Forward-Looking Statements

This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:

future financial performance and growth targets or expectations;

market and industry trends and developments; and

the benefits of our completed and future merger, acquisition and disposition transactions.

You can identify these and other forward-looking statements by the use of words such as "aim," "potential," “may,” “could,” “can,” “would,” “might,” “likely,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “committed,” “future” or “continue” or the negative thereof or similar variations.

These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:

the availability of ~~workers’~~field talents’ compensation insurance coverage at commercially reasonable terms;

the availability of qualified ~~temporary workers;~~field talent;

compliance with federal, state and local labor and employment laws and regulations and changes in such laws and regulations;

the ability to compete with new competitors and competitors with superior marketing and financial resources;

management team changes;

the favorable resolution of current or future litigation;

the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;

the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;

adverse changes in the economic conditions of the industries or markets that we serve;

disturbances in world financial, credit, and stock markets;

unanticipated changes in regulations affecting the company’s business;

a decline in consumer confidence and discretionary spending;

the general performance of the U.S. and global economies;

continued or escalated conflict in the Middle ~~East;~~East or elsewhere; and

other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~30, 2018.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.

Where You Can Find Other Information

Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, ~~Room 1580,~~ Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, ~~Room 1580,~~ Washington, D.C. 20549.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED BALANCE SHEETS


			September 24, 2017		December 25, 2016				September 29, 2019		December 30, 2018
ASSETS	ASSETS						ASSETS
Current assets	Current assets						Current assets
	Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016)		$	40,618,312	$	33,328,900	Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018)		$	40,399,213	$	37,606,721
	Prepaid expenses		529,469		950,696		Prepaid expenses		1,709,978		984,219
	Other current assets		98,261		154,673		Other current assets		38,933		22,733
		Total current assets	41,246,042		34,434,269			Total current assets	42,148,124		38,613,673

Property and equipment, net	Property and equipment, net		1,700,470		1,910,858		Property and equipment, net		3,099,489		2,556,992

Other assets	Other assets						Other assets
	Deposits		2,799,813		2,657,517		Deposits		3,700,754		3,209,419
	Deferred income taxes, net		9,916,170		9,512,455		Deferred income taxes, net		4,408,099		4,870,997
	Intangible assets, net		38,803,342		23,514,376		Right-of-use asset - operating leases		4,113,793		—
	Goodwill		17,826,199		9,184,659		Intangible assets, net		30,539,442		33,034,173
		Total other assets	69,345,524		44,869,007		Goodwill		17,983,549		17,983,549
	Total assets		$	112,292,036	$	81,214,134		Total other assets	60,745,637		59,098,138
							Total assets		$	105,993,250	$	100,268,803
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities	Current liabilities						Current liabilities
	Long-term debt, current portion (net of deferred finance fees of $142,090 and $-0- for 2017 and 2016, respectively)		$	2,614,160	$	—	Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively)		$	—	$	4,242,580
	Accrued interest		308,979		100,868		Accrued interest		203,620		308,547
	Accounts payable		1,946,662		951,672		Accounts payable		140,541		146,257
	Accrued payroll and expenses		12,566,637		9,668,475		Accrued payroll and expenses		11,992,541		10,411,374
	Accrued workers’ compensation		281,237		754,556		Accrued workers’ compensation		447,650		530,980
	Contingent consideration, current portion		5,535,068		3,580,561		Contingent consideration, current portion		—		2,363,512
	Other current liabilities		317,294		—		Lease liability, current portion		1,271,711		—
	Income taxes payable		437,337		193,264		Income taxes payable		279,607		55,841
		Total current liabilities	24,007,374		15,249,396			Total current liabilities	14,335,670		18,059,091

Line of credit (net of deferred finance fees of $791,699 and $264,520 for 2017 and 2016, respectively)			19,598,722		23,618,194
Long-term debt, less current portion (net of deferred finance fees of $277,750 and $-0- for 2017 and 2016, respectively)			21,466,000		—
Contingent consideration, less current portion			4,891,847		1,586,324
Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively)							Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively)		20,196,123		10,078,507
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively)							Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively)		—		5,767,650
Lease liability, less current portion							Lease liability, less current portion		3,875,349		—
Other long-term liabilities	Other long-term liabilities		219,061		271,766		Other long-term liabilities		—		661,542
	Total liabilities		70,183,004		40,725,680		Total liabilities		38,407,142		34,566,790

Commitments and contingencies	Commitments and contingencies						Commitments and contingencies

Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding	Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding		—		—		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
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively							Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively		75,103		78,246
Additional paid in capital	Additional paid in capital		37,585,052		36,142,688		Additional paid in capital		58,416,884		57,624,379
Retained earnings	Retained earnings		4,436,386		4,259,081		Retained earnings		9,094,121		7,999,388
	Total stockholders’ equity		42,109,032		40,488,454		Total stockholders’ equity		67,586,108		65,702,013
	Total liabilities and stockholders’ equity		$	112,292,036	$	81,214,134	Total liabilities and stockholders’ equity		$	105,993,250	$	100,268,803

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

For the Thirteen and Thirty-nine Week Periods Ended September 29, 2019 and September 30, 2018



		Thirteen Weeks Ended					Thirty-nine Weeks Ended
		2019		2018			2019		2018
Revenues		$	79,364,306	$	77,062,137		$	221,998,263	$	214,863,045
Cost of services		57,187,684		55,689,112			160,520,167		156,987,810
	Gross profit	22,176,622		21,373,025			61,478,096		57,875,235
Selling, general and administrative expenses		14,502,757		14,022,464			42,361,018		38,530,315
Gain on contingent consideration		—		(988,303		)	—		(2,160,307		)
Depreciation and amortization		1,196,753		1,247,537			3,632,500		3,801,425
	Operating income	6,477,112		7,091,327			15,484,578		17,703,802
Loss on extinguishment of debt		540,705		—			540,705		—
Interest expense, net		395,448		661,683			1,244,795		2,274,575
	Income before income taxes	5,540,959		6,429,644			13,699,078		15,429,227
Income tax expense		1,333,789		1,368,258			3,194,055		2,732,386
	Net income	$	4,207,170	$	5,061,386		$	10,505,023	$	12,696,841

Net income per share:
	Basic	$	0.41	$	0.50		$	1.03	$	1.36
	Diluted	$	0.41	$	0.49		$	1.01	$	1.32

Weighted-average shares outstanding:
	Basic	10,239,126		10,109,791			10,233,725		9,368,840
	Diluted	10,343,673		10,342,559			10,365,871		9,638,616

Cash dividends declared per common share		$	0.30	$	0.30		$	0.90	$	0.85

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

BG Staffing, Inc. and Subsidiaries

~~UNAUDITED CONSOLIDATED STATEMENTS OF INCOME~~

~~For the Thirteen and Thirty-nine Week Periods Ended September 24, 2017 and September 25, 2016~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
2017 2016 2017 2016
Revenues $ 71,281,674
$ 67,407,350
$ 196,899,224
$ 189,573,350
Cost of services 53,033,615
50,975,462
147,752,650
144,610,307
Gross profit 18,248,059
16,431,888
49,146,574
44,963,043
Selling, general and administrative expenses 11,175,596
10,291,746
31,562,377
28,668,466
Depreciation and amortization 1,436,279
1,673,546
4,672,755
5,181,456
Operating income 5,636,184
4,466,596
12,911,442

11,113,121
Loss on extinguishment of debt —
—
—
(404,119 )
Interest expense, net (883,668 ) (701,968 ) (2,279,652 ) (3,278,182 )
Income before income taxes 4,752,516
3,764,628
10,631,790
7,430,820
Income tax expense 1,615,653
1,416,773
3,908,570
2,852,346
Net income $ 3,136,863
$ 2,347,855
$ 6,723,220
$ 4,578,474

Net income per share:

Basic $ 0.36
$ 0.27
$ 0.77
$ 0.58
Diluted $ 0.35
$ 0.26
$ 0.75
$ 0.56

Weighted-average shares outstanding:

Basic 8,759,376
8,658,061
8,724,811
7,920,000
Diluted 9,077,147
9,028,398
9,019,878
8,219,876

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

~~BG Staffing, Inc. and Subsidiaries~~

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirty-nine Week Period Ended September ~~24, 2017~~30, 2018

Common Stock

Preferred
Stock
Shares
Par
Value
Additional Paid in Capital
Retained
Earnings
Total
Stockholders’ equity, December 25, 2016 $ —
8,668,485
$ 86,685
$ 36,142,688
$ 4,259,081
$ 40,488,454
Share-based compensation —
—
—
357,024
—
357,024
Issuance of shares, net of offering costs —
70,670
707
991,793
—
992,500
Exercise of common stock options —
20,221
202
93,547
—
93,749
Cash dividend declared ($0.25 per share) —
—
—
—
(6,545,915 ) (6,545,915 )
Net income —
—
—
—
6,723,220
6,723,220
Stockholders’ equity, September 24, 2017 $ —
8,759,376
$ 87,594
$ 37,585,052
$ 4,436,386
$ 42,109,032



			Common Stock
	Preferred Stock		Shares	Par Value		Treasury Stock Amount			Additional Paid in Capital			Retained Earnings			Total
Stockholders’ equity, December 31, 2017	$	—	8,759,376	$	87,594	$	—		$	37,675,329		$	1,371,756		$	39,134,679
Share-based compensation	—		—	—		—			67,029			—			67,029
Exercise of common stock options and warrants	—		4,589	46		—			(7,546		)	—			(7,500		)
Cash dividend declared	—		—	—		—			—			(2,189,844		)	(2,189,844		)
Net income	—		—	—		—			—			2,465,571			2,465,571
Stockholders’ equity, April 1, 2018	—		8,763,965	87,640		—			37,734,812			1,647,483			39,469,935

Share-based compensation	—		—	—		—			47,807			—			47,807
Issuance of shares, net of offering costs	—		1,293,750	12,938		—			21,373,075			—			21,386,013
Exercise of common stock options and warrants	—		31,314	312		—			10,757			—			11,069
Option cancellation agreement	—		—	—		—			(3,335,169		)	—			(3,335,169		)
Cash dividends declared	—		—	—		—			—			(2,638,232		)	(2,638,232		)
Net income	—		—	—		—			—			5,169,884			5,169,884
Stockholders’ equity, July 1, 2018	—		10,089,029	100,890		—			55,831,282			4,179,135			60,111,307

Share-based compensation	—		—	—		—			758,350			—			758,350
Issuance of shares, net of offering costs	—		—	—		—			(25,875		)	—			(25,875		)
Issuance of restricted shares, net of 828 shares of treasury stock	—		41,172	412		(24,027		)	(412		)	—			(24,027		)
Exercise of common stock options and warrants	—		27,676	277		—			(277		)	—			—
Cash dividends declared	—		—	—		—			—			(3,026,709		)	(3,026,709		)
Net income	—		—	—		—			—			5,061,386			5,061,386
Stockholders’ equity, September 30, 2018	$	—	10,157,877	$	101,579	$	(24,027	)	$	56,563,068		$	6,213,812		$	62,854,432

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirty-nine Week Period Ended September 29, 2019



			Common Stock
	Preferred Stock		Shares		Par Value			Treasury Stock Amount			Additional Paid in Capital			Retained Earnings			Total
Stockholders’ equity, December 30, 2018	$	—	10,227,247		$	102,273		$	(24,027	)	$	57,624,379		$	7,999,388		$	65,702,013
Share-based compensation	—		—		—			—			320,084			—			320,084
Cancellation of restricted shares	—		(2,250	)	(23		)	—			23			—			—
Exercise of common stock options and warrants	—		4,916		49			—			(49		)	—			—
Change in accounting principal - operating leases	—		—		—			—			—			(200,607		)	(200,607		)
Cash dividend declared	—		—		—			—			—			(3,068,847		)	(3,068,847		)
Net income	—		—		—			—			—			2,496,024			2,496,024
Stockholders’ equity, March 31, 2019	—		10,229,913		102,299			(24,027		)	57,944,437			7,225,958			65,248,667

Share-based compensation	—		—		—			—			186,629			—			186,629
Exercise of common stock options and warrants	—		4,805		48			—			(48		)	—			—
Cash dividend declared	—		—		—			—			—			(3,068,974		)	(3,068,974		)
Net income	—		—		—			—			—			3,801,829			3,801,829
Stockholders’ equity, June 30, 2019	—		10,234,718		102,347			(24,027		)	58,131,018			7,958,813			66,168,151

Share-based compensation	—		—		—			—			244,450			—			244,450
Exercise of common stock options and warrants, net	—		7,396		74			(3,291		)	41,416			—			38,199
Cash dividend declared	—		—		—			—			—			(3,071,862		)	(3,071,862		)
Net income	—		—		—			—			—			4,207,170			4,207,170
Stockholders’ equity, September 29, 2019	$	—	10,242,114		$	102,421		$	(27,318	)	$	58,416,884		$	9,094,121		$	67,586,108

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirty-nine Week Periods Ended September ~~24, 2017~~29, 2019 and September ~~25, 2016~~30, 2018


				2017			2016						2019			2018
Cash flows from operating activities	Cash flows from operating activities									Cash flows from operating activities
	Net income			$	6,723,220		$	4,578,474		Net income			$	10,505,023		$	12,696,841
		Adjustments to reconcile net income to net cash provided by operating activities:									Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		428,155			355,833				Depreciation		608,119			545,751
		Amortization		4,244,600			4,825,623				Amortization		3,024,381			3,255,674
		Loss on disposal of property and equipment		17,373			10,192				Loss on disposal of property and equipment		6,954			15,554
		Loss on extinguishment of debt, net		—			404,119				Loss on extinguishment of debt, net		540,705			—
		Contingent consideration adjustment		—			24,642				Contingent consideration adjustment		—			(2,160,307		)
		Amortization of deferred financing fees		168,797			80,049				Amortization of deferred financing fees		154,127			382,025
		Amortization of debt discounts		—			32,355				Interest expense on contingent consideration payable		110,903			515,932
		Interest expense on contingent consideration payable		907,340			1,449,316				Provision for doubtful accounts		6,065			39,389
		Provision for doubtful accounts		88,000			209,528				Share-based compensation		751,163			873,186
		Share-based compensation		357,024			252,972				Deferred income taxes		462,898			1,085,142
		Deferred income taxes		(403,715		)	(1,101,702		)		Net changes in operating assets and liabilities, net of effects of acquisitions:
		Net changes in operating assets and liabilities, net of effects of acquisitions:										Accounts receivable	(2,798,557		)	(3,022,783		)
			Accounts receivable	(1,803,486		)	(3,362,087		)			Prepaid expenses	(725,759		)	(391,795		)
			Prepaid expenses	519,859			285,304					Other current assets	(16,200		)	(565,821		)
			Other current assets	72,150			30,547					Deposits	(491,333		)	(287,636		)
			Deposits	(137,726		)	(321,925		)			Accrued interest	(104,927		)	18,190
			Accrued interest	208,111			(291,954		)			Accounts payable	(5,716		)	(1,648,529		)
			Accounts payable	(518,921		)	(324,372		)			Accrued payroll and expenses	1,830,278			180,308
			Accrued payroll and expenses	1,252,864			1,024,696					Accrued workers’ compensation	(83,330		)	(161,956		)
			Accrued workers’ compensation	(473,319		)	(56,101		)			Other current liabilities	—			(87,552		)
			Other current liabilities	120,569			(945,382		)			Income taxes payable	223,766			217,437
			Income taxes payable	244,072			(7,159		)			Operating leases	(33,612		)	—
			Other long-term liabilities	(52,703		)	(41,398		)			Other long-term liabilities	—			(118,062		)
		Net cash provided by operating activities		11,962,264			7,111,570				Net cash provided by operating activities		13,964,948			11,380,988

Cash flows from investing activities	Cash flows from investing activities									Cash flows from investing activities
	Business acquired, net of cash received			(24,500,000		)	—			Capital expenditures			(1,534,016		)	(681,333		)
	Capital expenditures			(895,989		)	(618,157		)		Net cash used in investing activities		(1,534,016		)	(681,333		)
	Proceeds from the sale of property and equipment			1,500			7,587
		Net cash used in investing activities		(25,394,489		)	(610,570		)


			2017			2016					2019			2018

Cash flows from financing activities	Cash flows from financing activities								Cash flows from financing activities
	Net (payments) borrowings under line of credit		(3,492,293		)	3,041,612			Net borrowings (payments) under line of credit		9,891,079			(7,670,117		)
	Proceeds from issuance of long-term debt		25,000,000			—			Principal payments on long-term debt		(10,121,000		)	(12,847,750		)
	Principal payments on long-term debt		(500,000		)	(15,281,657		)	Payments of dividends		(9,209,683		)	(7,854,785		)
	Payments of dividends		(6,545,915		)	(5,863,801		)	Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises		38,199			21,339,680
	Net proceeds from issuance of common stock		86,249			15,254,406			Option cancellation agreement		—			(3,335,169		)
	Contingent consideration paid		—			(3,498,197		)	Contingent consideration paid		(2,672,000		)	(327,996		)
	Deferred financing costs		(1,115,816		)	(153,363		)	Deferred financing costs		(357,527		)	(3,518		)
		Net cash provided by (used in) financing activities	13,432,225			(6,501,000		)		Net cash used in financing activities	(12,430,932		)	(10,699,655		)
Net change in cash and cash equivalents	Net change in cash and cash equivalents		—			—			Net change in cash and cash equivalents		—			—
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period		—			—			Cash and cash equivalents, beginning of period		—			—
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period		$	—		$	—		Cash and cash equivalents, end of period		$	—		$	—

Supplemental cash flow information:	Supplemental cash flow information:								Supplemental cash flow information:
	Cash paid for interest		$	930,811		$	2,221,430		Cash paid for interest		$	1,003,190		$	1,396,182
	Cash paid for taxes, net of refunds		$	4,058,353		$	3,961,226		Cash paid for taxes, net of refunds		$	2,462,325		$	1,378,890
Non-cash transactions:									Non-cash transactions:
									Leasehold improvements funded by landlord incentives		$	—		$	366,202

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

BG Staffing, Inc. is a 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. ~~(“BGFA”)~~, BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., and BG California Finance & Accounting Staffing, Inc. (collectively, the “Company”), primarily within the United States of America in ~~three~~3 industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial. We now have 63 branch offices and 15 on-site locations located across 26 states.~~Light Industrial.

The ~~Multifamily~~Real Estate segment provides ~~front~~ office and maintenance ~~temporary workers~~field talent to various apartment communities and commercial buildings, in 2330 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.

The Professional segment provides skilled ~~temporary workers~~field talent on a nationwide basis for information technology ("IT") and finance and accounting ~~customer~~client partner projects.

The ~~Commercial~~Light Industrial segment provides ~~temporary workers~~field talent primarily to logistics, distribution, and call center ~~customers~~client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.

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’~~client partners’ business. Demand for our ~~Multifamily~~Real Estate 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~~Light Industrial 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~~increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter ~~months.~~months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of ~~their~~its knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December ~~25, 2016,~~30, 2018, included in its Annual Report on Form 10-K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.

Fiscal Periods

The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of September ~~24, 2017~~29, 2019 and December ~~25, 2016,~~30, 2018, and include the thirteen and thirty-nine week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016. The thirty-nine weeks ended September 24, 2017 and September 25, 2016 are~~30, 2018, referred to herein as Fiscal ~~2017~~2019 and ~~2016,~~2018, respectively.

Reclassifications

Certain reclassifications have been made to the ~~2016~~2018 financial statements to conform with the ~~2017~~2019 presentation.

910

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include goodwill, intangible assets and contingent consideration obligations related to acquisitions. Additionally, the valuation of ~~share based~~share-based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.

Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited ~~to:~~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 ~~the~~ bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with ~~Texas Capital~~BMO Harris Bank, ~~National Association~~N.A. (“~~TCB”~~BMO”) that ~~provides~~provided for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Concentration of Credit Risk

Concentration of credit risk is limited due to the Company's diverse ~~customer~~client partner base and their dispersion across many different industries and geographic locations nationwide. No single ~~customer~~client partner accounted for more than 10% of the Company’s accounts receivable as of September ~~24, 2017~~29, 2019 and December ~~25, 2016~~30, 2018 or revenue for the thirty-nine week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016.~~30, 2018. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal ~~2017~~2019 and the related percentage for Fiscal ~~2016~~2018 was generated in the following areas:



	Thirty-nine Weeks Ended
	September 29, 2019		September 30, 2018
Maryland	10	%	11	%
Tennessee	16	%	14	%
Texas	29	%	29	%

Thirty-nine Weeks Ended
September 24,
2017 September 25,
2016
Maryland 12 % 13 %
Tennessee 11 % 5 %
Texas 30 % 32 %

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.

Accounts Receivable

The Company extends credit to its ~~customers~~client partners in the normal course of business. Accounts receivable represents unpaid balances due from ~~customers.~~client partners. The Company maintains an allowance for doubtful accounts for expected losses resulting from ~~customers’~~client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual ~~customers~~client partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.

1011

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Changes in the allowance for doubtful accounts are as follows:



	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Beginning balance	$	468,233		$	473,573		$	468,233		$	473,573
Provision for (recovery of) doubtful accounts, net	34,667			21,514			6,065			39,389
Amounts written off, net	(34,667		)	(21,514		)	(6,065		)	(39,389		)
Ending balance	$	468,233		$	473,573		$	468,233		$	473,573

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 24, 2017 September 25, 2016 September 24, 2017 September 25, 2016
Beginning balance $ 473,573
$ 449,823
$ 473,573
$ 446,548
Provision for doubtful accounts 75,772
162,612
88,000
209,528
Amounts written off, net (75,772 ) (162,612 ) (88,000 ) (206,253 )
Ending balance $ 473,573
$ 449,823
$ 473,573
$ 449,823

Property and Equipment

Property and equipment are stated net of accumulated depreciation and amortization of ~~$1,213,156~~$2.7 million and ~~$1,301,295~~$2.1 million at September ~~24, 2017~~29, 2019 and December ~~25, 2016,~~30, 2018, respectively. ~~During the thirty-nine week periods ended September 24, 2017, the Company disposed of fully depreciated assets primarily not in use with an original cost of $426,066.~~

Deposits

The Company maintains guaranteed costs policies for workers' compensation coverage in ~~the states in which it operates, with~~Texas, Washington, and Ohio and minimal loss retention coverage for ~~employees~~team members and field talent in the ~~commercial segment.~~Light Industrial segment and other non-Texas employees. Under these policies, the Company is required to maintain refundable deposits of ~~$2,565,817~~$3.4 million and ~~$2,476,201,~~$2.9 million, which are included in Deposits in the accompanying consolidated balance sheets as of September ~~24, 2017~~29, 2019 and December ~~25, 2016,~~30, 2018, respectively.

Long-Lived Assets

The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal ~~2017~~2019 or Fiscal 2018.

Leases

The Company leases all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and ~~Fiscal 2016.~~certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.

Right of use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.

Intangible Assets

The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible asset is realized.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value.

The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.

The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Goodwill

Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.

~~Deferred Rent~~

The Company recognizes rental expense on a straight-line basis over the life of the agreement. Deferred rent is recognized as the difference between cash payments and rent expense, including any landlord incentives.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Paid-in-kind Interest~~

The Company recorded paid-in-kind interest on a monthly basis to accrued interest. The first month following a quarter, the paid-in-kind accrued interest is reclassed to the related debt principal if not paid.

Deferred Financing Fees

Deferred financing fees are amortized onusing the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.

Contingent Consideration

The Company ~~has~~had obligations, to be paid in cash, related to its acquisitions if certain ~~future~~ operating and financial goals ~~are~~were 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 new valuation methodology, theThe fair value calculation of the expected future payments uses a discount rate ~~that is~~ 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.

Revenue Recognition

The Company derives its revenues from ~~three~~3 segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. The Company provides temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to ~~customers~~client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and ~~equivalent~~the related amounts of reimbursable expenses are included in cost of services.

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 ~~from services and the related direct costs~~ on a gross basis ~~in accordance with the accounting guidance on reporting revenue gross~~ as a principal versus on a net basis as an ~~agent.~~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 field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.

Temporary staffing revenues - ~~Our~~Field talent revenues ~~are generated based on negotiated rates and invoiced on a per-hour basis. Accordingly, temporary staffing revenues~~from contracts with client partners are recognized onin the ~~hours worked~~amount to which the Company has a right to invoice, when the services are rendered by the Company’s ~~temporary workers.~~field talent.

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~~client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to ~~customers~~client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.

Refer to Note 11 for disaggregated revenues by segment.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of September 29, 2019. There were no revenues recognized during the thirty-nine week period ended September 29, 2019 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during the thirty-nine week period ended September 29, 2019.

Share-Based Compensation

The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock 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.

Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of ~~diluted~~ earnings per share.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:



		Thirteen Weeks Ended		Thirty-nine Weeks Ended
		September 29, 2019	September 30, 2018	September 29, 2019	September 30, 2018
Weighted-average number of common shares outstanding:		10,239,126	10,109,791	10,233,725	9,368,840
Effect of dilutive securities:
	Stock options and restricted stock	69,684	181,012	90,853	227,846
	Warrants	34,863	51,756	41,293	41,930
Weighted-average number of diluted common shares outstanding		10,343,673	10,342,559	10,365,871	9,638,616

	Stock options and restricted stock	306,750	175,000	306,750	175,000
	Warrants	—	—	—	—
Antidilutive shares		306,750	175,000	306,750	175,000

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Weighted-average number of common shares outstanding: 8,759,376
8,658,061
8,724,811
7,920,000
Effect of dilutive securities:
Stock options 279,735
323,313
260,404
263,915
Warrants 38,036
47,024
34,663
35,961
Weighted-average number of diluted common shares outstanding 9,077,147
9,028,398
9,019,878
8,219,876

Stock options 178,000
50,000
178,000
50,000
Warrants 32,250
—
32,250
—
Antidilutive shares 210,250
50,000
210,250
50,000

Income Taxes

The ~~current provision for income taxes represents estimated amounts payable or refundable on~~effective tax ~~returns filed or to be filed~~rates of 24.1% and 23.3% for the ~~year. The Company recognizes any penalties when necessary as part of selling, general~~thirteen and ~~administrative expenses. Goodwill is deductible~~thirty-nine week periods ended September 29, 2019, respectively, and 21.3% and 17.7% for the thirteen and thirty-nine week periods ended September 30, 2018, respectively, were primarily due to state taxes, the Work Opportunity Tax Credit, and the deductibility in Fiscal 2018 related to the Option Cancellation Agreement for tax purposes.

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment.

When appropriate, ~~we record~~the Company records a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, ~~we consider~~the Company considers whether it is more likely

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.

The Company recognizes any penalties when necessary as part of Selling, general and administrative expenses. Goodwill is deductible for tax purposes.

The Company follows the guidance of Accounting Standards Codification ("ASC") Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

Income tax expense attributable to income from operations for Fiscal 2017 differed from the amount computed by applying the U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes offset by a Work Opportunity Tax Credit.

Income tax expense attributable to income from operations for Fiscal 2016 differed from the amount computed by applying the U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Recent Accounting Pronouncements

In ~~May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") ASU 2014-09, Revenue from Contracts with Customers. Since May 2014,~~June 2016, the FASB ~~has~~ issued ~~additional~~ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and ~~amended authoritative guidance regarding revenue from contracts with customers in order~~certain other instruments that are not measured at fair value through net income, which applies to ~~clarify~~trade accounts receivable and ~~improve~~ the ~~understanding~~calculation of the implementation guidance. As amended, the new guidance requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchangeallowance for ~~those goods or services.~~uncollectible accounts receivable. The new standard iswill become effective for the Company for annual and interim periods beginning after December 15, ~~2017.~~2019, with early adoption permitted. The Company is ~~in the process of~~currently evaluating the impact of ~~adoption. Based on the progress to date, the Company does not believe~~ the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” which provides more specific guidance related to how companies account for cloud computing costs. In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements” to clarify guidance, correct errors and make minor improvements to the Accounting Standards Codification (“ASC”) which amends ASC 350-40 to clarify that after ASU 2015-05 is adopted, companies are required to record an intangible asset for the license acquired in a software licensing arrangement. The asset for the software license is required to be recognized and measured at cost. The Company adopted both ASUs on a prospective basis in the second quarter of fiscal 2017 which did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The new standard was effective for the Company beginning with the first quarter of 2017. The Company adopted this ASU on a prospective basis which had no impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new ~~standard~~guidance is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.

In ~~May 2017,~~August 2018, the FASB issued ASU ~~2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting which provides clarification on when modification accounting should be used for changes~~2018-13, Fair Value Measurement: Disclosure Framework - Changes to the ~~terms or conditions of a share-based payment award.~~Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective ~~for the Company beginning with the first quarter 2018.~~after December 15, 2019. Early adoption is permitted. The Company ~~does not anticipate~~is currently evaluating the ~~adoption of ASU 2017-09~~impact this change will have ~~a material impact~~ on ~~the Company's~~its consolidated financial ~~condition or results of operations.~~statements and disclosures.

NOTE 3 - ~~ACQUISITIONS~~LEASES

~~Zycron, Inc.~~At September 29, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 5.6%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the thirteen week period ended September 29, 2019, the Company's cash paid for operating leases was $405,332, and operating lease and short-term lease costs were $399,828 and $187,934, respectively. For the thirty-nine week period ended September 29, 2019, the Company's cash paid for operating leases was $1,215,848, and operating lease and short-term lease costs were $1,138,542 and $532,621, respectively.

~~On April 3, 2017, the Company acquired substantially all~~The undiscounted annual future minimum lease payments consist of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”) for an initial cash consideration paid of $18.5 million and issued $1.0 million (70,670 shares privately placed) of the Company's common stock at closing. An additional $0.5 million was held back as partial security for post-closing purchase price adjustments and indemnification obligations. The purchase agreement further provides for contingent consideration of up to $3.0 million based on the performance of the acquired business for the two years following ~~the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that is currently in progress.~~

The net assets acquired were assigned to the Professional segment. The acquisition of Zycron allows the Company to strengthen and expand its IT operations throughout the southeastern U.S. region and selected markets across the country with talent and project management services.

at:



	September 29, 2019
2019	$	1,614,555
2020	1,409,909
2021	1,390,554
2022	1,120,340
2023	657,095
Thereafter	301,203
Total lease payments	6,493,656
Interest	(1,346,596		)
Present value of lease liabilities	$	5,147,060

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The 2016 consolidated statement of operations does not include any operating results of Zycron. 13 and 25 weeks of Zycron operations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $9.0 million and $17.6 million, respectively, of revenue and and $0.9 million and $1.6 million, respectively, of operating income. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

Accounts receivable $ 4,345,312
Prepaid expenses and other assets 82,122
Property and equipment 128,431
Intangible assets 13,818,474
Goodwill 6,901,101
Liabilities assumed (2,983,222 )
Total net assets acquired $ 22,292,218

Cash $ 18,500,000
Hold back 500,000
Common stock 1,000,000
Working capital adjustment (299,835 )
Fair value of contingent consideration 2,592,053
Total fair value of consideration transferred for acquired business $ 22,292,218

Estimated Fair
Value

Estimated
Useful Lives
Covenants not to compete $ 475,000
5 years
Trade name 5,006,000
Indefinite
Customer list 8,337,474
10 years
Total $ 13,818,474

~~Smart Resources, Inc.~~

On September 18, 2017, the Company acquired substantially all of the assets and assumed certain liabilities of Smart Resources, Inc. and Accountable Search, LLC (collectively, "Smart") for an initial cash consideration paid of $6.0 million. The purchase agreement provides for contingent consideration of up to $2.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that will begin approximately 90 days after the closing date.

The net assets acquired were assigned to the Professional segment. The acquisition of Smart allows the Company to strengthen and expand its finance and accounting operations in the Chicago market with temporary and direct hire services.

~~The 2016 consolidated statement of income does not include any operating results of Smart. One (1) week of Smart~~operations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $0.2 million of revenue and $-0- of operating income. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable $ 1,228,614
Prepaid expenses and other assets 36,816
Property and equipment 40,626
Intangible assets 4,927,045
Goodwill 1,740,439
Liabilities assumed (216,343 )
Total net assets acquired $ 7,757,197

Cash $ 6,000,000
Working capital adjustment (3,440 )
Fair value of contingent consideration 1,760,637
Total fair value of consideration transferred for acquired business $ 7,757,197

Estimated Fair
Value

Estimated
Useful Lives
Covenants not to compete $ 20,000
5 years
Customer list 4,907,045
10 years
Total $ 4,927,045

~~Supplemental Unaudited Pro Forma Information~~

The Company estimates that the revenues and net income for the periods below that would have been reported if the Zycron and Smart acquisitions had taken place on the first day of the Company's 2016 fiscal year would be as follows (dollars in thousands, except per share amounts):

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Revenues $ 73,782
$ 80,519
$ 214,659
$ 228,577
Gross profit $ 19,196
$ 18,428
$ 54,391
$ 54,034
Net income $ 3,203
$ 2,933
$ 6,992
$ 5,270
Income per share:
Basic $ 0.37
$ 0.34
$ 0.80
$ 0.67
Diluted $ 0.35
$ 0.32
$ 0.78
$ 0.64

~~Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility at a rate of 4.5%~~ and tax expense of the pro forma adjustments at an effective tax rate of approximately 36.8% for Fiscal 2017 and 38.4% for Fiscal 2016. The pro forma information presented includes adjustments that will have a continuing impact on the operations that management considers non-recurring in assessing Zycron and Smart's historical performances.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Zycron and Smart acquisitions taken place on the first day of the Company’s 2016 fiscal year or of the results that may be achieved by the combined enterprise in the future.

NOTE 4 - INTANGIBLE ASSETS

Intangible assets are stated net of accumulated amortization of ~~$34,501,414~~$43.3 million and ~~$30,205,434~~$40.3 million at September ~~24, 2017~~29, 2019 and December ~~25, 2016,~~30, 2018, respectively. ~~During the thirty-nine week periods ended September 24, 2017, the Company added $440,668 and reclassified $347,379 of software assets from property and equipment. Total amortization~~Amortization expense for the thirteen week periods ended September 24, 2017 and September 25, 2016 was $1,291,925 and $1,548,914, respectively. Total amortization expense for the thirty-nine week periods ended September 24, 2017 and September 25, 2016 was $4,244,600 and $4,825,623, respectively.

fiscal years are comprised of following:



	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Client partner lists	$	881,525	$	944,093	$	2,671,149	$	2,937,716
Covenant not to compete	39,936		42,250		124,436		167,000
Acquisition intangibles	921,461		986,343		2,795,585		3,104,716
Computer software - amortization expense	71,019		66,553		228,796		150,958
Amortization expense	992,480		1,052,896		3,024,381		3,255,674
Computer software - selling, general and administrative expense	19,490		—		44,382		—
Total expense	$	1,011,970	$	1,052,896	$	3,068,763	$	3,255,674

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 5 - ACCRUED PAYROLL AND EXPENSES ~~AND CONTINGENT CONSIDERATION~~

Accrued payroll and expenses consist of the following at:



	September 29, 2019		December 30, 2018
Field talent payroll	$	6,074,655	$	4,236,534
Field talent payroll related	1,618,702		1,402,926
Accrued bonuses and commissions	2,012,793		1,673,130
Other	2,286,391		3,098,784
Accrued payroll and expenses	$	11,992,541	$	10,411,374

September 24,
2017
December 25,
2016
Temporary worker payroll
$ 6,672,200

$ 5,547,161
Temporary worker payroll related
2,570,505

2,033,602
Accrued bonuses and commissions
1,181,071

892,742
Other
2,142,861

1,194,970

$ 12,566,637

$ 9,668,475

~~The following is a schedule of future estimated contingent consideration payments to various parties as of September 24, 2017:~~

Estimated Cash Payment Discount Net
Due in:
Less than one year $ 5,750,000
$ (214,932 ) $ 5,535,068
One to two years 3,250,000
(727,741 ) 2,522,259
Two to three years 2,500,000
(130,412 ) 2,369,588
Contingent consideration $ 11,500,000
$ (1,073,085 ) $ 10,426,915

As of September 24, 2017, the Zycron hold back balance of $158,072, included in other current liabilities, was a partial security for post-closing purchase price adjustments and indemnification obligations and also contained the working capital adjustment and other amounts paid or received on behalf of the either party to the acquisition.

NOTE 6 - DEBT

~~The~~On July 16, 2019, the Company ~~had~~entered into a ~~credit agreement~~Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with ~~TCB providing~~BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a ~~Revolving Facility, maturing August 21, 2019,~~revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount ~~equal~~up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million. The Company may from time to time, with a maximum of 2, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative covenants and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of September 29, 2019.

The Company borrowed $20 million under the Revolving Facility to pay off existing indebtedness of the Company under the Amended Credit Agreement (as defined below) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. The Company recognized a loss on extinguishment of debt of approximately $0.5 million related to the ~~lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million.~~unamortized deferred finance fees.

In ~~connection with the acquisition of the assets of Zycron described above, on~~ April 3, 2017, the Company 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~~provided for a revolving credit facility ~~maturing April 3, 2022~~ (the “Revolving ~~Facility”~~Facility with TCB”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which iswas 85% of eligible accounts receivable, and ~~TCB’s commitment of~~ $35.0 million and also ~~provides~~ provided

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

for a term loan ~~maturing April 3, 2022~~ (the “Term ~~Loan”~~Loan with TCB”) 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 the Company to increase the commitment with a $20.0 million accordion feature.

The Company 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 existing indebtedness of the Company on the revolving credit facility under the Credit Agreement, dated as of August 21, 2015, as amended, with TCB. The Company borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.

The Revolving Facility with TCB and Term Loan ~~bear~~with TCB bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms ~~are~~were 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~~were paid quarterly. Additionally, the Company paid an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement ~~are~~were secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the Credit Agreement including restricting the ability of the Company and its subsidiaries 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 agreements); (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business and the Company must comply with certain financial covenants. The Company 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, the Company 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 September 24, 2017, the Company was in compliance with these covenants.

Line of Credit

At September ~~24, 2017~~29, 2019 and December ~~25, 2016, $20.4~~30, 2018, $20.6 million and ~~$23.9~~$10.7 million, respectively, was outstanding on the ~~Revolving Facility with TCB. Borrowings under~~revolving facilities. Average daily balance for the ~~Revolving Facility bore interest equal to Base Rate or LIBOR plus~~thirteen week periods ended September 29, 2019 and September 30, 2018 was $21.0 million and $13.3 million, respectively. Average daily balance for the Applicable Margin (as such terms are defined in the Amended Credit Agreement or Credit Amendment, respectively). Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility.thirty-nine week periods ended September 29, 2019 and September 30, 2018 was $15.3 million and $17.1 million, respectively.

Borrowings under the ~~Revolving Facility~~revolving facilities consisted of and bore interest at:



	September 29, 2019				December 30, 2018
Base Rate	$	2,053,651	5.50	%	$	650,289	6.50	%
LIBOR	8,500,000		3.67	%	5,000,000		5.16	%
LIBOR	10,000,000		3.66	%	5,000,000		5.16	%
Total	$	20,553,651			$	10,650,289

September 24,
2017 December 25,
2016
Base Rate $ 5,390,421
5.25 % $ 8,882,714
4.25 %
LIBOR 5,000,000
4.05 % 5,000,000
3.95 %
LIBOR 5,000,000
4.06 % 5,000,000
3.99 %
LIBOR 5,000,000
4.07 % 5,000,000
4.16 %
Total $ 20,390,421
$ 23,882,714

Long-Term Debt

Long-term debt consists of and bore interest at:



	September 29, 2019				December 30, 2018
Base Rate	$	—	—	%	$	1,121,000	6.50	%
LIBOR	—		—	%	6,500,000		5.41	%
LIBOR	—		—	%	2,500,000		5.41	%
Long-term debt	$	—			$	10,121,000

September 24,
2017 December 25,
2016
Base Rate $ 700,000
5.25 % $ —
— %
LIBOR 6,500,000
4.30 % —
— %
LIBOR 6,500,000
4.31 % —
— %
LIBOR 6,000,000
4.32 % —
— %
LIBOR 4,800,000
4.33 % —
— %
Less current portion on long-term debt (2,756,250 ) —

Long-term debt, less current portion $ 21,743,750
$ —

NOTE 7 - FAIR VALUE MEASUREMENTS

The accounting standard for fair value measurements defines fair value, and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established ~~in the standard~~ prioritizes the inputs used in valuation techniques into three levels as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and

Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy September 24,
2017 December 25,
2016
Contingent consideration, net Contingent consideration, net - current and long-term Level 3 $ 10,426,915
$ 5,166,885

Amounts Recorded at Fair Value

Financial Statement Classification

Fair Value

Hierarchy

September 29,
2019

December 30,
2018

Contingent consideration, net

Contingent consideration, net - current and long-term

Level 3

—

2,363,512

The changes in the Level 3 fair value measurements from December ~~25, 2016~~30, 2018 to September ~~24, 2017 relate~~29, 2019 relates to ~~$4.4~~the $2.7 million in payments, which included $0.2 million in an extension of the Zycron acquisition covenant not to compete intangible asset, and ~~Smart acquisitions and $0.9~~$0.1 million in accretion. The key inputs in determining the fair value of the contingent consideration as of September ~~24, 2017~~29, 2019 and December ~~25, 2016 included discount rates of ranging from 8% and 22% as well as~~30, 2018 include management's estimates of future sales volumes and EBITDA.

NOTE 8 - CONTINGENCIES

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.

The Company is not currently a party to any material litigation; however, in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability.

Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.

~~NOTE 9 – EQUITY~~

~~Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share.~~

On April 3, 2017, the Company issued 70,670 shares of common stock, $0.01 par value per share, in a private placement for a value of $1 million at the closing of the Zycron acquisition. The Company incurred $7,500 in offering costs.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 109 – SHARE-BASED COMPENSATION

Stock Options and Restricted Stock

On May 16, 2017, the stockholders of the Company approved and made effective an amendment to the BG Staffing, Inc. 2013 Long-Term Incentive Plan to add an additional 250,000 shares of common stock available for issuance. The board of directors of the Company had previously approved the amendment subject to stockholder approval. A total of 900,000 shares of common stock were originally reserved for issuance, which brings the new total available for issuance to 1,150,000 shares of common stock.

For the thirteen week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016,~~30, 2018, the Company recognized ~~$92,293~~$0.2 million and ~~$111,134~~$0.8 million of compensation ~~cost~~expense related to stock ~~option~~ awards, respectively. For the thirty-nine week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016,~~30, 2018, the Company recognized ~~$357,024~~$0.8 million and ~~$252,972~~$0.9 million of compensation ~~cost~~expense related to stock ~~option~~ awards, respectively. Unamortized ~~stock~~share-based compensation expense as of September ~~24, 2017~~29, 2019 amounted to ~~$680,321,~~$2.0 million which is expected to be recognized over the next ~~2.6~~3.0 years.

A summary of stock option and restricted stock activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Awards (in thousands)
Awards outstanding at December 30, 2018	526,985		$	16.49	7.7	$	2,932
Granted	138,750		$	21.49
Exercised	(47,790	)	$	10.19
Forfeited / Canceled	(34,700	)	$	14.39
Awards outstanding at September 29, 2019	583,245		$	18.32	7.8	$	2,109

Awards exercisable at December 30, 2018	238,085		$	13.96	7.2	$	1,684
Awards exercisable at September 29, 2019	295,045		$	16.37	7.1	$	1,379

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Number of
Shares
Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life
Total Intrinsic Value of Options
(in thousands)
Options outstanding at December 25, 2016 678,411
$ 8.95
7.8 $ 4,511
Granted 128,000
$ 16.76

Exercised (28,800 ) $ 7.71

Forfeited / Canceled (12,200 ) $ 11.00

Options outstanding at September 24, 2017 765,411
$ 10.27
7.5 $ 5,096

Options exercisable at December 25, 2016 395,911
$ 8.01
7.6 $ 2,965
Options exercisable at September 24, 2017 479,611
$ 8.65
7.0 $ 3,963



	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 30, 2018	288,900	$	8.34
Nonvested outstanding at September 29, 2019	288,200	$	7.73

Number of
Shares Weighted Average Grant Date Fair Value
Nonvested outstanding at December 25, 2016 282,500
$ 2.57
Nonvested outstanding at September 24, 2017 285,800
$ 3.01

For the thirty-nine week ~~periods~~period ended September ~~24, 2017,~~29, 2019, the Company issued ~~5,221~~16,694 shares of common stock upon the cashless exercise of ~~9,402~~38,614 stock options.

Included in awards outstanding are 27,000 shares of restricted stock issued in August 2018, at a grant date price per share of $28.61. For the thirteen and thirty-nine week period ended September 29, 2019, the Company recognized $0.1 million and $0.2 million of compensation expense related to restricted stock, respectively.

Warrant Activity

For the thirteen and thirty-nine week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016,~~30, 2018, the Company did not recognize compensation cost related to warrants. There was no0 unamortized stock compensation expense to be recognized as of September ~~24, 2017.~~29, 2019.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

A summary of warrant activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Options (in thousands)
Warrants outstanding at December 30, 2018	93,216		$	11.59	1.3	$	805
Exercised	(1,020	)	$	14.86
Warrants outstanding at September 29, 2019	92,196		$	11.56	0.8	$	703

Warrants exercisable at December 30, 2018	93,216		$	11.59	1.3	$	805
Warrants exercisable at September 29, 2019	92,196		$	11.56	0.8	$	703

Number of
Shares
Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life
Total Intrinsic Value of Options
(in thousands)
Warrants outstanding at December 25, 2016 123,984
$ 11.51
2.8 $ 532
Warrants outstanding at September 24, 2017 123,984
$ 11.89
2.6 $ 494

Warrants exercisable at December 25, 2016 91,734
$ 9.65
2.2 $ 532
Warrants exercisable at September 24, 2017 123,984
$ 11.89
2.6 $ 494

There were no nonvested warrants outstanding at September 29, 2019 and December 30, 2018.



	~~Number of~~ ~~Shares~~	~~Weighted Average Grant Date Fair Value~~
~~Nonvested outstanding at December 25, 2016~~	~~32,250~~	$	—
~~Nonvested outstanding at September 24, 2017~~	—	$	—

For the thirty-nine week period ended September 29, 2019, the Company issued 423 shares of common stock upon the cashless exercise of 1,020 warrants.

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

NOTE 1110 - ~~EMPLOYEE~~TEAM MEMBER BENEFIT PLAN

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible ~~full-time employees.~~team members and field talent. The 401(k) Plan allows ~~employees~~participants to make contributions subject to applicable statutory limitations. The Company matches ~~employee~~participants contributions 100% up to the first 3% and 50% of the next 2% of ~~an employee’s~~a team member or field talent’s compensation. The Company contributed ~~$232,863~~$0.3 million and ~~$217,103~~$0.3 million to the 401(k) Plan for the thirteen week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016,~~30, 2018, respectively. The Company contributed ~~$657,623~~$0.9 million and ~~$622,772~~$0.8 million to the 401(k) Plan for the thirty-nine week periods ended September ~~24, 2017~~29, 2019 and September ~~25, 2016,~~30, 2018, respectively.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1211 - BUSINESS SEGMENTS

The Company operates within ~~three~~3 industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. The ~~Multifamily~~Real Estate segment provides ~~front~~ office and maintenance ~~temporary workers~~field talent to various apartment communities ~~in 23 states,~~and commercial buildings via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. The Professional segment provides skilled ~~temporary workers~~field talent on a nationwide basis for IT and finance and accounting ~~customer~~client partner projects. The ~~Commercial~~Light Industrial segment provides ~~temporary workers~~field talent primarily to logistics, distribution, and call center ~~customers~~client partners needing a flexible ~~workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.~~workforce.

Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, ~~fixed assets,~~ deferred tax assets, and other assets.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results for the periods indicated:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 24, 2017		September 25, 2016		September 24, 2017		September 25, 2016		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Revenue:
Multifamily	$	21,758,642	$	18,889,265	$	51,436,393	$	43,556,297
Real Estate									$	29,470,693	$	26,531,283	$	73,043,258	$	65,864,097
Professional	31,739,816		25,821,676		91,769,877		80,828,787		31,506,017		29,171,990		93,421,017		90,394,110
Commercial	17,783,216		22,696,409		53,692,954		65,188,266
Light Industrial									18,387,596		21,358,864		55,533,988		58,604,838
Total	$	71,281,674	$	67,407,350	$	196,899,224	$	189,573,350	$	79,364,306	$	77,062,137	$	221,998,263	$	214,863,045

Depreciation:
Multifamily	$	23,255	$	17,122	$	70,159	$	40,577
Real Estate									$	50,957	$	44,784	$	140,490	$	125,820
Professional	44,261		39,071		129,968		113,482		82,201		74,488		251,152		190,952
Commercial	27,690		23,018		80,231		68,447
Light Industrial									23,663		23,446		73,673		76,372
Corporate	49,148		45,421		147,797		133,327		47,452		51,923		142,804		152,607
Total	$	144,354	$	124,632	$	428,155	$	355,833	$	204,273	$	194,641	$	608,119	$	545,751



Delaware	26-0656684
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



Large accelerated filer	¨		Accelerated ~~filer~~Filer	þ
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨☑
			Emerging growth company	þ☐



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BGSF	NYSE American



PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Consolidated Balance Sheets	4
	Unaudited Consolidated Statements of Income	5
	Unaudited Consolidated Statement of Changes in Stockholders' Equity	6
	Unaudited Consolidated Statements of Cash Flows	78
	Notes to Unaudited Consolidated Financial Statements	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3230
Item 4.	Controls and Procedures	3231

PART II	OTHER INFORMATION	3432
Item 1.	Legal Proceedings	3432
Item 1A.	Risk Factors	3432
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3432
Item 3.	Defaults Upon Senior Securities	3432
Item 4.	Mine Safety Disclosures	3432
Item 5.	Other Information	3432
Item 6.	Exhibits	3533


Amortization:
Multifamily	$	—		$	—		$	—		$	62,848
Professional	1,222,402			1,454,293			3,993,474			4,399,296			$	986,274		$	1,047,510		$	3,005,618		$	3,132,372
Commercial	66,151			94,621			245,903			363,479
Light Industrial													—			—			—			110,251
Corporate	3,372			—			5,223			—			6,206			5,386			18,763			13,051
Total	$	1,291,925		$	1,548,914		$	4,244,600		$	4,825,623		$	992,480		$	1,052,896		$	3,024,381		$	3,255,674

Operating income:
Multifamily	$	4,020,995		$	3,331,981		$	8,524,536		$	6,859,318
Real Estate													$	5,523,769		$	4,958,373		$	12,464,689		$	11,285,951
Professional	2,119,550			1,163,674			6,344,222			4,737,610			2,144,549			2,143,426			6,190,331			6,499,285
Commercial	1,108,842			1,364,353			3,000,444			4,070,037
Light Industrial													1,174,142			1,560,895			3,514,758			3,948,874
Corporate - selling	(119,097		)	—			(371,906		)	—			(131,389		)	(212,877		)	(399,370		)	(541,467		)
Corporate - general and administrative	(1,494,106		)	(1,393,412		)	(4,585,854		)	(4,553,844		)	(2,233,959		)	(2,346,793		)	(6,285,830		)	(5,649,148		)
Corporate - gain on contingent consideration													—			988,303			—			2,160,307
Total	$	5,636,184		$	4,466,596		$	12,911,442		$	11,113,121		$	6,477,112		$	7,091,327		$	15,484,578		$	17,703,802

Capital expenditures:
Multifamily	$	3,947		$	23,185		$	76,542		$	119,592
Professional	52,987			73,168			501,928			82,336
Commercial	2,463			19,908			71,262			60,229
Corporate	—			71,194			246,257			356,000
Total	$	59,397		$	187,455		$	895,989		$	618,157



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



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



	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	September 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016
Beginning balance	$	473,573		$	449,823		$	473,573		$	446,548
Provision for doubtful accounts	75,772			162,612			88,000			209,528
Amounts written off, net	(75,772		)	(162,612		)	(88,000		)	(206,253		)
Ending balance	$	473,573		$	449,823		$	473,573		$	449,823



Accounts receivable	$	4,345,312
Prepaid expenses and other assets	82,122
Property and equipment	128,431
Intangible assets	13,818,474
Goodwill	6,901,101
Liabilities assumed	(2,983,222		)
Total net assets acquired	$	22,292,218

Cash	$	18,500,000
Hold back	500,000
Common stock	1,000,000
Working capital adjustment	(299,835		)
Fair value of contingent consideration	2,592,053
Total fair value of consideration transferred for acquired business	$	22,292,218



	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	475,000	5 years
Trade name	5,006,000		Indefinite
Customer list	8,337,474		10 years
Total	$	13,818,474



Accounts receivable	$	1,228,614
Prepaid expenses and other assets	36,816
Property and equipment	40,626
Intangible assets	4,927,045
Goodwill	1,740,439
Liabilities assumed	(216,343		)
Total net assets acquired	$	7,757,197

Cash	$	6,000,000
Working capital adjustment	(3,440		)
Fair value of contingent consideration	1,760,637
Total fair value of consideration transferred for acquired business	$	7,757,197



	September 24, 2017		December 25, 2016
Temporary worker payroll	$	6,672,200	$	5,547,161
Temporary worker payroll related	2,570,505		2,033,602
Accrued bonuses and commissions	1,181,071		892,742
Other	2,142,861		1,194,970
	$	12,566,637	$	9,668,475



	Estimated Cash Payment		Discount			Net
Due in:
Less than one year	$	5,750,000	$	(214,932	)	$	5,535,068
One to two years	3,250,000		(727,741		)	2,522,259
Two to three years	2,500,000		(130,412		)	2,369,588
Contingent consideration	$	11,500,000	$	(1,073,085	)	$	10,426,915



	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 25, 2016	282,500	$	2.57
Nonvested outstanding at September 24, 2017	285,800	$	3.01



	September 29, 2019		December 30, 2018
Total Assets:
Real Estate	$	19,341,023	$	12,647,505
Professional	61,100,018		62,403,104
Light Industrial	18,765,095		18,992,392
Corporate	6,787,114		6,225,802
Total	$	105,993,250	$	100,268,803


Revenues:	Revenues:	Thirteen Weeks Ended								Revenues:	Thirteen Weeks Ended
		September 24, 2017				September 25, 2016					September 29, 2019				September 30, 2018
		(dollars in thousands)									(dollars in thousands)
Revenues by segment:	Revenues by segment:									Revenues by segment:
	Multifamily	$	21,759	30.5	%	$	18,889	28.0	%	Real Estate	$	29,470	37.1	%	$	26,531	34.4	%
	Professional	31,740		44.5	%	25,822		38.3	%	Professional	31,506		39.7	%	29,172		37.9	%
	Commercial	17,783		25.0	%	22,696		33.7	%	Light Industrial	18,388		23.2	%	21,359		27.7	%
	Total Revenues	$	71,282	100.0	%	$	67,407	100.0	%	Total Revenues	$	79,364	100.0	%	$	77,062	100.0	%



Exhibit Number		Description

~~2.1~~		Asset Purchase Agreement, dated, as of April 3, 2017, by and between BG Staffing, Inc., BG Staffing, LLC, Zycron Inc., and Darrell S. Freeman (incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2017).
~~2.2~~		Asset Purchase Agreement, dated as of September 18, 2017, by and between BG Finance and Accounting, Inc., Smart Resources, Inc. and Accountable Search, LLC, and Timothy J. Flood and Margaret L. Francis (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 22, 2017).
3.1		Certificate of Incorporation of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on November 4, 2013).
3.2		Bylaws of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on November 4, 2013).
4.1		Form of Common Stock Certificate (incorporated by reference from Amendment No. 1 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on October 28, 2013).
10.1		Credit Agreement, dated as of July 16, 2019, among BG Staffing, Inc., as borrower, the lenders from time to time party thereto, and BMO Harris Bank, National Association, as administrative agent, letters of credit issuer, swing line lender, sole lead arranger, and sole book runner (incorporated by reference from the registrant’s Current Report on Form 8-K filed on July 22, 2019)
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS *		XBRL Instance Document.
101.SCH *		XBRL Taxonomy Extension Schema Document.
101.CAL *		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *		XBRL Taxonomy Extension Presentation Linkbase Document.



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



	BG STAFFING, INC.

		/s/ ~~L. Allen Baker, Jr.~~Beth Garvey
	Name:	~~L. Allen Baker, Jr.~~Beth Garvey
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Dan Hollenbach
	Name:	Dan Hollenbach
	Title:	Chief Financial Officer and Secretary
		(Principal Financial Officer)