Staffing 360 Solutions, Inc.

Transcription

1 Staffing May 8, 2017 Midtown Partners Research Staffing 360 Solutions, Inc. NASDAQ: STAF Staffing 360 Solution's recent raises alleviated certain complicated balance sheet issues and should allow resumption of the M&A program that earlier generated rapid gains in revenue and aebitda. Description. STAF has a highly-focused growth by acquisition strategy that through six acquisitions in the highly-fragmented staffing market achieved rapid growth with high client retention, strong recurring revenues and expanding aebitda from its beginning in 2013 to Investment Thesis Operations continue to advance. In the December 2016 year revenues increased 27% year-over-year, gross profits increased 26.1%, the loss from operations was reduced by 43.7%, and adjusted EBITDA rose from $2,670 to $5,013, a gain of 87.8%. The registration of large amounts of stock, followed by debt amortization and servicing that were done with stock, triggered a sharp decline in the stock price in The company pulled back from making acquisitions from late 2015 until the present to allow it to get its balance sheet in order and refrain from excessive dilution. Recent financings totaling $9.0 million by the Jackson Investment Group, eliminated a prior financing that required significant near-term payments and reduced forward visibility. These investments should allow STAF to resume its program of accretive acquisitions in the temporary staffing industry. The company's stated goal is to achieve $300 million in revenue run rate, up from $183.5 million for last year. We believe investors will become more comfortable with STAF's changed financial position, continued operating growth and raise the valuation they are willing to pay from current very low levels. Staffing 360 Solutions Rating Risk Rating Strong Buy High Current Price (May 8, 2017) $ month Price Target $2.00 Implied dividend yield 0.0% Projected total return 178% Shares outstanding (Apr 17) Market capitalization (M) Total debt (MRQ) Cash (MRQ) Enterprise value 14.64M_ $11.8 M $24.3M $1.24M $36.7M Average daily volume (3 m).432m Float as % of shares out. 60.6% Short interest as % of Float 1.85% Insider ownership 20.4% Institutional ownership 2.2% Book value p/s $0.84 Cash/share $009 Revenue (M) 2015a F2016a 2017E 2018E Q1 N.A. $N.A. $N.A. $N.A. Q2 $N.A. $N.A. $N.A. $N.A. Q3 $N.A. $N.A. $N.A. $N.A. Q4 $N.A, $N.A. $N.A. $N.A. FY $144.4 $183.5 $198.2E $212.1E aebitda (M) 2015Aa 2016a 2017E 2018E Q1 $N.A. $ N.A $ N.A $ N.A Q2 $ N.A $ N.A $ N.A $ N.A Q3 $ N.A $ N.A $ N.A $ N.A Q4 $ N.A $ N.A $ N.A $ N.A FY $2.7 $5.0 $5.4E $5.1E William Relyea brelyea@midtownpartners.com Chart by Big Charts Midtown Partners does and seeks to do business with companies covered in Midtown Partners Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Midtown Partners Research. Investors should consider Midtown Partners Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Important Notices and Disclosures section located at the end of this report.

2 Table of Contents Key Points... 3 Company Profile... 3 Strategic Goals... 4 Acquisition History... 4 Geographic Spread... 5 Revenue of Subsidiaries... 6 Staffing 360's Development Process... 7 Choosing Target Companies... 7 Branding Philosophy... 7 Breakdown of Skill Sets... 8 Executive Management... 9 The Staffing Market Interruption of Acquisition Process by Stock Price Decline Jackson Group Brings Positive Change Operations Revenue Growth, Gross Profits and Adjusted EBITDA Profitability Seem Likely to Continue Results of Operations Sector Gross Margins Operating Leverage Leverage Ratio Forecast Pre-Announcement of First Quarter Results 17 Valuation of Staffing Companies Abbreviated Financial History Risks Consolidated Statement of Operations Balance Sheet Midtown Partners Disclosure

3 Key Points Staffing 360 Solutions, Inc showed rapid growth through highly focused acquisitions of staffing companies starting in From 2013 through late 2015 STAF made six acquisitions in the US and UK. The company focused on companies operating in one or more of its five chosen strategic pillars of business: Accounting and Finance, IT, Engineering, Administration, and Light Industrial. Revenues have grown from virtually zero in 2013 to a current run rate of about $190 million. In the December 2016 year, operations continued to improve as revenues increased 27% year-over-year, gross profits increased 26.1%, the loss from operations was reduced by 43.7%, and adjusted EBITDA increased from $2,670 to $5,013, a gain of 87.8%. Early acquisitions typically included stock at considerably higher valuations than has been the case in the past year. The registration of large amounts of stock and debt amortization and servicing that had to be done with stock triggered a sharp decline in the stock price in 2016 and early The company pulled back from making acquisitions from late 2015 until the present in order to put its balance sheet in order and refrain from creating excessive dilution. For the calendar year ending December 2016 there was significant improvement in the balance sheet. But, more importantly, thus far in 2017 the balance sheet has been markedly improved by $9 million of investments from Jackson Investment Group, LLC which allowed elimination of commitments that had nearer term payments due. The most problematic of the balance sheet items for calendar 2016 have been eliminated and replaced with debt on better terms with Jackson Investment Group LLC which has also become the company's largest shareholder. It seems likely that Staffing 360 Solutions will be able to resume its acquisition program in the near future adding new subsidiaries which are accretive to earnings although the transactions will probably differ importantly from the packages of stock, cash and earn-outs used in earlier years, when the company's stock price was significantly higher, to avoid excessive dilution to existing shareholders. In line with becoming more investor-friendly, the company's transition to a normal December year from the unusual earlier May fiscal year, will allow easier comparison with other staffing companies by the investment community. Financial projections for years ending December 2017 and 2018, in the absence of any reasonable way to forecast the financial impact of probable acquisitions which are the foundation of STAF's "buy-and-build" strategy, have been done on the basis of organic growth. However, a strong pattern of organic growth and the likely reduction of certain costs and problematic debt now eliminated shows continued favorable progress in EBITDA and Adjusted EBITDA. Seasonal factors negatively affected Q1 revenues, but margins continued strong and adjusted EBITDA advanced nicely. Some of the seasonal factors affecting revenues are expected to be stronger in later quarters. We are initiating coverage on Staffing 360 Solutions with a Strong Buy rating and a 12-month price target of $2.00, a roughly 178% gain from a recent close. We base our price target on expectations for a resumption of accretive acquisitions which the company has used in the recent past to grow revenues, gross profit, EBITDA and Adjusted EBITDA. We think investors will become comfortable with the return to more rapid growth on a somewhat less dilutive basis and will be willing to pay up from the excessively low current valuation as measured by multiples of revenues and gross profits. Company Profile Staffing 360 Solutions, Inc. began operations in the staffing sector on July 31, The corporation started as a shell company, Golden Fork Corporation, incorporated in Nevada on December 22, 2009, which changed its name to Staffing 360 Solutions, Inc. on March 16, The company viewed the staffing industry as having considerable potential for growth through acquisition. The vision was to grow rapidly by finding and acquiring suitable, mature, profitable operating companies with the right characteristics in terms of the types and 3

4 fundamentals of the staffing business they did and had good management teams who would remain part of the larger organization. Strategic Goals The company has had a set of strategic goals which have guided the choice of acquisitions and how the new units become parts of the larger organization. The intention is to execute a disciplined acquisition strategy which demands that the acquired companies have positive earnings, are accretive to Adjusted EBITDA, and that the units are able to generate higher than industry-average organic growth. An intelligent integration approach requires that management stay with the acquired unit for an acceptable period of time, that part of their compensation is incentives in Staffing 360 stock and earnouts. STAF works to ensure that there are high levels of employee retention in the acquired units and that there will be increased support for the sales teams. The company has initiated a series of initiatives to grow operating margins, maximize efficiencies and deleverage the Balance Sheet. The company successfully achieved its up-listing of common stock to NASDAQ in September 2015, and continues its commitment to growth and shareholder value. A key corporate goal has been to generate revenues in excess of $300 million per year, and expects to achieve this through a combination of acquisitions and organic growth. Acquisition History There have been a total of six acquisitions by Staffing 360 Solutions so far. Control Solutions was the first in November 2013, followed by the largest one, Initio International Holdings shortly thereafter in January Initio had two elements, Monroe Staffing in the US and Longbridge in the UK. Following quickly were Poolia in the UK in February 2014 and PeopleSERVE in the US in May A year later, in July 2015, Lighthouse Placement Services was added. This was followed by The JM Group, a UK firm in November Poolia was the only asset acquisition, all the others were equity. Control Solutions International Based in Boston Massachusetts, Control Solutions offers temporary staffing in the fields of Accounting and Finance and Information Technology. This subsidiary provides clients with industry experts that specialize in various technical fields. It has significant experience in international markets. Staffing 360 did a PIPE offering in the period December to January 2013/2014, raised $10 million and was poised to make acquisitions. 4

5 Initio International Holdings Limited In January 2014, STAF acquired Initio International Holdings Limited which brought with it two companies: Monroe Staffing in the U.S. and Longbridge in the UK. Initio was generating about $80 million in revenues when it was acquired. With those acquisitions the company brought in a management team which included Brendan Flood, now Staffing 360's Executive Chairman, and Matt Briand, Staffing 360's CEO. Monroe Staffing Monroe is the largest of the company's subsidiaries and operates in the fields of Light Industrial, Administration, Engineering, IT, and Accounting and Finance. Located in New Hampshire, Massachusetts, Connecticut, North Carolina, Rhode Island, and with an increasing national reach it has approximately 4,000 temporary workers at any given time. It was founded in 1969 in Monroe Connecticut and its client base covers multinational enterprises as well as smaller firms and start-ups. Longbridge Operating mainly in Accounting and Finance, Longbridge services niche businesses with deep client relationships in the UK. This unit absorbed the Poolia acquisition in 2014 and its newly combined London offices provide cost savings and room for expansion. Poolia Ltd. The acquisition of Poolia Ltd. in the UK was in early 2014 and it was merged into Longbridge. PeopleSERVE Based in Chestnut Hill, Massachusetts, PeopleSERVE operates primarily in information technology. In Inc. Magazine PeopleSERVE was listed among the 5,000 fastest-growing private companies in the country. Its clients include government, commercial and educational organizations throughout the greater Boston area. Lighthouse Placement Services Based in Haverhill, Massachusetts, Lighthouse operates primarily in the Engineering field and related skills areas. It has been named as one of the best places to work according to the Boston Business Journal. This subsidiary has a combined 50 years of executive management experience servicing local businesses, international enterprises and defense contractors. The JM Group This subsidiary is based in London England and provides staffing in Information Technology and change and digital recruitment in Financial Services, professional services and the corporate sectors, founded in It has long-term clients with established deep relationships. 5

6 Geographic Spread The company is focusing its business in the United States and the United Kingdom. The company's geographic spread within the United States is primarily in the New England area, particularly Massachusetts and Connecticut, near Monroe Staffing's headquarters. The current geographic breakdown of offices in the United States has the most offices in Massachusetts, followed by Connecticut, North Carolina, New Hampshire, Rhode Island, and New York, where the company s headquarters is based. While North Carolina was not part of the original acquisitions, the company has opened three offices in the last couple of years. All of the company s UK business is based out of an office in the city of London. Revenues at STAF across all geographies has grown from virtually zero to almost $190 million in three years. Locations of Operations Breakdown of the current revenue run rate of $190 million is roughly 80% in the United States and the remainder in the UK with a tiny representation in Canada. New England winters can be a problem with snow closing down businesses for periods of time. A couple of years ago the company lost a fair amount of business early in the year. Management has shown some interest in becoming a little more dispersed geographically. There seems to be some likelihood of geographic expansion in the United States extending to some larger cities in the Midwest, such as Chicago and Minneapolis, but it seems unlikely that the company will go to places which are both far from headquarters and have less dense corporate populations. The New York City corporate office serves the purpose of being near the financial markets which are critical to financing expansion by acquisition. On the West Coast, particularly in California, the labor laws and insurance laws would seem unfavorable enough to keep the company from expanding there. Operations in North Carolina have shown the advantages of the Mid- Atlantic region. Eventually there might be some interest in moving to the northern states on the West Coast, Washington and Oregon, as they have potential client companies that are quite heavily concentrated in the IT area and the labor laws are not so onerous. In Europe, STAF seems disinclined to consider acquisitions beyond the UK, given that, in areas such as France, the labor laws restrict work hours and make it difficult to eliminate people who badly underperform. Italy brings some of the same restrictions. Revenue of Subsidiaries (Approximate) Revenue of Subsidiaries (Approximate) Control Solution Monroe Longbridge PeopleSERVE Lighthouse JM Group Source: Midtown guesstimates Monroe accounts for over half of Staffing 360's revenues with PeopleSERVE, Lighthouse and The JM Group filling in the majority of the rest. Staffing 360 Solutions organization today has about 200 internal employees, and at any given time the company employs about 4,300 temporary employees, although as many as 18,000 people may be employed over an entire year. The company bills over 1,000 customers in the US and UK in a given year. 6

7 Accounting & Finance Information Technology Engineering Administration Light Industrial Midtown Partners Research Staffing 360 Solution's Development Process Choosing Target Companies Staffing 360 Solutions has chosen to operate in five strategic pillars or types of staffing businesses. To be a target for acquisition by Staffing 360 Solutions companies must operate in one or more of these sectors. STAF'S Five Strategic Pillars The margins are higher in the professional job categories and appear to be higher within these categories depending on the position of the temporary employee being placed. Staffing 360 Solutions is very specific about buying the management people within an organization to be acquired, not just the name, as they rely on high performing people in very specific practices. Those practices are driven around the skill sets of the candidates rather than the industry sector of the clients. For instance, as long as the company is placing candidates from one of its strategic pillars, management is less concerned with the industry categorization of the client company. Staffing 360 is more comfortable placing specific categories within companies than attempting to be generalists. They prefer, for example, to place an accountant, an engineer, or an IT project manager than a generalist in the client's HR department. The company's recruiters tend to operate within specific categories that they have come to know well. Branding Philosophy STAF has established a branding philosophy intended to retain the best established relationships with the original clients and temporary workers yet acknowledges the fact that the acquired staffing company is part of the larger Staffing 360 Solutions organization. The business units are branded with the 360 o logo following their recognizable original name and typeface so that both employees, and customers, past and present, recognize the company that they have been employed by, or have been dealing with, immediately and goodwill is maintained although they have become part of the Staffing 360 Solutions family of companies. 7

8 Breakdown of Skill Sets It is estimated by Midtown that the breakdown of Staffing 360's current skill sets by revenue is led by Light Industrial with slightly over 50%, next comes Information Technology with possibly above 20%, Engineering with possibly above 10% and the remainder divided between Accounting and Financial and Administrative. Rough Breakdown of Skill Sets by Revenue Light Industrial Information Tech Engineering Accntg & Finance Administration Source: Midtown Partners estimates The company is keen to develop the percentages of its workers in Accounting and Finance, and Engineering but the reality is that the staffing market itself, is a component of the $400 billion global market, where Light Industrial is believed to be at least 40% to 50% of the total and IT is at least 30% to 40%. Management has concluded that if they want the company to participate as fully as possible, in the staffing space in the geographic region where it started, that a lot of the market opportunity will naturally be in Light Industrial and Information Technology. The Light Industrial category does tend to have lower margins than Information Technology. In practice the Light Industrial margin in the United States is greater than that category s margin in the United Kingdom. Light Industrial margins are running about 16% to 16.5% whereas the professional margins run about 19% to 20%. But within that, in the United States, Professional margins are running 23% to 24% and in the UK running only about 15%. On a company-wide basis the gross margin in the professional sectors, at about 20% is one-third higher than Light Industrial business which, in 2016, was about 15%. The key is to acquire good management teams with proven successful operations. STAF does have some client companies which could be characterized as medium/heavy industrial. However, if they have needs for Light Industrial temporary workers, Staffing 360 will go in and review the fit. STAF has definite concerns regarding employee safety and will inspect the client worksites to make sure that they are safe. Workers comp is incredibly important to STAF and they are very serious about safety and insurance and keeping people safe. STAF has a team in its Light Industrial business that does a review of every client site before it will put in any temporary workers. They also review sites on a regular basis to make sure that the safety standards are maintained. A major consequence of this is that STAF's workers compensation insurance costs have come down relative to sales several years in a row and are expected to continue to be managed carefully as a percentage of revenues. Workers compensation insurance is still a huge piece of overhead but has become relatively more manageable as it has been coming down for several years. STAF believes in its bias to run clean and run safe pays off. An important measure for any company being reviewed with an eye to acquisition is the mix and quality of client relationships. STAF looks closely at the acquisition target's top ten clients in the current year and how it has changed from year to year. If there is too much change that is regarded as a negative as it could possibly lead to instability as the acquisition target could be selling on a price basis and not relationships. STAF management tends to prefer target companies that have held onto the same clients for 5 to 10 years as they focus on what the client actually does, what the challenges are and what resources it needs. Concentration of clients is usually not a good sign as having too few clients can mean, if one or a couple leave, then the company s revenue stream is seriously reduced. Longer-term contracts might help alleviate some of this. 8

9 Management likes an acquisition target that has a well diversified client base, has long-term relationships and knows what the clients are doing. It is important that in the transition period that people within the core of a company being acquired do not get the idea that their management is bailing out and start to look elsewhere themselves. STAF seeks to add units whose managements are good at what they do and who want to keep working at their business for a number of years at least. Organic Growth Initiatives Staffing 360 is focused on growing existing subsidiaries organically while hoping to add accretive new operations. It currently has about 200 internal employees and constantly is in the market to hire more in order to continue to achieve organic growth and to exploit market opportunities. The company offers incentives including commissions and bonus plans that remain intact or are improved after the acquisition of the subsidiary. For members of the management and for recruiters working in the subsidiaries there is the potential to improve their performance by using techniques that have worked in other parts of the operation. The company has had a "no layoff" policy for acquired operations and makes this clear at the beginning of the formal relationship in order to keep morale high, maintain stability and increase the speed of transition to the new ownership. There are potentially other benefits of the larger organizations for acquired employees such as improved healthcare and insurance plans. There are often advantages that Staffing 360 can bring to the acquired unit such as improved sales training, improved employee benefit programs and cross-selling opportunities. Executive Management Staffing 360 Solutions is led by an experienced and talented management team with broad experience in the staffing field. The steady gains beyond the acquisitions in organic revenue growth and continued progress in profitability speak to management's good judgment in choosing staffing companies to acquire and in applying good principles to foster success after the acquisition. Brendan Flood Executive Chairman Extensive financial, M&A and turn-around experience over a 30 year career, with a majority in the staffing industry. Former CFO of the Americas for Monster Worldwide Inc. (NASDAQ) MWW). He also led the IPO of Hudson Global Inc. (NASDAQ HSON). In conjunction with the closing of Initio Holdings on January 3, 2014, which was acquired for approximately $13.29 million in cash, stock and promissory notes Brendan Flood was appointed Executive Chairman. Graduated from Dublin City University in Ireland with a BA in Accounting and Finance. Matthew Briand President and Chief Executive Officer Over 20 years of staffing industry experience driving organic growth. Led Monroe Staffing Services from $34 Million in revenues to over $100 million in Monroe has received numerous honors: Best in Staffing in 2010,2012, 2013, 2014 and David Faiman Chief Financial Officer Over 20 years of financial experience at both private and public companies, including Vice President of Financial Planning and Chief Accounting Officer of Novitex Enterprise Solutions. Acting CFO at Cengage Learning Inc. (Formerly Thomson Learning of Thomson Reuters). Christopher Lutzo General Counsel 25 years in practice, recently corporate governance and M&A for GE Capital and CA Technologies via Axiom Global. Assistant General Counsel at Smith & Wesson, conducted M&A, and managed compliance and regulatory functions; Senior Legal Counsel at Presstek, Inc., where he negotiated and closed various strategic transactions and financings. J.D. from Quinnipiac University School of Law, and a B.A. from Duquesne University in Pittsburgh, PA. Darren Minton Executive Vice President Extensive experience in the capital markets, assisting numerous public companies. Particular focus on private-to-public transactions, M&A, corporate messaging and branding. Graduated with a BA in Economics from Stanford University. 9

10 The Staffing Market The staffing industry is large, growing, and highly fragmented, with an estimated 15,000 staffing companies generating less than $20 million in annual sales in the United States alone. The size of the global staffing industry is estimated at $430 billion, with thousands of companies operating in the sector. It is estimated that the top 10 staffing firms in the world, may account for perhaps 15% of the market but the majority of the industry is made up of many small companies.. The staffing industry does not have tremendous barriers to entry such as patents or intellectual property that would keep a new entrant out of the sector. The main requirements for success in the business are a well-run sales force with good business connections and the ability to sell repeat services to the right clients. There are many niche specialty staffing companies. There's not much required in the way of fixed assets. The attraction for STAF's management is that the industry is readily open to consolidation. ln the past, the business of temporary staffing was concentrated in low-skill temporary work. Much of it was light industrial and relatively basic-skill level office work. This has changed significantly and today professional services are a far more significant part of the industry than in the past. The Long-Term Shift Toward Professional Staffing Commercial 64% Professional 36% Commercial 43% Professional 57% Source: Staffing Industry Analysts There has been a long-term shift in Commercial vs. Professional Staffing in the industry from 64% Commercial and 36% Professional in 1995, to the dominance of Professional accounting for 57% of revenues in 2016, against 43% for Commercial. Over this period the overall market grew 53%, or at a compound rate of 4.7%. The market for Professional staffing grew at a much higher compound rate of 7.3%. In the crash of it became critical to control costs. The hiring of dozens or even hundreds of temporary employees was a much better solution for many companies which wanted to add flexibility as well as succeed in accomplishing temporary projects. The overall shift for corporations relying on a higher rate of temporary workers is seen as a permanent shift in job market psychology. A part of this appears to have been attitudes forged by the last recession and the changing career views of Millennials entering the workforce, A major factor is the structural change driven by the need for changing skill sets in IT as systems change, requiring familiarity with different software, and projects that are started and completed or sometimes abandoned. In January 2017, Staffing Industry Analysts stated that the percentage of temporary workers in the US workforce has reached 2.05%, which ties with the long term high watermark, and well above the 20 year average of 1.5%. Staffing 360 wants to keep up its rapid growth but restricts itself to doing a few things well within the geographies of the United States and the United Kingdom. It chooses these geographies, in part, because they are quite similar in having very flexible labor forces and favorable labor laws. as they are incredibly flexible and skewed towards industry needs rather than the priorities of the labor unions. Also, both the economies in the US and UK appear to be growing quite well. In the US, there more people employed right now than there have been in recent years, probably ever. In the US Professional Staffing Industry revenue growth has averaged about 7% over the past three years. STAF has seen its organic growth at higher levels than this, in the low double digit range for a couple of years. The UK economy and the staffing market component appear to be growing faster than most of the other countries in Europe. Looking forward, it would be safer to assume that 10

11 STAF's businesses could show gains in the high single digit range. However, its material growth will come from the accretive acquisition program. Interruption of STAF's Acquisition Program by Stock Price Decline Until late 2015, STAF's shares traded on the OTC, only a small percentage was registered and volume was minimal. In order to increase liquidity, the company uplisted the stock to the NASDAQ in Sept In March 2016, the company, through an S-3, registered all the outstanding common stock giving easy marketability to about 4 to 5 million shares. Trading volume increased enormously and declined from prices that had been in the $2 to $4 range to below $2 in the summer months. Shareholders were aware that the company had a significant debt burden and this may have been a factor in the weakness in the stock. Source: Yahoo The numbers in the chart above represent the timing of STAF's six acquisitions relative to the company's stock price. The first, Control Solutions, was in November The second was Initio International in January 2014 (Monroe and Longbridge), the third, Poolia, in February 2014, and the fourth was PeopleSERVE in May The fifth was Lighthouse Placement Services in July 2015 and the sixth, The JM Group, was in November In October 2016 STAF had a high level of debt coming due and elected to meet its obligations with equity creating a significant dilution event and the stock drifted lower. Hillair Capital Investments converted $ of 8% Convertible notes into 890,910 shares of common stock. Further weakness came in late in 2016 and in January 2017 as the market was aware that STAF did not have sufficient liquidity to cover the next quarterly amortization required by Hillair's convertible debentures. An amendment was consummated in January 2017 that extended all amortization payments to October 2018 and called for no interest payments until October STAF issued 600,000 shares for conversion of $728,000 of the 2016 debenture and increased the principal by $1,111,846. Because STAF's stock failed to meet the minimum bid price of $1.00 for 30 consecutive business days, NASDAQ issued a Notice of Delisting on January 25, 2017 with a grace period of 180 days. Jackson Investment Group Brings Positive Change Jackson Investment Group LLC, owned by a highly successful healthcare staffing entrepreneur, Richard Jackson, invested $7.4 million on January 25, 2017, for a 6% Subordinated Note with a maturity date of July 2018, a warrant to purchase 3.16 million common shares, and 1.65 million shares. 50% of the interest on the note, but not the note itself can be converted into common. Proceeds were specified to primarily repay debt, including Hillair's. Jackson expanded its investment in STAF by $1.65 million on April 5, 2017, with the proceeds used to redeem the company s Series D Preferred Stock, raising the amount raised to a total of $9.0 million, acquiring 667,905 shares and changing the warrant conversion feature increasing the shares issuable to 4,527,537 from 3,150,000. The entry of the Jackson group makes a very positive change in the outlook for STAF's prospects for returning to its "buy-and-build" acquisition strategy. 11

12 Operations Revenue Growth, Gross Profit and Adjusted EBITDA From Fiscal year ended May 2013 through calendar year ended December 2016, STAF grew revenues from $172,000 to $183.5 million. Obviously, most of the growth came from acquisitions but organic growth in the units after being acquired was very strong, ranging from high single digits to low double digits. This rate of organic growth is well ahead of the industry average, which is usually described as about 4%. The stronger pace of organic gains speaks to management's ability to choose promising staffing operations out of the great number that exist, and to have in place policies and incentives that keep operations moving ahead of the pack. Source: Company filings Profitability Seems Likely to Continue to improve A review of the Results of Operations over the years ended December 2015 and 2016 gives support to the premise that the basics of the company's operations are moving in a positive direction even without acquisitions. Revenues advanced 27.1% including the positive impact of acquisitions made in 2015 but with strong organic growth of about 11%. The gross profit margin was steady but there was a decline in operating expenses as a percentage of revenues from 21.3% to 19.1%. As measured by EBITDA and adjusted EBITDA, STAF has been advancing towards profitability. Gross profit margins have been steady, operating expenses decreasing as a percentage of revenues, and the net loss declining. 12

13 Staffing 360 Solutions - Results of Operations ($000) Dec-16 % of Dec-15 % of YOY (Unaudited) Revenues (Unaudited) Revenues Growth Revenue 183, , % Direct cost of Revenue 151, % 119, % 27.3% Gross Profit 31, % 25, % 26.1% Operating Expenses 34, % 30, % 13.6% Loss from operations (3,109) -1.7% (5,522) -3.8% -43.7% Other expenses (4,722) -2.6% (3,523) -2.4% 14.0% (Provision) Benefit for income tax (42) 0.0% % % Net Loss (7,873) -4.5% (9,028) -6.3% 12.8% Adjusted EBITDA Year 2016 vs. Year 2015 ($000) December December (Unaudited) (Unaudited) Net loss attributable to Com. Stock (8,110) (9,440) Interest expense 2,554 2,081 Provision (benefit) income taxes 42 (17) Depreciation and Amortization 5,302 4,760 EBITDA (212) (2,616) Acquisition, capital raising & other non-recurring expenses 4,200 2,410 Other non-cash charges 1,011 2,861 Restructuring charges 19 (415) Impairment of intangibles 0 0 Modification expense Dividends - Series A preferred stock Other income (expense) (365) (22) Net Inc. attributable to non-controlling interest Adjusted EBITDA 5,013 2,670 Gross profit 31,869 25,276 Adjusted operating expenses 26,856 22,606 Adjusted Oper. Expenses percentage Gross profit 84.3% 89.4% 13

14 Staffing 360 Solutions - Sector Gross Margins Revenues Dec-2016 Dec-2015 Light Industrial 98,104 53% 85,388 59% Professional 85,418 47% 59,020 41% Total Service Revenue 185, ,308 Light Industrial 14,711 46% 12,197 48% Professional 17,138 54% 13,079 52% Total Gross Profit 31,869 25,276 Light Industrial 15.0% 14.3% Professional 20.1% 22.2% Total Gross Margin 17.4% 17.5% Sector gross profit margins have declined 2% year-over-year in Light industrial but improved by about 2% in the Professional staffing business yielding a corporate gross margin at the 17.4% in 2016, virtually unchanged from the year earlier. Staffing 360 Solutions - Operating Leverage Dec vs. Dec December December (Unaudited) (Unaudited) Gross Profit - Current Year $ 31,869 $ 25,276 Gross profit - Prior Year $ 25,276 $ 20,960 Gross Profit Growth $ 6,593 $ 4,316 Adjusted EBITDA - Current Year $ 5,013 $ 2,670 Adjusted EBITDA - Prior Year $ 2,670 $ (2,666) Adjusted EBITDA - Growth $ 2,343 $ 5,336 Operating Leverage 35.5% 123.6% Operating Leverage: In the past year it is clear that the rate of gain in gross profit, was substantially higher than the rate of revenue growth and that the rate of gain in Adjusted EBITDA was very strong. A possibly misleading aspect of the operating leverage ratio shown in the table is that while it was good for the December 2016 year, the rate in the prior year was spectacular. The unusually high number is the result of reversal from negative Adjusted EBITDA for the earlier 12 months to a positive aebitda in the year being measured. 14

15 Leverage Ratio Leverage ratio is used as an indicator of a company's ability to service its debt in the future It is calculated by taking the Total Long Term Debt, Net, gross of any Original Issue Discount, plus Earn-outs, less assets held against Long- Term Debt, Divided by Adjusted EBITDA for the trailing 12 months. The lower the ratio, the better the prospects for the company to service its debt in the future. Clearly, STAF's position in terms of ratio improved greatly from December 2015 to December Leverage Ratio: (December 2016 vs. Dec 2015) Year Year Dec 2016 Dec 2015 Total Long Term Debt, Net $ 7,636 $ 9,529 Add back- Total Debt Discount and Deferred Financing 1,374 4,257 Earn outs 2,347 2,722 Less: Surety Bond (1,405) Total Long Term Debt 9,952 16,508 Adjusted EBITDA TTM 5,013 2,670 Leverage ratio 2.0x 6.2x. 15

16 Staffing 360 Solutions - Forecast (Assuming No Acquisitions) Dec 2015 Dec 2016 Dec.2017E Dec 2018E (Unaudited) (Unaudited) Revenue 144, , , ,101 % Change 27.1% 8.0% 0.07 Direct cost of Revenue 119, , , ,983 Gross Profit 25,276 31,869 34,689 37,118 Gross margin 17.5% 17.4% 17.5% 17.5% Operating Expenses 30,798 34,978 36,672 38,814 % Revenue 21.3% 19.1% 18.5% 18.3% Loss from operations -5,522-3,109-1,982-1,697 % Revenues -3.8% -1.7% -1.0% -0.8% Other expenses -3,523-4,722-2, (Provision) Benefit for income tax Net Loss -9,028-7,873-3,982-3, % -4.3% -2.0% -1.5% Adj Attrib to control Net loss attributable to Com. Stock -9,440-8,110-3,982-3,197 Interest expense 2,081 2, Provision (benefit) income taxes Depreciation and Amortization 4,760 5, EBITDA -2, ,338 2,923 Acquisition, capital raising & other non-recurring expenses 2,410 4, Other non-cash charges 2,861 1, Restructuring charges Impairment of intangibles Modification expense Dividends - Series A preferred stock Other income (expense Net Inc. att non-control interest Adjusted EBITDA 2,670 5,013 5,398 5,083 Gross profit 25,276 31,869 34,689 37,118 Adjusted operating expenses 22,606 26,856 Adjusted Oper. Expenses percentage Gross profit 89.40% 84.30% 16

17 Pre-Announcement of First Quarter Results Staffing 360 Solutions pre-announced unaudited results for its first quarter. Revenues were $40.7 million vs million, a 5.7% decrease attributable to fewer working days in the quarter, which cost $1.8 million, an exchange rate drop of $0.8 million and a reduction in revenues from one of the company's largest clients which cost $1.8 million. Despite the lower revenues, gross profits were $7.3 million up from $7.2 million, indicating a gross margin gain from 16.7% a year ago to 17.9% in the first quarter of The net loss attributable to common stock expanded to $3.6 million from $2.6 million in Q1 but included non-cash accounting charges of $1.4 million which was associated with the amendment and the subsequent pay off of convertible notes held by Hillair. This led to Q1 EBITDA of ($1,717) vs. ($418) in the previous year. However, Adjusted EBITDA rose year-over-year to $1.0 million from $0.7 million, a 46% increase. Management has mentioned that the company has several new contracts that it expects to ramp up by mid-summer that should have a positive impact on second half revenues. As continued synergies such as cross-selling and ongoing cost cutting measures can be expected to contribute to strong margins, second half performance before any acquisitions should be positive. Staffing 360 Solutions, Inc. and Subsidiaries Reconciliation of Net Loss Attributable to Common Stock to Adjusted EBITDA (All Amounts in Thousands) For the Period For the Period January 1, 2017 December 27, 2015 to April 1, to March 26, (Unaudited) (Unaudited) Net Loss Attributable to Common Stock $ (3,613) $ (2,563) Adjustments: Interest Expense $ 502 $ 600 Provision for Income Taxes Depreciation and Amortization * 1,279 1,495 EBITDA (1,717) (418) Acquisition, Capital Raising and Other Non- Recurring Expenses Debt Extinguishment Costs 1,368 - Other Non-Cash Charges Restructuring Charges - 5 Modification Expense 5 31 Dividends - Series A Preferred Stock Other Expense (7) (14) Net Income Attributable to Non-Controlling Interest - 42 Adjusted EBITDA $ 1,038 $

18 Valuation of Staffing Companies The comparative valuation of early stage Staffing 360 by many of the standard multiples against established staffing industry giants such Robert Half, On Assignment or Korn Ferry would not make sense as STAF is just starting out and will take a few years before it has a normal profile. However, it does make sense to look at ratios of how the various competitors are valued by market capitalization on their revenues and on the gross profit that they generate. As can be readily seen in the two charts below, Staffing 360 is not currently given much market cap credit for its revenues or for the gross profits that it generates compared with other companies in the industry. Revenue Multiples Gross Profit Multiples Valuation of Staffing Companies May 2017 Gross Recent Market Revenue Gross Profit Price Cap Revenue Multiple Profit Multiple Robert Half ,940,000 5,250, ,160, On Assignment ,720,000 2,440, , Korn Ferry ,870,000 1,346, ,232, Resources Connection , , , BG Staffing , , , Gee Group ,800 83, , Mastech Digital , , , Average Staffing , , , Revenue Multiple is Market Cap divided by Revenue Gross profit Multiple is Market Cap divided by Gross Profit Shareholdings As of April 18, 2017, there were 14,641,979 shares of common stock outstanding. The Jackson Investment Group is the largest shareholder (assuming favorable voting at special meeting). As of April 12, 2017, there were approximately 3,000 shareholders of the company's common stock. 18

19 Abbreviated Financial History July 31, Staffing 360 Solutions began operations in the staffing sector. Earlier, in July 2012, Golden Fork Corporation, incorporated in Nevada on December 22, 2009 had changed its name to Staffing 380 Solutions, Inc on March 16, 2012 with STAF as its trading symbol. January 17, 2013 Raised $1,175,000 selling 12% convertible notes. May 31, All outstanding notes converted to 266,076 shares of common stock at $4 50 per share. April 19, 2013 Raised $1.05 million by sale of 116,668 shares at $9.00 per share with warrants exercisable at $ per share. July 2, 2013 Raised $565,000 from sale of 63,778 shares at $9 per share which included 31,389 three-year warrants exercisable at $18 per share. October 28, 2013 Raised $340,000 in form of 12% promissory notes and 8,500 shares of common. Notes repaid in November 2013 and March November 4, Raised to acquire 100% of Control Solutions International, Inc. for approximately $3.5 million cash, stock and a percentage of future profits. December 6, 2013 Raised $1.655 million by issuing 12% promissory notes and shares. The notes and accrued interest were converted at $10 per share into shares of common in April 2014 along with issuance of 86,353 warrants exercisable at $20. January 3, 2014 Purchased 100% of Initio International Holdings Limited (now known as Staffing 360 Solutions Limited (Staffing UK)) for approximately $13.29 million in cash, stock and promissory notes. February 28, 2014 Acquired the assets of Poolia UK Limited for $1,626,266. March 13, Raised $10 million from sale of 1 million shares at $10.00 with 500,000 three-year warrants at $ May 17, Acquired 100% of PeopleSERVE Inc. and 49% of PeopleSERVE PRS Inc. for approximately $8.4 million made up of $2.7 million in cash, 112,737 shares valued at $2.2 million, a $2.4 million 6% promissory note, and $1.1 million in net working capital. June 30, 2014 Raised $1.7 million over multiple closings of 12% notes convertible at $15 per share. 32,500 shares issued as an enticement. $1.1 million was repaid and $600,000 was converted into 40,000 shares. April 17, 2014 July 29, Raised a total of $4.058 million from the sale of 12% Series A bonds convertible at $15 per share. 40,585 common shares issued as an enticement. (To entice conversion STAF offered holders the ability to convert at $10 per share and receive one three-year warrant exercisable at $20 every $2 of principle converted prior to maturity on October 15, $3, in principle and $181,155 in accrued interest was converted into 370, 969 shares and 185,486 warrants. The remainder was extended to various dates for a total of 11,895 shares. A total of 355,000 and principle and roughly $2 93,000 and accrued interest was repaid. The remaining $175,000 was extended to April 15, 2016 in exchange for 4,375 shares of common.) September 15 November 24, 2014 Raised a total of $ over multiple closings from the sales of 12% Series B bonds convertible at the higher of $10 per share or a 25% discount to the 10 day the VWAP. STAF also issued 9,815 shares as enticement for the offering. ($55,000 of the bonds were extended to March 31, 2016 in exchange for 1,375 shares December 10, 2014 Raised $100,000 from the sale of the 12% note convertible at $10 per share. The total of 3,787 shares of common have been issued with the note, due on April 15, April 8, Two wholly-owned subsidiaries of Staffing 360 Solutions, Monroe and PSI, entered into a $22.0 million revolving loan facility with MidCap Funding X Trust (MidCap) with the option to increase the amount to up to $47.0 million. May 29, Issued 1,663,008 Series A Preferred shares to Brendan Flood and Matthew Briand for the conversion of the gross profit appreciation bonus tied to their employment contracts. Each preferred share pays a 19

20 monthly dividend equal to 12% annually and is convertible into 216,191 shares of common prior to December 31, 2018 maturity. June 23, 2015 Sold $359,000 6 month 0% convertible promissory notes which had a $54,000 original issue discount and were convertible at $11 50 per share. The note was repaid on December 29, July 8, 2015 Sold $3 Million of 8% convertible notes due April 1, The notes are convertible at $10 per share and included a 12% original issue discount, 125,000 shares, 392,005 year warrants exercisable at $10 per share to Hillair Capital Investments. July 8, Acquired 100% of Lighthouse Placement Services, LLC for $6, made up of about $2.5 million in cash, 62, 460 shares priced at $8 20 per share but guaranteed to be at least $10 on the one-year anniversary, a three-year 6% promissory note for approximately $2.5 million and a 2 year 6% promissory note for $6 24, 595. Both notes are convertible into common at the greater of the price on the day of conversion or 80% of the VWAP price on the day of conversion. On July 13, 2015 In connection with the company's acquisition of Lighthouse, the $22.0 million revolving loan facility with MidCap Funding X Trust was amended to include Lighthouse and the company's existing subsidiary, Faro Recruitment America, Inc. as borrowers. The revolving loan's term is 4 years. The interest rate is 4.0% plus LIBOR with a LIBOR floor of 1.0% per annum. September 17, 2015 Completed a 1:10 reverse split, which reduced the shares outstanding from 45,732,674 to 4,573,360. September 29, 2015, Up-listed to the NASDAQ, keeping the symbol STAF. November 5, 2015 Acquired 100% of The JM Group for 765, 301 in cash, the issuance of 40,000 shares priced at $4 70 per share but guaranteed to be at least $10 on the one-year anniversary and a 500,000 6 month 6% unsecured promissory note, along with a potential earn out of 850,000 in cash and 20,000 shares. December 30, 2015 Issued 100,000 Series B preferred shares in exchange for the cancellation of the issued 392,000 5 year warrants issued with the July 8, 2015 notes and the right to an additional 392,000 5 year warrants that would be issued upon any default, starting at the average price of $10 and falling to $5 on a 2nd default and $3 on a 3rd default. January 8, 2016 Sold $359,000 6 month 0% convertible promissory notes, which had a $54,000 original issue discount and is convertible at $11 50 per share. February 8, 2016 Issued a $728, 000 convertible note which had a $87,000 original issue discount, is convertible into common at $10 per share at STAF's discretion and matures July 1, The company also issued 13,000 shares of Series B preferred stock as enticement. February 8, 2016 Issued 25,000 shares of common in exchange for amending the terms of its borrowing agreement with MidCap Funding X Trust which allowed for the borrowing of $1.55 million. February 8, 2016 The company received an over advance of $1,050, 000 under the revolving loan facility with MidCap Funding X Trust. In addition, the company amended the credit and security agreement with MidCap Funding X Trust and was issued $500,000 under the existing additional term loan. In connection with the amendment, the company issued MidCap Funding X Trust 25,000 shares of common stock. March 22, S-3 effective - registered all previously issued shares which greatly increased supply in the market. April 4, STAF sold 527,000 shares of common stock at a purchase price of $2.85 per share, for aggregate proceeds of approximately $1.5 million. April 7, STAF sold 175,439 shares of Series C Preferred Shares, at $2.85 per share, for aggregate proceeds of approximately $500,000, Each share of Series C Preferred Shares is convertible into common May 23, Company sold 212,766 shares of common stock at a purchase price of $2.35 per share, for aggregate proceeds of approximately $500,000, May 31, 2016 STAF sold 148,939 shares of common stock at a purchase price of $2.35 per share, for aggregate proceeds of approximately $350,