Annual Statements Open main menu

BGSF, INC. - Quarter Report: 2015 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
  
FORM 10-Q

(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 29, 2015
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: 001-36704
 
BG STAFFING, INC. 
(exact name of registrant as specified in its charter)
Delaware
26-0656684
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
5850 Granite Parkway, Suite 730
Plano, Texas 75024
(972) 692-2400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
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    þ      No    ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    þ      No    ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
¨
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    ¨      No    þ
 
The number of shares outstanding of the registrant’s common stock as of May 4, 2015 was 6,608,145.




TABLE OF CONTENTS

 
 
 
 
 
 
 
 

2



Forward-Looking Statements
 
This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:
 
future financial performance and growth targets or expectations;
market and industry trends and developments; and
the benefits of our completed and future merger, acquisition and disposition transactions.

You can identify these and other forward-looking statements by the use of words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “future,” “continue,” “ongoing,” “forecast,” “project,” “target” and similar expressions, and variations or negatives of these words.
 
These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:
 
the availability of workers’ compensation insurance coverage at commercially reasonable terms;
the availability of qualified temporary personnel;
compliance with federal and state labor and employment laws and regulations and changes in such laws and regulations;
the ability to compete with new competitors and competitors with superior marketing and financial resources;
management team changes;
the favorable resolution of current or future litigation;
the ability to begin to generate sufficient revenue to produce net profits;
the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;
the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;
adverse changes in the economic conditions of the industries, countries or markets that we serve;
disturbances in world financial, credit, and stock markets;
unanticipated changes in national and international regulations affecting the company’s business;
a decline in consumer confidence and discretionary spending;
the general performance of the U.S. and global economies;
economic disruptions resulting from the European debt crisis;
and continued or escalated conflict in the Middle East; and
other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, and in this Quarterly Report on Form 10-Q.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.
 
Where You Can Find Other Information
 
Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.

3



PART I—FINANCIAL INFORMATION
Item  1. Financial Statements. 
BG Staffing, Inc. and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS 
 
 
 
March 29, 2015
 
December 28, 2014
 
 
 
(unaudited)
 
 
Current assets
 
 

 
 

 
Accounts receivable (net of allowance for doubtful accounts of $676,971 and $748,187 at 2015 and 2014, respectively)
 
$
23,927,146

 
$
22,030,342

 
Prepaid expenses
 
569,773

 
624,975

 
Other current assets
 
640,886

 
617,992

 
Total current assets
 
25,137,805

 
23,273,309

 
 
 
 
 
 
Property and equipment, net
 
818,921

 
667,597

 
 
 
 
 
Other assets
 
 

 
 

 
Deposits
 
1,955,697

 
1,847,029

 
Deferred financing charges
 
497,698

 
496,608

 
Deferred income taxes
 
7,516,610

 
7,359,590

 
Intangible assets, net
 
19,856,838

 
13,724,068

 
Goodwill
 
7,817,136

 
6,404,367

 
Total other assets
 
37,643,979

 
29,831,662

 
 
 
 
 
 
 
Total assets
 
$
63,600,705

 
$
53,772,568

 
 
 
 
 
 
Current liabilities
 
 

 
 

 
Long-term debt, current portion
 
$
2,437,500

 
$
2,250,000

 
Accrued interest
 
152,740

 
266,133

 
Accounts payable
 
1,015,616

 
1,114,594

 
Accrued expenses
 
6,591,258

 
6,045,637

 
Accrued payroll
 
1,534,915

 
1,044,198

 
Accrued workers’ compensation
 
1,113,987

 
1,353,539

 
Contingent consideration
 
574,558

 
840,536

 
Other current liabilities
 
744,607

 
745,822

 
Dividend payable
 

 
989,722

 
Accrued taxes
 
242,568

 

 
Total current liabilities
 
14,407,749

 
14,650,181

 
 
 
 
 
 
Line of credit
 
13,300,000

 
4,900,000

Long-term debt, less current portion
 
14,309,167

 
14,937,500

Other long-term liabilities
 
5,002,038

 
2,921,595

 
Total liabilities
 
47,018,954

 
37,409,276

 
 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
 
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding
 

 

Common stock, $0.01 par value per share, 19,500,000 shares authorized, 6,598,145 shares issued and outstanding for 2015 and 2014, respectively
 
65,982

 
65,982

Additional paid in capital
 
10,788,661

 
10,734,438

Retained earnings
 
5,727,108

 
5,562,872

 
Total stockholders’ equity
 
16,581,751

 
16,363,292

 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
63,600,705

 
$
53,772,568

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

4



BG Staffing, Inc. and Subsidiaries
 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Thirteen Week Periods Ended March 29, 2015 and March 30, 2014
 
 
 
2015
 
2014
Revenues
 
$
40,884,144

 
$
39,037,655

Cost of services
 
32,543,122

 
31,326,025

Gross profit
 
8,341,022

 
7,711,630

Selling, general and administrative expenses
 
6,348,428

 
6,505,739

Depreciation and amortization
 
1,128,593

 
1,348,855

Operating income (loss)
 
864,001

 
(142,964
)
Loss on extinguishment of related party debt
 

 
(986,835
)
Interest expense, net
 
(531,716
)
 
(583,482
)
Interest expense, net – related party
 

 
(213,322
)
Change in fair value of put option
 
(21,089
)
 
12,922

Income (loss) before income taxes
 
311,196

 
(1,913,681
)
Income tax expense (benefit)
 
146,960

 
(383,581
)
Net income (loss)
 
$
164,236

 
$
(1,530,100
)
 
 
 
 
 
Net income (loss) per share:
 
 

 
 

Basic
 
$
0.02

 
$
(0.27
)
Diluted
 
$
0.02

 
$
(0.27
)
 
 
 
 
 
Weighted-average shares outstanding:
 
 

 
 

Basic
 
6,598,145

 
5,598,847

Dilutive effect
 
337,804

 

Diluted
 
6,935,949

 
5,598,847

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

5



BG Staffing, Inc. and Subsidiaries
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Week Periods ended March 29, 2015 and March 30, 2014
 
 
 
 
 
2015
 
2014
Cash flows from operating activities
 
 

 
 

 
Net income (loss)
 
$
164,236

 
$
(1,530,100
)
 
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 

 
 

 
 
Depreciation and amortization
 
1,128,593

 
1,348,855

 
 
Loss on extinguishment of related party debt
 

 
986,835

 
 
Amortization of deferred financing costs
 
42,786

 
52,508

 
 
Amortization of debt discounts
 
10,785

 
55,660

 
 
Interest expense on earn out payable
 
65,346

 
77,467

 
 
Put option adjustment
 
21,089

 
(12,922
)
 
 
Provision for doubtful accounts
 
69,756

 
16,341

 
 
Stock-based compensation
 
59,935

 
690,733

 
 
Deferred income taxes
 
(151,165
)
 
(189,860
)
 
 
Net changes in operating assets and liabilities, net of effects of acquisitions:
 
 

 
 

 
 
 
Accounts receivable
 
533,186

 
1,115,000

 
 
 
Prepaid expenses
 
60,001

 
2,688

 
 
 
Other current assets
 
(30,706
)
 
(7,089
)
 
 
 
Deposits
 
(108,669
)
 
(264,540
)
 
 
 
Accrued interest
 
8,274

 
120,668

 
 
 
Accrued interest – related party
 

 
(303,543
)
 
 
 
Accounts payable
 
(101,659
)
 
(286,356
)
 
 
 
Accrued expenses
 
222,248

 
559,759

 
 
 
Accrued payroll
 
221,347

 
387,784

 
 
 
Accrued workers’ compensation
 
(239,729
)
 
(66,380
)
 
 
 
Other current liabilities
 
(1,215
)
 
112,415

 
 
 
Accrued taxes
 
244,525

 
(20,651
)
 
 
Net cash provided by operating activities
 
2,218,964

 
2,845,272

 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 

 
 

 
Business acquired, net of cash received
 
(8,500,000
)
 

 
Capital expenditures
 
(198,586
)
 
(45,713
)
 
 
Net cash used in investing activities
 
(8,698,586
)
 
(45,713
)
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

 
Net borrowings under line of credit
 
8,400,000

 
(1,221,471
)
 
Principal payments on long-term debt
 
(562,500
)
 
(573,194
)
 
Payments on other long-term liabilities
 

 
(500,000
)
 
Payments on dividends
 
(989,722
)
 

 
Net proceeds from issuance of common stock
 
(5,712
)
 

 
Contingent consideration paid
 
(318,568
)
 
(453,356
)
 
Other
 

 
(6,746
)
 
Deferred financing costs
 
(43,876
)
 
(44,792
)
 
 
Net cash provided by (used in) financing activities
 
6,479,622

 
(2,799,559
)
Net change in cash
 

 

Cash, beginning of period
 

 

Cash, end of period
$

 
$

 
 
 
 
 
 
 
 
Supplemental cash flow information:
 
 

 
 

 
Cash paid for interest
 
$
375,427

 
$
929,300

 
Cash paid for taxes, net of refunds
 
53,600

 
48,040

Non-cash transactions:
 
 

 
 

 
Prepaid offering costs
 
$
(1,500
)
 
$
87,163

 
Contingent consideration paid through relief of accounts receivable
 

 
596,079

 
Paid-in-kind interest
 
(121,667
)
 

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

6

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)



NOTE 1 - NATURE OF OPERATIONS
 
BG Staffing, Inc. is a provider of temporary staffing services that also operates, through its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP and BG Finance and Accounting, Inc. (“BGFA”) (collectively, the “Company”), within the United States of America in three industry segments: Commercial, Multifamily, and Professional Staffing.
 
The Commercial segment provides temporary workers primarily to distributions and logistics costumers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee, and Mississippi.
 
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in Texas and other states, via property management companies responsible for the apartment communities day to day operations.
 
The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting demands in Texas and Louisiana.
 
The accompanying unaudited consolidated financial statements for the thirteen week periods ended March 29, 2015 and March 30, 2014, have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the fiscal year ended December 28, 2014, included in its Annual Report on Form 10-K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
 
Fiscal Year
 
The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of March 29, 2015 and December 28, 2014, and include the thirteen week periods ended March 29, 2015 and March 30, 2014.
  
Reclassifications
 
Certain reclassifications have been made to the 2014 financial statements to conform with the 2015 presentation.
 
Accounts Receivable
 
The Company extends credit to its customers in the normal course of business. Accounts receivable represents unpaid balances due from customers. The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual customers and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received. The allowance for doubtful accounts consists of the following:
 

7

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


 
 
Thirteen Weeks Ended
 
 
March 29, 2015
 
March 30, 2014
Allowance at beginning of the period
 
$
748,187

 
$
439,886

Provision for doubtful accounts
 
69,756

 
16,341

Amounts written off
 
(140,972
)
 
(5,977
)
Allowance at end of the period
 
$
676,971

 
$
450,250


  
Deferred Financing Charges
 
Deferred financing charges are amortized on a straight-line basis, which approximates the effective interest method, over the term of the respective loans payable. During the thirteen week periods ended March 29, 2015 and March 30, 2014, the Company recognized $42,786 and $52,508 of amortization expense as a component of interest expense related to deferred financing charges, respectively. At March 29, 2015 and December 28, 2014, there were $497,698 and $496,608 of unamortized deferred financing charges, respectively.
 
Property and Equipment
 
The Company’s policy is to depreciate the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortized over their useful lives, or the applicable lease term, if shorter.
 
 
Years
Leasehold improvements
1-5
Furniture and fixtures
5-7
Computer systems
5
Vehicles
5
 
Intangible Assets
 
The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to five years, based on a pattern in which the economic benefit of the respective intangible asset is realized.
 
Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs were used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets were discounted back to their net present value. Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized asset fair values including the identifiable intangible asset values.
  
In May 2014, due to a remarketing launch, the Company identified remaining name recognition and distinctiveness in its Extrinsic and American Partners trade names and decided to continue their use in operations indefinitely. The trade name assets’ useful lives were changed to indefinite lived intangible assets and were no longer amortized. At March 29, 2015, these trade names have a remaining unamortized value of $2,537,566 (See Note 4 for details).
 
The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.
 

8

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


Goodwill
 
Goodwill is not amortized, but instead is measured at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.
 
In conducting the qualitative assessment, the Company assesses the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. The Company may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.
 
For reporting units where the qualitative assessment is not used, goodwill is tested for impairment using a two-step process. In the first step, the estimated fair value of a reporting unit is compared with its carrying value. The fair value of the reporting unit is determined based on discounted cash flow projections. If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required.
  
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, a second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to its implied fair value.
 
Based on our annual testing, the Company has determined that there was no goodwill impairment during the fiscal year ended December 28, 2014 (“Fiscal 2014”). As of March 29, 2015, the Company has allocated $5,024,820, $1,073,755, and $1,718,561 of total goodwill to our three separate reporting units: Commercial, Multifamily and Professional Staffing, respectively. There were no events or changes in circumstances during the thirteen week period ended March 29, 2015 that caused the Company to perform an interim impairment assessment.
 
Revenue Recognition
 
The Company provides temporary staffing solutions. The Company and its clients enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. The Company considers revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.
 
Income Taxes
 
The Company is treated as a C corporation for federal income tax purposes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
 
The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future event, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to off set future tax benefits that may not be realized. There was no valuation allowance recorded as of March 29, 2015 or December 28, 2014.
 

9

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements was the largest benefit that had a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assessed all tax positions for which the statute of limitations remain open. The Company had no unrecognized tax benefits as of March 29, 2015 or March 30, 2014. The Company is open to examination by tax authorities for federal, state or local income taxes for periods beginning after 2011. The Company recognizes any penalties and interest when necessary as part of selling, general and administrative expenses.
 
Stock Based Compensation
 
On December 20, 2013, the board of directors of BG Staffing, Inc. adopted the 2013 Long-Term Incentive Plan (the “2013 Plan”). Under the 2013 Plan employees and directors may receive incentive stock options and other awards. A total of 900,000 shares of the common stock of BG Staffing, Inc. were initially reserved for issuance pursuant to the 2013 Plan. The Company determines the fair value of options to purchase common stock using the Black-Scholes valuation model. The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
 
Management Estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Cash Equivalents
 
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
 
Fair Value Measurements
 
The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt at March 29, 2015 and December 28, 2014 approximated the carrying value as the debt bears market rates of interest. These fair values were estimated based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimates are not necessarily indicative of the amounts that would be realized in a current market exchange.
 
Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.  Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.
 
In connection with the acquisition of substantially all of the assets and assumption of certain liabilities of InStaff Holding Corporation and InStaff Personnel, LLC (collectively, "InStaff") on May 28, 2013, the Company granted a put option liability which is carried at fair market value in other long-term liabilities on the consolidated balance sheets. The fair value of the put option was $2,518,103 and $2,497,014 at March 29, 2015 and December 28, 2014, respectively. The put option liability is revalued at each balance sheet date at the greater of an adjusted earning before income taxes, depreciation and amortization (“EBITDA”) method or the fair market value. Changes in fair value are recorded as non-cash, non-operating income in the Company’s consolidated statements of operations. The liability is classified within Level 3 as the lack of an active market during 2013 with only a slight increase in activity during 2014 impacts the calculation of fair market value as an unobservable input used to value the put option. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during the thirteen weeks ended March 29, 2015.
 

10

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


The fair value is reviewed on a quarterly basis based on the most recent financial performance of the most recent fiscal quarter. An analysis is performed at the end of each fiscal quarter to compare actual results to forecasted financial performance. If performance has deviated from projected levels, the valuation is updated for the latest information available. For the thirteen week periods ended March 29, 2015 and March 30, 2014, the Company recognized $21,089 and $(12,922) of expense (income) related to the change in fair value of the put option liability, respectively.
  
Earnings Per Share
 
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. For the thirteen week periods ended March 29, 2015 and March 30, 2014, the Company had -0- and 524,967 common stock equivalents that were antidilutive, respectively. As a result, these shares were excluded from the calculation of diluted loss per share.
 
Recent Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-9, Revenue from Contracts with Customers (ASU 2014-9), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-9 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-9 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.
 
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-9 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-9 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

 
NOTE 3 - ACQUISITIONS
  
On February 23, 2015, the Company acquired substantially all of the assets of D&W Talent, LLC (“D&W”) for an initial cash consideration paid of $8,500,000 and contingent consideration of $3,500,000 based on the performance of D&W for the three years following the date of acquisition. The fair value of the contingent consideration at the acquisition date was $2,035,814 based on a discounted cash flow analysis. The purchase agreement contained a provision for a “true up” of acquired working capital 120 days after the closing date. If actual working capital were greater than the target working capital, the Company would pay additional consideration in the amount of the difference. If actual working capital were less than target working capital, D&W would pay the Company the amount of the difference. The Company incurred costs of approximately $271,072 related to the acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

The consolidated statements of operations include the operating results of D&W from the date of acquisition. D&W operations contributed approximately $2.0 million of revenue for the thirteen week period ended March 29, 2015. The assets acquired from D&W were assigned to the Professional Staffing segment. The acquisition of D&W allows the Company to strengthen and expand its professional operations through finance and accounting personnel. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:
 

11

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


Accounts receivable
 
$
2,499,746

Property and equipment
 
22,100

Prepaid expenses and other current assets
 
3,299

Intangible assets
 
7,192,000

Goodwill
 
1,412,770

Liabilities assumed
 
(594,101
)
Total net assets acquired
 
$
10,535,814

 
 
 
Cash
 
$
8,500,000

Fair value of contingent consideration
 
2,035,814

Total fair value of consideration transferred for acquired business
 
$
10,535,814

 
The allocation of the intangible assets is as follows:
 
 
 
Estimated Fair
Value
 
Estimated 
Useful Lives
Covenants not to compete
 
$
250,000

 
5 years
Trade name
 
$
3,914,000

 
Indefinite
Customer list
 
$
3,028,000

 
5 years
Total
 
$
7,192,000

 
 
 
The Company estimates that the revenues and net income (loss) for the thirteen week periods ended March 29, 2015 and March 30, 2014 that would have been reported if the acquisition of D&W had taken place on the first day of Fiscal 2014 would be as follows (dollars in thousands):
 
 
 
Thirteen Weeks Ended
 
 
March 29, 2015
 
March 30, 2014
Revenues
 
$
43,937

 
$
41,657

Net income (loss)
 
$
481

 
$
(1,403
)
Income (loss) per share:
 
 

 
 
Basic
 
$
0.07

 
$
(0.25
)
Diluted
 
$
0.07

 
$
(0.25
)

NOTE 4 - INTANGIBLE ASSETS
 
In May 2014, due to remarketing launch, the Company identified remaining name recognition and distinctiveness in its Extrinsic and American Partners trade names and decided to continue their use in operations indefinitely. The trade name assets’ useful lives were changed to indefinite lived intangible assets and were no longer amortized. At March 29, 2015, these trade names have a remaining unamortized value of $2,537,566. For the thirteen week periods ended March 29, 2015, the increase in amortization expense associated with this change would have been $198,500 and the decrease in basic and diluted net income per share associated with this change would have been approximately $0.03 per share, respectively. Finite and indefinite lived intangible assets consist of the following:
 

12

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


 

March 29, 2015


Gross Value

Accumulated
Amortization

Net
Carrying
Value
Finite lives:

 


 


 

Customer lists

$
28,814,811


$
17,843,939


$
10,970,872

Covenant not to compete

1,323,000


536,600


786,400

 

30,137,811


18,380,539


11,757,272

Indefinite lives:

 


 


 

Trade names

9,532,000


1,432,434


8,099,566

Total

$
39,669,811


$
19,812,973


$
19,856,838

  
 
 
December 28, 2014
 
 
Gross Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Finite lives:
 
 

 
 

 
 

Customer lists
 
$
25,786,810

 
$
16,842,524

 
$
8,944,286

Covenant not to compete
 
1,073,000

 
478,784

 
594,216

 
 
26,859,810

 
17,321,308

 
9,538,502

Indefinite lives:
 
 

 
 

 
 

Trade names
 
5,618,000

 
1,432,434

 
4,185,566

Total
 
$
32,477,810

 
$
18,753,742

 
$
13,724,068

 
Estimated future amortization expense for the next five years is as follows:
 
Fiscal Year Ending:
 
2015
$
3,413,917

2016
6,070,365

2017
2,054,404

2018
160,251

2019
50,000

Thereafter
8,335

 
$
11,757,272

 
Total amortization expense for the thirteen week periods ended March 29, 2015 and March 30, 2014 was $1,059,231 and $1,309,107, respectively.


13

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


NOTE 5 - ACCRUED EXPENSES
 
Accrued expenses consist of the following:
 

March 29, 2015

December 28, 2014
Temporary worker payable

$
3,457,509


$
3,014,315

Accrued bonuses and commissions

464,495


503,024

Payroll taxes

1,543,197


1,312,975

Other

1,126,057


1,215,323

 

$
6,591,258


$
6,045,637


NOTE 6 - DEBT
 
The Company has a senior credit facility effective May 24, 2010, as amended. On January 29, 2014, the Company entered into an amendment with its lenders under the senior credit facility. The amendment provides for a revolving line of credit (“Revolver”) of $20.0 million, increased the original principal amount of the term loan facility (“Term Loan A”) from $7.1 million to $11.3 million and added $8.0 million of subordinated debt (“Term Loan B”). Borrowings under the Revolver and Term Loan A were partially used to repay the senior subordinated loans (“Subordinated Loans”) and $1.0 million was recorded as a loss on extinguishment of related party debt in the first quarter of 2014. The senior credit facility matures on January 29, 2018.
 
In connection with the acquisition of the assets of D&W (see Note 3) on February 23, 2015, the Company entered into an amendment with its lenders under senior credit facility to add BGFA as an additional borrower under the agreement and increased the borrowing base amount from 80% to 85% of eligible receivables. On December 12, 2014, the Company executed an amendment to the senior credit facility that removed the limitation on the Company to pay dividends while the Term Loan B is outstanding.

The Company had Subordinated Loans with two private lenders that also hold equity interests of the Company, and therefore, were related parties. The full amount of the Subordinated Loans was repaid on January 29, 2014 through additional borrowings on the senior credit facility.
 
As of March 29, 2015 and December 28, 2014, $13.3 million and $4.9 million were outstanding on the Revolver, respectively. Borrowings under the Revolver are subject to a borrowing base, bear interest at the 30-day LIBOR plus a margin that ranges from 3.00% to 3.75% (3.0% at March 29, 2015), and are secured by all assets of the Company.

Long-term debt consists of the following:
 
 
March 29, 2015
 
December 28, 2014
Term Loan A, payable to a bank in monthly installments of principal and interest with a maturity date of January 29, 2018 and is secured by all assets of the Company. Interest is paid on a monthly basis at an annual interest rate of LIBOR plus a margin of 3.75% to 4.5%, determined by certain thresholds (3.75% at March 29, 2015).

$
8,625,000


$
9,187,500

Term Loan B, payable to a bank with principal due in a one lump-sum payment along with a compounding deferred fee of 1.5% per annum with a maturity date of January 29, 2018. Interest is paid monthly at an annual rate of 11%.

8,121,667


8,000,000

Total long-term debt

16,746,667


17,187,500

Less current portion

(2,437,500
)

(2,250,000
)
Long-term debt non-current portion

$
14,309,167


$
14,937,500

 
For all of its borrowings, the Company must comply with certain financial covenants, including a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant. As of March 29, 2015, the Company was in compliance with these covenants.
 

14

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


Maturities on the Revolver and long-term debt obligations as of March 29, 2015, are as follows:
Fiscal Year Ending:
 
2015
$
1,687,500

2016
3,281,250

2017
3,375,000

2018
21,702,917

Thereafter

 
$
30,046,667


NOTE 7 - CONTINGENCIES
 
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.
 
NOTE 8 – EQUITY
 
Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share. As of March 29, 2015 and December 28, 2014, the Company has 6,598,145 and 6,598,145 shares of common stock outstanding and no shares of preferred stock outstanding.
  
In December 2014, in a series of transactions, various investors (collectively the “Investors”) joined a Securities Purchase Agreement (the “Purchase Agreement”) with the Company pursuant to which the Company issued and sold 963,750 (the “Shares”) of common stock, $0.01 par value per share (the “Common Stock”), to the Investors in a private placement for an aggregate purchase price of approximately $9,396,562 in cash. The purchase price for the Shares under the Purchase Agreement was $9.75 per Share. The Shares constituted approximately 17.2% of the total of issued and outstanding shares of Common Stock immediately before the initial execution of the Purchase Agreement and the subsequent closing of the purchase and sale of the Shares thereunder. In connection with the closing of the purchase and sale of the shares, the Company paid to Taglich Brothers, Inc. ("Taglich Brothers"), the placement agent, commissions of approximately $751,725. In connection with the sale, the Company issued to designees of Taglich Brothers, warrants (the “Warrant”) to purchase 96,375 shares of Common Stock. The Warrant is exercisable at any time commencing on the sixth month anniversary of the issuance date in whole or in part, at an initial exercise price per share of $9.75, and may be exercised in a cashless exercise. The exercise price and number of shares of Common Stock issuable under the Warrants are subject to adjustments for stock dividends, splits, combinations and similar events. The Warrant expires on the fifth anniversary of the date of issuance. The holder of the Warrant is entitled to the same registration rights provided to the Investors. The proceeds of the sale were used to pay indebtedness under the revolving credit facility.

On December 19, 2014, the board of directors declared a dividend of $0.15 per share of common stock that was paid on January 30, 2015 to all shareholders of record as of the close of business on December 31, 2014. Prior to that, the Company had not paid cash dividends on common stock. The Company's ability to pay dividends is restricted under the terms of the senior credit facility and may be restricted under other agreements governing the outstanding indebtedness from time to time.

NOTE 9 – STOCK-BASED COMPENSATION
 
Stock Issued
 
On June 24, 2014, under the 2013 Plan, the board of directors authorized and issued a total of 8,800 shares of restricted stock to all the Company’s employees with a stock price of $7.40 per share. The shares are fully vested and must be held for a period of one year.
 

15

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


Stock Options
 
In February 2014, the Company granted 545,321 options to employees and directors with an exercise price of $6.25 of per share, and 21,042 options to employees at an exercise price of $12.50 per share. Of the 566,363 options granted, 234,363 were immediately exercisable, and the remaining 332,000 vest over a period of four years. In August 2014, the Company granted 30,000 options to non-employee directors with an exercise price of $7.10 per share. The options vest over a period of four years.

For the thirteen week periods ended March 29, 2015 and March 30, 2014, the Company recognized $53,412 and $833,204 of compensation cost related to stock awards, respectively. Unamortized stock compensation expense as of March 29, 2015 amounted to $578,803 which is expected to be recognized over the next 2.8 years.
 
The following assumptions were used to estimate the fair value of share options granted for the thirteen week periods ended:
 
 
March 29, 2015
 
 
 
March 30, 2014
 
 
Weighted-average fair value of options
 
$
2.84

 
 
 
$
2.82

 
 
Weighted-average risk-free interest rate
 
1.0

 
%
 
1.0

 
%
Dividend yield
 

 
%
 

 
%
Weighted-average volatility factor
 
49.0

 
%
 
49.0

 
%
Weighted-average expected life
 
5.6

 
yrs
 
5.6

 
yrs
 
A summary of stock option activity is presented as follows:
 
 
Number of
Shares
 
Weighted Average Exercise Price Per Share
 
Total Intrinsic Value of Options
(in thousands)
Options outstanding at December 29, 2013

 
$

 
$

Granted
566,363

 
$
6.48

 
$
285

Options outstanding at March 30, 2014
566,363

 
$
6.48

 
$
285

 
 
 
 
 
 
Options exercisable at March 30, 2014
300,763

 
$
6.48

 
$
88

 
 
 
 
 
 
 
 
 
 
 
 
Options outstanding at December 28, 2014
585,466

 
$
6.71

 
$
3,204

Forfeited
(15,000
)
 
$
6.25

 
$

Options outstanding at March 29, 2015
570,466

 
$
6.52

 
$
3,598

 
 
 
 
 
 
Options exercisable at March 29, 2015
363,766

 
$
6.63

 
$
2,299

 
The intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded
the exercise price of outstanding options, before applicable income taxes and represents the amount optionees would have
realized if all in-the-money options had been exercised on the last business day of the period indicated.

Warrant Activity
 
For the thirteen week periods ended March 29, 2015 and March 30, 2014, the Company recognized $6,523 and $78,638 of compensation cost related to warrants. There was no unamortized stock compensation expense to be recognized as of March 29, 2015.
 

16

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


The following assumptions were used to estimate the fair value of warrants for the thirteen week periods ended:
 
 
March 29, 2015
 
 
 
March 30, 2014
 
 
Weighted-average fair value of warrants
 
$
3.05

 
 
 
$
1.89

 
 
Weighted-average risk-free interest rate
 
0.1

 
%
 
0.1

 
%
Dividend yield
 
0.2

 
%
 

 
%
Weighted-average volatility factor
 
49.0

 
%
 
49.0

 
%
Weighted-average expected life
 
2.7

 
yrs
 
2.8

 
yrs
 
A summary of warrant activity is presented as follows:
 
Number of
Shares
 
Weighted Average Exercise Price Per Share
 
Total Intrinsic Value of Options
(in thousands)
Warrants outstanding at December 29, 2013 and March 30, 2014
224,205

 
$
7.08

 
$

 
 
 
 
 
 
Warrants exercisable at March 30, 2014
224,205

 
$
7.32

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Warrants outstanding at December 28, 2014
326,822

 
$
8.24

 
$
1,226

Granted

 
$

 
$

Warrants outstanding at March 29, 2015
326,822

 
$
8.24

 
$
1,539

 
 
 
 
 
 
Warrants exercisable at March 29, 2015
230,447

 
$
7.61

 
$
1,231

 
The intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded
the exercise price of outstanding options, before applicable income taxes and represents the amount optionees would have
realized if all in-the-money options had been exercised on the last business day of the period indicated.
 
NOTE 10 - RELATED PARTY TRANSACTIONS
 
Through ownership of the common stock of BG Staffing, Inc., the Company is affiliated with multiple investors. Two of these investors are private lenders that also held the Subordinated Loans of $14,628,099 at December 29, 2013 (see Note 6), which were repaid on January 29, 2014 and $986,835 was recorded as a loss on extinguishment of related party debt.
 
NOTE 11 - CONCENTRATION OF CREDIT RISK
 
Concentration of credit risk is limited due to the Company’s diverse customer base. No single customer accounted for more than 10% of the Company’s revenue or accounts receivable for the thirteen week periods ended March 29, 2015 and March 30, 2014.

NOTE 12 - EMPLOYEE BENEFIT PLAN
 
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions 100% up to the first 3% and 50% of the next 2% of an employee’s compensation. The Company contributed $62,396 and $56,273 to the 401(k) Plan in the thirteen week periods ended March 29, 2015 and March 30, 2014, respectively.

NOTE 13 - BUSINESS SEGMENTS
 
The Company operates within three industry segments: Commercial, Multifamily and Professional Staffing. The Commercial segment provides temporary workers primarily to distribution and logistics customers needing a flexible workforce in Illinois,

17

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


Wisconsin, New Mexico, Texas, Tennessee and Mississippi. The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in Texas and other states, via property management companies responsible for the apartment communities day to day operations. The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting needs in Texas and Louisiana. The Company provides services to customers primarily within the United States of America.
 
Segment profit (loss) includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense, and income tax benefit (expense) and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, deferred tax assets, and other assets.
 

Thirteen Weeks Ended
 

March 29, 2015

March 30, 2014
Revenue:

 


 

Commercial

$
18,599,508


$
18,554,930

Multifamily

7,827,046


6,309,819

Professional Staffing

14,457,590


14,172,906

Total

$
40,884,144


$
39,037,655

 
 
 
 
 
Net income (loss):

 


 

Commercial

$
767,626


$
1,284,558

Multifamily

918,442


564,039

Professional Staffing

484,315


379,711

Corporate

(1,474,430
)

(2,961,604
)
Interest expense, net

(531,717
)

(796,804
)
Total

$
164,236


$
(1,530,100
)
 
 
 
 
 
Depreciation:

 


 

Commercial

$
22,361


$
17,628

Multifamily

19,440


5,766

Professional Staffing

10,890


3,841

Corporate

16,671


12,513

Total

$
69,362


$
39,748

 
 
 
 
 
Amortization:

 


 

Commercial

$
197,189


$
303,198

Multifamily

24,887


24,887

Professional Staffing

824,334


968,201

Corporate

12,821


12,821

Total

$
1,059,231


$
1,309,107

 
 
 
 
 
Capital Expenditures:

 


 

Commercial

$
56,541


$
9,203

Multifamily

54,376


4,423

Professional Staffing

41,467



Corporate

46,202


32,087

Total

$
198,586


$
45,713

 

18

BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
March 29, 2015
(Unaudited)


 

March 29, 2015

December 28, 2014
Total Assets:

 


 

Commercial

$
18,828,845


$
19,810,747

Multifamily

5,383,848


6,072,296

Professional Staffing

30,156,067


18,810,198

Corporate

9,231,945


9,079,327

Total

$
63,600,705


$
53,772,568


NOTE 14 - SUBSEQUENT EVENT
 
On May 1, 2015, the Company's Board of Directors declared a dividend in the amount of $0.25 per share of common stock to be paid on May 25, 2015 to all shareholders of record as of the close of business on May 11, 2015.

On May 4, 2015, the Company issued and sold 636,500 shares of common stock, $0.01 par value per share, to various investors in a private placement for an aggregate purchase price of approximately $7,001,500 in cash. The purchase price was $11.00 per share, which constituted approximately 9.6% of the total of issued and outstanding shares of common stock immediately before the initial execution of the Securities Purchase Agreement. In connection with the closing, the Company paid to Taglich Brothers, Inc. ("Taglich Brothers"), the placement agent, commissions of approximately $(420,090).

19



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto. Comparative segment revenues and related financial information are discussed herein and are presented in Note 13 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, for a description of important factors that could cause actual results to differ from expected results.
 
Basis of Presentation
 
We operate under a 52/53 week fiscal year. Our last two completed fiscal years ended on December 28, 2014 (“Fiscal 2014”) and December 29, 2013 (“Fiscal 2013”) . Fiscal 2014 and 2013 consist of 52 weeks. The differing length of certain fiscal years may affect the comparability of certain data.
 
Overview
 
We are a provider of temporary staffing services and have completed a series of acquisitions in the following fiscal periods, which includes the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013 and D&W in March 2015. We operate within three industry segments: Commercial, Multifamily and Professional Staffing. We provide services to customers primarily within the United States of America.
 
The Commercial segment provides temporary workers primarily to distribution and logistics customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
 
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in Texas and other states, via property management companies responsible for the apartment communities day to day operations.
 
The Professional Staffing segment provides temporary workers on a nationwide basis for IT customer projects, and finance and accounting needs in Texas and Louisiana.

Results of Operations
 
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales, and have been derived from our consolidated financial statements.
  

20



 
 

Thirteen Weeks Ended
 
 

March 29, 2015

March 30, 2014
 
 

(dollars in thousands)
Revenues

$
40,884

 
$
39,038

Cost of services

32,543

 
31,326

 
Gross profit

8,341

 
7,712

Selling, general and administrative expenses

6,348

 
6,506

Depreciation and amortization

1,129

 
1,349

 
Operating income

864

 
(143
)
Loss on extinguishment of related party debt


 
(987
)
Interest expense, net

(532
)
 
(797
)
Change in fair value of put option

(21
)
 
13

 
Income (loss) before income taxes

311

 
(1,914
)
Income tax expense

147

 
(384
)
 
Net income (loss)

$
164


$
(1,530
)
 
 
 
 
 
 
Revenues

100.0
 %
 
100.0
 %
Cost of services

79.6
 %
 
80.2
 %
 
Gross profit

20.4
 %
 
19.8
 %
Selling, general and administrative expenses

15.5
 %

16.7
 %
Depreciation and amortization

2.8
 %

3.5
 %
 
Operating income

2.1
 %

(0.4
)%
Loss on extinguishment of related party debt

 %

(2.5
)%
Interest expense, net

(1.3
)%

(2.0
)%
Change in fair value of put option

(0.1
)%

 %
 
Income (loss) before income taxes

0.8
 %

(4.9
)%
Income tax expense

0.4
 %

(1.0
)%
 
Net income (loss)

0.4
 %

(3.9
)%

Thirteen Week Fiscal Period Ended March 29, 2015 (Fiscal Quarter 2015) Compared with Thirteen Week Fiscal Period Ended March 30, 2014 (Fiscal Quarter 2014)
 
Revenues:
 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2015
 
March 30,
2014
 
 
 
(dollars in thousands)
Revenues by segment:
 
 

 
 

 
Commercial
 
$
18,600

 
$
18,555

 
Multifamily
 
7,827

 
6,310

 
Professional Staffing
 
14,457

 
14,173

 
Total Revenues
 
$
40,884

 
$
39,038

 
Commercial Revenues: Commercial revenues have remained consistent to $18.6 million in Fiscal Quarter 2015 from $18.5 million in Fiscal Quarter 2014.

Multifamily Revenues: Multifamily revenues increased $1.5 million (23.8%) to $7.8 million in Fiscal Quarter 2015 from $6.3 million in Fiscal Quarter 2014, due to our continued focus on expansion outside our core market of the state of Texas. Revenue from branches outside of Texas accounted for $0.8 million of the increase and revenue from branches in Texas increased approximately $0.7 million.
 

21



Professional Staffing Revenues: Professional Staffing revenues increased $0.3 million (2.1%) to $14.5 million in Fiscal Quarter 2015 from $14.2 million in Fiscal Quarter 2014, primarily from the acquisition of D&W, which contributed approximately $2.0 million of new revenues which was partially offset by a decrease of $1.2 million at our American Partners division and a decrease of $0.5 million at our Extrinsic division as a result of fewer IT projects.
 
Gross Profit:
 
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, temporary worker costs, and reimbursable costs.
 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2015
 
March 30,
2014
 
 
 
(dollars in thousands)
Gross Profit by segment:
 
 

 
 

 
Commercial
 
$
2,529

 
$
2,527

 
Multifamily
 
2,713

 
2,046

 
Professional Staffing
 
3,099

 
3,139

 
Total Gross Profit
 
$
8,341

 
$
7,712


 
 
 
Thirteen Weeks Ended
 
 
 
March 29,
2015
 
March 30,
2014
Gross Profit Percentage by segment:
 
 

 
 

 
Commercial
 
13.6
%
 
13.6
%
 
Multifamily
 
34.7
%
 
32.4
%
 
Professional Staffing
 
21.4
%
 
22.1
%
 
Company Gross Profit Percentage
 
20.4
%
 
19.8
%
 
Overall, our gross profit has increased $0.6 million (7.8%) to $8.3 million in Fiscal Quarter 2015 from $7.7 million in Fiscal Quarter 2014, due primarily to a revenue mix shift resulting from increased revenues from higher margin customers in the MultiFamily segment. As a percentage of revenue, gross profit has increased to Fiscal Quarter 2015 from Fiscal Quarter 2014 mainly due to higher revenues in our Multifamily segment which had the highest gross margins. The Multifamily segment contributed approximately 32.5% of the gross profit in Fiscal Quarter 2015 and approximately 26.5% of the gross profit in Fiscal Quarter 2014. Our Commercial segment, which had the lowest gross profit percentages, contributed approximately 30.3% of the gross profit in Fiscal Quarter 2015 and approximately 32.8% of the gross profit in Fiscal Quarter 2014. Finally, Professional Staffing contributed approximately 37.2% of the gross profit in Fiscal Quarter 2015 and approximately 40.7% of the gross profit in Fiscal Quarter 2014.
 
Commercial Gross Profit: Commercial gross profit was flat year-over-year remaining at $2.5 million in both Fiscal Quarter 2015 and Fiscal Quarter 2014. As a percentage of revenue, gross profit was flat at 13.6% in Fiscal Quarter 2015 and Fiscal Quarter 2014.
 
Multifamily Gross Profit: Multifamily gross profit increased $0.6 million (28.6%) to $2.7 million in Fiscal Quarter 2015 from $2.1 million in Fiscal Quarter 2014, mainly due to an increase in volume. As a percentage of revenue, gross profit increased to 34.7% in Fiscal Quarter 2015 from 32.4% in Fiscal Quarter 2014.
 
Professional Staffing Gross Profit: Professional Staffing gross profit was flat at $3.1 million in both Fiscal Quarter 2015 and Fiscal Quarter 2014 as modest increase in sales was offset by lower spread differential on billed temporary workers in 2015. As a percentage of revenue, gross profit decreased to 21.4% in Fiscal Quarter 2015 from 22.1% in Fiscal Quarter 2014.

Selling, General and Administrative Expenses: Selling, general and administrative expenses decreased $0.2 million (3.1%) to $6.3 million in Fiscal Quarter 2015 from $6.5 million in Fiscal Quarter 2014, due to decreased costs of $0.9 million in stock-based compensation which was offset by increased costs of $0.4 million in transaction fees and selling expenses related to the D&W acquisition.
 

22



Depreciation and Amortization: Depreciation and amortization charges decreased $0.2 million (15.4%) to $1.1 million during Fiscal Quarter 2015, compared with $1.3 million during Fiscal Quarter 2014. The decrease in depreciation and amortization is primarily due to a policy shift that resulted in categorizing the trade names of Extrinsic and American Partners as an indefinite lived asset in the second quarter of 2014.
 
Interest Expense, net: Interest expense, net was $0.5 million during Fiscal Quarter 2015 compared with $0.8 million during Fiscal Quarter 2014, a decrease of $0.3 million. The decrease in interest expense, net is primarily due the payoff in January 2014 of the related party subordinated notes and lower average daily borrowings and lower borrowing rate in Fiscal Quarter 2015 compared with Fiscal Quarter 2014.
 
Income Taxes: We had an income tax expense of $0.1 million in Fiscal Quarter 2015, compared with income tax benefit of $0.4 million in Fiscal Quarter 2014. The increase in income taxes is primarily due to an increase in taxable income to $0.3 million in Fiscal Quarter 2015 from a taxable loss of $1.9 million in Fiscal Quarter 2014.

Use of Non-GAAP Financial Measures
 
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles (non-GAAP), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for company management. In addition, certain financial covenants in our senior credit facility are based on a measure similar to Adjusted EBITDA.
  
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, loss on early extinguishment of related party debt, transaction fees related to our acquisitions, and other non-cash expenses such as the put option adjustment and stock compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.
 
To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income (loss) to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.
 

23



 

Thirteen Weeks Ended
 

March 29, 2015

March 30, 2014
 

 
Net income (loss)

$
164


$
(1,530
)
Interest expense, net

532


797

Income tax expense

147


(384
)
Depreciation and amortization

1,129


1,349

Loss on extinguishment of related party debt



987

Stock-based compensation

60


912

Transaction fees

271



Put option adjustment

21


(13
)
Adjusted EBITDA

$
2,324


$
2,118


Liquidity and Capital Resources
 
Our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility. Our primary uses of cash are payments to temporary workers, operating expenses, capital expenditures, debt service, cash taxes, dividends and contingent liability payments. We believe that the cash generated from operations, together with the borrowing availability under our senior credit facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt. At March 29, 2015 we are in compliance with all debt covenants.
 
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
 
A summary of our operating, investing and financing activities are shown in the following table:
 
 

Thirteen Weeks Ended
 

March 29, 2015

March 30, 2014
 

(dollars in thousands)
Net cash provided by operating activities

$
2,219


$
2,845

Net cash used in investing activities

(8,699
)

(46
)
Net cash provided by (used in) financing activities

6,480


(2,799
)
Net change in cash and cash equivalents

$


$

 
Operating Activities
 
Cash provided by operating activities consists of net income (loss) adjusted for non-cash items, including depreciation and amortization, loss on extinguishment of related party debt, stock compensation expense, changes in deferred income taxes, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable, accrued expenses and accrued taxes.

During the thirteen week period ended March 29, 2015, net cash provided by operating activities was $2.2 million compared with $2.8 million for the corresponding period in 2014. This decrease is mainly due to decreased cash provided by accounts receivable.
 

24



Investing Activities
 
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
 
In the thirteen week period ended March 29, 2015, we paid $8.5 million to acquire D&W in February 2015 and we made capital expenditures of $0.2 million mainly related computer equipment purchased in the ordinary course of business. In the thirteen week period ended March 30, 2014, we made capital expenditures of approximately $0.1 million mainly related to computer equipment purchased in the ordinary course of business.
 
Financing Activities
 
Cash flows from financing activities consisted principally of borrowings and payments under our senior credit facility, payment of other long-term obligations and contingent consideration paid.

For the thirteen weeks ended March 29, 2015, we increased our borrowings on our revolving line of credit by $8.4 million mainly to fund the D&W acquisition. We paid $1.0 million in cash dividends on our common stock, we decreased our long-term debt and other long-term liabilities by $0.6 million using excess cash flows from operations, and we paid $0.3 million of contingent consideration primarily related to the December 2012 acquisition of American Partners division.
 
For the thirteen weeks ended March 30, 2014, we decreased our borrowings on our revolving line of credit by $1.2 million and we decreased our long-term debt and other long-term liabilities by $1.1 million using excess cash flows from operations and we paid $0.4 million of contingent consideration related to the December 2012 acquisition of American Partners division.
   
Senior Credit Facility
 
On January 29, 2014, we entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Fifth Third Bank. The Loan Agreement amended and restated that certain Loan and Security Agreement, dated as of May 24, 2010, as amended (the “Prior Loan Agreement”), which had until January 29, 2014 governed our senior credit facility.
 
The Loan Agreement governs our senior credit facility (which now matures on January 29, 2018), which provides a revolving line of credit (“Revolver”) that permits us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base and the revolving loan commitment of $20.0 million. The borrowing base is adjusted on a monthly basis and is based on our accounts receivables. The Loan Agreement further provides for a term loan of approximately $11.3 million (“Term Loan A”) and a term loan of $8.0 million (“Term Loan B”), each of which matures on January 29, 2018. Our obligations under the Loan Agreement are secured by a continuing and unconditional first priority security interest in all of our tangible and intangible property. On February 23, 2015, we executed an amendment to the Loan Agreement to add BG Finance and Accounting, Inc. as an additional borrower under the Loan Agreement and increased the borrowing base amount on the Revolver from 80% to 85% of eligible receivables. On December 12, 2014, we executed an amendment to the senior credit facility that removed the limitation on us to pay dividends while the Term Loan B is outstanding.
 
Our Revolver and Term Loan A bear interest at the LIBOR Rate plus the Applicable Margin (as those terms are defined in the Loan Agreement). Accrued and unpaid interest on borrowings under our Revolver and Term Loan A are due and payable monthly in arrears and, with respect to Term Loan A, principal payments are required monthly and upon the occurrence of certain events. Term Loan B bears interest at a fixed rate of 11.0% per annum. Accrued and unpaid interest on borrowings under the Term Loan B are due and payable monthly in arrears, a compounding deferred fee of 1.5% per annum is due in a lump-sum payment, and principal payments are required upon the occurrence of certain events. Borrowings under our Revolver and Term Loan A were partially used to prepay our senior subordinated indebtedness (as described below under “Subordinated Loans”).

At closing, we paid commitment fees of $100,000 (with respect to the Revolver and Term Loan A) and $160,000 (with respect to Term Loan B). We must pay an unused commitment fee of 0.25% of the difference between the Revolving Loan Commitment (i.e., $20.0 million) and the average daily balance of the Revolver for each month, payable in arrears, and a Compounding Deferred Fee (as defined in the Loan Agreement) on the earlier of the date Term Loan B matures or is paid in full.
 
The Loan Agreement contains negative covenants that, among other things, restricts our ability to, with certain exceptions, (i) incur indebtedness, (ii) grant liens, (iii) make investments, (iv) dispose of assets, (v) enter into mergers, consolidations or similar transactions, (vi) issue securities, (vii) pay dividends or make distributions, (viii) enter into transactions with affiliates or (ix) change the nature of our business.
 

25



In addition, the Loan Agreement requires us to satisfy certain financial covenants, specifically: (i) we may not permit the Debt Service Coverage Ratio (as defined in the Loan Agreement) for the four fiscal quarter period ending in March 2014 and for the four fiscal quarter period ending in each fiscal quarter thereafter to be less than 1.20 to 1.00; (ii) as of the end of each fiscal quarter for the four fiscal quarter period then ending, we may not permit the Total Funded Indebtedness to Adjusted EBITDA Ratio (as such term is defined in the Loan Agreement) to be greater than 3.50 to 1.00 for the four fiscal quarters ended in March 2014, 3.25 to 1.00 for the four fiscal quarters ended in June 2014, 3.25 to 1.00 for the four fiscal quarters ended in September 2014, 3.00 to 1.00 for the four fiscal quarters ended in December 2014, 3.00 to 1.00 for the four fiscal quarters ended in March 2015, and 2.75 to 1.00 for the four fiscal quarters ended in June 2015, and 2.50 to 1.00 for the four fiscal quarters ended September 29, 2015 and each fiscal quarter thereafter; (iii) we must have, as of the end of each fiscal quarter for the four fiscal quarters then ending, consolidated Adjusted EBITDA (as defined in the Loan Agreement) of least $9.5 million; and (iv) we may not incur capital expenditures in excess of $600,000 in the aggregate in any fiscal year).
 
We are permitted to prepay in part or in full amounts due under our Revolver and may prepay the Term A Loan and Term B Loan without penalty provided certain conditions are met. Events of default include, among other things, late payment or non-payment, breach of representations, breach of affirmative or negative covenants (including financial covenants), defaults on other indebtedness, default with respect to a material purchase or lease of goods or services where the default might reasonably be expected to have a Material Adverse Effect (as defined in the Loan Agreement), bankruptcy or insolvency, certain judgments, a Change of Control (as defined in the Loan Agreement) and impairment of collateral. If an event of default occurs, the interest rate applicable to our Revolver and Term Loan A will increase by 2% per annum, and the interest rate applicable to Term Loan B will increase by 2% per annum or to the default interest rate applicable to our Revolver and Term Loan A, whichever is higher.
 
Subordinated Loans
 
We had approximately $14.6 million of outstanding Subordinated Loans at December 29, 2013. The Subordinated Loans were prepaid on January 29, 2014 through the use of proceeds obtained pursuant to the Loan Agreement with Fifth Third (discussed above). The Subordinated Loans were expressly junior and subordinated only to the debt outstanding under the senior credit facility. Interest on the Subordinated Loans accrued at a rate of 14.0% per annum (of which 12% was cash and 2% was paid in kind). Accrued interest on the Subordinated Loans was approximately $0.6 million as of December 29, 2013. The Subordinated Loans required, effective December 30, 2012, that an excess cash flow payment to be made if specific thresholds were met. A mandatory principal payment of approximately $0.5 million was made in the first quarter of 2013. The Subordinated Loans were to mature on May 31, 2015. The former holders of the Subordinated Loans currently hold shares of our common stock, and therefore were related parties.
 
For all of our borrowings, we must comply with various financial covenants. As of March 29, 2015, we were in compliance with these covenants.
 
The foregoing is a summary of the material terms with respect to our senior credit facility and Subordinated Loans, and is qualified in its entirety by reference to the actual text of the agreements applicable to our senior credit facility and the Subordinated Loans.

Off-Balance Sheet Arrangements
 
We are not party to any off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
Our accounting policies are described in Note 2 to the audited Consolidated Financial Statements for the fiscal year ended December 28, 2014, included in our Annual Report on Form 10-K. The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates. Critical accounting policies reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions.
 
Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results and the uncertainties that could impact our results of operations, financial condition and cash flows.
 

26



Revenue Recognition
 
We provide temporary staffing solutions. We enter into agreements with our clients that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. We consider revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.
 
Allowance for doubtful accounts
 
We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, and expectations of future write-offs. The allowance for doubtful accounts is reviewed quarterly and past due balances are written off after they are deemed to be uncollectible after all means of collection have been exhausted. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Goodwill and intangible assets
 
Goodwill is not amortized, but instead is measured at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently if conditions indicate an earlier review is necessary. If we have determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, we may use a qualitative assessment for annual impairment test.
 
In conducting the qualitative assessment, we assess the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.
 
For reporting units where the qualitative assessment is not used, goodwill is tested for impairment using a two-step process. In the first step, the estimated fair value of a reporting unit is compared with its carrying value. The fair value of the reporting unit is determined based on discounted cash flow projections. If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required.
  
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, a second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to its implied fair value.
 
Based on our annual testing, we have determined that there was no goodwill impairment in Fiscal 2014. As of March 29, 2015, we have allocated $5.0 million, $1.1 million, and $1.7 million of total goodwill to our three separate reporting units: Commercial, Multifamily and Professional Staffing, respectively.  There were no events or changes in circumstances during the thirteen weeks ended March 29, 2015 that caused us to perform an interim impairment assessment.
 
We hold intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to five years, based on a pattern in which the economic benefit of the respective intangible asset is realized. In May 2014, due to a recent remarketing launch, we reassessed the useful lives of trade name assets and concluded that these are indefinite lived intangible assets and would no longer amortize them. We annually evaluate the remaining useful lives of our finite intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. We also evaluate the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. We have determined that there were no impairment indicators for these assets in 2015 and 2014.
 

27



Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs were used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets were discounted back to their net present value. Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized asset fair values including the identifiable intangible asset values.
 
Recent Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.
 
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

JOBS Act
 
The JOBS Act provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.
 
Additionally, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 or (ii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Our market risks relate primarily to changes in interest rates. Borrowings under our existing senior credit facility bear floating interest rates that are tied to LIBOR and, therefore, our results of operations and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR would cause an annual increase to the interest expense on our borrowings under our senior credit facility of approximately $0.6 million.
 
We do not have any foreign currency or any other derivative financial instruments.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
 

28



Changes in Internal Controls Over Financial Reporting
 
For the quarter ended March 29, 2015, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


29



PART II—OTHER INFORMATION 
Item 1A. Risk Factors.

You should carefully consider the risks described below and those contained in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014. The occurrence of one or more of these events could significantly and adversely affect our business, prospects, financial condition, results of operations, cash flow and stock price. The risks described below and in our Annual Report on Form 10-K are not necessarily the only risks facing our Company. Additional risks and uncertainties not currently known to us or those that we currently deem to be immaterial may materially adversely affect our business, prospects, financial condition, results of operations and cash flow.

There is no guarantee that future cash dividends will be declared with respect to our common stock.

Our ability to pay cash dividends is restricted under the terms of our senior credit facility and may be restricted under other agreements governing our outstanding indebtedness from time to time.  Our payment of dividends on our common stock in the future will be determined by our board of directors in its sole discretion and will be dependent upon then-existing conditions including, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, general economic conditions, investment opportunities, restrictions on our ability to pay dividends due to then-applicable law, prospects, and other factors considered relevant by our board of directors.  Therefore, there is no guarantee that cash dividends will be declared with respect to our common stock in the future. 


30



Item 6. Exhibits
 
The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.
 
Exhibit
Number
 
Description
 
 
 
2.1**
 
Asset Purchase Agreement dated, as of February 23, 2015, between BG Finance and Accounting, Inc., BG Staffing, Inc., D&W Talent, LLC and Willis Group, LLC (incorporated by reference to the Company’s Current Report on Form 8-K filed February 27, 2015)
 
 
 
3.1
 
Certificate of Incorporation of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed November 4, 2013) 
 
 
 
3.2
 
Bylaws of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed November 4, 2013)
 
 
 
4.1
 
Form of Common Stock Certificate (incorporated by reference to Amendment No. 1 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed October 28, 2013) 
 
 
 
10.1
 
Third Amendment to Amended and Restated Loan and Security Agreement and Other Loan Documents, dated February 23, 2015, by and among BG Staffing, Inc., BG Staffing, LLC, BG Personnel, LP, B G Staff Services, Inc. and BG Finance and Accounting, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed February 27, 2015)

 
 
 
31.1*
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2*
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1†
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS *
 
XBRL Instance Document.
101.SCH *
 
XBRL Taxonomy Extension Schema Document.
101.CAL *
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
*
Filed herewith.
 
**
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments have been omitted. The Company hereby agrees to furnish a copy of any omitted schedule or attachment to the Securities and Exchange Commission upon request.

 
This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
 
 


31



SIGNATURES
 
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.
 
 
BG STAFFING, INC.
 
 
 
 
 
/s/ L. Allen Baker, Jr.
 
Name:
L. Allen Baker, Jr.
 
Title:
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
/s/ Michael A. Rutledge
 
Name:
Michael A. Rutledge
 
Title:
Chief Financial Officer and Secretary
 
 
(Principal Financial Officer)
 
 
 
Date: May 4, 2015



32