As filed with to the Securities and Exchange Commission on October 28, 2013

 

Registration No. 333-191683

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

Form S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

LTN STAFFING, LLC*

(Exact Name of Registrant as Specified in its Charter)

 

Delaware	7363	260829796
(State or other jurisdiction of incorporation or organization)	Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

 

5000 Legacy Drive, Suite 350

Plano, Texas 75024

Telephone: (972) 692-2400

(Address, including zip code, and telephone number,

including area code, of principal executive offices)

 

L. Allen Baker, Jr.

President and Chief Executive Officer

LTN Staffing, LLC

5000 Legacy Drive, Suite 350

Plano, Texas 75024

Telephone: (972) 692-2400

(Address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

William P. Bowers, Esq.

Fulbright & Jaworski LLP

(A Member of Norton Rose Fulbright)

2200 Ross Avenue, Suite 2800

Dallas, Texas 75201

Telephone: (214) 855-3903

Fax Number: (214) 855-8200

 

Approximate date of proposed sale to public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

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 þ	Smaller reporting company
(Do not check if a smaller reporting company)

 

Calculation of Registration Fee 

 

Title of Each Class of Securities to Be Registered		Amount to Be Registered(1)				Proposed Maximum Offering Price per Share(2)				Proposed Maximum Aggregate Offering Price(2)				Amount of Registration Fee(3)
Common Stock, par value $0.01 per share			229,309			$	0.01			$	2,294			$	0.30

 

(1)	Pursuant to Rule 416 under the Securities Act of 1933, as amended, the number of shares of common stock registered hereby is subject to adjustment to prevent dilution resulting from stock splits, stock dividends or similar transactions. The amount registered includes 229,309 shares of common stock that will be outstanding immediately following the reorganization described in this registration statement.
(2)	No market presently exists of our common stock. The selling stockholders will be required to offer their shares at $0.01 per share until our common stock is listed for quotation on the OTC Bulletin Board or OTCQB marketplace. Assuming such listing is obtained, offers may be made at prevailing market prices or at privately negotiated prices.  There is no liquid market for the registrant’s common stock.
(3)	$0.30 was previously paid in connection with the filing of the original registration statement on October 10, 2013.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

* LTN Staffing, LLC, d/b/a BG Staffing, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Prior to the effectiveness of this registration statement, LTN Acquisition, LLC, a Delaware limited liability company and the parent of LTN Staffing, LLC, will merge with and into LTN Staffing, LLC, and the resulting limited liability company will be converted into a Delaware corporation and renamed BG Staffing, Inc. Shares of the common stock of BG Staffing, Inc. are being offered by the selling stockholders pursuant to the following prospectus. Except as disclosed in the prospectus, the consolidated financial statements and selected historical consolidated financial data and other financial information included in this registration statement are those of LTN Staffing, LLC and its subsidiaries and do not give effect to such merger or corporate conversion. LTN Acquisition, LLC has no operations; thus, the financial statements of this entity have not been included in this registration statement.

 

 

The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the selling stockholders are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Prospectus

Subject to Completion, dated October 28, 2013

 

BG Staffing, Inc.

 

229,309 Shares

Common Stock

 

This prospectus relates to the offer for sale of an aggregate of 229,309 shares of common stock, par value $0.01 per share, of BG Staffing, Inc., which we refer to herein as the common stock, by the selling stockholders named herein. BG Staffing, Inc. is not offering any securities pursuant to this prospectus and will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

 

Our common stock is not presently traded on any market or securities exchange, and we have not applied for listing or quotation on any exchange. We are seeking sponsorship for the trading of our common stock on the OTC Bulletin Board and/or OTCQB marketplace upon the effectiveness of the registration statement of which this prospectus forms a part. The 229,309 shares of our common stock can be sold by selling stockholders at a fixed price of $0.01 per share until our shares are quoted on the OTC Bulletin Board and/or OTCQB marketplace and thereafter at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (referred to herein as FINRA), nor can we provide assurance that our shares will actually be quoted on the OTC Bulletin Board and/or OTCQB marketplace or, if quoted, that a viable public market will materialize or be sustained.  

 

Following the effectiveness of the registration statement of which this prospectus forms a part, the sale and distribution of securities offered hereby may be effected in one or more transactions that may take place on the OTC Bulletin Board and/or OTCQB marketplace, including ordinary brokers’ transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the selling stockholders. The selling stockholders and intermediaries through whom such securities are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended, which we refer to in this prospectus as the Securities Act, with respect to the securities offered hereby, and any profits realized or commissions received may be deemed underwriting compensation.

 

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Please read the related disclosure contained in pages 10-11 of this prospectus. Investing in our common stock is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 5 of this prospectus for a discussion of information that should be considered before making a decision to purchase our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is      , 2013.

 

 

TABLE OF CONTENTS

 

	Page
Prospectus Summary	1
Risk Factors	5
Cautionary Note Regarding Forward-Looking Statements	14
Use of Proceeds	15
Dividend Policy	16
Capitalization	17
Unaudited Pro Forma Financial Information	18
Selected Consolidated Financial Information and Operating Data	25
Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Business	45
Management	49
Executive Compensation	53
Principal Stockholders	57
Certain Relationships and Related Party Transactions	58
Description of Capital Stock	59
Selling Stockholders	63
Plan of Distribution	65
Market For Common Equity and Related Stockholder Matters	67
Material U.S. Federal Income Tax Consequences Associated with the Ownership and Disposition of Our Shares	68
Legal Matters	72
Experts	73
Disclosure of Commission Position of Indemnification for Securities Act Liabilities	74
Where You Can Find Additional Information	75
Index to Financial Statements

 

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with information different from or in addition to that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

In this prospectus, we rely on and refer to information and statistics regarding our industry. We obtained this statistical, market and other industry data and forecasts from publicly available information. While we believe that the statistical data, market data and other industry data and forecasts are reliable, we have not independently verified the data.

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

As used in this prospectus, unless the context otherwise indicates, the references to “BG Staffing,” “we,” “our,” or “us” refer to LTN Acquisition, LLC, together with its subsidiaries (including LTN Staffing, LLC), prior to the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of the surviving limited liability company into a Delaware corporation, and BG Staffing, Inc. and its consolidated subsidiaries on or after such merger and conversion. Unless otherwise indicated or the context otherwise requires, financial and operating data in this prospectus reflects the consolidated business and operations of LTN Staffing, LLC and its wholly-owned subsidiaries prior to such merger and conversion, and BG Staffing, Inc. and its wholly-owned subsidiaries after such merger and conversion. LTN Acquisition, LLC has no operations; thus, the financial statements of this entity have not been included in this registration statement.

 

Our Company

 

We are a national, temporary staffing company that provides temporary workers to a variety of customers that are seeking to match their workforce requirements to their business needs. We have 27 branch offices in 10 states within the U.S.

 

Our Industry

 

The temporary staffing industry supplies temporary staffing services to customers to help them minimize the cost and effort of workforce planning. These services also enable the customer to rapidly respond to changes in business conditions, and in some cases to convert fixed labor costs to variable costs. Temporary staffing companies act as intermediaries in matching available temporary workers to customer assignments. The demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs and respond to changing market conditions. Staffing Industry Analysts (“SIA”), an independent staffing industry organization, is projecting growth of 6% in the U.S. staffing industry in 2013, driven by continuing job creation and the continued upward shift in temporary staffing usage.

 

The temporary staffing market is subject to volatility based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing temporary staffing services has increased due to low barriers to entry. During recessionary periods, the number of companies has decreased through consolidation, bankruptcies or other events. The temporary staffing industry is experiencing increased demand in relation to total job growth as customers have placed a greater priority on maintaining a more flexible workforce.

 

The temporary staffing industry is large and highly fragmented with many competing companies. Staffing companies compete both to recruit and retain a supply of temporary workers and to attract and retain customers to use these workers. Customer demand for temporary staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. The temporary staffing industry includes a number of markets focusing on business needs that vary widely in duration of assignment and level of technical specialization.

 

We have diversified our operation to provide temporary workers within distinct segments of the industry. We refer to these segments as Light Industrial, Multifamily and IT Staffing.

 

Light Industrial Segment

 

Our Light Industrial segment provides temporary workers to primarily manufacturing customers needing a flexible workforce. We currently have offices in Sulphur Springs, Texas, Corsicana, Texas, Greenville, Texas, Gainesville, Texas, El Paso, Texas, Plano, Texas, Mesquite, Texas, Austin, Texas, Dallas, Texas, Olive Branch, Mississippi, Southaven, Mississippi, Waukegan, Illinois and Milwaukee, Wisconsin. Light Industrial segment revenues were $39.3 million in the fiscal year ended December 30, 2012 (“Fiscal 2012”) and represented 51.2% of our consolidated revenues. Our Light Industrial segment temporary workers perform services in a variety of manual and unskilled positions. The workers we assign to our Light Industrial customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.

 

 

Multifamily Segment

 

Our Multifamily segment is a leading provider of front office and maintenance personnel to the multifamily housing industry. We currently have offices in Dallas, Texas; Austin, Texas; San Antonio, Texas; Houston, Texas; Atlanta, Georgia; Phoenix, Arizona; Charlotte, North Carolina; Raleigh, North Carolina; Tampa, Florida; Jacksonville, Florida; and Denver, Colorado. Multifamily segment revenues were $18.2 million in Fiscal 2012 and represented 23.7% of our consolidated revenues. The workers we assign to our Multifamily customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.

 

IT Staffing Segment

 

Our IT Staffing segment provides highly skilled information technology professionals with expertise in SAP ERP, SAP BI, Hyperion, Oracle ERP, Oracle BI and Peoplesoft. Our customers include large Fortune 500 companies (which accounted for approximately 40% of our IT staffing segment revenues in Fiscal 2012), as well as consulting firms engaged in systems integration projects. We operate our national coverage of the market from our offices in Durham, North Carolina and Pawtucket, Rhode Island. IT Staffing segment revenues for Fiscal 2012 were $19.3 million and represented 25.1% of our consolidated revenues.

 

Growth Strategy

 

We are committed to growing our operations. Our growth strategy is reliant upon both acquisitions and organic growth. We will continue to evaluate opportunities utilizing our proven approach to the assessment, valuation, and integration of acquisitions. Additionally, we are committed to continue to grow our operations in our current markets, as well as expand into new markets within the industries that we currently serve.

 

Recent Developments

 

Acquisition of Assets of InStaff Holding Corporation and InStaff Personnel, LLC

 

On May 28, 2013, we acquired substantially all of the assets of InStaff Holding Corporation (“InStaff”) and InStaff Personnel, LLC, a wholly owned subsidiary of InStaff Holding Corporation. We believe this acquisition will allow us to strengthen and expand our operations in our Light Industrial segment. We agreed to assume certain liabilities and pay an aggregate of $9 million (subject to a post-closing purchase price adjustment) as consideration for the purchased assets and certain agreements of the sellers and related parties. Contingent earnout payments up to an aggregate of $1 million may also be paid if certain post-closing performance objectives are met. InStaff operated 12 branches in Texas and Mississippi, which we continue to operate under the “InStaff” trade name. InStaff’s revenues were $53.5 million in Fiscal 2012.

 

Conversion into a Delaware Corporation

 

Reorganization

 

LTN Staffing, LLC, which does business as BG Staffing, was organized in Delaware in August, 2007, as a wholly-owned subsidiary of LTN Acquisition, LLC. LTN Acquisition, LLC and LTN Staffing, LLC have agreed to effect a reorganization (the “Reorganization”) immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. The Reorganization will be completed by the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC, with LTN Staffing, LLC continuing as the surviving entity in the merger. Immediately following the merger, the surviving entity, LTN Staffing, LLC, will convert from a Delaware limited liability company into a Delaware corporation, which will be named BG Staffing, Inc. LTN Acquisition, LLC currently has two classes of units of membership interests outstanding (i.e., Class A units and Class B units) which represent a member’s interest in LTN Acquisition, LLC. In the merger, each member of LTN Acquisition, LLC will receive equivalent units in LTN Staffing, LLC as the surviving company in the merger. In the subsequent conversion, which will be deemed a “liquidation” of LTN Staffing, LLC under its limited liability company agreement (which will be substantially identical to the limited liability company agreement of LTN Acquisition, LLC in place immediately prior to the merger), shares of BG Staffing, Inc. will be issued and distributed to the former members of LTN Staffing, LLC as “liquidation proceeds” in amounts to be determined in accordance with the liquidation provisions of the LTN Staffing, LLC’s limited liability company agreement. The shares of common stock of BG Staffing, Inc. issued in the conversion and to be offered by the selling stockholders will have rights as further described under “Description of Capital Stock.” 

 

 

Partnership Status of LTN Acquisition, LLC and LTN Staffing, LLC

 

LTN Acquisition, LLC has been reported since its inception as a partnership for federal tax purposes, and LTN Staffing, LLC has reported since its inception as an entity that is disregarded and treated as a branch of LTN Acquisition, LLC for federal tax purposes. LTN Acquisition, LLC and LTN Staffing, LLC will continue to maintain their respective status for federal tax purposes until the Reorganization is completed immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. Consequently, the members of LTN Acquisition, LLC will pay federal income taxes on LTN Acquisition, LLC’s taxable income (or loss) from operations through the day of Reorganization. Historically, LTN Acquisition, LLC has not distributed money to its members and does not anticipate making any distributions to its members prior to the Reorganization. Accordingly, if LTN Acquisition, LLC reports taxable income for its current taxable year, which ends immediately prior to the Reorganization, members will be responsible for the payment of their distributive share of LTN Acquisition, LLC’s taxable income.

 

Corporate Information

 

Our principal executive offices are located at 5000 Legacy Drive, Suite 350, Plano, Texas 75024. Our telephone number at that location is (972) 692-2400. Our website address is www.bgstaffing.com. The reference to our website is a textual reference only. We do not incorporate the information on our website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

 

 

The Offering

 

Common Stock Outstanding		5,419,642 shares(1)
Common Stock Offered by Selling Stockholders		229,309 shares
Use of Proceeds		We will not receive any proceeds from the sale of the common stock by the selling stockholders.  We have agreed to pay substantially all of the expenses related to this offering, which we estimate to be approximately $450,000.  See “Use of Proceeds.”
Dividend Policy		We do not plan on paying dividends on our common stock.  We anticipate that we will retain future earnings, if any, to finance the continued development and expansion of our business. The declaration and payment of all future dividends, if any, will be at the discretion of our board of directors and will depend upon, among offer things, our financial condition, earnings, contractual conditions, restrictions imposed by our senior credit facility and subordinated loans or applicable laws and other factors that our board of directors may deem relevant.  See “Dividend Policy.”
Quotation of Common Stock		Our common stock is not presently traded on any market or securities exchange, and we have not applied for listing or quotation on any exchange. We are seeking sponsorship for the trading of our common stock on the OTC Bulletin Board and/or OTCQB marketplace upon the effectiveness of the registration statement of which this prospectus forms a part. The 229,309 shares of our common stock can be sold by selling stockholders at a fixed price of $0.01 per share until our shares are quoted on the OTC Bulletin Board and/or OTCQB marketplace and thereafter at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, nor can we provide any assurance that our shares will actually be quoted on the OTC Bulletin Board and/or OTCQB marketplace or, if quoted, that a viable public market will materialize.
Risk Factors		An investment in our company is highly speculative and involves a significant degree of risk. See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.
Reorganization		Unless otherwise indicated, all information in this prospectus relating to the number of shares of common stock to be outstanding:   ·    gives effect to the completion of the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC, and the subsequent conversion of the limited liability company resulting from that merger into BG Staffing, Inc. as described in “—Conversion into a Delaware Corporation”; and   ·    assumes the effectiveness of our Delaware certificate of incorporation, which we will adopt in connection with such conversion.

 

(1) Reflects the shares of our common stock that will be outstanding immediately following our conversion into a Delaware corporation as further described in “—Conversion into a Delaware Corporation.”

 

 

RISK FACTORS

 

Investing in our common stock is highly speculative and involves a significant degree of risk. You should carefully consider the following factors and other information in this prospectus before making a decision to invest in our common stock. Additional risks and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our business, financial condition, operating results (including revenues and profits) or stock price may be materially and adversely affected. In that event, the trading price of our common stock may decline, and you could lose all or part of your investment.

 

Risks Related to Our Company and Our Business

 

We operate in a highly competitive industry with low barriers to entry, and may be unable to compete successfully against existing or new competitors.

 

The staffing services market is highly competitive with limited barriers to entry. We compete in national, regional and local markets with full-service and specialized temporary staffing companies. Some of our competitors have significantly more marketing and financial resources than we do. Price competition in the staffing industry is intense, particularly for the provision of office clerical and light industrial personnel. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.

 

A continuation or worsening of the global economic downturn could result in our customers using fewer workforce solutions and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

 

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

 

Our business is subject to federal and state labor and employment laws and a failure to comply could materially harm our business.

 

Our business is subject to federal and state labor and employment laws and regulations. The cost to comply, and any inability to comply, with such laws and regulations could materially harm our business. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.

 

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Laws”) include various health-related provisions to take effect through 2014, including requiring most individuals to have health insurance and establishing new regulations on health plans. Although the Health Care Reform Laws do not mandate that employers offer health insurance, beginning in 2014 tax penalties will be assessed on employers (as interpreted under the “common law” definition of employer) who do not offer health insurance that meets certain affordability or benefit requirements. Unless modified by regulations or subsequent legislation, providing such additional health insurance benefits to our temporary workers, or the payment of tax penalties if such coverage is not provided, will increase our costs. If we are unable to raise the rates we charge our customers to cover these costs, such increases in costs could materially harm our business.

 

 

We may be exposed to employment-related claims and losses, including class action lawsuits, which could have a material adverse effect on our business.

 

Temporary staffing service providers typically assign personnel in the workplaces of other businesses. The risks of these activities include possible claims relating to:

 

·

discrimination and harassment;

 

·

wrongful termination or denial of employment;

 

·

violations of employment rights related to employment screening or privacy issues;

 

·

classification of temporary workers;

 

·

assignment of illegal aliens;

 

·

violations of wage and hour requirements;

 

·

retroactive entitlement to temporary worker benefits;

 

·

errors and omissions by our temporary workers;

 

·

misuse of customer proprietary information;

 

·

misappropriation of funds;

 

·

damage to customer facilities due to negligence of temporary workers; and

 

·

criminal activity.

 

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

 

We are dependent on workers’ compensation insurance coverage at commercially reasonable terms.

 

We provide workers’ compensation insurance for our temporary workers. Our workers’ compensation insurance policies are renewed annually. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. The loss of our workers’ compensation insurance coverage would prevent us from doing business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.

 

We depend on our ability to attract and retain qualified temporary personnel.

 

We depend on our ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of our customers. We must continually evaluate our base of available qualified personnel to keep pace with changing customer needs. Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available. Our success is substantially dependent on our ability to recruit and retain qualified temporary personnel.

 

 

We would be adversely affected by the loss of key personnel.

 

Our operations and financial success depends significantly on its management team. The loss of any key members of management could adversely affect our business, financial condition and results of operations.

 

Acquisitions and new business initiatives may not be successful.

 

We expect to continue making acquisitions and entering into new business initiatives as part of our long-term business strategy. These acquisitions and new business initiatives involve significant challenges and risks, including that they may not advance our business strategy, that we may not realize a satisfactory return on our investment, that we may experience difficulty in integrating operations, or diversion of management’s attention from our other business. These events could cause harm to our operating results or financial condition.

 

We have significant debt that could adversely affect our financial health and prevent us from fulfilling our obligations or put us at a competitive disadvantage.

 

We have a relatively high amount of indebtedness. Our level of debt and the limitations imposed on us by our lenders could have a material impact on investors, including the requirement to use a portion of our cash flow from operations for debt service rather than for our operations. Additionally, we may not be able to obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing. We could also be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions, or we may be disadvantaged compared to competitors with less leverage.

 

We have a history of net losses and cannot make assurances that we will be profitable in the foreseeable future.

 

We have a history of net losses. If we fail to generate cash flow from our operations, we may not be able to sustain our business. In the future, we may not report profitable operations or generate sufficient revenue to maintain ourselves as a going concern.

 

Risks Related to the Ownership of Our Common Stock

 

An investment in our common stock should be considered illiquid and high risk.

 

An investment in our common stock requires a long-term commitment, with no certainty of return. Because we do not plan to become a public reporting company by the traditional means of conducting an underwritten initial public offering of our common stock, we may be unable to establish a liquid market for our common stock. Moreover, we do not expect security analysts of brokerage firms to provide coverage of our company in the near future. In addition, investment banks may be less likely to agree to underwrite primary or secondary offerings on behalf of our company or its stockholders in the future than they would if we were to become a public reporting company by means of an underwritten initial public offering of common stock. If all or any of the foregoing risks occur, it would have a material adverse effect on our company.

 

No public market for our common stock currently exists, and an active trading market may not develop or be sustained following this offering.

 

As we are in our early stages, an investment in our common stock will likely require a long-term commitment, with no certainty of return. There is no public market for our common stock, and even if we become a publicly-listed company, of which no assurances can be given, we cannot predict whether an active market for our common stock will ever develop in the future.  In the absence of an active trading market:

 

·

Investors may have difficulty buying and selling or obtaining market quotations;

 

 

·

Market visibility for shares of our common stock may be limited; and

 

·

A lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common stock.

 

Assuming we can find market makers to establish quotations for our common stock, we expect that our common stock will be quoted on the OTC Bulletin Board (known as the OTCBB) and/or OTCQB marketplace operated by OTC Markets Group, Inc., which we refer to herein as the OTCBB/OTCQB.  These markets are relatively unorganized, inter-dealer, over-the-counter markets that provide significantly less liquidity than NASDAQ or the NYSE MKT (formerly known as the NYSE AMEX).  No assurances can be given that our common stock, even if quoted on such markets, will ever trade on such markets, much less a senior market like NASDAQ or NYSE MKT. In this event, there would be a highly illiquid market for our common stock and you may be unable to dispose of your common stock at desirable prices or at all. Moreover, there is a risk that our common stock could be delisted from the OTCBB/OTCQB, in which case it might be listed on the so called “Pink Sheets,” which is even more illiquid than the OTCBB/OTCQB.

 

The lack of an active market impairs your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional assets by using our shares as consideration.

 

We may not qualify for OTCBB/OTCQB inclusion, and therefore you may be unable to sell your shares.

 

We believe that, following the effectiveness of the registration statement of which this prospectus forms a part, our common stock will become eligible for quotation on the OTCBB/OTCQB. No assurances can be given, however, that this eligibility will be granted. OTCBB/OTCQB eligible securities include securities not listed on a registered national securities exchange in the U.S. and that are also required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the OTCBB/OTCQB requires that we be current in our periodic securities reporting obligations.

 

Among other matters, in order for our common stock to become OTCBB/OTCQB eligible, a broker/dealer member of FINRA must file a Form 211 with FINRA and commit to make a market in our securities once the Form 211 is approved by FINRA. As of the date of this prospectus, a Form 211 has not been filed with FINRA by any broker/dealer. If for any reason our common stock does not become eligible for quotation on the OTCBB/OTCQB or a public trading market does not develop, purchasers of shares of our common stock may have difficulty selling their shares should they desire to do so. If we are unable to satisfy the requirements for quotation on the OTCBB/OTCQB, any quotation of in our common stock would be conducted in the “Pink Sheets” market. As a result, a purchaser of our common stock may find it more difficult to dispose of, or to obtain accurate quotations as to the price of their shares. The above-described rules may materially adversely affect the liquidity of our securities. See “Plan of Distribution.”

 

Even if our common stock becomes publicly-traded and an active trading market develops, the market price of our common stock may be significantly volatile.

 

Even if our securities become publicly-traded and even if an active market for our common stock develops, of which no assurances can be given, the market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:

 

·

actual or anticipated fluctuations in our quarterly or annual operating results;

 

·

changes in financial or operational estimates or projections;

 

·

conditions in markets generally;

 

 

·

changes in the economic performance or market valuations of companies similar to ours; and

 

·

general economic or political conditions in the United States or elsewhere.

 

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

 

FINRA sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares.

 

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

 

You may face significant restrictions on the resale of your shares due to state securities or “blue sky” laws.

 

Each state has its own securities laws, often called “blue sky” laws, which (1) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (2) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that state.

 

 

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as market makers for our common stock. We have not yet applied to have our securities registered in any state and will not do so until we receive expressions of interest from investors resident in specific states after they have viewed this prospectus. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your shares without the significant expense of state registration or qualification.

 

Our compliance with complicated regulations concerning corporate governance and public disclosure will result in additional expenses. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain given our management’s relative inexperience with operating public companies.

 

Assuming we become a periodic reporting company, we will be faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards of a public company are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

 

Moreover, our executive officers have little experience in operating a public company, which makes our ability to comply with applicable laws, rules and regulations uncertain. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.

 

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave our stockholders without information or rights available to stockholders of more mature companies.

 

For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

·

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

·

taking advantage of an extension of time to comply with new or revised financial accounting standards;

 

·

reduced disclosure obligations regarding executive compensation in this prospectus and in our periodic reports and proxy statements; and

 

·

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

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

 

 

Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.

 

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

 

There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our company.

 

Proper systems of internal controls over financial reporting and disclosure are critical to the operation of a public company. As we are a start-up company, we are at the very early stages of establishing, and we may be unable to effectively establish such systems, especially in light of the fact that we expect to operate as a publicly reporting company. This would leave us without the ability to reliably compile financial information about our company and significantly impair our ability to prevent or detect errors and fraud, all of which would have a negative impact on our company from many perspectives.

 

Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all errors and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent and detect errors or fraud could materially adversely impact us.

 

We may be unable to complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

 

We may be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of the registration statement of which this prospectus is a part. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

 

We are in the very early stages of the costly and challenging process of compiling a system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

 

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the Securities and Exchange Commission.

 

 

We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the Securities and Exchange Commission, which we refer to as the SEC, or the date we are no longer an “emerging growth company” as defined in the recently enacted JOBS Act, if we take advantage (as we expect to do) of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. We will remain an “emerging growth company” for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 30.

 

Any of the foregoing occurrences, should they come to pass, could negatively impact the public perception of our company, which could have a negative impact on our stock price.

 

We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

 

We do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

 

Upon dissolution of our company, you may not recoup all or any portion of your investment.

 

In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the stockholders of common stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our company. In this event, you could lose some or all of your investment.

 

Certain provisions of our organizational documents may make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.

 

In anticipation of this offering, LTN Acquisition, LLC will merge with and into LTN Staffing, LLC, and the surviving limited liability company resulting therefrom will convert from a Delaware limited liability company into a Delaware corporation, BG Staffing, Inc. Certain provisions of the certificate of incorporation and bylaws of BG Staffing, Inc. may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of us and our stockholders. The provisions in such certificate of incorporation and bylaws will include, among other things, the following:

 

·

a classified board of directors with three-year staggered terms;

 

·

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;

 

·

stockholder action can only be taken at a special or regular meeting and not by written consent except in limited circumstances;

 

·

advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;

 

·

removal of directors only for cause;

  

·

allowing only our board of directors to fill vacancies on our board of directors or increase the size of our board of directors; and

 

·

super-majority voting requirements to amend certain provisions of our certificate of incorporation.

 

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

 

While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our board of directors, they could enable the board of directors to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.

 

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. For more information, see “Description of Capital Stock — Anti-takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws.”

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Forward-looking statements may include, but are not limited to, statements with respect to our future financial or operating performance, future plans and objectives, competitive positioning, requirements for additional capital, government regulation of operations and the timing and possible outcome of litigation and regulatory matters. All statements other than statements of historical fact, included or incorporated by reference in this prospectus that address activities, events or developments that we, or our subsidiaries, expect or anticipate may occur in the future are forward-looking statements. Often, but not always, forward-looking statements can be identified by use of forward-looking words such as “may,” “could,” “would,” “might,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “future” or “continue” or the negative thereof or similar variations. Forward-looking statements are based on certain assumptions and analyses made by us, in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and known and unknown risks, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Important factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among other things, general business, economic, competitive, political and social uncertainties, the actual results of current operations, industry conditions, research and development activities, intellectual property and other proprietary rights, production risks, liabilities inherent in our industry, accidents, labor disputes, delays in obtaining regulatory approvals or financing and general market factors, including interest rates, currency exchange rates, equity markets, business competition, changes in government regulations. Additional risks and uncertainties include, but are not limited to, those listed under the heading “Risk Factors” beginning on page 5 of this prospectus.

 

Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward looking statements, there may be other factors that cause results to differ from those anticipated. Forward-looking statements contained in this prospectus are made as of the date hereof and we disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, results or otherwise, except as required by applicable securities laws.

 

The forward-looking statements contained in this prospectus are expressly qualified by this cautionary statement. We have no duty to update any of the forward-looking statements after the date of this prospectus or to conform such statements to actual results or to changes in our expectations, except as otherwise required by applicable law.

 

 

USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale of the common stock by the selling stockholders named in this prospectus. All proceeds from the sale of the common stock will be paid directly to the selling stockholders. We have agreed to pay substantially all of the expenses related to this offering, which we estimate to be approximately $450,000.

 

 

DIVIDEND POLICY

 

We have not paid in the past and we do not anticipate paying in the future cash dividends on our common stock. We anticipate that we will retain future earnings, if any, to finance the continued development and expansion of our business. Our ability to pay dividends is restricted under the terms of our senior credit facility and our subordinated loans and may be restricted under other agreements governing our outstanding indebtedness from time to time. Any future determination with respect to the payment of dividends will be at the discretion of our board of directors and will be dependent upon, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, general economic conditions and other factors considered relevant by our board of directors.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Subordinated Loans” for a description of the restrictions in our senior credit facility and our subordinated loans on our ability to issue dividends.

 

 

CAPITALIZATION

 

The following table presents our cash and cash equivalents and our consolidated capitalization as of June 30, 2013 on an actual basis, as adjusted to retroactively reflect the common stock and preferred stock authorized and outstanding following the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of the surviving limited liability company therefrom into a corporation.

 

This table should be read in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Financial Information,” as well as the consolidated historical financial statements and notes thereto included elsewhere in this prospectus. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, some amounts may not add to the totals due to the effect of rounding.

 

		As of June 30, 2013 (unaudited)
		Actual,  As Adjusted
		(in thousands, except share and per share amounts)
Cash and cash equivalents		$	-
Senior credit facility, including current portion		$	17,046
Subordinated loans		$	14,191
Total debt		$	31,237
Stockholders’ equity
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 5,419,642 shares issued and outstanding		$	54
Preferred stock, $0.01 par value per share; 500,000 shares authorized, no shares issued and outstanding		$	-
Paid in capital		$	19,138
Accumulated deficit		$	(10,168	)
Total stockholders’ equity		$	8,970
Total capitalization		$	40,207

 

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

The unaudited pro forma combined balance sheet as of June 30, 2013 has been derived from our historical consolidated financial statements, as adjusted to give effect to the conversion of our company to a C corporation as if it had occurred on June 30, 2013 with respect to the pro forma combined balance sheet.

 

The unaudited pro forma combined statements of operations for the thirteen and twenty-six week periods ended June 30, 2013, have been derived from our historical consolidated financial statements and the historical financial statements of InStaff (through May 28, 2013, the date of acquisition) included elsewhere in this prospectus, as adjusted to give effect to the acquisition of InStaff as if the acquisition and related events had occurred on December 31, 2012 (the first day of our Fiscal 2013) with respect to the pro forma combined statements of operations.

  

The unaudited pro forma combined statement of operations for the fiscal year ended December 30, 2012 have been derived from our audited historical consolidated financial statements and the audited historical financial statements of American Partners, Inc. (acquired December 3, 2012) and InStaff Holding Corporation included elsewhere in this prospectus, as adjusted to give effect to the acquisition of American Partners, Inc. and the acquisition of InStaff Holding Corporation as if the acquisitions and related events had occurred on December 26, 2011 (the first day of our Fiscal 2012) with respect to the pro forma combined statement of operations.

 

The unaudited pro forma adjustments are based on available information and assumptions that we believe are reasonable and are described in the accompanying footnotes, which should be read in conjunction with these unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated financial statements should be read in conjunction with the information contained in “Selected Consolidated Financial Information and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Prospectus Summary—Recent Developments” and our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

The unaudited pro forma combined statement of operations does not reflect operational and administrative cost savings, which we refer to as synergies, that management of the combined company estimates may be achieved as a result of the acquisition, or other incremental costs that may be incurred as a direct result of the acquisition.

 

The unaudited pro forma combined financial statements are for illustrative and informational purposes only and should not be considered indicative of the results that would have been achieved had the transaction been consummated on the date or for the periods indicated. Also, the unaudited pro forma combined financial statements should not be viewed as indicative of statement of operations data for any future period.

 

(continues on next page)

 

 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

 

AS OF JUNE 30, 2013

(in thousands) 

 

		BG Staffing Historical				Conversion to C Corporation				Pro Forma Balance Sheet
ASSETS
CURRENT ASSETS
Accounts receivable - net		$	21,983			$				$	21,983
Prepaid expense			431								431
Prepaid insurance			892								892
Other current assets			308				281	A			589
TOTAL CURRENT ASSETS			23,614				281				23,895
PROPERTY AND EQUIPMENT, NET			458								458
OTHER ASSETS
Deposits and other assets			1,131								1,131
Deferred financing charges, net			437								437
Deferred tax assets			-				7,353	A			7,353
Intangible assets, net			21,365								21,365
Goodwill			4,896								4,896
TOTAL OTHER ASSETS			27,829				7,353				35,182
TOTAL ASSETS		$	51,901			$	7,634			$	59,535
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current portion of long-term debt		$	2,378			$				$	2,378
Accounts payable			4,080								4,080
Accrued expenses			8,218								8,218
Contingent consideration			2,350								2,350
Other current liabilities			707								707
TOTAL CURRENT LIABILITIES			17,733								17,733
LONG TERM DEBT			28,859								28,859
OTHER LONG-TERM LIABILITIES			3,973								3,973
COMMITMENTS AND CONTINGENCIES
EQUITY			1,336				7,634	A			8,970
TOTAL LIABILITIES AND EQUITY		$	51,901			$	7,634			$	59,535

 

 

A

Represents the deferred tax assets that will be recorded upon the conversion to a C Corporation. We evaluated the deferred tax assets under the guidance of ASC 740-10-30-18, using such factors as historical taxable income, the future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in prior carryback year(s) and tax-planning strategies. Based on our evaluation, we believe that it is more likely than not that all deferred tax assets will be realized. Thus, we believe that a valuation allowance is not required.

 

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

THIRTEEN WEEK PERIOD ENDED JUNE 30, 2013

(in thousands, except per share data)

 

		BG Staffing Historical Thirteen Week Period ended June 30, 2013				Conversion to C Corporation				Instaff Holdings Corporation Period of April 1, 2013 through May 28, 2013				Instaff Holdings Coproration Pro Forma Adjustments				Pro Forma Combined
Revenue		$	35,236				-			$	8,250			$	-			$	43,486
Cost of Sales			28,607				-				7,058				-				35,665
Gross Profit			6,629				-				1,192				-				7,821
Selling, General and Administrative Expenses			4,435				-				905				(20	)(a)			5,320
Depreciation and Amortization			1,110				-				14				107	(b)			1,231
Income (Loss) from Operations			1,084				-				273				(87	)			1,270
Interest Expense, net			840				-				15				133	(c)			988
Income (loss) Before Income Taxes			244				-				258				(220	)			282
Income Tax (Expense) Benefit			1				(118	)(d)			(35	)			-				(152	)
Net Income (Loss)		$	245			$	(118	)		$	223			$	(220	)		$	130
Per Share Data:
Basic Earnings per Share																		$	0.02
Diluted Earnings per Share																		$	0.02
Weighted Average Number of Shares:
Basic																			5,419
Diluted																			5,605

 

(a)	The adjustment to selling, general and administrative expenses reflects the removal of management fees paid by InStaff to one of its current stockholders. The payment of this management fee ceased upon the acquisition.
(b)	The adjustment to depreciation and amortization reflects the amortization of intangible assets acquired in the acquisition of InStaff, net of the reduction in depreciation expense due to the extended useful life of the property and equipment upon acquisition. We expect to amortize the fair value of the identifiable intangible assets with finite lives on a straight-line basis over an estimated useful life of five years.
(c)	The adjustment to interest expense reflects the additional $0.1 million of interest expense related to the additional debt issued to finance the acquisition of InStaff. We issued an additional $6.0 million of subordinated loans, which carry the same fixed 14% annual interest rate as the current subordinated loans, and borrowed an additional $3.0 million on our existing revolver, which had an interest rate of 3.943% at June 30, 2013. The adjustment to interest expense also removes the $0.01 million of interest expense incurred by InStaff on a line of credit that was not assumed.
(d)	The adjustment to income taxes reflects the conversion to a C coproration. Please also see note A on the unaudited pro forma combined balance sheet.

  

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

TWENTY-SIX WEEK PERIOD ENDED JUNE 30, 2013

(in thousands, except per share data)

 

		BG Staffing Historical Twenty-Six Week Period ended June 30, 2013				Conversion to C Corporation				Instaff Holdings Corporation Period of January 1, 2013 - May 28, 2013				Instaff Holdings Coproration Pro Forma Adjustments				Pro Forma Combined
Revenue		$	60,016				-			$	20,924			$	-			$	80,940
Cost of Sales			48,519				-				17,921				-				66,440
Gross Profit			11,497				-				3,003				-				14,500
Selling, General and Administrative Expenses			8,144				-				2,398				(80	)(a)			10,462
Depreciation and Amortization			2,164				-				36				258	(b)			2,458
Income (Loss) from Operations			1,189				-				569				(178	)			1,580
Interest Expense, net			1,505				-				57				330	(c)			1,892
Income (loss) Before Income Taxes			(316	)			-				512				(508	)			(312	)
Income Tax (Expense) Benefit			(5	)			86	(d)			(85	)			-				(4	)
Net Income (Loss)		$	(321	)		$	86			$	427			$	(508	)		$	(316	)
Per Share Data:
Basic Earnings (Loss) per Share																		$	(0.06	)
Diluted Earnings (Loss) per Share																		$	(0.06	)
Weighted Average Number of Shares:
Basic																			5,420
Diluted																			5,420

 

(a)	The adjustment to selling, general and administrative expenses reflects the removal of management fees paid by InStaff to one of its current stockholders. The payment of this management fee ceased upon the acquisition.
(b)	The adjustment to depreciation and amortization reflects the amortization of intangible assets acquired in the acquisition of InStaff, net of the reduction in depreciation expense due to the extended useful life of the property and equipment upon acquisition. We expect to amortize the fair value of the identifiable intangible assets with finite lives on a straight-line basis over an estimated useful life of five years.
(c)	The adjustment to interest expense reflects the additional $0.4 million of interest expense related to the additional debt issed to finance the acquisition of InStaff. We issued an additional $6.0 million of subordinated loans, which carry the same fixed 14% annual interest rate as the current subordinated loans, and borrowed an additional $3.0 million on our existing revolver, which had an interest rate of 3.943% at June 30, 2013. The adjustment to interest expense also removes the $0.06 million of interest expense incurred by InStaff on a line of credit that was not assumed.
(d)	The adjustment to income taxes reflects the conversion to a C corporation. Please also see note A on the unaudited pro forma combined balance sheet.

 

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

 

FISCAL YEAR ENDED DECEMBER 30, 2012

(in thousands, except per share data)

 

		BG Staffing Historical Fiscal Year Ended December 30, 2012				Conversion to C Corporation				American Partners, Inc.  Historical Period from January 1, 2012 to December 3, 2012				American Partners, Inc. Pro Forma Adjustments				ProForma Combined				Instaff Historical Fiscal Year Ended December 31, 2012				Instaff Pro Forma Adjustments				Pro Forma Combined
Revenue		$	76,759			$	-			$	28,666			$	-			$	105,425			$	53,482			$	-			$	158,907
Cost of Services			61,207				-				22,993				-				84,200				45,922				-				130,122
Gross Profit			15,552				-				5,673				-				21,225				7,560				-				28,785
Selling, General and Administrative Expenses			10,606				-				3,843				(233	)(e)			14,216				5,943				(240	)(a)			19,919
Depreciation and Amortization			4,469				-				10				2,136	(f)			6,615				83				1,049	(b)			7,747
Income (Loss) from Operations			477				-				1,820				(1,903	)			394				1,534				(809	)			1,119
Interest Expense (Income), net			2,195				-				(3	)			321	(g)			2,513				201				768	(c)			3,482
Income (Loss) Before Income Taxes			(1,718	)			-				1,823				(2,224	)			(2,119	)			1,333				(1,577	)			(2,363	)
Income Tax Expense (Benefit)			32				(620	)(d)			-				-				(588	)			548				-				(40	)
Net Income (Loss)		$	(1,750	)		$	620			$	1,823			$	(2,224	)		$	(1,531	)		$	785			$	(1,577	)		$	(2,323	)
Per Share Data:
Basic Earning (Loss) Per Share																														$	(0.56	)
Diluted Earning (Loss) Per Share																														$	(0.56	)
Weighted Average Number of Shares:
Basic																															4,120
Diluted																															4,120

 

(a)

The adjustment to selling, general and administrative expenses reflects the removal of management fees paid by InStaff to one of its current stockholders. Payment of this management fee ceased upon the acquisition.

 

(b)

The adjustment to depreciation and amortization reflects the amortization of intangible assets acquired in the acquisition of InStaff, net of the reduction in depreciation expense due to the extended useful life of the property and equipment upon acquisition. We expect to amortize the fair value of the identifiable intangible assets with finite lives on a straight-line basis over an estimated useful life of five years.

 

(c)

The adjustment to interest expense reflects the additional $1.0 million of interest expense to be incurred on the additional debt issued to finance the acquisition of InStaff. We issued an additional $6 million of subordinated loans, which carry the same fixed 14% annual interest rate as the current subordinated loans, and borrowed an additional $3.0 million on our existing revolver, which had an interest rate of 3.71% at December 30, 2012 (with an effective rate of 4.25% for the year ended December 31, 2012). The adjustment to interest expense also removes the $0.2 million of interest expense incurred by InStaff on a line of credit that was not assumed.

 

 

(d)

The adjustment to income taxes reflects the conversion to a C Corporation. See note A on the unaudited pro forma combined balance sheet.

 

(e)

The adjustment to selling, general and administrative expenses reflects the removal of direct transaction costs of the American Partners, Inc. acquisition.

 

(f)

The adjustment to depreciation and amortization reflects the amortization of intangible assets acquired in the American Partners, Inc. acquisition. The fair value of all of the identifiable intangible assets with finite lives are being amortized on a straight-line basis over an estimated useful life of five years. See Note 3 to LTN Staffing, LLC's audited consolidated financial statements included elsewhere in this registration statement for the calculation and allocation of the American Partners, Inc purchase price.

 

(g)

The adjustment to interest expense reflects the interest incurred on the additional debt issued to finance the acquisition of American Partners, Inc. We amended our senior credit facility and borrowed an additional $2.5 million on our existing term loan and an additional $4.0 million on our existing revolver, which had interest rates of 4.46% and 3.71%, respectively, at December 30, 2012. The adjustment to interest expense also removes the $.03 million of interest income earned by American Partners, Inc.

 

 

Selected Consolidated Financial Information and Operating Data

 

The following tables set forth our summary consolidated historical and pro forma financial data. You should read the information set forth below in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and our consolidated historical financial statements and notes thereto included elsewhere in this prospectus. The statement of operations data for the fiscal years ended December 30, 2012 and December 25, 2011 and the balance sheet data as of December 30, 2012 and December 25, 2011 set forth below are derived from our audited consolidated financial statements included elsewhere in this prospectus. The statement of operations data for the fiscal years ended December 26, 2010 and December 27, 2009 and the balance sheet data as of December 26, 2010 and December 27, 2009 set forth below were derived from our audited financial statements not included in this prospectus. The statement of operations data for the thirteen and twenty-six week periods ended June 30, 2013 and June 24, 2012, and the balance sheet data as of June 30, 2013, set forth below are derived from our unaudited consolidated financial statements as of June 30, 2013 and for the thirteen and twenty-six week periods ended June 30, 2013 and June 24, 2012 included elsewhere in this prospectus; which, in the opinion of management, include all adjustments (inclusive only of normally recurring adjustments) necessary for a fair presentation. 

 

		Fiscal Years Ended																Thirteen Weeks Ended								Twenty-six Weeks Ended
		2012				2011 (1)				2010				2009				June 30, 2013				June 24, 2012				June 30, 2013				June 24, 2012
		(in thousands, except per share amounts)
Revenues		$	76,759			$	50,120			$	39,778			$	35,044			$	35,236			$	18,732			$	60,016			$	35,205
Gross profit			15,552				9,588				6,837				5,204				6,629				3,883				11,497				7,154
Selling, general and administrative expenses			10,606				6,852				5,665				3,872				4,435				2,572				8,144				5,125
Depreciation and amortization			4,469				2,750				1,603				1,429				1,110				783				2,164				1,565
Income (loss) from operations			477				(14	)			(431	)			(97	)			1,084				528				1,189				464
Gain on extinguishment of debt, net (1)			-				2,588				-				-				-				-				-				-
Interest expense, net			2,195				2,921				2,477				1,714				840				548				1,504				1,096
Income (loss) before income taxes			(1,718	)			(347	)			(2,908	)			(1,811	)			244				(20	)			(315	)			(632	)
Income tax (expense) benefit			(32	)			65				291				-				(1	)			8				6				17
Net income (loss)		$	(1,750	)		$	(282	)		$	(2,617	)		$	(1,811	)		$	245			$	(28	)		$	(321	)		$	(649	)
Pro Forma C Corporation Data (2):
Historical income (loss) before taxes		$	(1,718	)		$	(347	)										$	244			$	(20	)		$	(315	)		$	(632	)
Pro forma income tax (provision) benefit			588				3												(117	)			(36	)			80				266
Pro forma income (loss)		$	(1,130	)		$	(344	)										$	127			$	(56	)		$	(235	)		$	(366	)
Pro forma income (loss) per share – basic		$	(0.27	)		$	(0.60	)										$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)
Pro forma income (loss) per share – diluted		$	(0.27	)		$	(0.60	)										$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)
Pro forma weighted average shares outstanding – basic			4,120				570												5,420				4,026				5,420				3,999
Pro forma weighted average shares outstanding – diluted			4,120				570												5,605				4,026				5,420				3,999
Other Financial Data:
Adjusted EBITDA (3)		$	5,489			$	3,014			$	2,014			$	1,507			$	2,515			$	1,378			$	3,898			$	2,265

 

 

		As of Fiscal Year Ended																June 30,
		2012				2011				2010				2009				2013
		(dollars in thousands)
Working capital		$	1,473			$	1,030			$	(5,713	)		$	(2,030	)		$	5,881
Total assets		$	37,143			$	24,410			$	15,969			$	13,437			$	51,901
Total outstanding borrowings		$	22,518			$	17,900			$	20,481			$	18,919			$	31,237
Total long-term liabilities		$	23,542			$	18,450			$	16,253			$	15,631			$	32,832
Equity (deficit)		$	1,683			$	(1,147	)		$	(10,753	)		$	(8,136	)		$	1,336

 

(1)

In November 2011, the Company recorded a $2.6 million gain on extinguishment of debt related to the restructuring of its debt obligations.

 

(2)

For comparative purposes, information related to pro forma (provision) benefit for income taxes, pro forma income (loss) and pro forma income (loss) per share has been included assuming the Company had been taxed as a C corporation for the periods presented in the audited historical consolidated financial statements (Fiscal 2012 and Fiscal 2011), as well as the unaudited interim periods.

 

(3)

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

 

We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, gain on early extinguishment of debt, management fees and transaction fees related to our acquisitions. 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 will not be paying management fees following the consummation of this offering. 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. Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

 

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

 

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

  

		Fiscal Years Ended																Thirteen Weeks Ended								Twenty-six Weeks Ended
		2012				2011				2010				2009				June 30, 2013				June 24, 2012				June 30, 2013				June 24, 2012
		(dollars in thousands)
Net income (loss)		$	(1,750	)		$	(282	)		$	(2,617	)		$	(1,811	)		$	245			$	(28	)		$	(321	)		$	(649	)
Interest expense, net			2,195				2,921				2,477				1,714				840				548				1,505				1,096
Income tax expense (benefit)			32				(65	)			(291	)			-				(1	)			8				6				17
Depreciation and amortization			4,469				2,750				1,603				1,429				1,110				783				2,164				1,565
Gain on extinguishment of debt, net			-				(2,588	)			-				-				-				-				-				-
Management fees			175				-				175				175				44				44				88				88
Transaction fees			368				278				666				-				277				23				456				148
Adjusted EBITDA		$	5,489			$	3,014			$	2,014			$	1,507			$	2,515			$	1,378			$	3,898			$	2,265

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Comparative segment revenues and related financial information are discussed herein and are presented in Note 16 to our Audited Consolidated Financial Statements and Note 9 to our Unaudited Interim Consolidated Financial Statements. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis .

 

Basis of Presentation

 

We operate under a 52/53 week fiscal year. Our last three completed fiscal years ended on December 26, 2010 (“Fiscal 2010”), December 25, 2011 (“Fiscal 2011”) and December 30, 2012 (“Fiscal 2012”). Fiscal 2010 and fiscal 2011 consist of 52 weeks and Fiscal 2012 consists of 53 weeks. The differing length of certain fiscal years may affect the comparability of certain data. In Fiscal 2012, the additional week increased revenues by $1.3 million and costs by approximately $1.2 million with an immaterial effect on the operating income and net loss.

 

Overview

 

We are a provider of temporary staffing services and have completed a series of acquisitions, which includes BG Personnel LP in May 2010, JNA Staffing, Inc. in December 2010, Extrinsic, LLC in November 2011, American Partners, Inc. (“API”) in December 2012 and Instaff in May 2013. We operate within three industry segments: Light Industrial, Multifamily and IT Staffing. We provide services to customers within the United States of America.

 

The Light Industrial segment provides temporary workers to manufacturing companies in Illinois, Wisconsin, Texas and Mississippi. As of May 28, 2013, the Light Industrial Segment has been expanded by the acquisition of InStaff, which has branches primarily in Texas and Mississippi. InStaff’s revenue were $53.5 million in Fiscal 2012.

 

The Multifamily segment provides front office and maintenance personnel on a temporary basis to, various apartment communities, mainly in Texas and expanding into other states, via property management companies responsible for the apartment communities’ day to day operations.

 

The IT Staffing segment provides skilled contract labor on a nationwide basis for IT implementations and maintenance projects.

 

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 net sales, and have been derived from our consolidated financial statements.

 

 

		Fiscal Year Ended												Thirteen Weeks Ended								Twenty-six Weeks Ended
		December 30, 2012				December 25, 2011				December 26, 2010				June 30, 2013				June 24, 2012				June 30, 2013				June 24, 2012
		(dollars in thousands)
Revenues		$	76,759			$	50,120			$	39,778			$	35,236			$	18,732			$	60,016			$	35,205
Cost of services			61,207				40,532				32,941				28,607				14,849				48,519				28,051
Gross profit			15,552				9,588				6,837				6,629				3,883				11,497				7,154
Selling, general and administrative expenses			10,606				6,852				5,665				4,435				2,572				8,144				5,125
Depreciation and amortization			4,469				2,750				1,603				1,110				783				2,164				1,565
Income (loss) from operations			477				(14	)			(431	)			1,084				528				1,189				464
Gain on extinguishment of debt, net			-				2,588				-				-				-				-				-
Interest expense, net			2,195				2,921				2,477				840				548				1,504				1,096
Income (loss) before income taxes			(1,718	)			(347	)			(2,908	)			244				(20	)			(315	)			(632	)
Income tax (expense) benefit			(32	)			65				291				1				(8	)			(6	)			(17	)
Net income (loss)		$	(1,750	)		$	(282	)		$	(2,617	)		$	245			$	(28	)		$	(321	)		$	(649	)
Revenues			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Cost of services			79.7				80.9				82.8				81.2				79.3				80.8				79.7
Gross profit			20.3				19.1				17.2				18.8				20.7				19.2				20.3
Selling, general and administrative expenses			13.8				13.7				14.2				12.6				13.7				13.6				14.6
Depreciation and amortization			5.8				5.5				4.0				3.2				4.2				3.6				4.4
Income (loss) from operations			0.6				(0.1	)			(1.0	)			3.1				2.8				2.0				1.3
Gain on extinguishment of debt, net			-				5.2				-				-				-				-				-
Interest expense, net			2.9				5.8				6.2				2.4				2.9				2.5				3.1
Income (loss) before income taxes			(2.2	)			(0.7	)			(7.2	)			0.7				(0.1	)			(0.5	)			(1.8	)
Income tax (expense) benefit			(0.1	)			0.1				0.7				0.0				0.0				0.0				0.0
Net income (loss)			(2.3	)%			(0.6	)%			(6.5	)%			0.7	%			(0.2	)%			(0.5	)%			(1.8	)%

 

 

Thirteen Week Fiscal Period Ended June 30, 2013 (Fiscal Quarter 2013) Compared to Thirteen Week Fiscal Period Ended June 24, 2012 (Fiscal Quarter 2012)

 

Revenues:

 

		Thirteen Weeks Ended
		June 30, 2013				June 24, 2012
Revenues by segment:(dollars in thousands)
Light Industrial		$	14,809			$	9,270
Mutlifamily			5,536				4,604
IT Staffing			14,891				4,858
Total Revenues		$	35,236			$	18,732

  

Light Industrial Revenues: Light Industrial revenues have increased $5.5 million (59.8%) from $9.3 million in Fiscal Quarter 2012 to $14.8 million in Fiscal Quarter 2013, mainly due to the additional volume acquired in the May 2013 acquisition of InStaff, which accounted for substantially all of the increase in Light Industrial revenue.

 

Multifamily Revenues: Multifamily revenues increased $0.9 million (20.2%) from $4.6 million in Fiscal Quarter 2012 to $5.5 million in Fiscal Quarter 2013, due to an increase in bill rates, as well as an increase in volume. Revenue from new branches (opened in 2013) accounted for the majority of the increase, while revenue generated by existing branches remained consistent between periods.

 

IT Staffing Revenues: IT Staffing revenues increased $10.0 million (206.5%) from $4.9 million in Fiscal Quarter 2012 to $14.9 million in Fiscal Quarter 2013, mainly due to the addition of the API operations. Fiscal Quarter 2012 revenues consist of the operations of Extrinsic, which was acquired in late 2011. Fiscal Quarter 2013 consists of operations of both Extrinsic and API, which was acquired in late 2012.

 

Gross Profit:

 

Gross profit represents revenues from services less direct operating expenses, which consist of payroll, payroll taxes, payroll-related insurance, subcontractor costs, and reimbursable costs.

 

		Thirteen Weeks Ended
		June 30, 2013				June 24, 2012
Gross Profit by segment: (dollars in thousands)
Light Industrial		$	1,622			$	1,100
Mutlifamily			1,835				1,469
IT Staffing			3,172				1,314
Total Gross Profit		$	6,629			$	3,883

 

  

		Thirteen Weeks Ended
		June 30, 2013				June 24, 2012
Gross Profit Percentage by segment:
Light Industrial			11.0	%			11.9	%
Mutlifamily			33.2	%			31.9	%
IT Staffing			21.3	%			27.1	%
Company Gross Profit Percentage			18.8	%			20.7	%

  

Overall, our gross profit has increased $2.7 million (70.7%) from $3.9 million in Fiscal Quarter 2012 to $6.6 million in Fiscal Quarter 2013, mainly due to the increase in revenues. As a percentage of revenue, gross profit has decreased from Fiscal Quarter 2012 to Fiscal Quarter 2013 mainly due to the change in mix between the segments. Multifamily, which has the highest gross profit percentages, contributed approximately 38% of the gross profit in Fiscal Quarter 2012 and approximately 28% of the gross profit in Fiscal Quarter 2013. Additionally, Light Industrial, which has the lowest gross profit percentages, contributed approximately 28% of the gross profit in Fiscal Quarter 2012 and approximately 24% of the gross profit in Fiscal Quarter 2013. Finally, IT Staffing contributed approximately 34% of the gross profit in Fiscal Quarter 2012 and approximately 48% of the gross profit in Fiscal Quarter 2013.

 

Light Industrial Gross Profit: Light Industrial gross profit increased $0.5 million (47.5%) from $1.1 million in Fiscal Quarter 2012 to $1.6 million in Fiscal Quarter 2013, mainly due to the additional volume acquired in the May 2013 acquisition of InStaff. As a percentage of revenue, gross profit decreased from 11.9% in Fiscal Quarter 2012 to 11.0% in Fiscal Quarter 2013. The decrease is mainly due to the continually increasing statutory costs related to state unemployment rates and workers compensation costs.

 

Multifamily Gross Profit: Multifamily gross profit increased $0.3 million (24.9%) from $1.5 million in Fiscal Quarter 2012 to $1.8 million in Fiscal Quarter 2013, mainly due to an increase in volume primarily generated by the opening of new branches. As a percentage of revenue, gross profit increased from 31.9% in Fiscal Quarter 2012 to 33.2% in Fiscal Quarter 2013, mainly due to different pricing requirements in our expansion markets.

 

IT Staffing Gross Profit: IT Staffing gross profit increased $1.9 million (141.4%) from $1.3 million in Fiscal Quarter 2012 to $3.2 million in Fiscal Quarter 2013. As a percentage of revenue, gross profit decreased from 27.1% in Fiscal Quarter 2012 to 21.3% in Fiscal Quarter 2013, mainly due to the addition of API, which operates at a lower profit margin than Extrinsic. As stated above, we entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC, and we supplemented our IT Staffing segment with the acquisition of API in December 2012.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $1.8 million (69.2%) to $4.4 million in Fiscal Quarter 2013 from $2.6 million in Fiscal Quarter 2012, primarily due to approximately $1.7 million of additional expenses incurred related to expenses attributable to API, which was acquired in December 2012, and InStaff, which was acquired in May 2013, as well as approximately $0.1 million of additional expenses related to the new branches in the Multifamily segment opened after the second quarter of Fiscal 2012.

 

Depreciation and Amortization: Depreciation and amortization charges increased $0.3 million 41.8% to $1.1 million during Fiscal Quarter 2013, compared to $0.8 million during Fiscal Quarter 2012. The increase in depreciation and amortization is primarily due to the amortization of intangible assets acquired in the acquisitions of API in December 2012 and InStaff in May 2013.

 

Interest Expense, net: Interest expense, net was $0.8 million during Fiscal Quarter 2013 compared to $0.5 million during Fiscal Quarter 2012, an increase of $0.3 million. While the average debt balance increased from Fiscal Quarter 2012 to Fiscal Quarter 2013, the interest rates decreased due to the amending of the senior credit facility agreement in December 2012.

 

Income Taxes: We had an income tax benefit of $1,782 in Fiscal Quarter 2013, compared to income tax expense of $8,035 in Fiscal 2012. We are treated as a partnership for federal income tax purposes except for two subsidiaries, which are taxed as C corporations. Consequently, federal and state income taxes are not payable, or provided for, except for those subsidiaries that are taxed as C corporations. Accordingly, the financial statements reflect the impact of income taxes for only the taxable subsidiaries. Members are taxed individually on their share of our earnings not earned in the C corporations. We will convert to a C corporation prior to the effectiveness of the registration statement of which this prospectus forms a part.

  

 

Twenty-six Week Fiscal Period Ended June 30, 2013 (YTD 2013) Compared to Twenty-six Week Fiscal Period Ended June 24, 2012 (YTD 2012)

 

Revenues:

		Twenty-six Weeks Ended
		June 30, 2013				June 24, 2012
Revenues by segment:(dollars in thousands)
Light Industrial		$	23,071			$	17,466
Mutlifamily			9,656				7,848
IT Staffing			27,289				9,891
Total Revenues		$	60,016			$	35,205

  

Light Industrial Revenues: Light Industrial revenues have increased $5.6 million (32.1%) from $17.5 million YTD 2012 to $23.1 million YTD 2013, mainly due to the additional volume acquired in the May 2013 acquisition of InStaff.

 

Multifamily Revenues: Multifamily revenues increased $1.9 million (23.0%) from $7.8 million YTD 2012 to $9.7 million YTD 2013, due to an increase in bill rates, as well as an increase in volume. Revenue at existing branches increased approximately $0.2 million, and revenue from new branches (opened in 2013) accounted for approximately $1.6 million of 2013 revenue.

 

IT Staffing Revenues: IT Staffing revenues increased $17.4 million (175.9%) from $9.9 million YTD 2012 to $27.3 million YTD 2013, mainly due to the addition of the API operations. YTD 2012 revenues consist of the operations of Extrinsic, which was acquired in late 2011. YTD 2013 consists of operations of both Extrinsic and API, which was acquired in late 2012.

 

Gross Profit:

 

Gross profit represents revenues from services less direct operating expenses, which consist of payroll, payroll taxes, payroll-related insurance, subcontractor costs, and reimbursable costs.

 

		Twenty-six Weeks Ended
		June 30, 2013				June 24, 2012
Gross Profit by segment: (dollars in thousands)
Light Industrial		$	2,357			$	2,084
Mutlifamily			3,191				2,477
IT Staffing			5,949				2,593
Total Gross Profit		$	11,497			$	7,154

 

 

		Twenty-six Weeks Ended
		June 30, 2013				June 24, 2012
Gross Profit Percentage by segment:
Light Industrial			10.2	%			11.9	%
Mutlifamily			33.1	%			31.6	%
IT Staffing			21.8	%			26.2	%
Company Gross Profit Percentage			19.2	%			20.3	%

  

Overall, our gross profit has increased $4.3 million (60.7%) from $7.2 million YTD 2012 to $11.5 million YTD 2013, mainly due to the increase in revenues. As a percentage of revenue, gross profit decreased slightly from YTD 2012 to YTD 2013, mainly due to the change in mix between the segments. Multifamily, which has the highest gross profit percentages, contributed approximately 35% of the YTD 2012 gross profit and approximately 28% of the YTD 2013 gross profit. Additionally, Light Industrial, which has the lowest gross profit percentages, contributed approximately 29% of the YTD 2012 gross profit and approximately 20% of the YTD 2013 gross profit. Finally, IT Staffing contributed approximately 36% of the YTD 2012 gross profit and approximately 52% of the YTD 2013 gross profit.

 

Light Industrial Gross Profit: Light Industrial gross profit increased $0.3 million (13.1%) from $2.1 million YTD 2012 to $2.4 million in YTD 2013, mainly due to the additional volume acquired in the May 2013 acquisition of InStaff. As a percentage of revenue, gross profit decreased from 11.9% YTD 2012 to 10.2% YTD 2013. The decrease is mainly due to the continually increasing statutory costs related to state unemployment rates and workers compensation costs.

 

Multifamily Gross Profit: Multifamily gross profit increased $0.7 million (28.8%) from $2.5 million YTD 2012 to $3.2 million YTD 2013, mainly due to an increase in volume primarily generated by the opening of new branches. As a percentage of revenue, gross profit increased from 31.6% YTD 2012 to 33.1% YTD 2013, mainly due to different pricing requirements in our expansion markets.

 

IT Staffing Gross Profit: IT Staffing gross profit increased $3.4 million (129.4%) from $2.6 million YTD 2012 to $5.9 million YTD 2013. As a percentage of revenue, gross profit decreased from 26.2% YTD 2012 to 21.8% YTD 2013, mainly due to the addition of API, which operates at a lower profit margin than Extrinsic. As stated above, we entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC, and we supplemented our IT Staffing segment with the acquisition of API in December 2012.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $3.0 million (58.9%) to $8.1 million YTD 2013 from $5.1 million YTD 2012, primarily due to approximately $2.6 million of additional expenses incurred related to the expenses attributable to API, which was acquired in December 2012, and InStaff, which was acquired in May 2013, as well as approximately $0.3 million of additional expenses related to the new branches in the Multifamily segment opened after the first quarter of Fiscal 2012.

   

 

Depreciation and Amortization: Depreciation and amortization charges increased $0.6 million (38.3%) to $2.2 million YTD 2013, compared to $1.6 million during YTD 2012. The increase in depreciation and amortization is primarily due to the amortization of intangible assets acquired in the acquisition of API in December 2012, and InStaff in May 2013.

 

Interest Expense, net: Interest expense, net was $1.5 million YTD 2013 compared to $1.1 million YTD 2012, an increase of $0.4 million, which relates to the senior credit facility and to the new $6 million of subordinated loans issued in conjunction with the acquisition of Instaff on May 28, 2013. While the average debt balance has increased from 2012 to 2013, the interest rates decreased due to the amending of the senior credit facility agreement in December 2012.

 

Income Taxes: We had income tax expense of $5,809 YTD 2013, compared to income tax expense of $17,362 YTD 2012. We are treated as a partnership for federal income tax purposes except for two subsidiaries, which are taxed as C corporations. Consequently, federal and state income taxes are not payable, or provided for, except for those subsidiaries that are taxed as C corporations. Accordingly, the financial statements reflect the impact of income taxes for only the taxable subsidiaries. Members are taxed individually on their share of our earnings not earned in the C corporations. We will convert to a C corporation prior to the effectiveness of the registration statement of which this prospectus forms a part.

 

  

Fifty-three Week Fiscal Year Ended December 30, 2012 (Fiscal 2012) Compared to Fifty-two Week Fiscal Year Ended December 25, 2011 (Fiscal 2011)

  

Revenues:

		Fiscal Year Ended
		December 30,  2012				December 25, 2011
Revenues by Segment:(dollars in thousands)
Light Industrial		$	39,272			$	34,115
Mutlifamily			18,216				14,062
IT Staffing			19,271				1,943
Total Revenues		$	76,759			$	50,120

  

Light Industrial Revenues: Light Industrial revenues increased $5.2 million (15.2%) from $34.1 million in Fiscal 2011 to $39.3 million in Fiscal 2012, mainly due to increased volume, as bill rates and pay rates have remained consistent between years.

 

Multifamily Revenues: Multifamily revenues increased $4.1 million (29.1%) from $14.1 million in Fiscal 2011 to $18.2 million in Fiscal 2012, mainly due to an increase in volume at existing branches. Bill rates and pay rates have remained consistent between years. Additionally, during 2012, the Multifamily segment opened four new branches, accounting for approximately $0.8 million of 2012 revenue.

 

IT Staffing Revenues: IT Staffing revenues increased $17.4 million (915.8 %) from $1.9 million in Fiscal 2011 to $19.3 million in Fiscal 2012. We entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC. We added to the IT Staffing segment with the acquisition of API in December 2012. IT Staffing revenues represent 5 weeks of operations in Fiscal 2011 and 53 weeks of operations in Fiscal 2012.

 

Gross Profit:

 

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

 

		Fiscal Year Ended
		December 30,  2012				December 25, 2011
Gross Profit by Segment: (dollars in thousands)
Light Industrial		$	4,775			$	4,489
Mutlifamily			5,817				4,589
IT Staffing			4,960				511
Total Gross Profit		$	15,552			$	9,588

 

 

		Fiscal Year Ended
		December 30,  2012				December 25, 2011
Gross Profit Percentage by Segment:
Light Industrial			12.2	%			13.2	%
Mutlifamily			31.9	%			32.6	%
IT Staffing			25.7	%			26.3	%
Company Gross Profit Percentage			20.3	%			19.1	%

 

Overall, our gross profit has increased $6.0 million (62.5%) from $9.6 million in Fiscal 2011 to $15.6 million in Fiscal 2012, mainly due to the increase in revenues. As a percentage of revenue, gross profit increased from 19.1% in Fiscal 2011 to 20.3% in Fiscal 2012 mainly due the shift in mix to higher margin assignments.

 

Light Industrial Gross Profit: Light Industrial gross profit increased $0.3 million (6.7%) from $4.5 million in Fiscal 2011 to $4.8 million in Fiscal 2012, mainly due to the increase in revenue. As a percentage of revenue, gross profit decreased from 13.2% in Fiscal 2011 to 12.2% in Fiscal 2012, mainly due to an increase in statutory costs, particularly relating to state unemployment taxes, and workers’ compensation costs.

 

Multifamily Gross Profit: Multifamily gross profit increased $1.2 million (26.1%) from $4.6 million in Fiscal 2011 to $5.8 million in Fiscal 2012, mainly due to an increase in revenue. As a percentage of revenue, gross profit decreased from 32.6% in Fiscal 2011 to 31.9% in Fiscal 2012, mainly due to an increase in statutory costs and the different pricing requirements in our expansion markets.

 

IT Staffing Gross Profit: IT Staffing gross profit increased $4.5 million (900.0%) from $0.5 million in Fiscal 2011 to $5.0 million in Fiscal 2012. As a percentage of revenue, gross profit slightly decreased from 26.3% in Fiscal 2011 to 25.7% in Fiscal 2012. As stated above, we entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC. We added to the IT Staffing segment with the acquisition of API in December 2012. The IT Staffing revenue represents 5 weeks of operations in Fiscal 2011 and 53 weeks of operations in Fiscal 2012.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $3.7 million (53.6%) to $10.6 million in Fiscal 2012 from $6.9 million in Fiscal 2011, primarily due to approximately $0.4 million of additional expenses incurred related to the new branches in the Multifamily segment opened in Fiscal 2012, as well as an increase of approximately $2.2 million in expenses related to the first full year of operations in the IT Staffing segment.

 

 

Depreciation and Amortization: Depreciation and amortization charges increased $1.7 million (60.7%) to $4.5 million during Fiscal 2012, compared to $2.8 million during Fiscal 2011. The increase in depreciation and amortization is primarily due to the amortization of intangible assets acquired in the acquisitions of Extrinsic in November 2011 and API in December 2012.

 

Interest Expense, net: Interest expense, net was $2.2 million during Fiscal 2012 compared to $2.9 million during Fiscal 2011, a decrease of $0.7 million, primarily due to a decrease in debt outstanding as a result of the debt restructuring, which included renegotiated interest rates, in Fiscal 2011.

 

Income Taxes: We had an income tax benefit of $0.07 million in Fiscal 2011, compared to income tax expense of $0.03 million in Fiscal 2012. We are treated as a partnership for federal income tax purposes except for two subsidiaries, which are taxed as C corporations. Consequently, federal and state income taxes are not payable, or provided for, except for those subsidiaries that are taxed as C corporations. Accordingly, the financial statements reflect the impact of income taxes for only the taxable subsidiaries. Members are taxed individually on their share of our earnings not earned in the C corporations. We will convert to a C corporation prior to the effectiveness of the registration statement of which this prospectus forms a part.

 

Fifty-two Week Fiscal Year Ended December 25, 2011 (Fiscal 2011) Compared to Fifty-two Week Fiscal Year Ended December 26, 2010 (Fiscal 2010)

 

Revenues:

 

		Fiscal Year Ended
		December 25,				December 26,
		2011				2010
Revenues by Segment: (dollars in thousands)
Light Industrial		$	34,115			$	32,221
Mutlifamily			14,062				7,557
IT Staffing			1,943				-
Total Revenues		$	50,120			$	39,778

 

Light Industrial Revenues: Light Industrial revenues increased $1.9 million (5.9%) from $32.2 million in Fiscal 2010 to $34.1 million in Fiscal 2011, mainly due to a slight increase in volume.

 

Multifamily Revenues: Multifamily revenues increased $6.5 million (85.5%) from $7.6 million in Fiscal 2010 to $14.1 million in Fiscal 2011. We entered into the Multifamily segment in May 2010 with the acquisition of the BG entities. Multifamily revenue represents 26 weeks of operations in Fiscal 2010 and 52 weeks of operations in Fiscal 2011.

 

IT Staffing Revenues: IT Staffing revenues increased $1.9 million (100%) from no revenue in Fiscal 2010 to $1.9 million in Fiscal 2011. We entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC. IT Staffing revenues represent 5 weeks of operations in Fiscal 2011.

 

Gross Profit:

 

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

 

 

		Fiscal Year Ended
		December 25, 2011				December 26, 2010
Gross Profit by Segment: (dollars in thousands)
Light Industrial		$	4,489			$	4,279
Mutlifamily			4,589				2,558
IT Staffing			511				-
Total Gross Profit		$	9,588			$	6,837

 

		Fiscal Year Ended
		December 25,  2011				December 26, 2010
Gross Profit Percentage by Segment:
Light Industrial			13.2	%			13.3	%
Mutlifamily			32.6	%			33.9	%
IT Staffing			26.3	%			-
Company Gross Profit Percentage			19.1	%			17.2	%

 

Overall, our gross profit has increased $2.8 million (41.2%) from $6.8 million in Fiscal 2010 to $9.6 million in Fiscal 2011, mainly due to the increase in revenues. As a percentage of revenue, gross profit increased from 17.2% in Fiscal 2010 to 19.1% in Fiscal 2011 mainly due a shift in mix away from light industrial with lower margins to Multifamily and IT Staffing with higher margins.

 

Light Industrial Gross Profit: Light Industrial gross profit increased $0.2 million (4.7%) from $4.3 million in Fiscal 2010 to $4.5 million in Fiscal 2011, mainly due to the increase in revenue. As a percentage of revenue, gross profit remained relatively consistent with 13.3% in Fiscal 2010 and 13.2% in Fiscal 2011.

 

Multifamily Gross Profit: Multifamily gross profit increased $2.0 million (76.9%) from $2.6 million in Fiscal 2010 to $4.6 million in Fiscal 2011. As a percentage of revenue, gross profit decreased slightly from 33.9% in Fiscal 2010 to 32.6% in Fiscal 2011. We entered into the Multifamily segment in May 2010 with the acquisition of the BG entities. The Multifamily results represent 26 weeks of operations in Fiscal 2010 and 52 weeks of operations in Fiscal 2011.

 

IT Staffing Gross Profit: IT Staffing gross profit was $0.5 million in Fiscal 2011. As stated above, we entered into the IT Staffing segment in November 2011 with the acquisition of Extrinsic LLC. The Fiscal 2011 gross profit is the result of operations from November 21, 2011 until December 25, 2011.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $1.2 million (21.1%) to $6.9 million in Fiscal 2011 from $5.7 million in Fiscal 2010, primarily due to approximately $1.2 million of additional expenses incurred related to a full year of operations in the Multifamily segment, including the opening of two new branches.

 

 

Depreciation and Amortization: Depreciation and amortization charges increased $1.2 million (75.0%) to $2.8 million during Fiscal 2011, compared to $1.6 million during Fiscal 2010. The increase in depreciation and amortization is primarily due to the amortization of intangible assets acquired in the acquisition of the BG entities in May 2010.

 

Gain on Extinguishment of Debt, net: In Fiscal 2011, in conjunction with the acquisition of Extrinsic and a private offering, we restructured our existing debt obligations. As part of the restructuring, we retired $4.0 million of debt obligations with original principal of $4.0 million in exchange for equity units of LTN Acquisition, LLC at a conversion rate of $0.58 per unit. Related accrued interest totaling $1.1 million was also exchanged for equity units of LTN Acquisition at a conversion rate of $0.58 per unit. Noteholders forgave $2.6 million of accrued interest, net of deferred financing costs, which was recorded as a gain on extinguishment of debt during Fiscal 2011.

 

Interest Expense, net: Interest expense, net was $2.9 million during Fiscal 2011 compared to $2.5 million during Fiscal 2010, an increase of $0.4 million. We restructured our debt at the end of fiscal 2011, resulting in a decrease in our debt obligations and an increase in the interest rates on the remaining debt obligations.

 

Income Taxes: We had an income tax benefit of $0.3 million in Fiscal 2010, compared to an income tax benefit of $0.1 million in Fiscal 2011. We are treated as a partnership for federal income tax purposes except for two subsidiaries, which are taxed as C corporations. Consequently, federal and state income taxes are not payable, or provided for, except for those subsidiaries that are taxed as C corporations. Accordingly, the financial statements reflect the impact of income taxes for only the taxable subsidiaries. Members are taxed individually on their share of the Company’s earnings, not earned in the C corporations. We will convert to a C corporation prior to the effectiveness of the registration statement of which this prospectus forms a part.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility. Our primary uses of cash are payroll, subcontractor costs, operating expenses, capital expenditures and debt service. We believe that the cash generated from operations, together with the borrowing availability under our senior credit 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.

 

At June 30, 2013, we had approximately $5.8 million in borrowing availability pursuant to our senior credit facility, and we are in compliance with all debt covenants.

 

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.

 

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

 

		Twenty-Six Weeks Ended				Fiscal Year Ended
		June 30, 2013				December 30, 2012				December 25, 2011				December 26, 2010
		(dollars in thousands)
Net cash  provided by operating activities		$	880			$	3,019			$	1,872			$	1,214
Net cash  used in investing activities			(10,243	)			(11,108	)			(7,387	)			(2,463	)
Net cash provided by financing activities			9,363				8,089				5,515				1,249
Net change in cash and cash equivalents		$	-			$	-			$	-			$	-

 

  

Operating Activities

 

Cash provided by operating activities consists of net loss adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and gain on early extinguishment of debt, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable, accounts payable and accrued expenses.

 

During the twenty-six week period ended June 30, 2013, net cash provided by operating activities was $0.9 million, compared to cash provided by operating activities of $0.3 million for the corresponding period in 2012. This increase is mainly due to the increased volume of operations due to the acquisitions of API and InStaff.

 

During Fiscal 2012, net cash provided by operating activities was $3.0 million, an increase of $1.1 million compared to Fiscal 2011. This increase is primarily attributed to the expansion of our operations to include the first full year of our IT Staffing segment, with an increase in gross profit from $0.5 million in Fiscal 2011 to $5.0 million in Fiscal 2012, as well as the organic growth of our Multifamily segment, including the opening of new branches. Our working capital increased from $1.0 million in Fiscal 2011 to $1.5 million in Fiscal 2012.

 

During Fiscal 2011, net cash provided by operating activities was $1.9 million, an increase of $0.7 million compared to Fiscal 2010. This increase is primarily attributed to the expansion of our operations to include a full year of our Multifamily segment, which was acquired in May 2010. Our Multifamily segment gross profit increased from $2.6 million in Fiscal 2010 to $4.6 million in Fiscal 2011. Our working capital increased from $(5.7) million in Fiscal 2010 to $1.0 million in Fiscal 2011.

 

Investing Activities

 

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

 

In the twenty-six week period ended June 30, 2013, we paid $9.0 million to acquire InStaff in May 2013 and we paid a working capital adjustment of $0.1 million to API in April 2013. We also paid $1.0 million of contingent consideration related to the November 2011 acquisition of Extrinsic. We made capital expenditures of approximately $86,000 mainly related to furniture upgrades at API and additional computer equipment purchased in the ordinary course of business.

 

In the twenty-six week period ended June 24, 2012, we paid $0.1 million in additional purchase price related to the working capital adjustment required in the Extrinsic acquisition. We also paid $0.1 million of contingent consideration related to businesses acquired in Fiscal 2010. We made capital expenditures of $0.06 million in the ordinary course of business.

 

In Fiscal 2012, we paid $10.5 million of cash in the acquisition of substantially all of the assets of API. We also paid $0.1 million as a working capital adjustment related to the Fiscal 2011 acquisition of Extrinsic, LLC. Additionally, we paid $0.4 million in contingent consideration related to businesses acquired in Fiscal 2010. We made capital expenditures of $0.1 million mainly for the purchase of new computers and other IT items related to the opening of new branches.

 

In Fiscal 2011, we paid $7.0 million of cash in the acquisition of substantially all of the assets of Extrinsic, LLC. We also paid $0.4 million of contingent consideration related to businesses acquired in Fiscal 2010. We made capital expenditures of $41,000 in the ordinary course of business.

 

We plan to spend approximately $0.1 to $0.2 million on capital expenditures, not including any acquisition costs associated with the acquisition of InStaff, during Fiscal 2013.

 

Financing Activities

 

Cash flows from financing activities consist principally of borrowings and payments under our senior credit facility, and contributions from LTN Acquisition, LLC. We currently do not intend to pay cash dividends on our common stock.

 

		Twenty-six Weeks				Fiscal Year Ended
		Ended June 30, 2013				December 30,  2012				December  25, 2011				December 26, 2010
						(dollars in thousands)
Proceeds from long-term debt		$	6,000			$	2,500			$	2,027			$	2,250
Principal payments on long-term debt			(1,568	)			(1,365	)			(1,076	)			(788	)
Net borrowings under line of credit			5,200				3,000				300				100
Capital contributions from LTN Acquisition, LLC			-				4,085				4,549				-
Distributions to LTN Acquisition, LLC			(27	)			(4	)			-				-
Deferred financing costs			(242	)			(127	)			(285	)			(313	)
Net cash provided by (used in) financing activities		$	9,363			$	8,089			$	5,515			$	1,249

 

 

In Fiscal 2011, we negotiated a debt restructuring with certain existing related party term debt holders. This restructuring has been recorded as a non cash contribution from LTN Acquisition, LLC in LTN Staffing, LLC’s financial statements. As part of the restructuring, we retired $4 million of debt obligations in exchange for equity units of LTN Acquisition, LLC at a conversion rate of $0.58 per unit, which was the offering price of equity units sold in a private placement that was done at the same time as the debt restructuring. Related accrued interest totaling $1.1 million was also exchanged for equity units of LTN Acquisition, LLC at a conversion rate of $0.58 per unit. Debt holders also forgave $2.6 million of accrued interest, net of deferred financing costs, which was recorded as a gain on extinguishment of debt during 2011.

 

In Fiscal 2012, in conjunction with the acquisition of API, we renegotiated our senior credit facility, increasing our term loan from $4.6 million to $7.1 million and our revolving line of credit from $5.5 million to $12.0 million. Additionally, LTN Acquisition, LLC completed a private offering and issued 6 million Class A Units at $0.75 per unit, or $4.5 million. LTN Acquisition, LLC contributed the net proceeds of $4.1 million to LTN Staffing, LLC to fund, in part, the cash portion of the purchase price paid in connection with the our acquisition of API.

 

For the twenty-six weeks ended June 30, 2013, we increased our borrowings on our revolving line of credit by $5.2 million. This was mainly done to partially fund the InStaff acquisition, as well as to fund the $1 million contingent consideration paid related to the Extrinsic acquisition and the $0.5 million mandatory prepayment of principal to our subordinated debtholders, as determined by an excess cash flow calculation, as defined, performed annually.

 

On May 28, 2013, in connection with our acquisition of InStaff, we amended our senior credit facility, increasing our revolving line of credit from $12.0 million to $20.0 million. On the same date, we also issued two additional senior subordinated notes in an aggregate principal amount of $6 million and, in connection therewith, LTN Acquisition, LLC issued to each holder of such subordinated notes a warrant to purchase up to 2% and 1%, respectively, of the issued and outstanding Class A Units on a fully-diluted basis at an exercise price of $0.01 per Class A Unit. See “—Senior Credit Facility” and “—Subordinated Loans” for additional information.

 

Senior Credit Facility

 

We maintain a senior credit facility (the senior credit facility) with Fifth Third Bank (the senior lender) pursuant to which we may borrow up to $20.0 million under a senior secured revolving credit facility (the revolver) and up to $7.1 million under a senior secured term loan (the term loan). The term loan bears interest at the LIBOR rate for a period equal to one month, plus 375 to 450 basis points. The revolver bears interest at the LIBOR rate plus an applicable margin ranging from 300 to 375 basis points. We are permitted to prepay in part or in full amounts due under the senior credit facility without penalty. Our obligations under the senior credit facility may be accelerated upon the occurrence of an event of default, which include customary events for a financing arrangement of this type, including, without limitation, payment defaults, defaults in the performance of affirmative or negative covenants (including financial ratio maintenance requirements), bankruptcy or related defaults, defaults on certain other indebtedness, the material inaccuracy of representations or warranties, material adverse changes, and changes related to ownership. In the event of an event of default, the interest rate on the revolver and term loan will increase to 8.5% per annum plus the then applicable rate. The revolver and the term loan both mature and are due and payable in full on November 21, 2014.

 

Our obligations under the senior credit facility are secured by a first priority security interest in all tangible and intangible assets, including capital stock. LTN Acquisition, LLC has pledged its capital stock of any of its direct and indirect subsidiaries to secure the senior credit facility. In addition, LTN Acquisition, LLC has guaranteed our obligations.

 

A cash flow recapture mechanism was included in the senior credit facility through December 2012. Under the cash flow recapture, a certain percentage of excess cash flow was paid to the senior lender. We paid $485,000 to the senior lender in Fiscal 2012 under the cash flow recapture. This provision was eliminated from our senior credit facility as part of the renegotiated facility in Fiscal 2012.

 

  

  

Subordinated Loans

 

We have approximately $15.5 million of outstanding subordinated loans at June 30, 2013. The subordinated notes are expressly junior and subordinated only to the debt outstanding under the senior credit facility. Interest on the subordinated notes accrues at a rate of 14.0% per annum (of which 12% is cash and 2% is paid in kind). Accrued interest on the subordinated loans is approximately $0.5 million as of June 30, 2013. The subordinated loans require, effective December 30, 2012, that an excess cash flow payment to be made if specific thresholds are met. A mandatory principal payment of approximately $0.5 million was made in the first quarter of 2013. The subordinated loans mature on May 31, 2015. The holders of the subordinated loans also hold equity interests, and therefore are related parties.

 

For all of our borrowings, we must comply with a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant, as defined. As of June 30, 2013, we were in compliance with these covenants.

 

The senior credit facility and the subordinated loans also contain customary affirmative covenants, including (i) maintenance of legal existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other information; (iii) maintenance of properties in good working order; (iv) payment of taxes; (v) delivery of notices of defaults, litigation, ERISA events and material adverse changes; (vi) maintenance of adequate insurance; and (vii) inspection of books and records.

 

The senior credit facility and the subordinated loans also contain customary negative covenants, including restrictions on (i) the incurrence of additional debt; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) dividends on, and redemptions of, equity interests and other restricted payments, including dividends and distributions to the issuer by its subsidiaries; (vii) transactions with affiliates; (viii) changes in the business conducted by us; (ix) payment or amendment of subordinated debt and organizational documents; and (x) maximum capital expenditures.

 

The foregoing is a brief summary of the material terms of the senior credit facility and subordinated loans, and is qualified in its entirety by reference to the senior credit facility and subordinated loan agreement filed as exhibits to the registration statement of which this prospectus forms a part.

 

Contractual Obligations

 

The following table summarizes our contractual obligations as of June 30, 2013.

 

		Payment by period
(dollars in thousands)		Total				Less than 1 year				1 - 3 years				3 - 5 years				More than 5 years
Long-term debt obligations(1)		$	31,237			$	2,378			$	28,859			$	-			$	-
Estimated interest on long-term debt obligations(2)			5,661				2,886				2,775				-				-
Operating lease obligations(3)			675				226				253				196				-
Total		$	37,573			$	5,490			$	31,887			$	196			$	-

 

(1) Reflects the outstanding balance on our senior credit facility and our subordinated loans at June 30, 2013. For a more detailed description of our senior credit facility and subordinated notes, see Note 9 to our audited consolidated financial statements included elsewhere in this prospectus.

 

 

(2) Borrowings under the term loan of our senior credit facility bear interest at 30-day LIBOR plus a margin that ranges from 3.75% to 4.5%, determined by certain thresholds. Borrowings under the revolver are subject to a borrowing base and bear interest at the 30-day LIBOR plus a margin that ranges from 3.00% to 3.75%. At June 30, 2013, the interest rates on our outstanding term loan and revolver were 4.69% and 3.94%, respectively. Borrowings under the subordinated loans bear interest at an annual rate of 14%, and is payable at an annual rate of 12% with the remaining interest paid in kind on a quarterly basis. For the purposes of this table, we have estimated interest expense to be paid during the remaining term of our revolving credit facility using the outstanding balance and interest rate as of June 30, 2013. Our actual cash payments for interest on the senior credit facility will fluctuate as the outstanding balance changes with our cash needs and the LIBOR rate fluctuates. For a more detailed description of the interest requirement for our long-term debt under our senior credit facility and subordinated loans, see Note 9 to our audited consolidated financial statements found elsewhere in this prospectus. A one percentage point increase in our interest rate would cause an increase to interest expense of approximately $0.2 million for each of the “less than 1 year” and the “1 - 3 years” periods.

 

(3) Represents the minimum lease payments due under our operating leases, excluding maintenance, insurance and taxes related to our operating lease obligation. For a more detailed description of our operating leases, see Note 11 to our audited consolidated financial statements found elsewhere in this prospectus.

 

Off-Balance Sheet Arrangements

 

We are not party to any off-balance sheet arrangements.

 

Quantitative and Qualitative Disclosure About Market Risk

 

Our market risks relate primarily to changes in interest rates. Borrowings under our existing senior credit facility bear floating interest rates that are tied to LIBOR and, therefore, our results of operations and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR would cause an annual increase to the interest expense on our borrowings under our senior credit facilities of approximately $0.2 million. Our subordinated loans have a fixed interest rate.

 

We do not have any foreign currency or any other derivative financial instruments.

 

Critical Accounting Policies and Estimates

 

Our accounting policies are described in Note 2 to our audited consolidated financial statements. The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates. Critical accounting policies reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions.

 

Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results and the uncertainties that could impact our results of operations, financial condition and cash flows.

 

Revenue Recognition

 

We provide temporary staffing solutions. We enter into agreements with our clients that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. We consider revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.

 

Allowance for doubtful accounts

 

We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, and expectations of future write-offs. The allowance for doubtful accounts is reviewed quarterly and past due balances are written off after they are deemed to be uncollectible after all means of collection have been exhausted. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

 

Goodwill and intangible assets

 

Goodwill is not amortized, but instead is measured 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. As of December 30, 2012, we have allocated $3.4 million, $1.1 million, and $0.3 million of total goodwill to our three separate reporting units: Light Industrial, Multifamily and IT Staffing, respectively. The fair value of the reporting unit is first compared to the respective reporting unit’s carrying value. The fair value of the reporting unit is determined based on discounted cash flow projections. If the estimated fair value of the reporting unit is less than the carrying value, an indication of goodwill impairment exists. If an indication of impairment exists, we would then determine the implied fair value of the reporting unit’s goodwill. If the carrying value of goodwill exceeds its implied fair value, an impairment loss would be recorded and goodwill would be written down to its implied fair value. Based on its annual testing, we have determined that there was no goodwill impairment in Fiscal 2012 or Fiscal 2011.

 

We do not hold any intangible assets with indefinite lives. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to five years, based on a pattern in which the economic benefit of the respective intangible asset is realized. We annually evaluate the remaining useful lives of our finite intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. We also evaluate the recoverability of finite intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. We determined that there were no impairment indicators for these assets in Fiscal 2012 or Fiscal 2011.

 

Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs were 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 were discounted back to their net present value. Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized asset fair values including the identifiable intangible asset values.

 

Recent Accounting Pronouncements

 

In September 2011, the Financial Accounting Standards Board issued ASU No. 2011-08, Testing Goodwill for Impairment. The ASU amends ASC Topic 350, Intangibles - Goodwill and Other. The new standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption did not have a material impact on our consolidated financial statements.

 

JOBS Act

 

The JOBS Act provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.

 

Additionally, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 or (ii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

 

 

BUSINESS

 

Overview and History

 

We are a national, temporary staffing company that provides temporary workers to a variety of customers that are seeking to match their workforce requirements to their business needs.

 

We formed LTN Staffing, LLC, whose sole member is LTN Acquisition, LLC, on August 27, 2007, as a limited liability company, under the laws of the state of Delaware, and we commenced operations on October 17, 2007 with the initial investment in LTN Staffing, Inc. and Milwaukee Temps, Inc. The corporate headquarters was established in Waukegan, Illinois.

 

On May 24, 2010, we purchased the interests of BG Personnel Services, LP and BG Personnel, LP, both Texas limited partnerships, and purchased the common stock of B G Staff Services, Inc., a Texas corporation (collectively, referred to as the BG entities). Shortly after the purchase of the BG entities, we relocated our corporate headquarters to its current location in Dallas, Texas. On December 13, 2010, we purchased substantially all of the assets of JNA Staffing Inc., a Wisconsin corporation that specialized in providing temporary staffing services within the state of Wisconsin. These operations were rolled into our existing operations in Milwaukee, Wisconsin. In 2011, we began doing business as BG Staffing.

 

On November 21, 2011, we purchased substantially all of the assets of Extrinsic, LLC, a Delaware limited liability company that specialized in providing information technology staffing services within the U.S. On December 3, 2012, we acquired substantially all of the assets of American Partners, Inc., a Rhode Island corporation that specialized in providing information technology staffing services within the U.S.

 

On May 28, 2013, we acquired substantially all of the assets of InStaff Holding Corporation (“InStaff”) and InStaff Personnel, LLC, a wholly owned subsidiary of InStaff Holding Corporation. We believe this acquisition will allow us to strengthen and expand our operations in our Light Industrial segment. We agreed to assume certain liabilities and pay an aggregate of $9 million (subject to a post-closing purchase price adjustment) as consideration for the purchased assets and certain agreements of the sellers and related parties. Contingent earnout payments up to an aggregate of $1 million may also be paid if certain post-closing performance objectives are met. InStaff operated 12 branches in Texas and Mississippi, which we continue to operate under the “InStaff” trade name. InStaff’s revenues were $53.5 million in Fiscal 2012.

 

Immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, LTN Staffing, LLC will merge with LTN Acquisition, LLC. As the surviving entity in the merger, LTN Staffing, LLC will then convert into a Delaware corporation which will be named BG Staffing, Inc. See “Prospectus Summary - Conversion into a Delaware Corporation” for more information.

 

Our operations are organized into three segments: Light Industrial, Multifamily, and IT Staffing.

 

Our executive office is located at 5000 Legacy Drive, Suite 350, Plano, Texas 75024, and our telephone number is (972) 692-2400. We have 27 branch offices in 10 states within the U.S. We do not currently have any foreign operations.

 

Temporary Staffing Industry

 

The temporary staffing industry supplies temporary staffing services to customers to help them minimize the cost and effort of workforce planning. These services also enable the customer to rapidly respond to changes in business conditions, and in some cases to convert fixed labor costs to variable costs. Temporary staffing companies act as intermediaries in matching available temporary workers to customer assignments. The demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs and respond to changing market conditions. Staffing Industry Analysts (“SIA”), an independent staffing industry organization, is projecting growth of 6% in the U.S. staffing industry in 2013, driven by continuing job creation and the continued upward shift in temporary staffing usage.

 

The temporary staffing market is subject to volatility based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing temporary staffing services has increased due to low barriers to entry. During recessionary periods, the number of companies has decreased through consolidation, bankruptcies, or other events. The temporary staffing industry is experiencing increased demand in relation to total job growth as customers have placed a greater priority on maintaining a more flexible workforce.

 

The temporary staffing industry is large and highly fragmented with many competing companies. Staffing companies compete both to recruit and retain a supply of temporary workers and to attract and retain customers to use these workers. Customer demand for temporary staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. The temporary staffing industry includes a number of markets focusing on business needs that vary widely in duration of assignment and level of technical specialization.

 

We have diversified our operation to provide temporary workers within distinct segments of the industry. We refer to these segments as Light Industrial, Multifamily and IT Staffing. Additional information regarding our business segments is contained in Note 16 to our Audited Consolidated Financial Statements and Note 9 to our Unaudited Interim Consolidated Financial Statements.

 

 

Light Industrial Segment

 

Our Light Industrial segment provides temporary workers to primarily manufacturing customers needing a flexible workforce. We currently have offices in Sulphur Springs, Texas, Corsicana, Texas, Greenville, Texas, Gainesville, Texas, El Paso, Texas, Plano, Texas, Mesquite, Texas, Austin, Texas, Dallas, Texas, Olive Branch, Mississippi, Southaven, Mississippi, Waukegan, Illinois and Milwaukee, Wisconsin. Light Industrial segment revenues were $39.3 million in Fiscal 2012 and represented 51.2% of our consolidated revenues. Our Light Industrial segment temporary workers perform services in a variety of manual and unskilled positions. The workers we assign to our light industrial customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.

 

Multifamily Segment

 

Our Multifamily segment is a leading provider of front office and maintenance personnel to the multifamily housing industry. We currently have offices in Dallas, Texas; Austin, Texas; San Antonio, Texas; Houston, Texas; Atlanta, Georgia; Phoenix, Arizona; Charlotte, North Carolina; Raleigh, North Carolina; Tampa, Florida; Jacksonville, Florida; and Denver, Colorado. Multifamily segment revenues were $18.2 million in Fiscal 2012 and represented 23.7% of our consolidated revenues. The workers we assign to our multifamily customers are our temporary workers, although our customers provide on-the-job direction, control and supervision.

 

IT Staffing Segment

 

Our IT Staffing segment provides highly skilled IT professionals with expertise in SAP ERP, SAP BI, Hyperion, Oracle ERP, Oracle BI and Peoplesoft. Our customers include large Fortune 500 companies (which accounted for approximately 40% of our IT staffing segment revenues in Fiscal 2012), as well as consulting firms engaged in systems integration projects. We operate our national coverage of the market from our offices in Durham, North Carolina and Pawtucket, Rhode Island. IT Staffing segment revenues for Fiscal 2012 were $19.3 million and represented 25.1% of our consolidated revenues.

 

SIA has deemed the IT staffing segment the fastest growing segment of temporary staffing and expects the market to grow 8% in 2013 (which is slightly higher than the 6% projected growth for the entire temporary staffing industry), with the typical IT staffing buyer spending 25% more on temporary labor over the next two years.

 

Growth Strategy

 

We are committed to growing our operations. Our growth strategy is reliant upon both acquisitions and organic growth. We will continue to evaluate opportunities utilizing our proven approach to the assessment, valuation, and integration of acquisitions. Additionally, we are committed to continue to grow our operations in our current markets, as well as expand into new markets within the industries that we currently serve.

 

We are organized to handle many of the administrative functions at our corporate location such that our branches can focus on business development and the effective recruiting, and assignment of temporary workers.

 

We will continue to invest in technology and process improvements, as necessary, to ensure that we are operating at optimal productivity and performance.

 

Competition

 

The staffing services market is highly competitive with limited barriers to entry. We compete in national, regional and local markets with full-service and specialized temporary staffing companies. Some of our competitors have significantly more marketing and financial resources than we do. Price competition in the staffing industry is intense, particularly for the provision of office clerical and light industrial personnel. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.

 

 

The principal competitive factors in attracting qualified candidates for temporary assignments are pay rates, availability of assignments, duration of assignments and responsiveness to requests for placement. We believe that many potential customers seeking temporary assignments through us may also be pursuing assignments through other means. Therefore, the speed at which we place prospective temporary workers and the availability of appropriate assignments are important factors in our ability to complete assignments of qualified temporary workers. In addition to having high quality temporary workers to assign in a timely manner, the principal competitive factors in obtaining and retaining customers in the temporary staffing industry are properly assessing the customers’ specific job requirements, the appropriateness of the temporary worker assigned to the customer, the price of services and the monitoring of customer satisfaction. Although we believe we compete favorably with respect to these factors, we expect competition to continue to increase.

 

Intellectual Property

 

Our primary trade names include BG Extrinsic LLC, American Partners, Inc. and InStaff. Our trade names are valuable assets that reinforce the distinctiveness of our brands. Our web content and the domain names bgstaffing.com, bgpersonnel.com, bgstaffing.net, ltnstaffing.com, milwaukeetemps.com, milwaukeetmepsinc.com, extrinsicllc.com, extrinsicgroup.com, extrinsicresources.com, jnastaffing.com, bgcompanies.net, bgpersonnel.net, bgmail.com, therightpeoplerightnow.com, rightpeoplerightnow.com, americanpartnersinc.com and instaff.com are owned by us and copyright protected.

 

Regulation

 

Our business is subject to extensive regulation. The cost to comply, and any inability to comply, with government regulation could materially harm our business. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could also materially harm our business.

 

Legal Proceedings

 

 We are engaged from time to time in legal matters and proceedings arising out of our normal course of business. While uncertainties are inherent in the final outcome of such matters, we believe the disposition of such proceedings will not have a material effect on our financial position or our results of operations.

 

Seasonality

 

Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our customers’ business. Demand for our Light Industrial staffing services is higher during the second and third quarters of the year and peaks in the third quarter. Demand for our Light Industrial staffing services is lower during the first and fourth quarters, in part due to limitations to customer shutdowns and adverse weather conditions in the winter months. Demand for our Multifamily staffing services is higher during the second and third quarters of the year due to the increased turns in multifamily units during the summer months when schools are not in session. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.

 

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

 

The staffing industry has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Staffing customers tend to use temporary staffing to supplement their existing workforces and generally hire direct workers when long-term demand is expected to increase. As a consequence, our revenues tend to increase quickly when the economy begins to grow and, conversely, our revenues can also decrease quickly when the economy begins to weaken.

 

Employees and Temporary Workers

 

At June 30, 2013, we had 162 full-time staff employees at our corporate and branch offices and we hired 56 full-time staff employees in connection with the acquisition of the assets of InStaff. During Fiscal 2012, we assigned approximately 10,600 temporary workers.

 

None of our staff employees or temporary workers is represented by a labor union, and we are not aware of any current efforts or plans to organize any of our staff employees or temporary workers. We have never experienced any material labor disruptions.

 

 

Properties

 

We lease our corporate headquarters in Plano, Texas, which is approximately 6,500 square feet of space. We lease all of our branch offices, which are located throughout the US, through operating leases with terms that range from six months to five years. We also have month to month leases. We believe that our facilities are adequate for our current needs.

 

 

MANAGEMENT

 

Since our formation in 2007, our business has been managed under the direction of a board of managers. Prior to the consummation of this offering, the persons indicated below will be appointed to serve on the board of directors of BG Staffing, Inc. Below is a list of names, ages and a brief account of the business experience of our executive officers and key members of management and of the persons to be appointed to serve as our directors prior to the consummation of this offering:

 

Name		Age		Position
Douglas E. Hailey		51		Director
Richard L. Baum, Jr.		53		Director
L. Allen Baker, Jr.		63		Director, President and Chief Executive Officer
Michael A. Rutledge		44		Chief Financial Officer and Corporate Secretary
Thomas J. Leonard		43		President, American Partners- IT Staffing Division
Michael L. Miller		48		President, Extrinsic- IT Staffing Division
Beth A. Garvey		48		President, Light Industrial Division
A. Jamie Gile		48		President, Multifamily Division
Adam S. Tibbets		49		Chief Information Officer

 

Douglas E. Hailey has served on our board of managers since inception. Mr. Hailey is the managing director of Taglich Private Equity LLC. Mr. Hailey joined Taglich Brothers, Inc. in 1994 as Head of Investment Banking. He co-led the private equity initiative in 2001 and currently participates in evaluating and executing new investments. Prior to joining Taglich Brothers, Mr. Hailey spent five years with Weatherly Financial Group, assisting in sponsoring leveraged buyouts and three years in structured finance lending at Heller Financial and the Bank of New York. He received a Bachelor of Business Administration degree from Eastern New Mexico University and an MBA in Finance from the University of Texas. We believe that Mr. Hailey should serve as a member of our board of directors due to the perspective and experience with our ongoing operations and strategy that he has obtained through his prolonged service to the company and due to his ability to assist with the evaluation of potential acquisitions.

 

Richard L. Baum, Jr. has served on our board of managers since inception. Mr. Baum, Jr. joined Taglich Private Equity LLC in 2005 and currently is an active director with a number of private companies where Taglich has an investment. Prior to joining Taglich, Mr. Baum led a group that purchased a private equity portfolio from Transamerica Business Credit. From 1998 to 2003, Mr. Baum was a Managing Director in the small business merger and acquisition practices of Wachovia Securities and its predecessor, First Union Securities. From 1988 through 1998, Mr. Baum was a Principal with the Mid-Atlantic Companies, Ltd., a financial services firm acquired by First Union in 1998. Mr. Baum received a Bachelor of Science Degree from Drexel University and an MBA from the Wharton School of the University of Pennsylvania. We believe that Mr. Baum should serve as a member of our board of directors due to the perspective and experience with our ongoing operations and strategy that he has obtained through his prolonged service to the company and due to his ability to assist with the evaluation of potential acquisitions.

 

L. Allen Baker, Jr. joined the board of managers in 2008 while serving as the Executive Vice President/CFO of Impact Confections, Inc., a confections manufacturing company in Colorado, a position Mr. Baker held from 2002 through 2009. He began serving as President and CEO of BG Staffing in 2009. From 1985 to 2002, Mr. Baker served as Executive Vice President and Chief Financial Officer of Piping Design Services, Inc. d/b/a PDS Technical Services, a national, privately held staffing company headquartered in the Dallas/Fort Worth area, with operations in 43 states. Prior to this position, he worked at Core Laboratories, Inc. as the Corporate Controller from 1980 to 1985 and as Data Processing Manager from 1976 to 1980. Mr. Baker held several computer programmer positions prior to joining Core Laboratories, Inc. He has a Bachelor of Science degree in mathematics with a minor in computer information systems from West Texas State University and an MBA from the University of Dallas. We believe that Mr. Baker should serve as a member of our board of directors due to his extensive managerial experience in the staffing industry.

 

 

Michael A. Rutledge joined the company in September 2013 as Chief Financial Officer and also serves as Corporate Secretary. Prior to joining the company, Mr. Rutledge was the CFO/Vice President of Finance at the Houston Chronicle Media Group, a media corporation, where he worked during 2013. From 2010 to 2013, he served as Vice President of Finance for Cantel Medical Corp, a medical device company. From 2006 to 2010, he was the CFO of NF Smith & Associates, LLC, an international distributor of electronic component parts. From 2005 to 2006, he was the Corporate Controller of Financial Reporting for Core Laboratories NV, an oilfield services company. Mr. Rutledge was an audit senior manager with Ernst & Young LLP, an international accounting firm, from 1992 to 2005. He is a Certified Public Accountant in the state of Texas. Mr. Rutledge graduated from Texas A&M with a Bachelor of Business Administration degree in accounting.

 

Thomas J. Leonard joined the company in December 2012 through the acquisition of American Partners, Inc., an IT staffing firm. Co-founder of American Partners, Inc., Mr. Leonard served as president since inception in 2007. In 1998, he was a founding partner of The Jotorok Group, an IT recruitment firm in the United States of America.  In 2004, The Jotorok Group merged with K2 Partnering Solutions, a provider of SAP contractors within the United States of America and Europe.  While with K2 Partnering Solutions, Mr. Leonard served as the Regional Partner of Sales, US, until the inception of American Partners, Inc. in 2007. Mr. Leonard held several IT recruiter positions prior to the inception of The Jotorok Group in 1998. He is a Certified Personnel Consultant and graduated from North Adams State College with a Bachelor of Science degree in marketing and management.

 

Michael L. Miller joined the company in 2011 through the acquisition of Extrinsic, LLC, an IT staffing firm. Mr. Miller co-founded Extrinsic, LLC in 2004 and served as its president from inception. Before starting Extrinsic, LLC, he served as the Senior Regional Vice President from 2000 to 2004 and the Regional Vice President of Operations from 1998 to 2000 of Headway Corporate Resources, a national human resources management staffing company. Prior to Headway, from 1996-1998, Mr. Miller was Co-Owner and Vice President/General Manager of HealthMate, Inc., a healthcare corporation specializing in home health services, corporate occupational programs, and staffing. HealthMate was successfully sold to Intrepid Companies, Inc. in 1998. From 1990 to 1996, he was with MedStaff National Medical Staffing, Inc., a locum tenens company specializing in both physician contract and direct hire placements, serving in several positions and as Vice President of Operations and Customer Service from 1993 to 1996. Mr. Miller holds a Bachelor of Arts degree in business management from North Carolina State University.

 

Beth A. Garvey joined the Company as the President of its Light Industrial Division through the acquisition of InStaff in May 2013. Ms. Garvey started at InStaff in 1998 as Director of Human Resources and was promoted to Director of Operations in 1999, and Vice President of Operations in 2000. Ms. Garvey served as the Senior Vice President of Operations from 2001 to 2003, and she served as Chief Operating Officer 2003 to 2009, at which time she became the Chief Executive Officer. Prior to joining InStaff, Ms. Garvey worked in Human Resources at El Chico Corporation from 1990 to 1994 and Madix Store Fixtures from 1986 to 1989.

 

A. Jamie Gile joined the Company through its acquisition of the Multifamily Division in 2010.  Mr. Gile began working in the Multifamily Division in 1999, serving in various positions. Mr. Gile was promoted to President of the Multifamily Division in 2013. From 1986 to 1999, Mr. Gile was with Consolidated Freightways, holding several positions, including Regional Manager of Sales and Operations. Mr. Gile holds a Bachelor of Science degree in Criminal Justice from the University of Central Missouri.

 

Adam C. Tibbets joined the company in 2009 as the Chief Information Officer. Prior to joining the company, Mr. Tibbets was with Jones Lange LaSalle (formerly The Staubach Company) from 2006 to 2009, holding positions as the business systems delivery manager and accounting systems manager. From 2003 to 2006, he served as the IT Director of Impact Confections, a confections manufacturing company in Colorado. From 1997 to 2002, Mr. Tibbets served as the IT Director at Piping Design Services, Inc. d/b/a PDS Technical Services, a national, privately held staffing company. From 1988 to 2002, he held various IT project and implementation positions prior to joining PDS Technical Services. Mr. Tibbets holds a Bachelor of Business Administration degree in general business with a minor in management information systems from Southern Methodist University and a MS degree from the University of Texas at Dallas.

 

 

Board Composition

 

Our board of directors will initially consist of three directors. The authorized number of directors may be changed by resolution of our board of directors. Vacancies on our board of directors can be filled by resolution of our board of directors. Upon the completion of this offering, our board of directors will be divided into three classes, each serving staggered, three-year terms:

 

·

Our Class I director will be L. Allen Baker, Jr., and the term of such director will expire at the first annual meeting of stockholders following the date of this prospectus;

 

·

Our Class II director will be Richard L. Baum, Jr., and the term of such director will expire at the second annual meeting of stockholders following the date of this prospectus;

 

·

Our Class III director will be Douglas E. Hailey, and the term of such director will expire at the third annual meeting of stockholders following the date of this prospectus;

 

As a result, only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective terms.

 

Committees of the Board of Directors

 

We expect that, immediately following this offering, the standing committees of our board of directors will consist of an Audit Committee and a Compensation Committee. Each of the committees will report to the board of directors as they deem appropriate and as the board may request. The expected composition, duties and responsibilities of these committees are set forth below.

 

Audit Committee

 

The Audit Committee will be responsible for, among other matters: (1) appointing, retaining and evaluating our independent registered public accounting firm and approving all services to be performed by them; (2) overseeing our independent registered public accounting firm’s qualifications, independence and performance; (3) overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; (4) reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; (5) establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and (6) reviewing and approving related person transactions.

 

Immediately following this offering, our Audit Committee will consist of Richard L. Baum, Jr. and Douglas E. Hailey. We believe that both qualify as independent directors according to the rules and regulations of the SEC with respect to audit committee membership. We also believe that Mr. Hailey qualifies as our “audit committee financial expert,” as such term is defined in Item 401(h) of Regulation S-K. Our board of directors will adopt a written charter for the Audit Committee in connection with this offering, which will be available on our corporate website at www.bgstaffing.com upon the completion of this offering. The information on our website is not part of this prospectus.

 

Compensation Committee

 

The Compensation Committee will be responsible for, among other matters: (1) reviewing key employee compensation goals, policies, plans and programs; (2) reviewing and approving the compensation of our directors, chief executive officer and other executive officers; (3) reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and (4) administering our stock plans and other incentive compensation plans.

 

Immediately following this offering, our Compensation Committee will consist of Richard L. Baum, Jr. and Douglas E. Hailey. Our board of directors will adopt a written charter for the Compensation Committee in connection with this offering, which will be available on our corporate website at www.bgstaffing.com upon the completion of this offering. The information on our website is not part of this prospectus.

 

 

Compensation Committee Interlocks and Insider Participation

 

No member of our Compensation Committee is a current or former officer or employee of BG Staffing, Inc. or its subsidiaries or has had a relationship requiring disclosure by BG Staffing, Inc. under applicable federal securities regulations. No executive officer of BG Staffing, Inc. served as a director or member of the Compensation Committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee. For 2012, the members of our Compensation Committee were Richard L. Baum, Jr. and Douglas E. Hailey.

 

Other Committees

 

Our board of directors may establish other committees as it deems necessary or appropriate from time to time.

 

Risk Oversight

 

Our board of directors will oversee the risk management activities designed and implemented by our management. The board of directors will execute its oversight responsibility for risk management both directly and through its committees. The full board of directors will also consider specific risk topics, including risks associated with our strategic plan, business operations and capital structure. In addition, the board of directors will receive detailed regular reports from members of our senior management and other personnel that include assessments and potential mitigation of the risks and exposures involved with their respective areas of responsibility.

 

Our board of directors will delegate to the Audit Committee oversight of our risk management process. Our other board committees will also consider and address risk as they perform their respective committee responsibilities. All committees will report to the full board of directors as appropriate, including when a matter rises to the level of a material or enterprise level risk.

 

Family Relationships

 

There are no family relationships among any of our executive officers or any of the persons to be nominated as our directors prior to the consummation of this offering.

 

Code of Ethics

 

We have adopted a Code of Ethics that applies to all of our employees, including our chief executive officer and our chief financial officer (who is our principal accounting officer). Our Code of Ethics is available on our website at www.bgstaffing.com by clicking on About BG Staffing and then Code of Ethics. If we amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to satisfy the requirements under Item 5.05 of Item 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Ethics that apply to our principal executive, financial and accounting officers by posting the required information on our website at the above address. Our website is not part of this prospectus.

 

 

EXECUTIVE COMPENSATION

 

Named Executive Officers

 

Our named executive officers for 2012 and the positions they held with the company as of December 30, 2012 are:

 

·

L. Allen Baker, Jr., our President and Chief Executive Officer; and

 

·

Debra R. Jackson, who served as our Chief Financial Officer and Corporate Secretary during 2012.

 

Throughout this section, the term “named executive officer” is intended to refer to the individuals identified above. During 2012, we had only two executive officers, all of whom are set forth above.

 

Summary Compensation Table

 

The following table presents compensation information for our named executive officers with respect to 2012, to the extent each of them served as one of our named executive officers during each of such years.

 

Name and Principal Position		Year			Salary ($)				Bonus ($)				Unit  Awards ($)				Option Awards ($)				Non-equity incentive plan compensation				Non-qualified deferred compensation earnings ($)				All Other Compensation ($)				Total  ($)
L. Allen Baker, Jr.(1)		2012			$	300,000			$	120,000				–				–				–				–			$	22,480	(2)		$	442,480
Debra R. Jackson		2012			$	131,250			$	52,500				–				–				–				–				–			$	183,750

 

⁽¹⁾ Mr. Baker also serves on our board of directors, but does not receive additional compensation to do so.

⁽²⁾ Includes $11,250 representing matching 401(k) contributions made by us and $11,230 in medical benefits.

 

Agreements with Executive Officers

 

President and Chief Executive Officer

 

On April 30, 2009, we entered into an employment agreement with L. Allen Baker, Jr., pursuant to which Mr. Baker serves as our President and Chief Executive Officer. The agreement had an initial term of one year and automatically renews for successive one-year periods until terminated in accordance with its terms. We refer to each of these one-year periods as employment periods. Mr. Baker’s annual compensation is evaluated annually, but may not be less than $265,000 per year. Mr. Baker currently receives an annual base salary of $325,000.

 

Mr. Baker is eligible to receive an annual cash bonus based on our EBITDA (as defined in the employment agreement). At the beginning of each calendar year, our board approves an operating EBITDA budget. If we achieve:

 

·

at least 85% of the approved EBITDA budget for the year, then Mr. Baker receives a cash bonus in an amount equal to 10% his annual salary for the applicable employment period in which the calendar year ends (or such greater amount as decided by our board of directors);

 

·

at least 95% of the approved EBITDA budget for the year, then Mr. Baker receives a cash bonus in an amount equal to 25% of his annual salary for the applicable employment period in which the calendar year ends (or such other greater amount as decided by our board of directors);

 

·

at least 100% of the approved EBITDA budget for the year, then Mr. Baker receives a cash bonus in an amount equal to 40% of his annual salary for the applicable employment period in which the calendar year ends (or such other greater amount as decided by our board of directors); and

 

 

·

at least 110% of the approved EBITDA budget for the year, then Mr. Baker receives a cash bonus in an amount equal to 55% of his annual salary for the applicable employment period in which the calendar year ends (or such other greater amount as decided by our board of directors).

 

Pursuant to the employment agreement, Mr. Baker also received 87,010 Class B Units of LTN Acquisition, LLC, all of which have vested. In connection with the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of LTN Staffing, LLC into a Delaware corporation (BG Staffing, Inc.), such Class B Units will be converted into 5,700 shares of common stock of BG Staffing, Inc. Mr. Baker also receives certain other benefits as further described in the employment agreement.

 

Mr. Baker’s employment continues for successive one-year periods unless terminated by (a) his death, (b) his inability, by reason of a mental or physical condition, to perform the essential functions of his position, with reasonable accommodation, for an uninterrupted period of 60 consecutive business days or shorter periods aggregating to 60 business days during any continuous 12 month period, or such longer period as may be required by law, or (c) Mr. Baker or we, for any lawful reason or no reason, provided that if the termination by us is without “cause” (as defined in the employment agreement) or the termination by Mr. Baker is without “good reason” (as defined in the employment agreement), we or Mr. Baker, as applicable, must provide the other party with 30 days written notice before the effective date of the termination. Mr. Baker is required to give written notice of termination of his employment within 30 days after the occurrence of “good reason”; otherwise, the event relating to such good reason and Mr. Baker’s right to terminate his employment by reason thereof are deemed waived. “Good reason” is generally defined to include certain changes of title or responsibility or a “change of control” (as defined in the employment agreement) where Mr. Baker is terminated within one year thereof without cause or there is a change in the location of our executive offices.

 

In the event that Mr. Baker’s employment is terminated by us without cause or by Mr. Baker for good reason, Mr. Baker will receive as severance one month’s base salary for each two months of service in excess of three months (provided that severance may not exceed 12 months’ base salary). Mr. Baker will also generally be entitled to receive any bonus payable but unpaid, payment for unused vacation days, and unpaid reimbursements. The severance is contingent upon Mr. Baker’s execution of a separation agreement including a general release. In the event that Mr. Baker’s employment is terminated by us for cause, or by Mr. Baker other than for good reason, we will pay to Mr. Baker any monthly salary, bonus payable but unpaid, unused vacation, and expense reimbursements, earned or due to Mr. Baker but unpaid.

 

We and Mr. Baker have also entered into a confidentiality, non-solicitation, non-interference and non-competition agreement. Pursuant to the agreement, Mr. Baker generally agrees not to disclose our confidential information (as defined in the agreement) and, for a period of 18 months following his termination, not to compete with us, solicit our customers, interfere with our customer and supplier relationships, or solicit our employees.

 

Chief Financial Officer

 

Debra R. Jackson resigned as Chief Financial Officer in September 2013. On March 26, 2012, we entered into an employment agreement with Ms. Jackson, pursuant to which Ms. Jackson served as our Chief Financial Officer. Ms. Jackson received an annual base salary of $200,000 per year. Ms. Jackson had the opportunity to receive an annual bonus determined in accordance with the terms of a bonus agreement, which was to be amended annually to provide for the calculation of the annual bonus. In December 2012, Ms. Jackson received an annual bonus of $52,500 in accordance with the terms of the bonus agreement. Ms. Jackson was also eligible for the certain other benefits as specified in her employment agreement.

 

 

Ms. Jackson further agreed not to disclose our confidential information (as defined in the agreement) and, for a period of one year following her termination, not to compete with us, solicit our customers, employees or vendors, or interfere with our employee, contractor, customer or supplier relationships.

 

In addition, on March 26, 2012, we entered into a restricted unit award agreement with Ms. Jackson, pursuant to which Ms. Jackson was granted an award of 423,580 Class B Units of LTN Acquisition, LLC. 25% of the units vested on the date of grant and the remainder of the units were to vest in equal parts at the end of each one year anniversary of the date of grant (except that all units were to vest upon a “change of control,” as defined in Ms. Jackson’s employment agreement). A total of 211,790 Class B units of LTN Acquisition, LLC were vested on the date Ms. Jackson’s employment terminated, and such Class B units will convert to 22,704 shares of common stock of BG staffing, Inc. following the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of LTN Staffing, LLC into a Delaware corporation. The remaining unvested Class B units were forfeited upon the termination of Ms. Jackson’s employment.

 

 

Outstanding Equity Awards  

 

The following table summarizes outstanding unvested equity awards held by each of our name executive officers, as of December 30, 2012.

 

		Option Awards																		Stock Awards
Name		Number of  Securities  Underlying  Unexercised  Options  (#)  Exercisable				Number of  Securities  Underlying  Unexercised  Options  (#) Unexercisable				Equity  Incentive  Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options  (#)				Options  Exercise  Price  ($)				Option Expiration  Date		Number  of  Units That  Have  Not  Vested  (#)				Market  Value of  Units That  Have  Not  Vested  ($)				Equity  Incentive  Plan  Awards:  Number of  Unearned  Shares, Units  or  Other  Rights  That Have  Not Vested  (#)				Equity  Incentive  Plan  Awards:  Market or  Payout  Value of  Unearned  Shares, Units  or  Other  Rights  That Have  Not Vested  ($)
L. Allen Baker, Jr.			0				0				0			$	0			—			0			$	0				0				0
Debra R. Jackson			0				0				0			$	0			—			317,685	(1)		$	397,106				0				0

 

(1)

211,790 of these Class B Units were forfeited upon the termination of Ms. Jackson’s employment and the remainder of the Class B Units will be converted into 11,352 shares of common stock of BG Staffing, Inc. following the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the conversion of LTN Staffing, LLC into a Delaware corporation.

 

Director Compensation

 

Our directors received no compensation for the fiscal year ended December 30, 2012.

 

 

PRINCIPAL STOCKHOLDERS

 

The following table sets forth information regarding the beneficial ownership of our common stock as of October 10, 2013 and after giving effect to the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of the surviving limited liability company into a Delaware corporation, BG Staffing, Inc. by:

 

·

each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

 

·

each of our named executive officers and directors; and

 

·

all our executive officers and directors as a group.

 

Each stockholder’s percentage ownership before the offering is based on 5,419,642 shares of common stock outstanding after giving effect to the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of the surviving limited liability company into a Delaware corporation, BG Staffing, Inc.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all shares of our capital shown as beneficially owned, subject to applicable community property laws.

 

In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the date of this prospectus are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. 

 

Name of Beneficial Owner		Shares of  Common  Beneficially  Stock Owned				Percent of Common Stock Beneficially Owned
Legg Mason SBIC Mezzanine Fund, L.P.(1)			447,542				8.3	%
Brookside Pecks Capital Partners, L.P.(2)			377,698				7.0	%
Michael N. Taglich(7)			318,574	(3)			5.9	%
L. Allen Baker, Jr.			183,029	(4)			3.4	%
Debra R. Jackson			30,704				*
Douglas E. Hailey			95,526	(5)			1.7	%
Richard L. Baum, Jr.			70,960	(6)			1.3	%
All executive officers and directors as a group (4 total)			379,210				7.0	%

 

* Less than 1%.

(1)	The address of Legg Mason SBIC Mezzanine Fund, L.P. is 111 South Calvert Street, Suite 1800, Baltimore, MD 21202. Includes 59,868 shares of common stock issuable upon exercise of warrants to purchase shares of common stock.
(2)	The address of Brookside Pecks Capital Partners, L.P. is 201 Tresser Boulevard, Suite 330, Stamford, CT 06901.
(3)	Includes 41,870 shares of common stock held by a private investment company controlled by Mr. Taglich, and 210 shares of common stock issuable upon exercise of warrants to purchase shares of common stock by such private investment company. Also includes 31,300 shares of common stock issuable upon exercise of warrants to purchase shares of common stock.
(4)	Includes 15,249 shares of common stock held by a trust and 560 shares of common stock issuable upon exercise of warrants to purchase shares of common stock held by Mr. Baker individually.
(5)	Includes 24,700 shares of common stock issuable upon exercise of warrants to purchase shares of common stock.
(6)	Includes 47,150 shares of common stock held by a private investment company controlled by Mr. Baum, and 18,420 shares of common stock issuable upon exercise of warrants to purchase shares of common stock held by such private investment company.  Also includes 5,387 shares of common stock held by a family trust.
(7)	The address of Michael N. Taglich is c/o Taglich Brothers, Inc., 790 New York Avenue, Suite 209, Huntington, NY 11743.

 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Our board of directors is currently primarily responsible for developing and implementing processes and controls to obtain information from our directors, executive officers and significant stockholders regarding related-person transactions and then determining, based on the facts and circumstances, whether we or a related person has a direct or indirect material interest in these transactions. Following this offering, our audit committee will be responsible for the review, approval and ratification of “related-person transactions” between us and any related person. Under SEC rules, a related person is a director, executive officer, nominee for director or beneficial holder of more than of 5% of any class of our voting securities since the beginning of the last fiscal year or an immediate family member of any of the foregoing. In the course of its review and approval or ratification of a related-person transaction, the audit committee will consider:

 

·

the nature of the related person’s interest in the transaction;

 

·

the material terms of the transaction, including the amount involved and type of transaction;

 

·

the importance of the transaction to the related person and to our company;

 

·

whether the transaction would impair the judgment of a director or executive officer to act in our best interest and the best interest of our stockholders; and

 

·

any other matters the audit committee deems appropriate.

 

Any member of the audit committee who is a related person with respect to a transaction under review will not be able to participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction.

 

Management Agreement with Taglich Private Equity, LLC

 

We entered into a Management Agreement with Taglich Private Equity, LLC on October 17, 2007. In exchange for providing us with financial and management services we pay Taglich Private Equity, LLC an annual advisory fee of $175,000. The Management Agreement had an initial term of three years and is subject to automatic one-year renewals, unless terminated by either party with at least 30 days but not more than 60 days’ notice prior to the scheduled expiration date. The Management Agreement will be terminated immediately upon the effectiveness of our conversion into a Delaware corporation (which is discussed further in “Prospectus Summary—Conversion into a Delaware corporation”). Douglas E. Hailey and Richard L. Baum, Jr., both directors, are principals of Taglich Private Equity, LLC.

 

Taglich Brothers, Inc. – Sales Commissions

 

On December 3, 2012, LTN Acquisition, LLC sold 6 million Class A units having an aggregate offering price of $4.5 million in conjunction with the acquisition of API. Taglich Brothers, Inc. received as sales commissions $360,000 and 600,000 warrants to purchase Class A Units with an exercise price of $0.90 per unit. Mr. Hailey and Mr. Baum are affiliated with Taglich Brothers, Inc.

 

Capital Contribution Agreements with Taglich Private Equity, LLC

 

In connection with amendments to our senior credit facility and subordinated loans required in connection with our acquisition of substantially all of the assets of API (in December 2012) and InStaff (in May 2013), we have entered into capital contribution agreements with Taglich Private Equity, LLC pursuant to which Taglich may make certain capital contributions to us in the event we are required to make certain “earnout” payments to API or InStaff and we are at such time in default under, or such earnout payments would cause us to be in default under, our senior credit facility or subordinated loans. 

 

Issuance of Warrants to Purchase Our Equity to Brookside Mezzanine Fund II, L.P. and Legg Mason SBIC Mezzanine Fund, L.P.

 

On May 28, 2013, in connection with purchasing senior subordinated notes in the aggregate principal amount of $6.0 million to partially finance LTN Staffing, LLC’s acquisition of substantially all of the assets of InStaff Holding Corporation and InStaff Personnel, LLC, Brookside Mezzanine Fund II, L.P. and Legg Mason SBIC Mezzanine Fund, L.P. each were issued a warrant to purchase up to the number of Class A units of LTN Acquisition, LLC (LTN Staffing, LLC’s direct parent) equal to 2% and 1%, respectively, of the issued and outstanding Class A units on a fully-diluted basis (amounting to 598,765 and 299,337 Class A units, respectively, as of the date of issuance of the warrants). The warrants have an exercise price of $0.01 per unit. $187,105 of the aggregate $4 million purchase price of the senior subordinated note and warrant purchased by Brookside was allocated to the purchase of Brookside’s warrant, $93,552 of the aggregate $2 million purchase price of the senior subordinated note and warrant purchased by Legg Mason was allocated to the purchase of Legg Mason’s warrant.

  

Legg Mason SBIC Mezzanine Fund, L.P. will beneficially own more than 5% of our outstanding common stock following our conversion into a Delaware corporation.

 

Legg Mason SBIC Mezzanine Fund, L.P., Brookside Mezzanine Fund II, L.P. and Brookside Pecks Capital Partners, L.P. are the holders of our subordinated notes. 

 

 

DESCRIPTION OF CAPITAL STOCK

 

The following is a summary of our capital stock and provisions of our certificate of incorporation and our bylaws, as each will be in effect following the Reorganization, and certain provisions of Delaware law. This summary does not purport to be complete and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, copies of which have been or will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part. References in this section to the “Company,” “we,” “us” and “our” refer to BG Staffing, Inc. and not to any of its subsidiaries.

 

Authorized Capitalization

 

Our certificate of incorporation will provide that our authorized capital stock will consist 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. As of October 28, 2013, after giving effect to the conversion into a Delaware corporation, we will have 5,419,642 shares of common stock outstanding and no shares of preferred stock outstanding.

 

Common Stock

 

Our common stock will initially be issued to former holders of the Class A and Class B units of LTN Acquisition, LLC, the direct parent of LTN Staffing, LLC, in connection with the Reorganization, which is further described under “Prospectus Summary—Conversion into a Delaware Corporation.”

 

Voting Rights

 

Each share of common stock entitles the holder to one vote with respect to each matter presented to our stockholders on which the holders of common stock are entitled to vote. Our common stock votes as a single class on all matters relating to the election of directors to our board of directors and as provided by law. Holders of our common stock will not have cumulative voting rights. Except in respect of matters relating to the election and removal of directors and as otherwise provided in our certificate of incorporation or required by law, all matters to be voted on by our stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter. The election of directors will be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election.

 

Dividend Rights

 

The holders of our outstanding shares of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. See “Dividend Policy.”

 

Liquidation Rights

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of our debts and other liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution and/or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.

 

Other Rights

 

Our stockholders will have no preemptive, conversion or other rights to subscribe for additional shares. All outstanding shares are, and all shares registered by this prospectus will be, when sold, validly issued, fully paid and nonassessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

 

Quotation of Securities

 

We intend to seek to have a broker-dealer file a Form 211 in order to have our common stock quoted on the OTC Bulletin Board and/or OTCQB. It is anticipated that our common stock will be quoted on the OTC Bulletin Board and/or OTCQB on or promptly after the date the registration statement to which this prospectus relates is declared effective, provided, however, that is no assurance that our common stock will actually be approved and quoted on the OTC Bulletin Board or OTCQB.

 

 

Transfer Agent and Registrar

 

American Stock Transfer & Trust Company will serve as the transfer agent and registrar for our common stock.

 

Preferred Stock

 

Our certificate of incorporation will authorize our Board of Directors to provide for the issuance of shares of preferred stock in one or more series and to fix the preferences, powers and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference and to fix the number of shares to be included in any such series without any further vote or action by our stockholders. Any preferred stock so issued may rank senior to our common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up, or both. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. At present, we have no plans to issue any preferred stock.

 

Board Composition

 

Prior to the effectiveness of the registration of which this prospectus forms a part, those directors identified in “Management—Executive Officers, Key Management and Directors” will be appointed to our board of directors.

 

Upon the completion of this offering, our board of directors will be divided into three classes, as nearly equal in number as possible, with each director serving a three-year term and one class being elected at each year’s annual meeting of stockholders. L. Allen Baker, Jr. will be in the class of directors whose term expires at the first annual meeting of stockholders following the date of this prospectus. Richard L. Baum, Jr. will be in the class of directors whose term expires at the second annual meeting of stockholders following the date of this prospectus. Douglas E. Hailey will be in the class of directors whose term expires at the third annual meeting of stockholders following the date of this prospectus. At each annual meeting of our stockholders, successors to the class of directors whose term expires at such meeting will be elected to serve for three-year terms or until their respective successors are elected and qualified.

 

Corporate Opportunity

 

Richard L. Baum, Jr. and Douglas E. Hailey, who are principals of Taglich Private Equity LLC, serve on our board of directors. Taglich Private Equity LLC or its affiliates may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of Taglich Private Equity LLC or its affiliates, on the one hand, and of our stockholders generally, on the other hand, arise, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to us under Delaware law and our certificate of incorporation that will be adopted in connection with this offering, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors approves the transaction, (2) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approve the transaction or (3) the transaction is otherwise fair to us. Our certificate of incorporation will also provide that any principal, officer, member, manager and/or employee of Taglich Private Equity, LLC or Taglich Brothers, Inc. or any entity that controls, is controlled by or under common control with, those entities (other than the company or any company that is controlled by the company) or any investment funds or portfolio companies managed by the foregoing will not be required to offer any transaction opportunity of which they become aware to us and could take any such opportunity for themselves or offer it to other companies in which they have an investment.

 

 

Anti-takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

 

Our certificate of incorporation and bylaws will also contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some stockholders may favor.

 

Undesignated Preferred Stock

 

The ability to authorize undesignated preferred stock will make it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.

 

Classified Board of Directors

 

Our certificate of incorporation will provide that our board of directors will be divided into three classes, with each class serving three-year staggered terms. In addition, under our certificate of incorporation, our directors may only be removed for cause and only upon the affirmative vote of the majority of the total voting power of our outstanding voting stock, at a meeting of our stockholders called for that purpose. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company. Only our board of directors will be able to fill vacancies on our board of directors or increase the size of our board.

 

Requirements for Nominations and Proposals at Stockholder Meetings

 

Our bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. Our bylaws will also provide that nominations of persons for election to our board of directors may be made at a meeting of stockholders at which directors are to be elected pursuant to the notice of meeting (1) by or at the direction of our board of directors or (2) provided that our board of directors has determined that directors shall be elected at such meeting, by any stockholder who (i) is a stockholder of record both at the time the notice is delivered and on the record date for the determination of stockholders entitled to vote at the meeting, (ii) is entitled to vote at the meeting and upon such election and (iii) complies with the notice procedures set forth in our bylaws. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.

 

Stockholder Action by Written Consent

 

Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted, unless our company’s certificate of incorporation provides otherwise. Our certificate of incorporation will provide that any action required or permitted to be taken by the stockholders may be effected only at a duly called annual or special meeting unless our board of directors approves in advance the action to be taken by written consent and the taking of the action by written consent.

 

 

Business Combinations with Interested Stockholders

 

We will elect in our certificate of incorporation not to be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Accordingly, we will not be subject to any anti-takeover effects of Section 203. However, our certificate of incorporation will contain provisions that have the same effect as Section 203, except that they will provide that (i) Taglich Private Equity LLC, Taglich Brothers, Inc. and any of their affiliates or associates, including any investment funds or portfolio companies managed by the foregoing, (ii) any other person with whom any of the foregoing are acting as a group or in concert for the purpose of acquiring, holding, voting or disposing of shares of our stock and (iii) any person who would otherwise be an interested stockholder because of a transfer of 5% or more of our outstanding voting stock by any person described in clause (i) or (ii) to such person will be excluded from the “interested stockholder” definition in our certificate of incorporation and will therefore not be subject to the restrictions therein that have the same effect as Section 203.

 

Requirements for Amendments to our Certificate of Incorporation

 

Our certificate of incorporation will provide that the provisions of our certificate of incorporation relating to the size and composition of our board of directors, limitation on liabilities of directors, stockholder action by written consent, the undesignated preferred stock, business combinations with interested persons, corporate opportunities, amendment of our certificate of incorporation and the Court of Chancery as the exclusive forum for certain disputes, may only be amended, altered, changed or repealed by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of our outstanding shares of capital stock entitled to vote thereon, voting together as a single class.

 

The following description of our common stock, together with the additional information included in any applicable prospectus supplements, summarizes the material terms and provisions of the common stock that may be offered under this prospectus. For the complete terms of our common stock and preferred stock, please refer to our certificate of incorporation and bylaws, which are incorporated by reference into the registration statement, of which this prospectus forms a part. The terms of our common stock and preferred stock may also be affected by Delaware law.

 

 

 

SELLING STOCKHOLDERS

 

The following table sets forth information as of the date of this prospectus, to our knowledge, about the beneficial ownership of our common stock by the selling stockholders both before and immediately after the offering. 

 

All of the selling stockholders, which are members of LTN Acquisition, LLC, will receive their shares of common stock following the merger of LTN Acquisition, LLC with and into LTN Staffing, LLC and the subsequent conversion of the surviving limited liability company into a Delaware corporation. We believe that the selling stockholders have sole voting and investment power with respect to all of the shares of common stock beneficially owned by them unless otherwise indicated. 

 

The percent of beneficial ownership for the selling stockholders is based on 5,419,642 shares of common stock outstanding as of the date of this prospectus.  Options and warrants to purchase shares of our common stock held by certain investors that are currently exercisable or exercisable within 60 days of the date of this prospectus are considered outstanding and beneficially owned by such investors for the purpose of computing the percentage ownership of their respective percentage ownership but are not treated as outstanding for the purpose of computing the percentage ownership of any other stockholder.  Unless otherwise stated below, to our knowledge, none of the selling stockholders has had a material relationship with us other than as a stockholder at any time within the past three years or has ever been one of our officers or directors. 

 

Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares of our common stock as to which a stockholder has sole or shared voting power or investment power, and also any shares of our common stock which the stockholder has the right to acquire within 60 days, including upon exercise of warrants to purchase shares of our common stock. 

 

The shares of common stock being offered pursuant to this prospectus may be offered for sale from time to time during the period the registration statement of which this prospectus is a part remains effective, by or for the account of the selling stockholders.  After the date of effectiveness, the selling stockholders may have sold or transferred, in transactions covered by this prospectus or in transactions exempt from the registration requirements of the Securities Act, some or all of their common stock.

 

Information about the selling stockholders may change over time.  Any changed information will be set forth in an amendment to the registration statement or supplement to this prospectus, to the extent required by law.

 

		Shares Beneficially Owned as of the date of  this Prospectus								Shares  Offered by  this				Shares Beneficially Owned After the Offering(1)
Name of Selling Stockholder		Number				Percent				Prospectus				Number				Percent
L. Allen Baker, Jr.(2)			183,029	(4)			3.4	%			176,769				6,260					*
Richard L. Baum, Jr.(3) (6)			70,960	(5)			1.3	%			52,540				18,420					*
Total			253,989				4.7	%			229,309				24,680					*

 

*             Less than 1%.

(1)	Assumes the sale of all shares of common stock offered pursuant to this prospectus.
(2)	Mr. Baker is one of our directors and our President and Chief Executive Officer.
(3)	Mr. Baum is one of our directors and is affiliated with certain entities we have had or currently have relationships with as further discussed in “ Certain Relationships and Related Party Transactions.”

 

 

(4)

Includes 15,249 shares of common stock held by a trust, and 560 shares of common stock issuable upon exercise of warrants to purchase shares of common stock held by Mr. Baker individually.

(5)

Includes 47,150 shares of common stock held by a private investment company controlled by Mr. Baum, and 18,420 shares of common stock issuable upon exercise of warrants to purchase shares of common stock held by such private investment company.  Also includes 5,387 shares of common stock held by a family trust.

(6)

Richard Baum is a principal of Taglich Private Equity LLC, an affiliate of Taglich Brothers, Inc. Mr. Baum currently own membership units of LTN Acquisition, LLC, the direct parent of LTN Staffing, LLC. Mr. Baum acquired the membership units of LTN Acquisition, LLC, and will acquire their shares of common stock of BG Staffing, Inc. in the Reorganization, in the ordinary course of business. At the time of acquiring his membership units of LTN Acquisition, LLC, he had no agreements or understandings, directly or indirectly, with any person to distribute such membership units. Moreover, at the time of acquiring the shares of common stock of BG Staffing, Inc., it is anticipated that he will not have any agreements or understandings, directly or indirectly, with any person to distribute such shares.

 

The remaining selling stockholders are neither broker-dealers nor affiliates, as defined in Rule 405, of broker-dealers.

  

 

PLAN OF DISTRIBUTION

 

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.

 

The selling stockholders may sell some or all of their shares at a fixed price of $0.01 per share until our shares are quoted on the OTC Bulletin Board and/or OTCQB marketplace and thereafter at prevailing market prices or privately negotiated prices. Prior to being quoted on the OTC Bulletin Board and/or OTCQB marketplace, stockholders may sell their shares in private transactions to other individuals.

 

Our common stock is not listed or traded on any public exchange, and we have not applied for listing or quotation on any exchange. We are seeking sponsorship for the quotation of our common stock on the OTC Bulletin Board and/or OTCQB marketplace. In order to be quoted on the OTC Bulletin Board and/or OTCQB marketplace, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, nor can there be any assurance that such an application for quotation will be approved.  There is further no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment. 

 

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

·

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

 

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

·

privately negotiated transactions;

 

·

short sales;

 

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

·

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

·

a combination of any such methods of sale; and

 

·

any other method permitted pursuant to applicable law.

 

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus; provided, however, that prior to any such transfer the following information (or such other information as may be required by the federal securities laws from time to time) with respect to each such selling beneficial owner must be added to the prospectus by way of a prospectus supplement or post-effective amendment, as appropriate: (1) the name of the selling beneficial owner; (2) any material relationship the selling beneficial owner has had within the past three years with us or any of our predecessors or affiliates; (3) the amount of securities of the class owned by such beneficial owner before the offering; (4) the amount to be offered for the beneficial owner’s account; and (5) the amount and (if one percent or more) the percentage of the class to be owned by such beneficial owner after the offering is complete.

 

 

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

 

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act if, and at such time as, they meet the criteria and conform to the requirements of that rule.

 

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(a)(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

 

The maximum amount of compensation to be received by any FINRA member or independent broker-dealer for the sale of any securities registered under this prospectus will not be greater than 8.0% of the gross proceeds from the sale of such securities.

 

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

There is no public trading market on which our common stock is traded. Among other matters, in order for our common stock to become OTCBB/OTCQB eligible, a FINRA-member broker/dealer must file a Form 211 with FINRA and commit to make a market in our securities once the Form 211 is approved by FINRA. As of the date of this prospectus, the Form 211 has not been filed with FINRA. There is no assurance that our common stock will be included on the OTCBB/OTCQB.

 

The shares of our common stock registered hereby can be sold by selling stockholders at a fixed price of $0.01 per share until our shares are quoted on the OTC Bulletin Board and/or OTCQB marketplace and thereafter at prevailing market prices or privately negotiated prices.

 

We can offer no assurance that an active public market in our shares will develop or be sustained. Future sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

 

Options, Warrants and Convertible Securities

 

Following our conversion into a Delaware corporation, 362,620 shares of our common stock will be subject to outstanding options, warrants and convertible securities.

 

Registration of Our Common Stock and Resales Under Rule 144

 

Except as to the shares offered by the selling stockholders hereunder, we have not agreed to register any of our shares of outstanding common stock. Immediately following our conversion into a Delaware corporation, none of our shares of common stock will be then eligible for resale under Rule 144.

 

Except for the shares offered by the selling stockholders hereunder, no common stock is being or has been publicly proposed to be publicly offered by us.

 

Temporary Restriction of Resale of Our Common Stock

 

In order to secure certain tax benefits associated with the Reorganization, our certificate of incorporation will provide that our common stock will not be transferable without the written consent of our board of directors for a period of six months following the consummation of the Reorganization. Any certificates representing our shares of common stock will contain a restrictive legend setting forth such restriction.

 

Holders

 

Following our conversion into a Delaware corporation, there will be approximately 280 record holders of our common stock.

 

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH THE OWNERSHIP AND DISPOSITION OF OUR SHARES

 

Subject to the assumptions, qualifications, and limitations set forth below and the accuracy of factual matters, the following is the opinion of Fulbright & Jaworski LLP, counsel to BG Staffing, with respect to the material U.S. federal income tax consequences of the ownership and disposition of shares of our common stock. Counsel’s opinions are limited to statements of U.S. federal income tax law, and regulations and legal conclusions with respect thereto. We cannot assure you that a change in law will not significantly alter the tax considerations that we describe in this discussion. Counsel’s opinions are an expression of professional judgment and are not a guarantee of a result and are not binding on the Internal Revenue Service (the “IRS”) or the courts. Accordingly, no assurance can be given that counsel’s opinions set forth herein will be sustained if challenged by the IRS.

 

The following discussion summarizes the material U.S. federal income tax consequences that may be applicable to “U.S. holders’ and “non-U.S. holders” (each defined below) with respect to the ownership and disposition of shares of our common stock. This discussion deals only with beneficial owners of shares of our common stock who hold our shares as “capital assets.” This discussion has only limited applicability to those holders who are corporations, partnerships (including entities treated as partnerships for U.S. federal income tax purposes), estates, trusts, or other persons subject to specialized tax treatment (such as brokers, dealers in securities, traders in securities that elect mark-to-market treatment, tax-exempt institutions, individual retirement accounts (IRAs), employee benefits plans, real estate investment trusts (REITs), mutual funds, persons who acquire our shares pursuant to the exercise of warrants, options or similar derivative securities or otherwise as compensation, or persons who hold our shares as part of a hedge, straddle or other risk reduction or constructive sale transaction or who hold warrants to acquire our shares).

 

This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, Treasury regulations promulgated thereunder, published rulings and judicial decisions as of the date hereof. Future legislative, judicial or administrative changes or interpretations could adversely affect the accuracy of the statements and conclusions set forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences described herein. We have not obtained, and it is not anticipated that we will attempt to obtain, a ruling from the IRS with respect to the U.S. federal tax consequences described below. If the IRS contests a conclusion set forth herein, no assurance can be given that the holder would ultimately prevail in a final determination by a court.

 

This discussion does not purport to address all aspects of the U.S. federal income tax consequences that may be relevant to a holder in light of its particular circumstances. Nor does it address the tax consequences of the ownership and disposition of our shares under state or local or foreign tax laws, or any U.S. federal tax consequences other than U.S. federal income tax consequences. Accordingly, each holder is urged to consult, and depend on, its own tax advisor in analyzing the U.S. federal, state, local and foreign tax consequences of the ownership and disposition of our shares.

 

YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNING AND DISPOSING OF OUR COMMON STOCK IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER OTHER FEDERAL TAX LAW AND THE LAWS OF APPLICABLE STATE, LOCAL AND FOREIGN TAXING JURISDICTIONS. YOU SHOULD ALSO CONSULT WITH YOUR TAX ADVISORS CONCERNING ANY POSSIBLE ENACTMENT OF LEGISLATION THAT WOULD AFFECT YOUR INVESTMENT IN OUR COMMON STOCK IN YOUR PARTICULAR CIRCUMSTANCES.

 

 

U.S. Holders

 

Subject to the qualifications set forth above, the following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our shares by a U.S. holder. You are a U.S. holder if you are a beneficial owner of our shares, and you are for U.S. federal income tax purposes:

 

·

an individual citizen or resident of the United States;

 

·

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

·

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

·

a trust if it (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

 

U.S. Holders: Distributions on Our Shares

 

Distributions made on our shares will generally be treated as dividends to the extent of our current and accumulated earnings and profits as determined under the Code. Any portion of a distribution that exceeds our current and accumulated earnings and profits will be treated as a non-taxable return of capital, reducing a stockholder’s adjusted basis in our shares and, to the extent such portion exceeds the stockholder’s adjusted basis, the excess will be treated as gain from the disposition of our shares, the tax treatment of which is discussed below under “—U.S. Holders: Disposition of Our Shares.”

 

Dividends received by individual U.S. holders of our shares will generally be subject to a reduced tax rate if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes. If a U.S. holder is a U.S. corporation, dividends on our shares generally will be eligible for a dividends received deduction, subject to generally applicable limitations on the deduction.

 

U.S. Holders: Disposition of Our Shares

 

Gain or loss will be recognized by a U.S. holder on a sale, exchange or other disposition of our shares equal to the difference between the amount realized and the U.S. holder’s tax basis for the shares sold, exchanged or otherwise disposed of. A U.S. holder’s amount realized will be measured by the sum of the cash and the fair market value of other property received by it.

 

Gain or loss recognized by a U.S. holder on the sale, exchange or other disposition of our shares generally will be taxable as capital gain or loss. Capital gain recognized by a corporation on the sale of our shares generally will be taxed at rates applicable to ordinary income. Capital gain recognized by an individual on the sale of our shares held more than 12 months generally will be taxed at a reduced rate applicable to long-term capital gain. An additional 3.8% tax is imposed on the lesser of (1) the U.S. person’s “net investment income” in the case of an individual, or undistributed “net investment income” in the case of an estate or trust, and (2) the excess of the U.S. person’s modified adjusted gross income in the case of an individual, or adjusted gross income in the case of an estate or trust, in each case for the taxable year over a certain threshold. Among other items, “net investment income” generally includes gross income from interest, dividends and certain gain from the disposition of property, such as our shares, less certain deductions. Net capital loss may offset capital gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used to offset capital gains in the case of corporations.

 

 

Non-U.S. Holders

 

Subject to the qualifications set forth above under the caption “Material U. S. Federal Income Tax Consequences Associated with the Ownership and Disposition of Our Shares,” the following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our shares by certain non-U.S. holders (as defined below). For purposes of this discussion you are a “non-U.S. holder” if you are a beneficial owner of our shares and you are not a U.S. holder.

 

Non-U.S. Holders: Distributions on Our Shares

 

Subject to the requirements of recently enacted legislation (“FATCA”), which are discussed below, dividends received by a non-U.S. holder that are not effectively connected with a “U.S. trade or business” of the non-U.S. holder will generally be subject to U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by an applicable income tax treaty and the completion of applicable forms. In general, a non-U.S. holder will not be considered to be engaged in a “U.S. trade or business” solely as a result of its ownership of our shares. In cases where dividends received by a non-U.S. holder is treated as effectively connected with the non-U.S. holder’s conduct of a “U.S. trade or business,” the non-U.S. holder generally will be subject to U.S. federal income tax at graduated rates, and may also be subject to the 30% branch profits tax (or such lower rate as may be specified by applicable treaty) in the case of a non-U.S. holder that is a corporation. A non-U.S. holder that is a corporation generally is not eligible to claim a dividend received deduction.

 

Non-U.S. Holders: Disposition of Our Shares

 

Subject to the requirements of FATCA discussed below, a non-U.S. holder that owns our shares generally will not be subject to U.S. federal income tax or subject to withholding on any gain recognized on the sale, exchange or other disposition of such shares unless:

 

·

the gain is considered effectively connected with the conduct of a “U.S. trade or business” by the non-U.S. holder and, where a tax treaty applies, is attributable to a “permanent establishment” of the non-U.S. holder in the U.S.;

 

·

the non-U.S. holder is an individual who holds our shares as a capital asset and is present in the U.S. for 183 or more days in the taxable year of the sale, exchange or other disposition and other conditions are met; or

 

·

we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes within an applicable period of time.

 

A non-U.S. holder described in the first bullet point immediately above will generally be subject to tax on the net gain from the sale under the regular graduated U. S. federal income tax rates in the same manner as if the non-U.S. holder were a U.S. person as defined in the Code, and if it is a corporation, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as maybe be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the sale, exchange or other disposition, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. We do not believe that we are or will become a United States real property holding corporation. However, because the determination of whether we are a U.S. real property holding corporation depends on the fair market value of our U.S. real property assets relative to the fair market value of our other business assets, there can be no assurance that we will not become a U.S. real property holding corporation in the future.

 

 

Non-U.S. Holder: FATCA

 

FATCA generally imposes a 30% withholding tax on dividends on, and gross proceeds from the sale, exchange or disposition of, our shares paid to: (i) a “foreign financial institution” unless the “foreign financial institution” undertakes certain due diligence and reporting obligations or otherwise is exempt from FATCA withholding; and (ii) a “non-financial foreign entity” unless such entity certifies that it does not have any “substantial U.S. owners,” or furnishes identifying information regarding each direct and indirect “substantial U.S. owner,” or otherwise is exempt from FATCA withholding. FATCA will take effect on July 1, 2014 (in the case of a dividend payment) and January 1, 2017 (in the case of gross proceeds).

 

Backup Withholding and Information Reporting

 

Information returns may be filed with the IRS in connection with the payments on our shares and the proceeds from the sale, exchange or other disposition of our shares. An holder of our shares may be subject to backup withholding tax on these payments if he fails to provide his taxpayer identification number to the withholding agent and comply with certification procedures or otherwise establish an exemption from backup withholding tax.

 

Backup withholding tax is not an additional tax. Any amount withheld under the backup withholding rules is allowable as a credit against the holder’s federal income tax liability, if any, and a refund may be obtained if the amounts withheld exceed the holder’s actual federal income tax liability and the holder timely provides the required information or appropriate claim form to the IRS.

 

A holder is encouraged to consult its own tax advisor regarding the application of backup withholding and information reporting.

 

 

LEGAL MATTERS

 

The validity of the securities offered in this prospectus and certain other legal matters with respect to securities offered hereby are being passed upon for us by Fulbright & Jaworski LLP (a member of Norton Rose Fulbright), Dallas, Texas.

 

 

EXPERTS

 

The audited financial statements of LTN Staffing, LLC d/b/a BG Staffing included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in giving said report.

 

The audited financial statements of American Partners, Inc. included in this prospectus have been so included in reliance upon the report of Kahn, Litwin, Renza & Co., Ltd., independent public accountants, upon the authority of said firm as experts in giving said report.

 

The audited financial statements of InStaff Holding Corporation included in this prospectus have been so included in reliance upon the report of Weaver & Tidwell, L.L.P., independent registered public accountants, upon the authority of said firm as experts in giving said report.

 

 

DISCLOSURE OF COMMISSION POSITION OF

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our directors and officers are indemnified to the fullest extent permitted under Delaware law. We may also purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a capacity, and such a policy may be obtained by us in the future.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of ours in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits some information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.

 

You may read and copy all or any portion of the registration statement without charge at the office of the SEC at the Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the SEC at prescribed rates from the Public Reference Section of the SEC at such address. You may obtain additional information on the operation of Public Reference Room by calling SEC at 1-800-SEC-0330. In addition, registration statements and certain other filings made with the SEC electronically are publicly available through the SEC’s web site at http://www.sec.gov . The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the SEC.

 

Contemporaneously with the effectiveness of the registration statement of which this prospectus is a part, we will file a Registration Statement on Form 8-A and become subject to the information and periodic reporting requirements of the Exchange Act and, accordingly, will file annual reports containing financial statements audited by an independent public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the Securities and Exchange Commission. You will be able to inspect and copy such periodic reports, proxy statements and other information at the SEC’s public reference room, and the web site of the SEC referred to above.

 

 

INDEX TO FINANCIAL STATEMENTS

 

LTN Staffing, LLC d/b/a/ BG Staffing
As of and for the Years ended December 30, 2012 and December 25, 2011:
Report of the Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Changes in Member Equity (Deficit)	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-7
As of and for the Thirteen Week and Twenty-six Week Periods ended June 30, 2013:
Unaudited Consolidated Balance Sheet	F-25
Unaudited Consolidated Statements of Operations	F-26
Unaudited Consolidated Statements of Cash Flows	F-27
Notes to Unaudited Consolidated Financial Statements	F-28
American Partners, Inc.:
Independent Auditor’s Report	F-35
Balance Sheets	F-36
Statements of Income and Retained Earnings	F-37
Statements of Cash Flows	F-38
Notes to Financial Statements	F-39
InStaff Holding Corporation:
As of and for the Years ended December 31, 2012 and 2011:
Independent Auditor’s Report	F-43
Consolidated Balance Sheets	F-44
Consolidated Statements of Income	F-45
Consolidated Statements of Stockholders’ Equity	F-46
Consolidated Statements of Cash Flows	F-47
Notes to Consolidated Financial Statements	F-48
As of and for the Twenty-one Week Period ended May 28, 2013:
Unaudited Consolidated Balance Sheet	F-58
Unaudited Consolidated Statement of Operations	F-59
Unaudited Consolidated Statement of Cash Flows	F-60
Notes to Unaudited Consolidated Financial Statements	F-61

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

LTN Staffing, LLC and Subsidiaries

 

We have audited the accompanying consolidated balance sheets of LTN Staffing, LLC and Subsidiaries d/b/a BG Staffing (the “Company”) as of December 30, 2012 and December 25, 2011, and the related consolidated statements of operations, changes in member equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LTN Staffing, LLC and Subsidiaries d/b/a BG Staffing as of December 30, 2012 and December 25, 2011, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Grant Thornton LLP

 

Dallas, Texas

May 1, 2013

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

CONSOLIDATED BALANCE SHEETS

 

		December 30,				December 25,
		2012				2011
Current assets
Accounts receivable (net of allowance for doubtful accounts of $214,012 and $179,919 at 2012 and 2011, respectively)		$	12,626,792			$	7,843,759
Prepaid expenses			551,983				293,843
Other current assets			211,718				-
Total current assets			13,390,493				8,137,602
Property and equipment, net			286,911				246,942
Other assets
Security deposits			95,239				31,560
Deferred financing charges, net			278,171				241,819
Intangible assets, net			18,232,091				10,953,988
Goodwill			4,859,663				4,797,960
Total other assets			23,465,164				16,025,327
Total assets		$	37,142,568			$	24,409,871
Current liabilities
Long-term debt, current portion		$	2,378,333			$	960,000
Accrued interest			54,149				53,068
Accrued interest-related party			339,288				147,000
Accounts payable			2,246,360				1,293,620
Accrued expenses			3,364,347				2,505,703
Accrued management fees			43,750				-
Accrued payroll			397,236				584,976
Accrued workers’ compensation			610,114				288,136
Contingent consideration			1,850,000				1,217,275
Other current liabilities			576,188				-
Accrued taxes			57,895				27,189
Deferred tax liability			-				30,490
Total current liabilities			11,917,660				7,107,457
Line of credit			5,900,000				2,900,000
Long-term debt, less current portion			4,756,667				5,040,000
Long-term debt-related party			9,483,209				9,000,000
Other long-term liabilities			3,329,691				1,462,415
Deferred tax liability			72,060				47,436
Total liabilities			35,459,287				25,557,308
Member equity (deficit)			1,683,281				(1,147,437	)
Total liabilities and member equity (deficit)		$	37,142,568			$	24,409,871

 

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

Years ended December 30, 2012 and December 25, 2011

 

		2012				2011
Revenues		$	76,759,068			$	50,119,792
Cost of services			61,206,657				40,531,408
Gross profit			15,552,411				9,588,384
Selling, general and administrative expenses			10,606,538				6,851,687
Depreciation and amortization			4,469,141				2,750,391
Operating income (loss)			476,732				(13,694	)
Gain on extinguishment of debt, net			-				2,587,933
Interest expense, net			(874,955	)			(918,066	)
Interest expense-related party			(1,319,776	)			(2,003,171	)
Loss before income taxes			(1,717,999	)			(346,998	)
Income tax (expense) benefit			(31,858	)			65,214
Net loss		$	(1,749,857	)		$	(281,784	)
Pro forma C corporation data (unaudited):
Historical loss before taxes		$	(1,717,999	)		$	(346,998	)
Pro forma income tax (expense) benefit			587,632				3,260
Pro forma loss		$	(1,130,367	)		$	(343,738	)
Pro forma earnings (loss) per share:
Basic		$	(0.27	)		$	(0.60	)
Diluted		$	(0.27	)		$	(0.60	)

 

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER EQUITY (DEFICIT)

 

Years ended December 30, 2012 and December 25, 2011

 

Member deficit, December 26, 2010		$	(10,753,083	)
Net loss			(281,784	)
Contributions from Parent			9,887,430
Member deficit, December 25, 2011			(1,147,437	)
Net loss			(1,749,857	)
Contributions from Parent			4,584,943
Distributions to Parent			(4,368	)
Member equity, December 30, 2012		$	1,683,281

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Years ended December 30, 2012 and December 25, 2011

 

		2012				2011
Cash flows from operating activities
Net loss		$	(1,749,857	)		$	(281,784	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization			4,469,141				2,750,391
Gain on extinguishment of related party debt, net			-				(2,587,933	)
Amortization of deferred financing costs			90,337				385,536
Loss on disposal of property and equipment			12,466				7,177
Provision for doubtful accounts			63,858				83,295
Deferred income taxes			(23,383	)			38,890
Net changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable			308,349				(291,941	)
Prepaid expenses			(440,749	)			69,147
Security deposit			(63,079	)			86,744
Accrued interest			1,081				39,018
Accrued interest-related party			675,497				1,367,701
Accounts payable			(1,560,681	)			(678,599	)
Change in fair value of contingent consideration			194,267				(176,000	)
Accrued expenses			756,682				1,701,672
Accrued management fees			43,750				-
Accrued payroll			(187,740	)			(559,560	)
Accrued workers’ compensation			321,978				(82,725	)
Other current liabilities			76,188				-
Accrued taxes			30,706				631
Net cash provided by operating activities			3,018,811				1,871,660
Cash flows from investing activities
Business acquired, net of cash received			(10,600,081	)			(7,000,000	)
Capital expenditures			(121,450	)			(41,361	)
Proceeds from sale of property and equipment			8,100				-
Contingent consideration paid			(394,266	)			(345,500	)
Net cash used in investing activities			(11,107,697	)			(7,386,861	)

 

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Years ended December 30, 2012 and December 25, 2011

 

		2012				2011
Cash flows from financing activities
Net borrowings under line of credit		$	3,000,000			$	300,000
Proceeds from issuance of long-term debt			2,500,000				2,026,923
Principal payments on long-term debt			(1,365,000	)			(1,076,194	)
Capital contributions from Parent			4,084,943				4,549,520
Distributions to Parent			(4,368	)			-
Deferred financing costs			(126,689	)			(285,048	)
Net cash provided by financing activities			8,088,886				5,515,201
Net decrease in cash			-				-
Cash, beginning of year			-				-
Cash, end of year		$	-			$	-
Supplemental cash flow information:
Cash paid for interest		$	1,120,025			$	904,740
Cash paid for taxes, net of refunds			24,535				17,469
Non-cash transactions:
Notes payable exchanged for equity units of Parent		$	-			$	3,958,110
Accrued interest exchanged for equity units of Parent			-				1,083,966
Equity units of Parent issued in acquisition of business			500,000				-

 

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

note 1 - NATURE OF OPERATIONS

 

LTN Staffing, LLC, whose sole member is LTN Acquisition, LLC (Parent) was formed on August 27, 2007 as a limited liability company, under the laws of the state of Delaware, and commenced its operations on October 17, 2007. LTN Staffing, LLC (LTN Staffing) specializes in providing temporary staffing services for the light industrial industry in Illinois and Wisconsin.

 

On May 24, 2010, LTN Staffing purchased the interests of BG Personnel Services, LP and BG Personnel, LP, both Texas limited partnerships, and purchased the common stock of B G Staff Services, Inc., a Texas C corporation (collectively, referred to as BG). BG specializes in temporary staffing services for the multi-family property industry primarily in the state of Texas and surrounding states.

 

On December 13, 2010, LTN Staffing purchased substantially all of the assets of JNA Staffing Inc., a Wisconsin S-Corporation, which specializes in providing temporary staffing services within the state of Wisconsin. These operations were rolled into LTN Staffing’s existing operations in Wisconsin.

 

In 2011, LTN Staffing and subsidiaries began doing business as BG Staffing.

 

On November 21, 2011, BG Staffing, LLC (BGS), a wholly owned subsidiary of LTN Staffing, purchased substantially all of the assets of Extrinsic, LLC, a Delaware limited liability company, which specializes in providing information technology staffing services within the United States of America.

 

On December 3, 2012, BGS acquired substantially all of the assets of American Partners, Inc., a Rhode Island corporation, which specializes in providing information technology staffing services within the United States of America.

 

The operations of LTN Staffing and its wholly-owned subsidiaries (collectively, the Company) are organized into three segments: Light Industrial, Multi-family, and IT Staffing.

 

note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

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

 

Fiscal Year

 

The Company has a 52/53 week fiscal year. Fiscal years for the consolidated financial statements included herein are for the 53 weeks ended December 30, 2012, and the 52 weeks ended December 25, 2011.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Accounts Receivable

 

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

 

Deferred Financing Charges

 

Deferred financing charges are amortized on a straight-line basis, which approximates the effective interest method, over the term of the respective loans payable. During 2012 and 2011, the Company recognized $90,337 and $385,536 of amortization expense as a component of interest expense related to deferred financing charges, respectively. At December 30, 2012 and December 25, 2011, there were $278,171 and $241,819 of unamortized deferred financing charges, respectively.

 

Property and Equipment

 

The Company’s policy is to depreciate the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortized over their useful lives, or the applicable lease term, if shorter.

 

		Years
Leasehold improvements			1-5
Furniture and fixtures			5-7
Computer systems			5
Vehicles			5

 

Intangible Assets

 

The Company does not hold any intangible assets with indefinite lives. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, based on a pattern in which the economic benefit of the respective intangible asset is realized, as shown in the following table:

 

		Years
Customer lists			5
Trade names			5
Covenant not to compete			3-5

 

Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs were 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 were discounted back to their net present value. Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized asset fair values including the identifiable intangible asset values.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

The Company evaluates the recoverability of finite intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company determined that there were no impairment indicators for these assets in 2012 or 2011.

 

The Company annually evaluates the remaining useful lives of the above intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

 

Goodwill

 

Goodwill is not amortized, but instead is measured at the reporting unit level for impairment annually, or more frequently if conditions indicate an earlier review is necessary. The Company has allocated $3,448,905, $1,073,755, and $337,003 of total goodwill to its three separate reporting units: Light Industrial, Multifamily and IT Staffing, respectively. The fair value of the reporting unit is first compared to the respective reporting unit’s carrying value. The fair value of the reporting unit is determined based on discounted cash flow projections. If the estimated fair value of the reporting unit is less than the carrying value, an indication of goodwill impairment exists. If an indication of impairment exists, the Company would then determine the implied fair value of the reporting unit’s goodwill. If the carrying value of goodwill exceeds its implied fair value, an impairment loss would be recorded and goodwill would be written down to its implied fair value. Based on its annual testing, the Company has determined that there was no goodwill impairment in 2012 or 2011.

 

Revenue Recognition

 

The Company provides temporary staffing solutions. The Company and its clients enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. Revenues include reimbursements of travel and out-of-pocket expenses with the equivalent amounts of expense recorded in cost of services. The Company considers revenue to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.

 

Income Taxes

 

The Company is treated as a partnership for federal income tax purposes except for BG Personnel Services, LP and B G Staff Services Inc., which are taxed as C corporations. Consequently, federal and state income taxes are not payable, or provided for, by the Company, except for those BG entities that are taxed as C corporations. Accordingly, the financial statements reflect the impact of income taxes for the taxable BG entities. Members are taxed individually on their share of the Company’s earnings, not earned in the C corporations, which are allocated among the members in accordance with the operating agreement of the Parent.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assesses all tax positions for which the statute of limitations remain open. The Company had no unrecognized tax benefits as of December 30, 2012 or December 25, 2011. The Company is open to examination by tax authorities for federal, state or local income taxes for periods beginning after 2008. The Company recognizes any penalties and interest when necessary as tax expense.

 

Stock Based Compensation

 

The Parent has issued profits interests in the form of Class B Units to employees and directors. Compensation expense arising from the Parent Class B Units granted to the Company’s employees by the Parent is recognized as expense using the straight-line method over the vesting period, which represents the requisite service period. The fair value of the Class B Units is based on the fair value of the underlying unit.

 

Pro Forma Earnings (Loss) Per Share (unaudited)

 

Pro forma earnings (loss) per share has been calculated as if the Company were a C corporation for federal income tax purposes. Pro forma earnings (loss) per share is calculated using the weighted average number of shares outstanding. The weighted average shares outstanding used in the calculation of pro forma diluted earnings (loss) per share includes the dilutive effect of options to purchase common shares using the treasury stock method.

 

Management Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

 

Fair Value Measurements

 

The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt at December 30, 2012 and December 25, 2011 approximated the carrying value. These fair values were estimated based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimates are not necessarily indicative of the amounts that would be realized in a current market exchange.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Recently Issued Pronouncements

 

In September 2011, the Financial Accounting Standards Board issued ASU No. 2011-08, Testing Goodwill for Impairment. The ASU amends ASC Topic 350, Intangibles - Goodwill and Other. The new standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Note 3 - ACQUISITIONS

 

On December 3, 2012, BGS acquired substantially all of the assets of American Partners, Inc. (API) for cash consideration of $10,500,000, deferred payments of $2,000,000, to be paid out over four years, issuance of equity of the Parent of $500,000 and contingent consideration of $1,500,000 based on the performance of API for the two years following the date of acquisition. The fair value of the contingent consideration at the acquisition date was $1,200,000 based on a discounted cash flow analysis. The purchase agreement contains a provision for a “true up” of acquired working capital 120 days after the closing date. If actual working capital is greater than the target working capital, the Company will pay additional consideration in the amount of the difference. If actual working capital is less than target working capital, API will pay the Company the amount of the difference.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

The consolidated statements of operations include the operating results of API from the date of acquisition. The acquisition of API allows the Company to strengthen and expand its information technology consulting services. The assets acquired from API were assigned to the IT Staffing segment. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

 

Accounts receivable		$	5,055,159
Property and equipment			18,330
Prepaid expenses and other assets			12,193
Customer list			8,858,000
Trade name			2,620,000
Covenant not to compete			190,000
Goodwill			61,703
Liabilities assumed			(2,615,385	)
Total net assets acquired		$	14,200,000
Cash		$	10,500,000
Deferred payment to sellers			2,000,000
Issuance of equity units of Parent			500,000
Fair value of contingent consideration			1,200,000
Total fair value of consideration transferred for acquired business		$	14,200,000

 

The useful life of the acquired finite intangibles is five years. The weighted average amortization period for the acquired finite intangibles is 4.9 years as of December 30, 2012. Acquisition-related costs of $192,184 are included in selling, general and administrative expenses for 2012 in the accompanying consolidated statements of operations.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

On November 21, 2011, BGS acquired substantially all of the assets of Extrinsic, LLC. for cash consideration of $7,000,000 and contingent consideration of $3,000,000 based on the performance of Extrinsic for three years following the date of acquisition. A working capital adjustment of $100,081 was recorded in 2011 and was paid by the Company in 2012. The fair value of the contingent consideration at the acquisition date was $2,115,000 based on a discounted cash flow analysis. The consolidated statements of operations include the operating results of Extrinsic, LLC. from the date of acquisition. The acquisition of Extrinsic allows the Company to provide information technology consulting services not previously provided by the Company. The assets acquired from Extrinsic were assigned to the IT Staffing segment. The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

 

Accounts receivable		$	3,190,742
Property and equipment			4,073
Prepaid expenses			28,212
Other receivable			23,800
Intangible assets			7,701,000
Goodwill			275,300
Liabilities assumed			(2,108,127	)
Total net assets acquired		$	9,115,000
Cash		$	7,000,000
Fair value of contingent consideration			2,115,000
Total fair value of consideration transferred for acquired business		$	9,115,000

 

Acquisition-related costs of $276,955 are included in selling, general and administrative expenses for 2011 in the accompanying consolidated statements of operations.

 

The following unaudited pro forma information presents the combined financial results for the years ended December 30, 2012 and December 25, 2011, as if the acquisitions of both API and Extrinsic had been completed on December 27, 2010, (in thousands):

 

		2012				2011
Pro forma revenue		$	105,425			$	89,185
Pro forma net loss		$	(2,151	)		$	(3,299	)

 

NOTE 4 - ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Changes in the allowance for doubtful accounts for the fiscal years are as follows:

 

		2012				2011
Beginning balance		$	179,919			$	40,831
Provision for doubtful accounts			63,858				83,295
Accounts written off, net of recoveries			(29,765	)			55,793
Ending balance		$	214,012			$	179,919

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

NOTE 5 - PROPERTY AND EQUIPMENT, NET

 

		2012				2011
Leasehold improvements		$	55,159			$	119,715
Furniture and fixtures			263,628				238,282
Computer systems			150,378				55,592
Vehicles			158,987				173,121
			628,152				586,710
Accumulated depreciation			(341,241	)			(339,768	)
		$	286,911			$	246,942

 

Total depreciation expense for 2012 and 2011 was $79,245 and $118,841, respectively.

  

Note 6 - Intangible Assets

 

Finite-lived intangible assets consist of the following:

 

		2012
										Net
						Accumulated				Carrying
		Gross Value				Amortization				Value
Customer lists		$	23,005,810			$	9,079,208			$	13,926,602
Trade names			5,941,238				2,149,805				3,791,433
Covenant not to compete			798,285				284,229				514,056
Total		$	29,745,333			$	11,513,242			$	18,232,091

 

		2011
										Net
						Accumulated				Carrying
		Gross Value				Amortization				Value
Customer lists		$	14,147,810			$	5,411,921			$	8,735,889
Trade names			3,321,238				1,569,635				1,751,603
Covenant not to compete			608,285				141,789				466,496
Total		$	18,077,333			$	7,123,345			$	10,953,988

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Estimated future amortization expense for the next five years is as follows:

 

Fiscal Year Ending:
2013		$	4,109,522
2014			4,095,633
2015			4,093,072
2016			3,812,697
2017			2,121,167
		$	18,232,091

 

Total amortization expense for 2012 and 2011 was $4,389,896 and $2,631,550, respectively. The weighted average amortization period for the finite intangibles is 4.5 years.

 

Note 7 - Goodwill

 

The changes in the carrying amount of goodwill during the years ended December 30, 2012 and December 25, 2011, were as follows:

 

		2012				2011
Beginning goodwill		$	4,797,960			$	4,354,524
Goodwill from acquisitions			61,703				275,300
Impact from deferred taxes related to business acquisitions			-				168,136
Ending goodwill		$	4,859,663			$	4,797,960

 

The Company adjusted its purchase price allocation related to the 2010 acquisition of the Multi-family segment to record deferred tax liabilities of $168,136, which increased goodwill in 2011.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Note 8 - Income Taxes

 

The Company files a federal standalone tax return for those BG entities that are taxed as C corporations and the Company files state tax returns for those entities subject to franchise tax and state income tax. Open tax years are 2009 through 2011 for federal and 2008 through 2011 for state. The Company utilizes the asset and liability method for income taxes, which requires, among other things, an asset and liability approach for financial accounting and reporting of income taxes. The Company’s income tax provision for the year ended December 30, 2012 and December 25, 2011 is composed of the following:

 

		2012				2011
Current deferred tax benefit		$	23,383			$	83,158
Federal income tax expense			(20,956	)			-
Texas margin tax expense			(34,285	)			(17,944	)
Total income tax (expense) benefit		$	(31,858	)		$	65,214

 

Significant components of the Company’s current and noncurrent deferred income taxes as of December 30, 2012 and December 25, 2011 are as follows:

 

		2012				2011
Current deferred tax assets (liabilities)
Allowance for doubtful accounts		$	16,835			$	14,280
Workers’ compensation			682				7,149
Deferred rent			-				17,305
Impact of tax method change			-				(69,224	)
Net current deferred tax asset (liability)		$	17,517			$	(30,490	)
Non-current deferred tax assets (liabilities)
Net operating loss carryforward		$	-			$	53,376
Intangible assets			(72,060	)			(121,005	)
Fixed assets			-				20,193
Net noncurrent deferred tax liability		$	(72,060	)		$	(47,436	)
Total deferred tax liability		$	(54,543	)		$	(77,926	)

 

During 2011, the Company increased goodwill by $168,136 due to change in deferred taxes related to the acquisition of the Multi-family segment.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

During 2011, the Company received an income tax refund for a claim related to the utilization of a net operating loss carryback generated in 2010. The total refund was $122,048 and was recorded as a reduction in deferred taxes during 2011.

 

The Company utilized all of its net operating loss carryforwards in 2012.

 

The Company believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of December 30, 2012, or December 25, 2011.

 

The income tax provision, reconciled to the tax computed at the statutory Federal rate, is as follows:

 

		2012				2011
Tax benefit at Federal statutory rate of 34%		$	(584,120	)		$	(117,979	)
State income taxes, net of federal benefit			22,628				11,843
Meals and entertainment, and other			4,980				7,833
Partnership income not taxed			588,370				33,089
Income tax expense (benefit)		$	31,858			$	(65,214	)

 

Note 9 - Debt

 

The Company has a credit facility (Senior Credit Facility) effective May 24, 2010, as amended. As of December 30, 2012, the Senior Credit Facility provides for a $12,000,000 revolver facility (Revolver), which includes a $100,000 letter of credit facility, and a $7,135,000 term loan facility (Term Loan). On November 21, 2011, in conjunction with the restructuring discussed below, the Company entered into an amendment with its lender. This amendment increased the Revolver to $5,500,000 and the Term Loan to $6,000,000. On December 3, 2012, in conjunction with the acquisition of API, the Company entered into an amendment with its lenders under the Senior Credit Facility. The amendment, among other items, increased the Revolver to $12,000,000 and the Term Loan to $7,135,000.

 

As of December 30, 2012 and December 25, 2011, $5,900,000 and $2,900,000 were outstanding on the Revolver, respectively. Borrowings under the Revolver are subject to a borrowing base, bear interest at the 30-day LIBOR plus a margin that ranges from 3.00% to 3.75% (3.71% at December 30, 2012), and are secured by all assets of the Company. The Parent has guaranteed any borrowings under this line of credit. As of December 30, 2012, maximum additional available borrowings under this line of credit were approximately $3,600,000. The Revolver matures on November 21, 2014.

 

The Company also has subordinated loans (Subordinated Loans) with two private lenders. These private lenders are also holders of Class A units of the Parent and are, therefore, related parties.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Long-term debt consists of the following:

 

		2012				2011
Term Loan, payable to a bank in monthly installments of $198,194 with the remaining principal due in a one lump-sum payment at maturity. Interest is paid on a monthly basis at an annual interest rate of LIBOR plus a margin of 3.75% to 4.5%, determined by certain thresholds (4.46% at December 30, 2012). The Term Loan is due in full in November 2014 and is secured by all assets of the Company. The Parent has guaranteed the borrowings under the Term Loan.		$	7,135,000			$	6,000,000
Subordinated Loans, payable to two private related party lenders, principal is due in a one lump-sum principal payment to each. Interest accrues monthly at an annual rate of 14% (approximates the effective rate), and is payable at annual rate of 8%, with the remaining interest paid-in-kind on a quarterly basis starting on January 1, 2012. In November 2011, the rate was modified from an annual rate of 12%. The Subordinated Loans are due in full in May 2015 and are subordinated to the Senior Credit Facility.			9,483,209				9,000,000
Total long-term debt			16,618,209				15,000,000
Less current portion			(2,378,333	)			(960,000	)
Long-term debt non-current portion		$	14,239,876			$	14,040,000

 

For all of the borrowings above, the Company must comply with a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant, as defined. As of December 30, 2012, the Company was in compliance with these covenants. Additionally, the Subordinated Loans contain a clause, effective December 30, 2012, that requires an excess cash flow payment to be made if certain thresholds are met.

 

On November 21, 2011, the Parent, on behalf of the Company, negotiated a debt restructuring with certain existing related party term debt holders. This restructuring has been recorded as a non cash contribution from the Parent. As part of the restructuring, the Company retired $3,958,110 of debt obligations with original principal of $4,000,000 in exchange for equity units of its Parent at a conversion rate of $0.58 per unit, which was the offering price of the Class A Units sold on November 21, 2011 by the Parent in a private offering. Related accrued interest totaling $1,083,966 was also exchanged for equity units of its Parent at a conversion rate of $0.58 per unit. Debt holders also forgave $2,587,933 of accrued interest, net of deferred financing costs, which was recorded as a gain on extinguishment of debt during 2011.

 

Maturities on the Revolver and long-term debt obligations as of December 30, 2012, are as follows:

 

Fiscal year ending:
2013		$	2,378,333
2014			10,656,667
2015			9,483,209

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

Note 10 - EQUITY

 

The Company is 100% owned by its Parent, who is the sole member.

 

On December 3, 2012, the Parent issued 666,667 Class A Units, valued at $0.75 per unit, or $500,000, in conjunction with the Company’s acquisition of API. This issuance of units was recorded as a noncash contribution from the Parent. Additionally, on December 3, 2012, the Parent completed a private offering and issued 6,000,000 Class A Units at $0.75 per unit, or $4,500,000. The Parent contributed the net proceeds of $4,084,943 to the Company to fund, in part, the cash portion of the purchase price paid in connection with the Company’s acquisition of API.

 

On November 21, 2011, the Parent completed a private offering and issued 8,533,655 Class A Units at $0.58 per unit. The Parent contributed the net proceeds of $4,549,520 to the Company to fund, in part, the cash portion of the purchase price paid in connection with the Company’s acquisition of Extrinsic. Additionally, on November 21, 2011, as part of the restructuring discussed in Note 9, the Parent issued 8,695,328 Class A Units at $0.58 per unit.

 

Incentive Plan

 

Effective December 15, 2008, the Parent adopted an ownership incentive plan (the Plan). The Plan permits the issuance of Class B Units of the Parent (Units) to the officers, directors, employees, consultants and advisors of the Company.

 

The Board of Managers of the Parent has the authority to determine the participants to whom Units shall be awarded, the price and number of Units to be awarded to each participant, the aggregate number of Units to be awarded, and any restrictions to be placed on the Units. Units issued under this plan vest based on specific restricted unit award agreements over a maximum of three years. Units that are not vested terminate upon discontinuation of employment.

 

The Units are intended to be profits interests of the Parent and the Company, which is the only operating company within the Parent. Thus, holders of the Units will only participate in profits/distributions that are generated by the Company after the grant date. The fair value of each Unit granted is estimated on the date of the grant utilizing a market approach, by applying multiples (which are based on the Company’s recent mergers and acquisitions) to projected annual results of the Company and performing an allocation to the Units according to the Parent’s Amended and Restated Limited Liability Company Agreement (which dictates the participation rights of the Units in any type of transaction or event). As the allocation resulted in no remaining distributions available for the Class B Units (after the payment of debt obligations and distributions to the Class A Units), the Company determined that the Units had no value at the date of the grant, and therefore, the Company did not recognize compensation expense for Units granted during the years ended December 30, 2012 and December 25, 2011.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

A summary of the Units issued by the Parent is presented as follows:

 

		Number
		of Units
Outstanding as of December 26, 2010			181,010
Granted			-
Outstanding as of December 25, 2011			181,010
Granted at $0.58 per Unit			2,541,478
Granted at $0.75 per Unit			750,000
Outstanding as of December 30, 2012			3,472,488

 

A summary of the status of the Parent’s nonvested Units is presented as follows:

 

		Number
		of Units
Nonvested as of December 26, 2010			61,704
Granted			-
Vested			(30,852	)
Forfeited			-
Nonvested as of December 25, 2011			30,852
Granted			3,291,478
Vested			(3,004,645	)
Forfeited			-
Nonvested as of December 30, 2012			317,685

 

Note 11 - Operating Leases

 

The Company is a party to leases for its facilities, expiring at various dates through fiscal year 2017. Certain of the leases provide for escalating rents over the lives of the leases and rent expense is recognized over the terms of those leases on a straight-line basis, with the difference between lease payments and rent expense recorded as deferred rent in accrued expenses in the consolidated balance sheets. Total rental expense charged to operations amounted to $397,039 and $325,121 for 2012 and 2011, respectively.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year, as of December 30, 2012:

 

Fiscal year ending:
2013		$	226,252
2014			135,726
2015			116,991
2016			111,039
2017			85,253

 

Note 12 - Related Party Transactions

 

Through ownership of the Parent, the Company is affiliated with multiple investors. Interest payments totaling $644,278 and $489,071 were made to these investors during the years ended December 30, 2012 and December 25, 2011, respectively. Accrued interest of $339,288 and $147,000 was due to these investors as of December 30, 2012 and December 25, 2011, respectively.

 

The Company is under a Management Services Agreement with a firm associated with one of the aforementioned investors. In November 2011, the investor released the Company from 2010 accrued management fee payments. The Company recorded the forgiveness of $295,834 in accrued management fees as an equity contribution from the Parent. The Company paid $131,250 in management fees during the year ended December 30, 2012. There were no payments under this agreement during the year ended December 25, 2011. Accrued management fees owed under this agreement were $43,750 and $-0- as of December 30, 2012 and December 25, 2011, respectively.

 

The Subordinated Loans are held by two private lenders that also hold Class A Units of the Parent. See Note 9 for further discussion.

 

Note 13 - Concentration of credit risk

 

Concentration of credit risk is limited due to the Company’s diverse customer base. No single customer accounted for more than 10% of the Company’s revenue or accounts receivable for the years ended December 30, 2012 and December 25, 2011.

 

NOTE 14 - 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 loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations, or cash flow.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

note 15- Employee benefit plan

 

The Company provides a defined contribution plan (the 401(k) Plan) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions 100% up to the first 3% and 50% of the next 2% of an employee’s compensation. The Company contributed $37,842 and $13,114 to the 401(k) Plan in fiscal years 2012 and 2011, respectively.

 

NOTE 16 - business segments

 

The Company operates within three industry segments: Light Industrial, Multi-family and IT Staffing. The Light Industrial segment provides temporary workers to manufacturing companies in Illinois and Wisconsin. The Multi-family segment provides front office and maintenance personnel on a temporary basis to various apartment communities, mainly in Texas, via property management companies responsible for the apartment community’s day to day operations. The IT Staffing segment provides skilled contract labor on a nationwide basis for IT implementations and maintenance projects. The Company provides services to customers within the United States of America.

 

Segment profit (loss) includes all revenue, cost of services, and direct selling expenses and excludes all general and administrative (corporate) expenses. Included in corporate are general corporate expenses. Interest expense, net in 2011 includes the $2.6 million net gain on extinguishment of debt. Income taxes are only attributable to the Multi-family segment, as it is the only taxable entity. Assets of corporate include cash, unallocated prepaid expenses, deferred tax assets, and other assets.

 

		2012				2011
Revenue:
Light Industrial		$	39,272,457			$	34,114,676
Multi-family			18,216,087				14,062,227
IT Staffing			19,270,524				1,942,889
Total		$	76,759,068			$	50,119,792
Net Profit (Loss):
Light Industrial		$	379,391			$	(77,006	)
Multi-family			2,240,688				1,801,606
IT Staffing			404,850				(138,935	)
Corporate			(2,580,055	)			(1,534,145	)
Interest expense, net			(2,194,731	)			(333,304	)
Net loss		$	(1,749,857	)		$	(281,784	)

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

		2012				2011
Total Assets:
Light Industrial		$	8,060,920			$	9,282,776
Multi-family			4,292,286				3,856,862
IT Staffing			24,320,191				10,954,931
Corporate			469,171				315,302
Total		$	37,142,568			$	24,409,871
Depreciation:
Light Industrial		$	50,404			$	104,122
Multi-family			16,061				11,581
IT Staffing			1,288				68
Corporate			11,492				3,070
Total		$	79,245			$	118,841
Amortization:
Light Industrial		$	2,222,752			$	2,270,366
Multi-family			432,111				232,834
IT Staffing			1,735,033				128,350
Corporate			-				-
Total		$	4,389,896			$	2,631,550
Capital Expenditures:
Light Industrial		$	26,118			$	7,318
Multi-family			31,008				8,971
IT Staffing			-				-
Corporate			64,324				25,072
Total		$	121,450			$	41,361

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 30, 2012 and December 25, 2011

 

NOTE 17 – PRO FORMA EARNINGS (LOSS) PER SHARE (UNAUDITED)

 

The calculation for pro forma earnings (loss) per share (EPS) was calculated as shown below:

 

		2012				2011
Net Loss		$	(1,749,857	)		$	(281,784	)
Pro forma federal income tax adjustment (unaudited)			619,490				(61,954	)
Pro forma net loss (unaudited)			(1,130,367	)			(343,738	)
Shares:
Basic weighted average shares			4,120,206				569,928
Dilutive effect of potential common shares			-				-
Diluted weighted average shares			4,120,206				569,928
Pro forma basic earnings (loss) per share		$	(0.27	)		$	(0.60	)
Pro forma diluted earnings (loss) per share		$	(0.27	)		$	(0.60	)

 

For the years ended December 30, 2012 and December 25, 2011, giving effect to the reorganization and conversion to C corporation status as if it occurred on the first day of Fiscal 2011, the Company had 185,861 and 63,000 common stock equivalents respectively, that were antidilutive. As a result, the assumed shares under the treasury stock method have been excluded from the calculation of diluted EPS.

 

NOTE 18 – PRO FORMA C CORPORATION DATA (UNAUDITED)

 

In connection with the Company’s planned filing with the Securities and Exchange Commission, the Company will reorganize. The reorganization will be completed with a merger of the Parent with and into the Company, with the Company continuing as the surviving entity. Immediately following this merger, the Company will convert to a C corporation for federal income tax purposes. Upon conversion, the Company will establish net current deferred tax assets of approximately $300,000 and net long-term deferred tax assets of approximately $6,900,000. The unaudited pro forma C corporation data for the years ended December 30, 2012 and December 25, 2011, are based on the historical consolidated statements of operations and give effect to pro forma taxes as if the Company were a C corporation for the entire duration of all periods presented.

 

NOTE 19 - Subsequent Events

 

The Company has entered into an agreement to acquire substantially all of the assets of InStaff Holding Corporation (InStaff) for cash consideration of $9,000,000 and contingent consideration of $1,000,000.  This acquisition allows the Company to strengthen and expand its operations in the Light Industrial segment. InStaff revenues were approximately $53.4 million in Fiscal 2012.  InStaff currently operates 12 branches, primarily in Texas and Mississippi. This acquisition is expected to close in the second quarter of 2013.

 

The Company has evaluated its financial statements for subsequent events through May 1, 2013, the date the financial statements were available to be issued. The Company is not aware of any other subsequent events that would require recognition or disclosure in the financial statements.

 

 

LTN Staffing, LLC and Subsidiaries d/b/a BG Staffing

 

CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 30,
		2013				2012
		(unaudited)
Current assets
Accounts receivable (net of allowance for doubtful accounts
of $119,098 and $214,012 at 2013 and 2012, respectively)		$	21,983,277			$	12,626,792
Prepaid expenses			1,322,427				551,983
Other current assets			308,396				211,718
Total current assets			23,614,100				13,390,493
Property and equipment, net			458,151				286,911
Other assets
Deposits			1,130,353				95,239
Deferred financing charges			436,944				278,171
Intangible assets, net			21,364,869				18,232,091
Goodwill			4,896,089				4,859,663
Total other assets			27,828,255				23,465,164
Total assets		$	51,900,506			$	37,142,568
Current liabilities
Long-term debt, current portion		$	2,378,333			$	2,378,333
Accrued interest			471,346				393,437
Accounts payable			4,079,811				2,246,360
Accrued expenses			5,215,036				3,364,347
Accrued management fees			43,750				43,750
Accrued payroll			1,451,597				397,236
Accrued workers’ compensation			1,005,795				610,114
Contingent consideration			2,350,000				1,850,000
Other current liabilities			707,261				576,188
Accrued taxes			29,812				57,895
Total current liabilities			17,732,741				11,917,660
Line of credit			11,100,000				5,900,000
Long-term debt, less current portion			17,758,775				14,239,876
Other long-term liabilities			3,915,017				3,329,691
Deferred tax liability			58,278				72,060
Total liabilities			50,564,811				35,459,287
Member’s equity			1,335,695				1,683,281
Total liabilities and member’s equity		$	51,900,506			$	37,142,568

 

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

 

 

LTN Staffing, LLC and Subsidiaries d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

For the Thirteen Week and Twenty-six Week Periods ended June 30, 2013 and June 24, 2012

 

(Unaudited)

 

		Thirteen Weeks Ended								Twenty-six Weeks Ended
		June 30, 2013				June 24, 2012				June 30, 2013				June 24, 2012
Revenues		$	35,235,714			$	18,732,144			$	60,016,301			$	35,205,221
Direct operating expenses			28,606,904				14,849,496				48,519,189				28,051,301
Gross profit			6,628,810				3,882,648				11,497,112				7,153,920
Selling, general and administrative expenses			4,435,230				2,572,246				8,144,291				5,124,909
Depreciation and amortization			1,109,661				782,598				2,163,666				1,564,608
Operating income			1,083,919				527,804				1,189,155				464,403
Interest expense			840,272				547,688				1,504,555				1,096,319
Income (loss) before income taxes			243,647				(19,884	)			(315,400	)			(631,916	)
Income tax expense (benefit)			(1,782	)			8,035				5,809				17,362
Net income (loss)		$	245,429			$	(27,919	)		$	(321,209	)		$	(649,278	)
Pro forma C corporation data:
Historical earnings (loss) before taxes		$	243,647			$	(19,884	)		$	(315,400	)		$	(631,916	)
Pro forma income tax expense (benefit)			116,598				36,173				(79,963	)			(265,588	)
Pro forma earnings (loss)		$	127,049			$	(56,057	)		$	(235,437	)		$	(366,328	)
Pro forma earnings (loss) per share:
Basic		$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)
Diluted		$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)

 

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

 

 

LTN Staffing, LLC and Subsidiaries d/b/a BG Staffing

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the Twenty-six Week Periods ended June 30, 2013, and June 24, 2012

 

(Unaudited)

 

		2013				2012
Cash flows from operating activities
Net loss		$	(321,209	)		$	(649,278	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			2,163,666				1,564,608
Amortization of deferred financing costs			83,165				40,209
Amortization of debt discounts			73,784				-
Loss on disposal of property and equipment			-				2,853
Deferred income taxes			(13,782	)			2,609
Net changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable			(4,930,703	)			(1,411,315	)
Prepaid expenses			(75,768	)			48,205
Deposits			(125,358	)			(527	)
Accrued interest			366,230				358,123
Accounts payable			1,833,451				(251,548	)
Change in fair value of contingent consideration			226,607				93,130
Accrued expenses			1,247,407				233,168
Accrued management fees			-				43,750
Accrued payroll			289,446				279,221
Accrued workers’ compensation			(39,627	)			(33,583	)
Other current liabilities			131,073				-
Accrued taxes			(28,083	)			(15,247	)
Net cash provided by operating activities			880,299				304,378
Cash flows from investing activities
Business acquired, net of cash received			(9,114,386	)			(100,081	)
Capital expenditures			(85,690	)			(56,016	)
Proceeds from sale of property and equipment			-				8,100
Contingent consideration paid			(1,043,413	)			(87,103	)
Net cash used in investing activities			(10,243,489	)			(235,100	)
Cash flows from financing activities
Net borrowings under line of credit		$	5,200,000			$	900,000
Proceeds from issuance of long-term debt			6,000,000				-
Principal payments on long-term debt			(1,568,495	)			(965,000	)
Distribution to members			(26,377	)			(4,278	)
Deferred financing costs			(241,938	)			-
Net cash provided by (used in) financing activities			9,363,190				(69,278	)
Net decrease in cash			-				-
Cash, beginning of year			-				-
Cash, end of year		$	-			$	-
Supplemental cash flow information:
Cash paid for interest		$	708,520			$	531,006
Cash paid for taxes, net of refunds			41,997				30,000

 

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

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

note 1 - NATURE OF OPERATIONS

 

LTN Staffing, LLC, a Delaware limited liability company whose sole member is LTN Acquisition, LLC (Parent), is a provider of temporary staffing services that operates, through its wholly-owned subsidiaries (collectively, the Company), within the United States of America in three industry segments: Light Industrial, Multi-family, and IT Staffing.

 

The Light Industrial segment provides temporary workers to manufacturing companies in Illinois and Wisconsin. The Company completed an acquisition on May 28, 2013, that expanded its Light Industrial operations into Texas, Mississippi, and Tennessee.

 

The Multifamily segment provides front office and maintenance personnel on a temporary basis to various apartment communities, mainly in Texas and expanding into other states, via property management companies responsible for the apartment communities’ day-to-day operations.

 

The IT Staffing segment provides skilled contract labor on a nationwide basis for IT implementation and maintenance projects.

 

The accompanying unaudited consolidated financial statements for the thirteen week and twenty-six week periods ended June 30, 2013 and June 24, 2012, have been prepared by the Company in accordance with generally accepted accounting principles in the United States, pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting only of normal recurring accruals) 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. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their 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 for the fiscal year ended December 30, 2012.

 

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.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Fiscal Year

 

The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of June 30, 2013, and include the thirteen weeks and twenty-six weeks ended June 30, 2013 and June 24, 2012.

 

Management Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

 

Pro Forma Earnings (Loss) Per Share

 

Pro forma earnings (loss) per share has been calculated as if the Company were a C corporation for federal income tax purposes. Pro forma earnings (loss) per share is calculated using the weighted average shares outstanding. The weighted average shares outstanding used in the calculation of pro forma diluted earnings (loss) per share includes the dilutive effect of common stock equivalents to purchase common shares using the treasury stock method. The calculation of pro forma earnings (loss) per share was calculated as follows:

 

		Thirteen Weeks Ended								Twenty-six  Weeks Ended
		June 30, 2013				June  24, 2012				June 30, 2013				June 24, 2012
Net income (loss)		$	245,429			$	(27,919	)		$	(321,209	)		$	(649,278	)
Pro forma federal income tax adjustment			(118,380	)			(28,138	)			85,772				282,950
Pro forma net income (loss)		$	127,049			$	(56,057	)		$	(235,437	)		$	(366,328	)
Shares:
Basic weighted average shares			5,419,509				4,026,175				5,419,509				3,998,930
Dilutive effect of potential common shares			185,861				-				-				-
Diluted weighted average shares			5,605,369				4,026,175				5,419,509				3,998,930
Pro forma basic earnings (loss) per share		$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)
Pro forma diluted earnings (loss) per share		$	0.02			$	(0.01	)		$	(0.04	)		$	(0.09	)

 

For the thirteen weeks ended June 30, 2013 and June 24, 2012, giving effect to the reorganization and conversion to C corporation status as if they had occurred on the first day of fiscal 2012, the Company had 63,000 and 63,000 common stock equivalents, respectively, that were antidilutive. For the twenty-six weeks ended June 30, 2013 and June 24, 2012, giving effect to the reorganiziation and conversion to C corporation status as if they had occurred on the first day of fiscal 2012, the Company had 362,620 and 63,000 common stock equivalents, respectively, that were antidilutive. As a result, the assumed shares under the treasury stock method have been excluded from the calculation of diluted earnings (loss) per share.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 3 - ACQUISITIONS

  

On May 28, 2013, the Company acquired substantially all of the assets of InStaff Holding Corporation (InStaff) for cash consideration of $9,000,000 and contingent consideration of $1,000,000 based on the performance of InStaff for the two years following the date of acquisition. The fair value of the contingent consideration at the acquisition date was $800,000 based on a discounted cash flow analysis. The purchase agreement contains a provision for a “true up” of acquired working capital 120 days after the closing date. If actual working capital is greater than the target working capital, the Company will pay additional consideration in the amount of the difference. If actual working capital is less than target working capital, InStaff will pay the Company the amount of the difference. The Company incurred costs of approximately $420,000 related to the acquisition. These costs were expensed as incurred.

 

The consolidated statements of operations include the operating results of InStaff from the date of acquisition. InStaff operations contributed approximately $5 million of revenue for the twenty-six week period ended May 28, 2013. The assets acquired from InStaff were assigned to the Light Industrial segment. The acquisition of InStaff allows the Company to strengthen and expand its operations in the Light Industrial segment. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

 

Accounts receivable		$	4,447,763
Property and equipment			136,993
Prepaid expenses and other current assets			790,715
Deposits and other assets			909,756
Intangible assets			5,250,000
Goodwill			67,637
Liabilities assumed			(1,802,864	)
Total net assets acquired		$	9,800,000
Cash		$	9,000,000
Fair value of contingent consideration			800,000
Total fair value of consideration transferred for acquired business		$	9,800,000

 

The preliminary allocation of the intangible assets is as follows:

 

		Estimated Fair Value				Estimated Useful Lives
Covenants not to compete		$	500,000			5 years
Trade name		$	2,000,000			Indefinite
Customer list		$	2,750,000			5 years
Total		$	5,250,000

 

The Company does not believe that the final purchase price allocation will be materially different than its preliminary allocations.

 

The Company estimates that the revenues and net income (loss) that would have been reported if the acquisition of InStaff had taken place on the first day of Fiscal 2012 would be as follows:

 

		Twenty-six Weeks Ended
		June 30, 2013				June 24, 2012
Revenue		$	80,940			$	60,223
Net loss		$	(402	)		$	(744	)

 

On December 3, 2012, the Company acquired substantially all of the assets of American Partners, Inc. (API) for cash consideration of $10,500,000, deferred payments of $2,000,000, to be paid out over four years, issuance of equity of the Parent of $500,000 and contingent consideration of $1,500,000 based on the performance of API for the two years following the date of acquisition. The fair value of the contingent consideration at the acquisition date was $1,200,000 based on a discounted cash flow analysis. In the second quarter of 2013, the Company paid an additional $0.1 million pursuant to a provision for a “true up” of acquired working capital 120 days after the closing date. The Company incurred costs of $193,178 related to the acquisition. These costs were expensed as incurred.

 

The consolidated statements of operations include the operating results of API from the date of acquisition. The acquisition of API allows the Company to strengthen and expand its information technology consulting services. The assets acquired from API were assigned to the IT Staffing segment. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

 

Accounts receivable		$	5,055,159
Property and equipment			18,330
Prepaid expenses and other assets			12,193
Intangible assets			11,668,000
Goodwill			61,703
Liabilities assumed			(2,615,385	)
Total net assets acquired		$	14,200,000
Cash		$	10,500,000
Deferred payment to sellers			2,000,000
Issuance of equity units of Parent			500,000
Fair value of contingent consideration			1,200,000
Total fair value of consideration transferred for acquired business		$	14,200,000

 

During the twenty-six week period ended June 30, 2013, the Company paid out $1.0 million in contingent consideration related to its acquisitions of Extrinsic LLC (November 2011) and JNA (December 2010). During the twenty-six week period ended June 24, 2012, the Company paid out $0.1 million in contingent consideration related to its acquisition of JNA.

 

NOTE 4 - DEBT

 

As of June 30, 2013, the Company had a senior credit facility consisting of a $5.9 million term loan, bearing interest of 4.7% at June 30, 2013, and a $20.0 million revolving line of credit (of which $11.1 million is outstanding at June 30, 2013), bearing interest of 3.9% at June 30, 2013. The Company also had approximately $15.5 million of outstanding subordinated loans. The holders of these subordinated loans also hold equity interests, and therefore, are related parties. The subordinated loans require an annual mandatory prepayment of principal to be made if specific thresholds are met. The Company made such a mandatory prepayment of approximately $0.5 million in the first quarter of 2013.

 

On May 28, 2013, in conjunction with the InStaff acquisition, the Company issued $6 million of new subordinated loans and drew an additional $3 million on the Company’s existing senior credit facility, which was amended as part of this transaction to increase the revolving line of credit from $12 million to $20 million. In conjunction with the issuance of the new subordinated loans, the Parent also issued to the subordinated debt holders warrants to purchase additional Class A Units of the Parent at an exercise price of $0.01 per unit. The subordinated debt holders have the right to put these warrants and approximately 104,000 Class A Units (previously acquired) to the Company. The subordinated loans have been discounted to reflect this put liability.

 

The $15.5 million of subordinated loans bear an annual interest rate of 14%, of which 12% is paid quarterly in cash and 2% is paid in kind. All subordinated loans mature in May 2015. 

 

At June 30, 2013, the maximum additional available borrowings under this revolving line of credit were approximately $5.8 million.

 

For all of its borrowings, the Company must comply with a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant, as defined. As of June 30, 2013, the Company was in compliance with these covenants.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 5 – Incentive plan

 

The Company is 100% owned by its Parent, who is the sole member.

 

Incentive Plan

 

Effective December 15, 2008, the Parent adopted an ownership incentive plan (the Plan). The Plan permits the issuance of Class B Units of the Parent (Units) to the officers, directors, employees, consultants and advisors of the Company.

 

The Board of Managers of the Parent has the authority to determine the participants to whom Units shall be awarded, the price and number of Units to be awarded to each participant, the aggregate number of Units to be awarded, and any restrictions to be placed on the Units. Units issued under this plan vest based on specific restricted unit award agreements over a maximum of three years. Units that are not vested terminate upon discontinuation of employment.

 

The Units are intended to be profits interests of the Parent and the Company, which is the only operating company within the Parent. Thus, holders of the Units will only participate in profits/distributions that are generated by the Company after the grant date. The fair value of each Unit granted is estimated on the date of the grant utilizing a market approach, by applying multiples (which are based on the Company’s recent mergers and acquisitions) to projected annual results of the Company and performing an allocation to the Units according to the Parent’s Amended and Restated Limited Liability Company Agreement (which dictates the participation rights of the Units in any type of transaction or event). As the allocation resulted in no remaining distributions available for the Class B Units (after the payment of debt obligations and distributions to the Class A Units), the Company determined that the Units had no value at the date of the grant, and therefore, the Company did not recognize compensation expense for Units granted during the twenty-six week periods ended June 30, 2013 and June 24, 2012.

 

A summary of the Units issued by the Parent is presented as follows:

 

		Number
		of Units
Outstanding as of December 25, 2011			181,010
Granted at $0.58 per Unit			2,541,478
Outstanding as of June 24, 2012			2,722,488
Outstanding as of December 30, 2012			3,472,488
Granted			-
Outstanding as of June 30, 2013			3,472,488

 

There were 211,790 and 317,685 Units not vested at June 30, 2013 and June 24, 2012, respectively.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

note 6- Employee benefit plan

 

The Company provides a defined contribution plan (the 401(k) Plan) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions 100% up to the first 3% and 50% of the next 2% of an employee’s compensation. The Company contributed $36,730 and $9,244 to the 401(k) Plan in the thirteen week periods ended June 30, 2013 and June 24, 2012, respectively. The Company contributed $72,934 and $22,844 to the 401(k) Plan in the twenty-six week periods ended June 30, 2013 and June 24, 2012, respectively.

 

Note 7 - Related Party Transactions

 

Through ownership of the Parent, the Company is affiliated with multiple investors. Interest payments totaling $190,549 and $183,274 were made to these investors during the thirteen week periods ended June 30, 2013, and June 24, 2012, respectively. Interest payments totaling $384,428 and $267,274 were made to these investors during the twenty-six periods ended June 30, 2013 and June 24, 2012, respectively. Accrued interest of $402,380 and $339,288 was due to these investors as of June 30, 2013 and December 30, 2012, respectively.

 

The Company is under a Management Services Agreement with a firm associated with one of the aforementioned investors. The Company paid $43,750 and $0 in management fees during the thirteen week periods ended June 30, 2013 and June 24, 2012, respectively. The Company paid $87,500 and $0 in management fees during the twenty-six week periods ended June 30, 2013 and June 24, 2012, respectively. Accrued management fees owed under this agreement were $43,750 as of both June 30, 2013 and December 30, 2012.

 

NOTE 8 - Contingencies

 

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.

 

NOTE 9 - business segments

 

The Company operates within three industry segments: Light Industrial, Multi-family and IT Staffing. The Light Industrial segment provides temporary workers to manufacturing companies in Illinois and Wisconsin. The Multi-family segment provides front office and maintenance personnel on a temporary basis to various apartment communities, mainly in Texas, via property management companies responsible for the apartment communities’ day to day operations. The IT Staffing segment provides skilled contract labor on a nationwide basis for IT implementations and maintenance projects. The Company provides services to customers within the United States of America.

 

Segment profit (loss) includes all revenue and direct operating and selling expenses and excludes all general and administrative (corporate) expenses. Included in corporate are general corporate expenses. Income taxes are only attributable to the Multi-family segment, as it is the only taxable entity. Assets of corporate include unallocated prepaid expenses, deferred tax assets, and other assets.

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

		Thirteen weeks ended								Twenty-six weeks ended
		June 30, 2013				June 24, 2012				June 30, 2013				June 24, 2012
Revenue:
Light Industrial		$	14,809,006				9,270,482			$	23,070,833			$	17,466,372
Multifamily			5,535,774				4,604,162				9,656,108				7,847,937
IT Staffing			14,890,934				4,857,500				27,289,360				9,890,912
Total		$	35,235,714			$	18,732,144			$	60,016,301			$	35,205,221
Net Income (Loss):
Light Industrial		$	333,311			$	(71,657	)		$	348,602			$	50,546
Multifamily			898,334				1,324,139				1,366,893				1,613,776
IT Staffing			486,125				(201,177	)			725,580				(48,800	)
Corporate			(632,069	)			(531,536	)			(1,257,729	)			(1,168,481	)
Interest Expense, net			(840,272	)			(547,688	)			(1,504,555	)			(1,096,319	)
Total		$	245,429			$	(27,919	)		$	(321,209	)		$	(649,278	)
Depreciation:
Light Industrial		$	14,143			$	13,039			$	26,034			$	26,690
Multifamily			4,734				5,041				8,611				9,243
IT Staffing			2,727				203				3,995				407
Corporate			6,609				1,208				12,803				2,055
Total		$	28,213			$	19,491			$	51,443			$	38,395
Amortization:
Light Industrial		$	70,317			$	319,848			$	86,967			$	639,696
Multifamily			43,265				58,209				89,306				116,417
IT Staffing			967,866				385,050				1,935,950				770,100
Corporate			-				-				-				-
Total		$	1,081,448			$	763,107			$	2,112,223			$	1,526,213
Capital Expenditures:
Light Industrial		$	-			$	8,986			$	-			$	9,506
Multifamily			10,164				-				22,032				3,578
IT Staffing			19,919				-				38,770				-
Corporate			2,418				29,808				24,888				42,932
Total		$	32,501			$	38,794			$	85,690			$	56,016

 

 

LTN Staffing, LLC and Subsidiaries

d/b/a BG Staffing

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

		June 30, 2013				December 30, 2012
Total Assets:
Light Industrial		$	20,252,120			$	8,060,920
Multi-family			5,244,404				4,292,286
IT Staffing			25,820,828				24,320,191
Corporate			583,154				469,171
Total		$	51,900,506			$	37,142,568

 

NOTE 10 – Pro forma c coproration data

 

In connection with the Company’s planned filing with the Securities and Exchange Commission, the Company will reorganize. The reorganization will be completed with a merger of the Parent with and into the Company, with the Company continuing as the surviving entity. Immediately following this merger, the Company will convert to a C corporation for federal income tax purposes. If the conversion would have taken place on June 30, 2013, the Company would have established net current deferred tax assets of approximately $280,000 and net long-term deferred tax assets of approximately $7,400,000. The pro forma C corporation data for the thirteen week and twenty-six week periods ended June 30, 2013 and June 24, 2012, are based on the historical consolidated statements of operations and give effect to pro forma taxes as if the Company were a C corporation for the entire duration of all periods presented.

 

NOTE 11 - Subsequent Events

 

The Company has evaluated its financial statements for subsequent events through September 6, 2013, the date the financial statements were available to be issued. The Company is not aware of any subsequent events that would require recognition or disclosure in the financial statements.

 

 

INDEPENDENT AUDITORS’ REPORT

 

To the Stockholders of

American Partners Inc:

 

We have audited the accompanying balance sheets of American Partners Inc (the Corporation) as of December 3, 2012 and December 31, 2011, and the related statements of income and retained earnings and cash flows for the period January 1, 2012 to December 3, 2012 and the year ended December 31, 2011. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Partners Inc as of December 3, 2012 and December 31, 2011, and the results of its operations and its cash flows for the period January 1, 2012 to December 3, 2012 and the year ended December 31, 2011 in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Kahn, Litwin, Renza & Co., Ltd.

Waltham, Massachusetts

February 11, 2013

 

 

AMERICAN PARTNERS INC

BALANCE SHEETS

December 3, 2012 and December 31, 2011

 

		2012				2011
Assets
Current Assets:
Cash and cash equivalents		$	1,246,611			$	1,317,505
Accounts receivable			5,055,159				4,446,426
Prepaid expenses			31,078				31,494
Employee loans			-				4,238
Loans to stockholders			-				61,398
Total current assets			6,332,848				5,861,061
Property and Equipment, at cost			53,730				50,976
Less accumulated depreciation			35,400				25,371
Net property and equipment			18,330				25,605
Total Assets		$	6,351,178			$	5,886,666
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable			2,511,455				2,099,326
Distributions payable			1,200,561				-
Accrued liabilities			128,248				274,518
Total current liabilities			3,840,264				2,373,844
Stockholders’ Equity:
Common stock, $.01 par value; 10,000,000 shares authorized, 100 shares issued and outstanding			1				1
Additional paid-in capital			99,999				99,999
Retained earnings			2,410,914				3,412,822
Total stockholders’ equity			2,510,914				3,512,822
Total Liabilities and Stockholders’ Equity		$	6,351,178			$	5,886,666

 

See accompanying notes to financial statements and independent auditors’ report.

 

 

AMERICAN PARTNERS INC

STATEMENT OF INCOME AND RETAINED EARNINGS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

		2012				2011
Revenue		$	28,666,095			$	25,587,991
Cost of revenue			22,992,864				20,471,205
Gross profit			5,673,231				5,116,786
Selling, general and administrative expenses			3,852,743				3,248,277
Operating income			1,820,488				1,868,509
Other income (expense):
Interest income			3,305				16
Interest expense			-				(8,888	)
Total other income (expense), net			3,305				(8,872	)
Net Income			1,823,793				1,859,637
Retained earnings, beginning of period			3,412,822				1,553,185
Stockholder distributions			(2,825,701	)			-
Retained earnings, end of period		$	2,410,914			$	3,412,822

 

See accompanying notes to financial statements and independent auditors’ report.

 

 

AMERICAN PARTNERS INC

STATEMENTS OF CASH FLOWS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

		2012				2011
Cash Flows from Operating Activities
Net income		$	1,823,793			$	1,859,637
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense			86,281				52,525
Depreciation			10,029				9,478
Changes in operating assets and liabilities:
Accounts receivable			(695,014	)			(944,750	)
Prepaid expenses			416				(6,213	)
Employee loans			4,238				620
Accounts payable			412,129				490,105
Accrued liabilities			(146,270	)			54,698
Net cash provided by operating activities			1,495,602				1,516,100
Cash Flows from Investing Activities:
Purchase of property and equipment			(2,754	)			(20,595	)
Collections from (loans to) stockholders			50,000				(61,398	)
Net cash provided (used) by investing activities			47,246				(81,993	)
Cash Flows from Financing Activities:
Principal payments on long-term debt			-				(116,790	)
Stockholder distributions			(1,613,742	)			-
Net cash used by financing activities			(1,613,742	)			(116,790	)
Net Increase (Decrease) in Cash and Cash Equivalents			(70,894	)		$	1,317,317
Cash and Cash Equivalents, beginning of period			1,317,505				188
Cash and Cash Equivalents, end of period		$	1,246,611			$	1,317,505
Schedule of Noncash Investing and Financing Transactions:
Distributions declared, payable at year-end		$	1,200,561			$	-
Forgiveness of loan to shareholder		$	11,398			$	-
Supplemental Cash Flow Information:
Cash paid for interest		$	-			$	8,888

 

See accompanying notes to financial statements and independent auditors’ report.

 

 

AMERICAN PARTNERS INC

NOTES TO FINANCIAL STATEMENTS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

1.

Nature of Operations

 

American Partners Inc (the Corporation) is a Rhode Island S Corporation that provides specialized recruiting services to clients looking for business intelligence and enterprise performance management professionals in the Hyperion, Oracle Business Intelligence, Peoplesoft and SAP markets.

 

2.

Summary of Significant Accounting Policies

 

This summary of significant accounting policies of the Corporation is presented to assist the reader in understanding the Corporation’s financial statements. The financial statements and notes are representations of the Corporation’s management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

Basis of Presentation

The Corporation prepares its financial statements on the accrual basis of accounting. The Corporation has a December 31 year-end; however, these financial statements are prepared for the eleven-month period ended December 3, 2012 in connection with the transaction described in Note 9.

 

Revenue Recognition

The Corporation has two primary forms of revenue: recruitment related and permanent placement related. Revenues are recognized upon the rendering of these services. The majority of revenues are generated by the recruitment business, where billings are generally negotiated and invoiced on a per-hour basis. Accordingly, as contingent workers are placed, revenue is recorded based on hours worked. Permanent placement revenues are recorded as a one-time fee when placements are made.

 

Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. The carrying value of these instruments approximates their fair value.

 

Cash and Cash Equivalents

Cash and cash equivalents include investments in highly liquid debt instruments with an original maturity date of three months or less.

 

Accounts Receivable

Accounts receivable are carried at anticipated net realizable value. Doubtful accounts are provided for on the basis of anticipated collection losses. The estimated losses are determined from historical collection experience and a review of outstanding accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. As of December 3, 2012 and December 31, 2011, no allowance for doubtful accounts was considered necessary.

 

The Corporation does not accrue interest on these receivables. A receivable is considered past due if payments have not been received by the Corporation for 30 days. At that time, the Corporation will reevaluate the receivable and determine the appropriate course of action for collection.

 

Property and Equipment

Property and equipment are recorded at cost. Expenditures for repairs and maintenance are expensed as incurred. Renewals and betterments that materially extend the life of the assets are capitalized. Depreciation is computed on the modified accelerated cost recovery methods over the estimated useful lives of the related assets which range from five to seven years.

 

 

AMERICAN PARTNERS INC

NOTES TO FINANCIAL STATEMENTS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

Advertising

Advertising costs are expensed as incurred. Advertising expense for the period January 1, 2012 to December 3, 2012 and the year ended December 31, 2011, was approximately $10,400 and $10,500, respectively.

 

Income Taxes

The Corporation, with the consent of its stockholders, elected to have its income taxed under the provisions of Subchapter S of the Internal Revenue Code. Subchapter S provides that the individual stockholders be taxed on their proportionate share of the Corporation’s taxable income in lieu of the Corporation paying income taxes. Therefore, no provision or liability for income taxes is reflected in these financial statements. The Corporation’s income tax returns for 2009, 2010, and 2011 are subject to examination by the Internal Revenue Service, generally for three years after they were filed.

 

Concentrations of Credit Risk

Financial instruments that potentially subject the Corporation to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

The Corporation maintains its operating accounts in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to specified limits. From time to time, the Corporation had bank balances in excess of federally insured limits.

 

For the period January 1, 2012 to December 3, 2012, no customer concentrations were present. For the year ended December 31, 2011, two customers represented 27% of the Corporation’s revenue. At December 31, 2011, three customers accounted for 37% of the Corporation’s accounts receivable balance.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

3.

Property and Equipment

 

Property and equipment consisted of the following:

 

		2012				2011
Furniture and fixtures		$	23,949			$	21,195
Equipment			17,331				17,331
Leasehold improvements			12,450				12,450
Total property and equipment		$	53,730			$	50,976

 

4.

Long-term Debt

 

On January 29, 2008, the Corporation entered into a promissory note in the amount of $250,000 with interest payable at 8%. Interest and principal payments were due monthly commencing on February 29, 2008 through January 29, 2013. The note was secured by substantially all of the assets of the Corporation and was personally guaranteed by an owner of the Corporation. On August 5, 2011, the Corporation paid the outstanding balance of the loan.

 

 

AMERICAN PARTNERS INC

NOTES TO FINANCIAL STATEMENTS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

5.

Line of Credit

 

The Corporation has a revolving line of credit with a bank which permits maximum borrowings up to the lower of $1,000,000 or the aggregate sum of 80% of eligible accounts receivable. The line of credit requires interest on borrowings at the bank’s prime rate (3.25% at December 3, 2012 and December 31, 2011, respectively) plus 2.00%. Advances on the credit line are payable upon demand and are secured by substantially all assets of the Corporation and the personal guaranty of one of the stockholders. The line of credit matured on December 4, 2012.

 

At December 3, 2012 and December 31, 2011, there was no outstanding balance on the line of credit.

 

In conjunction with the line of credit agreement, the Corporation had agreed to certain financial, transactional and conditional debt covenants. Management believes that the Corporation was in compliance with all covenants at December 3, 2012 and December 31, 2011.

 

6.

Retirement Plan

 

The Corporation maintains a 401 (k) profit sharing plan (the Plan), which covers all employees that have met the Plan’s eligibility requirement after having completed six months of service. The Corporation’s contributions to the Plan are at the discretion of senior management. Contributions of approximately $34,000 and $16,500 were made to the Plan for the period January 1, 2012 to December 3, 2012 and the year ended December 31, 2011, respectively.

 

7.

Commitments and Contingencies

 

The Corporation has the following commitments and contingencies:

 

Operating Lease Commitments

The Corporation leases office space in Pawtucket, Rhode Island under a non-cancelable operating lease which expires in February, 2014. The monthly lease payments are approximately $3,800 plus a monthly CAM fee of $130. The Corporation is responsible for paying insurance, utilities and maintenance on the office space. Total rent expense for the period January 1, 2012 to December 3, 2012 and the year ended December 31, 2011 was approximately $43,000 and $38,600, respectively.

 

Approximate aggregate future minimum lease payments under this operating lease are as follows:

 

Year Ending		Amount
December 31, 2012		$	3,900
December 31, 2013			48,100
December 31, 2014			8,100
Total		$	60,100

 

Employment Agreements

The Corporation has non-competition employment agreements with each member of management, including two of its stockholders, that expire twelve months after termination. The agreements specify that the employees hold their respective positions through termination. These agreements provide for a base salary level, as well as commissions based on personal billings, profitability of their respective teams and quarterly Corporation bonuses at l/5^th of 25% of corporate gross profit while maintaining a targeted level of EBIT.

 

 

AMERICAN PARTNERS INC

NOTES TO FINANCIAL STATEMENTS

For the Period January 1, 2012 to December 3, 2012

and the Year Ended December 31, 2011

 

8.

Related Party Transactions

 

During 2011, the Corporation advanced funds of $61,398 to various stockholders. The short term loans were non-interest bearing; $50,000 of these loans was repaid during the period January 1, 2012 to December 3, 2012. The remaining balance of $11,398 was not repaid and was treated as a stockholder distribution on December 3, 2012.

 

9.

Subsequent Events

 

On December 3, 2012, BG Staffing, LLC acquired substantially all of the assets of American Partners, Inc. (API) for cash consideration of $10,500,000, deferred payments of $2,000,000, issuance of equity of $500,000 and contingent consideration of $1,500,000 based on the performance of API for the two years following the date of acquisition. The purchase agreement contains a provision for a “true up” of acquired working capital 120 days after the closing date.

 

Management has evaluated subsequent events through February 11, 2013, which is the date these financial statements were available to be issued.

 

 

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors 

InStaff Holding Corporation

 

We have audited the accompanying consolidated financial statements of InStaff Holding Corporation (the Company), which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InStaff Holding Corporation as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ WEAVER AND TIDWELL, L.L.P.

 

Dallas, Texas

February 15, 2013

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2012 AND 2011

 

		2012				2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	300,701			$	1,177
Accounts receivable, net of allowance of $153,293 and $155,086, respectively			5,651,739				5,597,329
Deferred income taxes			88,880				95,124
Prepaid expenses			27,287				41,422
Prepaid workers’ compensation expense			1,773,604				1,446,359
Total current assets			7,842,211				7,181,411
Furniture, fixtures, and leasehold improvements, net			169,248				134,807
Goodwill			6,875,087				6,875,087
Other assets			56,305				47,635
TOTAL ASSETS		$	14,942,851			$	14,238,940
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Outstanding checks payable		$	-			$	257,460
Accounts payable			90,040				95,693
Accrued expenses			1,546,161				1,544,471
Deferred revenue			-				13,088
Line-of-credit			3,264,048				3,265,769
Total current liabilities			4,900,249				5,176,481
Note payable			562,500				750,000
Deferred income taxes			1,750,833				1,368,657
			7,213,582				7,295,138
Stockholders’ equity
Series A Preferred stock, no par value			-				-
Common stock, no par value			-				-
Additional paid-in capital			4,956,067				4,956,067
Retained earnings			2,818,966				2,033,499
Notes receivable from stockholders			(20,817	)			(20,817	)
			7,754,216				6,968,749
Treasury stock, at cost			(24,947	)			(24,947	)
Total stockholders’ equity			7,729,269				6,943,802
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	14,942,851			$	14,238,940

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2012 AND 2011

 

		2012				2011
REVENUES
Temporary placements		$	53,353,380			$	53,391,100
Direct hire fees			128,311				191,251
			53,481,691				53,582,351
COST AND EXPENSES
Cost of sales			45,922,008				45,857,396
Operating expenses			5,784,896				6,676,241
			51,706,904				52,533,637
Operating income			1,774,787				1,048,714
OTHER EXPENSE
Interest expense			201,357				232,415
Management fees			240,000				240,000
			441,357				472,415
Income before income taxes			1,333,430				576,299
Income tax expense			547,963				271,590
NET INCOME		$	785,467			$	304,709

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2012 AND 2011

 

		Additional Paid-in Capital				Retained Earnings				Notes Receivable From Stockholders				Treasury Stock				Total
Balance, December 31, 2010		$	4,956,067			$	1,728,790			$	(28,144	)		$	-			$	6,656,713
Treasury stock purchase			-				-				7,327				(24,947	)			(17,620	)
Net income			-				304,709				-				-				304,709
Balance, December 31, 2011			4,956,067				2,033,499				(20,817	)			(24,947	)			6,943,802
Net income			-				785,467				-				-				785,467
Balance, December 31, 2012		$	4,956,067			$	2,818,966			$	(20,817	)		$	(24,947	)		$	7,729,269

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2012 AND 2011

 

		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	785,467			$	304,709
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization			82,863				75,011
Deferred income taxes			388,420				200,226
Change in operating assets and liabilities
Accounts receivable			(54,410	)			(564,883	)
Refundable income taxes			-				112,305
Prepaid expenses			14,135				50,547
Prepaid workers’ compensation expense			(327,245	)			(209,829	)
Other assets			(8,670	)			11,379
Accounts payable			(5,653	)			(44,507	)
Accrued expenses			1,690				105,884
Deferred revenue			(13,088	)			13,088
Net cash provided by operating activities			863,509				53,930
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures, and leasehold improvements			(117,304	)			(51,902	)
Net cash used in investing activities			(117,304	)			(51,902	)
CASH FLOWS FROM FINANCING ACTIVITIES
Outstanding checks payable			(257,460	)			206,739
Proceeds from line-of-credit			22,607,055				19,304,360
Payments on line-of-credit			(22,608,776	)			(19,495,305	)
Payment on note payable - related party			(187,500	)			-
Purchase of treasury stock			-				(17,620	)
Net cash used financing activities			(446,681	)			(1,826	)
CHANGE IN CASH AND CASH EQUIVALENTS			299,524				202
CASH AND CASH EQUIVALENTS, beginning of year			1,177				975
CASH AND CASH EQUIVALENTS, end of year		$	300,701			$	1,177
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		$	201,357			$	232,415
Income tax paid		$	164,663			$	111,820

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

InStaff Holding Corporation (the Company) is a Texas Corporation incorporated on August 3, 2000 in the state of Texas, for the purpose of acquiring and operating the net assets of personnel staffing businesses. These businesses provide temporary and permanent placement services in the manufacturing and assembly, clerical and professional fields to customers located primarily in Texas, Mississippi, and Tennessee.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

 

Accounts Receivable and Concentrations of Credit Risk

 

The Company extends credit to customers, which results in accounts receivable arising from its normal business activities. The Company does not require collateral from its customers. Accounts receivable are carried at original invoice amount less an allowance for doubtful accounts based on a review of all outstanding amounts on a frequent basis. The allowance is provided for known and anticipated credit losses, as determined by management, as a result of evaluating individual customer receivables. This evaluation takes into consideration a customer’s financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed uncollectible. Recovery of accounts receivable previously written off are recorded when received.

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk related to deposits in excess of federally insured limits.

  

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Revenue Recognition

 

The Company earns revenue from providing temporary and permanent personnel placements. Temporary placement revenue is recognized as services are provided to customers. Direct hire fees are earned from permanent placement services and are recognized as the service is rendered.

 

The Company’s revenues consist of direct payroll costs and service fees paid by its clients under its administrative services agreements. In consideration for payment of such service fees, the Company generally pays the following direct employment costs associated with the worksite employees: salaries and wages, employment related taxes, employee benefit plan premiums and workers’ compensation insurance premiums.

 

The Company accounts for service fees and the related direct employment costs using the accrual method. Under the accrual method, service fees related to worksite employees with earned but unpaid salaries and wages at the end of each period are recognized as unbilled receivables and the related direct payroll costs for such salaries and wages are accrued as a liability during the period in which salaries and wages are earned by the worksite employees. Subsequent to the end of each period, such salaries and wages are paid and the related service fees are billed.

 

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-45 Principal Agent Considerations addresses the reporting of revenue gross as a principal versus net as an agent. The Company is deemed to be a principal in its personnel management services because it is at risk for the payment of direct costs, whether or not its clients pay on a timely basis or at all, and because the Company assumes a significant amount of other risks and liabilities as a co-employer of its worksite employees. As a result, the Company records the full amount of its comprehensive service fees, including the portion that represents gross pay of worksite employees, as revenue in accordance with the FASB ASC guidelines.

 

Furniture, Fixtures, and Leasehold Improvements

 

Furniture, fixtures, and leasehold improvements are recorded at cost. The cost of assets acquired through acquisitions is based on the estimated fair value of assets acquired. Expenditures for maintenance and repairs that do not materially prolong the useful lives of the assets are charged to expense. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Leasehold improvements are amortized over the lesser of the non-cancelable lease term or the life of improvements. The estimated lives of furniture, fixtures, and leasehold improvements are approximately 3 to 7 years. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization is removed from the accounts and any gain or loss is recognized.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Goodwill

 

Goodwill represents the excess purchase price over the fair value of the net assets of acquired businesses. The Company periodically evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill warrants revision or that the remaining balance of goodwill may not be recoverable. If such events or circumstances have occurred, an impairment of the asset is recognized when estimated undiscounted future cash flows generated by the affected subsidiaries are determined to be insufficient to recover the intangible asset. The amount of impairment, if any, is measured based on estimated discounted cash flows using a discount rate based on the Company’s average cost of funds. Management determined there was no impairment adjustment necessary during the years ended December 31, 2012 and 2011.

 

Workers’ Compensation Reserve

 

The Company is insured under a workers’ compensation program for corporate and worksite employees with per occurrence deductible amounts of $400,000. Workers’ compensation costs at December 31, 2012 and 2011 include an estimate of claims incurred but not yet paid of $352,397 and $109,515. Management has determined that this meets the criteria under ASC 210-20-45-1 Right of Setoff Criteria, and has recorded prepaid workers’ compensation expense net of this amount.

 

The reserve for unpaid workers’ compensation losses has been estimated based upon claims outstanding, including an estimate of incurred but not yet paid claims at the end of the year. These estimates are subject to the effects of trends in loss severity and frequency. Although considerable variability is inherent in such estimates, management believes that the reserves for losses are adequate. However, it is at least reasonably possible that a change in the estimates could occur in the near term. The estimates are continually reviewed and adjusted as necessary. As experience develops or new information becomes known, such adjustments will be included in current operations.

 

In addition, management periodically reviews outstanding claims for those that it believes to be fraudulent or those for which the Company will most likely not be liable. In such circumstances, the Company estimates a range of probable loss exposure and provides a reserve for the more likely amount in the range. If no amount within the range is more likely than any other, the Company provides for the minimum amount in the range.

 

Treasury Stock

 

The Company accounts for treasury stock using the cost method, which defers recognition of gain/loss on treasury stock until the stock has ultimately been sold or retired. Amounts recorded in treasury stock represent the cost to the Company to repurchase the outstanding shares.

  

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Share-based Compensation

 

The Company has adopted a share-based employee compensation plan (the Plan), which provides for the grant of stock options to employees of the Company, with vesting periods determinable by the Board of Directors at the grant date. At December 31, 2012 and 2011, approximately 641,000 shares of Common stock remained available for grant. No options were outstanding at December 31, 2012 or 2011.

 

Advertising Costs

 

The Company expenses advertising costs as they are incurred. Advertising expenses were approximately $35,000 and $38,000 for the years ended December 31, 2012 and 2011, respectively.

 

Income Taxes

 

The Company is a C corporation and is accounting for its income taxes in accordance with current accounting standards, which require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when it is more likely than not that the deferred tax assets may not be realized.

 

The Company recognizes in its financial statements the financial effect of a tax position, if that position is more likely than not to not be sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position. Tax positions taken related to state and federal income taxes have been reviewed, and management is of the opinion that material positions taken by the Company would more likely than not be sustained by examination. Accordingly, the Company has not recorded an income tax liability for uncertain tax positions. As of December 31, 2012, the Company’s tax years 2009 to 2011 remain subject to examination for federal and state tax.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are used when accounting for reserves for workers’ compensation insurance, the allowance for doubtful accounts, and impairment of long-lived assets. The Company evaluates and updates its assumptions and estimates on an ongoing basis. Actual results could vary from such estimates.

  

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Subsequent Events

 

The Company has evaluated for recognition and disclosure all events or transactions that occurred after December 31, 2012 through February 15, 2013, the date these financial statements were available to be issued.

 

NOTE 2. ACCOUNTS RECEIVABLE

 

The Company recorded approximately $300 and $399,000 in additions, net of recoveries, to its allowance for doubtful accounts for the years ended December 31, 2012 and 2011, respectively. The Company wrote off approximately $2,000 and $357,000 of accounts receivable against its allowance for doubtful accounts during the years ended December 31, 2012 and 2011, respectively.

 

NOTE 3. FURNITURE, FIXTURES, AND LEASEHOLD IMPROVEMENTS

 

Furniture, fixtures, and leasehold improvements consisted of the following at December 31:

 

		2012				2011
Furniture and fixtures		$	641,979			$	639,536
Leasehold improvements			77,660				113,863
			719,639				753,399
Less accumulated depreciation and amortization			550,391				618,592
		$	169,248			$	134,807

 

Depreciation and amortization expense were $82,863 and $75,011 for the years ended December 31, 2012 and 2011, respectively.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4. ACCRUED EXPENSES

 

Accrued expenses consisted of the following at December 31:

 

		2012				2011
Accrued compensation		$	537,804			$	391,153
Payroll taxes			483,771				356,625
Unclaimed wages			10,573				10,873
Unclaimed property			1,356				7,558
Accrued management fees (related party)			440,000				400,000
Accrued state taxes			29,372				79,035
Accrued interest			8,475				25,990
Other accrued expenses			34,810				273,237
			1,546,161				1,544,471

 

NOTE 5. LINE-OF-CREDIT

 

The Company has a credit agreement (Credit Agreement) with a financial institution that provides for a $4,000,000 revolving line-of-credit (LOC) maturing June 1, 2013, as amended in June 19, 2012. Interest is payable monthly on the outstanding balance of the LOC at an interest rate equal to the one month LIBOR rate plus 2.5% or the prime rate, 3.25% at December 31, 2012 and 2011. At December 31, 2012 and 2011, the Company had outstanding borrowings of $3,264,048 and $3,265,769 with amounts available to borrow of $735,952 and $734,231, respectively. The LOC is collateralized by substantially all the assets of the Company. The Credit Agreement requires maintenance of certain financial covenants and other restrictions.

 

NOTE 6. NOTE PAYABLE – RELATED PARTY

 

Note payable at December 31, 2012 and 2011 was comprised of a promissory note to a principal stockholder for the original amount of $750,000. The promissory note is subordinated to the prior payment in full of obligations under the Credit Agreement, as defined in the subordination agreement, which as of December 31, 2012 consisted of the LOC. The outstanding principal and accrued interest, shall be due and payable on or before February 17, 2014, or, on demand at any time after the Company satisfactorily fulfills its covenant obligations under the Credit Agreement. Interest on the promissory note accrues at an annual rate of 15%, and will escalate by 2.5% on each succeeding February 17th that the note remains unpaid, but will not exceed the lesser of 22.5% or the statutory legal rate limit and is payable monthly on the first day of the month. At December 31, 2012 and 2011, approximately $8,475 and $26,000, respectively, accrued interest was included in accrued expenses. At December 31, 2012 and 2011, the outstanding balance on the note payable was $750,000 and $562,500, respectively.

  

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. INCOME TAXES

 

The components of the income tax provision (benefit) are as follows for the years ended December 31:

 

		2012				2011
Current – Federal		$	-			$	-
Current – State			44,543,00				71,364
Deferred			503,420				200,226
Income tax provision		$	547,963			$	271,590

 

The estimated provision for income tax expense differs from the amount calculated by applying the statutory federal income tax rates to income before taxes due to expenses which are non-deductible for federal income tax purposes.

 

Significant components of the Company’s deferred tax assets and liabilities are as follows as of December 31:

 

		2012				2011
Deferred tax assets
Allowance for bad debts		$	52,594			$	53,203
Federal net operating loss carryforward			(935	)			136,860
State net operating loss carryforward			16,760				16,760
Other			36,286				41,921
			104,705				248,744
Deferred tax liabilities
Equipment and improvements			(36,766	)			(14,511	)
Intangible assets			(1,729,892	)			(1,507,766	)
			(1,766,658	)			(1,522,277	)
Net deferred tax liabilities		$	(1,661,953	)		$	(1,273,533	)

 

 

NOTE 7. INCOME TAXES – CONTINUED

 

The net deferred tax asset (liability) is classified on the balance sheets at December 31 as follows:

 

		2012				2011
Current deferred tax asset		$	88,880			$	95,124
Long-term deferred tax liability			(1,750,833	)			(1,368,657	)
		$	(1,661,953	)		$	(1,073,307	)

 

If not used, the Company’s net operating losses will ultimately expire in 2019.

 

NOTE 8. CONCENTRATIONS

 

For the year ended December 31, 2012 and 2011, one customer and two customers represented approximately 20% and 34%, respectively, of the Company’s annual revenues.

 

At December 31, 2012 and 2011, approximately 19% and 27%, respectively, of accounts receivable was comprised of amounts due from one customer.

 

NOTE 9. CAPITAL STOCK

 

During the year ended December 31, 2011, the Company repurchased 3,564 shares of Common stock outstanding. Consideration for the purchase consisted of forgiveness of a note receivable totaling approximately $7,000, and cash paid totaling approximately $18,000.

 

As a result of the Company’s reorganization of its capital structure during the year ended December 31, 2010, a majority of its shareholders exchanged their shares of common stock for an equal number of the Company’s Series A Preferred stock. The following schedules summarize the changes in the number of shares of the Company’s capital stock.

 

		Number of Shares
		2012				2011
Authorized
Series A Preferred Stock, no par value			700,000				700,000
Common stock, no par value			800,000				800,000
Issued
Series A Preferred stock, no par value			629,132				629,132
Common stock, no par value
Outstanding			37,640				37,640
Treasury			3,564				3,564
Total Common stock, no par value			41,204				41,204

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9. CAPITAL STOCK – CONTINUED

 

The Series A Preferred stockholders have liquidation preferences over the Common stockholders. Subject to the payment in full of the Series A Preferred stock, the remaining assets and funds of the Company will be distributed among the holders of Common and Series A Preferred stock ratably in proportion to the shares of Common stock they hold or have the right to acquire upon conversion of Series A Preferred stock. No dividend may be paid on any shares of Common stock unless a pro rata dividend is paid on the Series A Preferred stock based on the conversion rate. Each share of Series A Preferred stock is convertible to one share of Common stock.

 

NOTE 10. EMPLOYEE BENEFIT PLAN

 

The Company has a 401(k) profit sharing plan and trust for the benefit of eligible employees. The Company makes discretionary employer contributions. The Company’s contributions to the 401(k) plan were approximately $539 and $4,000 for the years ended December 31, 2012 and 2011, respectfully.

 

NOTE 11. RELATED PARTY TRANSACTIONS

 

The Company pays monthly management fees to a certain stockholder for management and administrative services. Total management fees were $240,000 for each of the years ended December 31, 2012 and 2011. The total management fees payable to the stockholder at December 31, 2012 and 2011, were $400,000 for each of the years, and are included in accrued expenses.

 

One or more of the Company’s directors own an interest in four and three of the Company’s customers in 2012 and 2011, respectively. During 2012 and 2011, the Company generated revenue totaling approximately $1,734,296 and $1,412,000, respectively, from these customers.

 

Notes receivable from stockholders included as a reduction of stockholders’ equity represents interest free loans for the purchase of Common stock. The note receivable was forgiven and is included in treasury stock.

 

During the year ending December 2011, a stockholder of the Company (the Consultant) was engaged to perform and render such consulting services as the Consultant and the Company shall agree from time to time. The agreement contains non-compete provisions, and expired during the year ended December 31, 2011. Included in operating expense are consulting fees paid to the Consultant of $48,000 for the year ended December 31, 2011.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12. LEASE COMMITMENTS

 

The Company leases its office facilities and certain office equipment under noncancelable operating leases. Certain facility leases require the payment of property taxes, insurance and other costs. Most of the office leases provide renewal options, and certain equipment leases provide options to purchase the equipment at fair market value.

 

At December 31, 2012, the minimum future rental payments required under these leases are as follows:

 

Years Ending December 31,		Amount
2013		$	262,988
2014			232,124
2015			194,643
2016			120,620
2017			24,200
Total		$	834,575

 

Rent expense, which includes insurance, taxes, and other costs, was approximately $372,000 and $361,000 for the years ended December 31, 2012 and 2011, respectively.

 

NOTE 13. LITIGATION

 

The Company is regularly involved in various claims and legal actions arising in the ordinary course of its business, typically matters relating to various aspects of employment law and workers’ compensation. Management does not believe that the ultimate resolution of these matters will have a material adverse affect on the Company’s consolidated financial position, results of operations, or cash flows.

 

NOTE 14. PRELIMINARY AGREEMENT FOR SALE OF THE COMPANY

 

On October 25, 2012, the Company executed a term sheet outlining the general terms for the acquisition of the stock of the Company by another staffing company. Due diligence and negotiations related to the term sheet have not resulted in a definitive purchase date as of the report date.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		May 28 2013				December 31 2012
		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents			565,656			$	300,701
Accounts receivable, net of allowance of $149,196 and $155,086, respectively			4,286,855				5,651,739
Deferred income taxes			88,710				88,880
Prepaid expenses			25,115				27,287
Prepaid workers’ compensation expense			2,168,659				1,773,604
Total current assets			7,134,995				7,842,211
Furniture, fixtures, and leasehold improvements, net			136,993				169,248
Goodwill			6,875,087				6,875,087
Other assets			46,122				56,305
TOTAL ASSETS		$	14,193,197			$	14,942,851
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Outstanding checks payable		$	-			$	-
Accounts payable			136,697				90,040
Accrued expenses			1,791,780				1,546,161
Line-of-credit			2,187,937				3,264,048
Total current liabilities			4,116,414				4,900,249
Note payable			468,750				562,500
Deferred income taxes			1,835,663				1,750,833
			6,420,827				7,213,582
Stockholders’ equity
Series A Preferred stock, no par value			-				-
Common stock, no par value			-				-
Additional paid-in capital			4,956,067				4,956,067
Retained earnings			2,862,068				2,818,966
Notes receivable from stockholders			(20,817	)			(20,817	)
			7,957,568				7,754,216
Treasury stock, at cost			(24,947)				(24,947	)
Total stockholders’ equity			7,772,371				7,729,269
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	14,193,197			$	14,942,851

 

The Notes to Consolidated Financial Statements are an integral part of these unaudited statements.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

FOR THE TWENTY-ONE WEEK PERIOD Ended MaY 28, 2013

 

		2013
REVENUES
Temporary placements			20,874,657
Direct hire fees			48,918
			20,923,575
COST AND EXPENSES
Cost of sales			17,920,839
Operating expenses			2,353,866
			20,274,705
Operating income			648,870
OTHER EXPENSE
Interest expense			57,055
Management fees			80,000
			137,055
Income before income taxes			511,814
Income tax expense			85,000
NET INCOME		$	426,814

 

The Notes to Consolidated Financial Statements are an integral part of these unaudited statements.

 

 

INSTAFF HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWENTY-ONE WEEK PERIOD ended MaY 28, 2013

 

		2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	426,814
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization			36,068
Deferred income taxes			85,000
Change in operating assets and liabilities
Accounts receivable			1,634,884
Prepaid expenses			2,172
Prepaid workers’ compensation expense			(395,055	)
Other assets			10,183
Accounts payable			46,657
Accrued expenses			321,095
Net cash provided by operating activities			2,167,818
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures, and leasehold improvements			(4,002	)
Net cash used in investing activities			(4,002	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to shareholder			(729,000	)
Net payments on line-of-credit			(1,076,111	)
Payment on note payable - related party			(93,750	)
Net cash used financing activities			(1,898,861	)
CHANGE IN CASH AND CASH EQUIVALENTS			264,955
CASH AND CASH EQUIVALENTS, beginning of period			300,701
CASH AND CASH EQUIVALENTS, end of period		$	565,656
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		$	56,309
Income tax paid		$	25,000

 

The Notes to Consolidated Financial Statements are an integral part of these unaudited statements.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

InStaff Holding Corporation (the Company) is a Texas Corporation incorporated on August 3, 2000 in the state of Texas, for the purpose of acquiring and operating the net assets of personnel staffing businesses. These businesses provide temporary and permanent placement services in the manufacturing and assembly, clerical and professional fields to customers located primarily in Texas, Mississippi, and Tennessee.

 

The accompanying unaudited consolidated financial statements for the twenty-one week period ended May 28, 2013 have been prepared by the Company in accordance with generally accepted accounting principles in the United States. The information furnished herein reflects all adjustments (consisting only of normal recurring accruals) 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. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their 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 for the fiscal year ended December 31, 2012.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Share-based Compensation

 

The Company has adopted a share-based employee compensation plan (the Plan), which provides for the grant of stock options to employees of the Company, with vesting periods determinable by the Board of Directors at the grant date. At May 28, 2013, approximately 641,000 shares of Common stock remained available for grant. No options were outstanding at May 28, 2013.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are used when accounting for reserves for workers’ compensation insurance, the allowance for doubtful accounts, and impairment of long-lived assets. The Company evaluates and updates its assumptions and estimates on an ongoing basis. Actual results could vary from such estimates.

 

Subsequent Events

 

The Company has evaluated for recognition and disclosure all events or transactions through September 6, 2013, the date these financial statements were available to be issued.  

 

NOTE 2. SALE OF COMPANY

 

Effective May 28, 2013, LTN Staffing, LLC acquired substantially all of the assets of the Company for cash consideration of $9,000,000 and contingent consideration of $1,000,000 based on the performance of the company for the two years following the date of acquisition.

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

  

NOTE 3. NOTE PAYABLE – RELATED PARTY

 

Note payable at May 28, 2013 was comprised of a promissory note to a principal stockholder for the original amount of $750,000. The promissory note is subordinated to the prior payment in full of obligations under the Credit Agreement, as defined in the subordination agreement, which as of May 28, 2013 consisted of the LOC. The outstanding principal and accrued interest, shall be due and payable on or before February 17, 2014, or, on demand at any time after the Company satisfactorily fulfills its covenant obligations under the Credit Agreement. Interest on the promissory note accrues at an annual rate of 15%, and will escalate by 2.5% on each succeeding February 17th that the note remains unpaid, but will not exceed the lesser of 22.5% or the statutory legal rate limit and is payable monthly on the first day of the month. This note was paid in full with proceeds from the sale of the Company.

 

NOTE 4. CAPITAL STOCK

 

The following schedules summarize the changes in the number of shares of the Company’s capital stock.

 

		Number of Shares
		May 28, 2013
Authorized
Series A Preferred Stock, no par value			700,000
Common stock, no par value			800,000
Issued
Series A Preferred stock, no par value			629,132
Common stock, no par value
Outstanding			37,640
Treasury			3,564
Total Common stock, no par value			41,204

 

 

INSTAFF HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

  

NOTE 5. EMPLOYEE BENEFIT PLAN

 

The Company has a 401(k) profit sharing plan and trust for the benefit of eligible employees. The Company makes discretionary employer contributions. The Company did not contribute to the 401(k) plan during the twenty-one week period ended May 28, 2013, respectfully.

 

NOTE 6. RELATED PARTY TRANSACTIONS

 

The Company pays monthly management fees to a certain stockholder for management and administrative services. Total management fees were $80,000 for the twenty-one week period ended May 28, 2013. The total management fees payable to the stockholder at May 28, 2013, were $400,000 at May 28, 2013 and are included in accrued expenses.

 

One or more of the Company’s directors own an interest in four of the Company’s customers in 2013 and 2012. During the twenty-one week period ended May 28, 2013, the Company generated revenue totaling approximately $542,000 from these customers.

 

Notes receivable from stockholders included as a reduction of stockholders’ equity represents interest free loans for the purchase of common stock. The note receivable was forgiven and is included in treasury stock.

 

NOTE 7. LITIGATION

 

The Company is regularly involved in various claims and legal actions arising in the ordinary course of its business, typically matters relating to various aspects of employment law and workers’ compensation. Management does not believe that the ultimate resolution of these matters will have a material adverse affect on the Company’s consolidated financial position, results of operations, or cash flows.

   

 

You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

 

Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business operations. The risks and uncertainties described in this document and other risks and uncertainties which we may face in the future will have a greater impact on those who purchase our common stock. These purchasers will purchase our common stock at the market price or at a privately negotiated price and will run the risk of losing their entire investment.

 

229,309 Shares

 

 

PROSPECTUS

 

Common Stock

 

, 2013

 

Until ___, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments and subscriptions.

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

Set forth below is an estimate (except for registration fees, which are actual) of the approximate amount of the fees and expenses payable by us in connection with the issuance and distribution of the shares of our common stock:

 

Registration Fees		$	1.50
Accounting Fees and Expenses		$	140,000
Legal Fees and Expenses		$	280,000
Miscellaneous Fees and Expenses		$	30,000
Total		$	450,001.50

 

ITEM 14.  INDEMNIFICATION OF OFFICERS AND DIRECTORS

 

Section 145 of the Delaware General Corporation Law (the “DGCL”) provides, in general, that a corporation incorporated under the laws of the State of Delaware, as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably entitled to indemnity for such expenses.

 

Our bylaws provide that we will indemnify our directors and officers to the extent and in the manner permitted by applicable law, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. An indemnitee will generally not be entitled to indemnification under our bylaws in connection with any claim initiated by the indemnitee unless we consent to the initiation of the claim.

 

Moreover, our certificate of incorporation provides that, to the fullest extend permitted by law, our directors will not be personally liable to us or our stockholders for damages for breach of fiduciary duty.

 

Any repeal or modification of the foregoing certificate of incorporation and bylaw provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers arising from acts prior to the time of such repeal or modification.

 

We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.

 

 

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

 

On May 28, 2013, Brookside Mezzanine Fund II, L.P. and Legg Mason SBIC Mezzanine Fund, L.P. purchased senior subordinated notes in the aggregate amount of $6 million to partially finance LTN Staffing, LLC’s acquisition of substantially all of the assets of InStaff Holding Corporation and InStaff Personnel, LLC. In connection therewith, on May 28, 2013, Brookside Mezzanine Fund II, L.P. and Legg Mason SBIC Mezzanine Fund, L.P. each purchased a warrant to purchase up to the number of Class A units of LTN Acquisition, LLC (LTN Staffing, LLC’s direct parent) equal to 2% and 1%, respectively, of the issued and outstanding Class A units on a fully-diluted basis (amounting to 598,765 and 299,337 Class A units, respectively, as of the date of issuance of the warrants). The warrants have an exercise price (subject to adjustment) of $0.01 per unit. $187,105 of the aggregate $4 million purchase price of the senior subordinated note and warrant purchased by Brookside was allocated to the purchase of Brookside’s warrant, $93,552 of the aggregate $2 million purchase price of the senior subordinated note and warrant purchased by Legg Mason was allocated to the purchase of Legg Mason’s warrant. The warrants were issued without registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

 

On December 3, 2012, LTN Acquisition, LLC sold 6 million Class A units having an aggregate offering price of $4.5 million in conjunction with the acquisition of API. The Class A units were issued without registration in reliance on Rule 506 under the Securities Act of 1933, as amended. Taglich Brothers, Inc. received as sales commissions $360,000 and 600,000 warrants to purchase Class A units with an exercise price of $0.90 per unit. The Class A units were sold to 80 investors.

 

On November 21, 2011, LTN Acquisition, LLC sold 8.5 million Class A units having an aggregate offering price of $4.9 million. The Class A units were issued without registration in reliance on Rule 506 under the Securities Act of 1933, as amended. Taglich Brothers, Inc. received $400,000 in sales commissions. The Class A units were sold to 128 investors.

 

On May 24, 2010, LTN Acquisition, LLC issued in the aggregate principal amount of $2,250,000. The notes were issued without registration in reliance on Rule 506 under the Securities Act of 1933, as amended. Taglich Brothers, Inc. received $180,000 in sales commissions. The notes were issued to approximately 74 investors.

 

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)

The list of exhibits is set forth under “Exhibit Index” at the end of this registration statement and is incorporated herein by reference.

 

(b)

See the Index to Consolidated Financial Statements included on page F-1 for a list of the financial statements included in this registration statement. All schedules not identified above have been omitted because they are not required, are inapplicable, or the information is included in the consolidated financial statements or notes contained in this registration statement.

 

Certain of the agreements included as exhibits to this prospectus contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

·

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

·

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

·

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

·

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

The registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.

 

ITEM 17.  UNDERTAKINGS

 

The undersigned registrant hereby undertakes:

 

(1)          To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)          To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

 

(ii)         To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

(iii)        To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2)          That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)          To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4)          That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(5)          That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)          Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)         Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii)        The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv)        Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, Texas on October 28, 2013.

 

	LTN STAFFING, LLC
	By:	/s/ L. Allen Baker, Jr.
		Name: L. Allen Baker, Jr.
		Title: President and Chief Executive Officer

 

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned do hereby constitute and appoint L. Allen Baker, Jr. and Michael A. Rutledge, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments, exhibits thereto and other documents in connection therewith) to this Registration Statement and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended, which relates to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

 

Person			Capacity		Date
/s/ L. Allen Baker, Jr.			President and Chief Executive Officer		October 28, 2013
L. Allen Baker, Jr.			(Principal Executive Officer)
/s/ Michael A. Rutledge			Chief Financial Officer		October 28, 2013
Michael A. Rutledge			(Principal Financial and Accounting Officer)
LTN ACQUISITION, LLC			Sole Managing Member		October 28, 2013
By:	/s/ L. Allen Baker, Jr.
Name : L. Allen Baker, Jr.
Title : President and Chief Executive Officer

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
2.1		Asset Purchase Agreement, dated as of May 28, 2013, by and among LTN Staffing, LLC, InStaff Holding Corporation and InStaff Personnel, LLC**
2.2		Asset Purchase Agreement, dated as of December 3, 2012, by and among BG Staffing, LLC, American Partners, Inc., Thomas Leonard, Justin Franks, Ronald Wnek, and LTN Acquisition, LLC* *
3.1		Form of Certificate of Incorporation of BG Staffing, Inc. to become effective immediately prior to effectiveness*
3.2		Form of Bylaws of BG Staffing, Inc. to become effective immediately prior to effectiveness*
4.1		Form of Common Stock Certificate*
5.1		Form of Opinion of Fulbright & Jaworski LLP*
8.1		Form of Opinion of Fulbright & Jaworski LLP*
10.1		LTN Acquisition, LLC Ownership Incentive Plan*
10.2		[Reserved]
10.3		Employment Agreement, dated as of April 30, 2009, between LTN Staffing, LLC and L. Allen Baker, Jr.**
10.4		Non-disclosure of Confidential Information, Non-solicitation, Non-interference and Non-competition Agreement, dated as of April 30, 2009, between LTN Staffing, LLC and L. Allen Baker, Jr.* *
10.5		Restricted Unit Award Agreement, dated as of May 27, 2009, between LTN Acquisition, LLC and L. Allen Baker, Jr.**
10.6		Employment Agreement, dated as of March 26, 2012, between B G Staff Services Inc. and Debra R. Jackson* *
10.7		Restricted Unit Award Agreement, dated as of March 26, 2012, between LTN Acquisition, LLC and Debra R. Jackson**
10.8		Bonus Agreement, dated as of March 26, 2012, between B G Staff Services, Inc. and Debra R. Jackson**
10.9		Employment Agreement, dated as of December 3, 2012, between B G Staff Services, Inc. and Thomas Leonard**
10.10		Employment Agreement, dated as of May 28, 2013, between B G Staff Services, Inc. Beth Garvey* *
10.12		Loan and Security Agreement, dated as of May 24, 2010, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank* *
10.13		First Amendment to Loan and Security Agreement and Other Loan Documents, dated as of December 13, 2010, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank* *
10.14		Second Amendment to Loan and Security Agreement and Other Loan Documents, dated as of June 15, 2011, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank* *
10.15		Third Amendment to Loan and Security Agreement and Other Loan Documents, dated as of October 1, 2011, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank* *
10.16		Fourth Amendment to Loan and Security Agreement and Other Loan Documents, dated as of November 21, 2011, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank* *
10.17		Fifth Amendment to Loan and Security Agreement and Other Loan Documents, dated as of April __, 2012, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank**
10.18		Sixth Amendment to Loan and Security Agreement and Other Loan Documents, dated as of December 3, 2012, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank**
10.19		Seventh Amendment to Loan and Security Agreement and Other Loan Documents, dated as of May 28, 2013, by and among LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Fifth Third Bank**
10.20		Sixth Amended and Restated Revolving Note, dated as of May 28, 2013, made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Fifth Third Bank**
10.21		Fourth Amended and Restated Term Note, dated as of December 3, 2012, made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Fifth Third Bank * *

 

 

 

 

10.22		Capital Contribution Agreement, dated as of May 28, 2013, among Fifth Third Bank, Taglich Private Equity, LLC, LTN Staffing, LLC and certain subsidiaries of LTN Staffing, LLC**
10.23		Capital Contribution Agreement, dated as of December 3, 2012, among Fifth Third Bank Taglich Private Equity, LLC, LTN staffing, LLC and certain subsidiaries of LTN staffing, LLC* *
10.24		Capital Contribution Agreement, dated as of May 28, 2013, among Legg Mason SBIC Mezzanine Fund, L.P., Brookside Pecks Capital Partners, L.P., Brookside Mezzanine Fund II, L.P., Taglich Private Equity, LLC, LTN staffing, LLC and certain subsidiaries of LTN staffing, LLC* *
10.25		Amended and Restated Securities Purchase Agreement, dated as of May 28, 2013, among LTN Acquisition, LLC, LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc., and Legg Mason SBIC Mezzanine, L.P., Brookside Pecks Capital Partners, L.P. and Brookside Mezzanine Fund II, L.P.**
10.26		2013 Amended and Restated Senior Subordinated Note, dated as of May 28, 2013 made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Legg Mason SBIC Mezzanine, L.P.**
10.27		2013 Amended and Restated Senior Subordinated Note, dated as of May 28, 2013 made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Brookside Pecks Capital Partners, L.P.* *
10.28		14% Senior Subordinated Note, dated as of May 28, 2013, made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Legg Mason SBIC Mezzanine, L.P.* *
10.29		14% Senior Subordinated Note, dated as of May 28, 2013, made by LTN Staffing, LLC, BG Staffing, LLC, BG Personnel Services, LP, BG Personnel, LP, and B G Staff Services Inc. in favor of Brookside Mezzanine Fund II, L.P.**
10.30		Warrant to Purchase Membership Units of LTN Acquisition, LLC, dated May 28, 2013, by LTN Acquisition in favor of Brookside Mezzanine Fund II, L.P.* *
10.31		Warrant to Purchase Membership Units of LTN Acquisition, LLC, dated May 28, 2013, by LTN Acquisition in favor of Legg Mason SBIC Mezzanine Fund, L.P.* *
21.1		List of Subsidiaries of the Registrant**
23.1		Consent of Grant Thornton LLP*
23.2		Consent of Weaver & Tidwell, LLP*
23.3		Consent of Kahn, Litwin, Renza & Co., Ltd.*
23.4		Form of Consent of Fulbright & Jaworski LLP (included in Exhibit 5.1)*
23.5		Form of Consent of Fulbright & Jaworski LLP (included in Exhibit 8.1)*
24.1		Power of Attorney (included on the signature page of this Registration Statement)* *
99.1		Confidential Draft Registration Statement Submitted May 1, 2013* *
99.2		Confidential Draft Registration Statement Submitted July 29, 2013* *
99.3		Confidential Draft Registration Statement Submitted September 6, 2013* *

 

*	Filed herewith.
**	Previously filed with the original registration statement filed on October 10. 2013
†	To be filed as an exhibit to a pre-effective amendment to this registration statement.