UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September ~~24, 2017~~30, 2018



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

For the transition period from to .

Commission File Number: 001-36704

BG STAFFING, INC.

(exact name of registrant as specified in its charter)



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

5850 Granite Parkway, Suite 730

Plano, Texas 75024

(972) 692-2400

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

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

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

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



Large accelerated filer	¨		Accelerated filer	þ
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
			Emerging growth company	þ

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

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

The number of shares outstanding of the registrant’s common stock as of October ~~30, 2017~~29, 2018 was ~~8,759,376.~~10,157,877.

TABLE OF CONTENTS

Forward-Looking Statements

This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:

future financial performance and growth targets or expectations;

market and industry trends and developments; and

the benefits of our completed and future merger, acquisition and disposition transactions.

You can identify these and other forward-looking statements by the use of words such as "aim," "potential," “may,” “could,” “would,” “might,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “committed,” “future” or “continue” or the negative thereof or similar variations.

These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:

the availability of workers’ compensation insurance coverage at commercially reasonable terms;

the availability of qualified temporary workers;

compliance with federal, state and local labor and employment laws and regulations and changes in such laws and regulations;

the ability to compete with new competitors and competitors with superior marketing and financial resources;

management team changes;

the favorable resolution of current or future litigation;

the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;

the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;

adverse changes in the economic conditions of the industries or markets that we serve;

disturbances in world financial, credit, and stock markets;

unanticipated changes in regulations affecting the company’s business;

a decline in consumer confidence and discretionary spending;

the general performance of the U.S. and global economies;

continued or escalated conflict in the Middle East; and

other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~31, 2017.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.

Where You Can Find Other Information

Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, ~~Room 1580,~~ Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, ~~Room 1580,~~ Washington, D.C. 20549.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED BALANCE SHEETS


			September 24, 2017		December 25, 2016				September 30, 2018		December 31, 2017
ASSETS	ASSETS						ASSETS
Current assets	Current assets						Current assets
	Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016)		$	40,618,312	$	33,328,900	Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2018 and 2017)		$	39,691,279	$	36,707,885
	Prepaid expenses		529,469		950,696		Prepaid expenses		1,339,763		947,968
	Other current assets		98,261		154,673		Income taxes receivable		—		190,912
		Total current assets	41,246,042		34,434,269		Other current assets		709,058		143,237
								Total current assets	41,740,100		37,990,002

Property and equipment, net	Property and equipment, net		1,700,470		1,910,858		Property and equipment, net		2,517,234		2,039,935

Other assets	Other assets						Other assets
	Deposits		2,799,813		2,657,517
	Deferred income taxes, net		9,916,170		9,512,455		Deposits		3,194,739		2,907,104
	Intangible assets, net		38,803,342		23,514,376		Deferred income taxes, net		5,317,371		6,402,513
	Goodwill		17,826,199		9,184,659		Intangible assets, net		34,076,543		37,323,286
		Total other assets	69,345,524		44,869,007		Goodwill		17,983,549		17,970,049
	Total assets		$	112,292,036	$	81,214,134		Total other assets	60,572,202		64,602,952
							Total assets		$	104,829,536	$	104,632,889
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities	Current liabilities						Current liabilities
	Long-term debt, current portion (net of deferred finance fees of $142,090 and $-0- for 2017 and 2016, respectively)		$	2,614,160	$	—	Long-term debt, current portion (net of deferred finance fees of $56,572 and $138,801 for 2018 and 2017, respectively)		$	3,924,678	$	2,923,699
	Accrued interest		308,979		100,868		Accrued interest		348,820		330,630
	Accounts payable		1,946,662		951,672		Accounts payable		261,083		1,909,612
	Accrued payroll and expenses		12,566,637		9,668,475		Accrued payroll and expenses		11,721,113		11,540,806
	Accrued workers’ compensation		281,237		754,556		Accrued workers’ compensation		430,165		592,121
	Contingent consideration, current portion		5,535,068		3,580,561		Contingent consideration, current portion		3,598,340		4,299,184
	Other current liabilities		317,294		—		Other current liabilities		—		74,052
	Income taxes payable		437,337		193,264		Income taxes payable		26,525		—
		Total current liabilities	24,007,374		15,249,396			Total current liabilities	20,310,724		21,670,104

Line of credit (net of deferred finance fees of $791,699 and $264,520 for 2017 and 2016, respectively)			19,598,722		23,618,194
Long-term debt, less current portion (net of deferred finance fees of $277,750 and $-0- for 2017 and 2016, respectively)			21,466,000		—
Line of credit (net of deferred finance fees of $615,766 and $747,716 for 2018 and 2017, respectively)							Line of credit (net of deferred finance fees of $615,766 and $747,716 for 2018 and 2017, respectively)		13,082,185		20,620,352
Long-term debt, less current portion (net of deferred finance fees of $81,703 and $246,030 for 2018 and 2017, respectively)							Long-term debt, less current portion (net of deferred finance fees of $81,703 and $246,030 for 2018 and 2017, respectively)		6,976,797		20,578,970
Contingent consideration, less current portion	Contingent consideration, less current portion		4,891,847		1,586,324		Contingent consideration, less current portion		906,959		2,178,486
Other long-term liabilities	Other long-term liabilities		219,061		271,766		Other long-term liabilities		698,439		450,298
	Total liabilities		70,183,004		40,725,680		Total liabilities		41,975,104		65,498,210

Commitments and contingencies	Commitments and contingencies						Commitments and contingencies

Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding	Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding		—		—		Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding		—		—
Common stock, $0.01 par value per share; 19,500,000 shares authorized,8,759,376 and 8,668,485 shares issued and outstanding for 2017 and 2016, respectively			87,594		86,685
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,157,877 and 8,759,376 shares issued and outstanding for 2018 and 2017, respectively, net of treasury stock, at cost, 828 shares and -0- shares for 2018 and 2017, respectively							Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,157,877 and 8,759,376 shares issued and outstanding for 2018 and 2017, respectively, net of treasury stock, at cost, 828 shares and -0- shares for 2018 and 2017, respectively		77,552		87,594
Additional paid in capital	Additional paid in capital		37,585,052		36,142,688		Additional paid in capital		56,563,068		37,675,329
Retained earnings	Retained earnings		4,436,386		4,259,081		Retained earnings		6,213,812		1,371,756
	Total stockholders’ equity		42,109,032		40,488,454		Total stockholders’ equity		62,854,432		39,134,679
	Total liabilities and stockholders’ equity		$	112,292,036	$	81,214,134	Total liabilities and stockholders’ equity		$	104,829,536	$	104,632,889

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

For the Thirteen and Thirty-nine Week Periods Ended September ~~24, 2017~~30, 2018 and September ~~25, 2016~~24, 2017


		Thirteen Weeks Ended						Thirty-nine Weeks Ended							Thirteen Weeks Ended				Thirty-nine Weeks Ended
		2017			2016			2017			2016				2018		2017		2018		2017
Revenues	Revenues	$	71,281,674		$	67,407,350		$	196,899,224		$	189,573,350		Revenues	$	77,062,137	$	71,281,674	$	214,863,045	$	196,899,224
Cost of services	Cost of services	53,033,615			50,975,462			147,752,650			144,610,307			Cost of services	55,689,112		53,033,615		156,987,810		147,752,650
	Gross profit	18,248,059			16,431,888			49,146,574			44,963,043			Gross profit	21,373,025		18,248,059		57,875,235		49,146,574
Selling, general and administrative expenses	Selling, general and administrative expenses	11,175,596			10,291,746			31,562,377			28,668,466			Selling, general and administrative expenses	13,034,161		11,175,596		36,370,008		31,562,377
Depreciation and amortization	Depreciation and amortization	1,436,279			1,673,546			4,672,755			5,181,456			Depreciation and amortization	1,247,537		1,436,279		3,801,425		4,672,755
	Operating income	5,636,184			4,466,596			12,911,442			11,113,121			Operating income	7,091,327		5,636,184		17,703,802		12,911,442
Loss on extinguishment of debt		—			—			—			(404,119		)
Interest expense, net	Interest expense, net	(883,668		)	(701,968		)	(2,279,652		)	(3,278,182		)	Interest expense, net	661,683		883,668		2,274,575		2,279,652
	Income before income taxes	4,752,516			3,764,628			10,631,790			7,430,820			Income before income taxes	6,429,644		4,752,516		15,429,227		10,631,790
Income tax expense	Income tax expense	1,615,653			1,416,773			3,908,570			2,852,346			Income tax expense	1,368,258		1,615,653		2,732,386		3,908,570
	Net income	$	3,136,863		$	2,347,855		$	6,723,220		$	4,578,474		Net income	$	5,061,386	$	3,136,863	$	12,696,841	$	6,723,220

Net income per share:	Net income per share:													Net income per share:
	Basic	$	0.36		$	0.27		$	0.77		$	0.58		Basic	$	0.50	$	0.36	$	1.36	$	0.77
	Diluted	$	0.35		$	0.26		$	0.75		$	0.56		Diluted	$	0.49	$	0.35	$	1.32	$	0.75

Weighted-average shares outstanding:	Weighted-average shares outstanding:													Weighted-average shares outstanding:
	Basic	8,759,376			8,658,061			8,724,811			7,920,000			Basic	10,109,791		8,759,376		9,368,840		8,724,811
	Diluted	9,077,147			9,028,398			9,019,878			8,219,876			Diluted	10,342,559		9,077,147		9,638,616		9,019,878

Cash dividends declared per common share														Cash dividends declared per common share	$	0.30	$	0.25	$	0.85	$	0.75

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Thirty-nine Week Period Ended September ~~24, 2017~~30, 2018

Common Stock

Preferred
Stock
Shares
Par
Value
Additional Paid in Capital
Retained
Earnings
Total
Stockholders’ equity, December 25, 2016 $ —
8,668,485
$ 86,685
$ 36,142,688
$ 4,259,081
$ 40,488,454
Share-based compensation —
—
—
357,024
—
357,024
Issuance of shares, net of offering costs —
70,670
707
991,793
—
992,500
Exercise of common stock options —
20,221
202
93,547
—
93,749
Cash dividend declared ($0.25 per share) —
—
—
—
(6,545,915 ) (6,545,915 )
Net income —
—
—
—
6,723,220
6,723,220
Stockholders’ equity, September 24, 2017 $ —
8,759,376
$ 87,594
$ 37,585,052
$ 4,436,386
$ 42,109,032



			Common Stock
	Preferred Stock		Shares	Par Value		Treasury Stock Amount			Additional Paid in Capital			Retained Earnings			Total
Stockholders’ equity, December 31, 2017	$	—	8,759,376	$	87,594	$	—		$	37,675,329		$	1,371,756		$	39,134,679
Share-based compensation	—		—	—		—			873,186			—			873,186
Additional shares of common stock available for issuance in the 2013 Long-Term Incentive Plan	—		—	—		—			(7,500		)	—			(7,500		)
Issuance of shares, net of offering costs	—		1,293,750	12,938		—			21,347,200			—			21,360,138
Issuance of restricted shares, net of 828 shares of treasury stock	—		41,172	412		(24,027		)	(412		)	—			(24,027		)
Exercise of common stock options and warrants	—		63,579	635		—			10,434			—			11,069
L. Allen Baker, Jr. option cancellation agreement	—		—	—		—			(3,335,169		)	—			(3,335,169		)
Cash dividend declared	—		—	—		—			—			(7,854,785		)	(7,854,785		)
Net income	—		—	—		—			—			12,696,841			12,696,841
Stockholders’ equity, September 30, 2018	$	—	10,157,877	$	101,579	$	(24,027	)	$	56,563,068		$	6,213,812		$	62,854,432

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

BG Staffing, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirty-nine Week Periods Ended September ~~24, 2017~~30, 2018 and September ~~25, 2016~~24, 2017


				2017			2016						2018			2017
Cash flows from operating activities	Cash flows from operating activities									Cash flows from operating activities
	Net income			$	6,723,220		$	4,578,474
		Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		428,155			355,833			Net income			$	12,696,841		$	6,723,220
		Amortization		4,244,600			4,825,623				Adjustments to reconcile net income to net cash provided by operating activities:
		Loss on disposal of property and equipment		17,373			10,192				Depreciation		545,751			428,155
		Loss on extinguishment of debt, net		—			404,119				Amortization		3,255,674			4,244,600
		Contingent consideration adjustment		—			24,642				Loss on disposal of property and equipment		15,554			17,373
		Amortization of deferred financing fees		168,797			80,049				Contingent consideration adjustment		(2,160,307		)	—
		Amortization of debt discounts		—			32,355				Amortization of deferred financing fees		382,025			168,797
		Interest expense on contingent consideration payable		907,340			1,449,316				Interest expense on contingent consideration payable		515,932			907,339
		Provision for doubtful accounts		88,000			209,528				Provision for doubtful accounts		39,389			88,000
		Share-based compensation		357,024			252,972				Share-based compensation		873,186			357,024
		Deferred income taxes		(403,715		)	(1,101,702		)		Deferred income taxes		1,085,142			(403,715		)
		Net changes in operating assets and liabilities, net of effects of acquisitions:									Net changes in operating assets and liabilities, net of effects of acquisitions:
			Accounts receivable	(1,803,486		)	(3,362,087		)			Accounts receivable	(3,022,783		)	(1,803,486		)
			Prepaid expenses	519,859			285,304					Prepaid expenses	(391,795		)	519,859
			Other current assets	72,150			30,547					Other current assets	(565,821		)	72,151
			Deposits	(137,726		)	(321,925		)			Deposits	(287,636		)	(137,726		)
			Accrued interest	208,111			(291,954		)			Accrued interest	18,190			208,111
			Accounts payable	(518,921		)	(324,372		)			Accounts payable	(1,648,529		)	(518,921		)
			Accrued payroll and expenses	1,252,864			1,024,696					Accrued payroll and expenses	180,308			1,252,864
			Accrued workers’ compensation	(473,319		)	(56,101		)			Accrued workers’ compensation	(161,956		)	(473,319		)
			Other current liabilities	120,569			(945,382		)			Other current liabilities	(87,552		)	120,569
			Income taxes payable	244,072			(7,159		)			Income taxes payable	217,437			244,072
			Other long-term liabilities	(52,703		)	(41,398		)			Other long-term liabilities	(118,062		)	(52,703		)
		Net cash provided by operating activities		11,962,264			7,111,570				Net cash provided by operating activities		11,380,988			11,962,264

Cash flows from investing activities	Cash flows from investing activities									Cash flows from investing activities
	Business acquired, net of cash received			(24,500,000		)	—			Business acquired, net of cash received			—			(24,500,000		)
	Capital expenditures			(895,989		)	(618,157		)	Capital expenditures			(681,333		)	(895,989		)
	Proceeds from the sale of property and equipment			1,500			7,587			Proceeds from the sale of property and equipment			—			1,500
		Net cash used in investing activities		(25,394,489		)	(610,570		)		Net cash used in investing activities		(681,333		)	(25,394,489		)


			2017			2016					2018			2017

Cash flows from financing activities	Cash flows from financing activities								Cash flows from financing activities
									Net payments under line of credit		(7,670,117		)	(3,492,293		)
	Net (payments) borrowings under line of credit		(3,492,293		)	3,041,612			Proceeds from issuance of long-term debt		—			25,000,000
	Proceeds from issuance of long-term debt		25,000,000			—			Principal payments on long-term debt		(12,847,750		)	(500,000		)
	Principal payments on long-term debt		(500,000		)	(15,281,657		)	Payments of dividends		(7,854,785		)	(6,545,915		)
	Payments of dividends		(6,545,915		)	(5,863,801		)	Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises		21,339,680			86,249
	Net proceeds from issuance of common stock		86,249			15,254,406			L. Allen Baker, Jr. option cancellation agreement		(3,335,169		)	—
	Contingent consideration paid		—			(3,498,197		)	Contingent consideration paid		(327,996		)	—
	Deferred financing costs		(1,115,816		)	(153,363		)	Deferred financing costs		(3,518		)	(1,115,816		)
		Net cash provided by (used in) financing activities	13,432,225			(6,501,000		)		Net cash (used in) provided by financing activities	(10,699,655		)	13,432,225
Net change in cash and cash equivalents	Net change in cash and cash equivalents		—			—			Net change in cash and cash equivalents		—			—
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period		—			—			Cash and cash equivalents, beginning of period		—			—
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period		$	—		$	—		Cash and cash equivalents, end of period		$	—		$	—

Supplemental cash flow information:	Supplemental cash flow information:								Supplemental cash flow information:
	Cash paid for interest		$	930,811		$	2,221,430		Cash paid for interest		$	1,396,182		$	930,811
	Cash paid for taxes, net of refunds		$	4,058,353		$	3,961,226		Cash paid for taxes, net of refunds		$	1,378,890		$	4,058,353
Non-cash transactions:									Non-cash transactions:
									Leasehold improvements funded by landlord incentives		$	366,202		$	—

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

BG Staffing, Inc. is a national provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP and BG Finance and Accounting, Inc. (“BGFA”) (collectively, the “Company”), primarily within the United States of America in three industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. We ~~now have 63~~operate in 71 branch offices and 1518 on-site locations located across 26 states.

The ~~Multifamily~~Real Estate segment provides front office and maintenance temporary workers to various apartment communities and commercial buildings, in 23 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.

The Professional segment provides skilled temporary workers on a nationwide basis for information technology ("IT") and finance and accounting customer projects.

The ~~Commercial~~Light Industrial segment provides temporary workers primarily to logistics, distribution, and call center customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.

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 ~~Multifamily~~Real Estate staffing services ~~increase~~increases in the second quarter and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our ~~Commercial~~Light Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter. Demand for our ~~Commercial~~Light Industrial staffing services is lower during the first quarter, in part due to customer shutdowns and adverse weather conditions in the winter months. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December ~~25, 2016,~~31, 2017, included in its Annual Report on Form 10-K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Fiscal Periods

The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of September ~~24, 2017~~30, 2018 and December ~~25, 2016,~~31, 2017, and include the thirteen and thirty-nine week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016. The thirty-nine weeks ended September~~ 24, 2017, ~~and September 25, 2016 are~~ referred to herein as Fiscal ~~2017~~2018 and ~~2016,~~2017, respectively.

Reclassifications

Certain reclassifications have been made to the ~~2016~~2017 financial statements to conform with the ~~2017~~2018 presentation.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include goodwill, intangible assets and contingent consideration obligations related to acquisitions. Additionally, the valuation of share based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.

Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited ~~to:~~to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of ~~the~~ bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with Texas Capital Bank, National Association (“TCB”) that provides for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Concentration of Credit Risk

Concentration of credit risk is limited due to the Company's diverse customer base and their dispersion across many different industries and geographic locations nationwide. No single customer accounted for more than 10% of the Company’s accounts receivable as of September ~~24, 2017~~30, 2018 and December ~~25, 2016~~31, 2017 or revenue for the thirty-nine week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016.~~24, 2017. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal ~~2017~~2018 and the related percentage for Fiscal ~~2016~~2017 was generated in the following areas:


	Thirty-nine Weeks Ended				Thirty-nine Weeks Ended
	September 24, 2017		September 25, 2016		September 30, 2018		September 24, 2017
Maryland	12	%	13	%	11	%	12	%
Tennessee	11	%	5	%	14	%	11	%
Texas	30	%	32	%	29	%	30	%

Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. Accounts receivable represents unpaid balances due from customers. The Company maintains an allowance for doubtful accounts for expected 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 reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Changes in the allowance for doubtful accounts are as follows:


	Thirteen Weeks Ended						Thirty-nine Weeks Ended						Thirteen Weeks Ended						Thirty-nine Weeks Ended
	September 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016			September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
Beginning balance	$	473,573		$	449,823		$	473,573		$	446,548		$	473,573		$	473,573		$	473,573		$	473,573
Provision for doubtful accounts	75,772			162,612			88,000			209,528			21,514			75,772			39,389			88,000
Amounts written off, net	(75,772		)	(162,612		)	(88,000		)	(206,253		)	(21,514		)	(75,772		)	(39,389		)	(88,000		)
Ending balance	$	473,573		$	449,823		$	473,573		$	449,823		$	473,573		$	473,573		$	473,573		$	473,573

Property and Equipment

Property and equipment are stated net of accumulated depreciation and amortization of ~~$1,213,156~~$1.9 million and ~~$1,301,295~~$1.4 million at September ~~24, 2017~~30, 2018 and December ~~25, 2016,~~31, 2017, respectively. ~~During the thirty-nine week periods ended September 24, 2017, the Company disposed of fully depreciated assets primarily not in use with an original cost of $426,066.~~

Deposits

The Company maintains guaranteed costs policies for workers' compensation coverage in ~~the states in which it operates, with~~Texas, Washington, and Ohio and minimal loss retention coverage for employees in the ~~commercial segment.~~Light Industrial segment and other non-Texas employees. Under these policies, the Company is required to maintain refundable deposits of ~~$2,565,817~~$2.9 million and ~~$2,476,201,~~$2.7 million, which are included in Deposits the accompanying consolidated balance sheets as of September ~~24, 2017~~30, 2018 and December ~~25, 2016,~~31, 2017, respectively.

Long-Lived Assets

The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal ~~2017~~2018 and Fiscal ~~2016.~~2017.

Intangible Assets

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

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

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

The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Goodwill

Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Rent

The Company recognizes rental expense on a straight-line basis over the life of the agreement. Deferred rent is recognized as the difference between cash payments and rent expense, including any landlord incentives.

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Paid-in-kind Interest~~

The Company recorded paid-in-kind interest on a monthly basis to accrued interest. The first month following a quarter, the paid-in-kind accrued interest is reclassed to the related debt principal if not paid.

Deferred Financing Fees

Deferred financing fees are amortized onusing the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.

Contingent Consideration

The Company has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. Prior to Fiscal 2017, the calculation of the fair value of the expected future payments ~~uses~~used a discount rate that ~~approximates~~approximated the Company's weighted average cost of capital. For acquisitions beginning in Fiscal 2017, based on a new valuation methodology, the fair value calculation of the expected future payments uses a discount rate ~~that is~~ commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.

Revenue Recognition

The Company derives its revenues from three segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. The Company provides temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalent amounts of reimbursable expenses are included in cost of services.

The Company and its customers enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. The Company records revenue ~~from services and the related direct costs~~ on a gross basis ~~in accordance with the accounting guidance on reporting revenue gross~~ as a principal versus on a net basis as an ~~agent.~~agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified workers, (ii) has the discretion to select the workers and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers.

Temporary staffing revenues - ~~Our revenues are generated based on negotiated rates~~Temporary and ~~invoiced on a per-hour basis. Accordingly, temporary~~consultant staffing revenues from contracts with customers are recognized onin the ~~hours worked~~amount to which the Company has a right to invoice, when the services are rendered by the Company’s temporary ~~workers.~~employees.

Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. The Company estimates the effect of permanent placement candidates who do not remain with its customers through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to customers are generally calculated as a percentage of the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.

Refer to Note 12 for disaggregated revenues by segment.

Payment terms in our contracts vary by the type and location of our customer and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of September 30, 2018. There were no revenues recognized during the thirty-nine week period ended September 30, 2018 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during the thirty-nine week period ended September 30, 2018.

Share-Based Compensation

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

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

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:


		Thirteen Weeks Ended		Thirty-nine Weeks Ended			Thirteen Weeks Ended		Thirty-nine Weeks Ended
		September 24, 2017	September 25, 2016	September 24, 2017	September 25, 2016		September 30, 2018	September 24, 2017	September 30, 2018	September 24, 2017
Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:	8,759,376	8,658,061	8,724,811	7,920,000	Weighted-average number of common shares outstanding:	10,109,791	8,759,376	9,368,840	8,724,811
Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
	Stock options	279,735	323,313	260,404	263,915	Stock options and restricted stock	181,012	279,735	227,846	260,404
	Warrants	38,036	47,024	34,663	35,961	Warrants	51,756	38,036	41,930	34,663
Weighted-average number of diluted common shares outstanding	Weighted-average number of diluted common shares outstanding	9,077,147	9,028,398	9,019,878	8,219,876	Weighted-average number of diluted common shares outstanding	10,342,559	9,077,147	9,638,616	9,019,878

	Stock options	178,000	50,000	178,000	50,000	Stock options and restricted stock	175,000	178,000	175,000	178,000
	Warrants	32,250	—	32,250	—	Warrants	—	32,250	—	32,250
Antidilutive shares	Antidilutive shares	210,250	50,000	210,250	50,000	Antidilutive shares	175,000	210,250	175,000	210,250

Income Taxes

The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general and administrative expenses. Goodwill is deductible for tax purposes.

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment.

When appropriate, we record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.

The Company follows the guidance of Accounting Standards Codification ("ASC") Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

~~Income~~The effective tax ~~expense attributable~~rates of 21.3% and 17.7% for the thirteen and thirty-nine week periods ended September 30, 2018, respectively, were primarily due to ~~income from operations~~the 2017 Tax Cuts and Jobs Act and related state taxes, the deductibility of a portion of the Option Cancellation Agreement (see Note 10) for ~~Fiscal~~tax purposes, and a Work Opportunity Tax Credit ("WOTC").

The effective tax rates of 34.0% and 36.8% for the thirteen and thirty-nine week periods ended September 24, 2017, ~~differed from the amount computed by applying the~~respectively, were primarily due to U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes offset by ~~a Work Opportunity Tax Credit.~~WOTC.

Income tax expense attributable to income from operations for Fiscal 2016 differed from the amount computed by applying the U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In ~~May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") ASU 2014-09, Revenue from Contracts with Customers. Since May 2014,~~February 2016, the FASB ~~has~~ issued ~~additional and amended authoritative guidance regarding revenue from contracts with customers in order~~ASU 2016-02 Leases, which changes financial reporting as it relates to ~~clarify and improve the understanding of the implementation guidance. As amended,~~leasing transactions. Under the new guidance, ~~requires a company~~lessees will be required to recognize ~~revenue~~a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. In July 2018, the FASB issued ASU No. 2018-10 Codification Improvements to ~~depict~~Topic 842, Leases. The amendments are intended to address narrow aspects of the ~~transfer~~guidance issued in the amendments in ASU 2016-02. Also in July 2018, the FASB issued ASU No. 2018-11 Leases (Topic 842): Targeted Improvements, which provides an additional (and optional) transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of ~~goods or services to a customer at an amount that reflects~~retained earnings in the ~~consideration a company expects to receive in exchange for those goods or services. The~~period of adoption. These new ~~standard is~~provisions are effective for annual and interim periods beginning after December 15, ~~2017. The~~2018. Early application is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. While the impact of the adoption of this guidance will include the recognition of right-of-use assets and lease liabilities on the Company’s statement of financial position, the Company is in the process of evaluating the impact of ~~adoption. Based on the progress to date, the Company does not believe the~~ adoption of this ~~accounting~~ guidance ~~will have a material impact~~ on ~~the Company's financial condition or results of operations.~~

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” which provides more specific guidance related to how companies account for cloud computing costs. In December 2016, the FASB issued ASU 2016-19, “Technical Correctionsits systems, processes, and Improvements” to clarify guidance, correct errors and make minor improvements to the Accounting Standards Codification (“ASC”) which amends ASC 350-40 to clarify that after ASU 2015-05 is adopted, companies are required to record an intangible asset for the license acquired in a software licensing arrangement. The asset for the software license is required to be recognized and measured at cost. The Company adopted both ASUs on a prospective basis in the second quarter of fiscal 2017 which did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The new standard was effective for the Company beginning with the first quarter of 2017. The Company adopted this ASU on a prospective basis which had no impact on the consolidated financial statements.controls.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new ~~standard~~guidance is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.

In ~~May 2017,~~June 2018, the FASB issued ASU ~~2017-09, Compensation-Stock Compensation~~2018-07 Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) ~~Scope of Modification Accounting which provides clarification on when modification accounting should be used for changes~~that expands the scope to ~~the terms or conditions of a~~include share-based payment ~~award.~~transactions for acquiring goods and services from nonemployees. An entity should apply the requirements to nonemployee awards except for certain exemptions specified in the amendment. The new ~~standard~~guidance is effective for ~~the Company~~fiscal years beginning ~~with the first quarter 2018.~~after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted. The Company does not anticipate the adoption of ASU ~~2017-09~~2018-07 will have a material impact on the Company's financial condition or results of operations.

In July 2018, the FASB issued ASU No. 2018-09 Codification Improvements, which facilitates amendments to a variety of topics to clarify, correct errors in, or make minor improvements to the accounting standards codification. The new guideance is effective beginning after December 15, 2018. The Company does not anticipate the adoption of ASU 2018-09 will have a material impact on the Company's financial statements or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-15 Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The new guidance is effective after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.

NOTE 3 - ACQUISITIONS

Zycron, Inc.

On April 3, 2017, the Company 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.~~obligations, which was paid on October 24, 2017 net of a working capital adjustment. 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 is currently in progress.~~

The net assets acquired were assigned to the Professional segment. The acquisition of Zycron allows the Company to strengthen and expand its IT operations throughout the southeastern U.S. region and selected markets across the country with talent and project management services.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~The 2016 consolidated statement of operations does not include any operating results of Zycron. 13~~120 days after the closing date. Thirteen and 25twenty-five weeks of Zycron operations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $9.0 million and $17.6 million, respectively, of revenue and ~~and~~ $0.9 million and $1.6 million, respectively, of operating income. ~~The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:~~

Accounts receivable $ 4,345,312
Prepaid expenses and other assets 82,122
Property and equipment 128,431
Intangible assets 13,818,474
Goodwill 6,901,101
Liabilities assumed (2,983,222 )
Total net assets acquired $ 22,292,218

Cash $ 18,500,000
Hold back 500,000
Common stock 1,000,000
Working capital adjustment (299,835 )
Fair value of contingent consideration 2,592,053
Total fair value of consideration transferred for acquired business $ 22,292,218

Estimated Fair
Value

Estimated
Useful Lives
Covenants not to compete $ 475,000
5 years
Trade name 5,006,000
Indefinite
Customer list 8,337,474
10 years
Total $ 13,818,474

Smart Resources, Inc.

On September 18, 2017, the Company acquired substantially all of the assets and assumed certain liabilities of Smart Resources, Inc. and Accountable Search, LLC (collectively, "Smart") for an initial cash consideration paid of $6.0 million. The purchase agreement provides for contingent consideration of up to $2.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital ~~under a process that will begin approximately~~ 90 days after the closing date.

~~The net assets acquired were assigned to the Professional segment. The acquisition~~ One week of Smart ~~allows the Company to strengthen and expand its finance and accounting operations in the Chicago market with temporary and direct hire services.~~

~~The 2016 consolidated statement of income does not include any operating results of Smart. One (1) week of Smart~~operations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $0.2 million of revenue and $-0- of operating income. ~~The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:~~

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Accounts receivable $ 1,228,614
Prepaid expenses and other assets 36,816
Property and equipment 40,626
Intangible assets 4,927,045
Goodwill 1,740,439
Liabilities assumed (216,343 )
Total net assets acquired $ 7,757,197

Cash $ 6,000,000
Working capital adjustment (3,440 )
Fair value of contingent consideration 1,760,637
Total fair value of consideration transferred for acquired business $ 7,757,197

Estimated Fair
Value

Estimated
Useful Lives
Covenants not to compete $ 20,000
5 years
Customer list 4,907,045
10 years
Total $ 4,927,045

Supplemental Unaudited Pro Forma Information

The Company estimates that the revenues and net income for the periods below that would have been reported if the Zycron and Smart acquisitions had taken place on the first day of the Company's ~~2016~~2017 fiscal year would be as follows (dollars in thousands, except per share amounts):


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				September 24, 2017
	September 24, 2017		September 25, 2016		September 24, 2017		September 25, 2016		Thirteen Weeks Ended		Thirty-nine Weeks Ended
Revenues	$	73,782	$	80,519	$	214,659	$	228,577	$	73,782	$	214,659
Gross profit	$	19,196	$	18,428	$	54,391	$	54,034	$	19,196	$	54,391
Net income	$	3,203	$	2,933	$	6,992	$	5,270	$	3,203	$	6,992
Income per share:
Basic	$	0.37	$	0.34	$	0.80	$	0.67	$	0.37	$	0.80
Diluted	$	0.35	$	0.32	$	0.78	$	0.64	$	0.35	$	0.78

Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility (as defined below) at a rate of 4.5% and tax expense of the pro forma adjustments at an effective tax rate of approximately 36.8% for Fiscal ~~2017 and 38.4% for Fiscal 2016.~~2017. The pro forma information presented includes adjustments that will have a continuing impact on the operations that management considers non-recurring in assessing Zycron and Smart's historical performances.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Zycron and Smart acquisitions taken place on the first day of the Company’s ~~2016~~2017 fiscal year or of the results that may be achieved by the combined enterprise in the future.

NOTE 4 - INTANGIBLE ASSETS

Intangible assets are stated net of accumulated amortization of ~~$34,501,414~~$39.2 million and ~~$30,205,434~~$36.0 million at September ~~24, 2017~~30, 2018 and December ~~25, 2016,~~31, 2017, respectively. ~~During the thirty-nine week periods ended September 24, 2017, the Company added $440,668 and reclassified $347,379 of software assets from property and equipment.~~ Total amortization expense for the thirteen week periods ended September 30, 2018 and September 24, 2017 was $1.1 million and ~~September 25, 2016 was $1,291,925 and $1,548,914,~~$1.3 million, respectively. Total amortization expense for the thirty-nine week periods ended September 30, 2018 and September 24, 2017 was $3.3 million and ~~September 25, 2016 was $4,244,600 and $4,825,623,~~$4.2 million, respectively.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

Accrued payroll and expenses consist of the following at:


	September 24, 2017		December 25, 2016		September 30, 2018		December 31, 2017
Temporary worker payroll	$	6,672,200	$	5,547,161	$	6,211,368	$	5,124,908
Temporary worker payroll related	2,570,505		2,033,602		1,848,140		2,454,539
Accrued bonuses and commissions	1,181,071		892,742		1,717,838		1,172,497
Other	2,142,861		1,194,970		1,943,767		2,788,862
	$	12,566,637	$	9,668,475	$	11,721,113	$	11,540,806

The following is a schedule of future estimated contingent consideration payments to various parties as of September ~~24, 2017:~~30, 2018:


	Estimated Cash Payment		Discount			Net		Estimated Cash Payment		Discount			Net
Due in:
Less than one year	$	5,750,000	$	(214,932	)	$	5,535,068	$	3,750,000	$	(151,660	)	$	3,598,340
One to two years	3,250,000		(727,741		)	2,522,259		1,000,000		(93,041		)	906,959
Two to three years	2,500,000		(130,412		)	2,369,588
Contingent consideration	$	11,500,000	$	(1,073,085	)	$	10,426,915	$	4,750,000	$	(244,701	)	$	4,505,299

~~As of~~In September ~~24, 2017,~~2018, the ~~Zycron hold back balance of $158,072, included in other current liabilities,~~Company determined that there was a partial security for post-closing purchase price adjustments and indemnification obligations and also contained the working capital adjustment and other amounts paid or received on behalf of the either partyno pay out due related to the ~~acquisition.~~Smart acquisition first year contingent consideration of $1.0 million and recognized a $1.0 million gain in selling, general and administrative expenses.

NOTE 6 - DEBT

The Company had a credit agreement (the “Credit Agreement”) with TCB providing for a Revolving Facility, maturing August 21, 2019, permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million.

In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts receivable, and TCB’s commitment of $35.0 million and also ~~provides~~provided for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement ~~provides~~originally provided for the Company to increase the commitment ~~with a~~by $20.0 million ($15.0 million remaining) with an accordion feature.

~~The Company borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquisition on April 3, 2017.~~ Proceeds from the foregoing loan arrangements were used to pay off existing indebtedness of the Company on the revolving credit facility under the ~~Credit Agreement,~~credit agreement, dated as of August 21, 2015, as amended, with TCB. ~~The Company borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.~~

The Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement. The Company is subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. The Company was in compliance with these covenants as of September 30, 2018.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The ~~Amended Credit Agreement's customary affirmative and negative covenants remain substantially~~Company borrowed $20.0 million on the ~~same as those~~Term Loan in ~~effect~~conjunction with the closing of the Zycron acquisition on April 3, 2017. The Company borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017. Proceeds from the May 2018 common stock issuance (see Note 9) were used to pay down $10.7 million of the principal outstanding under the ~~Credit Agreement including restricting~~Term Loan without a repayment fee and reduce the ability of the Company and its subsidiaries to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) pay dividends or make distributions (except for permitted distributions as defined in the agreements); (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business and the Company must comply with certain financial covenants. The Company may not permit the Leverage Ratio (as defined in the Amended Credit Agreement) to be greater than the following: 2.50 to 1.0 (April 3, 2017 to end of fiscal March 2018), 2.00 to 1.0 (March 31, 2018 to end of fiscal March 2019), 1.50 to 1.0 (March 31, 2019 to end of fiscal March 2020), 1.0 to 1.0 (From and after end of fiscal March, 2020). Moreover, the Company may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than 1.50 to 1.00, and may not permit the Dividend Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than (a) 1.10 to 1.00 for any four fiscal quarter period ending on or before September 30, 2017 or (b) 1.20 to 1.00 for any four fiscal quarter period thereafter. As of September 24, 2017, the Company was in compliance with these covenants.Revolving Facility by $7.5 million.

Line of Credit

At September ~~24, 2017~~30, 2018 and December ~~25, 2016, $20.4~~31, 2017, $13.7 million and ~~$23.9~~$21.4 million, respectively, was outstanding on the Revolving Facility with TCB. ~~Borrowings under~~Average daily balance for the ~~Revolving Facility bore interest equal to Base Rate or LIBOR plus~~thirteen week periods ended September 30, 2018 and September 24, 2017 was $13.3 million and $20.4 million, respectively. Average daily balance for the Applicable Margin (as such terms are defined in the Amended Credit Agreement or Credit Amendment, respectively). Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility.thirty-nine week periods ended September 30, 2018 and September 24, 2017 was $17.1 million and $20.4 million, respectively.

Borrowings under the Revolving Facility bore interest at:


	September 24, 2017				December 25, 2016				September 30, 2018				December 31, 2017
Base Rate	$	5,390,421	5.25	%	$	8,882,714	4.25	%	$	3,697,951	6.25	%	$	6,368,068	5.50	%
LIBOR	5,000,000		4.05	%	5,000,000		3.95	%	5,000,000		5.09	%	5,000,000		4.09	%
LIBOR	5,000,000		4.06	%	5,000,000		3.99	%	5,000,000		5.09	%	5,000,000		4.13	%
LIBOR	5,000,000		4.07	%	5,000,000		4.16	%	—		—	%	5,000,000		4.24	%
Total	$	20,390,421			$	23,882,714			$	13,697,951			$	21,368,068

Long-Term Debt

Long-term debt consists of and bore interest at:


	September 24, 2017					December 25, 2016				September 30, 2018				December 31, 2017
Base Rate	$	700,000		5.25	%	$	—	—	%	$	1,039,750	6.25	%	$	687,500	5.50	%
LIBOR	6,500,000			4.30	%	—		—	%	6,500,000		5.34	%	6,500,000		4.34	%
LIBOR	6,500,000			4.31	%	—		—	%	3,500,000		5.34	%	6,500,000		4.38	%
LIBOR	6,000,000			4.32	%	—		—	%	—		—	%	6,000,000		4.49	%
LIBOR	4,800,000			4.33	%	—		—	%	—		—	%	4,200,000		4.64	%
Less current portion on long-term debt	(2,756,250		)			—
Long-term debt, less current portion	$	21,743,750				$	—
Long-term debt										$	11,039,750			$	23,887,500

NOTE 7 - FAIR VALUE MEASUREMENTS

The accounting standard for fair value measurements defines fair value, and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established ~~in the standard~~ prioritizes the inputs used in valuation techniques into three levels as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;

~~BG Staffing, Inc. and Subsidiaries~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Amounts Recorded at Fair Value

Financial Statement Classification

Fair Value Hierarchy

September 24,
2017

December 25,
2016

Financial Statement Classification

Fair Value

Hierarchy

September 30,
2018

December 31,
2017

Contingent consideration, net

Contingent consideration, net - current and long-term

Level 3

10,426,915

5,166,885

Contingent consideration, net - current and long-term

Level 3

4,505,299

6,477,670

The changes in the Level 3 fair value measurements from December ~~25, 2016~~31, 2017 to September ~~24, 2017 relate~~30, 2018 relates to ~~$4.4~~the $2.2 million in ~~the~~adjustments to Zycron and Smart, ~~acquisitions and $0.9~~$0.5 million in ~~accretion.~~accretion, and $0.3 million in payments. The key inputs in determining the fair value of the contingent consideration as of September ~~24, 2017~~30, 2018 and December ~~25, 2016~~31, 2017 included discount rates of ranging from 8% and 22% as well as management's estimates of future sales volumes and EBITDA.

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.

The Company is not currently a party to any material litigation; however, in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability.

Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.

NOTE 9 – EQUITY

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

~~On April 3, 2017,~~In May 2018, the Company issued ~~70,670~~and sold 1,293,750 shares of common stock, $0.01 par value per share, to various investors in a ~~private placement~~registered offering for ~~a value~~an aggregate purchase price (before deducting underwriting discounts and commissions and other estimated offering expenses) of $1$23.3 million atin cash. The public offering price was $18.00 per share. The newly issued shares constituted approximately 14.7% of the total of issued and outstanding shares of common stock immediately before the initial execution of the Underwriting Agreement. In connection with the closing, of the ~~Zycron acquisition. The~~ Company incurred ~~$7,500~~$1.9 million in offering costs. Proceeds were used to pay off existing indebtedness of the Company under the Amended Credit Agreement and cancel outstanding in-the-money stock options held by L. Allen Baker, Jr., BG Staffing's former President and Chief Executive Officer, as described in Note 10 below.

In August 2018, the Company issued a net of 41,172 shares of restricted common stock, $0.01 par value per share, to various employees under the 2013 Long-Term Incentive Plan, as amended (the “2013 Plan”). The restricted shares contain a three year service condition. The restricted stock constitutes issued and outstanding shares of the Company’s common stock, except for the right of disposal, for all purposes during the period of restriction including voting rights and dividend distributions. The Company repurchased 828 shares of company stock, or treasury stock, to satisfy the withholding obligation in connection with the vesting of a portion of the restricted stock. Treasury stock is accounted for under the cost method whereby the entire cost of the acquired stock is recorded.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SHARE-BASED COMPENSATION

Stock Options and Restricted Stock

On May ~~16, 2017, the stockholders of~~31, 2018, the Company ~~approved~~entered into a stock option cancellation agreement (the "Option Cancellation Agreement") with L. Allen Baker, Jr., the Company's former President and ~~made effective an amendment~~Chief Executive Officer, pursuant to which the ~~BG Staffing, Inc. 2013 Long-Term Incentive Plan~~Company agreed to ~~add an additional 250,000 shares~~pay Mr. Baker $18.00 per share of common stock ~~available~~underlying his vested in-the-money stock options granted under the Company’s 2013 Plan, less the exercise price per share thereof, in exchange for ~~issuance. The board~~the cancellation and termination of ~~directors~~such stock options. Pursuant to the terms of the Option Cancellation Agreement, the Company ~~had previously approved~~paid $3.3 million to Mr. Baker in exchange for the ~~amendment subject~~cancellation of 284,888 stock options granted to ~~stockholder approval. A total~~him under the 2013 Plan. Mr. Baker continues to have an aggregate of ~~900,000 shares of common~~54,785 stock ~~were originally reserved for issuance, which brings~~options to purchase the ~~new total available for issuance to 1,150,000 shares of~~Company's common stock.

For the thirteen week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016,~~24, 2017, the Company recognized ~~$92,293~~$0.8 million and ~~$111,134~~$0.1 million of compensation ~~cost~~expense related to stock ~~option~~ awards, respectively. For the thirty-nine week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016,~~24, 2017, the Company recognized ~~$357,024~~$0.9 million and ~~$252,972~~$0.4 million of compensation ~~cost~~expense related to stock ~~option~~ awards, respectively. Unamortized ~~stock~~share-based compensation expense as of September ~~24, 2017~~30, 2018 amounted to ~~$680,321,~~$1.4 million which is expected to be recognized over the next ~~2.6~~3.1 years.

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

Number of
Shares
Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life
Total Intrinsic Value of Options
(in thousands)
Options outstanding at December 25, 2016 678,411
$ 8.95
7.8 $ 4,511
Granted 128,000
$ 16.76

Exercised (28,800 ) $ 7.71

Forfeited / Canceled (12,200 ) $ 11.00

Options outstanding at September 24, 2017 765,411
$ 10.27
7.5 $ 5,096

Options exercisable at December 25, 2016 395,911
$ 8.01
7.6 $ 2,965
Options exercisable at September 24, 2017 479,611
$ 8.65
7.0 $ 3,963



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Awards (in thousands)
Awards outstanding at December 31, 2017	765,411		$	10.27	7.3	$	4,521
Granted	217,000		$	20.73
Exercised	(89,953	)	$	8.23
Forfeited / Canceled	(292,088	)	$	6.71
Awards outstanding at September 30, 2018	600,370		$	16.09	7.0	$	6,672

Awards exercisable at December 31, 2017	498,611		$	8.74	6.8	$	3,640
Awards exercisable at September 30, 2018	292,470		$	13.97	7.0	$	3,871

Number of
Shares Weighted Average Grant Date Fair Value
Nonvested outstanding at December 25, 2016 282,500
$ 2.57
Nonvested outstanding at September 24, 2017 285,800
$ 3.01



	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 31, 2017	266,800	$	3.09
Nonvested outstanding at September 30, 2018	307,900	$	18.10

For the thirty-nine week periods ended September ~~24, 2017,~~30, 2018, the Company issued ~~5,221~~45,956 shares of common stock upon the cashless exercise of ~~9,402~~78,453 stock options.

Included in awards outstanding are 31,500 shares of restricted stock, at a weighted average price per share of $28.61, issued under the 2013 Plan as of September 30, 2018. For the thirteen and the thirty-nine week periods ended September 30, 2018, the Company recognized $0.4 million of compensation expense related to restricted stock.

Warrant Activity

For the thirteen and thirty-nine week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016,~~24, 2017, the Company did not recognize compensation cost related to warrants. There was no unamortized stock compensation expense to be recognized as of September ~~24, 2017.~~30, 2018.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A summary of warrant activity is presented as follows:

Number of
Shares
Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life
Total Intrinsic Value of Options
(in thousands)
Warrants outstanding at December 25, 2016 123,984
$ 11.51
2.8 $ 532
Warrants outstanding at September 24, 2017 123,984
$ 11.89
2.6 $ 494

Warrants exercisable at December 25, 2016 91,734
$ 9.65
2.2 $ 532
Warrants exercisable at September 24, 2017 123,984
$ 11.89
2.6 $ 494



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Options (in thousands)
Warrants outstanding at December 31, 2017	123,984		$	11.51	2.2	$	577
Exercised	(30,768	)	$	11.27
Warrants outstanding at September 30, 2018	93,216		$	11.59	1.5	$	1,455

Warrants exercisable at December 31, 2017	123,984		$	11.51	2.2	$	577
Warrants exercisable at September 30, 2018	93,216		$	11.59	1.5	$	1,455



	~~Number of~~ ~~Shares~~	~~Weighted Average Grant Date Fair Value~~
~~Nonvested outstanding at December 25, 2016~~	~~32,250~~	$	—
~~Nonvested outstanding at September 24, 2017~~	—	$	—

There were no nonvested warrants outstanding at September 30, 2018 and December 31, 2017.

For the thirty-nine week periods ended September 30, 2018, the Company issued 16,623 shares of common stock upon the cashless exercise of 30,768 warrants.

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

NOTE 11 - 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 ~~$232,863~~$0.3 million and ~~$217,103~~$0.2 million to the 401(k) Plan for the thirteen week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016,~~24, 2017, respectively. The Company contributed ~~$657,623~~$0.8 million and ~~$622,772~~$0.7 million to the 401(k) Plan for the thirty-nine week periods ended September ~~24, 2017~~30, 2018 and September ~~25, 2016,~~24, 2017, respectively.

NOTE 12 - BUSINESS SEGMENTS

The Company operates within three industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. The ~~Multifamily~~Real Estate segment provides front office and maintenance temporary workers to various apartment communities and commercial buildings, in 23 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. The Professional segment provides skilled temporary workers on a nationwide basis for IT and finance and accounting customer projects. The ~~Commercial~~Light Industrial segment provides temporary workers primarily to logistics, distribution, and call center customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.

Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, ~~fixed assets,~~ deferred tax assets, and other assets.

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 24, 2017		September 25, 2016		September 24, 2017		September 25, 2016		September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017
Revenue:
Multifamily	$	21,758,642	$	18,889,265	$	51,436,393	$	43,556,297
Real Estate									$	26,531,283	$	21,758,642	$	65,864,097	$	51,436,393
Professional	31,739,816		25,821,676		91,769,877		80,828,787		29,171,990		31,739,816		90,394,110		91,769,877
Commercial	17,783,216		22,696,409		53,692,954		65,188,266
Light Industrial									21,358,864		17,783,216		58,604,838		53,692,954
Total	$	71,281,674	$	67,407,350	$	196,899,224	$	189,573,350	$	77,062,137	$	71,281,674	$	214,863,045	$	196,899,224

Depreciation:
Multifamily	$	23,255	$	17,122	$	70,159	$	40,577
Real Estate									$	44,784	$	23,255	$	125,819	$	70,159
Professional	44,261		39,071		129,968		113,482		74,488		44,261		190,952		129,968
Commercial	27,690		23,018		80,231		68,447
Light Industrial									23,446		27,690		76,372		80,231
Corporate	49,148		45,421		147,797		133,327		51,923		49,148		152,608		147,797
Total	$	144,354	$	124,632	$	428,155	$	355,833	$	194,641	$	144,354	$	545,751	$	428,155


Amortization:
Multifamily	$	—		$	—		$	—		$	62,848
Professional	1,222,402			1,454,293			3,993,474			4,399,296			1,047,511			1,222,402			$	3,132,372		$	3,993,474
Commercial	66,151			94,621			245,903			363,479
Light Industrial													—			66,151			110,251			245,903
Corporate	3,372			—			5,223			—			5,385			3,372			13,051			5,223
Total	$	1,291,925		$	1,548,914		$	4,244,600		$	4,825,623		$	1,052,896		$	1,291,925		$	3,255,674		$	4,244,600

Operating income:
Multifamily	$	4,020,995		$	3,331,981		$	8,524,536		$	6,859,318
Real Estate													$	4,958,373		$	4,020,995		$	11,285,951		$	8,524,536
Professional	2,119,550			1,163,674			6,344,222			4,737,610			2,143,425			2,119,550			6,499,285			6,344,222
Commercial	1,108,842			1,364,353			3,000,444			4,070,037
Light Industrial													1,560,895			1,108,842			3,948,874			3,000,444
Corporate - selling	(119,097		)	—			(371,906		)	—			(212,877		)	(119,097		)	(541,467		)	(371,906		)
Corporate - general and administrative	(1,494,106		)	(1,393,412		)	(4,585,854		)	(4,553,844		)	(1,358,489		)	(1,494,106		)	(3,488,841		)	(4,585,854		)
Total	$	5,636,184		$	4,466,596		$	12,911,442		$	11,113,121		$	7,091,327		$	5,636,184		$	17,703,802		$	12,911,442

Capital expenditures:
Multifamily	$	3,947		$	23,185		$	76,542		$	119,592
Real Estate													$	37,681		$	3,947		$	114,990		$	76,542
Professional	52,987			73,168			501,928			82,336			121,170			52,987			382,925			501,928
Commercial	2,463			19,908			71,262			60,229
Light Industrial													44,018			2,463			87,990			71,262
Corporate	—			71,194			246,257			356,000			25,945			—			95,428			246,257
Total	$	59,397		$	187,455		$	895,989		$	618,157		$	228,814		$	59,397		$	681,333		$	895,989

BG Staffing, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	September 24, 2017		December 25, 2016		September 30, 2018		December 31, 2017
Total Assets:
Multifamily	$	13,283,021	$	9,320,335
Real Estate					$	15,755,175	$	11,678,908
Professional	70,887,537		39,548,308		64,084,428		67,089,681
Commercial	17,359,515		21,574,855
Light Industrial					18,660,558		18,075,307
Corporate	10,761,963		10,770,636		6,329,375		7,788,993
Total	$	112,292,036	$	81,214,134	$	104,829,536	$	104,632,889

NOTE 13 - SUBSEQUENT EVENTS

Dividend

On October ~~20, 2017,~~26, 2018, the Company's board of directors declared a cash dividend in the amount of ~~$0.25~~$0.30 per share of common stock to be paid on November ~~7, 2017~~13, 2018 to all shareholders of record as of the close of business on November ~~2, 2017.~~5, 2018.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto. Comparative segment revenues and related financial information are discussed herein and are presented in Note 12 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016,~~31, 2017, for a description of important factors that could cause actual results to differ from expected results.

Overview

We are a leading national provider of professional temporary staffing services and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff Holding Corporation and InStaff Personnel, LLC in June 2013, D&W Talent, LLC ~~("D&W")~~ in March 2015, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC (collectively, “VTS”) in October 2015, Zycron, Inc. in April 2017, and Smart Resources, Inc. and Accountable Search, LLC (collectively, "Smart") in September 2017. We operate within three industry segments: ~~Multifamily,~~Real Estate, Professional, and ~~Commercial.~~Light Industrial. We provide services to customers primarily within the United States of America. We ~~now have 63~~operate in 71 branch offices and 1518 on-site locations located across 26 states.

The Professional segment provides skilled temporary workers on a nationwide basis for information technology ("IT") and finance and accounting customer projects.

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 ~~Multifamily~~Real Estate staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our ~~Commercial~~Light Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter. Demand for our ~~Commercial~~Light Industrial staffing services is lower during the first quarter, in part due to customer shutdowns and adverse weather conditions in the winter months. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.

Results of Operations

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


		Thirteen Weeks Ended						Thirty-nine Weeks Ended							Thirteen Weeks Ended						Thirty-nine Weeks Ended
		September 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016				September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
		(dollars in thousands)													(dollars in thousands)
Revenues	Revenues	$	71,282		$	67,407		$	196,899		$	189,573		Revenues	$	77,062		$	71,282		$	214,863		$	196,899
Cost of services	Cost of services	53,034			50,975			147,753			144,610			Cost of services	55,689			53,034			156,988			147,753
	Gross profit	18,248			16,432			49,146			44,963			Gross profit	21,373			18,248			57,875			49,146
Selling, general and administrative expenses	Selling, general and administrative expenses	11,175			10,291			31,561			28,670			Selling, general and administrative expenses	13,034			11,175			36,370			31,561
Depreciation and amortization	Depreciation and amortization	1,436			1,674			4,673			5,181			Depreciation and amortization	1,248			1,436			3,801			4,673
	Operating income	5,637			4,467			12,912			11,112			Operating income	7,091			5,637			17,704			12,912
Loss on extinguishment of debt		—			—			—			(404		)
Interest expense, net	Interest expense, net	(884		)	(702		)	(2,280		)	(3,278		)	Interest expense, net	662			884			2,275			2,280
	Income before income tax	4,753			3,765			10,632			7,430			Income before income tax	6,429			4,753			15,429			10,632
Income tax expense	Income tax expense	1,616			1,417			3,909			2,852			Income tax expense	1,368			1,616			2,732			3,909
	Net income	$	3,137		$	2,348		$	6,723		$	4,578		Net income	$	5,061		$	3,137		$	12,697		$	6,723

Revenues	Revenues	100.0		%	100.0		%	100.0		%	100.0		%	Revenues	100.0		%	100.0		%	100.0		%	100.0		%
Cost of services	Cost of services	74.4		%	75.6		%	75.0		%	76.3		%	Cost of services	72.3		%	74.4		%	73.1		%	75.0		%
	Gross profit	25.6		%	24.4		%	25.0		%	23.7		%	Gross profit	27.7		%	25.6		%	26.9		%	25.0		%
Selling, general and administrative expenses	Selling, general and administrative expenses	15.7		%	15.3		%	16.0		%	15.1		%	Selling, general and administrative expenses	16.9		%	15.7		%	16.9		%	16.0		%
Depreciation and amortization	Depreciation and amortization	2.0		%	2.5		%	2.4		%	2.7		%	Depreciation and amortization	1.6		%	2.0		%	1.8		%	2.4		%
	Operating income	7.9		%	6.6		%	6.6		%	5.9		%	Operating income	9.2		%	7.9		%	8.2		%	6.6		%
Loss on extinguishment of debt		—		%	—		%	—		%	(0.2		)%
Interest expense, net	Interest expense, net	(1.2		)%	(1.0		)%	(1.2		)%	(1.7		)%	Interest expense, net	0.9		%	1.2		%	1.1		%	1.2		%
	Income before income tax	6.7		%	5.6		%	5.4		%	3.9		%	Income before income tax	8.3		%	6.7		%	7.2		%	5.4		%
Income tax expense	Income tax expense	2.3		%	2.1		%	2.0		%	1.5		%	Income tax expense	1.8		%	2.3		%	1.3		%	2.0		%
	Net income	4.4		%	3.5		%	3.4		%	2.4		%	Net income	6.6		%	4.4		%	5.9		%	3.4		%

Thirteen Week Fiscal Period Ended September 30, 2018 (Fiscal Quarter 2018) Compared with Thirteen Week Fiscal Period Ended September 24, 2017 (Fiscal Quarter 2017) ~~Compared with Thirteen Week Fiscal Period Ended September 25, 2016 (Fiscal Quarter 2016)~~


Revenues:	Revenues:	Thirteen Weeks Ended								Revenues:	Thirteen Weeks Ended
		September 24, 2017				September 25, 2016					September 30, 2018				September 24, 2017
		(dollars in thousands)									(dollars in thousands)
Revenues by segment:	Revenues by segment:									Revenues by segment:
	Multifamily	$	21,759	30.5	%	$	18,889	28.0	%	Real Estate	$	26,531	34.4	%	$	21,759	30.5	%
	Professional	31,740		44.5	%	25,822		38.3	%	Professional	29,172		37.9	%	31,740		44.5	%
	Commercial	17,783		25.0	%	22,696		33.7	%	Light Industrial	21,359		27.7	%	17,783		25.0	%
	Total Revenues	$	71,282	100.0	%	$	67,407	100.0	%	Total Revenues	$	77,062	100.0	%	$	71,282	100.0	%

~~Multifamily~~Real Estate Revenues: ~~Multifamily~~Real Estate revenues increased approximately ~~$2.9~~$4.8 million ~~(15.2%~~(21.9%), due to our continued geographic expansion ~~plan.~~plan and continued growth in existing offices. Revenue from branches outside of Texas accounted for approximately ~~$1.6~~$4.5 million of the increase and revenue from branches in Texas increased approximately ~~$1.3~~$0.3 million. The increase was due to an ~~8.5%~~14.3% increase in billed hours and a ~~6.0%~~5.7% increase in average bill rate. Revenue from existing offices accounted for approximately ~~$1.2~~$4.1 million of the increase and revenue from new offices provided approximately ~~$1.7~~$0.7 million. Revenues from the commercial buildings group contributed $0.8 million of the increase and revenues from the apartment group contributed $3.9 million.

Professional Revenues: Professional revenues ~~increased~~decreased approximately ~~$5.9~~$2.6 million ~~(22.9%~~(8.1%)~~, primarily from Zycron, which contributed approximately $9.0 million of new revenues.~~. The ~~remaining~~ IT group decreased ~~$2.1~~$4.0 million, ~~and~~which was partially offset by the finance and accounting group ~~decreased $0.9~~increase of $1.4 million even with the decrease of $1.5 million in revenues from a customer. The Smart acquisition contributed an additional $2.9 million. The overall ~~increase~~decrease was due to a ~~26.8%~~16.2% decrease in average bill rate, which was partially offset by a 11.1% increase in billed hours and ~~increased~~an increase in permanent placements of ~~$0.2 million, offset by a 3.2% decrease in average bill rate.~~$0.5 million.

~~Commercial~~Light Industrial Revenues: ~~Commercial~~Light Industrial revenues ~~decreased~~increased approximately ~~$4.9~~$3.6 million ~~(21.6%~~(20.1%). Texas branches ~~decreased $3.1~~increased $0.8 million, other branches outside of the Midwest ~~decreased $2.1~~increased $2.8 million, while the Illinois and Wisconsin locations ~~increased $0.3 million.~~were flat. The overall revenue ~~decrease~~increase was due to a ~~25% decrease~~12.8% increase in billed hours ~~offset by~~and a ~~4.5%~~6.6% increase in average bill rate.

Gross Profit:

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

Thirteen Weeks Ended
September 24,
2017 September 25,
2016
(dollars in thousands)
Gross Profit by segment:

Multifamily $ 8,198
44.9 % $ 7,009
42.7 %
Professional 7,487
41.0 % 6,198
37.7 %
Commercial 2,563
14.1 % 3,225
19.6 %
Total Gross Profit $ 18,248
100.0 % $ 16,432
100.0 %



		Thirteen Weeks Ended
		September 30, 2018				September 24, 2017
		(dollars in thousands)
Gross Profit by segment:
	Real Estate	$	10,045	47.0	%	$	8,198	44.9	%
	Professional	8,110		37.9	%	7,487		41.0	%
	Light Industrial	3,218		15.1	%	2,563		14.1	%
	Total Gross Profit	$	21,373	100.0	%	$	18,248	100.0	%

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

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



		Thirteen Weeks Ended
		September 30, 2018		September 24, 2017
Gross Profit Percentage by segment:
	Real Estate	37.9	%	37.7	%
	Professional	27.8	%	23.6	%
	Light Industrial	15.1	%	14.4	%
	Company Gross Profit	27.7	%	25.6	%

Overall, our gross profit has increased approximately ~~$1.8~~$3.1 million ~~(11.1%~~(17.1%) due primarily ~~to Zycron ($1.8 million) and~~ growth in our ~~Multifamily~~Real Estate segment ~~offset by decreased revenues in~~of $1.8 million and our ~~Commercial segment.~~Professional segment's addition of Smart of $1.2 million. As a percentage of revenue, gross profit has increased to ~~25.6%~~27.7% from ~~24.4% primarily~~25.6% due to ~~a greater percentage of revenues coming from our Multifamily and Professional~~higher gross profits across all segments.

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

~~Multifamily~~Real Estate Gross Profit: ~~Multifamily~~Real Estate gross profit increased approximately ~~$1.2~~$1.8 million ~~(17.0%~~(22.5%) in line with the increase in revenue. The increase in gross profit ~~percentage of 0.6%~~ was due primarily to ~~6.3%~~5.0% increase in average spread.

Professional Gross Profit: Professional gross profit increased approximately ~~$1.3~~$0.6 million ~~(20.8%~~(8.3%), due to ~~Zycron of $1.8 million, a 2.3% increase~~an 8.0% decrease in average ~~spread,~~spread. The IT group decreased by $0.5 million, which was partially offset by a ~~$0.3~~$1.1 million ~~decrease in the remaining IT group and a $0.2 million decrease~~increase in the finance and accounting ~~group.~~group from the Smart acquisition.

~~Commercial~~Light Industrial Gross Profit: ~~Commercial~~Light Industrial gross profit ~~decreased~~increased approximately ~~$0.6~~$0.7 million ~~(20.5%~~(25.6%) due to ~~a decrease in the~~increased corresponding revenue. The average spread increased ~~5.2%~~6.9%.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately ~~$0.9~~$1.9 million ~~(8.6%~~(16.6%) primarily related to an increase in ~~Professional~~Real Estate of $0.9 million from ~~Zycron offest by~~growth and new office expansion, an increase in Professional of $0.7 million, with a ~~$0.6 million decrease in the remaining IT group and a $0.3~~$0.9 million increase in the finance and accounting ~~group. Multifamily increased~~group from the Smart acquisition partially offset by a $0.2 million decrease in the IT group, and an increase in Light Industrial of approximately ~~$0.5~~$0.3 million from ~~growth~~increased revenues. Share-based compensation increased $0.7 million from the issuance of restricted stock and ~~new office expansion,~~stock options granted. These increases were partially offset by a decrease of $1.0 million in ~~Commercial of approximately $0.3 million from decreased revenues.~~contingent consideration adjustments related to the 2017 Smart acquisition.

Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.2 million ~~(14.3%~~(13.1%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the ~~2011 Extrinsic, LLC acquisition.~~2012 American Partners acquisition partially offset by increases related to the 2017 Zycron and Smart acquisitions.

Interest Expense, net: Interest expense, net ~~increased~~decreased approximately $0.2 million ~~(25.9%~~(25.1%) primarily due ~~the new term note.~~to lower contingent consideration discounts.

Income Taxes: Income tax expense ~~increased~~decreased approximately $0.2 million primarily due to ~~higher pre-tax income offset by~~the impact of the 2017 Tax Cuts and Jobs Act and share-based compensation exercises that are deductible for tax purposes, which resulted in a decrease in the effective ~~rate.~~rate, partially offset by higher pre tax income of $1.7 million.

Thirty-nine Week Fiscal Period Ended September 30, 2018 ("Fiscal 2018") Compared with Thirty-nine Week Fiscal Period Ended September 24, 2017 ("Fiscal 2017") ~~Compared with Thirty-nine Week Fiscal Period Ended September 25, 2016 ("Fiscal 2016")~~


Revenues:	Revenues:	Thirty-nine Weeks Ended								Revenues:	Thirty-nine Weeks Ended
		September 24, 2017				September 25, 2016					September 30, 2018				September 24, 2017
		(dollars in thousands)									(dollars in thousands)
Revenues by segment:	Revenues by segment:									Revenues by segment:
	Multifamily	$	51,436	26.1	%	$	43,556	23.0	%	Real Estate	$	65,864	30.6	%	$	51,436	26.1	%
	Professional	91,770		46.6	%	80,829		42.6	%	Professional	90,394		42.1	%	91,770		46.6	%
	Commercial	53,693		27.3	%	65,188		34.4	%	Light Industrial	58,605		27.3	%	53,693		27.3	%
	Total Revenues	$	196,899	100.0	%	$	189,573	100.0	%	Total Revenues	$	214,863	100.0	%	$	196,899	100.0	%

~~Multifamily~~Real Estate Revenues: ~~Multifamily~~Real Estate revenues increased approximately ~~$7.9~~$14.4 million ~~(18.1%~~(28.0%) due to our continued geographic expansion ~~plan.~~plan and continued growth in existing offices. Revenue from branches outside of Texas accounted for approximately ~~$5.5~~$11.2 million of the increase and revenue from branches in Texas increased approximately ~~$2.4~~$3.2 million. The increase was due to a ~~11.3%~~20.8% increase in billed hours and a ~~5.9%~~5.1% increase in average bill rate. Revenue from existing offices accounted for approximately ~~$4.8~~$13.6 million of the increase and revenue from new offices provided approximately ~~$3.1~~$0.8 million. Revenues from the commercial buildings group contributed $2.0 million of the increase and revenues from the apartment group contributed $12.4 million.

Professional Revenues: Professional revenues ~~increased~~decreased approximately ~~$10.9~~$1.4 million ~~(13.5%~~(1.5%)~~, primarily from Zycron, which contributed approximately $17.6 million of new revenues.~~. The ~~remaining~~ IT group decreased ~~$5.1~~$4.0 million, ~~and~~which was partially offset by the finance and accounting group ~~decreased $1.6~~increase of $2.6 million even with the decrease of $5.1 million in revenues from a customer. The Zycron acquisition contributed $7.2 million and the Smart acquisition contributed $8.7 million. The overall increase was due to a ~~11.9%~~21.2% increase in billed hours and an increase in permanent placements of ~~0.4%~~$0.8 million that was offset by a decrease of 17.3% in average bill ~~rate, and increased permanent placements of $0.5 million.~~rate.

~~Commercial~~Light Industrial Revenues: ~~Commercial~~Light Industrial revenues ~~decreased~~increased approximately ~~$11.5~~$4.9 million ~~(17.6%~~(9.1%). Texas branches ~~decreased $6.8~~increased $1.4 million, ~~and~~ other branches outside of the Midwest ~~decreased $5.1~~increased $3.5 million, ~~which were offset by~~and Illinois and Wisconsin locations ~~increased $0.4 million.~~were flat. The ~~overall revenue decrease~~increase was due to a ~~22.1% decrease~~3.0% increase in billed hours ~~that was offset by~~and a ~~5.6%~~6.3% increase in average bill rate.

Gross Profit:

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

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

Multifamily $ 19,506
39.7 % $ 16,172
36.0 %
Professional 21,984
44.7 % 19,450
43.3 %
Commercial 7,656
15.6 % 9,341
20.7 %
Total Gross Profit $ 49,146
100.0 % $ 44,963
100.0 %



		Thirty-nine Weeks Ended
		September 30, 2018				September 24, 2017
		(dollars in thousands)
Gross Profit by segment:
	Real Estate	$	25,044	43.2	%	$	19,506	39.7	%
	Professional	24,056		41.6	%	21,984		44.7	%
	Light Industrial	8,775		15.2	%	7,656		15.6	%
	Total Gross Profit	$	57,875	100.0	%	$	49,146	100.0	%

Thirty-nine Weeks Ended
September 24,
2017 September 25,
2016
Gross Profit Percentage by segment:

Multifamily 37.9 % 37.1 %
Professional 24.0 % 24.1 %
Commercial 14.3 % 14.3 %
Company Gross Profit 25.0 % 23.7 %



		Thirty-nine Weeks Ended
		September 30, 2018		September 24, 2017
Gross Profit Percentage by segment:
	Real Estate	38.0	%	37.9	%
	Professional	26.6	%	24.0	%
	Light Industrial	15.0	%	14.3	%
	Company Gross Profit	26.9	%	25.0	%

Overall, our gross profit has increased approximately ~~$4.1~~$8.7 million ~~(9.3%~~(17.8%) due primarily to ~~Zycron ($3.8 million) and~~ increased revenues in our ~~Multifamily~~Real Estate segment ~~offset by decreased revenues in~~of $5.5 million and our ~~Commercial segment.~~Professional segment's addition of Zycron of $1.8 million and Smart of $3.2 million. As a percentage of revenue, gross profit has increased to ~~25.0%~~26.9% from ~~23.7%~~25.0% primarily due to a higher ~~percentage of our revenues from our Multifamily and Professional~~gross profits across all segments.

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

~~Multifamily~~Real Estate Gross Profit: ~~Multifamily~~Real Estate gross profit increased approximately ~~$3.3~~$5.5 million ~~(20.6%~~(28.4%) consistent with the increase in revenue. The increase in gross profit ~~percentage of 0.8%~~ was due primarily to ~~6.6%~~3.9% increase in average spread.

Professional Gross Profit: Professional gross profit increased approximately ~~$2.5~~$2.1 million ~~(13.0%~~(9.4%), due to ~~Zycron~~the decrease in cost of ~~$3.8 million, a 5.4% increase in average spread,~~services which was offset by a ~~$0.9~~9.7% decrease in average spread. The Zycron acquisition contributed $1.8 million, which was offset by a $2.0 million decrease in the remaining IT ~~group and a $0.4~~group. The Smart acquisition contributed $3.2 million, which was partially offset by an $1.0 million decrease in the remaining finance and accounting group.

~~Commercial~~Light Industrial Gross Profit: ~~Commercial~~Light Industrial gross profit ~~decreased~~increased approximately ~~$1.7~~$1.1 million ~~(18.0%~~(14.6%) ~~due to the corresponding decreased revenue. The~~from a 6.4% increase in average ~~spread increased 5.7%.~~spread.

Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately ~~$2.9~~$4.8 million ~~(10.1%~~(15.2%) related to an increase in ~~Multifamily~~Real Estate of ~~$1.7~~$2.7 million from growth, including ~~$0.7~~$0.2 million of new office expansion, ~~and~~ an increase in Professional of ~~$1.8~~$1.1 million from ~~Zycron.~~Zycron and $2.4 million from Smart offset by a $0.8 million decrease in the remaining Professional segment, and an increase in Light Industrial of $0.3 million from increased revenues. Share-based compensation increased $0.5 million from the issuance of restricted stock, a stock option cancellation agreement (the "Option Cancellation Agreement") with the Company's former President and Chief Executive Officer, and options granted. Also, other costs associated with our growth including increased headcount, commissions and bonuses. These increases were offset by a decrease of $2.2 million in contingent consideration adjustments related to the 2017 Zycron and Smart acquisitions.

Depreciation and Amortization: Depreciation and amortization charges decreased approximately ~~$0.5~~$0.9 million ~~(9.8%~~(18.7%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the ~~2011 Extrinsic, LLC~~2012 American Partners acquisition of ~~$0.9~~$1.4 million that was partially offset by an increase in the Professional segment intangible assets acquired in the 2017 Zycron ~~acquisition~~and Smart acquisitions of ~~$0.4~~$0.6 million.

Interest Expense, net: Interest expense, net ~~decreased approximately $1.0 million (30.4%) primarily~~was flat due to the decrease in the interest of ~~$1.2~~$0.4 million related to the ~~payoff~~amortization of ~~the 13% subordinated debt, the decrease in~~ contingent consideration discounts ~~of $0.5 million, partially~~from the 2015 VTS acquisition which was offset by the increase ~~of $0.4 million~~ in ~~new term debt and~~ the ~~increase~~interest of $0.2 million related to the new Term Loan described below and $0.2 million in amortization of the ~~revolver.~~deferred financing fees related to the Amended Credit Agreement (as defined below).

Income Taxes: Income tax expense ~~increased~~decreased approximately ~~$1.1~~$1.2 million primarily due to ~~higher pre-tax income offset by~~the impact of the 2017 Tax Cuts and Jobs Act, the Option Cancellation Agreement, and share-based compensation exercises that are deductible for tax purposes, which resulted in a decrease in the effective ~~rate.~~rate, offset by higher pre tax income of $4.8 million.

Use of Non-GAAP Financial Measures

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

We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, and other non-cash expenses such as the loss on extinguishment of debt, contingent consideration, and share-based compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of

companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income 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 unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income, 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.


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended					Thirty-nine Weeks Ended
	September 24, 2017		September 25, 2016		September 24, 2017		September 25, 2016		September 30, 2018			September 24, 2017		September 30, 2018			September 24, 2017
	(dollars in thousands)								(dollars in thousands)
Net income	$	3,137	$	2,348	$	6,723	$	4,578	$	5,061		$	3,137	$	12,697		$	6,723
Interest expense, net	884		702		2,280		3,278		662			884		2,275			2,280
Income tax expense	1,616		1,417		3,909		2,852		1,368			1,616		2,732			3,909
Loss on extinguishment of debt	—		—		—		404
Operating income	5,637		4,467		12,912		11,112		7,091			5,637		17,704			12,912
Depreciation and amortization	1,436		1,674		4,673		5,181		1,248			1,436		3,801			4,673
Contingent consideration adjustment									(988		)	—		(2,160		)	—
Share-based compensation	92		111		357		253		758			92		873			357
Adjusted EBITDA	$	7,165	$	6,252	$	17,942	$	16,546	$	8,109		$	7,165	$	20,218		$	17,942

Liquidity and Capital Resources

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

Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement (the “Amended Credit Agreement”) with Texas Capital Bank, National Association (“TCB”), as amended and restated, that provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”). Our primary uses of cash are payments to temporary workers, employees, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends and contingent consideration payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of

our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.

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

The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately ~~$34~~$13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.

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


	Thirty-nine Weeks Ended						Thirty-nine Weeks Ended
	September 24, 2017			September 25, 2016			September 30, 2018			September 24, 2017
	(dollars in thousands)						(dollars in thousands)
Net cash provided by operating activities	$	11,962		$	7,112		$	11,381		$	11,962
Net cash used in investing activities	(25,394		)	(611		)	(681		)	(25,394		)
Net cash provided by (used in) financing activities	13,432			(6,501		)
Net cash (used in) provided by financing activities							(10,700		)	13,432
Net change in cash and cash equivalents	$	—		$	—		$	—		$	—

Operating Activities

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

During Fiscal ~~2017,~~2018, net cash provided by operating activities was ~~$12.0~~$11.4 million ~~an increase~~a decrease of ~~$4.9~~$0.6 million compared with ~~$7.1~~$12.0 million for Fiscal ~~2016.~~2017. This ~~increase~~decrease is primarily attributable to contingent consideration adjustments, the timing of payments on accounts receivable, accrued payroll and related expenses, amortization expense, and prepaid and other current ~~liabilities.~~assets, which were partially offset by an increase in net deferred tax assets.

Investing Activities

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

In Fiscal 2018, we made capital expenditures of $0.7 million mainly related to furniture and fixtures and computer equipment in the ordinary course of business. In Fiscal 2017, we paid $24.5 million in connection with the Zycron and Smart acquisitions and we made capital expenditures of $0.9 million mainly related to computer equipment and software purchased in the ordinary course of business. ~~In Fiscal 2016, we made capital expenditures of approximately $0.6 million mainly related to computer equipment purchased in the ordinary course of business.~~

Financing Activities

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

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

For Fiscal 2017, we received proceeds from issuance of the $25.0 million term loan mainly to fund the Zycron ~~acquisition.~~and Smart acquisitions. We reduced our revolving line of credit by $3.5 million, paid $6.5 million in cash dividends on our common stock, and paid $1.1 million in deferred financing costs related to the Amended Credit Agreement, and paid $0.5 million in principal payment on the term loan.

For Fiscal 2016, we borrowed $3.0 million under our revolving line of credit and received net proceeds from issuance of common stock of $15.3 million mainly to pay off the Senior Subordinated Credit Agreement of $15.3 million. We paid $5.9 million in cash dividends on our common stock and we paid $3.5 million of contingent consideration related to the March 2015 D&W acquisition.

Credit Agreements

We had a Credit Agreement with TCB. The Credit Agreement provided for a Revolving Facility, maturing August 21, 2019, permitting us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which was 85% of eligible accounts, and TCB’s commitment of $35.0 million.

In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, we entered into anthe Amended ~~and Restated~~ Credit Agreement ~~(the “Amended Credit Agreement”)~~ with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for ~~a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”),~~the Revolving Facility described above, permitting us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts receivable, and TCB’s commitment of $35.0 million and also ~~provides~~provided for a term loan maturing April 3, 2022 (the “Term Loan”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement ~~provides~~originally provided for us to increase the commitment ~~with a~~by $20.0 million ($15.0 million remaining) with an accordion feature.

The Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, we pay an unused commitment fee on the unfunded portion of the Revolving Facility. Our obligations under the Amended Credit Agreement are secured by a first priority security interest in substantially all of our, and our subsidiaries, tangible and intangible property.

The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement with TCB described below. We are subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. We were in compliance with these covenants as of September 30, 2018.

We borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquistion on April 3, 2017. Proceeds from the foregoing loan arrangements were used to pay off our existing indebtedness on the revolving credit facility under the Credit Agreement, dated as of August 21, 2015, as amended, with TCB. We borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.

~~The~~Proceeds from the May 2018 common stock issuance were used to pay down $10.7 million of the principal outstanding under the Term Loan without a repayment fee and reduced the Revolving Facility and Term Loan bear interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Our obligations under the Amended Credit Agreement are secured by ~~a first priority security interest in substantially all of our tangible and intangible property and our subsidiaries.~~

The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the Credit Agreement including restricting the ability of us to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) pay dividends or make distributions (except for permitted distributions as defined in the agreements); (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of our business and we must comply with certain financial covenants. We may not permit the Leverage Ratio (as defined in the Amended Credit Agreement) to be greater than the following: 2.50 to 1.0 (April 3, 2017 to end of fiscal March 2018), 2.00 to 1.0 (March 31, 2018 to end of fiscal March 2019), 1.50 to 1.0 (March 31, 2019 to end of fiscal March 2020), 1.0 to 1.0 (From and after end of fiscal March, 2020). Moreover, we may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than 1.50 to 1.00, and may not permit the Dividend Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than (a) 1.10 to 1.00 for any four fiscal quarter period ending on or before September 30, 2017 or (b) 1.20 to 1.00 for any four fiscal quarter period thereafter. As of September 24, 2017, we were in compliance with these covenants.

$7.5 million.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Consolidated Financial Statements included in “Item 1. Financial Statements.” Please also refer to our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016~~31, 2017 for a more detailed discussion of our critical accounting policies.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~31, 2017.

JOBS Act

The Jumpstart Our Business Startups Act of 2012 provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We may elect 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rates

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

For the fiscal quarter ended September ~~24, 2017,~~30, 2018, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No change from the information provided in ITEM 3. LEGAL PROCEEDINGS included in our Annual Report on Form 10-K for the year ended December ~~25, 2016.~~31, 2017.

ITEM 1A. RISK FACTORS

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016~~31, 2017 (our ~~“2016~~“2017 Form 10-K”), and filed with the SEC on March ~~6, 2017.~~8, 2018. There have been no material changes from the risk factors as previously disclosed in our ~~2016~~2017 Form 10-K. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. of Part I of our ~~2016~~2017 Form 10-K, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

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

~~None.~~During the Company’s third fiscal quarter of 2018, we issued 9,401 shares of common stock in a cashless exercise of 15,788 outstanding warrants. The warrants had an original weighted average exercise price of $11.42. The foregoing issuance of securities was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

During the Company’s third fiscal quarter of 2018, we repurchased 828 shares of the Company's common stock at a cost of $24,027 and a weighted average price of $29.02 upon the vesting of restricted stock to satisfy statutory minimum tax withholding requirements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Item 6. Exhibits

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



Exhibit Number		Description

~~2.1~~		Asset Purchase Agreement, dated, as of April 3, 2017, by and between BG Staffing, Inc., BG Staffing, LLC, Zycron Inc., and Darrell S. Freeman (incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2017).
~~2.2~~		Asset Purchase Agreement, dated as of September 18, 2017, by and between BG Finance and Accounting, Inc., Smart Resources, Inc. and Accountable Search, LLC, and Timothy J. Flood and Margaret L. Francis (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 22, 2017).
3.1		Certificate of Incorporation of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on November 4, 2013).
3.2		Bylaws of BG Staffing, Inc. (incorporated by reference from Amendment No. 2 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on November 4, 2013).
4.1		Form of Common Stock Certificate (incorporated by reference from Amendment No. 1 to the registrant’s registration statement on Form S-1 (File No. 333-191683) filed on October 28, 2013).
10.1		Form of Incentive Stock Option Agreement (incorporated by reference from the registrant’s Form 8-K filed on February 12, 2014)
10.2*		Form of Restricted Stock Agreement
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS *		XBRL Instance Document.
101.SCH *		XBRL Taxonomy Extension Schema Document.
101.CAL *		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *		XBRL Taxonomy Extension Presentation Linkbase Document.



	*	Filed herewith.
	†	This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

SIGNATURES

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



	BG STAFFING, INC.

		/s/ ~~L. Allen Baker, Jr.~~Beth Garvey
	Name:	~~L. Allen Baker, Jr.~~Beth Garvey
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Dan Hollenbach
	Name:	Dan Hollenbach
	Title:	Chief Financial Officer and Secretary
		(Principal Financial Officer)

Date: October 30, ~~2017~~2018

3635



PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Consolidated Balance Sheets	4
	Unaudited Consolidated Statements of Income	5
	Unaudited Consolidated Statement of Changes in Stockholders' Equity	6
	Unaudited Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231
Item 4.	Controls and Procedures	3231

PART II	OTHER INFORMATION	3433
Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	3433
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3433
Item 3.	Defaults Upon Senior Securities	3433
Item 4.	Mine Safety Disclosures	3433
Item 5.	Other Information	3433
Item 6.	Exhibits	3534



Accounts receivable	$	4,345,312
Prepaid expenses and other assets	82,122
Property and equipment	128,431
Intangible assets	13,818,474
Goodwill	6,901,101
Liabilities assumed	(2,983,222		)
Total net assets acquired	$	22,292,218

Cash	$	18,500,000
Hold back	500,000
Common stock	1,000,000
Working capital adjustment	(299,835		)
Fair value of contingent consideration	2,592,053
Total fair value of consideration transferred for acquired business	$	22,292,218



	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	475,000	5 years
Trade name	5,006,000		Indefinite
Customer list	8,337,474		10 years
Total	$	13,818,474



Accounts receivable	$	1,228,614
Prepaid expenses and other assets	36,816
Property and equipment	40,626
Intangible assets	4,927,045
Goodwill	1,740,439
Liabilities assumed	(216,343		)
Total net assets acquired	$	7,757,197

Cash	$	6,000,000
Working capital adjustment	(3,440		)
Fair value of contingent consideration	1,760,637
Total fair value of consideration transferred for acquired business	$	7,757,197



	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested outstanding at December 25, 2016	282,500	$	2.57
Nonvested outstanding at September 24, 2017	285,800	$	3.01