UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September ~~29, 2019~~27, 2020



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

For the transition period from to .

Commission File Number: 001-36704

BG STAFFING, ~~INC~~. INC.

(exact name of registrant as specified in its charter)



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

5850 Granite Parkway, Suite 730

Plano,, Texas75024

(~~972~~) (972) 692-2400

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

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

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

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

Large accelerated filer

Accelerated Filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

☑

Emerging growth company

☐

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 ~~American~~

The number of shares outstanding of the registrant’s common stock as of November ~~5, 2019~~4, 2020 was ~~10,242,114.~~10,317,018.

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 field talents’ workers' compensation insurance coverage at commercially reasonable terms;

•the availability of qualified 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 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 ~~30, 2018.~~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, 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, Washington, D.C. 20549.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED BALANCE SHEETS


			September 27, 2020		December 29, 2019
ASSETS
Current assets
	Accounts receivable (net of allowance for credit losses of $476,987 at 2020 and $468,233 for 2019)		$	41,769,774	$	39,423,801
	Prepaid expenses and other current assets		1,010,648		1,243,746
	Income taxes receivable		0		69,649

		Total current assets	42,780,422		40,737,196

Property and equipment, net			3,742,358		3,545,049
Other assets
	Deposits and other assets		5,099,514		3,843,023
	Deferred income taxes, net		4,514,048		4,071,847
	Right-of-use asset - operating leases		6,177,790		4,386,317
	Intangible assets, net		35,437,325		33,807,973
	Goodwill		31,350,224		25,194,639
		Total other assets	82,578,901		71,303,799
	Total assets		$	129,101,681	$	115,586,044

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Long-term debt, current portion		$	2,437,500	$	375,000
	Accrued interest		94,322		73,027
	Accounts payable		432,950		479,422
	Accrued payroll and expenses		12,797,763		10,485,039

	Lease liability, current portion		1,894,132		1,277,843
	Other current liabilities		0		1,016,565
	Income taxes payable		183,561		0
		Total current liabilities	17,840,228		13,706,896

Line of credit (net of deferred finance fees of $286,779 and $351,128 for 2020 and 2019, respectively)			7,713,221		19,993,829
Long-term debt, less current portion			26,862,500		7,125,000
Contingent consideration			2,243,187		2,174,378
Lease liability, less current portion			5,231,020		4,128,951
Other long-term liabilities			5,176,769		0
	Total liabilities		65,066,925		47,129,054

Commitments and contingencies
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding			0		0
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,317,018 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			75,852		75,775
Additional paid in capital			60,238,267		59,617,787
Retained earnings			3,875,119		8,763,428
Accumulated other comprehensive loss			(154,482)		0
	Total stockholders’ equity		64,034,756		68,456,990
	Total liabilities and stockholders’ equity		$	129,101,681	$	115,586,044

September 29,
2019 December 30, 2018
ASSETS
Current assets

Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018) $ 40,399,213
$ 37,606,721
Prepaid expenses 1,709,978
984,219
Other current assets 38,933
22,733
Total current assets 42,148,124
38,613,673

Property and equipment, net 3,099,489
2,556,992

Other assets

Deposits 3,700,754
3,209,419
Deferred income taxes, net 4,408,099
4,870,997
Right-of-use asset - operating leases 4,113,793
—
Intangible assets, net 30,539,442
33,034,173
Goodwill 17,983,549
17,983,549
Total other assets 60,745,637
59,098,138
Total assets $ 105,993,250
$ 100,268,803
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities

Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively) $ —
$ 4,242,580
Accrued interest 203,620
308,547
Accounts payable 140,541
146,257
Accrued payroll and expenses 11,992,541
10,411,374
Accrued workers’ compensation 447,650
530,980
Contingent consideration, current portion —
2,363,512
Lease liability, current portion 1,271,711
—
Income taxes payable 279,607
55,841
Total current liabilities 14,335,670
18,059,091

Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively) 20,196,123
10,078,507
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively) —
5,767,650
Lease liability, less current portion 3,875,349
—
Other long-term liabilities —
661,542
Total liabilities 38,407,142
34,566,790

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, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively 75,103
78,246
Additional paid in capital 58,416,884
57,624,379
Retained earnings 9,094,121
7,999,388
Total stockholders’ equity 67,586,108
65,702,013
Total liabilities and stockholders’ equity $ 105,993,250
$ 100,268,803

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Thirteen and Thirty-nine Week Periods Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019


		Thirteen Weeks Ended					Thirty-nine Weeks Ended							Thirteen Weeks Ended				Thirty-nine Weeks Ended
		2019		2018			2019		2018					2020		2019		2020		2019
Revenues	Revenues	$	79,364,306	$	77,062,137		$	221,998,263	$	214,863,045		Revenues		$	71,518,691	$	79,364,306	$	208,192,454	$	221,998,263
Cost of services	Cost of services	57,187,684		55,689,112			160,520,167		156,987,810			Cost of services		51,806,765		57,187,684		151,299,654		160,520,167
	Gross profit	22,176,622		21,373,025			61,478,096		57,875,235				Gross profit	19,711,926		22,176,622		56,892,800		61,478,096
Selling, general and administrative expenses	Selling, general and administrative expenses	14,502,757		14,022,464			42,361,018		38,530,315			Selling, general and administrative expenses		14,869,009		14,502,757		45,379,075		42,361,018
Gain on contingent consideration	Gain on contingent consideration	—		(988,303		)	—		(2,160,307		)	Gain on contingent consideration		(76,102)		0		(76,102)		0
Impairment losses												Impairment losses		0		0		7,239,514		0
Depreciation and amortization	Depreciation and amortization	1,196,753		1,247,537			3,632,500		3,801,425			Depreciation and amortization		1,270,951		1,196,753		4,129,615		3,632,500
	Operating income	6,477,112		7,091,327			15,484,578		17,703,802				Operating income	3,648,068		6,477,112		220,698		15,484,578
Loss on extinguishment of debt	Loss on extinguishment of debt	540,705		—			540,705		—			Loss on extinguishment of debt		0		540,705		0		540,705
Interest expense, net	Interest expense, net	395,448		661,683			1,244,795		2,274,575			Interest expense, net		359,805		395,448		1,245,489		1,244,795
	Income before income taxes	5,540,959		6,429,644			13,699,078		15,429,227				Income (Loss) before income taxes	3,288,263		5,540,959		(1,024,791)		13,699,078
Income tax expense		1,333,789		1,368,258			3,194,055		2,732,386
Income tax expense (benefit)												Income tax expense (benefit)		722,700		1,333,789		(259,951)		3,194,055
	Net income	$	4,207,170	$	5,061,386		$	10,505,023	$	12,696,841			Net income (loss)	$	2,565,563	$	4,207,170	$	(764,840)	$	10,505,023

Net income per share:
Change in unrealized gains (losses) on cash flow hedges												Change in unrealized gains (losses) on cash flow hedges		(17,241)		0		154,482		0
													Other comprehensive gain (loss)	(17,241)		0		154,482		0
													Net comprehensive income (loss)	$	2,582,804	$	4,207,170	$	(919,322)	$	10,505,023

Net income (loss) per share:												Net income (loss) per share:
	Basic	$	0.41	$	0.50		$	1.03	$	1.36			Basic	$	0.25	$	0.41	$	(0.07)	$	1.03
	Diluted	$	0.41	$	0.49		$	1.01	$	1.32			Diluted	$	0.25	$	0.41	$	(0.07)	$	1.01

Weighted-average shares outstanding:	Weighted-average shares outstanding:											Weighted-average shares outstanding:
	Basic	10,239,126		10,109,791			10,233,725		9,368,840				Basic	10,312,939		10,239,126		10,309,457		10,233,725
	Diluted	10,343,673		10,342,559			10,365,871		9,638,616				Diluted	10,326,493		10,343,673		10,309,457		10,365,871

Cash dividends declared per common share	Cash dividends declared per common share	$	0.30	$	0.30		$	0.90	$	0.85		Cash dividends declared per common share		$	0.05	$	0.30	$	0.40	$	0.90

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirty-nine Week ~~Period~~Periods Ended September ~~30, 2018~~29, 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	$	0	10,227,247	$	102,273	$	(24,027)	$	57,624,379	$	7,999,388	$	0	$	65,702,013
Share-based compensation	—		—	—		—		320,084		—		—		320,084
Cancellation of restricted shares	—		(2,250)	(23)		—		23		—		—		0
Exercise of common stock options and warrants	—		4,916	49		—		(49)		—		—		0
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	0		10,229,913	102,299		(24,027)		57,944,437		7,225,958		0		65,248,667
Share-based compensation	—		—	—		—		186,629		—		—		186,629
Exercise of common stock options and warrants	—		4,805	48		—		(48)		—		—		0
Cash dividend declared	—		—	—		—		—		(3,068,974)		—		(3,068,974)
Net income	—		—	—		—		—		3,801,829		—		3,801,829
Stockholders’ equity, June 30, 2019	0		10,234,718	102,347		(24,027)		58,131,018		7,958,813		0		66,168,151
Share-based compensation	—		—	—		—		244,450		—		—		244,450
Exercise of common stock options and warrants	—		7,396	74		(3,291)		41,416		—		—		38,199
Cash dividends declared	—		—	—		—		—		(3,071,862)		—		(3,071,862)
Net income	—		—	—		—		—		4,207,170		—		4,207,170
Stockholders’ equity, September 29, 2019	$	0	10,242,114	$	102,421	$	(27,318)	$	58,416,884	$	9,094,121	$	0	$	67,586,108

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

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

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

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirty-nine Week ~~Period~~Periods Ended September ~~29, 2019~~27, 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	$	0	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		—		—		0

Cash dividend declared	—		—	—		—		—		(3,092,771)		—		(3,092,771)
Net income	—		—	—		—		—		1,498,860		—		1,498,860
Stockholders’ equity, March 29, 2020	0		10,306,986	103,070		(27,318)		59,810,723		7,169,517		0		67,055,992
Share-based compensation	—		—	—		—		193,077		—		—		193,077
Share issuance cost	—		0	0		—		(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	0		10,306,986	103,070		(27,318)		59,993,800		1,824,905		(171,723)		61,722,734
Share-based compensation	—		—	—		—		244,567		—		—		244,567
Share issuance	—		10,032	100		—		(100)		—		—		0

Cash dividend declared	—		—	—		—		—		(515,349)		—		(515,349)
Net income	—		—	—		—		—		2,565,563		—		2,565,563
Other comprehensive gain	—		—	—		—		—		—		$	17,241	$	17,241
Stockholders’ equity, September 27, 2020	$	0	10,317,018	$	103,170	$	(27,318)	$	60,238,267	$	3,875,119	$	(154,482)	$	64,034,756

Common Stock

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

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

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

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirty-nine Week Periods Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019


				2020		2019
Cash flows from operating activities
	Net (loss) income			$	(764,840)	$	10,505,023
		Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Depreciation		653,199		608,119
		Amortization		3,476,416		3,024,381
		Impairment losses		7,239,514		0
		Loss on disposal of property and equipment		0		6,954
		Loss on extinguishment of debt, net		0		540,705
		Gain on contingent consideration		(76,102)		0
		Amortization of deferred financing fees		56,109		154,127

		Interest expense on contingent consideration payable		144,911		110,903
		Provision for credit losses		153,805		6,065
		Share-based compensation		630,557		751,163
		Deferred income taxes		(1,352,702)		462,898
		Net changes in operating assets and liabilities, net of effects of acquisitions:
			Accounts receivable	4,231,482		(2,798,557)
			Prepaid expenses and other current assets	753,685		(741,959)

			Deposits and other assets	(978,259)		(491,333)
			Accrued interest	21,295		(104,927)
			Accounts payable	(66,069)		(5,716)
			Accrued payroll and expenses	(21,446)		1,746,948
			Other current liabilities	(1,016,565)		0
			Income taxes receivable and payable	197,426		223,766
			Operating leases	(16,649)		(33,612)
			Other long-term liabilities	5,022,287		0
		Net cash provided by operating activities		18,288,054		13,964,948

Cash flows from investing activities
	Business acquired, net of cash received			(21,657,689)		0
	Capital expenditures			(1,960,179)		(1,534,016)

		Net cash used in investing activities		(23,617,868)		(1,534,016)

2019 2018
Cash flows from operating activities

Net income $ 10,505,023
$ 12,696,841
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 608,119
545,751
Amortization 3,024,381
3,255,674
Loss on disposal of property and equipment 6,954
15,554
Loss on extinguishment of debt, net 540,705
—
Contingent consideration adjustment —
(2,160,307 )
Amortization of deferred financing fees 154,127
382,025
Interest expense on contingent consideration payable 110,903
515,932
Provision for doubtful accounts 6,065
39,389
Share-based compensation 751,163
873,186
Deferred income taxes 462,898
1,085,142
Net changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable (2,798,557 ) (3,022,783 )
Prepaid expenses (725,759 ) (391,795 )
Other current assets (16,200 ) (565,821 )
Deposits (491,333 ) (287,636 )
Accrued interest (104,927 ) 18,190
Accounts payable (5,716 ) (1,648,529 )
Accrued payroll and expenses 1,830,278
180,308
Accrued workers’ compensation (83,330 ) (161,956 )
Other current liabilities —
(87,552 )
Income taxes payable 223,766
217,437
Operating leases (33,612 ) —
Other long-term liabilities —
(118,062 )
Net cash provided by operating activities 13,964,948
11,380,988

Cash flows from investing activities

Capital expenditures (1,534,016 ) (681,333 )
Net cash used in investing activities (1,534,016 ) (681,333 )

2019 2018

Cash flows from financing activities

Net borrowings (payments) under line of credit 9,891,079
(7,670,117 )
Principal payments on long-term debt (10,121,000 ) (12,847,750 )
Payments of dividends (9,209,683 ) (7,854,785 )
Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises 38,199
21,339,680
Option cancellation agreement —
(3,335,169 )
Contingent consideration paid (2,672,000 ) (327,996 )
Deferred financing costs (357,527 ) (3,518 )
Net cash used in financing activities (12,430,932 ) (10,699,655 )
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 $ 1,003,190
$ 1,396,182
Cash paid for taxes, net of refunds $ 2,462,325
$ 1,378,890
Non-cash transactions:

Leasehold improvements funded by landlord incentives $ —
$ 366,202

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the Thirty-nine Week Periods Ended September 27, 2020 and September 29, 2019


			2020		2019

Cash flows from financing activities
	Net (payments) borrowings under line of credit		(12,336,717)		9,891,079
	Proceeds from issuance of long-term debt		22,500,000		0
	Principal payments on long-term debt		(700,000)		(10,121,000)

	Payments of dividends		(4,123,469)		(9,209,683)
	Issuance of shares, net of exercises		(10,000)		38,199

	Contingent consideration paid		0		(2,672,000)
	Deferred financing costs		0		(357,527)
		Net cash provided by (used in) financing activities	5,329,814		(12,430,932)
Net change in cash and cash equivalents			0		0
Cash and cash equivalents, beginning of period			0		0
Cash and cash equivalents, end of period			$	0	$	0

Supplemental cash flow information:
	Cash paid for interest		$	890,918	$	1,003,190
	Cash paid for taxes, net of refunds		$	855,101	$	2,462,325

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, BG Finance and Accounting, Inc., BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., ~~and~~ 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 3 industry segments: Real Estate, Professional, and Light Industrial.

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 3036 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 field talent on a nationwide basis for information technology ~~("IT"~~(“IT”) and finance, accounting, legal and ~~accounting~~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 Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, ~~distribution,~~ and call center 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 client partners’ business. Demand for our 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 Light Industrial staffing services typically increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter 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. Normal seasonal demand has been significantly affected by COVID-19.

The Company has adjusted, and continues to monitor and change, its operations in response to 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 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 ~~30, 2018,~~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 ~~29, 2019~~27, 2020 and December ~~30, 2018,~~29, 2019, and include the thirteen and thirty-nine week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, referred to herein as Fiscal ~~2019~~2020 and ~~2018,~~2019, respectively.

Reclassifications

Certain reclassifications have been made to the ~~2018~~2019 financial statements to conform with the ~~2019~~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 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 continues to have a significant impact on our economy as a result of measures 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, 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 bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement ~~with~~led by BMO Harris Bank, N.A. (“BMO”) that provided for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk. The fair value on the interest rate swap is based on quoted prices from BMO.

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 client partner base and their dispersion across many different industries and geographic locations nationwide. No single client partner accounted for more than 10% of the Company’s accounts receivable as of September ~~29, 2019~~27, 2020 and December ~~30, 2018~~29, 2019 or revenue for the thirty-nine week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018.~~29, 2019. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal ~~2019~~2020 and the related percentage for Fiscal ~~2018~~2019 was generated in the following areas:

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Thirty-nine Weeks Ended
	September 27, 2020		September 29, 2019
Maryland	11	%	10	%
Massachusetts	13	%	2	%
Tennessee	14	%	16	%
Texas	23	%	29	%

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 client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. The Company maintains an allowance for ~~doubtful accounts~~credit losses for expected losses resulting from 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 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.

~~BG Staffing, Inc. and Subsidiaries~~ The Company will continue to actively monitor the impact of COVID-19 on expected credit losses.

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


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Beginning balance	$	468,233	$	468,233	$	468,233	$	468,233
EdgeRock Technology Holdings, Inc. (“EdgeRock”) acquisition	0		0		47,498		0
Provision for credit losses, net	53,896		34,667		153,805		6,065
Amounts written off, net	(45,142)		(34,667)		(192,549)		(6,065)
Ending balance	$	476,987	$	468,233	$	476,987	$	468,233

Property and Equipment

Property and equipment are stated net of accumulated depreciation and amortization of ~~$2.7~~$4.1 million and ~~$2.1~~$2.8 million at September 27, 2020 and December 29, 2019, ~~and December 30, 2018,~~ respectively.

Deposits

The Company maintains guaranteed costs policies for workers' compensation coverage in ~~Texas, Washington, and Ohio~~monopolistic states and minimal loss retention coverage ~~for team members and field talent~~ in ~~the Light Industrial segment and~~all other ~~non-Texas employees.~~states. Under these policies, the Company is required to maintain refundable deposits of ~~$3.4~~$3.8 million and ~~$2.9~~$3.6 million, which are included in Deposits and other assets in the accompanying consolidated balance sheets as of September 27, 2020 and December 29, 2019, ~~and December 30, 2018,~~ respectively.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-Lived Assets

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 with respect to long-lived assets during Fiscal ~~2019~~2020 or Fiscal ~~2018.~~2019.

Leases

The Company leases all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 13 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,~~selling, general and administrative expenses.

Intangible Assets

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

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. 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, during second quarter 2020, the Company assessed the current market capitalization, forecasts and the current carrying value 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, within the Professional segment. 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 (see Note 5).

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units. As a result of the certain business developments and changes in the Company's long-term projections, during second quarter 2020, 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 discounted cash flow method and concluded there was no goodwill impairment loss during the thirty-nine week periods ended September 27, 2020.

Deferred Financing Fees

Deferred financing fees are amortized using 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 ~~had~~has obligations, to be paid in cash, related to its acquisitions if certain operating and financial goals ~~were~~are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.

Revenue Recognition

The Company derives its revenues from 3 segments: Real Estate, Professional, and 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 client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.

The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified 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 - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s 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 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 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 1113 for disaggregated revenues by segment.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Payment terms in ~~our~~the Company's contracts vary by the type and location of ~~our~~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 September ~~29, 2019.~~27, 2020. There were no revenues recognized during the thirty-nine week period ended September ~~29, 2019~~27, 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 thirty-nine week period ended September ~~29, 2019.~~27, 2020.

Share-Based Compensation

The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

Earnings Per Share

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

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 27, 2020	September 29, 2019	September 27, 2020	September 29, 2019
Weighted-average number of common shares outstanding:		10,312,939	10,239,126	10,309,457	10,233,725
Effect of dilutive securities:
	Stock options and restricted stock	13,554	69,684	0	90,853
	Warrants	0	34,863	0	41,293
Weighted-average number of diluted common shares outstanding		10,326,493	10,343,673	10,309,457	10,365,871

	Stock options and restricted stock	606,557	306,750	419,850	306,750
	Warrants	25,862	0	25,862	0
Antidilutive shares		632,419	306,750	445,712	306,750

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

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

Income Taxes

The effective tax rates of 22.0% and 25.4% for the thirteen and thirty-nine week periods ended September 27, 2020, respectively, and 24.1% and 23.3% for ~~the~~ thirteen and thirty-nine week periods ended September 29, 2019, respectively, ~~and 21.3% and 17.7% for the thirteen and thirty-nine week periods ended September 30, 2018, respectively,~~ were primarily due to state taxes offset by the Work Opportunity Tax Credit in Fiscal 2019 and Fiscal 2020 and the ~~deductibility in Fiscal 2018~~non-deductibility of transaction costs related to the ~~Option Cancellation Agreement for tax purposes.~~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 September 27, 2020, the Company has a $6.8 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date.

When appropriate, the Company ~~records~~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, the Company considers whether it is more likely

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes any penalties when necessary as part of ~~Selling,~~selling, general and administrative expenses. ~~Goodwill~~As of September 27, 2020, goodwill of $25.2 million is expected to be deductible for tax purposes.

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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.

In 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 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 August 2018,~~

NOTE 3 - ACQUISITIONS

L.J. Kushner & Associates, L.L.C.

On December 13, 2019, the ~~FASB~~Company acquired substantially all of the assets and assumed certain liabilities of L.J. Kushner & Associates, L.L.C. (“LJK”) for cash consideration of $8.5 million and issued ~~ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes~~$1.0 million (47,403 shares privately placed) of the Company's common stock at closing. $1.0 million was held back as partial security for certain post-closing liabilities, which was paid on June 11, 2020. The purchase agreement further provides for contingent consideration of up to $2.5 million based on the performance of the acquired business for the two years following the date of acquisition.

The net assets acquired were assigned to the ~~Disclosure Requirements for Fair Value Measurement.~~Professional segment. The ~~new standard is part~~acquisition of LJK allows the Company to strengthen and expand its IT operations through cybersecurity retained search services specializing in recruiting high and mid-level security professionals.

EdgeRock Technology Holding, Inc.

On February 3, 2020, the Company acquired 100% of the ~~disclosure framework project~~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.

The acquired business was assigned to the Professional segment. The acquisition of EdgeRock allows the Company to strengthen its operations in specialized IT consultants and ~~eliminates certain disclosure requirements for fair value measurements, requires entities~~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 income does not include any operating results of EdgeRock. Thirteen weeks of EdgeRock operations are included in the thirteen week period ended September 27, 2020, which is approximately $9.2 million of revenue and $0.5 million of operating income. Thirty-four weeks of EdgeRock operations are included in the thirty-nine week period ended September 27, 2020, which is approximately $25.4 million of revenue and $1.1 million of operating income. The preliminary acquisition has been allocated to ~~disclose new information,~~the assets acquired and ~~modifies existing disclosure requirements.~~ 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)	6,155,585
Current liabilities assumed	(2,409,551)
Deferred income taxes, net	(910,501)
Lease liability - operating leases	(1,714,984)
Total net assets acquired	$	21,657,689

Cash	$	21,657,689




Total fair value of consideration transferred for acquired business	$	21,657,689

The ~~new guidance~~preliminary allocation of the intangible assets is ~~effective after December 15, 2019. Early adoption is permitted.~~ 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

For the thirty-nine week period ended September 27, 2020, the Company 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 ~~is currently evaluating~~estimates the ~~impact this change will~~revenues and net income for the periods below that would have been reported if the LJK and EdgeRock acquisitions had taken place on ~~its consolidated financial statements~~the first day of the Company's 2019 fiscal year would be as follows (dollars in thousands, except per share amounts):


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Revenues	$	71,519	$	90,334	$	211,301	$	254,877
Gross profit	$	19,712	$	26,143	$	57,801	$	73,466
Net income (loss)	$	2,566	$	4,720	$	(952)	$	12,184
Income (Loss) per share:
Basic	$	0.25	$	0.46	$	(0.09)	$	1.19
Diluted	$	0.25	$	0.46	$	(0.09)	$	1.18

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 2.3% and ~~disclosures.~~tax (benefit) expense of the pro forma adjustments at effective tax rates of 22.0% and 25.4% for thirteen and thirty-nine week periods ended Fiscal 2020, respectively, and 24.1% for thirteen and thirty-nine week periods ended and Fiscal 2019. The pro forma operating results include adjustments to LJK and EdgeRock related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the LJK and EdgeRock acquisitions taken place on the first day of the Company’s 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

NOTE 34 - LEASES

At September ~~29, 2019,~~27, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was ~~4.2~~3.7 years and ~~5.6%~~5.0%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the thirteen week period ended September ~~29, 2019,~~27, 2020, the Company's cash paid for operating leases was ~~$405,332,~~$601,248, and operating lease and short-term lease costs were ~~$399,828~~$525,679 and ~~$187,934,~~$108,359, respectively. For the thirty-nine week period ended September ~~29, 2019,~~27, 2020, the Company's cash paid for operating leases was ~~$1,215,848,~~$1,612,201, and operating lease and short-term lease costs were ~~$1,138,542~~$1,536,718 and ~~$532,621,~~$308,543, respectively.

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


	September 27, 2020
2020	$	2,189,099
2021	2,182,674
2022	1,745,835
2023	1,216,053
2024	433,492
Thereafter	38,496
Total lease payments	7,805,649
Interest	(680,497)
Present value of lease liabilities	$	7,125,152

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

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 45 - INTANGIBLE ASSETS

Intangible assets are stated net of accumulated amortization of ~~$43.3~~$47.8 million and ~~$40.3~~$44.3 million at September 27, 2020 and December 29, 2019, respectively. During the thirty-nine week periods ended September 27, 2020, the Company added software assets of $150,794 and ~~December 30, 2018, respectively.~~reclassified $976,954 from property and equipment related to the information technology improvement project. Amortization expense for the fiscal years are comprised of following:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Client partner lists	$	918,349	$	881,525	$	3,009,370	$	2,671,149
Covenant not to compete	66,395		39,936		202,479		124,436
Acquisition intangibles	984,744		921,461		3,211,849		2,795,585
Computer software - amortization expense	79,486		71,019		264,567		228,796
Amortization expense	1,064,230		992,480		3,476,416		3,024,381
Computer software - selling, general and administrative expense	18,823		19,490		56,466		44,382
Total expense	$	1,083,053	$	1,011,970	$	3,532,882	$	3,068,763

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

As a result of the certain business developments and changes in the Company's long-term projections, during second quarter 2020, the Company concluded a triggering event had occurred that required an interim impairment assessment to be performed (see Note 2). 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 thirty-nine week periods ended September 27, 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 27, 2020		December 29, 2019
Field talent payroll	$	6,814,129	$	4,505,264
Field talent payroll related	1,287,800		1,651,436
Accrued bonuses and commissions	1,813,911		1,585,681
Other	2,881,923		2,742,658
Accrued payroll and expenses	$	12,797,763	$	10,485,039

September 29,
2019
December 30,
2018
Field talent payroll
$ 6,074,655

$ 4,236,534
Field talent payroll related
1,618,702

1,402,926
Accrued bonuses and commissions
2,012,793

1,673,130
Other
2,286,391

3,098,784
Accrued payroll and expenses
$ 11,992,541

$ 10,411,374

Other long-term liabilities includes $5.0 million of deferred employer FICA and $0.2 million of interest rate swap (see Note 7) at September 27, 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 due as of September 27, 2020:


	Estimated Cash Payment		Discount		Net
Due in:

2022	$	2,500,000	$	(256,813)	$	2,243,187




Contingent consideration	$	2,500,000	$	(256,813)	$	2,243,187

NOTE 67 - DEBT

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

The Credit Agreement contains customary affirmative ~~covenants~~ and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of September ~~29, 2019.~~27, 2020.

~~The~~On February 3, 2020, the Company borrowed ~~$20~~$18.5 million ~~under~~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 to pay off existing indebtedness of the Company under the Amended Credit Agreement (as defined below) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. The Company recognized a loss on extinguishment of debt of approximately $0.5 million related to the unamortized deferred finance fees.Facility.

In April 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provided for a revolving credit facility (the “Revolving Facility with TCB”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which was 85% of eligible accounts receivable, and $35.0 million and also provided

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Letter of Credit

~~for a term loan (the “Term Loan~~

In March 2020, in conjunction with ~~TCB”) in~~ the ~~amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement.~~

The Revolving Facility with TCB and Term Loan with TCB bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms were defined in the Amended Credit Agreement). All interest and commitment fees were paid quarterly. Additionally,2020 EdgeRock acquisition, the Company ~~paid an unused commitment fee~~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 September 27, 2020, the ~~unfunded portion~~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’s obligations~~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 ~~Amended Credit Agreement were secured by a first priority security interest~~resolution of any disputes that might arise in ~~substantially all tangible and intangible property~~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 ~~the Company and its subsidiaries.~~September 27, 2020.

Line of Credit

At September 27, 2020 and December 29, 2019, ~~and December 30, 2018, $20.6~~$8.0 million and ~~$10.7~~$20.3 million, respectively, was outstanding on the revolving facilities. Average daily balance for the thirteen week periods ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~ was ~~$21.0~~$9.2 million and ~~$13.3~~$21.0 million, respectively. Average daily balance for the thirty-nine week periods ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~ was ~~$15.3~~$13.8 million and ~~$17.1~~$15.3 million, respectively.

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


	September 27, 2020				December 29, 2019
Base Rate	$	0	0	%	$	2,844,957	5.25	%
LIBOR	8,000,000		2.18	%	17,500,000		3.26	%


Total	$	8,000,000			$	20,344,957

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

Long-Term Debt

Long-term debt consists of and bore interest at:


	September 27, 2020				December 29, 2019
Base Rate	$	4,675,000	2.16	%	$	7,500,000	5.25	%
Fixed rate	24,625,000		2.39	%	0		0	%



Long-term debt	$	29,300,000			$	7,500,000

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

Cash Flow Hedge

In April 2020, the Company entered into a pay-fixed/receive-floating interest rate swap agreement with our bank syndicate lead by 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 gains or losses 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 reclassifies the interest rate swap from accumulated other comprehensive gain or loss against interest expense in the same period in which the hedge transaction affects earnings. Hedge effectiveness is tested quarterly. As of September 27, 2020, the instrument was perfectly effective and no additional amounts were reclassed from accumulated other comprehensive loss into income in the thirteen and thirty-nine week periods ended September 27, 2020 or September 29, 2019. See Note 8 for location on the balance sheet.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 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;

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

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

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

~~BG Staffing, Inc. and Subsidiaries~~


Amounts Recorded at Fair Value	Financial Statement Classification	Fair Value Hierarchy	September 27, 2020		December 29, 2019
Interest rate swap	Other long-term liabilities	Level 2	$	154,482	$	0
Contingent consideration, net	Contingent consideration, net - current and long-term	Level 3	$	2,243,187	$	2,174,378

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Amounts Recorded at Fair Value Financial Statement Classification
Fair Value
Hierarchy
September 29,
2019 December 30,
2018
Contingent consideration, net Contingent consideration, net - current and long-term Level 3 $ —
$ 2,363,512

The changes in the Level 2 fair value measurements from December 29, 2019 to September 27, 2020 relates to entering into an interest rate swap agreement. Key inputs in determining the fair value of the interest rate swap as of September 27, 2020 and December 29, 2019 are quoted prices from BMO (See Note 7).

The changes in the Level 3 fair value measurements from December ~~30, 2018~~29, 2019 to September ~~29, 2019~~27, 2020 relates to ~~the $2.7 million~~accretion and gains included in ~~payments, which included $0.2 million in an extension of the Zycron acquisition covenant not to compete intangible asset, and $0.1 million in accretion. The key~~earnings. Key inputs in determining the fair value of the contingent consideration as of September 27, 2020 and December 29, 2019 ~~and December 30, 2018 include~~included the discount rate of 7.5% as well as management's estimates of future sales volumes and ~~EBITDA.~~earning before income taxes, depreciation, and amortization "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, crime and cyber risk, and director and officer liability. Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.

NOTE 10 – EQUITY

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 911 – SHARE-BASED COMPENSATION

Stock Options ~~and Restricted Stock~~

For the thirteen week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recognized $0.2 ~~million and $0.8~~ million of compensation expense related to stock ~~awards, respectively.~~options. For the thirty-nine week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recognized ~~$0.8~~$0.4 million and ~~$0.9~~$0.6 million of compensation expense related to stock ~~awards,~~options, respectively. Unamortized share-based compensation expense as of September ~~29, 2019~~27, 2020 amounted to ~~$2.0~~$1.0 million which is expected to be recognized over the next ~~3.0~~2.7 years.

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


	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Awards (in thousands)
Options outstanding at December 29, 2019	564,845	$	18.90	7.7	$	2,412
Granted	88,610	$	9.72

Forfeited / Canceled	(3,300)	$	24.09
Options outstanding at September 27, 2020	650,155	$	17.62	7.3	$	79

Options exercisable at December 29, 2019	313,645	$	16.05	6.8	$	1,991
Options exercisable at September 27, 2020	416,317	$	16.96	6.6	$	79

Number of
Shares
Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life
Total Intrinsic Value of Awards
(in thousands)
Awards outstanding at December 30, 2018 526,985
$ 16.49
7.7 $ 2,932
Granted 138,750
$ 21.49

Exercised (47,790 ) $ 10.19

Forfeited / Canceled (34,700 ) $ 14.39

Awards outstanding at September 29, 2019 583,245
$ 18.32
7.8 $ 2,109

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


	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 29, 2019	251,200	$	22.46
Nonvested outstanding at September 27, 2020	233,838	$	18.80

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

For the thirty-nine week period ended September 29, 2019, the Company issued 16,694 shares of common stock upon the cashless exercise of 38,614 stock options.

~~Included in awards outstanding are 27,000 shares of restricted stock issued in August 2018, at a grant date price per share of $28.61.~~ Restricted Stock

For the thirteen ~~and thirty-nine~~ week ~~period~~periods ended September 27, 2020 and September 29, 2019, the Company recognized $0.1 million of compensation expense related to restricted stock awards. For the thirty-nine week periods ended September 27, 2020 and September 29, 2019, the Company recognized $0.2 million of compensation expense related to restricted stock ~~respectively.~~awards. Unamortized share-based compensation expense as of September 27, 2020 amounted to $0.3 million which is expected to be recognized over the next 1.8 years.

A summary of restricted stock activity is presented as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Restricted outstanding at December 29, 2019	18,000	$	28.61
Issued	10,032	$	9.72

Restricted outstanding at September 27, 2020	28,032	$	21.85

Nonvested outstanding at December 29, 2019	18,000	$	28.61
Nonvested outstanding at September 27, 2020	16,524	$	20.01

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Warrant Activity

For the thirteen and thirty-nine week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company did not recognize compensation cost related to warrants. There was 0 unamortized stock compensation expense to be recognized as of September ~~29, 2019.~~27, 2020.

A summary of warrant activity is presented as follows:


	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Options (in thousands)
Warrants outstanding at December 29, 2019	64,482	$	13.84	0.8	$	473


Forfeited	(38,620)	$	11.85
Warrants outstanding at September 27, 2020	25,862	$	16.80	0.7	$	0

Warrants exercisable at December 29, 2019	64,482	$	13.84	0.8	$	473
Warrants exercisable at September 27, 2020	25,862	$	16.80	0.7	$	0

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

Warrants outstanding at September 29, 2019 92,196
$ 11.56
0.8 $ 703

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

There were no nonvested warrants outstanding at September ~~29, 2019~~27, 2020 and December ~~30, 2018.~~29, 2019.

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

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

NOTE 1012 - TEAM MEMBER BENEFIT PLAN

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible team members and field talent. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches participants contributions 100% up to the first 3% and 50% of the next 2% of a team member or field talent’s compensation. The Company contributed $0.3 million and $0.3 million to the 401(k) Plan for the thirteen week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018, respectively.~~29, 2019. The Company contributed ~~$0.9~~$1.0 million and ~~$0.8~~$0.9 million to the 401(k) Plan for the thirty-nine week periods ended September ~~29, 2019~~27, 2020 and September ~~30, 2018, respectively.~~

~~BG Staffing, Inc. and Subsidiaries~~29, 2019.

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 1113 - BUSINESS SEGMENTS

The Company operates within 3 industry segments: Real Estate, Professional, and Light Industrial. The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 36 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 field talent on a nationwide basis for IT and finance, accounting, legal and ~~accounting~~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 Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, ~~distribution,~~ and call center client partners needing a flexible ~~workforce.~~workforce in 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, deferred tax assets, and other assets.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Revenue:
Real Estate	$	19,156,485	$	29,470,693	$	50,964,763	$	73,043,258
Professional	34,041,738		31,506,017		107,035,087		93,421,017
Light Industrial	18,320,468		18,387,596		50,192,604		55,533,988
Total	$	71,518,691	$	79,364,306	$	208,192,454	$	221,998,263

Depreciation:
Real Estate	$	54,549	$	50,957	$	163,685	$	140,490
Professional	100,727		82,201		309,467		251,152
Light Industrial	22,733		23,663		74,887		73,673
Home office	28,712		47,452		105,160		142,804
Total	$	206,721	$	204,273	$	653,199	$	608,119


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Revenue:
Amortization:									Amortization:

Professional									Professional	$	1,004,964	$	986,274	$	3,353,128	$	3,005,618

Home office									Home office	59,266		6,206		123,288		18,763
Total									Total	$	1,064,230	$	992,480	$	3,476,416	$	3,024,381

Operating income:									Operating income:
Real Estate	$	29,470,693	$	26,531,283	$	73,043,258	$	65,864,097	Real Estate	$	3,346,316	$	5,523,769	$	7,159,432	$	12,464,689
Professional	31,506,017		29,171,990		93,421,017		90,394,110		Professional	1,793,937		2,144,549		(2,007,213)		6,190,331
Light Industrial	18,387,596		21,358,864		55,533,988		58,604,838		Light Industrial	1,272,796		1,174,142		3,240,347		3,514,758
Home office - selling									Home office - selling	(186,549)		(131,389)		(426,359)		(399,370)
Home office - general and administrative									Home office - general and administrative	(2,654,534)		(2,233,959)		(7,821,611)		(6,285,830)
Home office - gain on contingent consideration									Home office - gain on contingent consideration	76,102		0		76,102		0
Total	$	79,364,306	$	77,062,137	$	221,998,263	$	214,863,045	Total	$	3,648,068	$	6,477,112	$	220,698	$	15,484,578

Depreciation:
Real Estate	$	50,957	$	44,784	$	140,490	$	125,820
Professional	82,201		74,488		251,152		190,952
Light Industrial	23,663		23,446		73,673		76,372
Corporate	47,452		51,923		142,804		152,607
Total	$	204,273	$	194,641	$	608,119	$	545,751





Capital expenditures:
Real Estate	$	25,000	$	204,442	$	68,273	$	244,321
Professional	28,693		77,809		102,591		474,668
Light Industrial	9,519		76,103		12,720		83,734
Home office	0		501,910		1,776,595		731,293
Total	$	63,212	$	860,264	$	1,960,179	$	1,534,016

Amortization:

Professional $ 986,274
$ 1,047,510
$ 3,005,618
$ 3,132,372
Light Industrial —
—
—
110,251
Corporate 6,206
5,386
18,763
13,051
Total $ 992,480
$ 1,052,896
$ 3,024,381
$ 3,255,674

Operating income:
Real Estate $ 5,523,769
$ 4,958,373
$ 12,464,689
$ 11,285,951
Professional 2,144,549
2,143,426
6,190,331
6,499,285
Light Industrial 1,174,142
1,560,895
3,514,758
3,948,874
Corporate - selling (131,389 ) (212,877 ) (399,370 ) (541,467 )
Corporate - general and administrative (2,233,959 ) (2,346,793 ) (6,285,830 ) (5,649,148 )
Corporate - gain on contingent consideration —
988,303
—
2,160,307
Total $ 6,477,112
$ 7,091,327
$ 15,484,578
$ 17,703,802

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29,
2019 September 30,
2018 September 29, 2019 September 30, 2018
Capital expenditures:
Real Estate $ 204,442
$ 37,681
$ 244,321
$ 114,990
Professional 77,809
121,170
474,668
382,925
Light Industrial 76,103
44,018
83,734
87,990
Corporate 501,910
25,945
731,293
95,428
Total $ 860,264
$ 228,814
$ 1,534,016
$ 681,333

September 29,
2019
December 30,
2018
Total Assets:

Real Estate
$ 19,341,023

$ 12,647,505
Professional
61,100,018

62,403,104
Light Industrial 18,765,095
18,992,392
Corporate
6,787,114

6,225,802
Total
$ 105,993,250

$ 100,268,803


	September 27, 2020		December 29, 2019
Total Assets:
Real Estate	$	15,052,163	$	16,785,163
Professional	83,800,034		72,623,242
Light Industrial	15,733,645		15,223,581
Home office	14,515,839		10,954,058
Total	$	129,101,681	$	115,586,044

NOTE 1214 - SUBSEQUENT EVENTS

Dividend

On ~~October 29, 2019~~,November 4, 2020, the Company's board of directors declared a cash dividend in the amount of ~~$0.30~~$0.10 per share of common stock to be paid on November ~~18, 2019~~23, 2020 to all shareholders of record as of the close of business on November ~~11, 2019~~16, 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 and our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. Comparative segment revenues and related financial information are discussed herein and are presented in Note 1113 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 ~~30, 2018,~~29, 2019, for a description of important factors that could cause actual results to differ from expected results.

Overview

We are a leading national provider of ~~temporary staffing services~~professional 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 in March 2015, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC 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: Real Estate, Professional, and Light Industrial. We provide services to client partners primarily within the United States of America. We now operate ~~in 78~~through 91 branch offices and 1412 on-site locations ~~providing services in 43 states.~~located across 46 states and D.C.

Impact of COVID-19

We continue to observe the 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 changing operational status of our client partners, production levels at 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.

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 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
		(dollars in thousands)
Revenues		$	71,519	$	79,364	$	208,192	$	221,998
Cost of services		51,807		57,188		151,299		160,520
	Gross profit	19,712		22,176		56,893		61,478
Selling, general and administrative expenses		14,869		14,502		45,379		42,360
Gain on contingent consideration		(76)		—		(76)		—
Impairment losses		—		—		7,240		—
Depreciation and amortization		1,271		1,197		4,130		3,633
	Operating income	3,648		6,477		220		15,485
Loss on extinguishment of debt		—		541		—		541
Interest expense, net		360		395		1,245		1,245
	Income (Loss) before income tax	3,288		5,541		(1,025)		13,699
Income tax expense (benefit)		723		1,334		(260)		3,194
	Net income (loss)	$	2,566	$	4,207	$	(765)	$	10,505


		Thirteen Weeks Ended				Thirty-nine Weeks Ended
		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019

Revenues		100.0	%	100.0	%	100.0	%	100.0	%
Cost of services		72.4	%	72.1	%	72.7	%	72.3	%
	Gross profit	27.6	%	27.9	%	27.3	%	27.7	%
Selling, general and administrative expenses		20.8	%	18.3	%	21.8	%	19.1	%
Gain on contingent consideration		(0.1)	%	—	%	—	%	—	%
Impairment losses		—	%	—	%	3.5	%	—	%
Depreciation and amortization		1.8	%	1.5	%	2.0	%	1.6	%
	Operating income	5.1	%	8.2	%	0.1	%	7.0	%
Loss on extinguishment of debt		—	%	0.7	%	—	%	0.2	%
Interest expense, net		0.5	%	0.5	%	0.6	%	0.6	%
	Income (Loss) before income tax	4.6	%	7.0	%	(0.5)	%	6.2	%
Income tax expense (benefit)		1.0	%	1.7	%	(0.1)	%	1.4	%
	Net income (loss)	3.6	%	5.3	%	(0.4)	%	4.7	%

Thirteen Weeks Ended Thirty-nine Weeks Ended

September 29,
2019
September 30,
2018 September 29,
2019 September 30,
2018

(dollars in thousands)
Revenues
$ 79,364
$ 77,062
$ 221,998
$ 214,863
Cost of services
57,188
55,689
160,520
156,988
Gross profit
22,176
21,373
61,478
57,875
Selling, general and administrative expenses
14,502
14,022
42,360
38,530
Gain on contingent consideration —
(988 ) —
(2,160 )
Depreciation and amortization
1,197
1,248
3,633
3,801
Operating income
6,477
7,091
15,485
17,704
Loss on extinguishment of debt 541
—
541
—
Interest expense, net
395
662
1,245
2,275
Income before income tax
5,541
6,429
13,699
15,429
Income tax expense
1,334
1,368
3,194
2,732
Net income
$ 4,207

$ 5,061
$ 10,505
$ 12,697

Revenues
100.0 % 100.0 % 100.0 % 100.0 %
Cost of services
72.1 % 72.3 % 72.3 % 73.1 %
Gross profit
27.9 % 27.7 % 27.7 % 26.9 %
Selling, general and administrative expenses
18.3 % 18.2 % 19.1 % 17.9 %
Gain on contingent consideration — % (1.3 )% — % (1.0 )%
Depreciation and amortization
1.5 % 1.6 % 1.6 % 1.8 %
Operating income
8.2 % 9.2 % 7.0 % 8.2 %
Loss on extinguishment of debt 0.7 % — % 0.2 % — %
Interest expense, net
0.5 % 0.9 % 0.6 % 1.1 %
Income before income tax
7.0 % 8.3 % 6.2 % 7.2 %
Income tax expense
1.7 % 1.8 % 1.4 % 1.3 %
Net income
5.3 % 6.6 % 4.7 % 5.9 %

Thirteen Week Fiscal Period Ended September ~~29, 2019 ("~~27, 2020 (“Fiscal ~~2019"~~2020”) Compared with Thirteen Week Fiscal Period Ended September ~~30, 2018 ("~~29, 2019 (“Fiscal ~~2018"~~2019”)


Revenues:	Revenues:	Thirteen Weeks Ended								Revenues:		Thirteen Weeks Ended
		September 29, 2019				September 30, 2018						September 27, 2020				September 29, 2019
		(dollars in thousands)										(dollars in thousands)
Revenues by segment:	Revenues by segment:									Revenues by segment:
	Real Estate	$	29,470	37.1	%	$	26,531	34.4	%		Real Estate	$	19,156	26.8	%	$	29,470	37.1	%
	Professional	31,506		39.7	%	29,172		37.9	%		Professional	34,042		47.6	%	31,506		39.7	%
	Light Industrial	18,388		23.2	%	21,359		27.7	%		Light Industrial	18,321		25.6	%	18,388		23.2	%
	Total Revenues	$	79,364	100.0	%	$	77,062	100.0	%		Total Revenues	$	71,519	100.0	%	$	79,364	100.0	%

Real Estate Revenues: Real Estate revenues ~~increased~~decreased approximately ~~$3.0~~$10.3 million ~~(11.1%~~(35.0%), due to ~~our continued geographic expansion plan and growth in existing offices.~~the effects of the COVID-19 pandemic. The ~~increase~~decrease was due to a ~~5.9% increase~~37.7% decrease in billed hours, ~~and~~which was offset by a ~~4.6%~~4.2% increase in average bill rate. Revenue from new offices ~~provided approximately $0.7 million of the increase. Revenues from the commercial buildings group were flat.~~was $0.4 million.

Professional Revenues: Professional revenues increased approximately ~~$2.3~~$2.5 million (8.0%)., primarily from LJK and EdgeRock acquisitions, which contributed $9.5 million of new revenues. The ~~IT group increased $4.0 million and the finance and accounting~~remaining professional group decreased ~~$1.7 million.~~$7.0 million, due to the effects of the COVID-19 pandemic. The overall increase was due to a ~~11.2%~~12.6% increase in average bill rate, ~~which was partially offset by $0.4~~and $0.3 million of ~~a decrease~~an increase in permanent placements, ~~and 5.3%~~which were offset by a 1.6% decrease ~~in billed hours. The IT group increased 12.9% in billed hours and the finance and accounting group decreased 39.9%~~ in billed hours.

Light Industrial Revenues: Light Industrial revenues decreased approximately ~~$3.0~~$0.1 million ~~(13.9%~~(0.4%)., due to the effects of the COVID-19 pandemic. The overall revenue decrease was ~~due to~~affected by a ~~17.6%~~7.3% decrease in billed hours, which was offset by an ~~4.4%~~7.5% increase in average bill rate.

Gross Profit:

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

Thirteen Weeks Ended
September 29,
2019 September 30,
2018
(dollars in thousands)
Gross Profit by segment:

Real Estate $ 11,265
50.8 % $ 10,045
47.0 %
Professional 8,264
37.3 % 8,110
37.9 %
Light Industrial 2,647
11.9 % 3,218
15.1 %
Total Gross Profit $ 22,176
100.0 % $ 21,373
100.0 %


		Thirteen Weeks Ended
		September 27, 2020				September 29, 2019
		(dollars in thousands)
Gross Profit by segment:
	Real Estate	$	7,145	36.3	%	$	11,265	50.8	%
	Professional	9,978		50.6	%	8,264		37.3	%
	Light Industrial	2,589		13.1	%	2,647		11.9	%
	Total Gross Profit	$	19,712	100.0	%	$	22,176	100.0	%

Thirteen Weeks Ended
September 29,
2019 September 30,
2018
Gross Profit Percentage by segment:

Real Estate 38.2 % 37.9 %
Professional 26.2 % 27.8 %
Light Industrial 14.4 % 15.1 %
Company Gross Profit 27.9 % 27.7 %


		Thirteen Weeks Ended
		September 27, 2020		September 29, 2019
Gross Profit Percentage by segment:
	Real Estate	37.3	%	38.2	%
	Professional	29.3	%	26.2	%
	Light Industrial	14.1	%	14.4	%
	Company Gross Profit	27.6	%	27.9	%

Overall, our gross profit ~~increased~~decreased approximately ~~$0.8~~$2.4 million ~~(3.8%~~(11.1%). As a percentage of revenue, gross profit has ~~increased~~decreased to 27.6% from 27.9% ~~from 27.7%~~ due to ~~growth~~decline in our Real Estate ~~segment.~~segment from COVID-19 pandemic.

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

Real Estate Gross Profit: Real Estate gross profit ~~increased~~decreased approximately ~~$1.2~~$4.2 million ~~(12.1%~~(36.6%) in line with ~~the increase in revenue. The increase in gross profit~~decreased revenue, which was ~~due primarily to 4.5%~~offset by a 1.9% increase in average spread.

Professional Gross Profit: Professional gross profit increased approximately ~~$0.2~~$1.7 million ~~(1.9%~~(20.7%) ~~due to~~consistent with the increase in revenue, primarily from LJK and EdgeRock acquisitions, which contributed $3.2 million of gross profit. The overall increase in gross profit was affected by a ~~10.6%~~15.3% increase in average spread. ~~The IT group increased by $0.9 million and the finance and accounting group decreased by $0.7 million.~~

Light Industrial Gross Profit: Light Industrial gross profit decreased approximately ~~$0.6~~$0.1 million ~~(17.7%~~(2.2%) in line with decreased revenue which was offset by a ~~2.2%~~7.8% increase in average spread.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately ~~$0.5~~$0.4 million ~~(3.4%~~(2.5%), primarily related from LJK and EdgeRock acquisitions, which contributed $2.4 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 ~~various~~the COVID-19 pandemic to reduce actual and planned operating costs ~~associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses~~ as detailed in the following table.


	Thirteen Weeks Ended
	September 27, 2020				September 29, 2019
	Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change
	(dollars in thousands)
Compensation and related	$	11,313	16	%	$	10,584	13	%	$	729	7	%
Advertising and recruitment	377		1	%	466		1	%	(89)		(19)	%
Occupancy and office operations	939		1	%	1,039		1	%	(100)		(10)	%
Client engagement	28		—	%	351		—	%	(323)		(92)	%
Software	665		1	%	457		1	%	209		46	%
Professional fees	208		—	%	315		—	%	(107)		(34)	%
Public company related costs	180		—	%	180		—	%	—		—	%
Bad debt	54		—	%	35		—	%	19		54	%
Share-based compensation	245		—	%	244		—	%	1		—	%
Transaction fees	15		—	%	37		—	%	(22)		(59)	%
IT roadmap	401		1	%	341		—	%	60		—	%

Other	444		1	%	453		1	%	(10)		(2)	%
	$	14,869	21	%	$	14,502	18	%	$	367	3	%

Thirteen Weeks Ended
September 29,
2019 September 30,
2018
Amount % of Revenue Amount % of Revenue
$
Change

%
Change
(dollars in thousands)
Compensation and related $ 10,726
14 % $ 10,320
13 % $ 406
4 %
Advertising and recruitment 508
1 % 513
1 % (5 ) (1 )%
Occupancy and office operations 1,052
1 % 891
1 % 161
18 %
Client engagement 364
— % 284
— % 80
28 %
Software 511
1 % 316
— % 195
62 %
Professional fees 427
1 % 282
— % 145
51 %
Public company related costs 180
— % 143
— % 37
26 %
Bad debt 35
— % 22
— % 13
59 %
Share-based compensation 244
— % 758
1 % (514 ) (68 )%
Transaction fees 37
— % 135
— % (98 ) (73 )%
Other 418
1 % 358
— % 60
17 %
$ 14,502
18 % $ 14,022
18 % $ 480
3 %

Depreciation and Amortization: Depreciation and amortization charges ~~decreased~~increased approximately $0.1 million ~~(4.1%~~(6.2%). The ~~decrease~~increase in depreciation and amortization is primarily due to the Professional segment with increases related to the 2019 LJK and 2020 EdgeRock acquisitions that are offset by decreases related to the 2015 D&W ~~acquisition.~~Talent and 2017 Smart Resources acquisitions.

Interest Expense, net: Interest expense, net ~~decreased $0.3 million (40.3%)~~was lower primarily due to the decrease in the bank unused fee, and net decrease in interest on our revolving credit facility and term loan, which was offset by the increase in amortization of contingent consideration discounts related to the ~~2017 Zycron and Smart acquisitions and due to the pay down on the existing indebtedness of the Company.~~2019 LJK acquisition.

Income ~~Taxes:~~Tax Expense (Benefit): Income tax expense ~~was flat~~(benefit) decreased approximately $0.6 million (45.8%) primarily due to lower pre-tax 2020 income, and the ~~share-based compensation exercises in 2018 that are deductible for tax purposes,~~Work Opportunity Tax Credit which resulted in a ~~decrease in the~~lower 2020 effective ~~rate, offset by higher pre tax 2018 income.~~rate.

Thirty-nine Week Fiscal Period Ended September ~~29, 2019 ("~~27, 2020 (“Fiscal ~~2019"~~2020”) Compared with Thirty-nine Week Fiscal Period Ended September ~~30, 2018 ("~~29, 2019 (“Fiscal ~~2018"~~2019”)


Revenues:	Revenues:	Thirty-nine Weeks Ended								Revenues:		Thirty-nine Weeks Ended
		September 29, 2019				September 30, 2018						September 27, 2020				September 29, 2019
		(dollars in thousands)										(dollars in thousands)
Revenues by segment:	Revenues by segment:									Revenues by segment:
	Real Estate	$	73,043	32.9	%	$	65,864	30.6	%		Real Estate	$	50,965	24.5	%	$	73,043	32.9	%
	Professional	93,421		42.1	%	90,394		42.1	%		Professional	107,035		51.4	%	93,421		42.1	%
	Light Industrial	55,534		25.0	%	58,605		27.3	%		Light Industrial	50,192		24.1	%	55,534		25.0	%
	Total Revenues	$	221,998	100.0	%	$	214,863	100.0	%		Total Revenues	$	208,192	100.0	%	$	221,998	100.0	%

Real Estate Revenues: Real Estate revenues ~~increased~~decreased approximately ~~$7.1~~$22.0 million ~~(10.9%~~(30.2%) due to ~~our continued geographic expansion plan and continued growth in existing offices.~~the effects of COVID-19 pandemic. The ~~increase~~decrease was due to a ~~4.7% increase~~33.1% decrease in billed hours, ~~and~~which was offset by a ~~5.5%~~4.0% increase in average bill rate. Revenue from new offices ~~provided approximately $1.0 million of the increase. Revenues from the commercial buildings group contributed $0.8 million of the increase.~~was $0.7 million.

Professional Revenues: Professional revenues increased approximately ~~$3.0~~$13.6 million ~~(3.3%~~(14.6%)., primarily from LJK and EdgeRock acquisitions, which contributed $26.2 million of new revenues. The ITremaining professional group ~~increased $4.8 million, which was partially offset by the finance and accounting group decrease of $1.8~~decreased $12.6 million. The overall increase was due to an increase of ~~5.3%~~18.9% in average bill rate, ~~and an increase in permanent placements of $0.2 million that~~which was offset by a ~~2.7%~~3.8% decrease ~~in billed hours. The IT group increased 4.8% in billed hours and the finance and accounting group decreased 18.5%~~ in billed hours.

Light Industrial Revenues: Light Industrial revenues decreased approximately ~~$3.1~~$5.3 million ~~(5.2%~~(9.6%)., due to the effects of the COVID-19 pandemic. The decrease was ~~due to~~effected by a ~~8.6%~~15.2% decrease in billed hours that was offset by a ~~3.7%~~6.5% increase in average bill rate.

Gross Profit:

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


		Thirty-nine Weeks Ended
		September 27, 2020				September 29, 2019
		(dollars in thousands)
Gross Profit by segment:
	Real Estate	$	19,220	33.8	%	$	28,038	45.6	%
	Professional	30,506		53.6	%	25,334		41.2	%
	Light Industrial	7,167		12.6	%	8,106		13.2	%
	Total Gross Profit	$	56,893	100.0	%	$	61,478	100.0	%

Thirty-nine Weeks Ended
September 29,
2019 September 30,
2018
(dollars in thousands)
Gross Profit by segment:

Real Estate $ 28,038
45.6 % $ 25,044
43.2 %
Professional 25,334
41.2 % 24,056
41.6 %
Light Industrial 8,106
13.2 % 8,775
15.2 %
Total Gross Profit $ 61,478
100.0 % $ 57,875
100.0 %

Thirty-nine Weeks Ended
September 29,
2019 September 30,
2018
Gross Profit Percentage by segment:

Real Estate 38.4 % 38.0 %
Professional 27.1 % 26.6 %
Light Industrial 14.6 % 15.0 %
Company Gross Profit 27.7 % 26.9 %


		Thirty-nine Weeks Ended
		September 27, 2020		September 29, 2019
Gross Profit Percentage by segment:
	Real Estate	37.7	%	38.4	%
	Professional	28.5	%	27.1	%
	Light Industrial	14.3	%	14.6	%
	Company Gross Profit	27.3	%	27.7	%

Overall, our gross profit ~~has increased~~decreased approximately ~~$3.6~~$4.6 million ~~(6.2%~~(7.5%) ~~due primarily to our Real Estate segment of $3.0 million and our Professional segment of $1.3 million.~~. As a percentage of revenue, gross profit has ~~increased~~decreased to ~~27.7%~~27.3% from ~~26.9%~~27.7% primarily due to ~~higher~~lower gross profits across our Real Estate ~~and Professional segments.~~segment.

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

Real Estate Gross Profit: Real Estate gross profit ~~increased~~decreased approximately ~~$3.0~~$8.8 million ~~(12.0%~~(31.5%) consistent with the ~~increase~~decrease in ~~revenue. The increase in gross profit~~revenue which was ~~due primarily to 5.5%~~offset by a 2.3% increase in average spread.

Professional Gross Profit: Professional gross profit increased approximately ~~$1.3~~$5.1 million ~~(5.3%~~(20.4%) ~~due to 6.8%~~consistent with the increase in revenue, primarily from LJK and EdgeRock acquisitions, which contributed $8.6 million of gross profit. The overall increase in gross profit was affected by 19.2% increase in average spread. ~~The IT group increased $1.4 million with $0.1 million from permanent placements and the finance and accounting group decreased $0.1 million with an increase of $0.1 million from permanent placements.~~

Light Industrial Gross Profit: Light Industrial gross profit decreased approximately ~~$0.7~~$0.9 million ~~(7.6%~~(11.6%) consistent with the decrease in revenue, which was offset by a ~~2.5%~~5.2% increase in average spread.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately ~~$3.8~~$3.0 million ~~(9.9%~~(7.1%), primarily from LJK and EdgeRock acquisitions, which contributed $7.0 million of new expense, and additional IT roadmap and transaction fees. These increases were offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March related to ~~various~~the COVID-19 pandemic to reduce actual and planned operating costs ~~associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses~~ as detailed in the following table.


	Thirty-nine Weeks Ended
	September 27, 2020				September 29, 2019
	Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change
	(dollars in thousands)
Compensation and related	$	34,184	16	%	$	31,517	14	%	$	2,667	8	%
Advertising and recruitment	1,214		1	%	1,527		1	%	(313)		(20)	%
Occupancy and office operations	3,051		1	%	2,996		1	%	55		2	%
Client engagement	328		—	%	1,123		1	%	(795)		(71)	%
Software	1,705		1	%	1,475		1	%	229		16	%
Professional fees	881		—	%	1,029		—	%	(148)		(14)	%
Public company related costs	443		—	%	533		—	%	(90)		(17)	%
Bad debt	154		—	%	6		—	%	148		2,467	%
Share-based compensation	631		—	%	751		—	%	(120)		(16)	%
Transaction fees	605		—	%	94		—	%	511		544	%
IT roadmap	1,292		1	%	369		—	%	923		250	%
Workers' compensation loss retention return	(464)		—	%	(348)		—	%	(117)		34	%
Other	1,358		1	%	1,289		1	%	69		5	%
	$	45,379	22	%	$	42,360	19	%	$	3,019	7	%

Thirty-nine Weeks Ended
September 29,
2019 September 30,
2018
Amount % of Revenue Amount % of Revenue
$
Change

%
Change
(dollars in thousands)
Compensation and related $ 31,680
14 % $ 28,948
13 % $ 2,732
9 %
Advertising and recruitment 1,679
1 % 1,581
1 % 98
6 %
Occupancy and office operations 3,009
1 % 2,767
1 % 242
9 %
Client engagement 1,141
1 % 934
— % 207
22 %
Software 1,530
1 % 931
— % 599
64 %
Professional fees 1,141
1 % 909
— % 232
26 %
Public company related costs 533
— % 396
— % 137
35 %
Bad debt 6
— % 39
— % (33 ) (85 )%
Share-based compensation 751
— % 873
— % (122 ) (14 )%
Transaction fees 94
— % 472
— % (378 ) (80 )%
Other 796
— % 680
— % 116
17 %
$ 42,360
19 % $ 38,530
18 % $ 3,830
10 %

Depreciation and Amortization: Depreciation and amortization charges ~~decreased~~increased approximately ~~$0.2~~$0.5 million ~~(4.4%~~(13.7%). The ~~decrease~~increase in depreciation and amortization is primarily due to ~~fully amortized intangible assets in~~ the ~~Light Industrial~~Professional segment with increases related to the ~~2013 InStaff acquisition~~2019 LJK and ~~in the Professional segment~~2020 EdgeRock acquisitions that are offset by decreases related to the 2015 D&W ~~acquisition.~~Talent and 2017 Smart Resources acquisitions.

Impairment loss: As a result of the certain business developments and changes in the Company's long-term projections, 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.

Interest Expense, net: Interest expense, net ~~decreased $1.0 million (45.3%) primarily~~was flat due to the ~~May 2018 offering of common stock which proceeds were used to pay down on the existing indebtedness of the Company~~increased borrowings under our credit agreement and ~~the~~ decrease in ~~contingent consideration discounts related to~~interest income from our workers' compensation loss retention program that were offset by decreases in the ~~2017 Zycron~~deferred financing fees and ~~Smart acquisitions.~~unused fee.

Income ~~Taxes:~~Tax Expense (Benefit): Income tax expense ~~increased $0.5~~(benefit) decreased approximately $3.5 million ~~(16.9%~~(108.1%) primarily due to ~~the 2018 Option Cancellation Agreement~~lower pre-tax 2020 income and ~~the share-based compensation exercises that are deductible for tax purposes that resulted in a reduced 2018 effective rate,~~intangible impairment losses, which ~~was~~were partially offset by ~~higher pre tax 2018 income.~~non-deductible fees related to the 2020 EdgeRock transaction.

Use of Non-GAAP Financial Measures

We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles ~~("non-GAAP"~~(“non-GAAP”), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for our management. In addition, the financial covenants in our credit agreement are based on EBITDA as defined in the credit agreement.

We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, intangible impairment losses, transaction fees, and the ~~non capital~~non-capital information technology improvement project ("(“IT ~~roadmap"~~roadmap”)

and ~~other~~certain non-cash expenses such as share-based compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. ~~In addition, the financial covenants in our credit agreement are based on adjusted EBITDA as defined in the credit agreement.~~ Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net ~~income.~~income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.

To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income (loss) to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect ongoing operating performance.


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Trailing Twelve Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		September 27, 2020
	(dollars in thousands)
Net income (loss)	$	2,566	$	4,207	$	(765)	$	10,505	$	1,977
Interest expense, net	360		395		1,245		1,245		1,569
Income tax expense (benefit)	723		1,334		(260)		3,194		851
Loss on extinguishment of debt	—		541		—		541		—
Operating income	3,649		6,477		220		15,485		4,397
Depreciation and amortization	1,271		1,197		4,130		3,633		5,318
Impairment losses	—		—		7,240		—		7,240
Contingent consideration adjustment	(76)		—		(76)		—		(76)
Share-based compensation	245		244		631		751		833
Transaction fees	15		37		605		94		945
IT roadmap	401		341		1,292		369		1,643
Adjusted EBITDA	$	5,505	$	8,296	$	14,042	$	20,332	$	20,300

Thirteen Weeks Ended Thirty-nine Weeks Ended Trailing Twelve Months Ended

September 29,
2019 September 30,
2018 September 29,
2019 September 30,
2018 September 29,
2019

(dollars in thousands)
Net income
$ 4,207
$ 5,061
$ 10,505
$ 12,697
$ 15,358
Interest expense, net
395
662
1,245
2,275
1,821
Income tax expense
1,334
1,368
3,194
2,732
4,321
Loss on extinguishment of debt 541
—
541
—
541
Operating income 6,477
7,091
15,485
17,704
22,041
Depreciation and amortization
1,197
1,248
3,633
3,801
4,876
Contingent consideration adjustment —
(988 ) —
(2,160 ) (1,615 )
Share-based compensation
244
758
751
873
947
Transaction fees 37
135
94
472
130
IT roadmap 341
—
369
—
369
Adjusted EBITDA
$ 8,296
$ 8,244
$ 20,332
$ 20,690
$ 26,748

Liquidity and Capital Resources

Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.

Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with BMO Harris Bank, N.A. ~~("BMO"~~(“BMO”), that provides for a revolving credit facility maturing July 16, 2024 (the “Revolving Facility”). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.

The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.

During this period of uncertainty of volatility related to COVID-19, we will continue to monitor our liquidity, particularly payments from our client partners.

A summary of our operating, investing and financing activities are shown in the following table:


	Thirty-nine Weeks Ended							Thirty-nine Weeks Ended
	September 29, 2019			September 30, 2018				September 27, 2020		September 29, 2019
	(dollars in thousands)							(dollars in thousands)
Net cash provided by operating activities	$	13,965		$	11,381		Net cash provided by operating activities	$	18,288	$	13,965
Net cash used in investing activities	(1,534		)	(681		)	Net cash used in investing activities	(23,618)		(1,534)
Net cash used in financing activities	(12,431		)	(10,700		)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	5,330		(12,431)
Net change in cash and cash equivalents	$	—		$	—		Net change in cash and cash equivalents	$	—	$	—

Operating Activities

Cash provided by operating activities consists of net income (loss) adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, intangible impairment losses, interest expense on contingent consideration payable, gain on contingent consideration, loss on extinguishment of debt, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable, ~~and~~ accrued payroll and ~~expenses.~~expenses, and other current and long-term liabilities.

During Fiscal ~~2019,~~2020, net cash provided by operating activities was ~~$14.0~~$18.3 million, an increase of ~~$2.6~~$4.3 million compared with ~~$11.4~~$14.0 million for Fiscal ~~2018.~~2019. This increase is primarily attributable to ~~changes~~intangible impairment losses, payments on accounts receivable, additional other long-term liabilities, and increase in ~~contingent consideration adjustments,~~prepaid expenses and other current assets, which were offset by reduced deferred income taxes, payments on accrued payroll, and ~~related expenses, accounts payable.~~lower other current liabilities.

Investing Activities

Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.

In Fiscal 2020, we paid $21.7 million in connection with the EdgeRock acquisition and we made capital expenditures of $2.0 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap. In Fiscal 2019, we made capital expenditures of $1.5 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap. ~~In Fiscal 2018, we made capital expenditures of $0.7 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business.~~

Financing Activities

Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends and contingent consideration paid.

For Fiscal 2020, we borrowed $22.5 million on the Term Loan, described below, to fund the EdgeRock acquisition, we reduced $12.3 million on our Revolving Facility, paid $4.1 million in cash dividends on our common stock, and paid down $0.7 million on long-term debt. For Fiscal 2019, we paid down $10.1 million in principal payments on our term loan, we paid $9.2 million in cash dividends on our common stock, ~~paid down $10.1 million on the term loan with TCB,~~ we borrowed ~~$9.9 million~~ on our revolving line of credit by $9.9 million, and we paid $2.7 million of contingent consideration related to the Zycron acquisition.

For Fiscal 2018, we paid $7.9 million in cash dividends on our common stock, paid down $12.8 million in principal payments on the term loan with TCB, and we reduced our revolving line of credit by $7.7 million, paid $3.3 million for the Option Cancellation Agreement, and we paid $0.3 million of contingent consideration related to the Zycron acquisition. We received net proceeds from issuance of common stock of $21.3 million and used the net proceeds mainly to reduce outstanding indebtedness under our revolving facility and term loan with TCB and to cancel outstanding options pursuant to the Option Cancellation Agreement.

Credit Agreements

On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO, ~~Harris Bank, N.A. (“BMO”),~~ as ~~lead~~ administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting us to borrow funds from time to time in an aggregate

amount up to $35 million. The Credit Agreement also ~~provides~~provided for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount not to exceed $30 ~~million.~~million with principal paid quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded. We may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all our tangible and intangible ~~property of the Company and its subsidiaries.~~property. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). We also pay an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative covenants ~~as well as~~and negative covenants, ~~restricting~~including certain limitations on our ability to among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) make restricted distributions; (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business. In addition, we may not permit the Leverage Ratio, as of the last day of any fiscal quarterpay cash dividends. We are subject to a ~~Covenant Holiday adjustment period for an approved Covenant Holiday Acquisition (as such terms are~~maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit ~~Agreement) to be greater than~~Agreement.

In April 2020, we entered into a pay-fixed/receive-floating interest rate swap agreement with BMO that reduces the ~~following: 3.00 to 1.0 (July 16, 2019 to~~floating interest rate component on the Term Loan obligation. The $25.0 million notional amount was effective on June ~~30, 2021), 2.75 to 1.0 (July~~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, ~~2021 to June 30, 2022), 2.50 to 1.0 (from and after July 1, 2022). Moreover,~~2023. In accordance with cash flow hedge accounting treatment, we ~~may not permit, for any four fiscal quarter period,~~have determined that the ~~Fixed Charge Coverage Ratio (as defined in~~hedge is perfectly effective using the ~~Credit Agreement) on a consolidated basis to be less than 1.20 to 1.00.~~change-in-variable-cash-flow method.

We borrowed $20 million under the Revolving Facility to pay off our existing indebtedness under the Amended Credit Agreement and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. We recognized loss on extinguishment of debt of approximately $0.5 million related to the unamortized deferred finance fees.

Off-Balance Sheet Arrangements

~~We are not party to any off-balance sheet arrangements.~~Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, we 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 September 27, 2020, we had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against our Revolving Facility.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Consolidated Financial Statements included in “Item 1. Financial Statements.” Please also refer to our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018~~29, 2019 for a more detailed discussion of our critical accounting policies.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.

Interest Rates

~~Our~~A portion of our Revolving Facility and Term Loan are priced at variable interest rates. Accordingly, future interest rate increases could potentially put us at risk for an adverse impact on future earnings and cash flows.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We ~~conducted an evaluation,~~maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the ~~supervision~~Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), ofevaluated the effectiveness ~~of the design and operation~~ of our disclosure controls and procedures (as ~~such term is~~ defined in Rules 13a-15(e) ~~and~~or 15d-15(e) promulgated under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.~~Act) at September 27, 2020. Based on ~~such~~this evaluation, ~~our~~the CEO and CFO ~~have~~ concluded that as of ~~the end of such period,~~that date, our disclosure controls and procedures ~~are~~were not effective, at a reasonable assurance level, because of a material weakness in ~~recording, processing, summarizing~~internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures.

As previously reported, management had identified a deficiency in our internal control over financial reporting, which was related to the quantitative assessment of impairment of goodwill and intangible assets. Our management had concluded that we do not maintain effective controls related to the technical aspects of GAAP for testing goodwill and other intangible assets for impairment. Management had determined that the aggregate impact of this deficiency resulted in a material weakness. The material weakness did not result in any identified misstatements in the current period consolidated financial statements, nor in any restatements of consolidated financial statements previously reported by us, and there were no changes in previously released financial results.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely ~~basis, information required~~basis.

Remediation Steps to ~~be disclosed by us in~~Address the ~~reports that we file or submit under~~Material Weakness

Since identifying the ~~Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated~~material weakness related to our process of impairment assessment of goodwill and intangible assets, we have taken steps to strengthen the control function related to the financial closing process. These steps included retaining external expert resources, enhancing the design of certain management ~~including our CEO~~review controls and ~~CFO,~~providing training regarding internal control processes. We will continue to enhance controls to ensure the financial closing process is effectively implemented. Although we plan to complete this remediation process as ~~appropriate to allow timely decisions regarding required disclosure.~~quickly as possible, we cannot at this time estimate when the remediation will be completed.

Changes in Internal Controls Over Financial Reporting

~~For~~Other than as described above, for the fiscal quarter ended September ~~29, 2019,~~27, 2020, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our team members are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and our CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No change from the information provided in ITEM 3. LEGAL PROCEEDINGS included in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019.

ITEM 1A. RISK FACTORS

The full extent of the impact of COVID-19 on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. In evaluating us and our common stock, in addition to the risk factor below, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018~~29, 2019 (our ~~“2018~~“2019 Form 10-K”), and filed with the SEC on March 12, ~~2019. There have been no material changes from the risk factors as previously disclosed in our 2018 Form 10-K.~~2020. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. of Part I of our ~~2018~~2019 Form 10-K, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

Our business, results of operations, and financial condition have been and may continue to be adversely impacted in material respects by the coronavirus pandemic, and future adverse impacts could be material and difficult to predict.

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, 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Item 6. Exhibits

The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.


Exhibit Number		Description

~~Exhibit~~ ~~Number~~ 2.1		~~Description~~ Asset Purchase Agreement, dated as of December 13, 2019, between BG Staffing, Inc., BG Staffing, LLC, L.J.Kushner & Associates, L.L.C., and Lee J. Kushner (incorporated by reference from the registrant’s Current Report on Form 8-K filed on December 16, 2019)
2.2		Securities Purchase Agreement, dated as of February 3, 2020, by and between BG Staffing, LLC, EdgeRock Technology Holdings, Inc., and CDI Holding Company LLC (incorporated by reference from the registrant’s Current Report on Form 8-K filed on 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).
10.1		~~Credit~~Form of Indemnification Agreement ~~dated as of July 16, 2019, among BG Staffing, Inc., as borrower, the lenders from time to time party thereto,~~for Directors and ~~BMO Harris Bank, National Association, as administrative agent, letters of credit issuer, swing line lender, sole lead arranger, and sole book runner~~Executive Officers (incorporated by reference from the ~~registrant’s~~registrant's Current Report on Form 8-K filed on ~~July 22, 2019)~~February 4, 2014)
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 to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial information from BG Staffing's Quarterly Report on Form 10-Q for the quarter ended September 27, 2020 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Unaudited Statements of Changes in Stockholders' Equity, (iv) the Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Consolidated Financial Statements.
101.INS *104		Cover Page Interactive Data File (formatted as Inline 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.~~and contained in Exhibit 101)



			*			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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			BG STAFFING, INC.

						/s/ Beth Garvey
			Name:			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)

Date: November 5, ~~2019~~2020



PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Consolidated Balance Sheets	4
	Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)	5
	Unaudited Consolidated Statement of Changes in Stockholders' Equity	6
	Unaudited Consolidated Statements of Cash Flows	8
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2225
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3036
Item 4.	Controls and Procedures	3136

PART II	OTHER INFORMATION	3238
Item 1.	Legal Proceedings	3238
Item 1A.	Risk Factors	3238
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3238
Item 3.	Defaults Upon Senior Securities	3238
Item 4.	Mine Safety Disclosures	3238
Item 5.	Other Information	3238
Item 6.	Exhibits	3339



			September 29, 2019		December 30, 2018
ASSETS
Current assets
	Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018)		$	40,399,213	$	37,606,721
	Prepaid expenses		1,709,978		984,219
	Other current assets		38,933		22,733
		Total current assets	42,148,124		38,613,673

Property and equipment, net			3,099,489		2,556,992

Other assets
	Deposits		3,700,754		3,209,419
	Deferred income taxes, net		4,408,099		4,870,997
	Right-of-use asset - operating leases		4,113,793		—
	Intangible assets, net		30,539,442		33,034,173
	Goodwill		17,983,549		17,983,549
		Total other assets	60,745,637		59,098,138
	Total assets		$	105,993,250	$	100,268,803
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively)		$	—	$	4,242,580
	Accrued interest		203,620		308,547
	Accounts payable		140,541		146,257
	Accrued payroll and expenses		11,992,541		10,411,374
	Accrued workers’ compensation		447,650		530,980
	Contingent consideration, current portion		—		2,363,512
	Lease liability, current portion		1,271,711		—
	Income taxes payable		279,607		55,841
		Total current liabilities	14,335,670		18,059,091

Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively)			20,196,123		10,078,507
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively)			—		5,767,650
Lease liability, less current portion			3,875,349		—
Other long-term liabilities			—		661,542
	Total liabilities		38,407,142		34,566,790

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, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively			75,103		78,246
Additional paid in capital			58,416,884		57,624,379
Retained earnings			9,094,121		7,999,388
	Total stockholders’ equity		67,586,108		65,702,013
	Total liabilities and stockholders’ equity		$	105,993,250	$	100,268,803



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



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



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