10-K 1 a10k2017.htm 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
 
FORM 10-K
_______________ 
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
 
o
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 
logoicona07.jpg
BG STAFFING, INC.
(Exact Name of Registrant as Specified in Its Charter)
_______________ 
Delaware
26-0656684
(State of Incorporation)
(I.R.S. Employer Identification Number)
 
5850 Granite Parkway, Suite 730, Plano, Texas
75024
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s telephone number, including area code:
(972) 692-2400
_______________
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Exchange on Which Registered
Common Stock, par value $0.01 per share
NYSE American LLC
 
Securities registered pursuant to Section 12(g) of the Act:
None
_______________
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
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 o
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, 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 o
 




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
þ
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of the common stock held by non-affiliates of the Registrant as of June 23, 2017 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $158,281,924 (based on the closing sale price of the Registrant's common stock on such date as reported on NYSE American).
 
As of March 8, 2018, there were 8,763,965 shares of the Registrant’s common stock outstanding.  




TABLE OF CONTENTS
  
 
Page
No.
Forward-Looking Statements
 
 
 
PART I
 
PART II
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART III
 
PART IV
 
    


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FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements may include, but are not limited to, statements with respect to our future financial or operating performance, future plans and objectives, competitive positioning, requirements for additional capital, government regulation of operations and the timing and possible outcome of litigation and regulatory matters. All statements other than statements of historical fact, included or incorporated by reference in this Annual Report on Form 10-K that address activities, events or developments that we, or our subsidiaries, expect or anticipate may occur in the future are forward-looking statements. Often, but not always, forward-looking statements can be identified by use of forward-looking words such as “aim,” “potential,” “may,” “could,” “would,” “might,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “committed,” “future” or “continue” or the negative thereof or similar variations. Forward-looking statements are based on certain assumptions and analyses made by us, in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and known and unknown risks, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Important factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among other things, general business, economic, competitive, political and social uncertainties, the actual results of current operations, industry conditions, intellectual property and other proprietary rights, liabilities inherent in our industry, accidents, labor disputes, delays in obtaining regulatory approvals or financing and general market factors, including interest rates, equity markets, business competition, changes in government regulations. Additional risks and uncertainties include, but are not limited to, those listed under “Item 1A. Risk Factors.”
 
Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward looking statements, there may be other factors that cause results to differ from those anticipated. Forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of the Annual Report on Form 10-K and we disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, results or otherwise, except as required by applicable securities laws.
 


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Part I
ITEM 1. BUSINESS.
 
Overview and History 
BG Staffing, Inc. (“BG Staffing,” “we,” or the “Company”) is a leading national provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services, Inc., BG Personnel, LP, and BG Finance and Accounting, Inc., within the U.S. in three industry segments: Multifamily, Professional, and Commercial. We provide temporary workers to a variety of customers that are seeking to match their workforce requirements to their business needs. Our customers operate across a diverse set of industries.
We employ a diverse operating model, both from a skill set and a geographic standpoint, which we believe mitigates downside revenue risk.
Our temporary staffing services consist of on-demand or short-term staffing assignments, contract staffing, and on-site management administration. Short-term staffing services assist employers in dealing with employee demands caused by such factors as seasonality, fluctuations in customer demand, vacations, illnesses, parental leave, and special projects without incurring the ongoing expense and administrative responsibilities associated with recruiting, hiring and retaining permanent employees. As more and more companies focus on effectively managing variable costs and reducing fixed overhead, the use of short-term staffing services allows companies to utilize a contingent staffing approach for their personnel needs, thereby converting a portion of their fixed personnel costs to a variable expense.
Our contract staffing services place temporary employees with customers for time-periods of more than three months or for an indefinite time period. This type of arrangement often involves outsourcing an entire department in a large corporation or providing the workforce for a large project.
In an on-site management arrangement, we place an experienced manager on-site at a customer’s place of business. The manager is responsible for conducting all recruiting, employee screening, interviewing, drug testing, hiring and employee placement for temporary workers at the customer’s facility for a long-term or indefinite period.
Management believes that the staffing industry and the employees performing these temporary staffing functions are, and will remain, an integral part of the labor market in local, regional and national economies in which we operate.
BG Staffing, Inc. is the successor by conversion to LTN Staffing, LLC, a Delaware limited liability company that was formed on August 27, 2007. In 2011, we began doing business as BG Staffing. LTN Staffing, LLC converted into a Delaware corporation, BG Staffing, Inc., following the merger of LTN Acquisition, LLC (the former parent of LTN Staffing, LLC) with and into LTN Staffing, LLC. The conversion was completed on November 3, 2013.
We commenced operations on October 17, 2007 and since 2009 new leadership has led an on-going growth and diversification initiative. Since 2010, we have acquired and successfully integrated nine businesses:
In June 2010, we purchased the interests of BG Personnel Services, LP and BG Personnel, LP, and purchased the common stock of B G Staff Services, Inc. Shortly after the purchase, we relocated our corporate headquarters to Dallas, Texas.

In December 2010, we purchased substantially all of the assets and assumed certain liabilities of JNA Staffing Inc., which specialized in providing temporary staffing services within the state of Wisconsin. These operations were rolled into our existing operations in Milwaukee, Wisconsin.

In December 2011, we purchased substantially all of the assets and assumed certain liabilities of Extrinsic, LLC, which specialized in providing information technology staffing services to customers within the U.S. We continue to operate under the Extrinsic trade name.


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In December 2012, we acquired substantially all of the assets and assumed certain liabilities of American Partners, Inc., which specialized in providing information technology staffing services to customers within the U.S. We continue to operate under the American Partners trade name.

In June 2013, we acquired substantially all of the assets and assumed certain liabilities of InStaff Holding Corporation and InStaff Personnel, LLC, a wholly owned subsidiary of InStaff Holding Corporation (collectively, “InStaff”). This acquisition has allowed us to strengthen and expand our operations in our Commercial segment. We continue to operate under the InStaff trade name.

In March 2015, we acquired substantially all of the assets and assumed certain liabilities of D&W Talent, LLC ("D&W"), which specialized in providing temporary and full-time staffing services of accounting and finance personnel and secretarial and administrative personnel to customers in Texas and Louisiana. We continue to operate under the Donovan & Watkins trade name.

In October 2015, we acquired substantially all of the assets and assumed certain liabilities of Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC (collectively, “VTS”), which provided information technology ("IT") temporary staffing talent and project management services. We continue to operate under the Vision Technology Services trade name.

In April 2017, we acquired substantially all of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”), which provided information technology ("IT") temporary staffing talent and project management services. We continue to operate under the Zycron trade name.

In September 2017, we acquired substantially all of the assets and assumed certain liabilities of Smart Resources Inc. and Accountable Search, LLC (collectively, "Smart"), which specialized in providing temporary and full-time staffing services of accounting and finance personnel and secretarial and administrative personnel to customers in Chicago market. For the current period, we continue to operate under the Accountable Search and Smart Resources trade names.

We operate through 65 branch offices and 15 on-site locations located across 26 states. We do not currently have any foreign operations.
Our Industry
The temporary staffing industry supplies temporary staffing services to customers to help them minimize the cost and effort of workforce planning. These services also enable the customer to rapidly respond to changes in business conditions, and in some cases to convert fixed labor costs to variable costs. Temporary staffing companies act as intermediaries in matching available temporary workers to customer assignments. The demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs and respond to changing market conditions.
The temporary staffing market is subject to volatility based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing temporary staffing services has increased due to low barriers to entry. During recessionary periods, the number of companies has decreased through consolidation, bankruptcies, or other events. The temporary staffing industry is experiencing increased demand in relation to total job growth as customers have placed a greater priority on maintaining a more flexible workforce.
The temporary staffing industry is large and highly fragmented with many competing companies. In September 2017, Staffing Industry Analysts estimated the 2018 U.S. temporary staffing market to be $145 billion, which is up from an estimated $141 billion in 2017. Staffing companies compete both to recruit and retain a supply of temporary workers and to attract and retain customers to use these workers. Customer demand for temporary staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. The temporary staffing industry includes a number of markets focusing on business needs that vary widely in duration of assignment and level of technical specialization.
Our Operations
We have diversified our operations to provide temporary workers within distinct segments of the industry. We refer to these segments as Multifamily, Professional, and Commercial.

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We operate branches within each segment as separate profit centers and provide managers considerable operational autonomy and financial incentives. Managers focus on business opportunities within their geographical markets and are provided centralized support to achieve success in those markets. We believe this structure allows us to recruit and retain highly motivated managers who have demonstrated the ability to succeed in a competitive environment. This structure also allows managers and staff to focus on market development while relying on centralized services for support in back-office operations, such as risk management programs and unemployment insurance, credit, collections, accounting, advice on legal and regulatory matters, and quality standards.
Our Segments
Our operations are organized into three business segments: Multifamily, Professional, and Commercial.
Multifamily Segment
Our Multifamily segment is a leading provider of front office and maintenance personnel to the multifamily housing industry. We currently have 43 branch offices in 23 states. The Multifamily division utilizes a centralized recruiting model from recruiting centers in Dallas, Houston, and Austin, Texas, in the Charlotte, North Carolina area, and the Tampa, Florida area. All open positions nationally are recruited from one of these regional recruiting centers. The workers we assign to our multifamily customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.
Professional Segment
Our Professional segment provides highly skilled IT professionals with expertise in SAP, Workday, Olik View, Hyperion, Oracle, project management and other IT staffing skills to customers on a national basis. Our customers include large Fortune 500 companies and consulting firms engaged in systems integration projects. We operate our national coverage of the IT market from our offices in North Carolina, Rhode Island, Maryland, and Tennessee. Additionally, we provide finance, accounting and related support personnel in Texas and Louisiana through our Texas based D&W group and in Chicago through our Smart group.
Commercial Segment
Our Commercial segment provides temporary workers to manufacturing, distribution, and logistics customers needing a flexible workforce. We currently have 12 branch offices and 15 on-site locations operating in 6 states. Our Commercial segment temporary workers perform services in a variety of skilled and unskilled positions. The workers we assign to our Commercial customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.
Financial Information about Segments

Refer to Note 17 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated by reference.
Financial Information about Geographic Areas

Refer to Notes 1 and 2 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated by reference.
Our Recruiting

We believe a key component of our success is the ability to recruit and maintain a pool of qualified temporary workers and regularly place them into desirable and appropriate positions. We use comprehensive methods to identify, assess, select and, when appropriate, measure the skills of our temporary workers and permanent placement candidates to meet the needs of our customers.

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Our Customers

We currently service small and medium-sized companies as well as divisions of Fortune 500 companies. As is common in the staffing industry, our engagements to provide temporary services to our customers are generally of a non-exclusive, short-term nature and subject to termination by the customer with little or no notice. No customer accounted for more than 10% of our revenues in 2017, 2016, or 2015.
Growth Strategy
We are committed to growing our operations. Revenues have grown from $35 million in 2009 to $272.6 million in 2017, by using a growth strategy reliant upon both acquisitions and organic growth.
We will continue to evaluate acquisition opportunities utilizing our proven approach to the assessment, valuation, and integration of acquisitions. Additionally, we are committed to continue to grow our operations in our current markets, as well as expand into new markets within the segments and industries that we currently serve.
We are organized to handle many of the administrative functions at our corporate location so that our branches can focus on business development and the effective recruiting and assignment of temporary workers.
We will continue to invest in technology and process improvements, as necessary, to ensure that we are operating at optimal productivity and performance.

Competition
The staffing services market is highly competitive with limited barriers to entry. We compete in national, regional and local markets with full-service and specialized temporary staffing companies. Some of our competitors have significantly more marketing and financial resources than we do. Price competition in the staffing industry is intense. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.
The principal competitive factors in attracting qualified candidates for temporary assignments are pay rates, availability of assignments, duration of assignments and responsiveness to requests for placement. We believe that many potential candidates seeking temporary assignments through us may also be pursuing assignments through other means. Therefore, the speed at which we place prospective temporary workers and the availability of appropriate assignments are important factors in our ability to complete assignments of qualified temporary workers. In addition to having high quality temporary workers to assign in a timely manner, the principal competitive factors in obtaining and retaining customers in the temporary staffing industry are properly assessing the customers’ specific job requirements, the appropriateness of the temporary worker assigned to the customer, the price of services and the monitoring of customer satisfaction. Although we believe we compete favorably with respect to these factors, we expect competition to continue to increase.
Seasonality
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our customers’ business. Demand for our Multifamily staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our Commercial staffing services increases during the third quarter of the year and peaks in the fourth quarter. Demand for our Commercial staffing services is lower during the first quarter, in part due to customer shutdowns and adverse weather conditions in the winter months. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
The staffing industry has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Staffing customers tend to use temporary staffing to supplement their existing workforces and generally hire direct workers when long-term demand is expected to increase. As a consequence, our revenues tend to increase quickly when the economy begins to grow and, conversely, our revenues can also decrease quickly when the economy begins to weaken.

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Employees and Temporary Workers
 
As of February 9, 2018, we had 349 staff employees at our corporate and branch offices. During the fiscal year ended 2017, we assigned approximately 29,000 temporary workers and had working, on average, approximately 4,700 temporary workers during the fourth quarter of 2017.
 
None of our staff employees or temporary workers is represented by a labor union, and we are not aware of any current efforts or plans to organize any of our staff employees or temporary workers. To date we have not experienced any material labor disruptions.

Intellectual Property
We own or have rights to various copyrights, trademarks, service marks, trade names and domain names used in our business, including, but not limited to, BG Staffing, BG Staffing Group, BG Personnel Services, Extrinsic, American Partners, InStaff, BG Temporary Staffing, BG Multifamily, BG Talent, Triance, Donovan & Watkins, D&W Talent, Vision Technology Services, Zycron, Smart Resources, Accountable Search, bgstaffing.com, bgstaffinggroup.com, bgpersonnel.com, bgstaffing.net, ltnstaffing.com, milwaukeetemps.com, milwaukeetmepsinc.com, extrinsicllc.com, extrinsicgroup.com, extrinsicresources.com, jnastaffing.com, bgcompanies.net, bgpersonnel.net, bgmail.com, therightpeoplerightnow.com, rightpeoplerightnow.com, americanpartnersinc.com, instaff.com, donwat.com, vistechs.com, smartstaffing.com, accountablesearch.com and executiveassistantsearch.com. Our trade names are valuable assets that reinforce the distinctiveness of our brands.
Regulation
We are subject to regulation by numerous federal, state and local regulatory agencies, including but not limited to the U.S. Department of Labor, which sets employment practice standards for workers, and similar state and local agencies. We are subject to the laws and regulations of the jurisdictions within which we operate. While the specific laws and regulations vary among these jurisdictions, some require some form of licensing and often have statutory requirements for workplace safety and notice of change in obligation of workers’ compensation coverage in the event of contract termination. Although compliance with these requirements imposes some additional financial risk on us, particularly with respect to those clients who breach their payment obligation to us, such compliance has not had a material adverse effect on our business to date. Any inability or failure to comply with government regulation could materially harm our business. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could also materially harm our business.
Available Information
We file electronically with the SEC, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Our website address is www.bgstaffing.com. The information included on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We will make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have filed or furnished such material to the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference room at 100 F Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and formation statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Furthermore, we will provide electronic or paper copies of filings free of charge upon written request to our Chief Financial Officer.
ITEM 1A. RISK FACTORS.
 
There are numerous and varied risks that may prevent us from achieving our goals, including those described below. You should carefully consider the risks described below and the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. Our business, financial condition, and results of operations, could be harmed by any of the following risks. If any of the events or circumstances described below were to occur, our business, the financial condition and the results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and investors could lose part or all of their investment. The risks below are not the only risks we face. Additional risks not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or results of operations.
 

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Risks Related to Our Company and Our Business
 
We operate in a highly competitive industry with low barriers to entry, and may be unable to compete successfully against existing or new competitors.
 
The staffing services market is highly competitive with limited barriers to entry. We compete in national, regional and local markets with full-service and specialized temporary staffing companies. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.
 
Several of our existing or potential competitors have substantially greater financial, technical and marketing resources than we do, which may enable them to:

Develop and expand their infrastructure and service offerings more quickly and achieve greater cost savings;
Invest in new technologies;
Expand operations into new markets more rapidly;
Devote greater resources to marketing;
Compete for acquisitions more effectively and complete acquisitions more easily; and
Aggressively price products and services and increase benefits in ways that we may not be able to match.

In order to compete effectively in our markets, we must target our potential customers carefully, continue to improve our efficiencies and the scope and quality of our services, and rely on our service quality, innovation, education and program clarity. If our competitive advantages are not compelling or sustainable, then we are unlikely to increase or sustain profits and our stock price could decline.

In addition, heightened competition among our existing competitors, especially on a price basis, or by new entrants into the market, could create additional competitive pressures that may reduce our margins and adversely affect our business. If we fail to successfully respond to these competitive pressures or to implement our strategies effectively, our revenues or gross margins could be reduced.

Our business is subject to risks associated with geographic market concentration.

Geographic revenue in excess of 10% of the Company's consolidated revenue in fiscal year 2017 and the related percentage for fiscal years 2016 and 2015 was generated in the following areas:
 
 
2017
 
2016
 
2015
Maryland
 
12
%
 
13
%
 
4
%
Tennessee
 
12
%
 
5
%
 
3
%
Texas
 
29
%
 
32
%
 
41
%

Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.

A downturn of the U.S. or global economy could result in our customers using fewer workforce solutions and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.
 
Because demand for workforce solutions and services, particularly staffing services, is sensitive to changes in the level of economic activity, our business may suffer during economic downturns. During periods of weak economic growth or economic contraction, the demand for staffing services typically declines. When demand drops, our operating profit is typically impacted unfavorably as we experience a deleveraging of our selling and administrative expense base as expenses may not decline as quickly as revenues. In periods of decline, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our branch network and brands. Additionally, during economic downturns companies may slow the rate at which they pay their vendors, or they may become unable to pay their obligations. If our customers become unable to pay amounts owed to us, or pay us more slowly, then our cash flow and profitability may suffer.
 

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Our service agreements may be terminated on short notice, leaving us vulnerable to loss of a significant amount of customers in a short period of time.

Our service agreements with our customers are generally cancelable by the customer with little or no notice to us. As a result, a significant number of our customers can terminate their agreements with us at any time, making us particularly vulnerable to a significant decrease in revenue within a short period of time that could be difficult to quickly replace.

If we are unable to retain existing customers or attract new customers, our results of operations could suffer.

Increasing the growth and profitability of our business is particularly dependent upon our ability to retain existing customers and capture additional customers. Our ability to do so is dependent upon our ability to provide high quality services and offer competitive prices. If we are unable to execute these tasks effectively, we may not be able to attract a significant number of new customers and our existing customer base could decrease, either or both of which could have an adverse impact on our revenues.

We have debt that could adversely affect our financial health and prevent us from fulfilling our obligations or put us at a competitive disadvantage.
 
Our level of debt and the limitations imposed on us by our lenders could have a material impact on investors, including the requirement to use a portion of our cash flow from operations for debt service rather than for our operations and the need to comply with the various covenants associated with such debt. Additionally, we may not be able to obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing. We could also be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions, or we may be disadvantaged compared to competitors with less leverage.
 
We have significant working capital needs and if we are unable to satisfy those needs from cash generated from our operations or borrowings under our revolving credit facility, we may not be able to meet payroll requirements.

We require significant amounts of working capital to operate our business. If we experience a significant and sustained drop in operating profits, or if there are unanticipated reductions in cash inflows or increases in cash outlays, we may be subject to cash shortfalls. If such a shortfall were to occur for even a brief period of time, it may have a significant adverse effect on our business. In particular, we use working capital to pay expenses relating to our employees and temporary workers and to satisfy our workers’ compensation liabilities. Generally, we pay our temporary workers on a weekly basis while we receive payments from our customers 30 to 60 days after billing. As a result, we must maintain sufficient cash availability to pay employees and temporary workers and fund related payroll liabilities prior to receiving payment from customers.

We derive working capital for our operations through cash generated by our operating activities and borrowings under our revolving credit facility. We believe that our current sources of capital are adequate to meet our working capital needs. However, our available sources of capital are limited. If our working capital needs increase in the future, we may be forced to seek additional sources of capital, which may not be available on commercially reasonable terms.

The amount we are entitled to borrow under our revolving credit facility is calculated monthly based on the aggregate value of certain eligible trade accounts receivable generated from our operations, which are affected by financial, business, economic and other factors, as well as by the daily timing of cash collections and cash outflows. The aggregate value of our eligible accounts receivable may not be adequate to allow for borrowings for other corporate purposes, such as capital expenditures or growth opportunities, which could reduce our ability to react to changes in the market or industry conditions.

Our credit agreement includes various financial and other covenants with which the Company has to comply in order to maintain borrowing availability and avoid penalties, including minimum fixed charge coverage ratio, and maximum leverage ratio, and restrictions on the payment of dividends.

Any future failure to comply with the covenants which may occur under our credit agreement could result in an event of default which, if not cured or waived, could trigger prepayment obligations. There can be no assurance that any future lender will waive defaults that may occur in the future. If we were forced to refinance our credit agreement, there can be no assurance that such refinancing would be available or that such refinancing would not have a material adverse effect on our business and financial condition. Even if such refinancing were available, the terms could be less favorable and our results of operations and financial condition could be adversely affected by increased costs and interest rates.


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We typically experience significant seasonal and other fluctuations in our borrowings and borrowing availability, and we aggressively manage our cash flow to ensure adequate funds to meet working capital needs. Such management steps include working to improve collections, adjusting the timing of cash expenditures and managing operating expenses.

Failure to comply with restrictive covenants under our credit agreement could trigger prepayment obligations or additional costs.

Our future failure to comply with our covenants which may occur under our credit agreement could result in an event of default which, if not cured or waived, could trigger prepayment obligations. There can be no assurances that any future lender will waive defaults that may occur in the future. If we are forced to refinance our credit agreement, there can be no assurance that such refinancing would be available or that such refinancing would not have a material adverse effect on our business and financial condition. Even if such refinancing were available, the terms could be less favorable and our results of operations and financial condition could be adversely affected by increased costs and interest rates.

We could be required to write-off goodwill or intangible assets in future periods if our future operating results suffer.

In accordance with generally accepted accounting principles, we are required to review our goodwill and intangible assets for impairment at least annually. Our goodwill and intangibles assets were $18.0 million and $37.3 million, respectively, at the end of 2017. An unfavorable evaluation could cause us to write-off these assets in future periods. Any future write-offs could have a material adverse impact on our financial condition and results of operations.

The amount of collateral that we are required to maintain to support our workers’ compensation obligations could increase, reducing the amount of capital we have available to support and grow our field operations.

We are contractually obligated to collateralize our workers’ compensation obligations under our workers’ compensation program through irrevocable letters of credit, surety bonds or cash. Our workers’ compensation program renews annually on January 1 of each year, and as part of the renewal, could be subject to an increase in collateral. These collateral requirements are significant and place pressure on our liquidity and working capital capacity. We believe that our current sources of liquidity are adequate to satisfy our immediate needs for these obligations; however, our available sources of capital are limited. Depending on future changes in collateral requirements, we could be required to seek additional sources of capital in the future, which may not be available on commercially reasonable terms, or at all.

We are dependent on workers’ compensation insurance coverage at commercially reasonable terms.
 
We provide workers’ compensation insurance for our employees and temporary workers. Our workers’ compensation insurance policies are renewed annually. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on commercially reasonable terms. The loss of our workers’ compensation insurance coverage would prevent us from doing business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies. The loss of workers' compensation insurance could have a material adverse effect on the Company’s financial position and results of future operations.
 
Because we assume the obligation to make wage, tax and regulatory payments in respect of some employees, we are exposed to customer credit risks.

We generally assume responsibility for and manage the risks associated with our employee payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as group health and retirement benefits. These obligations are fixed, whether or not the customer makes payments required by our services agreement, which exposes us to credit risks. We attempt to mitigate this risk by generally invoicing our customers weekly and having a high number of customers who are geographically and industry diverse. We also carefully monitor the timeliness of our customers’ payments and impose strict credit standards on our customers. If we fail to successfully manage our credit risk, we may suffer losses which would decrease our profitability.

Our business is subject to federal, state and local labor and employment laws and a failure to comply could materially harm our business.
 
We are subject to regulation by numerous federal, state and local regulatory agencies, including but not limited to the U.S. Department of Labor, which sets employment practice standards for workers, and similar state and local agencies. We are subject to the laws and regulations of the jurisdictions within which we operate. While the specific laws and regulations vary among these

12



jurisdictions, some require some form of licensing and often have statutory requirements for workplace safety and notice of change in obligation of workers’ compensation coverage in the event of contract termination. Although compliance with these requirements imposes some additional financial risk on us, particularly with respect to those clients who breach their payment obligation to us, such compliance has not had a material adverse effect on our business to date. Any inability or failure to comply with government regulation could materially harm our business. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could also materially harm our business.
 
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Laws”) include various health-related provisions that took effect during 2014, including requiring most individuals to have health insurance and establishing new regulations on health plans. Although the Health Care Reform Laws do not mandate that employers offer health insurance, beginning in 2015 tax penalties were assessed on employers who do not offer health insurance that meets certain affordability or benefit requirements. Unless modified by regulations or subsequent legislation, if we are required to provide additional health insurance benefits to our temporary workers, or the payment of tax penalties if such coverage is not adequate, may increase our costs. If we are unable to raise the rates we charge our customers to cover these costs, such increases in costs could materially harm our business.

In addition, certain of our clients may require that we indemnify them against losses in the event that the client is determined to be non-compliant with the Health Care Reform Laws with respect to one or more of our temporary workers assigned to such client. We have not received notice from any client that acts or omissions by us may have resulted in losses to the client relating to non-compliance with the Health Care Reform Laws, any future liabilities that may be incurred by us pursuant to any such indemnification provisions could affect our results of operations.

It is likely that President Trump and the U.S. Congress will continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the PPACA. President Trump has issued multiple executive orders in support of repealing the PPACA,in whole or in part, and the U.S. Congress has made several attempts to repeal or modify the PPACA. It is unclear at this point what the scope of any future such legislation will be and when it will become effective. Because of the uncertainty surrounding this replacement health care reform legislation, we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of any other health care reform legislation on the Company’s financial condition or operating results. Whether or not there is alternative health care legislation enacted in the U.S., there is likely to be significant disruption to the health care market in the coming months and years and the costs of the Company’s health care expenditures may increase.

 We may be exposed to employment-related claims and losses, including class action lawsuits, which could have a material adverse effect on our business.
 
Temporary staffing service providers typically assign personnel in the workplaces of other businesses. The risks of these activities include possible claims relating to:
 
discrimination and harassment;
wrongful termination or denial of employment;
violations of employment rights related to employment screening or privacy issues;
classification of temporary workers;
assignment of illegal aliens;
violations of wage and hour requirements;
retroactive entitlement to temporary worker benefits;
errors and omissions by our temporary workers;
misuse of customer proprietary information;
misappropriation of funds;
damage to customer facilities due to negligence of temporary workers; and
criminal activity.

We may incur fines and other losses or negative publicity with respect to these claims. In addition, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation. There can be no assurance that the corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. There can also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on commercially reasonable terms or be sufficient in amount or scope of coverage.
 

13



We depend on our ability to attract and retain qualified temporary workers.
 
We depend on our ability to attract qualified temporary workers who possess the skills and experience necessary to meet the staffing requirements of our customers. We must continually evaluate our base of available qualified personnel to keep pace with changing customer needs. Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available. Our success is substantially dependent on our ability to recruit and retain qualified temporary workers.
 
We would be adversely affected by the loss of key personnel.
 
Our operations and financial success depends significantly on our management team. The loss of any key members of management could adversely affect our business, financial condition and results of operations.

We are dependent upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, or if our security measures are breached, our customer and temporary worker relationships and our ability to attract new customers may be adversely affected.

Our business could be interrupted by damage to or disruption of our computer, telecommunications equipment, or software systems, and we may lose data. Our customers’ businesses may be adversely affected by any system or equipment failure we experience. As a result of any of the foregoing, our relationships with our customers may be impaired, we may lose customers, our ability to attract new customers may be adversely affected and we could be exposed to contractual liability. Precautions in place to protect us from, or minimize the effect of, such events may not be adequate. In addition, our business involves the storage and transmission of temporary workers or customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to customer data, our reputation may be damaged, our business may suffer and we could incur significant liability. Techniques used to obtain unauthorized access or to sabotage systems change frequently and are growing increasingly sophisticated. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, we could be liable and the market perception of our services could be harmed.

Acquisitions and new business initiatives may not be successful.
 
We expect to continue making acquisitions and entering into new business initiatives as part of our long-term business strategy. These acquisitions and new business initiatives involve significant challenges and risks, including that they may not advance our business strategy, that we may not realize a satisfactory return on our investment, that we may experience difficulty in integrating operations, or diversion of management’s attention from our other business. We may be unable to identify suitable acquisition candidates in the future. Moreover, acquisitions may require substantial capital needs and the incurrence of additional indebtedness which may change significantly our capitalization and results of operations. Further, these acquisitions could result in post-closing discovery of material undisclosed liabilities of the acquired business or assets, title or other defects with respect to acquired assets, discrepancies or errors in furnished financial statements or other information or breaches of representations made by the sellers, or the unexpected loss of key employees or customers from acquired businesses. These events could cause harm to our operating results or financial condition.

Risks Related to the Ownership of Our Securities
 
An investment in our common stock should be considered high risk.
 
An investment in our common stock requires a long-term commitment, with no certainty of return. Investment banks may not agree to underwrite primary or secondary offerings on behalf of our company or its stockholders in the future. If all or any of the foregoing risks occur, it would have a material adverse effect on our company.
 
Our common stock has been traded on the NYSE American since October 27, 2014, and, until recently, has traded in low volumes. We cannot predict whether an active trading market for our common stock will continue. Even if an active trading market continues, the market price of our common stock may remain volatile.
In the absence of an active trading market:
you may have difficulty buying and selling our common stock at all or at the price you consider reasonable;

14



market visibility for shares of our common stock may be limited, which may have a depressive effect on the market price for shares of our common stock and on our ability to raise capital or make acquisitions by issuing our common stock.

Even if an active market for our common stock continues, of which no assurances can be given, the market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:
actual or anticipated fluctuations in our quarterly or annual operating results;
changes in financial or operational estimates or projections;
conditions in markets generally;
changes in the economic performance or market valuations of companies similar to ours; and
general economic or political conditions in the United States or elsewhere.

The securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of shares of our common stock.

We will likely issue additional common stock in the future, which would dilute the holdings of our existing stockholders.
In the future we may issue additional securities up to our total authorized and unissued amounts, including shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock, resulting in the dilution of the ownership interests of our stockholders. We may issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of our securities for capital-raising or other business purposes. Moreover, the exercise of our existing outstanding warrants and stock options, which are exercisable for or convertible into shares of our common stock, would dilute our existing common stockholders.
Our compliance with complicated regulations concerning corporate governance and public disclosure has resulted and may in the future result in additional expenses.
 
We are faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards of a public company are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
 
Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.
 
As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave our stockholders without information or rights available to stockholders of more mature companies.
 
For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:
 
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
taking advantage of an extension of time to comply with new or revised financial accounting standards;
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We expect to take advantage of these exemptions until we are no longer an “emerging growth company.” Because of these lessened regulatory requirements, our stockholders will not have all the information and rights available to stockholders of more mature companies.

15




Because we may elect to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.
 
We may elect to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
 
There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our company.
 
Proper systems of internal controls over financial reporting and disclosure are critical to the operation of a public company. Should such systems fail to detect or prevent error or fraud, it would leave us without the ability to reliably compile financial information about our company and significantly impair our ability to prevent or detect errors and fraud, all of which would have a negative impact on our company from many perspectives.
 
Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all errors and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent and detect errors or fraud could materially adversely impact us.
 
In the future, our auditors will be required to attest to the effectiveness of our internal control over financial reporting, and at such time our auditors may issue a report that is adverse in the event our auditors are not satisfied with the level at which our internal controls are documented, designed or operating, which could have an adverse impact on our stock price.
 
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until, at the earliest, the date we are no longer an “emerging growth company” as defined in the recently enacted JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. We will remain an “emerging growth company” through Fiscal 2018, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the end of that fiscal year.
 
Any of the foregoing occurrences, should they come to pass, could negatively impact the public perception of our company, which could have a negative impact on our stock price.
 
We do not have an extended history of paying dividends on our common stock nor can we be sure we will pay them in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
 
Prior to December 19, 2014, we had not paid cash dividends on our common stock. While we have declared and paid dividends for the prior thirteen quarterly periods, we are limited in our ability to pay dividends by our credit agreement, and therefore, we cannot be certain if we will pay any cash dividends to holders of our common stock in the foreseeable future. Any future determination with respect to the payment of dividends will be at the discretion of our board of directors and will be dependent upon, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, contractual restrictions, future prospects, general economic conditions and other factors considered relevant by our board of directors. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
 

16



Upon dissolution of our company, you may not recoup all or any portion of your investment.
 
In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the stockholders of common stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our company. In this event, you could lose some or all of your investment.
 
Certain provisions of our organizational documents may make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.
 
Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of us and our stockholders. The provisions in such certificate of incorporation and bylaws include, among other things, the following:
 
a classified board of directors with three-year staggered terms;
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;
stockholder action can only be taken at a special or regular meeting and not by written consent except in limited circumstances;
advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;
removal of directors only for cause;
allowing only our board of directors to fill vacancies on our board of directors or increase the size of our board of directors; and
super-majority voting requirements to amend certain provisions of our certificate of incorporation.

We have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), a statutory provision that may have the effect of delaying, hindering or preventing some takeovers of our company. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an “interested stockholder,” unless (with certain exceptions) the business combination or the transaction in which the person became an “interested stockholder” is approved in a prescribed manner. Accordingly, we will not be subject to any anti-takeover effects of Section 203. Our certificate of incorporation contains provisions that have the same effect as Section 203, except that they generally provide that Taglich Private Equity LLC, Taglich Brothers, Inc. or any of their respective affiliates or associates, including any investment funds or portfolio companies managed by any of the foregoing, or any other person with whom any of the foregoing act as a group for the purpose of acquiring, voting or disposing of our shares, or any person that becomes an interested stockholder as a result of a transfer of 5% or more of our voting stock by the forgoing persons to such person, will be excluded from the “interested stockholder” definition in our certificate of incorporation and will therefore not be subject to the restrictions set forth therein that have the same effect as Section 203.

While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our board of directors, they could enable the board of directors to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.
 
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS.
 
None.
 

17



ITEM 2. PROPERTIES.
 
Our executive office is located at 5850 Granite Parkway, Suite 730, Plano, Texas 75024, and our telephone number is 972-692-2400. We lease our corporate headquarters, which is approximately 6,200 square feet of space. We operate through 65 branch offices and 15 on-site locations located across 26 states. We lease all of our branch offices, which are located throughout the U.S., through operating leases with terms that range from six months to five years. We also have month to month leases. We believe that our facilities are adequate for our current needs.
 
ITEM 3. LEGAL PROCEEDINGS.
 
From time to time we have been threatened with, or named as a defendant in litigation, administrative claims and lawsuits. We carry insurance to mitigate any potential liabilities associated therewith. The principal risks that we insure against, subject to and upon the terms and conditions of our various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, alternative staffing errors and omissions, directors & officers, fiduciary liability and fidelity losses. As of the date of this Annual Report on Form 10-K, management believes that the resolution of these matters will not have a material adverse effect on our consolidated financial statements.
 
ITEM 4. MINE SAFETY DISCLOSURE.
 
Not applicable.
 

18



PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Stock Performance Graph

The following graph compares, through December 31, 2017, the cumulative total return of the Company’s common stock, an index of certain publicly traded employment services companies, and the Russell 2000. The graph assumes the investment of $100 at the beginning of the period depicted in the chart and reinvestment of all dividends. Note that historic stock price performance is not necessarily indicative of future stock price performance. The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

part2stockperformance.jpg
This index represents the cumulative total return of the Company and the following corporations providing temporary or permanent employment services: GEE Group, Mastech Digital, RCM Technologies and Staffing 360 Solutions.


19



Market Information and Holders
 
Our common stock commenced listing on the NYSE American on October 27, 2014 under the symbol “BGSF.” Our common stock was quoted on the OTC Bulletin Board, or OTCBB, under the symbol “BGSF” from April 30, 2014 to October 27, 2014. Prior to the quotation of our common stock on the OTCBB, there was no public market for our common stock. The table below sets forth information on the range of high and low sales prices for our common stock.
Quarter Ended
 
High
Low
December 31, 2017
 
$
18.17

$
14.65

September 24, 2017
 
$
18.85

$
14.26

June 25, 2017
 
$
18.50

$
13.85

March 26, 2017
 
$
15.64

$
12.84

December 25, 2016
 
$
17.03

$
11.77

September 25, 2016
 
$
21.09

$
15.38

June 26, 2016
 
$
16.72

$
12.55

March 27, 2016
 
$
14.95

$
12.07

 
As of February 9, 2018, the last reported sales price for our common stock was $16.75 per share.
As of February 9, 2018, there were approximately 2,206 holders of record of our common stock.

Dividends
 
The board of directors has declared or paid the following cash dividends during the fiscal years ended 2017, 2016 and 2015:
Declared Date
 
Record Date
 
Distribution Date
 
Dividend per Share
 
Amount Paid
December 19, 2014
 
December 31, 2014
 
January 30, 2015
 
$0.15
 
$
989,722

May 1, 2015
 
May 11, 2015
 
May 25, 2015
 
$0.25
 
1,811,161

June 18, 2015
 
July 20, 2015
 
July 31, 2015
 
$0.25
 
1,844,868

October 27, 2015
 
November 9, 2015
 
November 20, 2015
 
$0.25
 
1,846,655

Total
 
 
 
 
 
 
 
$
6,492,406

 
 
 
 
 
 
 
 
 
January 26, 2016
 
February 8, 2016
 
February 19, 2016
 
$0.25
 
$
1,846,989

April 28, 2016
 
May 9, 2016
 
May 16, 2016
 
$0.25
 
1,849,691

July 26, 2016
 
August 8, 2016
 
August 15, 2016
 
$0.25
 
2,167,121

October 19, 2016
 
October 31, 2016
 
November 7, 2016
 
$0.25
 
2,167,121

Total
 
 
 
 
 
 
 
$
8,030,922

 
 
 
 
 
 
 
 
 
January 26, 2017
 
February 13, 2017
 
February 20, 2017
 
$0.25
 
$
2,167,327

April 20, 2017
 
May 1, 2017
 
May 8, 2017
 
$0.25
 
2,188,744

July 20, 2017
 
July 31, 2017
 
August 7, 2017
 
$0.25
 
2,189,844

October 23, 2017
 
November 2, 2017
 
November 7, 2017
 
$0.25
 
2,189,844

Total
 
 
 
 
 
 
 
$
8,735,759


On February 1, 2018, the Company's board of directors declared a cash dividend in the amount of $0.25 per share of common stock to be paid on February 20, 2018 to all shareholders of record as of the close of business on February 12, 2018.

Prior to December 19, 2014, we had not paid cash dividends on our common stock. Our ability to pay dividends is restricted under the terms of our credit agreement and may be restricted under other agreements governing our outstanding indebtedness from time to time. Any future determination with respect to the payment of dividends will be at the discretion of our board of directors and will be dependent upon, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, contractual restrictions, future prospects, general economic conditions and other factors

20



considered relevant by our board of directors.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Credit Agreements” for a description of the restrictions in our credit agreements on our ability to pay dividends.

Equity Compensation Plans
 
The following equity compensation plan information is provided as of December 31, 2017:
 
Plan Category
 
Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights (a)
 
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a))
Equity Compensation Plans Approved by Security Holders (2013 Long-Term Incentive Plan)
 
765,411

 
$10.27
 
225,103

Total
 
765,411

 
$10.27
 
225,103

 
A description of the equity compensation plan is incorporated by reference to Note 13 in the Notes to Consolidated Financial Statements included in Item 15 in this Annual Report on Form 10-K.
 
Recent Sales of Unregistered Securities
 
In November 2015, we issued 6,482 shares of common stock in a cashless exercise of outstanding warrants. The warrants had an original exercise price of $6.25.

In July 2016, we issued 157, 2,046, and 15,707 shares of common stock in cashless exercises of outstanding warrants. The warrants had an original exercise prices of $4.51, $6.25, and $11.85, respectively.

In April 2017, we issued 70,670 shares of common stock in a private placement for a value of $1.0 million at the closing of the Zycron acquisition.

The foregoing issuances of securities were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

Share Repurchases
 
There were no share repurchases during the fiscal years ended 2017, 2016 or 2015.
 
Item 6.  Selected Financial Data.
 
The following tables set forth our summary consolidated historical financial data. You should read the information set forth below in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated historical financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The statement of operations data for the fiscal years ended 2017, 2016, and 2015 and the balance sheet data as of December 31, 2017 and December 25, 2016 set forth below are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The statement of operations data for the fiscal years ended 2014 and 2013 and the balance sheet data as of December 27, 2015, December 28, 2014, and December 29, 2013 set forth below were derived from our audited financial statements not included in this Annual Report.

21



 
Fiscal Years Ended
 
December 31,
2017
 
December 25,
2016
 
December 27,
2015
 
December 28,
2014
 
December 29,
2013
 
(dollars in thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
272,600

 
$
253,852

 
$
217,534

 
$
172,811

 
$
151,678

Gross profit
$
68,402

 
$
60,073

 
$
47,907

 
$
34,527

 
$
29,063

Selling, general and administrative expenses
$
44,350

 
$
37,804

 
$
30,390

 
$
24,084

 
$
19,041

Depreciation and amortization
$
6,292

 
$
6,733

 
$
5,544

 
$
4,642

 
$
4,894

Operating income
$
17,760

 
$
15,536

 
$
11,973

 
$
5,801

 
$
5,128

Loss on extinguishment of debt
$

 
$
404

 
$
439

 
$

 
$

Loss on extinguishment of related party debt
$

 
$

 
$

 
$
987

 
$

Interest expense, net
$
3,253

 
$
3,962

 
$
2,996

 
$
2,472

 
$
4,057

Interest expense-related party
$

 
$

 
$

 
$
213

 
$

Change in fair value of put option
$

 
$

 
$
(177
)
 
$
1,184

 
$
236

Income before income taxes
$
14,507

 
$
11,170

 
$
8,715

 
$
945

 
$
835

Income tax expense (benefit)
$
8,659

(3) 
$
4,288

 
$
3,368

 
$
1,374

 
$
(7,463
)
Net income (loss)
$
5,848

 
$
6,882

 
$
5,347

 
$
(429
)
 
$
8,298

 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Per Share:
 
 
 
 
 
 
 
 
 
Net income (loss) per share – basic
$
0.67

 
$
0.85

 
$
0.76

 
$
(0.08
)
 
$
1.53

Net income (loss) per share – diluted
$
0.65

 
$
0.82

 
$
0.73

 
$
(0.08
)
 
$
1.47

Weighted average shares outstanding – basic
8,734

 
8,108

 
7,079

 
5,649

 
5,425

Weighted average shares outstanding – diluted
9,038

 
8,400

 
7,289

 
5,649

 
5,646

 
 
 
 
 
 
 
 
 
 
Pro Forma C Corporation Data (1):
 
 
 

 
 

 
 

 
 
Historical income before taxes
$

 
$

 
$

 
$

 
$
835

Pro forma income tax expense
$

 
$

 
$

 
$

 
$
536

Pro forma income
$

 
$

 
$

 
$

 
$
299

Pro forma income per share – basic
$

 
$

 
$

 
$

 
$
0.06

Pro forma income per share – diluted
$

 
$

 
$

 
$

 
$
0.05

Pro forma weighted average shares outstanding – basic

 

 

 

 
5,425

Pro forma weighted average shares outstanding – diluted

 

 

 

 
5,646

 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 

 
 
 
 
 
 
Adjusted EBITDA (2)
$
24,499

 
$
22,583

 
$
17,870

 
$
11,636

 
$
10,022

Cash dividends declared per common share
$
1.00

 
$
1.00

 
$
0.75

 
$
0.15

 
$

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Working capital
$
16,320

 
$
19,185

 
$
10,016

 
$
8,304

 
$
8,126

Total assets
$
104,633

 
$
81,214

 
$
84,400

 
$
53,276

 
$
58,260

Total outstanding borrowings, net
$
44,123

 
$
23,618

 
$
30,649

 
$
21,591

 
$
32,022

Total other long-term liabilities
$
2,629

 
$
1,858

 
$
4,519

 
$
2,922

 
$
33,343

Stockholders’ equity
$
39,135

 
$
40,488

 
$
25,928

 
$
16,363

 
$
8,103

 


22



(1) 
For comparative purposes, information related to pro forma tax expense, pro forma income and pro forma income per share has been included assuming the Company had been taxed as a C corporation for the period presented in the audited historical consolidated financial statements (Fiscal year 2013).
(2) 
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles (non-GAAP), in this Annual Report on Form 10-K 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 generally accepted accounting principles ("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 our management. In addition, the financial covenants in our credit agreements are based on EBITDA as defined in the credit agreements.
(3) 
Includes a $3.3 million re-measurement of the net deferred tax assets as a result of the Tax Cuts and Jobs Act ("TCJA").

We define “Adjusted EBITDA” as earnings before interest expense and related party interest, income taxes, depreciation and amortization expense, loss on early extinguishment of debt and related party debt, and other non-cash expenses such as the put option adjustment and share-based 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. In addition, the financial covenants in our credit agreement are based on Adjusted EBITDA as defined in the credit agreement. 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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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



 
 
 
Fiscal Years Ended
 
 
 
December 31,
2017
 
December 25,
2016
 
December 27,
2015
 
December 28,
2014
 
December 29,
2013
 
 
 
(dollars in thousands)
Net income (loss)
 
$
5,848

 
$
6,882

 
$
5,347

 
$
(429
)
 
$
8,298

Interest expense and related party interest, net
 
3,253

 
3,962

 
2,996

 
2,685

 
4,057

Income tax expense (benefit)
 
8,659

(3) 
4,288

 
3,368

 
1,374

 
(7,463
)
Loss on extinguishment of debt and related party debt
 

 
404

 
439

 
987

 

Change in fair value of put option
 

 

 
(177
)
 
1,184

 
236

 
Operating income
 
17,760

 
15,536

 
11,973

 
5,801

 
5,128

Depreciation and amortization
 
6,292

 
6,733

 
5,544

 
4,642

 
4,894

Share-based compensation
 
447

 
314

 
353

 
1,193

 

 
Adjusted EBITDA
 
$
24,499

 
$
22,583

 
$
17,870

 
$
11,636

 
$
10,022

(3) 
Includes a $3.3 million re-measurement of the net deferred tax assets as a result of the TCJA.
  
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of our financial condition and results of operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K.
 
Our financial information may not be indicative of our future performance.
 
Overview 
 
We are a leading national provider of temporary staffing services and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017 and Smart in September 2017. We operate within three industry segments: Multifamily, Professional, and Commercial. We provide services to customers primarily within the United States of America.
 
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in 23 states, via property management companies responsible for the apartment communities' day to day operations.
 
The Professional segment provides skilled temporary workers on a nationwide basis for information technology ("IT") and finance and accounting customer projects.
 
The Commercial segment provides temporary workers primarily to logistics, distribution, and call center customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
 

24



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 revenues, and have been derived from our consolidated financial statements.
 
 
 
 
Fiscal Year Ended
 
 
 
December 31,
2017
 
December 25,
2016
 
December 27,
2015
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Revenues
 
$
272,600

 
$
253,852

 
$
217,534

Cost of services
 
204,198

 
193,779

 
169,627

 
Gross Profit
 
68,402

 
60,073

 
47,907

Selling, general and administrative expenses
 
44,350

 
37,804

 
30,390

Depreciation and amortization
 
6,292

 
6,733

 
5,544

 
Operating income
 
17,760

 
15,536

 
11,973

Loss on extinguishment of debt
 

 
(404
)
 
(439
)
Interest expense, net
 
(3,253
)
 
(3,962
)
 
(2,996
)
Change in fair value of put option
 

 

 
177

 
Income before income tax
 
14,507

 
11,170

 
8,715

Income tax expense
 
8,659

 
4,288

 
3,368

 
Net income
 
$
5,848

 
$
6,882

 
$
5,347

 
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended
 
 
 
December 31,
2017
 
December 25,
2016
 
December 27,
2015
 
 
 
 
 
 
Revenues
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of services
 
74.9

 
76.3

 
78.0

 
Gross Profit
 
25.1

 
23.7

 
22.0

Selling, general and administrative expenses
 
16.3

 
14.9

 
14.0

Depreciation and amortization
 
2.3

 
2.7

 
2.5

 
Operating income
 
6.5

 
6.1

 
5.5

Loss on extinguishment of debt
 

 
(0.2
)
 
(0.2
)
Interest expense, net
 
(1.2
)
 
(1.6
)
 
(1.4
)
Change in fair value of put option
 

 

 
0.1

 
Income before income tax
 
5.3

 
4.4

 
4.0

Income tax expense
 
3.2

 
1.7

 
1.5

 
Net income
 
2.1
 %
 
2.7
 %
 
2.5
 %
 

25



Fifty-three Week Fiscal Year Ended December 31, 2017 (Fiscal 2017) Compared with Fifty-two Week Fiscal Year Ended December 25, 2016 (Fiscal 2016)
 
The Fiscal 2017 consolidated statement of operations includes 39 weeks of Zycron operations and 15 weeks of Smart operations.

Revenues:
 
 
Fiscal Year Ended
 
 
December 31,
2017
 
December 25,
2016
 
 
(dollars in thousands)
Revenues by Segment:
 
 
 
 
 
 
 
 
Multifamily
 
$
71,807

 
26.3
%
 
$
57,995

 
22.8
%
Professional
 
126,641

 
46.5
%
 
107,037

 
42.2
%
Commercial
 
74,152

 
27.2
%
 
88,820

 
35.0
%
Total Revenues
 
$
272,600

 
100.0
%
 
$
253,852

 
100.0
%
  
Multifamily Revenues: Multifamily revenues increased approximately $13.8 million (23.8%) due to our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately $8.9 million of the increase and revenue from branches in Texas increased approximately $4.9 million. The increase was due to a 16.4% increase in billed hours and a 6.0% increase in average bill rate. Revenue from existing offices accounted for approximately $11.5 million of the increase and revenue from new offices provided approximately $2.3 million.

Professional Revenues: Professional revenues increased approximately $19.6 million (18.3%), primarily from Zycron, which contributed approximately $27.1 million of new revenues and from Smart, which contributed approximately $3.2 million of new revenues. The remaining IT group decreased $6.9 million and the remaining finance and accounting group decreased $3.7 million. The overall increase was due to a 23.7% increase in billed hours, offset by decrease of 4.7% in average bill rate. 

Commercial Revenues: Commercial revenues decreased approximately $14.7 million (16.5%) primarily from operations in Texas. Texas branches decreased revenues $8.3 million and other branches outside of the Midwest decreased $6.9 million, which were offset by Illinois and Wisconsin locations increased $0.5 million. The overall revenue decrease was due to a 20.6% decrease in billed hours that was offset by a 5.0% increase in average bill rate.
 
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.
  
 
 
Fiscal Year Ended
 
 
December 31,
2017
 
December 25,
2016
 
 
(dollars in thousands)
Gross Profit by Segment:
 
 
 
 
Multifamily
 
$
27,138

 
$
21,547

Professional
 
30,626

 
25,728

Commercial
 
10,638

 
12,798

Total Gross Profit
 
$
68,402

 
$
60,073

  

26



 
 
Fiscal Year Ended
 
 
December 31,
2017
 
December 25,
2016
Gross Profit Percentage by Segment:
 
 
 
 
Multifamily
 
37.8
%
 
37.2
%
Professional
 
24.2
%
 
24.0
%
Commercial
 
14.3
%
 
14.4
%
Company Gross Profit Percentage
 
25.1
%
 
23.7
%

Overall, our gross profit increased approximately $8.3 million (13.9%) due primarily to the Zycron ($5.7 million) and Smart ($1.1 million) acquisitions and increased revenues in our Multifamily segment, offset by decreased revenues in our Commercial segment. As a percentage of revenue, gross profit has increased to 25.1% from 23.7%, primarily due to higher percentage of our revenues from our Multifamily and Professional segments.

We determine spread as the difference between average bill rate and average pay rate.

Multifamily Gross Profit: Multifamily gross profit increased approximately $5.6 million (25.9%) consistent with the increase in revenue. The increase in gross profit percentage of 0.6% was due primarily to 6.1% increase in average spread.
 
Professional Gross Profit: Professional gross profit increased approximately $4.9 million (19.0%) due to Zycron of $5.7 million, Smart of $1.1 million, a 1.2% increase in average spread, offset by a $0.8 million decrease in the remaining finance and accounting group and a $1.2 million decrease in the remaining IT group.

Commercial Gross Profit: Commercial gross profit decreased approximately $2.2 million (16.9%) due to the corresponding decreased revenue offset by an increase of 5.0% in the average spread .

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $6.5 million (17.3%) related to an increase in Multifamily of $2.8 million from growth, including $0.7 million of new office expansion, and an increase in Professional of $3.1 million from Zycron and $0.9 million from Smart.

Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.4 million (6.5%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the
2011 Extrinsic, LLC acquisition of $1.1 million that was partially offset by an increase in the Professional segment intangible
assets acquired in the Zycron acquisition of $0.7 million.

Interest Expense, net: Interest expense, net decreased approximately $0.7 million (17.9%) primarily due to the decrease in the interest of $1.2 million related to the payoff of the 13% subordinated debt, the decrease in contingent consideration discounts of $0.6 million, partially offset by the increase of $0.7 million in the new term debt and the increase of $0.3 million in the revolver.

Income Taxes: Income tax expense, net increased approximately $4.4 million primarily due to the impact of the TCJA which resulted in a re-measurement of the net deferred tax assets of $3.3 million and an increase of $1.1 million from increased pretax income.


27



Fifty-two Week Fiscal Year Ended December 25, 2016 (Fiscal 2016) Compared with Fifty-two Week Fiscal Year Ended December 27, 2015 (Fiscal 2015)
 
Revenues:
 
 
Fiscal Year Ended
 
 
December 25,
2016
 
December 27,
2015
 
 
(dollars in thousands)
Revenues by Segment:
 
 
 
 
 
 
 
 
Multifamily
 
$
57,995

 
22.8
%
 
$
43,197

 
19.9
%
Professional
 
107,037

 
42.2
%
 
86,712

 
39.9
%
Commercial
 
88,820

 
35.0
%
 
87,625

 
40.2
%
Total Revenues
 
$
253,852

 
100.0
%
 
$
217,534

 
100.0
%
 

Multifamily Revenues: Multifamily revenues increased approximately $14.8 million (34.3%) due to our continued focus on expansion outside of Texas. Revenue from branches outside of Texas accounted for approximately $13.5 million of the increase and revenue from branches in Texas increased approximately $1.3 million. The increase was due to a 28.8% increase in billed hours and a 4.3% increase in average bill rate. Revenue from existing offices accounted for approximately $12.2 million of the increase and revenue from new offices provided approximately $2.6 million.

Professional Revenues: Professional revenues increased approximately $20.3 million (23.4%). The VTS acquisition contributed approximately $24.3 million of new revenues for 12 months in 2016 verses 3 months in 2015. This revenue increase was offset by a decrease in the other IT divisions of $3.5 million due to a decrease of 3.5% in billed hours and a 2.7% decrease in average bill rate. The finance and accounting division decreased $0.5 million due to 0.9% decrease in billed hours and a 2.8% decrease in average bill rate for 12 months in 2016 verses 10 months in 2015.
 
Commercial Revenues: Commercial revenues increased approximately $1.2 million (1.4%) primarily from operations in Texas. Texas branches increased revenues $2.4 million, other branches outside of the Midwest increased $2.2 million, and our Illinois and Wisconsin locations decreased $3.4 million. The overall revenue increase was due to a 5.2% increase in average bill rate offset by a 3.7% decrease in billed hours.
 
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.
 
 
 
Fiscal Year Ended
 
 
December 25,
2016
 
December 27,
2015
 
 
(dollars in thousands)
Gross Profit by Segment:
 
 
 
 
Multifamily
 
$
21,547

 
$
15,333

Professional
 
25,728

 
20,020

Commercial
 
12,798

 
12,554

Total Gross Profit
 
$
60,073

 
$
47,907

 

28



 
 
Fiscal Year Ended
 
 
December 25,
2016
 
December 27,
2015
Gross Profit Percentage by Segment:
 
 
 
 
Multifamily
 
37.2
%
 
35.5
%
Professional
 
24.0
%
 
23.1
%
Commercial
 
14.4
%
 
14.3
%
Company Gross Profit Percentage
 
23.7
%
 
22.0
%
 
Overall, our gross profit increased approximately $12.2 million (25.4%) due primarily to the VTS ($6.3 million) acquisition (for 12 months in 2016 verses 3 months in 2015) and increased revenues in our Multifamily and Commercial segments. As a percentage of revenue, gross profit has increased to 23.7% from 22.0%, primarily due to higher percentage of our revenues from our Multifamily and Professional segments.
 
 Multifamily Gross Profit: Multifamily gross profit increased approximately $6.3 million (40.5%) mainly due to an increase in revenue and gross profit percentage. The increase in gross profit percentage of 1.7% was due primarily to 7.1% increase in average spread.
 
Professional Gross Profit: Professional gross profit increased approximately $5.7 million (28.5%) due primarily to the VTS acquisition with a gross profit of 25.3% and the other IT divisions of $0.2 million. These increases were offset by a gross profit decrease of $0.7 million with a gross profit percentage decrease of 3.0% in the finance and accounting group due to a 6.9% decrease in average spread.
 
Commercial Gross Profit: Commercial gross profit increased approximately $0.2 million (1.9%) due to the corresponding increased revenue. The increase in gross profit percentage of 0.1% is primarily due to a 3.7% increase in average spread.
 
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $7.4 million (24.4%) primarily due to the D&W acquisition of $0.3 million and the VTS acquisition of $3.0 million, new multifamily offices of $0.7 million, existing multifamily offices of $2.9 million from increased revenues, and other increased headcount, commissions and bonuses, and other costs associated with our growth, offset by decrease in loss on contingent consideration of $1.2 million.
 
Depreciation and Amortization: Depreciation and amortization charges increased approximately $1.2 million (21.4%). The increase in depreciation and amortization is primarily due to Professional segment intangible assets acquired in the VTS acquisitions.
 
Interest Expense, net: Interest expense, net increased approximately $1.0 million (32.2%) primarily due to the increase in the amortization of contingent consideration discounts from the D&W and VTS acquisitions.

Income Taxes: Income tax expense, net increased approximately $0.9 million primarily due to higher taxable income offset by a decrease in the effective rate.


Liquidity and Capital Resources
 
Our working capital requirements are primarily driven by temporary worker payments, income tax payments and customer accounts receivable receipts. Since receipts from customers lag payments to temporary workers, working capital requirements increase substantially in periods of growth.

Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement (the “Amended Credit Agreement”) with Texas Capital Bank, National Association (“TCB”) as amended and restated that provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”). Our primary uses of cash are payments to temporary workers, employees, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends and contingent consideration payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving 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

29



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.
 
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.
 
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $36 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.

A summary of our operating, investing and financing activities are shown in the following table:
 
 
 
Fiscal Year Ended
 
 
December 31,
2017
 
December 25,
2016
 
December 27,
2015
 
 
(dollars in thousands)
Net cash provided by operating activities
 
$
18,064

 
$
9,534

 
$
11,792

Net cash used in investing activities
 
(25,644
)
 
(931
)
 
(19,343
)
Net cash provided by (used in) financing activities
 
7,580

 
(8,603
)
 
7,551

Net change in cash and cash equivalents
 
$

 
$

 
$

  
Operating Activities
 
Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation and amortization, loss on extinguishment of debt, share-based compensation expense, put option adjustment, interest expense on contingent consideration payable, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable and other current liabilities.
 
During Fiscal 2017, net cash provided by operating activities was $18.1 million, an increase of $8.5 million compared with $9.5 million for Fiscal 2016. This increase is primarily attributable to the re-measurement of the net deferred tax assets as a result of the TCJA, timing of payments on accounts receivables and accrued payroll and expenses.

During Fiscal 2016, net cash provided by operating activities was $9.5 million, a decrease of $2.3 million compared with $11.8 million for Fiscal 2015. This decrease is primarily attributable to timing of payments on accounts receivables and accrued payroll and expenses offset by higher net income.
 
Investing Activities
 
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
 
In Fiscal 2017, we paid $18.5 million in connection with the Zycron acquisition, $6.0 million in connection with the Smart acquisition and we made capital expenditures of $1.1 million mainly related to computer equipment and software purchased in the ordinary course of business. In Fiscal 2016, we made capital expenditures of $0.9 million mainly related to computer equipment purchased in the ordinary course of business. In Fiscal 2015, we paid $8.8 million in connection with the D&W acquisition in March 2015, $10.0 million in connection with the VTS acquisition in October 2015 and made capital expenditures of $0.6 million mainly related to computer equipment purchased in the ordinary course of business and furniture and fixtures related to the new corporate offices.


30



Financing Activities
 
Cash flows from financing activities consisted principally of borrowings and payments under our Amended Credit Agreement, deferred financing costs related to our Amended Credit Agreement, payment of dividends and contingent consideration paid.

For Fiscal 2017, we received proceeds from the issuance of the $25.0 million term loan mainly to fund the Zycron acquisition. We paid $8.7 million in cash dividends on our common stock, paid $4.0 million of contingent consideration related to the fiscal October 2015 VTS acquisition, we reduced our revolving line of credit by $2.5 million, paid $1.1 million in principal payments on the term loan, and paid $1.1 million in deferred financing costs related to the Amended Credit Agreement

For Fiscal 2016, we increased borrowings on our revolving credit facility by $7.7 million and received net proceeds from issuance of common stock of $15.3 million to pay off amounts owing under a senior subordinated credit agreement of $15.3 million. We also paid $8.0 million in cash dividends on our common stock and $7.6 million of contingent consideration related to the fiscal March 2015 D&W acquisition & fiscal October 2015 VTS acquisition.

 In Fiscal 2015, we increased borrowings under our revolving credit facility by $11.3 million and received net proceeds from issuance of common stock of $7.0 million. We paid $6.5 million in cash dividends on our common stock, decreased our debt and other long-term liabilities by $2.7 million using excess cash flows from operations, paid $0.9 million of contingent consideration primarily related to the fiscal June 2013 InStaff and the fiscal December 2012 American Partners acquisitions, and paid $0.7 million in deferred financing costs related to a credit agreement with TCB.

Credit Agreements
 
We had a credit agreement with TCB. The credit agreement provided for a revolving facility, maturing August 21, 2019, permitting us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which was 85% of eligible accounts, and TCB’s commitment of $35.0 million.

In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, we entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for the Revolving Facility, which permits us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million and also provides for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement provides for us to increase the commitment with a $20.0 million accordion feature.

We borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquisition on April 3, 2017. Proceeds from the foregoing loan arrangements were used to pay off our existing indebtedness on the revolving credit facility under a credit agreement, dated as of August 21, 2015, as amended, with TCB. We borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.

The Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, we pay an unused commitment fee on the unfunded portion of the Revolving Facility. Our obligations under the Amended Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.


31



The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement including restricting the ability of us to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) pay dividends or make distributions (except for permitted distributions as defined in the agreement); (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of our business and we must comply with certain financial covenants. We may not permit the Leverage Ratio (as defined in the Amended Credit Agreement) to be greater than the following: 2.50 to 1.0 (April 3, 2017 to end of fiscal March 2018), 2.00 to 1.0 (March 31, 2018 to end of fiscal March 2019), 1.50 to 1.0 (March 31, 2019 to end of fiscal March 2020), 1.0 to 1.0 (From and after end of fiscal March, 2020). Moreover, we may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than 1.50 to 1.00, and may not permit the Dividend Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than (a) 1.10 to 1.00 for any four fiscal quarter period ending on or before September 30, 2017 or (b) 1.20 to 1.00 for any four fiscal quarter period thereafter. As of December 31, 2017, the Company was in compliance with these covenants.

Contractual Obligations
 
The following table summarizes our cash contractual obligations as of December 31, 2017.
 
 
Payments due by period
 
 
Total
 
Less than 1
 year
 
1–3 years
 
3–5 years
 
More than 5
 years
 
 
(dollars in thousands)
Long-term debt obligations 
 
$
45,256

 
$
3,063

 
$
9,800

 
$
32,393

 
$

Contingent consideration
 
7,250

 
4,750

 
2,500

 

 

Operating lease obligations
 
4,579

 
1,539

 
1,990

 
941

 
109

Contractual cash obligations
 
$
57,085

 
$
9,352

 
$
14,290

 
$
33,334

 
$
109

  
 
Off-Balance Sheet Arrangements
 
We are not party to any off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. The preparation of 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 at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, collectability of accounts receivable, impairment of goodwill and intangible assets, contingencies, litigation, income taxes, stock option expense, and put option liabilities. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements.
 
Revenue Recognition
 
The Company derives its revenues from three segments: Multifamily, Professional, and Commercial. The Company provides temporary staffing and permanent placement services. Revenues as presented on the consolidated statements of operations represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalent amounts of reimbursable expenses are included in cost of services.


32



The Company and its customers 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. The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified workers, (ii) has the discretion to select the workers and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers.

Temporary staffing revenues - The Company's revenues are generated based on negotiated rates and invoiced on a per-hour basis. Accordingly, temporary staffing revenues are recognized on the hours worked when the services are rendered by the Company’s temporary workers. The Company assumes the risk of acceptability of its workers to its customers.

Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. The Company estimates the effect of permanent placement candidates who do not remain with its customers through the guarantee period (generally 90 days) based on historical experience. Allowances are established to estimate these losses. Fees to customers are generally calculated as a percentage of the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in the business acquisitions. Intangible assets consist of the value of contract-related intangible assets, trade names and non-compete agreements acquired in acquisitions. We amortize on a straight-line basis intangible assets over their estimated useful lives unless their useful lives are determined to be indefinite. We review goodwill and other intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Contingent Consideration

The Company has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. Prior to Fiscal 2017, the calculation of the fair value of the expected future payments uses a discount rate that approximates the Company's weighted average cost of capital. For acquisitions beginning in Fiscal 2017, based on a new valuation methodology, the fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.

Financial Instruments
 
The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with TCB that provides for the Revolving Facility and term loan and current rates available to the Company for debt with similar terms and risk.

Share-Based Compensation
 
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.
 
Recent Accounting Pronouncements
 
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
 

33



JOBS Act
 
The Jumpstart Our Business Startups Act of 2012 provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We may elect 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.
 
 Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.
 
 We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.

Interest Rates

Our Revolving Facility provides available borrowing to us at variable interest rates. Accordingly, future interest rate changes could potentially put us at risk for an adverse impact on future earnings and cash flows. See Note 9 to our Consolidated Financial statements.
 

34



Item 8.  Financial Statements and Supplementary Data.
 
Page
 
 
Audited Consolidated Financial Statements of BG Staffing, Inc.
 
 
 
 
 
Consolidated Balance Sheets as of December 31, 2017 and December 25, 2016
 
 
Consolidated Statements of Operations for the three fiscal years ended December 31, 2017
 
 
Consolidated Statements of Changes in Stockholders' Equity for the three fiscal years ended December 31, 2017
 
 
Consolidated Statements of Cash Flows for the three fiscal years ended December 31, 2017
 
 
 


35



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and
Stockholders of BG Staffing, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BG Staffing, Inc. (the “Company”), as of December 31, 2017 and December 25, 2016 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 25, 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
/s/ Whitley Penn LLP

We have served as the Company's auditor since 2013.

Dallas, Texas
March 8, 2018



36

BG Staffing, Inc. and Subsidiaries 
CONSOLIDATED BALANCE SHEETS


 
 
 
 
December 31, 2017
 
December 25, 2016
ASSETS
 
 
 
 
Current assets
 
 

 
 

 
Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016)
 
$
36,707,885

 
$
33,328,900

 
Prepaid expenses
 
947,968

 
950,696

 
Income taxes receivable
 
190,912

 

 
Other current assets
 
143,237

 
154,673

 
 
Total current assets
 
37,990,002

 
34,434,269

 
 
 
 
 
 
 
Property and equipment, net
 
2,039,935

 
1,910,858

 
 
 
 
 
 
 
Other assets
 
 

 
 

 
Deposits
 
2,907,104

 
2,657,517

 
Deferred income taxes, net
 
6,402,513

 
9,512,455

 
Intangible assets, net
 
37,323,286

 
23,514,376

 
Goodwill
 
17,970,049

 
9,184,659

 
 
Total other assets
 
64,602,952

 
44,869,007

 
Total assets
 
$
104,632,889

 
$
81,214,134

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 

 
 

 
Long-term debt, current portion (net of deferred finance fees of $138,801 and $-0- for 2017 and 2016, respectively)
 
$
2,923,699

 
$

 
Accrued interest
 
330,630

 
100,868

 
Accounts payable
 
1,909,612

 
951,672

 
Accrued payroll and expenses
 
11,540,806

 
9,668,475

 
Accrued workers’ compensation
 
592,121

 
754,556

 
Contingent consideration, current portion
 
4,299,184

 
3,580,561

 
Other current liabilities
 
74,052

 

 
Income taxes payable
 

 
193,264

 
 
Total current liabilities
 
21,670,104

 
15,249,396

 
 
 
 
 
 
 
Line of credit (net of deferred finance fees of $747,716 and $264,520 for 2017 and 2016, respectively)
 
20,620,352

 
23,618,194

Long-term debt, less current portion (net of deferred finance fees of $246,030 and $-0- for 2017 and 2016, respectively)
 
20,578,970

 

Contingent consideration, less current portion
 
2,178,486

 
1,586,324

Other long-term liabilities
 
450,298

 
271,766

 
 
Total liabilities
 
65,498,210

 
40,725,680

 
 
 
 
 
 
 
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, 8,759,376 and 8,668,485 shares issued and outstanding for 2017 and 2016, respectively
 
87,594

 
86,685

Additional paid in capital
 
37,675,329

 
36,142,688

Retained earnings
 
1,371,756

 
4,259,081

 
 
Total stockholders’ equity
 
39,134,679

 
40,488,454

 
 
Total liabilities and stockholders’ equity
 
$
104,632,889

 
$
81,214,134

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

37

BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS 


Years ended December 31, 2017, December 25, 2016 and December 27, 2015
 
 
 
2017
 
2016
 
2015
Revenues
 
$
272,600,050

 
$
253,852,214

 
$
217,533,856

Cost of services
 
204,198,052

 
193,778,848

 
169,627,150

 
Gross profit
 
68,401,998

 
60,073,366

 
47,906,706

Selling, general and administrative expenses
 
44,349,272

 
37,804,208

 
30,390,277

Depreciation and amortization
 
6,291,958

 
6,733,341

 
5,543,740

 
Operating income
 
17,760,768

 
15,535,817

 
11,972,689

Loss on extinguishment of debt
 

 
(404,119
)
 
(438,507
)
Interest expense, net
 
(3,253,134
)
 
(3,961,617
)
 
(2,995,645
)
Change in fair value of put option
 

 

 
176,871

 
Income before income taxes
 
14,507,634

 
11,170,081

 
8,715,408

Income tax expense
 
8,659,200

 
4,287,674

 
3,368,000

 
Net income
 
$
5,848,434

 
$
6,882,407

 
$
5,347,408

 
 
 
 
 
 
 
 
Net income per share:
 
 

 
 

 
 

 
Basic
 
$
0.67

 
$
0.85

 
$
0.76

 
Diluted
 
$
0.65

 
$
0.82

 
$
0.73

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 

 
 

 
 

 
Basic
 
8,733,941

 
8,107,637

 
7,079,459

 
Diluted
 
9,038,187

 
8,399,883

 
7,288,705

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


38

BG Staffing, Inc. and Subsidiaries 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


Years ended December 31, 2017, December 25, 2016 and December 27, 2015
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
Preferred
Stock
 
Shares
 
Par
Value
 
Additional Paid in Capital
 
Retained
Earnings
 
Total
Stockholders’ equity, December 28, 2014
 

 
6,598,145

 
$
65,982

 
$
10,734,438

 
$
5,562,872

 
$
16,363,292

Share-based compensation
 

 

 

 
352,881

 

 
352,881

Issuance of shares, net of offering costs
 

 
636,500

 
6,365

 
6,328,245

 

 
6,334,610

Retirement of put options
 

 

 

 
2,320,145

 

 
2,320,145

Exercise of common stock options and warrants
 

 
153,310

 
1,533

 
711,239

 

 
712,772

Cash dividends declared ($0.25 per share)
 

 

 

 

 
(5,502,684
)
 
(5,502,684
)
Net income
 

 

 

 

 
5,347,408

 
5,347,408

Stockholders’ equity, December 27, 2015
 

 
7,387,955

 
73,880

 
20,446,948

 
5,407,596

 
25,928,424

Share-based compensation
 

 

 

 
313,988

 

 
313,988

Issuance of shares, net of offering costs
 

 
1,191,246

 
11,912

 
15,096,844

 

 
15,108,756

Exercise of common stock options and warrants
 

 
89,284

 
893

 
284,908

 

 
285,801

Cash dividends declared ($0.25 per share)
 

 

 

 

 
(8,030,922
)
 
(8,030,922
)
Net income
 

 

 

 

 
6,882,407

 
6,882,407

Stockholders’ equity, December 25, 2016
 

 
8,668,485

 
86,685

 
36,142,688

 
4,259,081

 
40,488,454

Share-based compensation
 

 

 

 
447,301

 

 
447,301

Issuance of shares, net of offering costs
 

 
70,670

 
707

 
991,793

 

 
992,500

Exercise of common stock options and warrants
 

 
20,221

 
202

 
93,547

 

 
93,749

Cash dividends declared ($0.25 per share)
 

 

 

 

 
(8,735,759
)
 
(8,735,759
)
Net income
 

 

 

 

 
5,848,434

 
5,848,434

Stockholders’ equity, December 31, 2017
 

 
8,759,376

 
$
87,594

 
$
37,675,329

 
$
1,371,756

 
$
39,134,679


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


39

BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2017, December 25, 2016 and December 27, 2015
 
 
 
 
 
2017
 
2016
 
2015
Cash flows from operating activities
 
 

 
 

 
 

 
Net income
 
$
5,848,434

 
$
6,882,407

 
$
5,347,408

 
 
Adjustments to reconcile net income to net cash provided by operating activities
 
 

 
 

 
 

 
 
Depreciation
 
592,317

 
486,682

 
338,707

 
 
Amortization
 
5,699,641

 
6,246,659

 
5,205,033

 
 
Loss on disposal of property and equipment
 
17,373

 
10,192

 
1,380

 
 
Loss on extinguishment of debt, net
 

 
404,119

 
438,507

 
 
Contingent consideration adjustment
 
(225,743
)
 
(167,393
)
 
1,001,346

 
 
Amortization of deferred financing fees
 
251,376

 
104,847

 
166,133

 
 
Amortization of debt discounts
 

 
43,159

 
43,140

 
 
Interest expense on contingent consideration payable
 
1,208,095

 
1,839,429

 
697,660

 
 
Paid-in-kind interest
 

 

 
166,643

 
 
Put option adjustment
 

 

 
(176,871
)
 
 
Provision for doubtful accounts
 
760,633

 
389,319

 
371,953

 
 
Share-based compensation
 
447,301

 
313,988

 
352,881

 
 
Deferred income taxes
 
3,109,942

 
(1,100,663
)
 
(717,373
)
 
 
Net changes in operating assets and liabilities, net of effects of acquisitions: