are a high-growth international staffing company engaged in the acquisition of U.S. and U.K. based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the Professional and Commercial Sectors. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets. Since November 2013, the company has completed ten acquisitions.

All share numbers in this section have been adjusted for the one-for-five reverse stock split effective at 5:00 p.m. New York time on January 3, 2018.

On September 15, 2017, Staffing 360 Georgia, LLC (“Staffing Georgia”), a wholly-owned subsidiary of the Company entered into an asset purchase agreement with Firstpro Inc. (“FPI”), Firstpro Georgia, LLC (“FPL”), and certain individuals, pursuant to which the FPI and FPL sold substantially all of their assets to Staffing Georgia (“ Firstpro Acquisition”) . The purchase price in connection with the Staffing Georgia, was $8,000, of which, (a) $4,500 was paid at closing, (b) $825 is payable in quarterly installments of $75 beginning on October 1, 2017, and (c) $2,675 is payable annually in three equal installments beginning on September 15, 2018.

 

On September 15, 2017, the Company and Staffing 360 Solutions Limited (formerly known as Longbridge Recruitment 360 Limited), a wholly-owned subsidiary of the Company, entered into an agreement (“Share Purchase Agreement”) with the holders of share capital of CBS Butler Holdings Limited (“CBS Butler”) and an agreement (“Option Purchase Agreement”) with the holders of outstanding options of CBS Butler, pursuant to which the holders of the share capital of CBS Butler and holders of outstanding

20


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

options of CBS Butler sold all of their shares an d options of CBS Butler to Staffing 360 Solutions Limited (the “ CBS Butler Acquisition”) , in exchange for (i) an aggregate cash payment of £13,810, (ii) an aggregate of 100,000 shares of the Company’s common stock, (iii) an earn-out payment of up to £4,214 (payable in October 2018 based upon CBS Butler’s operating performance during the period September 1, 2017 through August 31, 2018), and (iv) deferred consideration of £150 less the aggregate amount of each CBS Butler Shareholder’s portion of the net asse t shortfall amount, if any, as determined pursuant to the Share Purchase Agreement and the Option Purchase Agreement.

 

To finance the above transactions, the Company entered into an agreement with Jackson Investment Group, LLC (“Jackson”) on September 15, 2017. The Company, as borrower, and certain domestic subsidiaries of the Company, as guarantors, entered into an amended and restated note purchase agreement with Jackson, as lender (the “A&R Note Purchase Agreement”), pursuant to which Jackson made a senior debt investment of $40,000 in the Company in exchange for a senior secured note in the principal amount of $40,000 (the “Jackson Note”). The proceeds of the sale of the secured note were used to (i) repay the existing subordinated notes previously issued to Jackson in the aggregate principal amount of $11,165, (ii) to fund the upfront cash portion of the purchase price consideration of the Firstpro Acquisition and the CBS Butler Acquisition, (iii) to repay almost all other outstanding indebtedness of the Company and (iv) general working capital purposes. The maturity date of the Jackson Note is September 15, 2020.  The Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder. The Company may prepay the amounts due on the Jackson Note in whole or in part from time to time, without penalty or premium, subject to the conditions set forth in the A&R Note Purchase Agreement, and such prepayments, depending on the timing of the prepayments, may result in a discount on the principal amount to be prepaid as set forth in the A&R Note Purchase Agreement.  The Company paid a closing fee of $1,000 in connection with its entry into the A&R Note Purchase Agreement and agreed to issue 450,000 shares of the Company’s common stock as a closing commitment fee.  

PeopleServe Disposition

On June 6, 2018, the Company divested the stock of PeopleServe Inc., and PeopleServe PRS, Inc. for a total consideration of $1,502, net of $567 that was remitted back to the buyer on July 31, 2018 in connection with a net working capital true up. The Company recorded a gain of $238 from sale of business.  

Clement May Acquisition

On June 28, 2018, the Company and Staffing 360 Solutions Limited (formerly known as Longbridge Recruitment 360 Limited), a wholly-owned subsidiary of the Company, entered into share purchase agreements (“Share Purchase Agreements”) of the share capital of Clement May Limited (“CML”). Consideration for the acquisition of all the shares was (i) an aggregate cash payment of £1,550 ($2,047), (ii) 15,000 shares of the Company’s common stock, (iii) the assignment of certain outstanding debt owed to the CML Majority Holder to the Principal as set forth in that Share Purchase Agreement, (iv) an earn-out payment of up to £500, the amount to be calculated and paid pursuant to that Share Purchase Agreement due on or around December 28, 2018, and (v) deferred consideration of £350, to be paid on or around June 28, 2019, depending on the satisfaction of certain conditions set forth in that Share Purchase Agreement. To finance the above transaction, the Company entered into a term loan with HSBC Bank plc. Refer to Note 9 for further details.

Key Resources Inc. Acquisition

On August 27, 2018, the Company and Monroe Staffing Services, LLC (“Monroe Staffing”), an indirect subsidiary of the Company, entered into a share purchase agreement with Pamela D. Whitaker (“Seller”), pursuant to which the Seller sold 100% of the common shares of Key Resources Inc. (“KRI”) to Monroe Staffing (the “KRI Transaction”).

The KRI Transaction closed simultaneously with the signing of the share purchase agreement. The purchase price in connection with the KRI Transaction was approximately $12,163, of which (a) approximately $8,109 was paid to the Seller at closing, (b) up to approximately $2,027 is payable as earnout consideration to the Seller on August 27, 2019 and (c) up to $2,027 is payable as earnout consideration to the Seller on August 27, 2020.  The payment of the Earnout Consideration is contingent on KRI’s achievement of certain trailing gross profit amounts.

To finance the above transaction, the Company entered into an agreement with Jackson on August 27, 2018, pursuant to which the note purchase agreement dated as of September 15, 2017 was amended to add an additional senior debt investment of approximately $8,428 in the Company in exchange for a senior secured note in the principal amount of approximately $8,428.

21


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

For three-month periods ended September 29 , 2018 and September 30 , 2017

 

 

Q3 2018

 

 

% of Revenue

 

 

Q3 2017

 

 

% of Revenue

 

 

Growth

 

Revenue

 

$

71,317

 

 

 

100.0

%

 

$

50,345

 

 

 

100.0

%

 

 

41.7

%

Direct cost of revenue

 

 

58,821

 

 

 

82.5

%

 

 

40,768

 

 

 

81.0

%

 

 

44.3

%

Gross profit

 

 

12,496

 

 

 

17.5

%

 

 

9,577

 

 

 

19.0

%

 

 

30.5

%

Operating expenses

 

 

11,838

 

 

 

16.6

%

 

 

9,590

 

 

 

19.0

%

 

 

23.4

%

Income (loss) from operations

 

 

658

 

 

 

0.9

%

 

 

(13

)

 

 

(0.0

)%

 

 

5161.5

%

Other expenses

 

 

(2,635

)

 

 

(3.7

)%

 

 

(7,435

)

 

 

(14.8

)%

 

 

(64.6

)%

Provision for income taxes

 

 

(3

)

 

 

(0.0

)%

 

 

(206

)

 

 

(0.4

)%

 

 

(98.5

)%

Net loss

 

$

(1,980

)

 

 

(2.8

)%

 

$

(7,654

)

 

 

(15.2

)%

 

 

(74.1

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

For Q3 2018, revenue increased by 41.7% to $71,317, as compared with $50,345, for Q3 2017. Of that growth, $26,888 was from the acquisitions of CBS Butler, Firstpro, Clement May, and KRI .  This was partially offset by a decline of $4,374 from divesting of PeopleServe, an organic decline of $1,481 from the remaining core business, and $61 from unfavorable foreign currency translation.  Temporary contractor revenue declined $1,290 and permanent placement declined $191.

Revenue in Q3 2018 was comprised of $68,683 of temporary contractor revenue and $2,634 of permanent placement revenue, compared with $48,970 and $1,375 for Q3 2017, respectively.

Direct cost of revenue, Gross profit and gross margin

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., workers’ compensation insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For Q3 2018, direct cost of revenue was $58,821, an increase of 44.3% from $40,768 in Q3 2017, compared with revenue growth of 41.7%.

Gross profit for Q3 2018 was $12,496, an increase of 30.5% over $9,577, for Q3 2017, representing gross margin of 17.5% and 19.0% for each period, respectively.  Gross profit growth was primarily attributable to the impact of acquisitions. This was partly offset by lower savings from workers’ compensation insurance versus the savings realized in the corresponding period in 2017,  the divestiture of the lower margin PeopleServe business, and organic decline on lower permanent placement and contract revenue.

Operating expenses

Operating expenses for Q3 2018 were $11,838, an increase of 23.4% over $9,590 for Q3 2017.  The acquisitions of CBS Butler, Firstpro, Clement May, and KRI drove an increase of 32.3% in operating expense.  Excluding the acquisitions, operating expenses decreased by 8.9% driven by lower non-recurring costs, legal, and other costs associated with acquisitions, lower variable costs from lower organic revenue, and savings that are materializing which are attributable to synergies within the subsidiaries, cost savings initiatives, and PeopleServe divesture.    

Other Expenses

Other expenses for Q3 2018 was $2,635, a decrease of 64.6% from $7,435 in Q3 2017. For Q3 2018 compared with Q3 2017, other expenses primarily reflects higher interest of $1,518 driven mainly by the higher debt and cost of capital resulting from the refinancing in September 2017 and financing of The Clement May and Key Resources acquisitions; a loss on extinguishment of debt in Q3 2017 of $4,764 attributable to the refinancing of convertible notes in January 2017 and Jackson Notes in September 2017, with no corresponding loss in Q3 2018, a loss of $186 from remeasuring the Company’s intercompany note; lower amortization of debt discount and deferred financing costs by $1,056 also attributable to the refinancing; a loss of $688 from fair valuing warrants in Q3 2017, with no corresponding loss in Q3 2018.


22


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

For the nine -month periods ended September 29 , 2018 and September 30 , 2017

 

 

 

Q3 2018 YTD

 

 

% of Revenue

 

 

Q3 2017 YTD

 

 

% of Revenue

 

 

Growth

 

Revenue

 

$

186,835

 

 

 

100.0

%

 

$

133,174

 

 

 

100.0

%

 

 

40.3

%

Direct cost of revenue

 

 

150,876

 

 

 

80.8

%

 

 

108,347

 

 

 

81.4

%

 

 

39.3

%

Gross profit

 

 

35,959

 

 

 

19.2

%

 

 

24,827

 

 

 

18.6

%

 

 

44.8

%

Operating expenses

 

 

35,566

 

 

 

19.0

%

 

 

24,672

 

 

 

18.5

%

 

 

44.2

%

Income from operations

 

 

393

 

 

 

0.2

%

 

 

155

 

 

 

0.1

%

 

 

153.5

%

Other expenses

 

 

(5,566

)

 

 

(3.0

)%

 

 

(11,109

)

 

 

(8.3

)%

 

 

(49.9

)%

Benefit from (Provision for) income taxes

 

 

78

 

 

 

0.0

%

 

 

(213

)

 

 

(0.2

)%

 

 

(136.6

)%

Net loss

 

$

(5,095

)

 

 

(2.7

)%

 

$

(11,167

)

 

 

(8.4

)%

 

 

(54.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

Q3 2018 YTD revenue increased by 40.3% to $186,835, as compared with $133,174 for Q3 2017 YTD. Of that growth, $64,905 was from the acquisitions of CBS Butler, Firstpro, Clement May, and KRI and $1,181 was from favorable foreign currency translation.  This was partially offset by a decline of $6,403 due to PeopleServe and an organic decline of $6,022 from the remaining core business.  Organic temporary contractor revenue declined $5,459, partially due to a greater number of weather-related work stoppage days in 2018, and organic permanent placement declined $563.

Revenue in Q3 2018 YTD was comprised of $178,518 of temporary contractor revenue and $8,317 of permanent placement revenue, compared with $130,220 and $2,954 for Q3 2017 YTD, respectively.

Direct cost of revenue, Gross profit and gross margin

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., workers’ compensation insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For Q3 2018 YTD, direct cost of revenue was $150,876, an increase of 39.3% from $108,347, in Q3 2017 YTD, compared with revenue growth of 40.3%.

Gross profit for Q3 2018 YTD was $35,959, an increase of 44.8% over $24,827, for Q3 2017 YTD, representing gross margin of 19.2% and 18.6% for each period, respectively. Gross profit growth was attributed to the impact of acquisitions.  This was partly offset by lower savings from workers’ compensation insurance versus the savings realized in the corresponding period in 2017, organic decline on lower permanent placement and contract revenue, and the divestiture of the lower margin PeopleServe business.

Operating expenses

Operating expenses for Q3 2018 YTD was $35,566, an increase of 44.2% over $24,672, for Q3 2017 YTD.  Of that increase, 42.6% can be attributed to acquisition of CBS Butler, Firstpro, Clement May, and KRI.  The remaining increase is primarily stemming from other non-recurring costs and other costs associated with acquisitions, capital raising, and non-cash charges or credits.  This was partly offset by lower variable costs from lower organic revenue, savings that are materializing which are attributable to synergies within the subsidiaries, cost savings initiatives, PeopleServe divesture and higher commissions on the higher gross profit.

Other Expenses

Other expenses for Q3 2018 YTD was $5,566, a decrease of 49.9% from $11,109, in Q3 2017 YTD. For Q3 2018 YTD compared with Q3 2017 YTD, other expenses primarily reflects higher interest of $4,342 driven mainly by the higher debt and cost of capital resulting from the refinancing in September 2017; lower amortization of debt discount and deferred financing costs by $2,217 also attributable to the refinancing;   a loss on extinguishment of debt in Q3 2017 YTD of $6,132 attributable to the refinancing of convertible notes in January 2017, with no corresponding loss in Q3 2018 YTD; a higher gain of $1,372 from fair valuing warrants in; a gain of $238 from the sale of PeopleServe; a loss of $332 from remeasuring the Company’s intercompany note; and, other income of $258 primarily from investment income on the Company’s workers’ compensation collateral.  


23


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we also use non-GAAP financial measures and Key Performance Indicators (“KPIs”) in addition to our GAAP results. We believe non-GAAP financial measures and KPIs may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.

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

Revenue and Gross Profit by Sector We use this KPI to measure the Company’s mix of Revenue and respective profitability between its two main lines of business due to their differing margins. For clarity, these lines of business are not the Company’s operating segments, as this information is not currently regularly reviewed by the chief operating decision maker to allocate capital and resources. Rather, we use this KPI to benchmark the Company against the industry.

The following table details Revenue and Gross Profit by Sector:

 

 

Q3 2018

 

 

Mix

 

 

Q3 2017

 

 

Mix

 

 

Q3 2018 YTD

 

 

Mix

 

 

Q3 2017 YTD

 

 

Mix

 

Commercial Staffing - US

 

$

28,496

 

 

40%

 

 

$

25,635

 

 

51%

 

 

$

73,441

 

 

39%

 

 

$

71,354

 

 

54%

 

Professional Staffing - US

 

 

11,301

 

 

16%

 

 

 

12,259

 

 

24%

 

 

 

40,034

 

 

22%

 

 

 

36,187

 

 

27%

 

Professional Staffing - UK

 

 

31,520

 

 

44%

 

 

 

12,451

 

 

25%

 

 

 

73,360

 

 

39%

 

 

 

25,633

 

 

19%

 

Total Revenue

 

$

71,317

 

 

 

 

 

 

$

50,345

 

 

 

 

 

 

$

186,835

 

 

 

 

 

 

$

133,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

$

4,463

 

 

36%

 

 

$

4,642

 

 

48%

 

 

$

12,278

 

 

34%

 

 

$

12,947

 

 

52%

 

Professional Staffing - US

 

 

4,069

 

 

33%

 

 

 

2,411

 

 

26%

 

 

 

12,268

 

 

34%

 

 

 

6,528

 

 

26%

 

Professional Staffing - UK

 

 

3,964

 

 

31%

 

 

 

2,524

 

 

26%

 

 

 

11,413

 

 

32%

 

 

 

5,352

 

 

22%

 

Total Gross Profit

 

$

12,496

 

 

 

 

 

 

$

9,577

 

 

 

 

 

 

$

35,959

 

 

 

 

 

 

$

24,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Staffing - US

 

 

15.7

%

 

 

 

 

 

 

18.1

%

 

 

 

 

 

 

16.7

%

 

 

 

 

 

 

18.1

%

 

 

 

 

Professional Staffing - US

 

 

36.0

%

 

 

 

 

 

 

19.7

%

 

 

 

 

 

 

30.6

%

 

 

 

 

 

 

18.0

%

 

 

 

 

Professional Staffing - UK

 

 

12.6

%

 

 

 

 

 

 

20.3

%

 

 

 

 

 

 

15.6

%

 

 

 

 

 

 

20.9

%

 

 

 

 

Total Gross Margin

 

 

17.5

%

 

 

 

 

 

 

19.0

%

 

 

 

 

 

 

19.2

%

 

 

 

 

 

 

18.6

%

 

 

 

 

 

 


24


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

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); am ortization 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 use this measure because we believe it provides a more meaningful und erstanding of the profit and cash flow generation of the Company.

 

 

 

 

Q3 2018

 

 

 

 

Q3 2017

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Net loss

 

$

(1,980

)

 

 

 

$

(7,654

)

 

$

(5,095

)

 

$

(11,167

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

2,279

 

 

 

 

 

761

 

 

 

6,185

 

 

 

1,843

 

Provision for (benefits from) income taxes

 

 

3

 

 

 

 

 

206

 

 

 

(78

)

 

 

213

 

Depreciation and amortization (1)

 

 

897

 

 

 

 

 

2,002

 

 

 

2,644

 

 

 

4,920

 

EBITDA

 

$

1,199

 

 

 

 

$

(4,685

)

 

$

3,656

 

 

$

(4,191

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, capital raising and other non-recurring expenses (2)

 

 

797

 

 

 

 

 

934

 

 

 

2,642

 

 

 

1,194

 

Other non-cash charges (3)

 

 

288

 

 

 

 

 

344

 

 

 

951

 

 

 

962

 

Loss on extinguishment of debt, net

 

 

 

 

 

 

 

4,764

 

 

 

 

 

 

6,132

 

Change in fair value of warrant liability

 

 

 

 

 

 

 

688

 

 

 

(879

)

 

 

493

 

Gain from sale of business

 

 

 

 

 

 

 

 

 

 

(238

)

 

 

 

Re-measurement loss on intercompany note

 

 

186

 

 

 

 

 

 

 

 

332

 

 

 

 

Other income

 

 

14

 

 

 

 

 

10

 

 

 

(227

)

 

 

31

 

Adjusted EBITDA

 

$

2,484

 

 

 

 

$

2,055

 

 

$

6,237

 

 

$

4,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trailing Twelve Months ("TTM") Adjusted EBITDA

 

$

9,007

 

 

 

 

$

5,814

 

 

$

9,007

 

 

$

5,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit TTM

 

$

47,873

 

 

 

 

$

32,768

 

 

$

47,873

 

 

$

32,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TTM Adjusted EBITDA as percentage of gross profit TTM

 

 

18.8

%

 

 

 

 

17.7

%

 

 

18.8

%

 

 

17.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma TTM Adjusted EBITDA (4)

 

$

12,330

 

 

 

 

NA

 

 

$

12,330

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 

(4)

Pro Forma TTM Adjusted EBITDA includes the Adjusted EBITDA of acquisitions for the period prior to the acquisition date.

 

25


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

 

Operating Leverage This measure is calculated by dividing the growth in Adjusted EBITDA by the growth in Gross Profit, on a trailing 12-month basis. We use this KPI because we believe it provides a measure of the Company’s efficiency for converting incremental gross profit into Adjusted EBITDA.

 

Twelve Months Ended

 

 

September 29, 2018

 

 

September 30, 2017

 

Gross Profit - TTM (Current Period)

$

47,873

 

 

$

32,768

 

Gross Profit - TTM (Prior Period)

 

32,768

 

 

 

31,490

 

Gross Profit - Growth

$

15,105

 

 

$

1,278

 

 

 

 

 

 

 

 

 

Adjusted EBITDA - TTM (Current Period)

$

9,007

 

 

$

5,814

 

Adjusted EBITDA - TTM (Prior Period)

 

5,814

 

 

 

5,362

 

Adjusted EBITDA - Growth

$

3,193

 

 

$

452

 

 

 

 

 

 

 

 

 

Operating Leverage

 

21.1

%

 

 

35.4

%

 

Leverage Ratio Calculated as Total Long-Term Debt, Net, gross of any Original Issue Discount, divided by Pro Forma Adjusted EBITDA for the trailing 12-months. We use this KPI as an indicator of the Company’s ability to service its debt prospectively.

 

 

 

September 29, 2018

 

 

December 30, 2017

 

Total Long-Term Debt, Net

 

$

47,882

 

 

$

38,749

 

Addback: Total Debt Discount and Deferred Financing Costs

 

 

1,731

 

 

 

1,251

 

Total Long-Term Debt

 

$

49,613

 

 

$

40,000

 

 

 

 

 

 

 

 

 

 

TTM Adjusted EBITDA

 

$

9,007

 

 

$

7,391

 

 

 

 

 

 

 

 

 

 

Pro Forma TTM Adjusted EBITDA

 

$

12,330

 

 

$

14,767

 

 

 

 

 

 

 

 

 

 

Pro Forma Leverage Ratio

 

4.0x

 

 

2.7x

 

 

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 temporary payroll expense is paid weekly and in advance of clients remitting payment for invoices, operating cash flow is often weaker in staffing companies where revenue and accounts receivable are growing.  Accounts receivable financing is essentially an advance on client remittances and is primarily used to fund temporary payroll.  As such, we believe this measure is helpful to investors as an indicator of the Company’s underlying operating cash flow.

 

On February 8, 2018, CBS Butler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force , the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities.

 

On June 28, 2018, Clement May Limited entered into a new agreement for purchase of debt (“APD”) with HSBC, joining CBS Butler, Staffing 360 Solutions Limited and The JM Group (collectively, with Clement May, the “Borrowers”) as “Connected Clients” as defined in the APD. The new Connected Client APDs carry an aggregate Facility Limit of £20,000 across all Borrowers and the Clement May APD matures on June 28, 2019, unless otherwise accelerated or terminated earlier. The obligations of the Borrowers are secured by a fixed charge and a floating charge on the Borrowers’ respective accounts receivable and are subject to cross-company guarantees among the Borrowers. In addition the secured borrowing line against unbilled receivables was increased to £1,500 for a period of 90 days.

26


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

 

 

 

 

 

 

Q3 2018 YTD

 

 

Q3 2017 YTD

 

Net cash provided by operating activities

 

$

7,149

 

 

$

(2,775

)

 

 

 

 

 

 

 

 

 

Collection of UK factoring facility deferred purchase price

 

 

7,086

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments on accounts receivable financing

 

 

(16,220

)

 

 

5,242

 

 

 

 

 

 

 

 

 

 

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

 

$

(1,985

)

 

$

2,467

 

 

 

 

 

 

 

 

 

 

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 term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity.

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 organic growth,

 

Addition of administrative and sales personnel as the business grows,

 

Increases in advertising, public relations and sales promotions for existing and new brands as we expand within existing markets or enter new markets,

 

A continuation of the costs associated with being a public company, and

 

Capital expenditures to add technologies.

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations could significantly increase our legal and financial compliance costs and increase the use of resources.

As of and for the period ended September 29, 2018, the Company had a working capital deficiency of $14,562, an accumulated deficit of $70,237, and a net loss of $5,095.

 

On September 15, 2017, the Company entered into the Jackson Note for $40,000. The proceeds of the sale of the secured note were used to (i) repay the existing subordinated notes previously issued to Jackson in the aggregate principal amount of $11,165, (ii) to fund a portion of the upfront cash portion of purchase price consideration of the Firstpro Acquisition and the CBS Butler Acquisition, (iii) repay substantially all other outstanding indebtedness of the Company and (iv) for general working capital purposes. The maturity date for the Jackson Note is September 15, 2020.  The Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with the first such payment due on January 1, 2018. Interest on any overdue payment of principal or interest due under the Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder.

27


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

To finance the CML acquisition, the Company entered into a term loan with HSBC Bank plc. The Term Loan was drawn down on June 28, 2018 in an original principal amount of £1,550 ($2,047). Refer to Note 9 for further details.

To finance the KRI acquisition, the Company entered into an agreement with Jackson, for the New Jackson Note.

Management believes the Company is a going concern meaning it will meet its obligations for the next 12 months as of the date these financial statements are issued.

Operating activities

For Q3 2018 YTD, net cash provided by operations of $7,149 was primarily attributable changes in operating assets and liabilities totaling $9,434, non-cash adjustments of $2,810, partially offset by net loss of $5,095. Changes in operating assets and liabilities primarily relates to a decrease in accounts receivable of $6,282 (see further discussion below), increase in accounts payable and accrued expenses of $2,789, decrease in other assets of $165, decrease in prepaid expenses and other current assets of $71, other of $188 and increase in other long term liabilities of $97; offset by decrease in interest payable – related party of $64 and decrease in other current liabilities of $94. Total non-cash adjustments of $2,810 primarily includes depreciation and amortization of intangible assets of $2,251, stock based compensation of $951, amortization of debt discounts and deferred financing of $393, foreign currency re-measurement on intercompany loan of $332; offset by gain on fair value of warrants of $879 and gain from sale of business of $238.

On February 8, 2018, CBS Butler, Staffing 360 Solutions Limited and The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd (“HSBC”) which provides for HSBC to purchase the subsidiaries’ accounts receivable. Under ASU 2016-16, “Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force , the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities.

For Q3 2017 YTD, net cash used in operations of $2,775 was primarily attributable changes in operating assets and liabilities totaling $4,115 and net loss of $11,167; offset by non-cash adjustments of $12,507. Changes in operating assets and liabilities primarily relates increase in accounts receivable of $2,907, decrease in other current liabilities of $807, an increase in prepaid expenses of $552, decrease in accounts payable and accrued expenses of $129 and other of $201, offset by an increase in other long-term liabilities of $285 and a decrease in other assets of $196. Total non-cash adjustments of $12,507 primarily includes costs related to the extinguishment of debt of $6,132, amortization of debt discounts and beneficial conversion features of $2,610, depreciation and amortization of intangible assets of $2,310, stock based compensation of $962, and change in fair value of warrants of $493. During the period January 1, 2017 to September 30, 2017, the Company used approximately $3,500 of the proceeds from Jackson to pay accounts payable and accrued expenses. In addition, cash used in operations is net of $1,582 for settlement of the Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc. arbitration.

Investing activities

For Q3 2018 YTD, net cash flows used in investing activities was $1,601, $9,760 related to acquisition of Clement May and KRI and purchase of property and equipment of $330; offset by collection of the beneficial interest from HSBC of $7,086 (see discussion above) and disposal of business of $1,403.

For Q3 2017 YTD, net cash flows used in investing activities was $20,986 which is primarily due to acquisition of CBS Butler for upfront consideration of $16,317, acquisition of Firstpro for upfront consideration of $4,500 and purchased of property and equipment of $169.

Financing activities

For Q3 2018 YTD, net cash flows used in financing activities totaled $5,822, of which $16,220 relates repayments on accounts receivable financing, net (primarily relates to settlement of the prior U.K. secured borrowing facilities in connection with the new HSBC facility (see discussion above)), payments for deferred payments associated with the Firstpro and CBS Butler acquisition and CSI earnout of $1,402, $422 for repayments of term loans, $389 for third party financing costs and $150 dividends to related parties; offset by proceeds from term loans of $10,475 and proceeds f rom the At-market facility of $2,286.

For Q3 2017 YTD, net cash flows provided by financing activities totaled $28,493 which is primarily due to proceeds from term loans of $50,165, proceeds from convertible notes of $400, proceeds from the At-The-Market Facility of $208 and proceeds from accounts receivable financing net of $5,242, offset by repayments of term loans of $14,976, repayment of convertible notes of $6,635, third-

28


STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

 

party financing costs of $2,311, Series D Series D pay off of $1,500, payments made towards earn-ou t agreements totaling $1,094, dividends paid to related parties of $515, repayment of promissory notes of $441, and repayment of bonds of $50.  

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Refer to the Form 10-K filed with the SEC on March 29, 2018.

Recent Accounting Pronouncements  

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.

 

 

29


 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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, the Company identified a material weakness relating to the accounting for complex debt and equity instruments. As such, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not operating effectively.

Management believes that the condensed consolidated financial statements in this quarterly report on Form 10-Q fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and results of its operations and cash flows for the Evaluation Date, in conformity with United States Generally Accepted Accounting Principles (“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 were not effective in accordance with Item 308(a)(3) of Regulation S-K as we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process relating to the accounting for complex debt and equity instruments.      

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.

The Company intends to remedy the foregoing material weakness in our control environment and financial reporting process by pursuing third party technical accounting consultation in the matter of transactions that involve complex debt and equity instruments.

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. Based on our evaluation under the framework described above, aside from the material

30


 

weakness discussed above, our management concluded that our internal controls over financial reporting were effective in accordance with Item 308(a)(3) of Regulation S-K.

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 period ended September 29, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

31


 

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

No material developments.

Item 1A. Risk Factors.

There have been no material developments to alter the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the period December 31, 2017 through September 29, 2018, we issued 19,383 shares of common stock, with an aggregate value of $55 to Greenridge Global LLC, SP Padda and J Charles Assets in return for investor relations advisory services and construction of leasehold improvements.   The shares were issued in reliance upon an exemption pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

 

32


 

Item 6.  Exhibits

 

Exhibit No.

 

Description

3.1

 

Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.3 to the Company’s Form 8-K, filed with the SEC on June 15, 2017)

3.2

 

Amendment to Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.1 to the Company’s Form 8-K, filed with the SEC on January 3, 2018)

3.3

 

Amended and Restated By-Laws (previously filed as Exhibit 3.1 to the Company’s Form 8-K, filed with the SEC on March 29, 2018)

10.1

 

Share Purchase Agreement, dated August 27, 2018, by and among Monroe Staffing, the Company and Pamela D. Whitaker (previously filed as Exhibit 10.1 to the Company’s Form 8-K/A filed with the SEC on November 2, 2018).

10.2

 

Amendment No. 1 to Amended and Restated Warrant Agreement, dated August 27, 2018, between the Company and Jackson Investment Group, LLC

10.3

 

Amendment No.10 and Joinder Agreement to Credit and Security Agreement and Limited Consent, dated August 27, 2018, by and among the Company, certain subsidiaries of the Company and MidCap Funding X Trust

10.4

 

First Omnibus Amendment, Joinder and Reaffirmation Agreement, dated August 27, 2018, by and among the Company, certain subsidiaries of the Company, and Jackson Investment Group, LLC

10.5

 

12% Senior Secured Note, due September 15, 2020, issued on August 27, 2018,staf-ex105_220.htm to Jackson Investment Group, LLC

10.6

 

First Amendment to Intercreditor Agreement, dated August 27, 2018, by and among Jackson Investment Group, LLC, the Company, certain subsidiaries of the Company, and MidCap Funding X Trust.

10.7

 

First Amended and Restated Revolving Loan Note, by and among certain subsidiaries of the Company and MidCap Funding X Trust

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.

 

 

33


 

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: November 13 , 2018

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ Brendan Flood

 

 

 

 

Brendan Flood

 

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

(Duly Authorized Officer and Principal Executive Officer)

 

Date: November 13, 2018

 

STAFFING 360 SOLUTIONS, INC.

 

 

 

 

 

 

 

By:

 

/s/ David Faiman

 

 

 

 

David Faiman

 

 

 

 

Chief Financial Officer

 

 

 

 

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

 

 

34

 

 

 

 

Exhibit 10.2

 

AMENDMENT NO. 1

to

AMENDED AND RESTATED WARRANT AGREEMENT

THIS AMENDMENT NO. 1 dated August 27, 2018 (this “ Amendment ”) amends the Amended and Restated Warrant Agreement, dated as of April 25, 2018, and is by and between Staffing 360 Solutions, Inc., a Delaware corporation (the “ Company ”), and Jackson Investment Group, LLC, a Georgia limited liability company (together with its successors and assigns, the “ Holder ”).

WHEREAS, on April 25, 2018, the Company and Holder entered into an Amended and Restated Warrant Agreement (the “ Warrant ”), which entitled Holder to purchase 905,508 shares of the Company’s common stock, par value $0.00001 per share (“ Common  Stock” ),  at an exercise price of $5.00 per share (each subject to adjustment as provided in the Warrant); and

WHEREAS, in connection with the Holder’s execution of that certain First Omnibus Amendment, Joinder and Reaffirmation Agreement among the Company, its subsidiary guarantors and Holder, of even date herewith, the parties desire to amend the Warrant to decrease the Exercise Price of the Warrant Exercise Shares.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree that the Warrant shall be amended as follows:

1. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed in the Warrant.

2. Section  3.1 of the Warrant shall  be amended and restated in its entirety to read as follows:

Section 3.1 Exercise Price . The Warrant shall entitle the Registered Holder thereof, subject to the provisions of this Amended and Restated Agreement, the right to purchase from the Company up to 905,508 shares of Common Stock at the price of $3.50 per share, subject to adjustment from time to time as provided in Article IV (the “ Exercise Price ”).

3. This Amendment may be executed in any number of original or facsimile or electronic PDF counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

 

[Intentionally blank – signatures on next page]



IN WITNESS WHEREOF, this Amendment has been duly executed by the undersigned parties hereto, effective as of the date first above written .

COMPANY:

STAFFING 360 SOLUTIONS, INC.

By:   

Brendan Flood, Executive Chairman

Accepted and agreed:

JACKSON INVESTMENT GROUP, LLC

By:

Doug Kline, Chief Financial Officer

[ Signature Page to Amendment No. 1 to Amended and Restated Warrant Agreement]

 

 

Exhibit 10.3

 

AMENDMENT NO. 10 AND JOINDER AGREEMENT TO

CREDIT AND SECURITY AGREEMENT AND LIMITED CONSENT

 

 

THIS AMENDMENT NO. 10 AND JOINDER AGREEMENT TO CREDIT AND SECURITY AGREEMENT AND LIMITED CONSENT (this “ Amendment ”) is dated as of the 27 th day of August, 2018, by and among MONROE STAFFING SERVICES, LLC , a Delaware limited liability company, FARO RECRUITMENT AMERICA, INC. , a New York corporation, and LIGHTHOUSE PLACEMENT SERVICES, INC. , a Massachusetts corporation, and STAFFING 360 GEORGIA, LLC , a Georgia limited liability company (each of the foregoing Persons being referred to herein individually as a “ Existing Borrower ”, and collectively as “ Existing Borrowers ”) and KEY RESOURCES, INC. , a North Carolina corporation (“ New Borrower ”; and together with Existing Borrowers and each Subsidiary joining the Credit Agreement as hereinafter defined as a Borrower, individually, each a “ Borrower ” and collectively, “ Borrowers ”), STAFFING 360 SOLUTIONS, INC ., a Delaware corporation (as “ Parent ”), and MIDCAP FUNDING X TRUST, a Delaware statutory trust, as successor-by-assignment to MidCap Financial Trust (as Agent for Lenders, “ Agent ”, and individually, as a Lender), and the other financial institutions or other entities from time to time parties to the Credit Agreement referenced below, each as a Lender.

 

RECITALS

 

A. Borrowers, Agent and Lenders are party to that certain Credit and Security Agreement dated as of April 8, 2015 (as amended by that certain Amendment No. 1 and Joinder Agreement to Credit and Security Agreement dated as of July 13, 2015, by that certain Amendment No. 2 to Credit and Security Agreement dated as of August 31, 2015, by that certain Overadvance Letter dated October 9, 2015, by that certain Overadvance Letter dated as of November 20, 2015, by that certain Overadvance Letter dated as of February 8, 2016, by that certain Amendment No. 3 to Credit and Security Agreement and Limited Waiver dated as of February 8, 2016, by that certain Amendment No. 4 and Joinder Agreement to Credit and Security Agreement dated as of July 11, 2016, by that certain Amendment No. 5 to Credit and Security Agreement dated as of September 26, 2016, by that certain Amendment No. 6 to Credit and Security Agreement and Limited Consent dated as of January 26, 2017, by that certain Amendment No. 7 to Credit and Security Agreement and Limited Consent dated as of June 5, 2017, by that certain Amendment No. 8 and Joinder Agreement to Credit and Security Agreement and Limited Consent dated as of September 15, 2017, by that certain Amendment No. 9 to Credit and Security Agreement and Limited Consent dated as of June 6, 2018 (the “ Ninth Amendment ”), as amended hereby and as it may be further amended, modified and restated from time to time, the “ Credit Agreement ”).  Capitalized terms used but not otherwise defined in this Amendment shall have the meanings set forth in the Credit Agreement.

 

B . Pursuant to Section 4.11(c) of the Credit Agreement, the Existing Borrowers are required to cause New Borrower to join the Credit Agreement as a “Borrower”, and subject to and in accordance with the terms and conditions of this Amendment and the applicable requirements of the Credit Agreement, Borrowers, Agent and Lenders are willing to enter into this Amendment to join


New Borrower as a “Borrower” under the Credit Agreement and the other Financing Documents.

 

C. Borrowers, Agent and Lenders have agreed to amend the Credit Agreement as set forth herein.

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders, Parent and Borrowers hereby agree as follows:

 

1. Recitals. This Amendment shall constitute a Financing Document and the Recitals set forth above shall be construed as part of this Amendment as if set forth fully in the body of this Amendment.

 

2. Joinder .  Subject to the satisfaction of the conditions precedent set forth in Section 9 hereof:

(a) New Borrower hereby joins in, assumes, adopts and becomes a “Borrower” under the Credit Agreement and with respect to all Loans and Obligations made and incurred pursuant thereto. New Borrower hereby becomes a party to the Credit Agreement, the Notes and the other Financing Documents applicable to it as a “Borrower” and all references to “Borrower” or “Borrowers” contained in the Financing Documents are hereby deemed for all purposes to also refer to and include New Borrower, and New Borrower hereby agrees to comply with all of the terms and conditions of the Financing Documents as if New Borrower was an original signatory thereto.

 

(b) Without limiting the generality of the provisions of subparagraph (a) above, New Borrower is hereby jointly and severally liable, along with all other Borrowers, for all existing and future Loans and other Obligations incurred at any time by any one or more Borrowers under the Financing Documents.

 

(c) Notwithstanding anything to the contrary set forth herein, each Borrower acknowledges and agrees that, as of the date hereof, Agent has not completed its due diligence of New Borrower.  None of the Accounts of New Borrower shall be deemed to be Eligible Accounts, and consequently, such Accounts shall not be included in the Borrowing Base unless and until the satisfaction of the completion or delivery of the post-closing obligations listed as items 1 and 4 on Schedule 7.4(D) attached hereto, provided that Agent and Lenders expressly reserve every right, power and remedy specifically provided by the Credit Agreement, the other Financing Documents and any related documents, now or hereafter existing at law, in equity or by statute and each and every right, power and remedy, whether specifically given by Borrowers or otherwise existing, which may be exercised from time to time and as often and in such order as may be deemed expedient by Agent or Lenders, including, without limitation, those rights under Section 2.1(b)(i) of the Credit Agreement.  Borrowers agree to assist Agent in its completion of its due diligence of New Borrower.  

3. Limited Consent for Key Resources Acquisition and Key Resources Seller Debt. At the request of and as an accommodation to Credit Parties and subject to the strict compliance with

2

 


the terms , conditions and requirements set forth herein (including, without limitation, satisfaction of each of the conditions set forth in Section 9 below) , Agent and Lenders hereby consent to the Key Resources Acquisition (as defined in this Amendment) , the Key Resources Seller Debt (as defined in this Amendment) and, subject the terms and conditions of the Intercreditor Agreement, the amendment to the JIG Note Purchase Agreement to, among other things, increase the principal amount thereof in connection the Key Resources Acquisition , the documentation for which , including the Key Resources Acquisition Documents (as defined in this Amendment), shall be in form and substance acceptable to Agent, in its sole discretion ; provided , however , that (x) no amount of the Loans shall be used to pay the initial cash purchase price for the Key Resources Acquisition and (y) the use of proceeds of Loans to pay the initial cash purchase price  for the Key Resources Acquisition shall not be a permitted use under Section 4.7 of the Credit Agreement .    Pursuant to this limited consent , the Key Resources Acquisition shall be deem ed to be “Permitted Acquisition ” under the Credit Agreement and the Key Resources Seller Debt shall be deemed to be “Subordinated Debt” under the Credit Agreement . The limited consent set forth in this Section 3 is effective solely for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) except as expressly provided herein, be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Financing Document ; ( b ) prejudice any right that Agent or the Lenders have or may have in the future under or in connection with the Credit Agreement or any other Financing Document ; ( c ) waive any Event of Default that exists as of the date hereof; or ( d ) establish a custom or course of dealing among any of the Credit Parties, on the one hand, or Agent or any Lender , on the other hand .

 

4. Amendments to Credit Agreement .   

 

(a) Section 1.1 – (New Defined Term) . Section 1.1 of the Credit Agreement is hereby amended to add each of the below defined terms in their alphabetical order:

Key Resources Acquisition ” means the acquisition by Monroe Staffing Services, LLC of all of the outstanding capital stock of Key Resources, pursuant to the Key Resources Acquisition Agreement, whereupon Key Resources will become a wholly-owned Subsidiary of Monroe Staffing Services, LLC.

Key Resources Acquisition Agreement ” means that certain Share Purchase Agreement dated as of August 27, 2018, among Monroe Staffing Services, LLC, the Parent, and Pamela D. Whitaker, as “Seller”, together with all schedules, exhibits and annexes thereto, as amended, restated, supplemented or modified from time to time.

Key Resources Acquisition Documents ” means, collectively, the Key Resources Acquisition Agreement and all other agreements, documents and instruments executed and delivered by the Parent and/or Monroe Staffing Services, LLC  to the Seller (as such term is defined in the Key Resources Acquisition Agreement) in connection with the Key Resources Acquisition.

Key Resources ” means Key Resources, Inc., a North Carolina corporation.

Key Resources Seller Debt ” means, collectively, (i) the $2,027,198 payment ( subject to adjustment as set forth in subsection 1.04 of the Key Resources Acquisition Agreement )

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payable to P amela D . Whitaker o n the first anniversary of the Key Resources Acquisition Agreement and (ii) the $2,027,198 payment ( subject to adjustment as set forth in subsection 1.04 of the Key Resources Acquisition Agreement ) payable to P amela D . Whitaker on the second anniversary of the Key Resources Acquisition Agreement, in each case subject to the terms and conditions of the Key Resources Acquisition Agreement as in effect on the Tenth Amendment Closing Date.

Tenth Amendment Closing Date ” means August 27, 2018.

(b) Section 1.1 (Amended and Restated Definitions) .  The defined term “Excluded Subsidiary” in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:

Excluded Subsidiary ” means Control Solutions International Inc., a Florida corporation, Canada Control Solutions International, Inc., a British Columbia company, Clement May Africa (Pty) Limited, a South African company, and the following companies organized under the laws of England and Wales: Staffing 360 Solutions Limited, Longbridge Recruitment 360 Limited, The JM Group Limited, The JM Group, Global Resource Delivery Limited,  CBS Butler Holdings Limited, CBS Butler Limited and Clement May Limited.

(c) Section 2.2(f) (Deferred Revolving Loan Origination Fee) .  Section 2.2(f) is hereby amended and restated in its entirety to read as follows:

Deferred Revolving Loan Origination Fee .  If Lenders’ funding obligations in respect of the Revolving Loan Commitment under this Agreement terminate for any reason (whether by voluntary termination by Borrowers, by reason of the occurrence of an Event of Default or otherwise, except a termination pursuant to the applicable provisions of Section 2.1(c) above) and more than sixty (60) days prior to the Commitment Expiry Date, Borrowers shall pay to Agent, for the benefit of all Lenders committed to make Revolving Loans on the Tenth Amendment Closing Date, a fee as compensation for the costs of such Lenders being prepared to make funds available to Borrowers under this Agreement, equal to an amount determined by multiplying the Revolving Loan Commitment by the following applicable percentage amount:  2% for if made on or before September 15, 2019 and 1.5% thereafter. All fees payable pursuant to this paragraph shall be deemed fully earned and non-refundable as of the Tenth Amendment Closing Date.

(d) Section 5.17 – Payments and Modifications of the Key Resources Seller Debt .  Article 5 is hereby amended by adding new Section 5.17 to the end thereof to read as follows:

Payments and Modifications of the Key Resources Seller Debt .  No Credit Party will, or will permit any Subsidiary to, directly or indirectly (a) declare, pay, make or set aside any amount for payment in respect of the Key Resources Seller Debt from proceeds of the Loans or Collateral; provided , however , that the Credit Parties may declare, pay, make or set aside any amount for payment in respect of the Key Resources Seller Debt if at the time of making such payment and after giving effect to such payment on a pro

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forma basis (x) there shall exist no Default or Event of Default (including pro forma compliance with the financial covenants recomputed for the end of the most recently completed test period applicable to such financial covenant for which financial statements have been delivered and assuming such payment occurred on the last day thereof ) and (y) the Credit Parties shall have a Minimum Liquidity equal to or in excess of $2,000,000 , provided, that no less than two ( 2 ) Business Days prior to the intended date of payment,   Credit Parties shall have delivered evidence acceptable to Agent of compliance with the forgoing, including a duly completed Compliance Certificate signed by a Responsible Officer stating that the conditions in subclauses (x) and (y) of this clause (a) have been met and setting forth calculations showing pro forma compliance with subclauses (x) and (y) of this clause (a)   after giving effect to such payment , or (b) amend or otherwise modify the terms of the Key Resources Seller Debt .

(e) Schedules to the Credit Agreement.   Each Borrower hereby agrees that the specific schedules attached hereto as Exhibit A , are true and correct having been revised and updated to reflect the joinder of the New Borrower as a “Borrower” under the Financing Documents and shall be deemed to be given as of the Tenth Amendment Closing Date and replace the corresponding schedules to the Credit Agreement to which they apply and shall be attached thereto and become a part thereof .

5. Confirmation of Representations and Warranties; Reaffirmation of Security Interest.

 

(a) Each Borrower including, without limitation, New Borrower, hereby confirms that all of the representations and warranties set forth in Article 3 of the Credit Agreement are true and correct in all material respects with respect to such Borrower as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, and covenants to perform its respective obligations under the Credit Agreement.  To induce Agent and Lender to enter into this Agreement, Borrowers and Parent further represent and warrant that:

 

(i) no Default or Event of Default has occurred or is continuing as of the date hereof;

(ii) as of the date hereof and, immediately after giving effect to this Amendment and the transactions contemplated hereby, the representations and warranties of Borrowers contained in the Financing Documents are true and correct in all material respects (or if any representation or warranty is qualified with respect to materiality, in all respects) on and as of the date hereof to the same extent as though made on and as of such date except to the extent such representations and warranties specifically relate to an earlier date; and

(iii) t he execution, delivery and performance by Borrowers and Parent of this Amendment are within each of its corporate powers and have been duly authorized by all necessary corporate action, and this Amendment is the legal, valid and binding obligation of Borrowers and Parent enforceable against Borrowers and Parent in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by equitable principles, and neither the execution,

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delivery or performance by Borrowers and Parent of this Agreement (A) violates any Law, or any other rule or decree of any Governmental Authority, (B) conflicts with or results in the breach or termination of, constitutes a default under or accelerates any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrowers or Parent is a party or by which Borrowers or Parent or any of its property is bound, except for such conflicts, breaches, terminations, defaults or accelerations that would not reasonably be expected to have a Material Adverse Effect, (C) results in the creation or imposition of any Lien upon any of the Collateral, (D) violates or conflicts with the by-laws or other organizational documents of Borrowers and Parent , or (E) requires the consent, approval or authorization of, or declaration or filing with, any other Person, except for those already duly obtained .

(b) Each Borrower and Parent confirms and agrees that all security interests and Liens granted to Agent continue in full force and effect, and all Collateral remains free and clear of any Liens, other than those granted to Agent and Permitted Liens. Nothing herein is intended to impair or limit the validity, priority or extent of Agent’s security interests in and Liens on the Collateral.  For the avoidance of any doubt, the Collateral secures repayment of the Obligations and the Affiliated Obligations, and in furtherance thereof, Borrowers and Parent hereby reaffirm the grant to Agent, for the benefit of itself and Lenders, of a continuing first priority Lien (subject to Permitted Liens) on and security interest in all of the Collateral as security for the payment and performance of the Obligations, and for the payment and performance of all obligations under the Affiliated Financing Documents.

 

6. Enforceability . This Amendment constitutes the legal, valid and binding obligation of each Borrower and Parent, and is enforceable against each Borrower and Parent in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

 

7. Costs and Fees . Borrowers shall be responsible for the payment of all reasonable costs and fees of Agent’s counsel incurred in connection with the preparation of this Amendment and any related documents.  If Agent or any Lender uses in-house counsel for any of these purposes, Borrowers further agree that the Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent or such Lender for the work performed.  Borrowers hereby authorize Agent to deduct all of such fees set forth in this Section 7 from the proceeds of one or more Revolving Loans made under the Credit Agreement.

 

8. Grant and Reaffirmation of Security Interest .

 

(a) Consistent with the intent of the parties and in consideration of the accommodations set forth herein, as further security for the prompt payment in full of all Obligations, and without limiting any other grant of a Lien and security interest in any Security Document, New Borrower hereby assigns and grants to Agent, for the benefit of itself and Lenders, a continuing first priority Lien (subject to Permitted Liens) on and security interest in, upon, and to the now owned and hereafter acquired Collateral set forth on Exhibit B attached hereto and made a part hereof in which New Borrower has rights.  New Borrower hereby authorizes Agent to file UCC-1

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financing statements against New Borrower covering the Collateral owned by New Borrower in such jurisdictions as Agent shall deem necessary, prudent or desirable to perfect and protect the liens and security interests granted to Agent hereunder.

 

(b) Each of the Existing Borrowers confirms and agrees that:  (i) all security interests and liens granted to Agent continue in full force and effect, and (ii) all Collateral remains free and clear of any liens other than liens in favor of Agent and Permitted Liens.  Nothing herein contained is intended to impair or limit the validity, priority and extent of Agent’s security interest in and liens upon the Collateral.

 

9. Conditions to Effectiveness. This Amendment shall become effective as of the date on which each of the following conditions has been satisfied (the “ Effective Date ”):

 

(a) Amendment .  Borrowers and Parent shall have delivered to Agent this Amendment, duly executed by an authorized officer of each Credit Party.

 

(b) Representations and Warranties .  All representations and warranties of Borrowers contained herein shall be true and correct in all material respects as of the Effective Date except to the extent such representations and warranties specifically relate to an earlier date (and such parties’ delivery of their respective signatures hereto shall be deemed to be their certification thereof).

 

(c) Searches .   Agent shall have received UCC, tax, judgment and lien search results with respect to Key Resources and the “Seller” as defined under the Key Resources Acquisition Agreement, from all appropriate jurisdictions and filing offices as requested by the Agent, with results satisfactory to the Agent, together with executed originals of such termination statements, releases and cancellations of mortgages required by the Agent in connection with the removal of any Liens (other than Permitted Liens) against the assets of Key Resources and the assets and equity interests being acquired pursuant to the Key Resources Acquisition Agreement;

 

(d) Secretary’s Certificates .  Agent shall have received (i) a Secretary Certificate for the New Borrower, together with attached copies of the certificate of formation, organization or jurisdictional equivalent of the New Borrower and all amendments thereto certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, together with the bylaws, operating agreement or equivalent document, in each case, c certified as genuine by the relevant secretary or manager of the New Borrower as of a recent date; (ii) good standing certificates or jurisdictional equivalent for each Credit Party, issued by the relevant Secretary of State and or equivalent governmental authority in which such Credit Party is organized, in each case as of a recent date; (c) a copy of resolutions adopted by the governing board of the New Borrower, authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which the New Borrower is a party certified as true, complete and correct by the relevant secretary or manager of the New Borrower as of a recent date; and (d) specimen signatures of the officers or members of the New Borrower executing the Agreement and the other Transaction Documents, certified as genuine by the relevant secretary or manager of the New Borrower as of a recent date;

 

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( f ) Fees and Expenses .   Agent shall have received from Borrowers of all of the fees owing pursuant to this Amendment and Agent’s reasonable out-of-pocket legal fees and expenses ; and

 

(g) Closing Checklist . Agent shall have received from Credit Parties each agreement, document and instrument set forth on the closing checklist prepared by Agent or its counsel, each in form and substance satisfactory to Agent, and such other closing deliverables reasonably requested by Agent and Lenders, each to the satisfaction of Agent and Lenders and their respective counsel in their sole discretion.

 

10. Post-Tenth Amendment Closing Requirements .   Borrowers shall complete each of the post-closing obligations and/or provide to Agent each of the documents, instruments, agreements and information listed on Schedule 7.4(D) attached hereto on or before the date set forth for each such item thereon, each of which shall be completed or provided in form and substance satisfactory to Agent. The failure of any Borrower or of Parent to complete and satisfy any of the obligations set forth on Schedule 7.4(D) on or before the date indicated therein, or the failure of any Borrower or of Parent to deliver any of the listed items on Schedule 7.4(D) or before the date indicated therein, shall constitute an immediate and automatic Event of Default.

 

11. Release.   Each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees (collectively, “ Releasing Parties ”), does hereby fully and completely release, acquit and forever discharge each Indemnitee (as defined in the Credit Agreement) of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Indemnitees (or any of them), that directly or indirectly arise out of, are based upon or are in any manner connected with any Prior Related Event.  “ Prior Related Event ” means any transaction, event, circumstance, action, failure to act, occurrence of any type or sort, whether known or unknown, which occurred, existed, was taken, was permitted or begun in accordance with, pursuant to or by virtue of (a) any of the terms of this Amendment or any other Financing Document, (b) any actions, transactions, matters or circumstances related hereto or thereto, (c) the conduct of the relationship between any Indemnitee and any Borrower, or (d) any other actions or inactions by any Indemnitee, all on or prior to the Effective Date.  Each Borrower acknowledges that the foregoing release is a material inducement to Agent’s and Lender’s decision to enter into this Amendment and to agree to the modifications contemplated hereunder.

 

12. No Waiver or Novation.   The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults or Events of Default.  This Amendment (together with any other document

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executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.

 

13. Affirmation.   Except as specifically amended pursuant to the terms hereof, the Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers.  Each Borrower covenants and agrees to comply with all of the terms, covenants and conditions of the Credit Agreement (as amended hereby) and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions.

 

14. Miscellaneous.

 

(a) Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this Amendment.  Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers.  

 

(b) Incorporation of Credit Agreement Provisions.   The provisions contained in Section 11.6 (Indemnification), Section 12.8 (Governing Law; Submission to Jurisdiction) and Section 12.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.

 

(c) Headings.   Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

 

(d) Counterparts.   This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  Signatures by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be treated as delivery of an original and shall bind the parties hereto. This Amendment constitutes the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

 

   

 

[SIGNATURES APPEAR ON FOLLOWING PAGES]

 

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IN WITNESS WHEREOF , intending to be legally bound, and intending that this document constitute an agreement executed under seal, the undersigned have executed this Amendment under seal as of the day and year first hereinabove set forth.

 

 

AGENT: MIDCAP FUNDING X TRUST

 

By:          Apollo Capital Management, L.P.,

                its investment manager

 

By:          Apollo Capital Management GP, LLC,

                its general partner

 

 

By: _______________________________(SEAL)

Name:  Maurice Amsellem

Title:    Authorized Signatory

 

 

LENDER: MIDCAP FU NDING X TRUST

 

By:          Apollo Capital Management, L.P.,

                its investment manager

 

By:          Apollo Capital Management GP, LLC,

                its general partner

 

 

By: _______________________________(SEAL)

Name:  Maurice Amsellem

Title:    Authorized Signatory

 

 

 

 

Signature Page to

Amendment No. 10 and Joinder Agreement to Credit and Security Agreement and Limited Consent

 

 


 

EXISTING BORROWERS:

MONROE STAFFING SERVICES, LLC ,

a Delaware limited liability company

 

 

By:___________________________(Seal)

Name:
Title:  

 

LIGHTHOUSE PLACEMENT SERVICES, INC. , a Massachusetts corporation

 

 

By:___________________________(Seal)

Name:
Title:  

 

FARO RECRUITMENT AMERICA, INC. ,

a New York corporation

 

 

 

By:___________________________(Seal)

Name:
Title:  

 

 

 

NEW BORROWER:

KEY RESOURCES, INC.,

a North Carolina corporation

 

 

By:___________________________(Seal)

Name:
Title:  

 

 

PARENT:

STAFFING 360 SOLUTIONS, INC. ,

a Delaware corporation

 

 

 

By:___________________________(Seal)

Name:  
Title:  

 

Signature Page to

Amendment No. 10 and Joinder Agreement to Credit and Security Agreement and Limited Consent

 

 


 

Exhibit A

 

[ attach updated schedules ]

 

 

 

 

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Exhibit B – Collateral

The Collateral consists of all of the New Borrower’s assets, including without limitation, all of the New Borrower’s right, title and interest in and to the following, whether now owned or hereafter created, acquired or arising:

(a) all goods, Accounts (including health-care insurance receivables), equipment (as defined in the UCC), Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims (as defined in the UCC), documents(as defined in the UCC), instruments (as defined in the UCC, including any promissory notes), chattel paper (as defined in the UCC, whether tangible or electronic), cash, money, deposit accounts(as defined in the UCC), securities accounts (as defined in the UCC), fixtures (as defined in the UCC), letter of credit rights (as defined in the UCC), letters of credit (as defined in the UCC, whether or not the letter of credit is evidenced by a writing), securities (as defined in the UCC), and all other investment property(as defined in the UCC), supporting obligations (as defined in the UCC), and financial assets (as defined in the UCC), and oil, gas, and other minerals before extraction, all insurance policies relating to the foregoing or otherwise and the right to receive refunds of unearned insurance premiums under those policies, all of the foregoing whether now owned or hereafter acquired, wherever located;

(b) all of the New Borrower’s books and records evidencing or relating to any of the foregoing; and

(c) any and rights, remedies, Guarantees, and security interests in respect of the foregoing, all rights of enforcement and collection, and all rights under the Financing Documents in respect of the foregoing, all information and data compiled or derived by the New Borrower or to which the New Borrower is entitled in respect of or related to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

 

 

 


 

 

Schedule 7.4 (d) – Post Closing Requirements to Tenth Amendment Closing Date

Borrowers and Parent, as applicable, shall satisfy and complete each of the following obligations, or provide Agent each of the items listed below, as applicable, on or before the date indicated below, all to the satisfaction of Agent in its sole and absolute discretion:

1. As soon as possible, but in any case within fifteen days of the Tenth Amendment Closing Date, each Credit Parties shall enter, cause to be entered into and deliver to the same to the Agent, a fully executed Deposit Account Control Agreement with the bank with which such New Borrower maintains account(s) with respect to (i) a Lockbox Account for New Borrower and (ii) if applicable, any other accounts maintained by New Borrower other than those used exclusively for payroll.

2. As soon as possible, but in any case within fifteen (15) days of the Tenth Amendment Closing Date , Credit Parties shall deliver or cause to be delivered to Agent complete and accurate copies of each of the customer contracts for New Borrower listed on Schedule 3.17 (Material Contracts) , including any amendments, supplements, restatements or modifications thereto.

3 As soon as possible, but in any case within fifteen (15) days of the Tenth Amendment Closing Date , Credit Parties shall deliver to Agent evidence of insurance with respect to New Borrower, including but not limited to an Additional Insured and Lender’s Loss Payable endorsements and/or declaration pages acceptable to the Lender, all such insurances to be in compliance with Section 4.4 of the Credit Agreement.

4. As soon as possible, but in any case within thirty (30) days of the Tenth Amendment Closing Date, Credit Parties shall cause to be delivered to Agent a legal opinion from special North Carolina counsel with respect to New Borrower, addressed to the Agent, covering such matters relating to the transactions contemplated this Amendment as the Agent may reasonably request, and in form and scope reasonably satisfactory to Agent and its counsel in compliance with Section 4.11(c) of the Credit Agreement.

5. As soon as possible, but in any case within thirty (30) days of the Tenth Amendment Closing Date, Credit Parties shall cause to be delivered to Agent a landlord’s agreement or other access agreement from the lessor in form and substance satisfactory to the Agent in its sole and absolute discretion for the following leased property of New Borrower: 3703 W. Market St, Greensboro, NC, 27403 Suites A, B and C.

Nothing in this Schedule 7.4(D) shall act or be construed to limit any of the rights and remedies of the Agent and Lenders under this Agreement.  The failure of any Borrower or of Parent to complete and satisfy any of the above obligations on or before the date indicated above, or the failure of any Borrower or of Parent to deliver any of the above listed items on or before the date indicated above, shall constitute an immediate and automatic Event of Default.

 

 

 

 

 

Exhibit 10.4

FIRST OMNIBUS AMENDMENT, JOINDER AND REAFFIRMATION AGREEMENT

THIS FIRST OMNIBUS AMENDMENT, JOINDER AND REAFFIRMATION AGREEMENT (this “ Agreement ”), dated as of August 27, 2018, is by and among Staffing 360 Solutions, Inc. (the “ Company ”), Faro Recruitment America, Inc. (“ Faro ”), Monroe Staffing Services, LLC (“ Monroe ”),   Staffing 360 Georgia, LLC, a Georgia limited liability company (“ S360 Georgia ”), and Lighthouse Placement Services, Inc. (“ Lighthouse ” and together with each of Faro, Monroe, S360 Georgia, collectively, the “ Original Subsidiary Guarantors ”), Key Resources, Inc., a North Carolina corporation (the “ New Subsidiary Guarantor ”; together with the Company and the Original Subsidiary Guarantors referred to herein collectively as the “ Obligors ”), and Jackson Investment Group, LLC (the “ Purchaser ”).

WHEREAS, the Company, the Original Subsidiary Guarantors and the Purchaser are parties to that certain Note and Warrant Purchase Agreement, dated as of September 15, 2017 (the “ Original Purchase Agreement ”; as amended by this Agreement and as the same may hereafter further be amended, restated, supplemented or otherwise modified from time to time, the “ Purchase Agreement ”; capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Purchase Agreement), pursuant to which the Company issued (i) that certain 12% Senior Secured Promissory Note, dated September 15, 2017, in the principal amount of $40,000,000 (as amended, restated, supplemented or otherwise modified from time to time, the “ Original Senior Note ”) to the Purchaser in exchange for the purchase price therefore;

WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company desires to issue a new 12% Senior Secured Promissory Note dated the date hereof in the principal amount of $8,427,794 (as amended, supplemented, restated or otherwise modified from time to time, the “ New Senior Note ”) pursuant to the terms of the Purchase Agreement, and for which $8,108,794 of the purchase price proceeds thereof will be used by the Company to pay the purchase price due to seller under the Key Resources Acquisition Agreement (as defined below);

WHEREAS, the obligations of the Company and the other Obligors under the New Senior Note, the Original Senior Note and the Purchase Agreement are and shall be secured by (i) that certain Amended and Restated Security Agreement, dated as of September 15, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”), by and among the Obligors and the Purchaser, (ii) that certain Amended and Restated Pledge Agreement, dated as of September 15, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Pledge Agreement ”), and (iii) each other Security Document; and

WHEREAS, the parties desire to enter into this Agreement to, among other things, (i) evidence Purchaser’s consent to the Key Resources Acquisition, (ii) join the New Subsidiary Guarantor as (A) a new “Subsidiary Guarantor” and “Obligor” under the Purchase Agreement, including, without limitation, under the guaranty provided for in Article 4 thereof, (B) a new “Pledgor” and “Pledged Entity” under the Pledge Agreement, and (C) as a new “Subsidiary Guarantor” and “Debtor” under the Security Agreement, (iii) provide that the obligations of the Company in respect of the New Senior Note, together with the Original Senior Note and all other “Obligations” as such term is defined in the Purchase Agreement, are and at all times hereafter shall continue to be guaranteed by the Subsidiary Guarantors pursuant to Article 4 of the Purchase Agreement and secured by the liens and security interests granted by the Obligors pursuant to the Security Agreement and the Pledge Agreement, as amended hereby, and (iv) amend certain provisions of the Purchase Agreement, the Security Agreement and the Pledge Agreement, in each case as provided below in this Agreement.

 


 

NOW THEREFORE, in order to induce the Purchaser to purchase the New Senior Note and make available to the Borrower the proceeds thereof in accordance with the terms thereof and of the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Purchaser Consent to Key Resources Acquisition and Seller Debt .  Subject to the terms and conditions hereof, including, without limitation, satisfaction (or waived in writing by Purchaser in its sole discretion) of each of the conditions set forth in Section 6 below, the Purchaser hereby consents to the Key Resources Acquisition (as defined below) and Key Resources Seller Debt (as defined below).  Pursuant to this limited consent, the Key Resources Acquisition shall be deemed to be “Permitted Acquisition” under the Purchase Agreement and the Key Resources Seller Debt shall be deemed to be “Subordinated Debt” under the Purchase Agreement.

 

2. Joinder .  Subject to the satisfaction of the conditions precedent set forth in Section 6 hereof:

 

(a) New Subsidiary Guarantor hereby joins in, assumes, adopts and becomes party to (i) the Purchase Agreement as an additional “Subsidiary Guarantor” and “Obligor” thereunder, including without limitation, the guaranty provided for in Article 4 of the Purchase Agreement, (ii) the Pledge Agreement as an additional “Pledgor” and “Pledged Entity” thereunder, and (iii) the Security Agreement as an additional “Subsidiary Guarantor” and “Debtor” thereunder.  All references to “Subsidiary Guarantors” or “Obligors” contained in the Note Documents are hereby deemed for all purposes to also refer to and include New Subsidiary Guarantor, and New Subsidiary Guarantor hereby agrees to comply with all of the terms and conditions of the Note Documents as if New Subsidiary Guarantor was an original signatory thereto.

 

(b) Without limiting the generality of the provisions of subparagraph (a) above, New Subsidiary Guarantor is hereby jointly and severally liable, along with all other Obligors, for all existing and future Obligations pursuant to the guaranty set forth in Article 4 of the Purchase Agreement.

 

3. Amendments to the Purchase Agreement .

 

A. Section 1.1 if hereby amended by amending and restating the following defined terms in their entity with the applicable definitions set forth below:

 

Closing ” means, collectively or individually, as context may require, the Original Closing and the Second Closing.

 

Closing Date ” means, collectively or individually, as context may require, the Original Closing Date and the Second Closing Date.

 

Existing Warrant Agreement ” shall mean that certain Warrant Agreement, dated January 26, 2017, by and between the Purchaser and the Company, as amended and restated by that certain Amended and Restated Warrant Agreement dated as of April 25, 2018, and as further amended, restated, supplemented or modified from time to time.

 

MidCap Intercreditor Agreement ” means that certain Intercreditor Agreement, dated as of the date hereof, among the Purchaser, the MidCap Senior Agent, the Company and the Domestic Guarantors party thereto, as amended by that certain First Amendment to Intercreditor Agreement dated as of the Second Closing Date, and as further amended, restated, supplemented or otherwise modified from time to time.

 

 


 

Obligations ” shall mean all present and future debt, liabilities and obligations of the Company owing to the Purchaser, or any Person entitled to indemnification hereunder, or any of their respective successors, permitted transferees or permitted assigns, arising under or in connection with this Agreement, the Senior Notes or any other Note Document.

 

Pay Proceeds Letter ” means (i) in respect of the Original Senior Note, that certain Pay Proceeds Letter, dated the Original Closing Date, executed by the Company and addressed to the Purchaser, and (ii) in respect of the New Senior Note, the Second Pay Proceeds Letter.

 

Senior Note ” means, collectively or individually, as the context may require, the Original Senior Note and the New Senior Note.

 

Transaction Documents ” means collectively, this Agreement, the Original Senior Note, the New Senior Note, the Security Documents, the Warrant Documents, the MidCap Intercreditor Agreement, the Pay Proceeds Letter, together with any other guaranty now or hereafter executed by any Obligor in favor of the Purchaser, and all consents, notices, documents, certificates and instruments heretofore, now or hereafter executed by or on behalf of any Obligor, and delivered to the Purchaser in connection with this Agreement, the Security Documents, the Warrant or the transactions contemplated thereby, each as amended, restated, supplemented or otherwise modified from time to time.

 

B. Section 1.1 of the Purchase Agreement is hereby further amended by adding the following new definitions in appropriate alphabetical order:

 

First Omnibus Agreement ” means that certain First Omnibus Amendment, Joinder and Reaffirmation Agreement, dated as of the Second Closing Date, by and among the Obligors and the Purchaser as may be amended, restated, supplemented or otherwise modified from time to time.

 

Key Resources ” means Key Resources, Inc., a North Carolina corporation.

 

Key Resources Acquisition ” means the acquisition by Monroe of all of the outstanding capital stock of Key Resources, pursuant to the Key Resources Acquisition Agreement, whereupon Key Resources will become a wholly-owned Subsidiary of Monroe.

 

Key Resources Acquisition Agreement ” means that certain Share Purchase Agreement dated on or about the Second Closing Date, among Key Seller, the Company and Monroe, together with all schedules, annexes and exhibits thereto, pursuant to which Monroe is acquiring from Seller all of the outstanding shares of Target.

 

Key Resources Acquisition Documents ” means, collectively, the Key Resources Acquisition Agreement and all other agreements, documents and instruments executed and delivered by the Company and/or Monroe  to the Key Seller  in connection with the Key Resources Acquisition.

 

Key Resources Seller Debt ” means, collectively, (i) the $2,027,198 payment (subject to adjustment as set forth in Section 1.04 of the Key Resources Acquisition Agreement) payable to Key Seller on the first anniversary of the Key Resources Acquisition Agreement and (ii) the $2,027,198 payment (subject to adjustment as set forth in Section 1.04 of the Key Resources Acquisition Agreement) payable to Key Seller on the second anniversary of Key Resources Acquisition Agreement, in each case subject to the terms and conditions of the Key Resources Acquisition Agreement as in effect on the Second Closing Date.

 

Key Seller ” means Pamela D. Whitaker.

 


 

 

Monroe ” has the meaning as set forth in the first recitals to this Agreement.

 

New Senior Note ” shall mean that certain 12% Senior Secured Promissory Note, dated the Second Closing Date, in the principal amount of Eight Million Four Hundred Twenty-Seven Thousand Seven Hundred Ninety-Four Dollars ($8,427,794) issued by the Company to the Purchaser on the Second Closing Date pursuant to Section 2.1(b) , and each other senior promissory note now or hereafter delivered to the Purchaser in substitution, replacement or exchange thereof, in each case as amended, restated, supplemented or modified from time to time pursuant to the provisions of this Agreement.

 

Original Senior Note ” has the meaning assigned to such term in the First Omnibus Agreement.

 

Second Closing ” shall mean the closing of the purchase and sale of the New Senior Note, and the payment of the Second Purchase Price therefor, as contemplated by this Agreement and the other Transaction Documents.

 

Second Closing Date ” shall mean the date upon which all conditions in Section 6 of the First Omnibus Agreement have been satisfied (or waived in writing by Purchaser in its sole discretion) and the Second Closing has occurred.

 

Second Pay Proceeds Letter ” means that certain Second Pay Proceeds Letter, dated the Second Closing Date, executed by the Company and addressed to the Purchaser

 

C. Section 2.1 of the Purchase Agreement is hereby amended by adding a new subsection (b) immediately at the end thereof to read in its entirety as follows:

 

“(b) Purchase and Sale of New Senior Note .  The Company hereby agrees to sell to the Purchaser and, subject to the terms and conditions set forth herein and in reliance upon the representations and warranties of the Company contained herein, Purchaser agrees to purchase from the Company the New Senior Note for an aggregate total purchase price of Eight Million Four Hundred Twenty-Seven Thousand Seven Hundred Ninety-Four Dollars ($8,427,794) (the “ Second Purchase Price ”), subject to the conditions as provided below in this Section and to the satisfaction of each of the conditions precedent set forth in Section 6 of the First Omnibus Agreement, to be paid in a single advance in the amount of the Second Purchase Price (the “ Second Advance ”) on the Second Closing Date, as provided in the immediately succeeding sentence.  Upon satisfaction of all conditions to the Second Closing set forth in Section 6 of the First Omnibus Agreement, at the Second Closing the Purchaser shall pay the Second Advance to the Company by wire transfer pursuant to the instructions of the Company as set forth in the Second Pay Proceeds Letter; provided that $319,000 of the Second Advance shall be retained by the Purchaser and applied by the Purchaser to (i) the payment of a non-refundable commitment fee in the amount of $280,000 which is due and payable by the Company to the Purchaser in connection with the making of the Second Advance and which is fully earned by the Purchaser on the Second Closing Date, and (ii) reimbursement of out-of-pocket fees and expenses (including reasonable attorney fees’) incurred by the Purchaser in connection with the Second Advance and related transactions.  The Company acknowledges that the payment amounts described in the immediately preceding proviso shall be fully earned and non-refundable when paid on the Second Closing.  For the avoidance of doubt, if the conditions precedent set forth in Section 6 of the First Omnibus Agreement are not satisfied (or waived in writing by Purchaser in its sole discretion), then Purchaser shall be under no obligation to purchase the New Senior Note and pay the Second Purchase Price and, in such case, Purchaser shall return to the Company the New Senior Note, which shall not be considered issued and outstanding unless and until the Second Closing has occurred (as evidenced by payment

 


 

of the Second Advance to the Company as provided above in this Section 2.1( b ) on the Second Closing Date).

 

D. For the avoidance of doubt, the parties hereto acknowledge and agree that (i) the prepayment incentive provisions in Section 2.3(c) of the Purchase Agreement shall apply in the case of optional prepayments of either the Original Senior Note or the New Senior Note and (ii) to qualify for any prepayment incentive provided for in Section 2.3(c) of the Purchase Agreement, such prepayment must be made in cash and the Company must identify which Senior Note is the subject of such prepayment, and such prepayment must satisfy all of the other required terms and conditions set forth in Section 2.3(c) to qualify for any such incentive discount.

 

E. Section 7.14 of the Purchase Agreement is amended to include the New Commitment Fee Shares (as defined below), such that all references in said Section to the Commitment Fee Shares shall be deemed to refer to both the Commitment Fee Shares as defined in the Original Purchase Agreement and the New Commitment Fee Shares.

 

4. Amendments to Security Documents .

 

A. The Security Agreement is hereby amended as follows: ( a) the term “Secured Obligations” as defined in the Security Agreement shall be deemed to include, without limitation, the following additional obligations (i) all obligations, covenants, agreements and liabilities, of the Company and the other Obligors (including, without limitation, the New Subsidiary Guarantor) under the Transaction Documents (including, without limitation, the New Senior Note), and (ii) the obligation of the Company to pay all amounts when due under the New Senior Note and the other Transactions Documents including, without limitation, all principal, accrued interest, fees and other amounts, (b) all references in the Security Agreement to the “Note” shall be deemed to refer to both the Original Note and the New Senior Note and (c) all references in the Security Agreement to the “Note Documents” shall be deemed to refer to the Transaction Documents as defined in the Purchase Agreement as amended hereby.

 

B. The Pledge Agreement is hereby amended as follows: ( a) the term “Secured Obligations” as defined in the Pledge Agreement shall be deemed to include, without limitation, the following additional obligations (i) all obligations, covenants, agreements and liabilities, of the Company and the other Obligors (including, without limitation, the New Subsidiary Guarantor) under the Transaction Documents (including, without limitation, the New Senior Note and (ii) the obligation of the Company to pay all amounts when due under the New Senior Note and the other Transactions Documents including, without limitation, all principal, accrued interest, fees and other amounts, (b) all references in the Pledge Agreement to the “Note” shall be deemed to also refer to the both the Original Senior Note and the New Senior Note and (c) all references in the Pledge Agreement to the “Note Documents” shall be deemed to refer to the Transaction Documents as defined in the Purchase Agreement as amended hereby.

 

C. The Pledge Agreement is further amended by adding the additional Pledged Interests identified on Schedule 1 attached hereto and made a part hereof to Schedule I to the Pledge Agreement.  

 

5. Reaffirmation . Each of the Original Obligors hereby reaffirms (a) all of its obligations under the Transaction Documents, and agrees that this Agreement (including, without limitation, the joinder in Section 2 hereof) and all documents, agreements and instruments executed in connection herewith do not operate to reduce or discharge any Obligor’s obligations under the Transaction Documents, and (b) the continuing security interests in its respective assets granted in favor of the Purchaser pursuant to the Security Documents.  Each of the Obligors hereby (i) acknowledges and consents to the joinder provided for in Section 2 hereof, and the execution, delivery and performance of this Agreement, the New Senior Note and the Intercreditor Amendment (as defined below), (ii) acknowledges and agrees that its guarantee

 


 

of the Obligations includes, without limitation, all principal, interest, fees and other amounts now or hereafter due by the Company unde r the New Senior Note and the other Transaction Documents, (iii) ratifies all the provisions of, and reaffirms its obligations under, the guarantee set forth in Article 4 of the Purchase Agreement and each other Transaction Document to which it is a party and confirms that all provisions of each such document are and shall remain in full force and effect in accordance with its terms, and (iv) reaffirms the continuing security interests in its assets granted in favor of the Purchaser pursuant to the Security Documents.

 

6. Conditions Precedent : This Agreement shall not become effective until and the obligations of the Purchaser to purchase the New Senior Note and pay the Second Purchase Price therefore are subject to satisfaction (or waiver by the Purchaser in its sole discretion, which such waiver must be in writing signed by Purchaser and specifically reference this Section 6 ) of each of the following conditions:

 

A. No Injunction, etc.   No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened (in writing) or proposed before any court, governmental agency or legislative body to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of, this Agreement or the New Senior Note or the consummation of the Key Resources Acquisition contemplated hereby or thereby, or which, in Purchaser’s sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement, the New Senior Note or the Key Resources Acquisition.

B. Documentation .  The Purchaser shall have received, on or prior to the Second Closing Date, the following, each in form and substance satisfactory to the Purchaser and its counsel:

 

(i)counterparts of this Agreement duly executed by each Obligor (including the New Subsidiary Guarantor);

 

(ii)the New Senior Note in the principal amount of Eight Million Four Hundred Twenty-Seven Thousand Seven Hundred Ninety-Four Dollars ($8,427,794) duly executed and issued by the Company to the Purchaser;

 

(iii)the Second Pay Proceeds Letter, dated the date hereof (the “ Second Pay Proceeds Letter ”) duly executed by the Company, directing application of the proceeds of the funded Second Purchase Price;

 

(iv) a counterpart of the Amendment No. 1 to the Existing Warrant Agreement, duly executed by the Company; and

 

(v) a counterpart of a Collateral Assignment of Acquisition Documents, duly executed by the Company and Monroe.  

 

C. Issuance of New Commitment Fee Shares .  The Company shall have instructed its stock transfer agent to reflect the issuance of the New Commitment Fee Shares (defined below) to the Purchaser on the Second Closing Date and to deliver a share certificate to the Purchaser as required pursuant to Section 10 of this Agreement, and the Purchaser shall have received copies of said instructions, in form and substance reasonably satisfactory to it;

 

D. MidCap Approval .  

 

 


 

(i) Purchaser and MidCap Funding X Trust shall have entered into that certain First Amendment to Intercreditor Agreement , in a form and substance satisfactory to the Purchaser in its sole discretion.

 

(ii) Purchaser shall have entered into that certain Amendment No. 10 and Joinder Agreement to Credit and Security Agreement, among the Company the other Obligors party thereto and MidCap Funding X Trust, in a form and substance substantially as the form furnished to the Purchaser prior to the Closing Date.

 

E. No Material Adverse Effect .  No Material Adverse Effect has occurred since December 31, 2017.

 

F. No Default, Etc .  No Default or Event of Default shall exist.

 

G. Representations Accurate .  All representations and warranties made by the Obligors contained herein or in any other Transaction Document shall be true and correct in all material respects on and as of the Second Closing Date.  In addition to the foregoing, the Obligors hereby represent and warrant to the Purchaser that (i) since the Original Closing Date, no material default, breach or other violation has occurred under or with respect to any Material Contract (including, without limitation, the Existing Senior Secured Debt Documents), and (ii) no material default, breach or other violation shall arise under any Material Contract (including, without limitation, the Existing Senior Secured Debt Documents) as a result of the Obligors’ execution, delivery and performance of the New Senior Note, this Agreement and the other Transaction Documents, including, without limitation, the incurrence of indebtedness under the Existing Senior Debt Documents and the consummation of the Key Resources Acquisition.  

 

H. Lien Searches . Purchaser shall have received UCC, tax, judgment and lien search results with respect to Key Resources and the “Seller” as defined under the Key Resources Acquisition Agreement, from all appropriate jurisdictions and filing offices as requested by the Agent, with results satisfactory to the Agent, together with executed originals of such termination statements, releases and cancellations of mortgages required by the Agent in connection with the removal of any Liens (other than Permitted Liens) against the assets of Key Resources and the assets and equity interests being acquired pursuant to the Key Resources Acquisition Agreement.  

 

I. Secretary’s Certificates .  Purchaser shall have received a Secretary Certificate for the Company and Key Resources, together with attached copies of the certificate of formation, organization or jurisdictional equivalent of each such Person and all amendments thereto certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, together with the bylaws, operating agreement or equivalent document, in each case, certified by the relevant secretary or manager of such Person as of a recent date; and (b) good standing certificates or jurisdictional equivalent for each such Person, issued by the relevant Secretary of State and or equivalent governmental authority in which such Person is organized, in each case as of a recent date; (c) a copy of resolutions adopted by the governing board of the Company and each Subsidiary Guarantor (including the New Subsidiary Guarantor), authorizing the execution, delivery and performance of this Agreement, the New Senior Note (in the case of the Company), the Key Resources Acquisition Documents and other related transaction documents, which in the case of the New Subsidiary Guarantor shall include approval of this Agreement and all other Note Documents; and (d) specimen signatures of the officers or members of the Company and Key Resources executing the Agreement and the other Transaction Documents, certified as genuine by the relevant secretary or manager of such Person.  The Secretary Certificate of the Company shall attach and certify as true, correct and complete copies of all of the Key Resource Acquisition Documents.

 


 

 

J. Opinions . Purchaser shall have received a favorable legal opinion of North Carolina counsel to the Company covering such matters relating to the transactions contemplated hereby as Purchaser may reasonably request, and in form and scope reasonably satisfactory to Purchaser and its counsel.

 

K. Consummation of Key Resources Acquisition .  Substantially contemporaneously with the funding of the Second Purchase Price by the Purchaser, the Key Resources Acquisition shall have been consummated on the Second Closing Date in accordance with the Key Resources Acquisition Documents.

 

On the Second Closing Date, the Company hereby authorizes the Purchaser to deduct from the proceeds of the Second Advance, the commitment fee and the other fees and expenses as specified in Section 3(C) above of this Agreement, and to disburse the balance of the Second Advance as per the instructions set forth in the Second Pay Proceeds Letter.

 

7. Release .  The Obligors hereby remise, release, acquit, satisfy and forever discharge the Purchaser and its respective agents, employees, officers, directors, predecessors, attorneys and all others acting or purporting to act on behalf of or at the direction of the Purchaser of and from any and all manner of actions, causes of action, suit, debts, accounts, covenants, contracts, controversies, agreements, variances, damages, judgments, claims and demands whatsoever, in law or in equity, which any of such parties ever had or now has against the Purchaser and its respective agents, employees, officers, directors, attorneys and all persons acting or purporting to act on behalf of or at the direction of the Purchaser (“ Releasees ”), for, upon or by reason of any matter, cause or thing whatsoever arising from, in connection with or in relation to any of the Transaction Documents (including this Agreement) through the date hereof; provided, that the foregoing clause shall not apply to a Releasee in the event of fraud or willful misconduct of the such Releasee.  Without limiting the generality of the foregoing, the Obligors waive and affirmatively agree not to allege or otherwise pursue any defenses, affirmative defenses, counterclaims, claims, causes of action, setoffs or other rights they do, shall or may have as of the date hereof, including, but not limited to, the rights to contest any conduct of the Purchaser or other Releasees on or prior to the date hereof; provided, that the foregoing clause shall not apply to a Releasee in the event of fraud or willful misconduct of such Releasee.  

 

8. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy or other electronic transmissions, e.g. .pdf), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

9. This Agreement shall be deemed and shall constitute a “ Note Document” and “Transaction Document” as such terms are defined in the Purchase Agreement. Except as modified and amended herein, the Purchase Agreement, the Security Agreement and the Pledge Agreement remain in full force and effect.  

 

10. Additional Covenants .  

 

(a) Commitment Fee Shares .  The Company hereby covenants and agrees that it shall issue to the Purchaser on the Second Closing Date one hundred ninety-two thousand (192,000) shares of the Company's Common Stock (the " New Commitment Fee Shares ") as an additional closing commitment fee, which fee shall be fully earned on the Second Closing Date. Such shares shall be issued in the name of the Purchaser on the Second Closing Date and the related share certificate shall be delivered to the Purchaser not later than five (5) days after the Second Closing Date. The Commitment Fee Shares shall be evidenced by an original share certificate duly executed, and validly issued and delivered by the Company to the Purchaser,

 


 

representing 192 ,000 shares of Common Stock of the Company (the “ Shares ”) .  Such S hare certificate shall contain any restrictive legend comparable to the legend in Section 6.13(e)(i) of the Purchase Agreement , provided however, the Company shall promptly cause such legend to be removed at any time that there is an effective registration statement covering the resale of such S hares. The Purchaser agrees that it shall return such S hare certificate to the Company for its prompt inclusion of a restrictive legend comparable to the legend in Section 6.31(e)(i) if the Company provides written notice to the Purchaser that the registration statement referenced in Section 7.14 has ceased to be effective under applicable SEC rules and regulations. The Purchaser further agrees that (i) any sales of the Shares pursuant to an effective registration statement shall be made in accordance with the plan of distribution of such registration statement and (ii) shall comply with all prospectus delivery requirements.

 

(b) Delivery of Pledged Share Certificate and Stock Power re Key Resources .  The Company hereby covenants and agrees that not later than three (3) Business Days after the Second Closing Date, it shall deliver to Purchaser (i) an original stock certificate duly executed by Key Resources representing Monroe’s ownership of all of the outstanding shares of stock of Key Resources, and (ii) an original undated a stock transfer power executed in blank by Monroe, and in form and substance reasonably satisfactory to Purchaser.

 

11. Private Placement Representations .

 

Purchaser agrees that the Shares are being acquired for investment and that Purchaser will not offer, sell or otherwise dispose of the Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Securities Act”), or any applicable state securities laws. In addition, in connection with the issuance of the Shares, Purchaser specifically represents to the Company by acceptance or issuance of the Shares, as follows:

 

(a) Purchaser is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is acquiring the Shares for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Securities Act;

 

(b) Purchaser understands that the Shares have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser’s investment intent as expressed herein;

 

(c) Purchaser further understands that the Shares must be held indefinitely unless subsequently registered under the Securities Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. Purchaser is aware of the provisions of Rule 144, promulgated under the Securities Act; and

 

(d) Purchaser is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

12. Grant and Reaffirmation of Security Interest .

 

(a) Consistent with the intent of the parties and in consideration of the accommodations set forth herein, as further security for the prompt payment in full of all Obligations, and without limiting any other grant of a Lien and security interest in any Security Document, New Subsidiary Guarantor hereby assigns and grants to Purchaser a continuing first priority Lien (subject to Permitted Liens) on and security interest in,

 


 

upon, and to the now owned and hereafter acquired Collateral set forth on Exhibit A attached hereto and made a part hereof in which New Subsidiary Guarantor has rights.  New Subsidiary Guarantor hereby authorizes Purchaser to file UCC-1 financing statements against New Subsidiary Guarantor covering the Collateral owned by New Subsidiary Guarantor in such jurisdictions as Purchaser s hall deem necessary, prudent or desirable to perfect and protect the liens and security interests granted to Purchaser hereunder.

 

(b) Each of the Company and the Original Subsidiary Guarantors confirms and agrees that:  (i) all security interests and liens granted to Purchaser continue in full force and effect, and (ii) all Collateral remains free and clear of any liens other than liens in favor of Purchaser and Permitted Liens.  Nothing herein contained is intended to impair or limit the validity, priority and extent of Agent’s security interest in and liens upon the Collateral.

 

13. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS).

 

[SIGNATURE PAGES TO FOLLOW]

 


 


 

IN WITNESS WHEREOF, each of the parties hereto has caused this First Omnibus Amendment , Joinder and Reaffirmation Agreement to be duly executed by its authorized officers, and the Purchaser, has caused the same to be accepted by its authorized officer, as of the day and year first above written.

 

 

 

COMPANY:

 

STaffing 360 solutions, inc.

 

 

By: ______________________

Name: Brendan Flood

Title:   President and Chief Executive Officer

 

 

 

 

 

 

SUBSIDIARY GUARANTORS:

 

 

 

FARO RECRUITMENT AMERICA, INC.

 

 

By: ______________________

Name: Brendan Flood

Title:   President and Chief Executive Officer

 

 

MONROE STAFFING SERVICES, LLC

 

 

By: ______________________

Name:  Brendan Flood

Title:    President and Chief Executive Officer

 


 


 

 

Staffing 360 Georgia, LLC

 

 

By: ______________________

Name:  Brendan Flood

Title:    President and Chief Executive Officer

 

LIGHTHOUSE PLACEMENT SERVICES, INC.

 

 

By: ______________________

Name:  David Faiman

Title:    Secretary and Treasurer

 

 

NEW SUBSIDIARY GUARANTOR:

 

KEY RESOURCES, INC.

 

 

By: ______________________

Name: Brendan Flood

Title:   President and Chief Executive Officer

 

PURCHASER:

 

JACKSON INVESTMENT GROUP, LLC

 

 

By: ______________________

Name:  Douglas B. Kline

Title:    Chief Executive Officer

 


 


 

Schedule 1

 

Additional Pledged Interests

 

 

Issuer

 

Certificate No.

 

Number of Shares Pledged

 

No. of Issued and Outstanding Shares of Issuer

 

Percentage of Such Class or Type

 

Pledgor

 

Key Resources, Inc.

 

2

 

500 shares of Common Stock of Issuer

 

500 shares of Common Stock of Issuer

 

100%

 

Monroe Staffing Services, LLC

 


 


 

EXHIBIT A

 

The Collateral consists of all of the New Subsidiary Guarantor’s assets, including without limitation, all of the New Subsidiary Guarantor’s (hereinafter referred to in this Exhibit as “ Debtor ”)

now existing or hereafter arising rights, titles and interests in, to or under the following types or items of property, whether now owned or hereafter existing or hereafter created, acquired or arising and wheresoever located, and all cash and non-cash proceeds thereof:

 

(i) all accounts;

 

(ii)   all chattel paper and instruments, including but not limited to the Intercompany Notes (as such term is defined in the Purchase Agreement);

 

(iii)   all general intangibles, including but not limited to all payment intangibles, contract rights and all Intellectual Property (as such term is defined in the Purchase Agreement);

 

(iv)  all letter-of-credit rights;

 

(v)   all inventory, including but not limited to raw materials, work in process and finished goods;

 

(vi) all equipment;

 

(vii) all fixtures;

 

(viii) all other goods;

 

(ix)   all investment property, Investment Instruments and Intermediated Securities;

 

(x)   all deposit accounts and securities accounts other than (A) accounts used exclusively for payroll, payroll taxes or other employee benefit or wage payments or (B) any fiduciary or trust account held exclusively for the benefit of an unaffiliated third party;

 

(xi)   all commercial tort claims to the extent described on Schedule 2 to the Security Agreement (as amended or supplemented from time to time);

 

(xii)   all money, cash and cash equivalents; and

 

(xiii)   all Proceeds of any of the above property.

 

Unless otherwise defined herein, all terms contained in this Exhibit shall have the meanings provided for by the Uniform Commercial Code as in effect in the State of New York to the extent the same are used or defined therein.  

 

 

Exhibit 10.5

 

THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT.  THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

 

12% SENIOR SECURED NOTE DUE SEPTEMBER 15, 2020

 

$8,427,794 August 27, 2018

 

FOR VALUE RECEIVED, the undersigned, STAFFING 360 SOLUTIONS, INC., a Delaware corporation (the “ Company ”), hereby promises to pay to Jackson Investment Group, LLC ( together with its successors and assigns, the “ Purchaser ”), the principal sum of Eight Million Four Hundred Twenty-Seven Thousand Seven Hundred Ninety-Four Dollars ($8,427,794) on September 15, 2020 (or such earlier date upon any acceleration of this Note as provided for herein, the “ Maturity Date ”), together with interest (computed on the basis of a 360-day year of twelve 30 day months) (a) on the unpaid balance hereof at the rate of twelve percent (12.00%) per annum, accruing from and after the date hereof and until the entire principal balance of this 12% Senior Secured Note (this “ Note ”) shall have been repaid in full, and (b) to the extent permitted by law, on any overdue payment of principal or interest, at a rate per annum from time to time equal to five percent (5%) in excess of the rate of interest otherwise payable hereunder.

 

Payments of principal, interest and any other amount due with respect to this Note are to be made in lawful money of the United States of America at the address of the Purchaser as specified in Section 10.1 of the Purchase Agreement (defined below) or at such other place as shall have been designated by the Purchaser by written notice from the Purchaser to the Company.

 

This Note has been issued pursuant to that certain Amended and Restated Note Purchase Agreement, dated as of September 15, 2017, among the Company, the Subsidiary Guarantors party thereto and the Purchaser, as amended by that certain First Omnibus Amendment, Joinder and Reaffirmation Agreement dated as of the date hereof (as so amended and as the same may be further amended, restated supplemented or modified from time to time, the “ Purchase Agreement ”), and is entitled to the benefits thereof and is secured by and entitled to the benefits of the Security Documents and is guaranteed by each of the Subsidiary Guarantors pursuant to the guaranty provided for in Article 4 of the Purchase Agreement.  Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Purchase Agreement.

 

This Note is a registered Note and, as provided in the Purchase Agreement, upon surrender of this Note for registration of transfer, accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount (less any principal amount repaid prior to such transfer in accordance with the Purchase

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Agreement) will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, the Company may treat the P erson in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.   The transfer or assignment of this Note by the Purchaser is subject to the provisions of Section 10.5 of the Purchase Agreement, and so long as no Default or Event of Default exists, the consent of the Company ( which consent shall not be unreasonably withheld, delayed or conditioned).

 

This Note is subject to optional prepayment, in whole or from time to time in part, without penalty or premium, subject to the notice and other requirements as provided in Section 2.3(b) of the Purchase Agreement. Subject to certain conditions and limitations as set forth in Section 2.3(c) of the Purchase Agreement, under certain circumstances a portion of the principal balance of this Note may be forgiven by the Purchaser in an amount and to the extent provided for in Section 2.3(c) of the Purchase Agreement.

 

All accrued and unpaid interest on the outstanding principal balance of this Note shall be due and payable quarterly on January 1, April 1, July 1 and October 1 in each year on and after the date hereof (with the first such quarterly payment due on October 1, 2018 to include interest accruing from the Closing Date) and on the Maturity Date, provided that upon any prepayment of this Note or any portion thereof, accrued and unpaid interest shall be payable with respect to the principal amount of this Note so prepaid on such date of prepayment.  Any overdue or default interest on this Note shall be due and payable on demand.

 

If an Event of Default occurs and is continuing, the principal of this Note and accrued interest on this Note may be accelerated and declared or otherwise become due and payable in the manner and with the effect provided in the Purchase Agreement.

 

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS). THE TERMS OF SECTIONS 10.12 AND 10.13 OF THE PURCHASE AGREEMENT WITH RESPECT TO SUBMISSION TO JURISDICTION, CONSENT TO SERVICE OF PROCESS, VENUE AND WAIVER OF JURY TRIAL ARE INCORPORATED HEREIN BY REFERENCE, MUTATIS MUTANDIS, AND THE COMPANY AGREES TO SUCH TERMS.  

 

In no event shall the amount or rate of interest due and payable under this Note exceed the maximum amount or rate of interest allowed by Applicable Law and, in the event any such excess payment is made by the Company or received by Purchaser, such excess sum shall be credited as a payment of principal or, if no principal shall remain outstanding, shall be refunded to the Company.  It is the express intent hereof that Company shall not pay and Purchaser not receive, directly or indirectly or in any manner, interest in excess of that which may be lawfully paid under Applicable Law.  


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The Company hereby waives presentment, demand, protest or notice of any kind in connection with this Note.  Time is of the essence of this Note.

 

STAFFING 360 SOLUTIONS, INC.

 

 

By:___________________

Name: Brendan Flood

Title: President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature page to 12% Senior Secured Promissory Note due September 15, 2020]

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Exhibit 10.6

 

FIRST AMENDMENT TO INTERCREDITOR AGREEMENT

 

THIS FIRST AMENDMENT TO INTERCREDITOR AGREEMENT (this “ Amendment ”) is executed as of August 27, 2018 (the “ Effective Date ”), by and among JACKSON INVESTMENT GROUP, LLC , a Georgia limited liability company, as purchaser and holder of the Term Note and as secured party under the Term Debt Documents (“ Term Note Purchaser ”), STAFFING 360 SOLUTIONS, INC., a Delaware corporation (“ Parent ”), certain of the Parent’s subsidiaries party hereto, and MIDCAP FUNDING X TRUST , a Delaware statutory trust and successor by assignment from MidCap Financial Trust, as Agent for the financial institutions or other entities from time to time parties to the ABL Loan Agreement  (acting in such capacity, “ Agent ”), and as a “Lender” under the ABL Loan Agreement, or such then present holder or holders of the ABL Loans as may from time to time exist (as the “Lenders” under the ABL Loan Agreement; collectively with the Agent, the “ ABL Lenders ”).  Reference in this Amendment to “Term Note Purchaser”, “Term Note Purchasers”, “each Term Note Purchaser” or otherwise with respect to any one or more of the Term Note Purchasers shall mean each and every person included from time to time in the term “Term Note Purchaser” and any one or more of the Term Note Purchasers, jointly and severally, unless a specific Term Note Purchaser is expressly identified.

 

RECITALS

 

A. The Term Note Purchaser, Parent, certain of the Parent’s subsidiaries party thereto and ABL Lenders have entered into a Intercreditor Agreement dated as of September 15, 2017 (the “ Intercreditor Agreement ”), under the terms of which the ABL Lenders and Term Note Purchaser set forth the relative rights and priorities of ABL Lenders and Term Note Purchaser under the ABL Loan Documents and the Term Debt Documents in the Common Collateral.  

 

B. It is proposed that the Term Note Purchaser amend the Term Note Agreement to increase its senior debt secured investment in Parent on the date hereof by issuance and sale by Parent to Term Note Purchaser of a new 12% Senior Secured Note due September 15, 2020 in the principal amount of $8,427,794 (the “New Term Note”), pursuant to the Term Note Agreement, as amended by that certain First Omnibus Amendment, Joinder and Reaffirmation Agreement dated on or about the date hereof  to Amended and Restated Note and Warrant Purchase Agreement in the form attached hereto as Exhibit A (the “First Amendment to Term Note Agreement”) so that the aggregate outstanding principal amount of such investment after giving effect to the First Amendment to Term Note Agreement is $48,427,794.

 

C. It is proposed that the ABL Lenders amend the ABL Loan Agreement pursuant to an Amendment No. 10 and Joinder Agreement to Credit and Security Agreement and Limited Consent in the form attached hereto as Exhibit B (the “ Tenth Amendment to ABL Loan Agreement ”).

 

D. The parties now wish to amend the Intercreditor Agreement as provided herein.


 

E. All capitalized terms used in this Amendment , including in the Preamble and these Recitals, and not herein defined shall have the meanings given to them in the Intercreditor Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and of other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto agree as follows:

 

Agreement

 

1. The parties agree that the Recitals above are a part of this Amendment.  

 

2. The Intercreditor Agreement is hereby amended as follows:

 

(a) Recital C of the Intercreditor Agreement is hereby restated in its entirety to read as follows:

 

Term Note Purchaser has made a $40,000,000 senior debt secured investment in Parent that is guaranteed by the Borrowers pursuant to the Term Debt Documents (as defined below) as of September 15, 2017, which was increased to an aggregate outstanding principal amount of $48,427,794 on the First Amendment Closing Date. All of the Credit Parties’ obligations to Term Note Purchaser under the Term Note Agreement and the other Term Debt Documents (as hereinafter defined) are secured by liens on and security interests in substantially all of the now existing and hereafter acquired personal property of the Credit Parties.

 

(b) Section 1 of the Intercreditor Agreement is hereby amended to add the following defined term in its alphabetical order:

 

First Amendment Closing Date ” shall mean August 27, 2018.

 

(c) The definitions of “ ABL Priority Deposit Accounts ”, “ Term Debt Cap ”, “ Term Debt Priority Deposit Accounts ” and “ Term Note ” are hereby restated in their entirety, respectively, to read as follows:  

 

ABL Priority Deposit Accounts ” shall mean all Deposit and Securities Accounts in which collections and other cash Proceeds of ABL Priority Collateral or advances under the ABL Loan Agreement are required to be deposited in accordance with the ABL Loan Documents (including any related lockboxes associated with such deposit accounts) and all other Deposit and Securities Accounts other than a Term Debt Priority Deposit Accounts.  As of the First Amendment Closing Date, the ABL Priority Deposit Accounts are listed on Schedule 1 attached hereto.  Agent and Parent agree to promptly notify Term Note Purchaser in writing of any additional ABL Priority Deposit Accounts established after the First Amendment Closing Date with Agent or which are

 

 


subject to a deposit account or securities account control agreement in favor of Agent and to provide a written supplement to Schedule 1 hereto reflecting the addition of such ABL Priority Deposit Accounts; it being understood that any such supplement to Schedule 1 may not remove any Deposit Accounts or Securities Accounts set forth on Schedule 1 unless consented to in writing by Agent.

 

Term Debt Cap ” with respect to the Term Note, means the aggregate principal amount of the following (all as determined exclusive of all interest, fees (including attorneys’ fees) and expenses, expended by the Term Note Purchaser and remitted to Persons other than the Credit Parties to enforce its rights and remedies in respect of the Collateral, the Term Note, or both, and all indemnity obligations): (i) $48,427,794 in aggregate advances, minus (ii) the amount of all payments of principal on the Term Note.

 

Term Debt Priority Deposit Accounts ” shall mean one or more other Deposit Accounts or Securities Accounts now or hereafter established or maintained by any Grantor for the sole purpose of holding the Proceeds of any collection, sale or other disposition of any Term Debt Priority Collateral that the Term Note Purchaser requires to be held in such account or accounts pursuant to the terms of any Term Debt Document.  As of the First Amendment Closing Date, the Term Debt Priority Deposit Accounts are listed on Schedule 2 attached hereto.  Term Note Purchaser and Parent agree to promptly notify Agent in writing of any additional Term Debt Priority Deposit Accounts established after the First Amendment Closing Date which are or will be subject to a deposit account or securities account control agreement in favor of Term Note Purchaser and to provide a supplement to Schedule 2 reflecting the addition of such Term Debt Priority Deposit Accounts; it being understood that any such supplement to Schedule 2 may not remove any Deposit Accounts or Securities Accounts set forth on Schedule 2 unless consented to in writing by Term Note Purchaser.  

 

Term Note ” shall mean, collectively, (i) the Parent’s $40,000,000 12% Senior Secured Promissory Note dated September 15, 2017 payable to Term Note Purchaser, and (ii) the Parent’s $8,427,794 12% Senior Secured Promissory Note dated August 27, 2018 payable to Term Note Purchaser, in either case together with any and all promissory notes at any time issued in substitution, exchange or replacement thereof.

 

(d) Schedules 1 and 2 of the Intercreditor Agreement are hereby deleted and replaced with Schedules 1 and 2 attached to this Amendment.

 

3. Pursuant to the terms of Section 7.1 of the Intercreditor Agreement, Term Note Purchaser hereby consents to the Tenth Amendment to ABL Loan Agreement as an amendment, modification or supplement to the terms of the ABL Debt.  The limited consent set forth in this Section 3 is effective solely for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) except as expressly provided herein, be a consent to any

 

 


amendment, waiver or modification of any term or condition of the Intercreditor Agreement or of any other Term Debt Document; (b) prejudice any right that Term Note Purchaser or the holders from time to time of the Term Debt have or may have in the future under or in connection with the Term Note Agreement or any other Term Debt Document; (c) waive any Event of Default (as such terms are defined in the Term Note Agreement) that exists as of the date hereof; or (d) establish a custom or course of dealing among any of the ABL Lenders on the one hand, or Term Note Purchaser or any holder from time to time of the Term Debt, on the other hand.

 

4. Pursuant to the terms of Section 7.2 of the Intercreditor Agreement, Agent hereby consents to (i) the increase in the principal amount of the Term Debt by $8,427,794 as evidenced by the New Term Note and (ii) the First Amendment to Term Note Agreement as an amendment, modification or supplement to the terms of the Term Debt.  The limited consent set forth in this Section 4 is effective solely for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) except as expressly provided herein, be a consent to any amendment, waiver or modification of any term or condition of the Intercreditor Agreement or of any other ABL Loan Document; (b) prejudice any right that Agent or the holders from time to time of the ABL Debt have or may have in the future under or in connection with the ABL Loan Agreement or any other ABL Loan Document; (c) waive any Event of Default (as such terms are defined in the ABL Loan Agreement) that exists as of the date hereof; or (d) establish a custom or course of dealing among any of the Term Note Purchaser on the one hand, or Agent or any holder from time to time of the ABL Debt, on the other hand.

 

5. Except as amended herein, the Intercreditor Agreement shall remain in full force and effect.

 

6. Upon the effectiveness of this Amendment, each reference in the Intercreditor Agreement to “this Intercreditor Agreement,” “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Intercreditor Agreement, as amended by this Amendment.  

 

7. This Amendment constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, understandings, and agreements between such parties with respect to the subject matter hereof.  To the extent of any conflict between the terms and conditions of this Amendment and the Intercreditor Agreement, the terms and conditions of this Amendment shall govern.

 

8. This Amendment may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same agreement.  Each party to this Amendment agrees that the respective signatures of the parties may be delivered by fax, PDF, or other electronic means acceptable to the other parties and that the parties may rely on a signature so delivered as an original.  Any party who chooses to deliver its signature in such manner agrees to provide promptly to the other parties a copy of this Amendment with its inked signature, but the party’s failure to deliver a copy of this Amendment with its inked signature shall not affect the validity, enforceability and binding effect of this Amendment.

 

 

 


 

[ Signature Pages Follow ]

 

 

 

 

 


 

IN WITNESS WHEREOF , intending to be legally bound, and intending that this First Amendment to Intercreditor Agreement constitute an instrument executed and delivered under seal, the parties have caused this Amendment to be executed under seal as of the date first written above.

 

 

AGENT:

 

MIDCAP FUNDING X TRUST, a Delaware statutory trust, as successor-by-assignment from MidCap Financial Trust

 

By:       Apollo Capital Management, L.P.,

            its investment manager

 

By:       Apollo Capital Management GP, LLC,

its general partner

 

 

By: _______________________________(SEAL)

Name:  Maurice Amsellem

Title:    Authorized Signatory

 

 

Agent’s Signature Page to First Amendment to Intercreditor Agreement

 


 

 

TERM NOTE PURCHASER:

 

 

JACKSON INVESTMENT GROUP, LLC

 

 

 

By: ______________________________ (SEAL)

Name:

Title:

 

 

 

 

 

 

 

Term Note Purchaser’s Signature Page to First Amendment to Intercreditor Agreement


 

PARENT:

STAFFING 360 SOLUTIONS, INC. , a Delaware corporation

 

 

By:___________________________(Seal)

Name:  
Title:  

SUBSIDIARIES:

 

MONROE STAFFING SERVICES, LLC , a Delaware limited liability company

 

 

 

By:___________________________(Seal)

 

Name:
Title:  

 

FARO RECRUITMENT AMERICA, INC. , a New York corporation

 

 

By:___________________________(Seal)

Name:  
Title:  

 

LIGHTHOUSE PLACEMENT SERVICES, INC. , a Massachusetts corporation

 

 

By:___________________________(Seal)

Name:  
Title:  

 

STAFFING 360 GEORGIA, LLC , a Georgia limited liability company

 

 

By:___________________________(Seal)

Name:  
Title:  

 

KEY RESOURCES, INC. , a North Carolina corporation

 

 

By:___________________________(Seal)

Name:  
Title:  

Parent’s and Borrowers’ Signature Page to First Amendment to Intercreditor Agreement

 


 

Schedule 1

 

 

Schedule 1 to Intercreditor Agreement  – ABL Priority Deposit Accounts

 

Loan Party

Financial Institution(s)

Accounts Maintained

Name and Address of Financial Institution

Account Numbers

Description

of Accounts

Staffing 360 Solutions, Inc.

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

5181082297

DACA ARAN

Staffing Corporate Account

Staffing 360 Solutions, Inc.

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4123346884

DACA ARI

Staffing Lockbox

Monroe Staffing Services, LLC

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4122352537

Monroe – Payroll

Monroe Staffing Services, LLC

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4122352529

Monroe – SUTA Tax

Monroe Staffing Services, LLC

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4122352511

DACA ARAN

Monroe – Operating

Lighthouse

Placement Services, Inc.

Wells Fargo

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4123656969

DACA ARAN

Lighthouse – Operating

Staffing 360 Georgia, LLC

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

4125887133

DACA ARAN

Staffing 360 Georgia - Operating

Staffing 360 Georgia, LLC

Wells Fargo Bank

301 South Tryon Street, 7th Floor

Charlotte, NC 28282

000004125887141

Payroll

Key Resources, Inc.

Wells Fargo Bank

300 N Greene St. 5th Floor

Greensboro, NC 27401

2000043311275*

Operating

Key Resources, Inc.

Wells Fargo Bank

300 N Greene St. 5th Floor

Greensboro, NC 27401

2000043311288

Temp Payroll

Key Resources, Inc.

Wells Fargo Bank

300 N Greene St. 5th Floor

Greensboro, NC 27401

2000043311291

Staff Payroll

Key Resources, Inc.

Wells Fargo Bank

300 N Greene St. 5 th Floor

Greensboro, NC 27401

6531561618*

Disbursements

* DACA ARAN to be placed on account.

Note:  Payroll Accounts are not subject to a deposit account control agreement.

 

 


 

Schedule 2

 

Term Debt Priority Deposit Accounts

Name of Account/Grantor

Depository Bank Name

Account Number

Staffing 360 Solutions, Inc.

Wells Fargo Bank, N.A.

4125887125

 

 


 

EXHIBIT A

 


EXHIBIT B

 

 

Exhibit 10.7

FIFTH AMENDED AND RESTATED REVOLVING LOAN NOTE

 

$25,000,000.00

 

Bethesda, Maryland
August 27, 2018

 

 

 

FOR VALUE RECEIVED, each of each of MONROE STAFFING SERVICES, LLC , a Delaware limited liability company, FARO RECRUITMENT AMERICA, INC. , a New York corporation, LIGHTHOUSE PLACEMENT SERVICES, INC. , a Massachusetts corporation, STAFFING 360 GEORGIA, LLC , a Georgia limited liability company, and KEY RESOURCES, INC. , a North Carolina corporation (individually, each a “ Borrower ” and collectively, the “ Borrowers ”), hereby jointly and severally unconditionally promises to pay to the order of MIDCAP FUNDING X TRUST , a Delaware statutory trust and successor by assignment from MidCap Financial Trust (together with its successors and assigns, “ Lender ”) at the office of Agent (as defined herein) at 7255 Woodmont Avenue, Suite 200, Bethesda, MD 20814, or at such other place as Agent may from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, in the principal sum of Twenty-Five Million and No/100 Dollars ($25,000,000.00), or, if less, the aggregate unpaid principal amount of all Revolving Loans made or deemed made by Lender to Borrowers under the terms of that certain Credit and Security Agreement dated as of April 8, 2015 (as amended by that certain Amendment No. 1 and Joinder Agreement to Credit and Security Agreement dated as of July 13, 2015, by that certain Amendment No. 2 to Credit and Security Agreement dated as of August 31, 2015, by that certain Overadvance Letter dated October 9, 2015, by that certain Overadvance Letter dated as of November 20, 2015, by that certain Overadvance Letter dated as of February 8, 2016, by that certain Amendment No. 3 to Credit and Security Agreement and Limited Waiver dated as of February 8, 2016, by that certain Amendment No. 4 and Joinder Agreement to Credit and Security Agreement dated as of July 11, 2016, by that certain Amendment No. 5 to Credit and Security Agreement dated as of September 26, 2016, by that certain Amendment No. 6 to Credit and Security Agreement and Limited Consent dated as of January 26, 2017, by that certain Amendment No. 7 to Credit and Security Agreement and Limited Consent dated as of June 5, 2017, by that certain Amendment No. 8 and Joinder Agreement to Credit and Security Agreement and Limited Consent dated as of September 15, 2017, by that certain Amendment No. 9 to Credit and Security Agreement dated as of June 6, 2018 by that certain Amendment No. 10 and Joinder Agreement to Credit and Security Agreement and Limited Consent dated as of the date hereof, and as further amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among Borrowers, such other borrowers that may become “Borrowers” under the Credit Agreement, Staffing 360 Solutions, Inc., a Delaware corporation (as Parent), various financial institutions as are, or may from time to time become, parties thereto as lenders (including without limitation, Lender) and MidCap Funding X Trust, individually as a Lender, and as administrative agent (in such capacity and together with its successors and assigns, “ Agent ”).  All capitalized terms used herein (which are not otherwise specifically defined herein) shall be


used in this Fourth Amended and Restated Revolving Loan Note (this “ Note ”) as defined in the Credit Agreement.

1. The outstanding principal balance of the Revolving Loans evidenced by this Note shall be payable in full on the Termination Date, or on such earlier date as provided for in the Credit Agreement.

2. This Note is issued in accordance with the provisions of the Credit Agreement and is entitled to the benefits and security of the Credit Agreement and the other Financing Documents, and reference is hereby made to the Credit Agreement for a statement of the terms and conditions under which the Revolving Loans evidenced hereby were made and are required to be repaid.

3. Each Borrower promises to pay interest from the date hereof until payment in full hereof on the unpaid principal balance of the Revolving Loans evidenced hereby at the per annum rate or rates set forth in the Credit Agreement.  Interest on the unpaid principal balance of the Revolving Loans evidenced hereby shall be payable on the dates and in the manner set forth in the Credit Agreement.  Interest as aforesaid shall be calculated in accordance with the terms of the Credit Agreement.

4. Upon and after the occurrence of an Event of Default, and as provided in the Credit Agreement, the Revolving Loans evidenced by this Note may be declared, and immediately shall become, due and payable without demand, notice or legal process of any kind; provided, however , that upon the occurrence of an Event of Default pursuant to the provisions of Section 10.1(e) or Section 10.1(f) of the Credit Agreement, the Revolving Loans evidenced by this Note shall automatically be due and payable, without demand, notice or acceleration of any kind whatsoever.

5. Payments received in respect of the Revolving Loans shall be applied as provided in the Credit Agreement.  Amounts repaid hereunder may be re-borrowed in accordance with the  Credit Agreement.

6. Presentment, demand, protest and notice of presentment, demand, nonpayment and protest are each hereby waived by Borrowers.

7. No waiver by Agent or any Lender of any one or more defaults by the undersigned in the performance of any of its obligations under this Note shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature, or as a waiver of any obligation of Borrowers to Agent, Lender or any other lender under the Credit Agreement.

8. No provision of this Note may be amended, waived or otherwise modified unless such amendment, waiver or other modification is in writing and is signed or otherwise approved by Borrowers, the Required Lenders and any other lender under the Credit Agreement to the extent required under Section 11.16 of the Credit Agreement.

 

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4839-3261-7840


9. THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

10. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but in case any provision of or obligation under this Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

11. Whenever in this Note reference is made to Agent, Lender or Borrowers, such reference shall be deemed to include, as applicable, a reference to their respective successors and assigns.  The provisions of this Note shall be binding upon each Borrower and its successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

12. In addition to and without limitation of any of the foregoing, this Note shall be deemed to be a Financing Document and shall otherwise be subject to all of the general terms and conditions contained in Article 12 of the Credit Agreement, mutatis mutandis .

13. This Note replaces in its entirety and is in substitution for but not in payment of that certain Fourth Amended and Restated Revolving Loan Note, dated as of June 6, 2018, made by certain Borrowers in favor of Lender (as successor-by-assignment from MidCap Financial Trust) in the maximum principal amount of $25,000,000.00 (the “ Prior Note ”), and does not and shall not be deemed to constitute a novation thereof.  Such Prior Note shall be of no further force and effect upon the execution and delivery of this Note.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]

 

 

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4839-3261-7840


 

IN WITNESS WHEREOF, intending to be legally bound, and intending that this agreement constitute an agreement executed under seal, the undersigned have executed this Note under seal as of the day and year first hereinabove set forth.

 

BORROWERS:

 

MONROE STAFFING SERVICES, LLC ,
a Delaware limited liability company

By: ______________________________ (SEAL)
Name:
Title:

LIGHTHOUSE PLACEMENT SERVICES, INC. ,
a Massachusetts corporation

By: _________________________ (SEAL)
Name:
Title:

FARO RECRUITMENT AMERICA, INC. ,
a New York corporation

By: ______________________________ (SEAL)
Name:
Title:

STAFFING 360 GEORGIA, LLC ,
a Georgia limited liability company


By: _________________________ (SEAL)
Name:
Title:

KEY RESOURCES, INC. ,
a North Carolina corporation


By: _________________________ (SEAL)
Name:
Title:

 

Signature Page to Fifth Amended and Restated Revolving Loan Note

 

 

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: November 13, 2018

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Chairman and Chief Executive Officer

 

 

(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: November 13, 2018

 

/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 September 29, 2018 (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: November 13, 2018

 

/s/ Brendan Flood

 

 

Brendan Flood

 

 

Chairman and Chief Executive Officer

 

 

(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 September 29, 2018 (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: November 13, 2018

 

/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.