| SUBSEQUENT EVENTS | NOTE
15 – SUBSEQUENT EVENTS Nasdaq
Compliance Minimum
Bid Price Requirement On
July 17, 2023, the Company received a letter from the Listing Qualifications Staff (the “Staff”) of the Nasdaq Stock Market
(“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business
day period between June 1, 2023, through July 14, 2023, the Company did not meet the minimum bid price of $ 1.00 In
order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum
closing bid price of $ 1.00 The
letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on Nasdaq,
subject to the Company’s compliance with the other listing requirements of Nasdaq. STAFFING
360 SOLUTIONS, INC. AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share,
per share, par values and stated value per share) (UNAUDITED) Quarterly
Reports on Form 10-Q On
July 5, 2023, the Company received a notice from the Staff notifying the Company that it has been granted an exception to enable the
Company to regain compliance with the Rule pursuant to the following terms: on or before October 16, 2023, the Company must file the
Form 10-Q for the period ended April 1, 2023, as required by the Rule. In the event the Company does not satisfy the terms of the exception,
the Staff will provide written notification that the Company’s common stock will be delisted. On
August 23, 2023, the Company received a notice from the Staff notifying the Company that as it has not yet filed its Quarterly Report
on Form 10-Q for the period ended July 1, 2023, the Company no longer complies with the Rule for continued listing on Nasdaq. Pursuant
to the July 5, 2023 notice described above, the Staff had granted the Company an exception until October 16, 2023 to file its delinquent
Form 10-Q for the period ended April 1, 2023 (the “Initial Delinquent Filing”). As a result, any additional Staff exception
to allow the Company to regain compliance with all delinquent filings, will be limited to a maximum of 180 calendar days from the due
date of the Initial Delinquent Filing, or October 16, 2023. On October 16, 2023, the Company filed the Q1 Form 10-Q and on October 18, 2023, the Staff notified the Company that
it had regained compliance with the Listing Rule with respect to the Q1 Form 10-Q. On October 18, 2023, the Company received a notice from the Staff notifying the Company that it was not in compliance
with Nasdaq’s continued listing requirements under the Rule as a result of its failure to file the Form 10-Q for the period ended
July 1, 2023 in a timely manner (the “Staff Determination”). Unless the Company requests an appeal of the Staff Determination
pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series, trading of the Company’s common stock will be suspended
from Nasdaq at the opening of business on October 27, 2023, and a Form 25-NSE will be filed with the Securities and Exchange Commission,
which will remove the Company’s securities from listing and registration on Nasdaq. The Company filed for an appeal regarding the removal of the Company’s securities from listing and registration
on Nasdaq. This appeal is set for January 11, 2024. The Staff Determination has no immediate effect
and will not immediately result in the suspension of trading or delisting of the Company’s shares of common stock. The
aforementioned notices have no immediate effect on the listing of the Company’s common stock. There can be no assurance that the
Company will regain compliance with the Nasdaq’s rules or maintain compliance with any of the other Nasdaq continued listing requirements. Series
H Preferred Stock Amendment On
July 31, 2023, the Company, Chapel Hill Partners, L.P. (“Chapel Hill”) and Jean-Pierre Sakey (“Sakey”) entered
into an agreement in connection with the Headway Purchase Agreement. Pursuant
to the agreement, if on or prior to September 30, 2023, the Company pays an aggregate of $ 11,340,000 9,000,000 525,000 Pursuant
to the agreement, if on or prior to September 30, 2023, the Company does not redeem the Series H Preferred Stock and remit the Contingent
Payment (as defined in the Headway Purchase Agreement), then the Company shall make the Contingent Payment in the amount of $ 5,000,000 1,000,000 134,000 100,000 0.0000001 Pursuant
to the Letter Agreement, the Company shall also have no obligation to pay the Preferred Dividend (as defined in the Series H COD) on
June 30, 2023, September 30, 2023 and December 31, 2023. STAFFING
360 SOLUTIONS, INC. AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share,
per share, par values and stated value per share) (UNAUDITED) Agreements
with Jackson First
Omnibus Amendment Agreement and Jackson Notes On
August 30, 2023, the Obligors entered into a First Omnibus Amendment Agreement with Jackson, which, among other things: (i) amends that
certain Third A&R Agreement, by and between the Company and Jackson, dated as of October 27, 2022, (ii) provides for the issuance
of 2023 Jackson Note, and (iii) joins certain subsidiaries of the Company to (a) the Pledge Agreement, and (b) the Security Agreement,
dated as of September 15, 2017, as either subsidiary guarantors or pledgors (as applicable) and amends certain terms and conditions of
each of the Pledge Agreement and the Security Agreement. Pursuant
to the terms of the purchase agreement, simultaneously with the execution of the amendment agreement, the Company issued to Jackson the
2023 Jackson Note due October 14, 2024 in the principal amount of $ 2,000 the Company is required to pay interest at a per annum rate of 12%. In the event the Company has not repaid in cash at 50%
of the outstanding principal balance of the 2023 Jackson Note on or before October 27, 2023, then interest on the outstanding principal
balance of the 2023 Jackson Note will accrue at 16% per annum until the 2023 Jackson Note is repaid in full. All accrued and unpaid interest
on the outstanding principal of the 2023 Jackson Note shall be due and payable in arrears in cash on a monthly basis. Pursuant
to the First Omnibus Amendment Agreement, interest on that certain 2022 Jackson Note due October 14, 2024, evidencing the obligations
of the Obligors under the Third A&R Agreement and executed by the Company in favor of Jackson, shall be paid in cash and continue
to accrue at a rate per annum equal to 12% until the principal amount of the 2022 Jackson Note has been paid in full. In the event
that Company has not repaid in cash at least 50% of the outstanding principal balance of the existing note as of the date of the
First Omnibus Amendment Agreement or on or before October 27, 2023, then interest on the outstanding principal balance of the 2022 Jackson
Note will accrue at 16% per annum until the 2022 Jackson Note is repaid in full. All accrued and unpaid interest on the outstanding
principal of the 2022 Jackson Note shall be due and payable in arrears in cash on a monthly basis; provided that (i) the interest payment
that would be due on September 1, 2023 shall instead be due December 1, 2023 and (ii) the amount of each such deferred interest payment
shall be added to the principal amount of the 2022 Jackson Note. Notwithstanding the foregoing, the amount necessary to satisfy such
accrued but unpaid interest on the 2022 Jackson Note as of the date of the First Omnibus Amendment Agreement was retained by Jackson
from the aggregate purchase price of the 2023 Jackson Note, along with certain out-of-pocket fees and expenses, including reasonable
attorney’s fees, incurred by Jackson in connection with the First Omnibus Amendment Agreement, the 2023 Jackson Note and related
documents thereto. Amendment
No. 28 to Credit and Security Agreement and Limited Waiver with MidCap On
August 30, 2023, the Company and the Credit Facility Borrowers entered into Amendment No. 28 to Credit and Security Agreement with MidCap
and the lenders party thereto (the “Lenders”). Amendment No. 28, among other things: (i) increases the applicable margin
(a) from 4.25% to 4.50% with respect to revolving loans and other obligations (other than letter of credit liabilities) and (b) from
3.75% to 4.50% with respect to letter of credit liabilities, (ii) revises the definition of borrowing base to include the amount of any
reserves and/or adjustments provided for in the Credit and Security Agreement, including, but not limited to, the Additional Reserve
Amount (as defined in the in Amendment No. 28), (iii) requires that the Company complies with a fixed charge coverage ratio of at least
1:00 to 1:00, and (iv) waives the existing event of default that occurred under the Credit and Security Agreement due to the Credit Parties’
failure to maintain the Minimum Liquidity amount (as defined in the Credit and Security Agreement) for the fiscal month ending June 30,
2023 (each as defined in the Credit and Security Agreement). In
addition, pursuant Amendment No. 28, no later than five (5) business days following the receipt of any cash proceeds from any equity
issuance or other cash contribution from the Company’s equity holders, the Company shall prepay the revolving loans by an amount
equal to (i) the sum of $ 1,300 50 In
connection with Amendment No. 28, the Company shall pay to MidCap (i) a modification fee of $ 68 32 Sixth
Amendment to Intercreditor Agreement with Jackson and MidCap On
August 30, 2023, in connection with the First Omnibus Amendment Agreement, the 2023 Jackson Note and Amendment No. 28, the Company, Jackson,
the Lenders and MidCap entered into the Sixth Amendment to Intercreditor Agreement (the “Sixth Amendment”), which amended
the Intercreditor Agreement, dated as of September 15, 2017 (as amended, restated, amended and restated, supplemented, or otherwise modified
from time to time, the “Intercreditor Agreement”), by and between the Company, Jackson and MidCap. The Sixth Amendment, among
other things, provides for (i) consent by the Lenders to the Amendment Agreement and (ii) consent by Jackson to Amendment No. 28. STAFFING
360 SOLUTIONS, INC. AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share,
per share, par values and stated value per share) (UNAUDITED) Inducement
Letter and Exercise of Warrants On
September 1, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with a certain
holder (the “Holder”) of certain of its existing warrants to purchase up to an aggregate of 2,761,170 Pursuant
to the Inducement Letter, the Holder agreed to exercise for cash its Existing Warrants to purchase an aggregate
of 2,761,170 0.83 5,522,340 The
closing of the transactions contemplated pursuant to the Inducement Letter occurred on September 6, 2023 (the “Closing Date”).
The Company received aggregate gross proceeds of approximately $ 2,300 50 50 The
Company engaged Wainwright to act as its exclusive placement agent in connection with the transactions summarized above and paid Wainwright
a cash fee equal to 7.5 a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing Warrants, pursuant to the Wainwright
Engagement Letter. Pursuant
to the Engagement Letter, the Company agreed to reimburse Wainwright for its expenses in connection with the exercise of the Existing
Warrants and the issuance of the September 2023 Warrants of up to $ 50 25 16 207,088 1.0375 Limited
Duration Stockholder Rights Agreement On
September 27, 2023, the board of directors (the “Board”) of the Company declared a dividend of one preferred share purchase
right (a “Right”) for each outstanding share of common stock and .3889 Rights for each outstanding share of Series H Preferred
Stock (collectively with the common stock, the “Voting Stock”). The dividend is payable on October 21, 2023 to the stockholders
of record at the close of business on October 21, 2023 (the “Record Date”). Each Right initially entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $ 0.00001 2.75 STAFFING
360 SOLUTIONS, INC. AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share,
per share, par values and stated value per share) (UNAUDITED) Until
the close of business on the earlier of (i) 10 business days following the first date of public announcement (which, for purposes of
this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) by the Company or an Acquiring Person (as defined below) that an Acquiring Person has become
such, or such other date, as determined by the Board, on which a Person has become an Acquiring Person, or (ii) 10 business days (or
such later date as may be determined by action of the Board prior to such time as any person or group of affiliated or associated persons
becomes an Acquiring Person) after the date of the commencement of, or the first public announcement of an intention to commence, a tender
or exchange offer the consummation of which would result in any person or group of affiliated or associated persons becoming an Acquiring
Person (the earlier of such dates being called the “Distribution Date”), (x) the Rights will be evidenced by the certificates
representing the Voting Stock registered in the names of the holders thereof (or by book entry shares in respect of such Voting Stock)
and not by separate Right Certificates (as defined below), and (y) the Rights will be transferable only in connection with the transfer
of Voting Stock. Until
the Distribution Date (or earlier expiration of the Rights), (i) new Voting Stock certificates issued after the Record Date upon transfer
or new issuances of Voting Stock will contain a legend incorporating the terms of the Rights Agreement by reference, and (ii) the surrender
for transfer of any certificates representing Voting Stock (or book entry shares of Voting Stock) outstanding as of the Record Date will
also constitute the transfer of the Rights associated with the shares of Voting Stock represented thereby. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights (“Right Certificates”) will be mailed to holders of record
of the Voting Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the
Rights. Except
as otherwise provided in the Rights Agreement, the Rights are not exercisable until the Distribution Date. The Rights will expire on
the earliest of (i) October 2, 2026 or such later date as may be established by the Board prior to the expiration of the Rights, (ii)
the time at which the Rights are redeemed pursuant to the terms of the Rights Agreement, (iii) the closing of any merger or other acquisition
transaction involving the Company pursuant to an agreement of the type described in the Rights Agreement at which time the Rights are
terminated, or (iv) the time at which such Rights are exchanged pursuant to the terms of the Rights Agreement. The
Purchase Price payable, and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights
is subject to adjustment from time to time, among others, (i) in the event of a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or purchase
Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market
price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants (other than
those referred to above). The
number of outstanding Rights is subject to adjustment in the event of a stock dividend on any class or series of Voting Stock payable
in shares of a class or series of Voting Stock or subdivisions, consolidations or combinations of any class or series of Voting Stock
occurring, in any such case, prior to the Distribution Date. Shares
of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when,
as and if declared, to a minimum preferential quarterly dividend payment of the greater of (a) $10.00 and (b) the sum of (1) 1,000
(subject to adjustments for stock dividends, stock splits, or stock combinations) times the aggregate per share amount of all cash dividends,
plus (2) 1,000 (subject to adjustments for stock dividends, stock splits, or stock combinations) times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of common stock, or a subdivision
of the outstanding shares of common stock (by reclassification or otherwise), in each case declared on the common stock. In the event
of liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a minimum preferential
payment of the greater of (a) $10.00 per share (plus any accrued but unpaid dividends and distributions), and (b) an amount equal
to 1,000 times (subject to adjustments for stock dividends, stock splits, or stock combinations) made per share amount of all cash and
other property to be distributed in respect of common stock. Each share of Preferred Stock will be initially entitled to 1,000 votes
(subject to adjustment for stock dividends, stock splits, or stock combinations). In addition to voting together with the holders of
common stock for the election of other directors of the Company, the holders of Preferred Stock, voting separately as a class to the
exclusion of the holders of common stock, shall be entitled at the meeting of stockholders (and at each subsequent annual meeting of
stockholders), unless all dividends in arrears on the Preferred Stock have been paid or declared and set apart for payment prior thereto,
to vote for the election of two directors of the Company. Holders of Preferred Stock shall otherwise have no special voting rights and
their consent shall not be required (except to the extent they are entitled to vote with holders of common stock as set forth herein)
for taking any corporate action, other than as required by law. STAFFING
360 SOLUTIONS, INC. AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share,
per share, par values and stated value per share) (UNAUDITED) In
the event of any merger, consolidation, combination or other transaction in which outstanding shares of common stock are converted or
exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for which each share of common stock is changed or exchanged. In
the event that any person or group of affiliated or associated persons becomes an Acquiring Person (the first occurrence of such event,
a “Flip-In Event”), each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon
become void), will thereafter have the right to receive upon exercise of a Right that number of shares of common stock equal to the number
of shares of common stock obtained by dividing the Purchase Price (subject to adjustments) by 50% of the current per share market price
of the common stock on the date of the Flip-In Event. Except in certain situations, a person or group of affiliated or associated persons
becomes an “Acquiring Person” upon acquiring beneficial ownership of 10% (20% in the case of a Passive Investor (as defined
in the Rights Agreement)) or more in voting power of the shares of Voting Stock then outstanding, subject to certain exclusions. Under
the Rights Agreement, a “Passive Investor” is generally a person who or which has reported or is required to report beneficial
ownership of shares of Voting Stock on Schedule 13G under the Exchange Act. Certain synthetic interests in securities created by derivative
positions are treated under the Rights Agreement as beneficial ownership of the number of shares of Voting Stock equivalent to the economic
exposure created by the derivative security, to the extent actual shares of Voting Stock are directly or indirectly beneficially owned
by a counterparty to such derivative security. In
the event that, after a Flip-In Event, the Company is acquired in a merger or other business combination transaction or 50% or more
of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive upon the exercise of
a Right that number of shares of common stock equal to the result obtained by dividing the Purchase Price (subject to adjustments) by 50%
of the current per share market price of the common stock of such person(s) (or its parent) with whom the Company has engaged in the
foregoing transaction. At
any time after a Flip-In Event and prior to the acquisition by an Acquiring Person of 50% or more in voting power of the shares
of Voting Stock then outstanding, the Board may, at its option, exchange the Rights (other than Rights owned by such Acquiring Person
which will have become void), in whole or in part, for shares of common stock, at an exchange ratio of one share of common stock per
Right. With
certain exceptions, no adjustment in the Purchase Price will be required unless such adjustment would require an increase or decrease
of at least 1% in such Purchase Price. No fractional shares of Preferred Stock or common stock will be issued (other than fractions of
Preferred Stock which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company,
be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will be made based on the current market price of the
Preferred Stock or the common stock. At
any time prior to a Flip-In Event, the Board may redeem all but not less than the then outstanding Rights at a price of $ 0.01 For
so long as the Rights are then redeemable, the Company may, in its sole discretion, except with respect to the Redemption Price, supplement
or amend any provision in the Rights Agreement without the approval of any holders of the Rights. After the Rights are no longer redeemable,
the Company may, except with respect to the Redemption Price, supplement or amend the Rights Agreement without the approval of any holders
of Rights, provided that no such supplement or amendment may adversely affect the interests of holders of the Rights, cause the Rights
Agreement to become amendable contrary to the provisions of the Rights Agreement, or cause the Rights to again to become redeemable. Until
a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends. |
