SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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



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

5850 Granite Parkway, Suite 730

Plano, Texas 75024

(972) 692-2400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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

Large accelerated filer

Accelerated ~~filer~~Filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

¨☑

Emerging growth company

þ☐

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

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

Securities registered pursuant to Section 12(b) of the Act:


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

The number of shares outstanding of the registrant’s common stock as of ~~October 30, 2017~~August 4, 2020 was ~~8,759,376.~~10,306,986.

TABLE OF CONTENTS

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,"~~“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;

•the impact of, and the ability to mitigate or manage disruptions posed by, the novel coronavirus pandemic (“COVID-19”) or other pandemics;

•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.~~29, 2019.

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


			June 28, 2020			December 29, 2019
ASSETS
Current assets
	Accounts receivable (net of allowance for credit losses of $467,200 at 2020 and $468,233 for 2019)			$	37,762,131		$	39,423,801
	Prepaid expenses			1,822,807			1,224,230
	Income taxes receivable			—			69,649
	Other current assets			516,087			19,516
		Total current assets	40,101,025			40,737,196

Property and equipment, net						4,156,997			3,545,049
Other assets
	Deposits and other assets			4,119,108			3,843,023
	Deferred income taxes, net			4,514,048			4,071,847
	Right-of-use asset - operating leases			6,250,464			4,386,317
	Intangible assets, net			36,441,098			33,807,973
	Goodwill			31,372,990			25,194,639
		Total other assets	82,697,708			71,303,799
	Total assets			$	126,955,730		$	115,586,044

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Long-term debt, current portion			$	2,250,000		$	375,000
	Accrued interest			279,418			73,027
	Accounts payable			127,088			479,422
	Accrued payroll and expenses			12,834,242			10,485,039
	Contingent consideration, current portion			1,183,920			—
	Lease liability, current portion			1,764,001			1,277,843
	Other current liabilities			—			1,016,565
	Income taxes payable			46,236			—
		Total current liabilities	18,484,905			13,706,896

Line of credit (net of deferred finance fees of $305,482 and $351,128 for 2020 and 2019, respectively)						9,950,001			19,993,829
Long-term debt, less current portion						27,425,000			7,125,000
Contingent consideration, less current portion						1,087,253			2,174,378
Lease liability, less current portion						5,419,227			4,128,951
Other long-term liabilities						2,866,610			—
	Total liabilities			65,232,996			47,129,054

Commitments and contingencies
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding						—			—
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,306,986 and 10,309,236 shares issued and outstanding for 2020 and 2019, respectively, net of treasury stock, at cost, 1,004 shares for 2020 and 2019						75,752			75,775
Additional paid in capital						59,993,800			59,617,787
Retained earnings						1,824,905			8,763,428
Accumulated other comprehensive loss						(171,723)			—
	Total stockholders’ equity			61,722,734			68,456,990
	Total liabilities and stockholders’ equity			$	126,955,730		$	115,586,044

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF OPERATIONS

September 24,
2017 December 25, 2016
ASSETS
Current assets

Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016) $ 40,618,312
$ 33,328,900
Prepaid expenses 529,469
950,696
Other current assets 98,261
154,673
Total current assets 41,246,042
34,434,269

Property and equipment, net 1,700,470
1,910,858

Other assets

Deposits 2,799,813
2,657,517
Deferred income taxes, net 9,916,170
9,512,455
Intangible assets, net 38,803,342
23,514,376
Goodwill 17,826,199
9,184,659
Total other assets 69,345,524
44,869,007
Total assets $ 112,292,036
$ 81,214,134

LIABILITIES AND STOCKHOLDERS' EQUITY
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
$ —
Accrued interest 308,979
100,868
Accounts payable 1,946,662
951,672
Accrued payroll and expenses 12,566,637
9,668,475
Accrued workers’ compensation 281,237
754,556
Contingent consideration, current portion 5,535,068
3,580,561
Other current liabilities 317,294
—
Income taxes payable 437,337
193,264
Total current liabilities 24,007,374
15,249,396

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
Other long-term liabilities 219,061
271,766
Total liabilities 70,183,004
40,725,680

Commitments and contingencies

Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding —
—
Common stock, $0.01 par value per share; 19,500,000 shares authorized,8,759,376 and 8,668,485 shares issued and outstanding for 2017 and 2016, respectively 87,594
86,685
Additional paid in capital 37,585,052
36,142,688
Retained earnings 4,436,386
4,259,081
Total stockholders’ equity 42,109,032
40,488,454
Total liabilities and stockholders’ equity $ 112,292,036
$ 81,214,134
For the Thirteen and Twenty-six Week Periods Ended June 28, 2020 and June 30, 2019


		Thirteen Weeks Ended												Twenty-six Weeks Ended
		2020				2019				2020				2019
Revenues				$	62,606,334			$	73,857,890			$	136,673,763			$	142,633,957
Cost of services				45,701,191				52,995,056				99,492,889				103,332,482
	Gross profit	16,905,143				20,862,834				37,180,874				39,301,475
Selling, general and administrative expenses				14,306,441				14,237,839				30,510,064				27,858,262

Impairment losses				7,239,514				—				7,239,514				—
Depreciation and amortization				1,443,951				1,204,237				2,858,665				2,435,746
	Operating (loss) income	(6,084,763)				5,420,758				(3,427,369)				9,007,467

Interest expense, net				429,660				496,109				885,685				849,346
	(Loss) Income before income taxes	(6,514,423)				4,924,649				(4,313,054)				8,158,121
Income tax (benefit) expense				(1,685,160)				1,122,820				(982,651)				1,860,267
	Net (loss) income	$	(4,829,263)			$	3,801,829			$	(3,330,403)			$	6,297,854

Change in unrealized losses on cash flow hedges				171,723				—				171,723				—
	Other comprehensive loss	171,723				—				171,723				—
	Net comprehensive (loss) income	$	(5,000,986)			$	3,801,829			$	(3,502,126)			$	6,297,854


Net (loss) income per share:
	Basic	$	(0.47)			$	0.37			$	(0.32)			$	0.62
	Diluted	$	(0.47)			$	0.37			$	(0.32)			$	0.61

Weighted-average shares outstanding:
	Basic	10,306,986				10,232,588				10,307,715				10,231,025
	Diluted	10,306,986				10,362,038				10,307,715				10,380,195

Cash dividends declared per common share				$	0.05			$	0.30			$	0.35			$	0.60

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~~Twenty-six Week ~~Period~~Periods Ended ~~September 24, 2017~~June 30, 2019


			Common Stock
	Preferred Stock		Shares	Par Value		Treasury Stock Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		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

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

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 Twenty-six Week Periods Ended June 28, 2020




			Common Stock
	Preferred Stock		Shares	Par Value		Treasury Stock Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Stockholders’ equity, December 29, 2019	$	—	10,309,236	$	103,093	$	(27,318)	$	59,617,787	$	8,763,428	$	—	$	68,456,990
Share-based compensation	—		—	—		—		192,913		—		—		192,913
Cancellation of restricted shares	—		(2,250)	(23)		—		23		—		—		—

Cash dividend declared	—		—	—		—		—		(3,092,771)		—		(3,092,771)
Net income	—		—	—		—		—		1,498,860		—		1,498,860
Stockholders’ equity, March 29, 2020	—		10,306,986	103,070		(27,318)		59,810,723		7,169,517		—		67,055,992
Share-based compensation	—		—	—		—		193,077		—		—		193,077
Share issuance cost	—		—	—		—		(10,000)		—		—		(10,000)
Cash dividend declared	—		—	—		—		—		(515,349)		—		(515,349)
Net loss	—		—	—		—		—		(4,829,263)		—		(4,829,263)
Other comprehensive loss												(171,723)		(171,723)






Stockholders’ equity, June 28, 2020	$	—	10,306,986	$	103,070	$	(27,318)	$	59,993,800	$	1,824,905	$	(171,723)	$	61,722,734

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~~Twenty-six Week Periods Ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016~~June 30, 2019


				2020		2019
Cash flows from operating activities
	Net (loss) income					$	(3,330,403)		$	6,297,854
		Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Depreciation			446,478			403,846
		Amortization			2,412,187			2,031,900
		Impairment losses			7,239,514			—
		Loss on disposal of property and equipment			—			4,895


		Amortization of deferred financing fees			37,406			124,949

		Interest expense on contingent consideration payable			96,795			98,216
		Provision for credit losses			99,909			(28,602)
		Share-based compensation			385,990			506,713
		Deferred income taxes			(1,352,702)			462,898
		Net changes in operating assets and liabilities, net of effects of acquisitions:
			Accounts receivable	8,293,021		(776,299)
			Prepaid expenses	(567,990)		(730,212)
			Other current assets	(6,571)		2,022
			Deposits and other assets	(189,705)		(492,294)
			Accrued interest	206,391		(143,568)
			Accounts payable	(371,931)		67,043
			Accrued payroll and expenses	15,032		1,327,219
			Other current liabilities	(1,016,565)		—
			Income taxes receivable and payable	60,101		52,579
			Operating leases	(50,068)		—
			Other long-term liabilities	2,694,887		(46,844)
		Net cash provided by operating activities			15,101,776			9,162,315

Cash flows from investing activities
	Business acquired, net of cash received					(21,680,455)			—
	Capital expenditures					(1,896,967)			(673,752)

		Net cash used in investing activities			(23,577,422)			(673,752)

2017 2016
Cash flows from operating activities

Net income $ 6,723,220
$ 4,578,474
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 428,155
355,833
Amortization 4,244,600
4,825,623
Loss on disposal of property and equipment 17,373
10,192
Loss on extinguishment of debt, net —
404,119
Contingent consideration adjustment —
24,642
Amortization of deferred financing fees 168,797
80,049
Amortization of debt discounts —
32,355
Interest expense on contingent consideration payable 907,340
1,449,316
Provision for doubtful accounts 88,000
209,528
Share-based compensation 357,024
252,972
Deferred income taxes (403,715 ) (1,101,702 )
Net changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable (1,803,486 ) (3,362,087 )
Prepaid expenses 519,859
285,304
Other current assets 72,150
30,547
Deposits (137,726 ) (321,925 )
Accrued interest 208,111
(291,954 )
Accounts payable (518,921 ) (324,372 )
Accrued payroll and expenses 1,252,864
1,024,696
Accrued workers’ compensation (473,319 ) (56,101 )
Other current liabilities 120,569
(945,382 )
Income taxes payable 244,072
(7,159 )
Other long-term liabilities (52,703 ) (41,398 )
Net cash provided by operating activities 11,962,264
7,111,570

Cash flows from investing activities

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




Cash flows from financing activities
	Net (payments) borrowings under line of credit			(10,081,234)			7,770,258
	Proceeds from issuance of long-term debt			22,500,000			—
	Principal payments on long-term debt			(325,000)			(10,121,000)

	Payments of dividends			(3,608,120)			(6,137,821)
	Share issuance cost			(10,000)			—



		Net cash provided by (used in) financing activities	8,475,646			(8,488,563)
Net change in cash and cash equivalents						—			—
Cash and cash equivalents, beginning of period						—			—
Cash and cash equivalents, end of period							$	—		$	—

Supplemental cash flow information:
	Cash paid for interest			$	515,211		$	767,080
	Cash paid for taxes, net of refunds			$	279,469		$	1,309,192

2017 2016

Cash flows from financing activities

Net (payments) borrowings under line of credit (3,492,293 ) 3,041,612
Proceeds from issuance of long-term debt 25,000,000
—
Principal payments on long-term debt (500,000 ) (15,281,657 )
Payments of dividends (6,545,915 ) (5,863,801 )
Net proceeds from issuance of common stock 86,249
15,254,406
Contingent consideration paid —
(3,498,197 )
Deferred financing costs (1,115,816 ) (153,363 )
Net cash provided by (used in) financing activities 13,432,225
(6,501,000 )
Net change in cash and cash equivalents —
—
Cash and cash equivalents, beginning of period —
—
Cash and cash equivalents, end of period $ —
$ —

Supplemental cash flow information:

Cash paid for interest $ 930,811
$ 2,221,430
Cash paid for taxes, net of refunds $ 4,058,353
$ 3,961,226

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~~workforce solutions 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., BG California Finance & Accounting Staffing, Inc., EdgeRock Technology Holdings, Inc. and EdgeRock Technologies, LLC (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 2329 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. Our Real Estate segment operates through two divisions, BG Multifamily and BG Talent.

The Professional segment provides skilled ~~temporary workers~~field talent on a nationwide basis for information technology ~~("IT"~~(“IT”) and finance, accounting, legal and ~~accounting customer~~human resource client partner projects. Our Professional segment operates through various divisions including Extrinsic, American Partners, Donovan & Watkins, Vision Technology Services, Zycron, Smart Resources, L.J. Kushner & Associates, and EdgeRock Technology Partners.

The ~~Commercial~~Light Industrial segment provides ~~temporary workers~~field talent primarily to manufacturing, distribution, logistics, ~~distribution,~~ and call center ~~customers~~client partners needing a flexible workforce in ~~Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.~~7 states. Our Light Industrial segment operates through our InStaff division.

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 typically 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 typically 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 Company has adjusted, and continues to monitor and change, its operations in response to a novel strain of coronavirus (“COVID-19”) in all of its segment, client partner, and Home Office locations. The extent of the impact from the outbreak on its operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on the Company's client partners and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

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,~~29, 2019, 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.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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~~June 28, 2020 and December ~~25, 2016,~~29, 2019, and include the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016. The thirty-nine weeks ended September 24, 2017 and September 25, 2016 are~~June 30, 2019, referred to herein as Fiscal ~~2017~~2020 and ~~2016,~~2019, respectively.

Reclassifications

Certain reclassifications have been made to the ~~2016~~2019 financial statements to conform with the ~~2017~~2020 presentation.

~~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 allowances for credit losses, goodwill, intangible assets, income taxes, leave liability, 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.

The COVID-19 pandemic is already having a significant impact on our economy as a result of stay-at-home orders and business closures designed to stop the spread of the virus. In light of the currently unknown ultimate duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply the Company’s significant accounting policies. As COVID-19 continues to develop, management may make changes to these estimates and judgments over time, which could result in meaningful impacts to the Company’s financial statements in future periods. Actual results and outcomes may differ from management’s estimates and assumptions.

Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited ~~to:~~to, interest rate swap agreements used to mitigate interest rate risk, and 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~~June 28, 2020 and December ~~25, 2016~~29, 2019 or revenue for the ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017~~June 28, 2020 (“Fiscal 2020”) and ~~September 25, 2016.~~June 30, 2019 (“Fiscal 2019”). Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal ~~2017~~2020 and the related percentage for Fiscal ~~2016~~2019 was generated in the following areas:


	Twenty-six Weeks Ended
	June 28, 2020		June 30, 2019
Maryland	12	%	11	%
Massachusetts	13	%	1	%
Tennessee	15	%	16	%
Texas	23	%	30	%

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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~~credit losses 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. The Company will continue to actively monitor the impact of COVID-19 on expected credit losses.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Changes in the allowance for ~~doubtful accounts~~credit losses are as follows:


	Thirteen Weeks Ended						Thirty-nine Weeks Ended							Thirteen Weeks Ended						Twenty-six Weeks Ended
	September 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016				June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Beginning balance	$	473,573		$	449,823		$	473,573		$	446,548		Beginning balance	$	468,233	$	468,233	$	468,233	$	468,233
Provision for doubtful accounts	75,772			162,612			88,000			209,528
Amounts written off, net	(75,772		)	(162,612		)	(88,000		)	(206,253		)
EdgeRock Technology Holdings, Inc. (“EdgeRock”) acquisition													EdgeRock Technology Holdings, Inc. (“EdgeRock”) acquisition	—		—		47,498		—
Provision for (recovery of) credit losses, net													Provision for (recovery of) credit losses, net	68,251		24,855		99,909		(28,602)
Amounts (written off) collected, net													Amounts (written off) collected, net	(69,284)		(24,855)		(148,440)		28,602
Ending balance	$	473,573		$	449,823		$	473,573		$	449,823		Ending balance	$	467,200	$	468,233	$	467,200	$	468,233

Property and Equipment

Property and equipment are stated net of accumulated depreciation and amortization of ~~$1,213,156~~$3.9 million and ~~$1,301,295~~$2.8 million at ~~September 24, 2017~~June 28, 2020 and December ~~25, 2016,~~29, 2019, 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.~~

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 its other non-Texas workforce. Under these policies, the Company is required to maintain refundable deposits of ~~$2,565,817~~$3.7 million and ~~$2,476,201,~~$3.6 million, which are included in Deposits in the accompanying consolidated balance sheets as of ~~September 24, 2017~~June 28, 2020 and December ~~25, 2016,~~29, 2019, respectively.

The Company capitalizes direct costs incurred in the development of internal-use software. Cloud computing implementation costs incurred in hosting arrangements are capitalized and reported as a component of other assets. All other internal-use software development costs are capitalized and reported as a component of computer software within intangible 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~~2020 or Fiscal 2019.

BG Staffing, Inc. and ~~Fiscal 2016.~~Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 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.

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.

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. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount in the 2020 impairment test. As a result of the certain business developments and changes in the Company's long-term projections, the Company concluded a triggering event had occurred that required an interim impairment assessment to be performed. The qualitative assessment thresholds were met on all reporting units except the finance and accounting group. The Company calculated the quantitative impairment test of the finance and accounting group using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group. In the professional segment, the Company recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss during the thirteen week periods ended June 28, 2020.

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.

The Company ~~recognizes rental expense~~considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on ~~a straight-line basis over the life~~each of the ~~agreement. Deferred rent is recognized as~~reporting units. As a result of the ~~difference between cash payments~~certain business developments and ~~rent expense, including any landlord incentives.~~

changes in the Company's long-term projections, the Company concluded a triggering event had occurred that required an interim impairment assessment to be performed. The qualitative assessment thresholds were met on all reporting units except the finance and accounting group. The Company calculated the quantitative impairment test of the

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,~~finance and accounting group using the ~~paid-in-kind accrued interest is reclassed~~discounted cash flow method and concluded there was no goodwill impairment loss during the thirteen week periods ended June 28, 2020. Due to the ~~related debt principal if not paid.~~impairment of the noted above, the carrying value of the finance and accounting reporting unit is negative and $2.4 million of goodwill is allocated to the finance and accounting reporting unit.

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.

The Company derives its revenues from ~~three~~3 segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. The Company provides ~~temporary staffing~~workforce solutions 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~~Contingent placement staffing revenues - ~~Permanent placement staffing~~Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the client partner, usually when employment candidates start their ~~permanent~~ employment.

Retained search placement staffing revenues - any revenues from these services are recognized based on the contractual amount for services completed to date which best depicts the transfer of control of services, which is less than 1% of consolidated revenues.

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. These assumptions determine the timing of revenue recognition for the reported period.

Refer to Note 13 for disaggregated revenues by segment.

Payment terms in the Company's contracts vary by the type and location of its 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 June 28, 2020. There were no revenues recognized during the twenty-six week period ended June 28, 2020 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 twenty-six week period ended June 28, 2020.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 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

The ~~current provision for income taxes represents estimated amounts payable or refundable on~~effective tax ~~returns filed or to be filed~~rates of 25.9% and 22.8% for the ~~year. The Company recognizes any penalties when necessary as part~~thirteen and twenty-six week periods ended June 28, 2020, respectively, and 22.8% for thirteen and twenty-six week periods ended June 30, 2019 were primarily due to state taxes offset by the Work Opportunity Tax Credit in Fiscal 2019 and Fiscal 2020 and the non-deductibility of ~~selling, general and administrative expenses. Goodwill is deductible for tax purposes.~~transaction costs related to the EdgeRock acquisition in Fiscal 2020.

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. As of June 28, 2020, the Company has a $6.9 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date.

When appropriate, wethe Company will record 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 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. As of June 28, 2020, goodwill of $25.2 million is deductible for tax purposes.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company follows the guidance of Accounting Standards Codification ~~("ASC"~~(“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, the FASB has issued additional and amended authoritative guidance regarding revenue from contracts with customers in order to clarify and improve the understanding 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 exchange for those goods or services. The new standard is effective for annual and interim periods beginning after December 15, 2017. The Company is in the process of evaluating the impact of adoption. Based on the progress to date, the Company does not believe the adoption of this accounting guidance 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 adopted this ASU in the second quarter of fiscal 2020 which did not have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting, caused by reference rate reform. The new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is still evaluating the impact, but does not ~~anticipate~~expect the adoption of ~~ASU 2017-04 will~~the standard to have a material impact on the Company's financial condition or results of operations.

In May 2017, 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 to the terms or conditions of a share-based payment award. The new standard is effective for the Company beginning with the first quarter 2018. The Company does not anticipate the adoption of ASU 2017-09 will have a material impact on the Company's financial condition or results of operations.

NOTE 3 - ACQUISITIONS

~~Zycron, Inc.~~L.J. Kushner & Associates, L.L.C.

On ~~April 3, 2017,~~December 13, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of ~~Zycron, Inc.~~L.J. Kushner & Associates, L.L.C. (“~~Zycron”~~LJK”) for ~~an initial~~ cash consideration ~~paid~~ of ~~$18.5~~$8.5 million and issued $1.0 million ~~(70,670~~(47,403 shares privately placed) of the Company's common stock at closing. ~~An additional $0.5~~$1.0 million was held back as partial security for certain post-closing ~~purchase price adjustments and indemnification obligations.~~liabilities, which was paid on June 11, 2020. The purchase agreement further provides for contingent consideration of up to ~~$3.0~~$2.5 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~~LJK allows the Company to strengthen and expand its IT operations ~~throughout~~through cybersecurity retained search services specializing in recruiting high and mid-level security professionals.

EdgeRock Technology Holding, Inc.

On February 3, 2020, the ~~southeastern U.S. region and selected markets across~~Company acquired 100% of the ~~country with talent and project management services.~~equity of EdgeRock for a purchase price cash consideration of $21.7 million, subject to customary purchase price adjustments as specified in the purchase agreement. The purchase price at closing was paid out of available funds under the Company’s credit agreement led by BMO.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The ~~2016~~acquired business was assigned to the Professional segment. The acquisition of EdgeRock allows the Company to strengthen its operations in specialized IT consultants and technology professionals specialized in leading software and data ecosystems, as well as expand its IT geographic operations with offices in Arizona, Florida and Massachusetts.

The 2019 consolidated statement of ~~operations~~income does not include any operating results of ~~Zycron. 13 and 25~~EdgeRock. Thirteen weeks of ~~Zycron~~EdgeRock operations are included in the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~September 24, 2017,~~June 28, 2020, which is approximately ~~$9.0~~$9.8 million ~~and $17.6 million, respectively,~~ of revenue and $0.3 million of operating income. Twenty-one weeks of EdgeRock operations are included in the twenty-six week period ended June 28, 2020, which is approximately $16.3 million of revenue and ~~$0.9~~$0.6 million ~~and $1.6 million, respectively,~~ of operating income. The preliminary ~~purchase price~~acquisition 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	$	6,731,260
Prepaid expenses and other assets	520,587
Property and equipment, net	296,309
Right-of-use asset - operating leases	1,714,984
Intangible assets	11,274,000
Goodwill (non-deductible for tax purposes)	6,178,351
Current liabilities assumed	(2,409,551)
Deferred income taxes, net	(910,501)
Lease liability - operating leases	(1,714,984)
Total net assets acquired	$	21,680,455

Cash	$	21,680,455




Total fair value of consideration transferred for acquired business	$	21,680,455

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
The preliminary allocation of the intangible assets is as follows:


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	302,000	5 years
Trade name	7,000,000		Indefinite
Client partner list	3,972,000		5 years
Total	$	11,274,000

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

For the twenty-six week period ended June 28, 2020, the Company's incurred costs of $0.6 million related to the LJK and EdgeRock acquisitions. These costs were expensed as incurred in selling, general and administrative expenses.

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~~LJK and ~~Smart~~EdgeRock acquisitions had taken place on the first day of the Company's ~~2016~~2019 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 (as defined below) at a rate of ~~4.5%~~3.7% and tax (benefit) expense of the pro forma adjustments at an effective tax ~~rate~~rates of ~~approximately 36.8%~~25.9% and 22.8% for thirteen and twenty-six week periods ended Fiscal ~~2017~~2020, respectively, and ~~38.4%~~22.8% for thirteen and twenty-six week periods ended and Fiscal ~~2016.~~2019. The pro forma ~~information presented includes~~operating results include adjustments to LJK and EdgeRock related to synergy adjustments for expenses that ~~will have a continuing impact on~~would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the ~~operations that management considers non-recurring in assessing Zycron and Smart's historical performances.~~Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the ~~Zycron~~LJK and ~~Smart~~EdgeRock acquisitions taken place on the first day of the Company’s ~~2016~~2019 fiscal year or of the results that may be achieved by the combined enterprise in the future.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

At June 28, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 3.9 years and 5.0%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the thirteen week period ended June 28, 2020, the Company's cash paid for operating leases was $601,248, and operating lease and short-term lease costs were $525,679 and $108,359, respectively. For the twenty-six week period ended June 28, 2020, the Company's cash paid for operating leases was $1,106,779, and operating lease and short-term lease costs were $1,016,698 and $234,737, respectively.

The undiscounted annual future minimum lease payments consist of the following at:

NOTE 45 - INTANGIBLE ASSETS

Intangible assets are stated net of accumulated amortization of ~~$34,501,414~~$46.8 million and ~~$30,205,434~~$44.3 million at ~~September 24, 2017~~June 28, 2020 and December ~~25, 2016,~~29, 2019, respectively. During the ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017,~~June 28, 2020, the Company added ~~$440,668~~software assets of $71,516 and reclassified ~~$347,379 of software assets~~$976,954 from property and ~~equipment. Total amortization~~equipment related to the information technology improvement project. Amortization expense for the fiscal years are comprised of following:

As a result of the certain business developments and changes in the Company's long-term projections, the Company concluded a triggering event had occurred that required an interim impairment assessment to be performed. The qualitative assessment thresholds were met on all reporting units except the finance and accounting group. The Company calculated the quantitative impairment test of the finance and accounting group using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group. In the professional segment, the Company recognized an $3.7 million trade name impairment loss and an $3.5 million client partner list impairment loss during 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.June 28, 2020.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 56 - ACCRUED PAYROLL AND EXPENSES, OTHER LONG-TERM LIABILITIES, AND CONTINGENT CONSIDERATION

Accrued payroll and expenses consist of the following at:

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

Other long-term liabilities includes $2.7 million of deferred employer FICA and $0.2 million of interest rate swap (see Note 7) at June 28, 2020. The deferred employer FICA is under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows relief to employers affected by the coronavirus pandemic. The CARES Act only applies to taxes incurred from March 27, 2020 through December 31, 2020. Half of the delayed payments are due by December 31, 2021, and the other half by December 31, 2022. The Company has elected to delay the payment of these taxes.

The following is a schedule of future estimated contingent consideration payments to various parties as of ~~September 24, 2017:~~June 28, 2020:

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.

~~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 ~~the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0~~$35 million.

~~In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, the Company entered into an Amended and Restated~~ The Credit Agreement ~~(the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides~~also provided for a ~~revolving credit facility maturing April 3, 2022~~term loan commitment (the ~~“Revolving Facility”~~“Term Loan”), permitting the Company to borrow funds from time to time in an aggregate amount ~~equal~~not to the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million and also provides for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of $20.0exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the ~~Amended~~ Credit ~~Agreement. TCB~~Agreement, all of which has been funded. The Company may ~~also make loans (“Swing Line Loans”) not~~from time to ~~exceed the lesser~~time, with a maximum of ~~$7.5 million or~~2, request an increase in 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~~by $40 million, with ~~the closing~~minimum increases 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 and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly.$10 million. The Company’s obligations under the ~~Amended~~ Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

~~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~~bears interest either at 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.

At September 24, 2017 and December 25, 2016, $20.4 million and $23.9 million, respectively, was outstanding on the Revolving Facility with TCB. Borrowings under the Revolving Facility bore interest equal to Base Rate plus the Applicable Margin or ~~LIBOR~~London Interbank Offered Rate ("LIBOR") plus the Applicable Margin (as such terms are defined in the ~~Amended~~ Credit ~~Agreement or Credit Amendment, respectively)~~Agreement). ~~Additionally, the~~The Company also pays an unused commitment fee on the ~~unfunded portion~~daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative 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 June 28, 2020.

On February 3, 2020, the Company borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition. On April 6, 2020, the Company borrowed the remaining $4.0 million on the Term Loan and the proceeds were used to pay down the Revolving Facility.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, in conjunction with the 2020 EdgeRock acquisition, the Company entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments. As of June 28, 2020, the Company had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against the Revolving Facility. The Company has no history of default, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any disputes that might arise in the future would not materially affect the Company's consolidated financial statements. Accordingly, no liability has been recorded in respect to these arrangements as of June 28, 2020.

At June 28, 2020 and December 29, 2019, $10.3 million and $20.3 million, respectively, was outstanding on the revolving facilities. Average daily balance for the thirteen week periods ended June 28, 2020 and June 30, 2019 was $13.0 million and $14.9 million, respectively. Average daily balance for the twenty-six week periods ended June 28, 2020 and June 30, 2019 was $16.1 million and $12.5 million, respectively.

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

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 consists of and bore interest at:

In April 2020, the Company entered into a pay-fixed/receive-floating interest rate swap agreement with BMO that reduces the floating interest rate component on the Term Loan obligation. The $25.0 million notional amount was effective on June 3, 2020 and designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate that terminates on June 1, 2023. In accordance with cash flow hedge accounting treatment, the Company has determined that the hedge is perfectly effective using the change-in-variable-cash-flow method.

The unrealized loss associated with the change in the fair value of the effective portion of the hedging instrument is recorded in accumulated other comprehensive loss. The Company expects to reclassify the interest rate swap from accumulated other comprehensive loss against interest expense in the same period in which the hedge transaction affects earnings. Hedge effectiveness is tested quarterly. As of June 28, 2020, the instrument was perfectly effective and no amounts were reclassed from accumulated other comprehensive loss into income in the thirteen and twenty-six week periods ended June 28, 2020 and June 30, 2019. See Note 8 for location on the balance sheet.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 78 - 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:

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

The changes in the Level 2 fair value measurements from December 29, 2019 to June 28, 2020 relates to entering into an interest rate swap agreement with BMO. Key inputs in determining the fair value of the interest rate swap as of June 28, 2020 and December 29, 2019 are quoted prices from BMO (See Note 7).

The changes in the Level 3 fair value measurements from December ~~25, 2016~~29, 2019 to ~~September 24, 2017 relate~~June 28, 2020 relates to ~~$4.4 million in the Zycron and Smart acquisitions and $0.9 million in~~ accretion. ~~The key~~Key inputs in determining the fair value of the contingent consideration as of ~~September 24, 2017~~June 28, 2020 and December ~~25, 2016~~29, 2019 included the discount ~~rates~~rate of ~~ranging from 8% and 22%~~7.5% as well as management's estimates of future sales volumes and EBITDA.

NOTE 89 - 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~~claims or losses from 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.

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 1011 – 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~~June 28, 2020 and ~~September 25, 2016,~~June 30, 2019, the Company recognized ~~$92,293 and $111,134~~$0.2 million of compensation ~~cost~~expense related to stock ~~option awards, respectively.~~awards. For the ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016,~~June 30, 2019, the Company recognized ~~$357,024~~$0.4 million and ~~$252,972~~$0.5 million of compensation ~~cost~~expense related to stock ~~option~~ awards, respectively. Unamortized ~~stock~~share-based compensation expense as of ~~September 24, 2017~~June 28, 2020 amounted to ~~$680,321,~~$1.3 million which is expected to be recognized over the next ~~2.6~~2.4 years.

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

Total Intrinsic Value of Options

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~~twenty-six week ~~periods~~period ended ~~September 24, 2017,~~June 30, 2019, the Company issued ~~5,221~~9,298 shares of common stock upon the cashless exercise of ~~9,402~~22,240 stock options.

Included in awards outstanding are 18,000 and 27,000 shares of restricted stock (which vest equitably over a four year period), at a grant date price per share of $28.61, issued under the 2013 Plan as of June 28, 2020 and December 29, 2019, respectively. For the thirteen and twenty-six week periods ended June 28, 2020 and June 30, 2019, the Company recognized $0.1 million of compensation expense related to restricted stock.

For the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016,~~June 30, 2019, 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.~~June 28, 2020.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

A summary of warrant activity is presented as follows:

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)
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 June 28, 2020 and December 29, 2019.



	~~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 twenty-six week period ended June 30, 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 1112 - ~~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~~$0.4 million and ~~$217,103~~$0.3 million to the 401(k) Plan for the thirteen week periods ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016, respectively.~~June 30, 2019. The Company contributed ~~$657,623~~$0.7 million and ~~$622,772~~$0.6 million to the 401(k) Plan for the ~~thirty-nine~~twenty-six week periods ended ~~September 24, 2017~~June 28, 2020 and ~~September 25, 2016, respectively.~~June 30, 2019.

NOTE 1213 - 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 and commercial buildings in 2329 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. Our Real Estate segment operates through two divisions, BG Multifamily and BG Talent. The Professional segment provides skilled ~~temporary workers~~field talent on a nationwide basis for IT and finance, accounting, legal and ~~accounting customer~~human resource client partner projects. Our Professional segment operates through various divisions including Extrinsic, American Partners, Donovan & Watkins, Vision Technology Services, Zycron, Smart Resources, L.J. Kushner & Associates, and EdgeRock Technology Partners. The ~~Commercial~~Light Industrial segment provides ~~temporary workers~~field talent primarily to manufacturing, distribution, logistics, ~~distribution,~~ and call center ~~customers~~client partners needing a flexible workforce in ~~Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.~~7 states. Our Light Industrial segment operates through our InStaff division.

Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative ~~(corporate)~~(home office) expenses. Assets of ~~corporate~~home office 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:

Amortization:

Multifamily $ —
$ —
$ —
$ 62,848
Professional 1,222,402
1,454,293
3,993,474
4,399,296
Commercial 66,151
94,621
245,903
363,479
Corporate 3,372
—
5,223
—
Total $ 1,291,925
$ 1,548,914
$ 4,244,600
$ 4,825,623

Operating income:
Multifamily $ 4,020,995
$ 3,331,981
$ 8,524,536
$ 6,859,318
Professional 2,119,550
1,163,674
6,344,222
4,737,610
Commercial 1,108,842
1,364,353
3,000,444
4,070,037
Corporate - selling (119,097 ) —
(371,906 ) —
Corporate - general and administrative (1,494,106 ) (1,393,412 ) (4,585,854 ) (4,553,844 )
Total $ 5,636,184
$ 4,466,596
$ 12,911,442
$ 11,113,121

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 24,
2017
December 25,
2016
Total Assets:

Multifamily
$ 13,283,021

$ 9,320,335
Professional
70,887,537

39,548,308
Commercial 17,359,515
21,574,855
Corporate
10,761,963

10,770,636
Total
$ 112,292,036

$ 81,214,134

NOTE 1314 - SUBSEQUENT EVENTS

On ~~October 20, 2017,~~August 4, 2020, the Company's board of directors declared a cash dividend in the amount of ~~$0.25~~$0.05 per share of common stock to be paid on ~~November 7, 2017~~August 25, 2020 to all shareholders of record as of the close of business on ~~November 2, 2017.~~August 18, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes ~~thereto.~~thereto and our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. Comparative segment revenues and related financial information are discussed herein and are presented in Note 1213 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including our Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016,~~29, 2019, for a description of important factors that could cause actual results to differ from expected results.

We are a leading national provider of professional ~~temporary staffing services~~workforce solutions and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff Holding Corporation and InStaff Personnel, LLC in June 2013, D&W Talent, LLC ~~("D&W")~~ in March 2015, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC ~~(collectively, “VTS”)~~ in October 2015, Zycron, Inc. in April 2017, ~~and~~ Smart Resources, Inc. and Accountable Search, LLC in September ~~2017.~~2017, and LJK in December 2019, and 100% of the equity of EdgeRock in February 2020. We operate within three industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. We provide services to ~~customers~~client partners primarily within the United States of America. We now ~~have 63~~operate through 89 branch offices and 1512 on-site locations located across ~~26 states.~~44 states and D.C.

Impact of the recent coronavirus pandemic ("COVID-19")

We continue to observe the negative impact of the COVID-19 outbreak on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments. We expect that the social distancing measures, the reduced operational status of our client partners, reductions in production at certain client partners facilities, and general business uncertainty will continue to effect demand in all our segments.

During this uncertain time, our critical priorities are the health and safety of our team members, field talent, candidates and client partners. Starting in March 2020, we took several cost containment and liquidity actions, which we do not believe have materially adversely impacted our internal controls, financial reporting systems or our operations.

Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions (including declared states of emergency and quarantine, “shelter in place” orders, or similar orders), non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets. These effects have had a significant impact on our business, including reduced demand for our services and workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of which have

contributed to a decline in revenues and other significant adverse impacts on our financial results. Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our services or workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate. Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise. As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our team members, field talent, client partners, and stockholders. The potential effects are not clear for any such alterations or modifications on our business, our client partners, candidates, vendors, or on our financial results.

Results of Operations

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

Thirteen Weeks Ended Thirty-nine Weeks Ended

September 24, 2017
September 25, 2016 September 24, 2017 September 25, 2016

(dollars in thousands)
Revenues
$ 71,282
$ 67,407
$ 196,899
$ 189,573
Cost of services
53,034
50,975
147,753
144,610
Gross profit
18,248
16,432
49,146
44,963
Selling, general and administrative expenses
11,175
10,291
31,561
28,670
Depreciation and amortization
1,436
1,674
4,673
5,181
Operating income
5,637
4,467
12,912
11,112
Loss on extinguishment of debt —
—
—
(404 )
Interest expense, net
(884 ) (702 ) (2,280 ) (3,278 )
Income before income tax
4,753
3,765
10,632
7,430
Income tax expense
1,616
1,417
3,909
2,852
Net income
$ 3,137

$ 2,348
$ 6,723
$ 4,578

Revenues
100.0 % 100.0 % 100.0 % 100.0 %
Cost of services
74.4 % 75.6 % 75.0 % 76.3 %
Gross profit
25.6 % 24.4 % 25.0 % 23.7 %
Selling, general and administrative expenses
15.7 % 15.3 % 16.0 % 15.1 %
Depreciation and amortization
2.0 % 2.5 % 2.4 % 2.7 %
Operating income
7.9 % 6.6 % 6.6 % 5.9 %
Loss on extinguishment of debt — % — % — % (0.2 )%
Interest expense, net
(1.2 )% (1.0 )% (1.2 )% (1.7 )%
Income before income tax
6.7 % 5.6 % 5.4 % 3.9 %
Income tax expense
2.3 % 2.1 % 2.0 % 1.5 %
Net income
4.4 % 3.5 % 3.4 % 2.4 %

Thirteen Week Fiscal Period Ended ~~September 24, 2017 (Fiscal Quarter 2017)~~June 28, 2020 (“Fiscal 2020”) Compared with Thirteen Week Fiscal Period Ended ~~September 25, 2016 (Fiscal Quarter 2016)~~June 30, 2019 (“Fiscal 2019”)

~~Multifamily~~Real Estate Revenues: ~~Multifamily~~ Real Estate revenues ~~increased~~decreased approximately ~~$2.9~~$12.6 million ~~(15.2%~~(51.7%), due to ~~our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately $1.6 million~~the effects of the ~~increase and revenue from branches in Texas increased approximately $1.3 million.~~COVID-19 pandemic. The ~~increase~~decrease was due to ~~an 8.5% increase~~a 53.7% decrease in billed hours, ~~and~~which was offset by a ~~6.0%~~4.1% increase in average bill rate. Revenue from ~~existing offices accounted for approximately $1.2 million of the increase and revenue from~~ new offices ~~provided approximately $1.7~~was $0.6 million.

Professional Revenues: Professional revenues increased approximately ~~$5.9~~$5.3 million ~~(22.9%~~(17.0%), primarily from ~~Zycron,~~LJK and EdgeRock acquisitions, which contributed ~~approximately $9.0~~$9.8 million of new revenues. The remaining ITprofessional group decreased ~~$2.1~~$4.5 million, ~~and~~due to the ~~finance and accounting group decreased $0.9 million.~~effects of the COVID-19 pandemic. The overall increase was ~~due to a 26.8% increase in billed hours and increased permanent placements of $0.2 million, offset~~affected by a ~~3.2% decrease~~20.7% increase in average bill ~~rate.~~rate, which was partially offset by $0.6 million of a decrease in permanent placements and 0.6% decrease in billed hours.

~~Commercial~~Light Industrial Revenues: ~~Commercial~~ Light Industrial revenues decreased approximately ~~$4.9~~$4.0 million ~~(21.6%~~(21.8%)~~. Texas branches decreased $3.1 million, other branches outside~~, due to the effects of the ~~Midwest decreased $2.1 million, while the Illinois and Wisconsin locations increased $0.3 million.~~COVID-19 pandemic. The overall revenue decrease was ~~due to~~affected by a ~~25%~~27.1% decrease in billed hours, which was offset by ~~a 4.5%~~an 5.6% increase in average bill rate.

Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, ~~temporary worker~~field talent costs, and reimbursable costs.

Thirteen Weeks Ended
September 24,
2017 September 25,
2016
Gross Profit Percentage by segment:

Multifamily 37.7 % 37.1 %
Professional 23.6 % 24.0 %
Commercial 14.4 % 14.2 %
Company Gross Profit 25.6 % 24.4 %


		Thirteen Weeks Ended
		June 28, 2020		June 30, 2019
Gross Profit Percentage by segment:
	Real Estate	37.8	%	38.5	%
	Professional	28.4	%	28.1	%
	Light Industrial	14.4	%	14.8	%
	Company Gross Profit	27.0	%	28.2	%

Overall, our gross profit ~~has increased~~decreased approximately ~~$1.8~~$4.0 million ~~(11.1%~~(19.0%) ~~due primarily to Zycron ($1.8 million) and growth in our Multifamily segment, offset by decreased revenues in our Commercial segment.~~. As a percentage of revenue, gross profit has ~~increased~~decreased to ~~25.6%~~27.0% from ~~24.4% primarily~~28.2% due to ~~a greater percentage of revenues coming~~decline in our Real Estate segment from ~~our Multifamily and Professional segments.~~COVID-19 pandemic.

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

Real Estate Gross Profit: ~~Multifamily~~ Real Estate gross profit ~~increased~~decreased approximately ~~$1.2~~$4.9 million ~~(17.0%~~(52.6%) in line with ~~the increase in revenue. The increase in gross profit percentage of 0.6%~~decreased revenue which was ~~due primarily to 6.3%~~offset by a 2.6% increase in average spread.

Professional Gross Profit: Professional gross profit increased approximately ~~$1.3~~$1.6 million ~~(20.8%~~(18.6%)~~, due to Zycron~~ consistent with the increase in revenue, primarily from LJK and EdgeRock acquisitions, which contributed $3.0 million of ~~$1.8 million,~~gross profit. The overall increase in gross profit was affected by a ~~2.3%~~21.6% increase in average ~~spread, offset by a $0.3 million decrease in the remaining IT group and a $0.2 million decrease in the finance and accounting group.~~spread.

~~Commercial~~Light Industrial Gross Profit: ~~Commercial~~ Light Industrial gross profit decreased approximately ~~$0.6~~$0.7 million ~~(20.5%~~(24.2%) ~~due to~~in line with decreased revenue which was offset by a ~~decrease~~3.7% increase in ~~the corresponding revenue. The~~ average ~~spread increased 5.2%.~~spread.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately ~~$0.9~~$0.1 million ~~(8.6%~~(0.5%), primarily related from LJK and EdgeRock acquisitions, which contributed $2.7 million of new expense that was offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March related to ~~an increase in Professional of $0.9 million from Zycron offest by a $0.6 million decrease~~the COVID-19 pandemic to reduce actual and planned operating costs as detailed in the remaining IT group and a $0.3 million increase in the finance and accounting group. Multifamily increased approximately $0.5 million from growth and new office expansion, partially offset by a decrease in Commercial of approximately $0.3 million from decreased revenues.following table.

Depreciation and Amortization: Depreciation and amortization charges ~~decreased~~increased approximately $0.2 million ~~(14.3%~~(19.9%). The ~~decrease~~increase in depreciation and amortization is primarily due to the Professional segment ~~fully amortized intangible assets~~ related to the ~~2011 Extrinsic, LLC acquisition.~~2019 LJK and 2020 EdgeRock acquisitions.

~~Interest Expense, net:~~ ~~Interest expense, net increased approximately $0.2 million (25.9%) primarily due~~Impairment loss: As a result of the ~~new term note.~~

~~Income Taxes:~~ ~~Income tax expense increased approximately $0.2 million primarily due to higher pre-tax income offset by a decrease~~certain business developments and changes in the ~~effective rate.~~

~~Thirty-nine Week Fiscal Period Ended September 24, 2017 ("Fiscal 2017") Compared with Thirty-nine Week Fiscal Period Ended September 25, 2016 ("Fiscal 2016")~~

Revenues: Thirty-nine Weeks Ended
September 24,
2017 September 25,
2016
(dollars in thousands)
Revenues by segment:

Multifamily $ 51,436
26.1 % $ 43,556
23.0 %
Professional 91,770
46.6 % 80,829
42.6 %
Commercial 53,693
27.3 % 65,188
34.4 %
Total Revenues $ 196,899
100.0 % $ 189,573
100.0 %

~~Multifamily Revenues~~: ~~Multifamily revenues increased approximately $7.9 million (18.1%) due to our continued geographic expansion plan. Revenue from branches outside~~Company's long-term projections, the Company calculated the quantitative impairment test of Texas accounted for approximately $5.5 million of the increase and revenue from branches in Texas increased approximately $2.4 million. The increase was due to a 11.3% increase in billed hours and a 5.9% increase in average bill rate. Revenue from existing offices accounted for approximately $4.8 million of the increase and revenue from new offices provided approximately $3.1 million.

~~Professional Revenues~~: Professional revenues increased approximately $10.9 million (13.5%), primarily from Zycron, which contributed approximately $17.6 million of new revenues. The remaining IT group decreased $5.1 million and the finance and accounting group using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group. In the professional segment. The Company recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss.

Interest Expense, net: Interest expense, net decreased ~~$1.6 million. The overall increase was~~$0.1 million (13.3%) primarily due to the recording of annual interest received from our workers compensation loss retention program in the second quarter 2020 that was received in the first quarter 2019.

Income Taxes: We recorded an income tax benefit of $1.7 million primarily due to lower pre-tax 2020 income, intangible impairment losses, and the Work Opportunity Tax Credit which resulted in a ~~11.9% increase in billed hours, an increase of 0.4% in average bill rate, and increased permanent placements of $0.5 million.~~lower 2020 effective rate.

Twenty-six Week Fiscal Period Ended June 28, 2020 (“Fiscal 2020”) Compared with Twenty-six Week Fiscal Period Ended June 30, 2019 (“Fiscal 2019”)



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	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233
Item 4.	Controls and Procedures	3234

PART II	OTHER INFORMATION	3436
Item 1.	Legal Proceedings	3436
Item 1A.	Risk Factors	3436
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3436
Item 3.	Defaults Upon Senior Securities	3436
Item 4.	Mine Safety Disclosures	3436
Item 5.	Other Information	3436
Item 6.	Exhibits	3537


	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Revenues	$	62,606	$	84,653	$	139,782	$	164,543
Gross profit	$	16,905	$	24,733	$	38,089	$	47,323
Net (loss) income	$	(4,829)	$	4,297	$	(3,544)	$	7,334
(Loss) Income per share:
Basic	$	(0.47)	$	0.42	$	(0.34)	$	0.72
Diluted	$	(0.47)	$	0.41	$	(0.34)	$	0.71


	June 28, 2020
2020	$	2,084,202
2021	2,149,647
2022	1,860,054
2023	1,260,651
2024	612,394
Thereafter	89,124
Total lease payments	8,056,072
Interest	(872,844)
Present value of lease liabilities	$	7,183,228


	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Client partner lists	$	1,040,405	$	881,525	$	2,091,021	$	1,789,624
Covenant not to compete	66,395		42,250		136,084		84,500
Acquisition intangibles	1,106,800		923,775		2,227,105		1,874,124
Computer software - amortization expense	117,945		79,042		185,082		157,776
Amortization expense	1,224,745		1,002,817		2,412,187		2,031,900
Computer software - selling, general and administrative expense	18,822		19,087		37,644		24,893
Total expense	$	1,243,567	$	1,021,904	$	2,449,831	$	2,056,793


	June 28, 2020		December 29, 2019
Field talent payroll	$	6,511,524	$	4,505,264
Field talent payroll related	1,212,218		1,651,436
Accrued bonuses and commissions	1,716,462		1,585,681
Other	3,394,038		2,742,658
Accrued payroll and expenses	$	12,834,242	$	10,485,039



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



			September 24, 2017		December 25, 2016
ASSETS
Current assets
	Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016)		$	40,618,312	$	33,328,900
	Prepaid expenses		529,469		950,696
	Other current assets		98,261		154,673
		Total current assets	41,246,042		34,434,269

Property and equipment, net			1,700,470		1,910,858

Other assets
	Deposits		2,799,813		2,657,517
	Deferred income taxes, net		9,916,170		9,512,455
	Intangible assets, net		38,803,342		23,514,376
	Goodwill		17,826,199		9,184,659
		Total other assets	69,345,524		44,869,007
	Total assets		$	112,292,036	$	81,214,134

LIABILITIES AND STOCKHOLDERS' EQUITY
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	$	—
	Accrued interest		308,979		100,868
	Accounts payable		1,946,662		951,672
	Accrued payroll and expenses		12,566,637		9,668,475
	Accrued workers’ compensation		281,237		754,556
	Contingent consideration, current portion		5,535,068		3,580,561
	Other current liabilities		317,294		—
	Income taxes payable		437,337		193,264
		Total current liabilities	24,007,374		15,249,396

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
Other long-term liabilities			219,061		271,766
	Total liabilities		70,183,004		40,725,680

Commitments and contingencies

Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding			—		—
Common stock, $0.01 par value per share; 19,500,000 shares authorized,8,759,376 and 8,668,485 shares issued and outstanding for 2017 and 2016, respectively			87,594		86,685
Additional paid in capital			37,585,052		36,142,688
Retained earnings			4,436,386		4,259,081
	Total stockholders’ equity		42,109,032		40,488,454
	Total liabilities and stockholders’ equity		$	112,292,036	$	81,214,134



		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



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



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



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	$	1,250,000	$	(66,080)	$	1,183,920
One to two years	1,250,000		(162,747)		1,087,253




Contingent consideration	$	2,500,000	$	(228,827)	$	2,271,173


	June 28, 2020						December 29, 2019
Base Rate	$	255,483	4.25	%	$	2,844,957	5.25	%
LIBOR	10,000,000		2.17	%	17,500,000		3.26	%


Total	$	10,255,483			$	20,344,957


Amounts Recorded at Fair Value	Financial Statement Classification	Fair Value Hierarchy	June 28, 2020		December 29, 2019
Interest rate swap	Other long-term liabilities	Level 2	$	171,723	$	—
Contingent consideration, net	Contingent consideration, net - current and long-term	Level 3	$	2,271,173	$	2,174,378


	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 29, 2019	582,845	$	18.32	7.5	$	2,793



Awards outstanding at June 28, 2020	582,845	$	18.32	7.0	$	343

Awards exercisable at December 29, 2019	313,645	$	16.05	6.8	$	1,991
Awards exercisable at June 28, 2020	340,995	$	16.47	6.4	$	158


	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 29, 2019	269,200	$	20.96
Nonvested outstanding at June 28, 2020	241,850	$	20.93



	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



Amortization:
Multifamily	$	—		$	—		$	—		$	62,848
Professional	1,222,402			1,454,293			3,993,474			4,399,296
Commercial	66,151			94,621			245,903			363,479
Corporate	3,372			—			5,223			—
Total	$	1,291,925		$	1,548,914		$	4,244,600		$	4,825,623

Operating income:
Multifamily	$	4,020,995		$	3,331,981		$	8,524,536		$	6,859,318
Professional	2,119,550			1,163,674			6,344,222			4,737,610
Commercial	1,108,842			1,364,353			3,000,444			4,070,037
Corporate - selling	(119,097		)	—			(371,906		)	—
Corporate - general and administrative	(1,494,106		)	(1,393,412		)	(4,585,854		)	(4,553,844		)
Total	$	5,636,184		$	4,466,596		$	12,911,442		$	11,113,121

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





Capital expenditures:
Real Estate	$	17,549	$	29,218	$	43,273	$	39,879
Professional	32,926		68,211		73,898		396,859
Light Industrial	3,201		5,476		3,201		7,631
Home office	793,618		229,383		1,776,595		229,383
Total	$	847,294	$	332,288	$	1,896,967	$	673,752


	June 28, 2020		December 29, 2019
Total Assets:
Real Estate	$	11,688,225	$	16,785,163
Professional	87,487,331		72,623,242
Light Industrial	12,993,467		15,223,581
Home office	14,786,707		10,954,058
Total	$	126,955,730	$	115,586,044





Revenues				100.0	%			100.0	%			100.0	%			100.0	%
Cost of services				73.0	%			71.8	%			72.8	%			72.4	%
	Gross profit	27.0	%			28.2	%			27.2	%			27.6	%
Selling, general and administrative expenses				22.9	%			19.3	%			22.3	%			19.5	%

Impairment losses				11.6	%			—	%			5.3	%			—	%
Depreciation and amortization				2.3	%			1.6	%			2.1	%			1.7	%
	Operating (loss) income	(9.7)	%			7.3	%			(2.5)	%			6.3	%

Interest expense, net				0.7	%			0.7	%			0.6	%			0.6	%
	(Loss) Income before income tax	(10.4)	%			6.7	%			(3.2)	%			5.7	%
Income tax (benefit) expense				(2.7)	%			1.5	%			(0.7)	%			1.3	%
	Net (loss) income	(7.7)	%			5.1	%			(2.4)	%			4.4	%


Revenues:	Revenues:	Thirteen Weeks Ended								Revenues:				Thirteen Weeks Ended
		September 24, 2017				September 25, 2016						June 28, 2020							June 30, 2019
		(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	$	11,780		18.8	%	$	24,397	33.0	%
	Professional	31,740		44.5	%	25,822		38.3	%		Professional	36,649			58.5	%	31,321		42.4	%
	Commercial	17,783		25.0	%	22,696		33.7	%		Light Industrial	14,177			22.7	%	18,140		24.6	%
	Total Revenues	$	71,282	100.0	%	$	67,407	100.0	%		Total Revenues	$	62,606		100.0	%	$	73,858	100.0	%


										Thirteen Weeks Ended						Twenty-six Weeks Ended				Trailing Twelve Months Ended
	Thirteen Weeks Ended				Thirty-nine Weeks Ended					June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019		June 28, 2020
	September 24, 2017		September 25, 2016		September 24, 2017		September 25, 2016			(dollars in thousands)
Net (loss) income									Net (loss) income	$	(4,830)	$	3,802	$	(3,331)	$	6,298	$	3,618
Interest expense, net									Interest expense, net	430		496		886		849		1,605
Income tax (benefit) expense									Income tax (benefit) expense	(1,685)		1,123		(983)		1,860		1,462
Loss on extinguishment of debt									Loss on extinguishment of debt	—		—		—		—		541
Operating (loss) income									Operating (loss) income	(6,085)		5,421		(3,428)		9,007		7,226
Depreciation and amortization									Depreciation and amortization	1,444		1,204		2,859		2,436		5,244
Impairment losses									Impairment losses	7,240		—		7,240		—		7,240
	(dollars in thousands)
Net income	$	3,137	$	2,348	$	6,723	$	4,578
Interest expense, net	884		702		2,280		3,278
Income tax expense	1,616		1,417		3,909		2,852
Loss on extinguishment of debt	—		—		—		404
Operating income	5,637		4,467		12,912		11,112
Depreciation and amortization	1,436		1,674		4,673		5,181
Share-based compensation	92		111		357		253		Share-based compensation	193		187		386		507		832
Transaction fees									Transaction fees	48		36		590		58		967
IT roadmap									IT roadmap	432		28		891		28		1,583
Adjusted EBITDA	$	7,165	$	6,252	$	17,942	$	16,546	Adjusted EBITDA	$	3,272	$	6,876	$	8,538	$	12,036	$	23,092


Exhibit Number		Description

~~Exhibit~~ ~~Number~~ 2.1		~~Description~~

~~2.1~~	Asset Purchase Agreement, dated as of ~~April 3, 2017, by and~~December 13, 2019, between BG Staffing, Inc., BG Staffing, LLC, ~~Zycron Inc.~~L.J.Kushner & Associates, L.L.C., and ~~Darrell S. Freeman~~Lee J. Kushner (incorporated by reference tofrom the ~~Company’s~~registrant’s Current Report on Form 8-K filed on ~~April 6, 2017).~~December 16, 2019)
2.2		~~Asset~~Securities Purchase Agreement, dated as of ~~September 18, 2017,~~February 3, 2020, by and between BG ~~Finance~~Staffing, LLC, EdgeRock Technology Holdings, Inc., and ~~Accounting, Inc., Smart Resources, Inc. and Accountable Search,~~CDI Holding Company LLC ~~and Timothy J. Flood and Margaret L. Francis~~ (incorporated by reference tofrom the ~~Company’s~~registrant’s Current Report on Form 8-K filed on ~~September 22, 2017).~~February 6, 2020)
3.1		Certificate of Incorporation of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the ~~registrant’s~~Company’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~~Company’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~~Company’s registration statement on Form S-1 (File No. 333-191683) filed on October 28, 2013).
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)