STAFFING 360 SOLUTIONS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-Q)
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This section includes a number of forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to future events and financial performance. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like "anticipates," "believes," "expects," "may," "will," "can," "could," "should," "intends," "project," "predict," "plans," "estimates," "goal," "target," "possible," "potential," "would," "seek," and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: negative outcome of pending and future claims and litigation; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to us or at all; and our ability to comply with our contractual covenants, including in respect of our debt; potential cost overruns and possible rejection of our business model and/or sales methods; weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers' capital projects or the inability of our customers to pay our fees; delays or reductions in
U.S.government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; and government policies, legislation or judicial decisions adverse to our businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the entirety of this Quarterly Report, including the "Risk Factors" in Item 1A of this Quarterly Report and the other reports and documents we file from time to time with the Securities and Exchange Commission("SEC"), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. 28 Overview We are incorporated in the State of Delaware. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring suitable, mature, profitable, operating, U.S.and U.K.based staffing companies. Our targeted consolidation model is focused specifically on the Professional Business Stream and Commercial Business Stream disciplines. The Company effected a one-for-ten reverse stock split on June 24, 2022(the "Reverse Stock Split"). All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect the Reverse Stock Split. Recent Developments COVID-19
December 2019, a strain of coronavirus ("COVID-19") was reported to have surfaced in Wuhan, China, and has spread globally, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in affected countries. The COVID-19 pandemic is impacting worldwide economic activity, and activity in the United Statesand the United Kingdomwhere our operations are based. Much of the independent contractor work we provide to our clients is performed at the site of our clients. As a result, we are subject to the plans and approaches our clients have made to address the COVID-19 pandemic, such as whether they support remote working or if they have simply closed their facilities and furloughed employees. To the extent that our clients were to decide or are required to close their facilities, or not permit remote work when they close facilities, we would no longer generate revenue and profit from that client. In addition, in the event that our clients' businesses suffer or close as a result of the COVID-19 pandemic, we may experience declines in our revenue or write-off of receivables from such clients. Therefore, the ongoing COVID-19 pandemic may continue to affect our operation and to disrupt the marketplace in which we operate and may negatively impact our sales in fiscal year 2022 and our overall liquidity. While the ultimate economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic has resulted in significant disruptions in general commercial activity and the global economy and caused financial market volatility and uncertainty in significant and unforeseen ways in the recent years. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise needed capital. If we are unsuccessful in raising capital in the future, we may need to reduce activities, curtail, or cease operations.
In addition, a continuation or worsening of the COVID-19 pandemic or an outbreak of other infectious diseases could result in a widespread health crisis that could adversely affect economies and financial markets around the world, resulting in a slowdown economic situation that could impact our business, financial condition and results of operations.
Nasdaq Bid Price Requirement
June 3, 2020, we received a letter from the Staff of Nasdaq (the "Staff") notifying us that we were no longer in compliance with the minimum stockholders' equity requirement for continued listing on Nasdaq under Stockholders' Equity Requirement. A hearing before the Nasdaq Hearings Panel(the "Panel") was held on January 21, 2021, and we were granted an extension to regain compliance until February 28, 2021, which was subsequently further extended to May 31, 2021. On June 28, 2021, we received a letter from the Staff notifying us that the Panel determined that we had regained compliance with the Stockholders' Equity Requirement. The Panel also imposed a Panel Monitor under Nasdaq Listing Rule 5815(d)(4)(A) for a period of one year from the date of the June 28, 2021letter, during which period we are expected to remain in compliance with all of Nasdaq's continued listing requirements. On February 23, 2022, we received a letter from the Listing Qualifications of Nasdaq notifying us that we were no longer in compliance with the Bid Price Requirement, for continued listing on Nasdaq. Pursuant to the Panel Decision, we were not eligible for the 180-day bid price compliance period set forth in the Listing Rules. On March 2, 2022, we timely requested a hearing before the Panel, which was held on March 31, 2022. On April 12, 2022, we received a letter from Nasdaq notifying us that the Panel determined to grant our request for continued listing on Nasdaq, subject to the following: (i) on or about May 2, 2022, we advised the Panel of the status of the proxy statement it plans to file to obtain shareholder approval for a reverse stock split, (ii) on or about May 23, 2022, we advised the Panel on the status of the shareholder meeting we plan to hold to obtain approval of the reverse stock split, (iii) on or about May 26, 2022, we will affect a reverse stock split and (iv) on or before about June 22, 2022, we shall demonstrate compliance with the Bid Price Requirement by evidencing a closing bid price above $1.00per share for the previous ten consecutive trading sessions. On April 19, 2022, we received a letter from the Staff notifying us that as we had not yet filed our Form 10-K for the period ended January 1, 2022, such matter serves as an additional basis for delisting our securities from Nasdaq under Nasdaq Listing Rule 5810(c)(2)(A). On May 4, 2022 the Panel granted us an extension request until July 11, 2022to demonstrate compliance with the bid price requirement. On May 20, 2022, we received a notice from the Staff notifying us that as we had not yet filed our Form 10-Q for the period ended April 2, 2022, such matter serves as a basis for delisting our securities from Nasdaq in addition to the aforementioned matters. Although we are taking actions intended to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us will be successful. If Nasdaq delists our common stock from trading on its exchange for failure to meet the listing standards, an investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability to raise future capital through the sale of our shares could be severely limited. We additionally may not be able to list our common stock on another national securities exchange, which could result in our securities being quoted on an over-the-counter market. If this were to occur, our shareholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. There can be no assurance that an active trading market for our common stock will develop or be sustained. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
Nasdaq Minimum Capital Requirement
June 3, 2020, we received a letter from the Listing Qualifications Departmentnotifying us that we were no longer in compliance with the minimum stockholders' equity requirement for continued listing on Nasdaq. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders' equity of at least $2,500. Further, as of June 9, 2020, we did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations. In accordance with the Nasdaq Listing Rules, we were afforded the opportunity to submit a plan to regain compliance with the minimum stockholders' equity standard. Based on our submissions, the Listing Qualifications Departmentgranted us an extension to regain compliance with Rule 5550(b)(1) until November 30, 2020. On December 1, 2020, we received notice that because we had not met the terms of the extension, our common stock would be subject to delisting from Nasdaq, unless we timely requested a hearing before a Nasdaq Hearings Panel(the "Panel"). We timely requested a hearing before the Panel, which automatically stayed any suspension or delisting action pending the issuance of a decision by the Panel following the hearing and the expiration of any additional extension period granted by the Panel. The hearing occurred on January 21, 2021. At the hearing, we provided the Panel with an update on our compliance plan and requested a further extension of time in which to regain compliance. On February 3, 2021, we received a letter from the Panel noting it had granted our request for an extension until February 28, 2021to regain compliance with the minimum $2,500stockholders' equity requirement, or the alternative compliance standards as set forth in Nasdaq Listing Rule 5550(b)(1). On March 4, 2021we received a letter extending the deadline for compliance to May 31, 2021. On June 11, 2021, we received a letter from the Staff notifying us that the Panel had determined to delist our shares from Nasdaq and that trading in our shares would be suspended effective at the open of business on June 15, 2021but that due to a procedural issue, the Panel had determined not to implement the decision and afforded us an opportunity to make an additional submission for the Panel's consideration.
June 28, 2021, we received a letter from the Staff informing us that we had regained compliance with the Rule. As a result, the Panel determined to continue the listing of our securities on Nasdaq. The Panel also determined to impose a Panel Monitor under Listing Rule 5815(d)(4)(A) for a period of one year from the date of the June 28, 2021letter (the "Monitoring Period"). We are expected to remain in compliance with all of Nasdaq's continued listing requirements during the Monitoring Period. If at any time during this period we fail to satisfy any continued listing standard, the Staff will issue a Delist Determination Letter, which we may appeal. 30 July 2022Private Placement On July 1, 2022, we entered into a securities purchase agreement with certain institutional and accredited investors for the issuance and sale of a private placement of 657,858 shares of common stock or pre-funded warrants to purchase shares of common stock, and warrants (the " July 2022Warrants") to purchase up to 657,858 shares of common stock, with an exercise price of $5.85per share. The Warrants are exercisable immediately upon issuance and have a term of exercise equal to five and one-half years from the date of issuance. The combined purchase price for one Common Share (or pre-funded warrant) and one associated warrant to purchase one share of common stock was $6.10. In connection with the private placement, each investor entered into a warrant amendment agreement with the Company (collectively, the "Warrant Amendment Agreements") to amend the exercise prices of certain existing warrants to purchase up to an aggregate of 657,858 shares of common stock of the Company that were previously issued to the investors, with exercise prices ranging from $18.50to $38.00per share and expiration dates ranging from July 22, 2026to November 1, 2026. The Warrant Amendment Agreements became effective upon the closing of the private placement and pursuant to the Warrant Amendment Agreements, the amended warrants have a reduced exercise price of $5.85per share and expire five and one-half years following the closing of the private placement.
The Company intends to use the net proceeds received from the private placement for general working capital purposes.
April 18, 2022, we entered into a Stock Purchase Agreement with Headway Workforce Solutions, and Chapel Hill Partners, LP, as the representatives of all the stockholders of Headway, pursuant to which, among other things, the Company agreed to purchase all of the issued and outstanding securities of Headway in exchange for (i) a cash payment of $14, and (ii) 9,000,000 shares of our Series H Convertible Preferred Stock, with a value equal to the Closing Payment, as defined in the Stock Purchase Agreement. On May 18, 2022, the Headway Acquisition closed. The purchase price in connection with the Headway Acquisition was approximately $9,000. Pursuant to the Stock Purchase Agreement and in connection with the closing of the Headway Acquisition, on May 17, 2022, the Company filed a certificate of designation with the Secretary of State of Delawaredesignating the rights, preferences and limitations of the Series H Convertible Preferred Stock, par value $0.00001per share. The purchase price in connection with the Headway Acquisition was $9,000, subject to adjustment as provided in the Stock Purchase Agreement. Pursuant to certain covenants in the Stock Purchase Agreement, the Company may be subject to a Contingent Payment of up to $5,000based on the Adjusted EBITDA (such term as defined in the Stock Purchase Agreement) of Headway during the Contingent Period (such term as defined in the Stock Purchase Agreement). The Stock Purchase Agreement also contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Stock Purchase Agreement. Such representations and warranties are made solely for purposes of the Stock Purchase Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Stock Purchase Agreement and may have been qualified by disclosures that were made in connection with the parties' entry into the Stock Purchase Agreement. In connection with the Headway Acquisition, the Sellers' Representative and certain of the Sellers entered into voting agreements whereby each will agree to, at every meeting of our stockholders, and at every adjournment or postponement thereof, to appear or issue a proxy to a third party to be present for purposes of establishing a quorum, and to vote all applicable shares in favor of each matter proposed and recommended for approval by the Company's board of directors either in person or by proxy, amongst other provisions.
Business model, operating history and acquisitions
We are a high-growth international staffing company engaged in the acquisition of
U.S.and U.K.based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the Professional and Commercial Business Streams. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets. Since November 2013, the Company has completed eleven acquisitions. firstPRO Transaction
September 24, 2020, we and Staffing 360 Georgia, LLCd/b/a firstPRO, our wholly-owned subsidiary (for purposes of this paragraph and the succeeding two paragraphs, the "Seller"), entered into an Asset Purchase Agreement with firstPRO Recruitment, LLC(for purposes of this paragraph, the "Buyer"), pursuant to which the Seller sold to the Buyer substantially all of the Seller's assets used in or related to the operation or conduct of its professional staffing and recruiting business in Georgia(the "Assets," and such sale, the "firstPRO Transaction"). In addition, the Buyer agreed to assume certain liabilities related to the Assets. The purchase price in connection with the firstPRO Transaction was $3,300, of which (a) $1,220was paid at closing (the "Initial Payment") and (b) $2,080was held in a separate escrow account (the "Escrow Funds"), which was released upon receipt of the forgiveness of the Seller's PPP Loans by the SBA. In the event that all or any portion of the PPP Loan is not forgiven by the SBA, all or a portion of the certain funds being held in escrow will be used to repay any unforgiven portion of the PPP Loan in full. The firstPRO Transaction closed on September 24, 2020. As of July 2021, all PPP Loans had been forgiven in full by the SBA. In connection with the execution of the Asset Purchase Agreement, we and certain of our subsidiaries entered into a Consent Agreement with Jackson(the "Consent"), a noteholder pursuant to that certain Amended and Restated Note Purchase Agreement, dated as of September 15, 2017, as amended (the "Existing Note Purchase Agreement"). Under the terms of the Consent and the Series E Certificate of Designation, in consideration for Jackson'sconsent to the firstPRO Transaction, the Initial Payment was used to redeem a portion of the Series E Preferred Stock, and the Escrow Funds, subject to the forgiveness of PPP Loan discussed above, will be used to redeem a portion of the Series E Preferred Stock. As this provision results in a contingent redemption feature, approximately $2.1 millionof the Series E Preferred Stock was reclassified to mezzanine equity during the year ended January 1, 2022. To induce the Buyer to enter into the Asset Purchase Agreement, the Seller also entered into a Transition Services Agreement with the Buyer, pursuant to which each party will provide certain transition services to minimize any disruption to the businesses of the Seller and the Buyer arising from the firstPRO Transaction. 31
For completed quarters
APRIL 2, 2022 % of Revenue April 3, 2021 % of Revenue Growth Revenue
$ 49,893100.0 % $ 48,951100.0 % 1.9 %
Cost of revenue 41,380 82.9 % 40,936 83.6 % 1.1 % Gross profit 8,513 17.1 % 8,015 16.4 % 6.2 % Operating expenses 9,564 19.2 % 8,660 17.7 % 10.4 % Loss from operations (1,051 ) (2.1 )% (645 ) (1.3 )% 62.9 % Other expenses (1,267 ) (2.5 )% (1,006 ) (2.1 )% 25.9 % Provision for income taxes (6 ) (0.0 )%
(37 ) (0.1 )% (83.8 )% Net Loss
$ (2,324 )(4.6 )% $ (1,688 )(3.5 )% 37.7 % Revenue For the quarter ended April 2, 2022, revenue increased by 1.9% to $49,893as compared with $48,951for the quarter ended April 3, 2021. Of that increase, $1,420was attributable to organic revenue growth, partially offset by $478of unfavorable foreign currency translation. Within organic revenue, temporary contractor revenue grew $855and permanent placement grew $565.
Revenue for the quarter ended
Cost of Revenue, Gross Profit and Gross Margin
Cost of revenue includes the variable cost of labor and various non-variable costs (e.g., workers' compensation insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the quarter ended
April 2, 2022, cost of revenue was $41,380, an increase of 1.1% from $40,936in the quarter ended April 3, 2021, compared with revenue growth of 1.9%. Gross profit for the quarter ended April 2, 2022was $8,513, an increase of 6.2% from $8,015for the quarter ended April 3, 2021, representing gross margin of 17.1% and 16.4% for each period, respectively. The increase was driven by $568of organic growth and partially offset by $71of unfavorable foreign currency translation. Operating expenses Total operating expenses for the quarter ended April 2, 2022were $9,564, an increase of 10.4% from $8,660for the quarter ended April 3, 2021. The increase in operating expenses was driven primarily by higher non-recurring costs, legal, and other costs associated with acquisitions efforts. Other expenses
Total other expenses, net for the quarter ended
April 2, 2022were $1,267, an increase of 25.9% from $1,006in the quarter ended April 3, 2021. The increase was driven by the following: $474lower interest expense and amortization of debt discount and deferred financing costs in the quarter ended April 2, 2022compared with the quarter ended April 3, 2021of $1,241, loss from remeasuring the Company's intercompany note in the quarter ended April 2, 2022of $443compared with gains from remeasuring the Company's intercompany note in the quarter ended April 3, 2021of $128. In addition, in the quarter ended April 2, 2022, the Company had other loss of $58. Non-GAAP Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we also use non-GAAP financial measures and Key Performance Indicators ("KPIs") in addition to our GAAP results. We believe non-GAAP financial measures and KPIs may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies. 32
We present the following non-GAAP financial measure and KPIs in this report:
Revenue and Gross Profit by Business Streams We use this KPI to measure the Company's mix of Revenue and respective profitability between its two main lines of business due to their differing margins. For clarity, these lines of business are not the Company's operating segments, as this information is not currently regularly reviewed by the chief operating decision maker to allocate capital and resources. Rather, we use this KPI to benchmark the Company against the industry.
The following table details revenue and gross margin by segment:
APRIL 2, 2022 Mix APRIL 3, 2021 Mix Commercial Staffing - US
$ 28,60957 % $ 30,12161 %
Professional Staffing - US 4,329 9 % 3,771 8 % Professional Staffing - UK 16,955 34 % 15,059
31 % Total Revenue
$ 49,893 $ 48,951Commercial Staffing - US $ 4,719 56 % $ 4,838 60 %
Professional Staffing - US 1,204 14 % 954 12 % Professional Staffing - UK 2,590 30 % 2,223 28 % Total Gross Profit $ 8,513 $ 8,015 Commercial Staffing - US 16.5 % 16.1 % Professional Staffing - US 27.8 % 25.3 % Professional Staffing - UK 15.3 % 14.8 %
Total Gross Margin 17.1 % 16.4 % Adjusted EBITDA This measure is defined as net income (loss) attributable to common stock before: interest expense, benefit from income taxes; depreciation and amortization; acquisition, capital raising and other non-recurring expenses; other non-cash charges; impairment of goodwill; re-measurement gain on intercompany note; restructuring charges; gain from sale of business; PPP Forgiveness Gain; other income; and charges the Company considers to be non-recurring in nature such as legal expenses associated with litigation, professional fees associated potential and completed acquisitions. We use this measure because we believe it provides a more meaningful understanding of the profit and cash flow generation of the Company. 33 TRAILING TRAILING
TWELVE MONTHS TWELVE MONTHS
APRIL 2, 2022 APRIL 3, 2021 APRIL 3, 2022 APRIL 2, 2021 Net loss
$ (2,324 ) $ (1,688 ) $ 7,522 $ (10,333 )Interest expense and amortization of debt discount and deferred financing costs 670 1,157 3,370 6,122 Provision for (Benefit from) income taxes 6 37 (388 ) 108 Depreciation and amortization 751 815 3,055 3,520 EBITDA $ (897 ) $ 321 $ 13,559 $ (583 )Acquisition, capital raising, restructuring charges and other non-recurring expenses (1) 1,188 826 3,872 6,209 Other non-cash charges (2) 16 220 158 697 Re-measurement (gain) loss on intercompany note 443 (128 ) 831 (1,387 ) Restructuring charges - - - 21 Gain on business sale - - - (124 ) Impairment of goodwill - - 3,104 - Other loss (income) 58 (107 ) (19,412 ) (244 ) Adjusted EBITDA $ 808 $ 1,132 $ 2,112 $ 4,589Adjusted EBITDA of Divested Business (3) $ - $ (8 ) Pro Forma TTM Adjusted EBITDA (4) $ 2,112 $ 4,581Adjusted Gross Profit TTM (5) $ 35,938 $ 30,365TTM Adjusted EBITDA as percentage of adjusted gross profit TTM 5.9 % 15.1 %
(1) Acquisition, fundraising and other non-recurring expenses mainly
relate to fundraising costs, acquisition and integration costs,
and legal fees incurred in connection with matters out of the ordinary
business course. Due to government restrictions, the Company had
to temporarily close some of its offices and, due to social distancing
restrictions, could not make full use of these facilities for
time periods during the year.
(2) Other non-cash expenses mainly relate to employee stock options and shares
compensation expense, expense for shares issued to directors for the board
services and the consideration paid for the consulting services.
(3) Adjusted EBITDA of discontinued operations for the period preceding the disposal
(4) Pro forma adjusted EBITDA excludes adjusted EBITDA from discontinued operations
for the period prior to the divestment date. (5) Adjusted Gross Profit excludes gross profit of business divested in
September 2020, for the period prior to divestment date. Operating Leverage This measure is calculated by dividing the growth in Adjusted EBITDA by the growth in Adjusted Gross Profit, on a trailing 12-month basis. We use this KPI because we believe it provides a measure of our efficiency for converting incremental gross profit into Adjusted EBITDA. 34 April 2, 2022 April 3, 2021
Adjusted Gross Profit - TTM (Current Period)
Adjusted Gross Profit - TTM (Prior Period) 30,365
Adjusted gross profit – Increase (decrease) $ $5,573
Adjusted EBITDA – TTM (Current Period) $ $2,112
Adjusted EBITDA - TTM (Prior Period) 4,589
8,954 Adjusted EBITDA - Decline
$ (2,477 ) $ (4,365 )Operating Leverage (44.4 )% 49.0 %
Leverage ratio Calculated as total debt, net, gross of any initial issue discount, divided by pro forma adjusted EBITDA for the last 12 months. We use this key performance indicator as an indicator of our ability to service debt on a forward-looking basis.
April 2, 2022 January 1, 2022 Total Debt, Net $ 9,444 $ 9,502 Addback: Total Debt Discount and Deferred Financing Costs (175 ) (256 ) Total Term Debt $ 9,619 $ 9,758 TTM Adjusted EBITDA $ 2,112 $ 4,589
Pro Forma TTM Adjusted EBITDA $ 2,112 $
4,589 Pro Forma Leverage Ratio 4.55x 4.01x Operating Cash Flow Including Proceeds from Accounts Receivable Financing calculated as net cash (used in) provided by operating activities plus net proceeds from accounts receivable financing. Because much of our temporary payroll expense is paid weekly and in advance of clients remitting payment for invoices, operating cash flow is often weaker in staffing companies where revenue and accounts receivable are growing. Accounts receivable financing is essentially an advance on client remittances and is primarily used to fund temporary payroll. As such, we believe this measure is helpful to investors as an indicator of our underlying operating cash flow. On
February 8, 2018, CBS Butler Holdings Limited("CBS Butler"), Staffing 360 Solutions Limitedand The JM Group, entered into a new arrangement with HSBC Invoice Finance (UK) Ltd("HSBC") which provides for HSBC to purchase the subsidiaries' accounts receivable up to an aggregate amount of £11,500 across all three subsidiaries. The terms of the arrangement provide for HSBC to fund 90% of the purchased accounts receivable upfront and, a secured borrowing line of 70% of unbilled receivables capped at £1,000 (within the overall aggregate total facility of £11,500). The arrangement has an initial term of 12 months, with an automatic rolling three-month extension and carries a service charge of 1.80%. Under ASU 2016-16, "Statement of Cash Flows (Topic 230, Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force), the upfront portion of the sale of accounts receivable is classified within operating activities, while the deferred purchase price portion (or beneficial interest), once collected, is classified within investing activities. On April 20, 2020, the terms of the loan with HSBC was amended whereby no capital repayments will be made between April 2020to September 2020, and only interest payments will be made during this time. On May 15, 2020, the Company entered into a three-year term loan with HSBC in the UKfor £1,000. QUARTERS ENDED APRIL 2, 2022 APRIL 3, 2021 Net cash (used in) provided by operating activities $ (2,856 )$
UKfactoring facility deferred purchase price 1,877
Repayments on accounts receivable financing, net (2,036 )
Net cash used in operating activities including proceeds from accounts receivable financing, net
$ (3,015 )$
Leverage ratio and cash flow from operations, including proceeds from financing accounts receivable, should be considered along with the information in the “Liquidity and Capital Resources” section, below.
Cash and capital resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Historically, we have funded our operations through term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Our primary uses of cash have been for debt repayments, repayment of deferred consideration from acquisitions, professional fees related to our operations and financial reporting requirements and for the payment of compensation, benefits and consulting fees. The following trends may occur as the Company continues to execute on its strategy: ? An increase in working capital requirements to finance organic growth, ? Addition of administrative and sales personnel as the business grows,
? Increased advertising, public relations and sales promotions for
and new brands as we expand into existing markets or enter new markets,
? A continuation of the costs associated with being a public company, and ? Capital expenditures to add technologies. Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the
SEC. We expect all of these applicable rules and regulations could significantly increase our legal and financial compliance costs and increase the use of resources.
As at and for the quarter ended
The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has unsecured payment due in the next 12 months associated with a historical acquisition and secured current debt arrangements representing approximately
$9,223which are in excess of cash and cash equivalents on hand, in addition to funding operational growth requirements. Historically, the Company has funded such payments either through cash flow from operations or the raising of capital through additional debt or equity. If the Company is unable to obtain additional capital, such payments may not be made on time. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. In addition, beginning in January 2023the Company has numerous contractual lease obligations representing an aggregate of approximately $4,454related to current lease agreements. The Company intends to fund the majority of this by a combination of cash flow from operations, as well as the raising of capital through additional debt or equity. 36 The financial statements included in this quarterly report have been prepared assuming that we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with our lenders will remain available to us. Operating activities
For the quarter ended
April 2, 2022, net cash used in operations of $2,856was primarily attributable to net loss of $2,324and changes in operating assets and liabilities totaling $2,091offset by non-cash adjustments of $1,559. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $5,621, increase in payables and accrued expense of $3,999, increase in payables to related parties of $122, increase in prepaid expenses and other current assets of $526, decrease in other assets of $812, decrease in current liabilities of $128and decrease in long term liabilities and other of $749. Total non-cash adjustments of $1,558primarily includes depreciation and amortization of intangible assets of $655, stock-based compensation of $42, amortization of debt discounts and deferred financing of $96, right of use assets amortization of $324and foreign currency re-measurement loss on intercompany loan of $443. For the quarter ended April 3, 2021, net cash provided by operations of $167was primarily attributable to net loss of $1,688and changes in operating assets and liabilities totaling $657offset by non-cash adjustments of $1,198. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $1,006, increase in payables and accrued expense of $1,451, increase in payables to related parties of $807, increase in prepaid expenses and other current assets of $334, increase in other assets of $784, increase in current liabilities of $80and decrease in long term liabilities of $158and increase in other of $601. Total non-cash adjustments of $1,198primarily includes depreciation and amortization of intangible assets of $731, stock-based compensation of $219, amortization of debt discounts and deferred financing of $84, right of use assets amortization of $292and foreign currency re-measurement gain on intercompany loan of $128. Investing activities
For the quarter ended
For the quarter ended
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For the quarter ended
April 3, 2021, net cash flows used in financing activities totaled $7,816primarily due to proceeds from sale of common stock of $19,670offset by repayments of $5,475on accounts receivable financing, net, repayment of term loan of $313, repayment of related party term loan of $14,724, dividends paid to Jacksonof $420, redemption of Series E preferred stock of $4,908and third party financing costs of $1,646.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Significant Accounting Policies and Estimates
See the Annual Report on Form 10-K filed with the
Recent accounting pronouncements
August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer's accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this ASU in this fiscal year. This standard did not have an impact on our financial statements.
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