Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - BGSF, INC. | exhibit99206-15x17.htm |
| EX-23.1 - EXHIBIT 23.1 - BGSF, INC. | exhibit23106-15x17.htm |
| 8-K/A - 8-K/A - BGSF, INC. | form8-ka06x15x17.htm |
PRO FORMA FINANCIAL INFORMATION
Introduction to the Unaudited Pro Forma Condensed Combining Balance Sheet and Statement of Operations
On April 3, 2017, BG Staffing, Inc. ("BG Staffing") acquired substantially all of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”) for an initial cash consideration paid of $18.5 million and issued $1.0 million (70,670 shares privately placed) of the Company's common stock at closing. An additional $0.5 million was held back as partial security for post-closing purchase price adjustments and indemnification obligations. The purchase agreement further provides for contingent consideration of up to $3.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that will begin approximately 120 days after the closing date. The acquisition of the assets of Zycron allows BG Staffing to strengthen and expand its IT operations through the southeastern region and selected markets across the country with talent and project management services.
The Unaudited Pro Forma Condensed Combining Balance Sheet represents the historical balance sheet of BG Staffing giving effect to the asset purchase agreement as if it had been consummated on March 26, 2017. The Unaudited Pro Forma Condensed Combining Statements of Operations for the fiscal periods then ended represents the historical statement of operations as if the acquisition had been consummated the beginning of BG Staffing's fiscal year ended December 25, 2016 and fiscal quarter ended March 26, 2017.
You should read this information in conjunction with the:
Ÿ | Accompanying notes to the Unaudited Pro Forma Condensed Combining Balance Sheet and Unaudited Pro Forma Condensed Combining Statements of Operations. | ||
Ÿ | Separate historical financial statements and footnotes of BG Staffing, included in BG Staffing’s annual report on Form 10-K for the fiscal year ended December 25, 2016 as filed March 6, 2017. | ||
Ÿ | Separate historical financial statements and footnotes of BG Staffing, included in BG Staffing’s quarterly report on Form 10-Q for the fiscal quarter ended March 26, 2017 as filed April 27, 2017. | ||
Ÿ | Separate historical financial statements and footnotes of Zycron, included in this current report on Form 8-K/A, for the calendar year ended December 31, 2016 and unaudited financial statements as of March 31, 2017 and for the three month periods ended March 31, 2017 and 2016. | ||
We present the unaudited pro forma condensed combining financial information for informational purposes only. The pro forma information is not necessarily indicative of what our financial position would have been had we completed the acquisition on the dates indicated nor is it necessarily indicative of what our operating results actually would have been had we completed the acquisition on any future date or for any future period. In addition, the unaudited pro forma condensed combining financial information does not purport to project the future financial position or operating results of BG Staffing or Zycron.
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UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
March 26, 2017
BG Staffing, Inc. | Zycron, Inc. | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 887,870 | $ | (887,870 | ) | (a) | $ | — | |||||||||
Accounts receivable, net | 31,407,679 | 5,055,962 | (707,677 | ) | (b) | 35,755,964 | |||||||||||||
Prepaid expenses | 1,017,667 | 90,243 | (12,689 | ) | (b) | 1,095,221 | |||||||||||||
Other current assets | 152,577 | 1,049,933 | (1,045,365 | ) | (b) | 157,145 | |||||||||||||
Total current assets | 32,577,923 | 7,084,008 | (2,653,601 | ) | 37,008,330 | ||||||||||||||
Property and equipment, net | 2,098,379 | 932,871 | (804,440 | ) | (b) | 2,226,810 | |||||||||||||
Other assets | |||||||||||||||||||
Deposits and other long-term assets | 2,697,641 | 759,404 | (759,404 | ) | (b) | 2,697,641 | |||||||||||||
Deferred income taxes | 9,512,455 | — | — | 9,512,455 | |||||||||||||||
Intangible assets, net | 22,282,533 | 1,035,423 | 12,790,841 | (c) | 36,108,797 | ||||||||||||||
Goodwill | 9,184,659 | 439,100 | 6,454,212 | (c) | 16,077,971 | ||||||||||||||
Total other assets | 43,677,288 | 2,233,927 | 18,485,649 | 64,396,864 | |||||||||||||||
Total assets | $ | 78,353,590 | $ | 10,250,806 | $ | 15,027,608 | $ | 103,632,004 | |||||||||||
Current liabilities | |||||||||||||||||||
Long-term debt, current portion, net | $ | — | $ | 369,146 | $ | 2,000,000 | (d) | $ | 1,963,680 | ||||||||||
(369,146 | ) | (b) | |||||||||||||||||
(36,320 | ) | (e) | |||||||||||||||||
Accounts payable, accrued payroll and expenses | 11,724,965 | 3,111,589 | (110,923 | ) | (b) | 14,411,326 | |||||||||||||
(314,305 | ) | (f) | |||||||||||||||||
Accrued interest and other current liabilities | 100,379 | — | 500,000 | (g) | 600,379 | ||||||||||||||
Accrued workers’ compensation | 470,536 | — | — | 470,536 | |||||||||||||||
Contingent consideration, current portion | 3,757,026 | — | — | 3,757,026 | |||||||||||||||
Lines of credit | — | 3,016,000 | (3,016,000 | ) | (b) | — | |||||||||||||
Other current liabilities | — | 143,673 | (143,673 | ) | (b) | — | |||||||||||||
Income taxes payable | 1,023,170 | 51,391 | (51,391 | ) | (b) | 1,023,170 | |||||||||||||
Total current liabilities | 17,076,076 | 6,691,799 | (1,541,758 | ) | 22,226,117 | ||||||||||||||
Line of credit, net | 19,665,547 | — | (501,212 | ) | (h) | 18,528,743 | |||||||||||||
(635,592 | ) | (e) | |||||||||||||||||
Long-term debt, less current portion, net | — | 1,700,837 | 18,000,000 | (d) | 17,673,124 | ||||||||||||||
(1,700,837 | ) | (b) | |||||||||||||||||
(326,876 | ) | (e) | |||||||||||||||||
Contingent consideration, less current portion | 1,667,975 | — | 2,592,053 | (i) | 4,260,028 | ||||||||||||||
Other long-term liabilities | 243,471 | — | — | (b) | 243,471 | ||||||||||||||
Deferred taxes | — | 143,429 | (143,429 | ) | (b) | — | |||||||||||||
Total liabilities | 38,653,069 | 8,536,065 | 15,742,349 | 62,931,483 | |||||||||||||||
Common stock | 86,693 | 1,000 | (1,000 | ) | (j) | 87,400 | |||||||||||||
707 | (k) | ||||||||||||||||||
Additional paid in capital | 36,220,243 | 92,000 | (92,000 | ) | (j) | 37,219,536 | |||||||||||||
999,293 | (k) | ||||||||||||||||||
Retained earnings | 3,393,585 | 1,621,741 | (1,621,741 | ) | (j) | 3,393,585 | |||||||||||||
Total stockholders' ('s) equity | 39,700,521 | 1,714,741 | (714,741 | ) | 40,700,521 | ||||||||||||||
Total liabilities and stockholders'('s) equity | $ | 78,353,590 | $ | 10,250,806 | $ | 15,027,608 | $ | 103,632,004 | |||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combining financial statements.
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UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended December 25, 2016
BG Staffing, Inc. | Zycron, Inc. | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
Revenues | $ | 253,852,214 | $ | 38,284,079 | $ | — | $ | 292,136,293 | |||||||||
Cost of services | 193,778,848 | 30,716,922 | — | 224,495,770 | |||||||||||||
Gross profit | 60,073,366 | 7,567,157 | — | 67,640,523 | |||||||||||||
Selling, general and administrative expenses | 37,804,208 | 6,726,423 | — | 44,530,631 | |||||||||||||
Depreciation and amortization | 6,733,341 | 347,414 | (347,414 | ) | (a) | 8,650,244 | |||||||||||
1,916,903 | (b) | ||||||||||||||||
Operating income | 15,535,817 | 493,320 | (1,569,489 | ) | 14,459,648 | ||||||||||||
Loss on extinguishment of debt | 404,119 | — | — | 404,119 | |||||||||||||
Interest expense, net | 3,961,617 | 159,773 | (159,773 | ) | (a) | 4,963,699 | |||||||||||
1,002,082 | (c) | ||||||||||||||||
Income before income taxes | 11,170,081 | 333,547 | (2,411,798 | ) | 9,091,830 | ||||||||||||
Income tax expense | 4,287,674 | 44,837 | (44,837 | ) | (a) | 3,491,263 | |||||||||||
(796,411 | ) | (d) | |||||||||||||||
Net income | 6,882,407 | 288,710 | (1,570,550 | ) | 5,600,567 | ||||||||||||
Other comprehensive loss, net | — | (1,167,886 | ) | 1,167,886 | (a) | — | |||||||||||
Total comprehensive income (loss) | $ | 6,882,407 | $ | (879,176 | ) | $ | (402,664 | ) | $ | 5,600,567 | |||||||
Net income per share: | |||||||||||||||||
Basic | $ | 0.85 | $ | 0.68 | |||||||||||||
Diluted | $ | 0.82 | $ | 0.66 | |||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||
Basic | 8,107,637 | 70,670 | (e) | 8,178,307 | |||||||||||||
Diluted | 8,399,883 | 70,670 | (e) | 8,470,553 | |||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combining financial statements.
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UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Thirteen Week Period Ended March 26, 2017
BG Staffing, Inc. | Zycron, Inc. | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
Revenues | $ | 56,843,687 | $ | 9,367,062 | $ | — | $ | 66,210,749 | |||||||||
Cost of services | 43,172,453 | 7,421,447 | — | 50,593,900 | |||||||||||||
Gross profit | 13,671,234 | 1,945,615 | — | 15,616,849 | |||||||||||||
Selling, general and administrative expenses | 9,606,444 | 1,434,790 | — | 11,041,234 | |||||||||||||
Depreciation and amortization | 1,371,434 | 103,832 | (103,832 | ) | (a) | 1,850,660 | |||||||||||
479,226 | (b) | ||||||||||||||||
Operating income | 2,693,356 | 406,993 | (375,394 | ) | 2,724,955 | ||||||||||||
Interest expense, net | 558,619 | 39,177 | (39,177 | ) | (a) | 818,098 | |||||||||||
259,479 | (c) | ||||||||||||||||
Income before income taxes | 2,134,737 | 367,816 | (595,696 | ) | 1,906,857 | ||||||||||||
Income tax expense (benefit) | 832,906 | 49,434 | (49,434 | ) | (a) | 743,674 | |||||||||||
(89,232 | ) | (d) | |||||||||||||||
Net income | 1,301,831 | 318,382 | (457,030 | ) | 1,163,183 | ||||||||||||
Other comprehensive income, net | — | 128,553 | (128,553 | ) | (a) | — | |||||||||||
Total comprehensive income | $ | 1,301,831 | $ | 446,935 | $ | (585,583 | ) | $ | 1,163,183 | ||||||||
Net income per share: | |||||||||||||||||
Basic | $ | 0.15 | $ | 0.13 | |||||||||||||
Diluted | $ | 0.15 | $ | 0.13 | |||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||
Basic | 8,668,955 | 70,670 | (e) | 8,739,625 | |||||||||||||
Diluted | 8,924,419 | 70,670 | (e) | 8,995,089 | |||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combining financial statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On April 3, 2017, BG Staffing, Inc. ("BG Staffing") acquired substantially all of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”) for an initial cash consideration paid of $18.5 million and issued $1.0 million (70,670 shares privately placed) of the Company's common stock at closing. An additional $0.5 million was held back as partial security for post-closing purchase price adjustments and indemnification obligations. The purchase agreement further provides for contingent consideration of up to $3.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that will begin approximately 120 days after the closing date.
The Unaudited Pro Forma Condensed Combining Balance Sheet and Unaudited Pro Forma Condensed Combining Statements of Operations include the accounts of the both companies. For the 2017 statement of operations of BG Staffing, the historical amounts represent the time period from December 25, 2016 to March 26, 2017. For the 2017 statement of operations of Zycron, the historical amounts represent the time period from January 1, 2017 to March 31, 2017. All significant intercompany transactions and balances have been eliminated in consolidation.
NOTE 2 - PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) | To eliminate cash balance. |
(b) | To eliminate non-assumed assets and liabilities of Zycron. |
(c) | To record intangible assets and goodwill net of non-assumed assets of Zycron. |
(d) | To record cash borrowed on the Term Loan. |
(e) | To record deferred charges on the amended and restated credit agreement. |
(f) | Estimated working capital adjustment. |
(g) | To record hold back for post-closing adjustments. |
(h) | To record the pay down on the line of credit. |
(i) | To record for estimated contingent consideration. |
(j) | To eliminate stockholder's equity of Zycron. |
(k) | To record common stock issued at closing. |
NOTE 3 - PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS.
(a) | To eliminate Zycron balances. |
(b) | To record amortization of identifiable intangible assets. |
(c) | To record interest expense on additional borrowings on the Term Loan at a rate of 4.07% and amortization of discount on contingent earn-out consideration at a rate of 9%. |
(d) | To record the net tax expense of the pro forma adjustments at an effective tax rate of 39.0% in 2017 and 38.4% in 2016. |
(e) | To record shares issued at closing. |
NOTE 4 - INTANGIBLE ASSETS
BG Staffing is currently in the process of completing a valuation of the identifiable intangible assets and determining the final working capital adjustment, if any. The allocation of such assets and the related deferred tax consequences, if any, may change.
The following table presents the latest preliminary allocation of purchase price as of the date of acquisition. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Accounts receivable | $ | 4,348,285 | |||
Prepaid expenses and other assets | 82,122 | ||||
Property and equipment | 128,431 | ||||
Intangible assets | 13,826,264 | ||||
Goodwill | 6,893,312 | ||||
Liabilities assumed | (3,000,666 | ) | |||
Total net assets acquired | $ | 22,277,748 | |||
Cash | $ | 18,500,000 | |||
Hold back | 500,000 | ||||
Common stock | 1,000,000 | ||||
Working capital adjustment | (314,305 | ) | |||
Fair value of contingent consideration | 2,592,053 | ||||
Total fair value of consideration transferred for acquired business | $ | 22,277,748 | |||
The unaudited preliminary allocation of the intangible assets is as follows:
Estimated Fair Value | Estimated Useful Lives | |||||
Covenants not to compete | $ | 475,000 | 5 years | |||
Trade name | 5,006,000 | Indefinite | ||||
Customer list | 8,345,264 | 5 years | ||||
Total | $ | 13,826,264 | ||||
NOTE 5 - NON-GAAP FINANCIAL MEASURES
The financial results of Zycron were prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The pro forma financial information provides investors with information about the impact of the acquisition by showing how it might have affected historical financial statements if the transaction had been consummated at an earlier time. If the transaction is structured in such a manner that significantly different results may occur, additional pro forma presentations should be made which give effect to the range of possible results. To help the readers understand Zycron’s financial performance as a division of BG Staffing, the Company supplemented Zycron’s GAAP financial results and pro forma financial information with Management’s Adjusted EBITDA, a non-GAAP financial measure.
A non-GAAP financial measure is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of a company. Management’s Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income, operating income, or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or a measure of liquidity. We believe that Management’s Adjusted EBITDA is a useful performance measure and was used by us to facilitate a comparison of Zycron’s operating performance as a division of the Company, and to provide for a more complete understanding of factors affecting our business decision to purchase Zycron. In addition, the financial covenants in our credit agreement are based on utilizing Management’s Adjusted EBITDA as defined in the credit agreement.
We define “Management’s Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, non-cash items, and certain items (as explained below) that management did not consider recurring in assessing Zycron’s on-going operating performance.
We present Management’s Adjusted EBITDA information for informational purposes only. The estimate is not necessarily indicative of what Zycron’s operating results would have been had we completed the acquisition for the periods indicated nor does the financial information purport to project the future operating results of Zycron as a division of BG Staffing.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Year Ended | Quarter Ended | ||||||||
December 31, 2016 | March 31, 2017 | ||||||||
(dollars in thousands) | |||||||||
Net income | $ | 289 | $ | 318 | |||||
Interest expense, net | 159 | 39 | |||||||
Realized gain on marketable securities | — | — | |||||||
Income tax expense (benefit) | 45 | 49 | |||||||
Operating income | 493 | 406 | |||||||
Depreciation and amortization | 347 | 104 | |||||||
Other taxes | 124 | 34 | |||||||
EBITDA as reported | 964 | 544 | |||||||
Adjustments to EBITDA: | |||||||||
Non-recurring expenses (a) | 924 | 87 | |||||||
Contract renegotiation (b) | 537 | — | |||||||
Compensation (c) | 671 | 135 | |||||||
Reduction in benefit costs (d) | 335 | 98 | |||||||
Non-recurring bad debt (e) | 630 | — | |||||||
Other (f) | 39 | 7 | |||||||
Management's adjusted EBITDA | $ | 4,100 | $ | 871 | |||||
(a) | One time and expenses which will not be recurring post acquisition. These included professional fees related to the sale, sporting events, self-insurance, company anniversary costs, certain organization memberships, aviation and vehicle expenses |
(b) | 2016 mid-year buy-out of a supplier partner which resulted in increased gross margin on a contract |
(c) | Elimination of substantially all of the “back-office” personnel functions |
(d) | Estimated savings from change in benefit plans |
(e) | One time bad debt adjustment |
(f) | Other miscellaneous savings |
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