STAFFING 360 SOLUTIONS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-Q)

The following discussion and analysis of our results of operations and financial
condition should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Quarterly Report. This
section includes a number of forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, that reflect our current
views with respect to future events and financial performance. All statements
that address expectations or projections about the future, including, but not
limited to, statements about our plans, strategies, adequacy of resources and
future financial results (such as revenue, gross profit, operating profit, cash
flow), are forward-looking statements. Some of the forward-looking statements
can be identified by words like "anticipates," "believes," "expects," "may,"
"will," "can," "could," "should," "intends," "project," "predict," "plans,"
"estimates," "goal," "target," "possible," "potential," "would," "seek," and
similar references to future periods. These statements are not guarantees of
future performance and involve a number of risks, uncertainties and assumptions
that are difficult to predict. Because these forward-looking statements are
based on estimates and assumptions that are subject to significant business,
economic and competitive uncertainties, many of which are beyond our control or
are subject to change, actual outcomes and results may differ materially from
what is expressed or forecasted in these forward-looking statements. Important
factors that could cause actual results to differ materially from these
forward-looking statements include, but are not limited to: negative outcome of
pending and future claims and litigation; our ability to access the capital
markets by pursuing additional debt and equity financing to fund our business
plan and expenses on terms acceptable to us or at all; and our ability to comply
with our contractual covenants, including in respect of our debt; potential cost
overruns and possible rejection of our business model and/or sales methods;
weakness in general economic conditions and levels of capital spending by
customers in the industries we serve; weakness or volatility in the financial
and capital markets, which may result in the postponement or cancellation of our
customers' capital projects or the inability of our customers to pay our fees;
delays or reductions in U.S. government spending; credit risks associated with
our customers; competitive market pressures; the availability and cost of
qualified labor; our level of success in attracting, training and retaining
qualified management personnel and other staff employees; changes in tax laws
and other government regulations, including the impact of health care reform
laws and regulations; the possibility of incurring liability for our business
activities, including, but not limited to, the activities of our temporary
employees; our performance on customer contracts; and government policies,
legislation or judicial decisions adverse to our businesses. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. We assume no obligation to update such
statements, whether as a result of new information, future events or otherwise,
except as required by law. We recommend readers to carefully review the entirety
of this Quarterly Report, including the "Risk Factors" in Item 1A of this
Quarterly Report and the other reports and documents we file from time to time
with the Securities and Exchange Commission ("SEC"), particularly our Quarterly
Reports on Form 10-Q and our Current Reports on Form 8-K.



  28






Overview



We are incorporated in the State of Delaware. As a rapidly growing public
company in the international staffing sector, our high-growth business model is
based on finding and acquiring suitable, mature, profitable, operating, U.S. and
U.K. based staffing companies. Our targeted consolidation model is focused
specifically on the Professional Business Stream and Commercial Business Stream
disciplines.



The Company effected a one-for-ten reverse stock split on June 24, 2022 (the
"Reverse Stock Split"). All share and per share information in these
consolidated financial statements has been retroactively adjusted to reflect the
Reverse Stock Split.



Recent Developments



COVID-19

In December 2019, a strain of coronavirus ("COVID-19") was reported to have
surfaced in Wuhan, China, and has spread globally, resulting in
government-imposed quarantines, travel restrictions and other public health
safety measures in affected countries. The COVID-19 pandemic is impacting
worldwide economic activity, and activity in the United States and the United
Kingdom where our operations are based. Much of the independent contractor work
we provide to our clients is performed at the site of our clients. As a result,
we are subject to the plans and approaches our clients have made to address the
COVID-19 pandemic, such as whether they support remote working or if they have
simply closed their facilities and furloughed employees. To the extent that our
clients were to decide or are required to close their facilities, or not permit
remote work when they close facilities, we would no longer generate revenue and
profit from that client. In addition, in the event that our clients' businesses
suffer or close as a result of the COVID-19 pandemic, we may experience declines
in our revenue or write-off of receivables from such clients. Therefore, the
ongoing COVID-19 pandemic may continue to affect our operation and to disrupt
the marketplace in which we operate and may negatively impact our sales in
fiscal year 2022 and our overall liquidity.



While the ultimate economic impact brought by, and the duration of, the COVID-19
pandemic may be difficult to assess or predict, the pandemic has resulted in
significant disruptions in general commercial activity and the global economy
and caused financial market volatility and uncertainty in significant and
unforeseen ways in the recent years. A continuation or worsening of the levels
of market disruption and volatility seen in the recent past could have an
adverse effect on our ability to access capital and on the market price of our
common stock, and we may not be able to successfully raise needed capital. If we
are unsuccessful in raising capital in the future, we may need to reduce
activities, curtail, or cease operations.

In addition, a continuation or worsening of the COVID-19 pandemic or an outbreak of other infectious diseases could result in a widespread health crisis that could adversely affect economies and financial markets around the world, resulting in a slowdown economic situation that could impact our business, financial condition and results of operations.

  29

Nasdaq Bid Price Requirement

On June 3, 2020, we received a letter from the Staff of Nasdaq (the "Staff")
notifying us that we were no longer in compliance with the minimum stockholders'
equity requirement for continued listing on Nasdaq under Stockholders' Equity
Requirement. A hearing before the Nasdaq Hearings Panel (the "Panel") was held
on January 21, 2021, and we were granted an extension to regain compliance until
February 28, 2021, which was subsequently further extended to May 31, 2021. On
June 28, 2021, we received a letter from the Staff notifying us that the Panel
determined that we had regained compliance with the Stockholders' Equity
Requirement. The Panel also imposed a Panel Monitor under Nasdaq Listing Rule
5815(d)(4)(A) for a period of one year from the date of the June 28, 2021
letter, during which period we are expected to remain in compliance with all of
Nasdaq's continued listing requirements. On February 23, 2022, we received a
letter from the Listing Qualifications of Nasdaq notifying us that we were no
longer in compliance with the Bid Price Requirement, for continued listing on
Nasdaq. Pursuant to the Panel Decision, we were not eligible for the 180-day bid
price compliance period set forth in the Listing Rules. On March 2, 2022, we
timely requested a hearing before the Panel, which was held on March 31, 2022.

On April 12, 2022, we received a letter from Nasdaq notifying us that the Panel
determined to grant our request for continued listing on Nasdaq, subject to the
following: (i) on or about May 2, 2022, we advised the Panel of the status of
the proxy statement it plans to file to obtain shareholder approval for a
reverse stock split, (ii) on or about May 23, 2022, we advised the Panel on the
status of the shareholder meeting we plan to hold to obtain approval of the
reverse stock split, (iii) on or about May 26, 2022, we will affect a reverse
stock split and (iv) on or before about June 22, 2022, we shall demonstrate
compliance with the Bid Price Requirement by evidencing a closing bid price
above $1.00 per share for the previous ten consecutive trading sessions. On
April 19, 2022, we received a letter from the Staff notifying us that as we had
not yet filed our Form 10-K for the period ended January 1, 2022, such matter
serves as an additional basis for delisting our securities from Nasdaq under
Nasdaq Listing Rule 5810(c)(2)(A). On May 4, 2022 the Panel granted us an
extension request until July 11, 2022 to demonstrate compliance with the bid
price requirement. On May 20, 2022, we received a notice from the Staff
notifying us that as we had not yet filed our Form 10-Q for the period ended
April 2, 2022, such matter serves as a basis for delisting our securities from
Nasdaq in addition to the aforementioned matters.

Although we are taking actions intended to restore our compliance with the
listing requirements, we can provide no assurance that any action taken by us
will be successful. If Nasdaq delists our common stock from trading on its
exchange for failure to meet the listing standards, an investor would likely
find it significantly more difficult to dispose of or obtain our shares, and our
ability to raise future capital through the sale of our shares could be severely
limited. We additionally may not be able to list our common stock on another
national securities exchange, which could result in our securities being quoted
on an over-the-counter market. If this were to occur, our shareholders could
face significant material adverse consequences, including limited availability
of market quotations for our common stock and reduced liquidity for the trading
of our securities. In addition, we could experience a decreased ability to issue
additional securities and obtain additional financing in the future. There can
be no assurance that an active trading market for our common stock will develop
or be sustained. Delisting could also have other negative results, including the
potential loss of confidence by employees, the loss of institutional investor
interest and fewer business development opportunities.

Nasdaq Minimum Capital Requirement

On June 3, 2020, we received a letter from the Listing Qualifications Department
notifying us that we were no longer in compliance with the minimum stockholders'
equity requirement for continued listing on Nasdaq. Nasdaq Listing Rule
5550(b)(1) requires listed companies to maintain stockholders' equity of at
least $2,500. Further, as of June 9, 2020, we did not meet the alternative
compliance standards relating to the market value of listed securities or net
income from continuing operations.



In accordance with the Nasdaq Listing Rules, we were afforded the opportunity to
submit a plan to regain compliance with the minimum stockholders' equity
standard. Based on our submissions, the Listing Qualifications Department
granted us an extension to regain compliance with Rule 5550(b)(1) until November
30, 2020.



On December 1, 2020, we received notice that because we had not met the terms of
the extension, our common stock would be subject to delisting from Nasdaq,
unless we timely requested a hearing before a Nasdaq Hearings Panel (the
"Panel"). We timely requested a hearing before the Panel, which automatically
stayed any suspension or delisting action pending the issuance of a decision by
the Panel following the hearing and the expiration of any additional extension
period granted by the Panel. The hearing occurred on January 21, 2021. At the
hearing, we provided the Panel with an update on our compliance plan and
requested a further extension of time in which to regain compliance. On February
3, 2021, we received a letter from the Panel noting it had granted our request
for an extension until February 28, 2021 to regain compliance with the minimum
$2,500 stockholders' equity requirement, or the alternative compliance standards
as set forth in Nasdaq Listing Rule 5550(b)(1). On March 4, 2021 we received a
letter extending the deadline for compliance to May 31, 2021.



On June 11, 2021, we received a letter from the Staff notifying us that the
Panel had determined to delist our shares from Nasdaq and that trading in our
shares would be suspended effective at the open of business on June 15, 2021 but
that due to a procedural issue, the Panel had determined not to implement the
decision and afforded us an opportunity to make an additional submission for the
Panel's consideration.

On June 28, 2021, we received a letter from the Staff informing us that we had
regained compliance with the Rule. As a result, the Panel determined to continue
the listing of our securities on Nasdaq. The Panel also determined to impose a
Panel Monitor under Listing Rule 5815(d)(4)(A) for a period of one year from the
date of the June 28, 2021 letter (the "Monitoring Period"). We are expected to
remain in compliance with all of Nasdaq's continued listing requirements during
the Monitoring Period. If at any time during this period we fail to satisfy any
continued listing standard, the Staff will issue a Delist Determination Letter,
which we may appeal.



  30






July 2022 Private Placement



On July 1, 2022, we entered into a securities purchase agreement with certain
institutional and accredited investors for the issuance and sale of a private
placement of 657,858 shares of common stock or pre-funded warrants to purchase
shares of common stock, and warrants (the "July 2022 Warrants") to purchase up
to 657,858 shares of common stock, with an exercise price of $5.85 per share.
The Warrants are exercisable immediately upon issuance and have a term of
exercise equal to five and one-half years from the date of issuance. The
combined purchase price for one Common Share (or pre-funded warrant) and one
associated warrant to purchase one share of common stock was $6.10.



In connection with the private placement, each investor entered into a warrant
amendment agreement with the Company (collectively, the "Warrant Amendment
Agreements") to amend the exercise prices of certain existing warrants to
purchase up to an aggregate of 657,858 shares of common stock of the Company
that were previously issued to the investors, with exercise prices ranging from
$18.50 to $38.00 per share and expiration dates ranging from July 22, 2026 to
November 1, 2026. The Warrant Amendment Agreements became effective upon the
closing of the private placement and pursuant to the Warrant Amendment
Agreements, the amended warrants have a reduced exercise price of $5.85 per
share and expire five and one-half years following the closing of the private
placement.

The Company intends to use the net proceeds received from the private placement for general working capital purposes.

Headway Acquisition

On April 18, 2022, we entered into a Stock Purchase Agreement with Headway
Workforce Solutions, and Chapel Hill Partners, LP, as the representatives of all
the stockholders of Headway, pursuant to which, among other things, the Company
agreed to purchase all of the issued and outstanding securities of Headway in
exchange for (i) a cash payment of $14, and (ii) 9,000,000 shares of our Series
H Convertible Preferred Stock, with a value equal to the Closing Payment, as
defined in the Stock Purchase Agreement. On May 18, 2022, the Headway
Acquisition closed. The purchase price in connection with the Headway
Acquisition was approximately $9,000. Pursuant to the Stock Purchase Agreement
and in connection with the closing of the Headway Acquisition, on May 17, 2022,
the Company filed a certificate of designation with the Secretary of State of
Delaware designating the rights, preferences and limitations of the Series H
Convertible Preferred Stock, par value $0.00001 per share.



The purchase price in connection with the Headway Acquisition was $9,000,
subject to adjustment as provided in the Stock Purchase Agreement. Pursuant to
certain covenants in the Stock Purchase Agreement, the Company may be subject to
a Contingent Payment of up to $5,000 based on the Adjusted EBITDA (such term as
defined in the Stock Purchase Agreement) of Headway during the Contingent Period
(such term as defined in the Stock Purchase Agreement).



The Stock Purchase Agreement also contains representations, warranties and
indemnification obligations of the parties customary for transactions similar to
those contemplated by the Stock Purchase Agreement. Such representations and
warranties are made solely for purposes of the Stock Purchase Agreement and, in
some cases, may be subject to qualifications and limitations agreed to by the
parties in connection with the negotiated terms of the Stock Purchase Agreement
and may have been qualified by disclosures that were made in connection with the
parties' entry into the Stock Purchase Agreement.



In connection with the Headway Acquisition, the Sellers' Representative and
certain of the Sellers entered into voting agreements whereby each will agree
to, at every meeting of our stockholders, and at every adjournment or
postponement thereof, to appear or issue a proxy to a third party to be present
for purposes of establishing a quorum, and to vote all applicable shares in
favor of each matter proposed and recommended for approval by the Company's
board of directors either in person or by proxy, amongst other provisions.

Business model, operating history and acquisitions

We are a high-growth international staffing company engaged in the acquisition
of U.S. and U.K. based staffing companies. As part of our consolidation model,
we pursue a broad spectrum of staffing companies supporting primarily the
Professional and Commercial Business Streams. Our typical acquisition model is
based on paying consideration in the form of cash, stock, earn-outs and/or
promissory notes. In furthering our business model, the Company is regularly in
discussions and negotiations with various suitable, mature acquisition targets.
Since November 2013, the Company has completed eleven acquisitions.



firstPRO Transaction

On September 24, 2020, we and Staffing 360 Georgia, LLC d/b/a firstPRO, our
wholly-owned subsidiary (for purposes of this paragraph and the succeeding two
paragraphs, the "Seller"), entered into an Asset Purchase Agreement with
firstPRO Recruitment, LLC (for purposes of this paragraph, the "Buyer"),
pursuant to which the Seller sold to the Buyer substantially all of the Seller's
assets used in or related to the operation or conduct of its professional
staffing and recruiting business in Georgia (the "Assets," and such sale, the
"firstPRO Transaction"). In addition, the Buyer agreed to assume certain
liabilities related to the Assets. The purchase price in connection with the
firstPRO Transaction was $3,300, of which (a) $1,220 was paid at closing (the
"Initial Payment") and (b) $2,080 was held in a separate escrow account (the
"Escrow Funds"), which was released upon receipt of the forgiveness of the
Seller's PPP Loans by the SBA. In the event that all or any portion of the PPP
Loan is not forgiven by the SBA, all or a portion of the certain funds being
held in escrow will be used to repay any unforgiven portion of the PPP Loan in
full. The firstPRO Transaction closed on September 24, 2020. As of July 2021,
all PPP Loans had been forgiven in full by the SBA.



In connection with the execution of the Asset Purchase Agreement, we and certain
of our subsidiaries entered into a Consent Agreement with Jackson (the
"Consent"), a noteholder pursuant to that certain Amended and Restated Note
Purchase Agreement, dated as of September 15, 2017, as amended (the "Existing
Note Purchase Agreement"). Under the terms of the Consent and the Series E
Certificate of Designation, in consideration for Jackson's consent to the
firstPRO Transaction, the Initial Payment was used to redeem a portion of the
Series E Preferred Stock, and the Escrow Funds, subject to the forgiveness of
PPP Loan discussed above, will be used to redeem a portion of the Series E
Preferred Stock. As this provision results in a contingent redemption feature,
approximately $2.1 million of the Series E Preferred Stock was reclassified to
mezzanine equity during the year ended January 1, 2022.



To induce the Buyer to enter into the Asset Purchase Agreement, the Seller also
entered into a Transition Services Agreement with the Buyer, pursuant to which
each party will provide certain transition services to minimize any disruption
to the businesses of the Seller and the Buyer arising from the firstPRO
Transaction.



  31

For completed quarters April 2, 2022 and April 3, 2021

                                APRIL 2, 2022      % of Revenue        April 3, 2021      % of Revenue        Growth
Revenue                        $        49,893             100.0 %    $        48,951             100.0 %          1.9 %

Cost of revenue                         41,380              82.9 %             40,936              83.6 %          1.1 %
Gross profit                             8,513              17.1 %              8,015              16.4 %          6.2 %
Operating expenses                       9,564              19.2 %              8,660              17.7 %         10.4 %
Loss from operations                    (1,051 )            (2.1 )%              (645 )            (1.3 )%        62.9 %
Other expenses                          (1,267 )            (2.5 )%            (1,006 )            (2.1 )%        25.9 %
Provision for income taxes                  (6 )            (0.0 )%        

      (37 )            (0.1 )%       (83.8 )%
Net Loss                       $        (2,324 )            (4.6 )%   $        (1,688 )            (3.5 )%        37.7 %




Revenue



For the quarter ended April 2, 2022, revenue increased by 1.9% to $49,893 as
compared with $48,951 for the quarter ended April 3, 2021. Of that increase,
$1,420 was attributable to organic revenue growth, partially offset by $478 of
unfavorable foreign currency translation. Within organic revenue, temporary
contractor revenue grew $855 and permanent placement grew $565.

Revenue for the quarter ended April 2, 2022 was composed of $48,329 turnover of temporary workers and $1,564 permanent investment income, compared to
$47,918 and $1,033 for the quarter ended April 3, 2021respectively.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue includes the variable cost of labor and various non-variable
costs (e.g., workers' compensation insurance) relating to employees (temporary
and permanent) as well as sub-contractors and consultants. For the quarter ended
April 2, 2022, cost of revenue was $41,380, an increase of 1.1% from $40,936 in
the quarter ended April 3, 2021, compared with revenue growth of 1.9%.



Gross profit for the quarter ended April 2, 2022 was $8,513, an increase of 6.2%
from $8,015 for the quarter ended April 3, 2021, representing gross margin of
17.1% and 16.4% for each period, respectively. The increase was driven by $568
of organic growth and partially offset by $71 of unfavorable foreign currency
translation.



Operating expenses



Total operating expenses for the quarter ended April 2, 2022 were $9,564, an
increase of 10.4% from $8,660 for the quarter ended April 3, 2021. The increase
in operating expenses was driven primarily by higher non-recurring costs, legal,
and other costs associated with acquisitions efforts.



Other expenses

Total other expenses, net for the quarter ended April 2, 2022 were $1,267, an
increase of 25.9% from $1,006 in the quarter ended April 3, 2021. The increase
was driven by the following: $474 lower interest expense and amortization of
debt discount and deferred financing costs in the quarter ended April 2, 2022
compared with the quarter ended April 3, 2021 of $1,241, loss from remeasuring
the Company's intercompany note in the quarter ended April 2, 2022 of $443
compared with gains from remeasuring the Company's intercompany note in the
quarter ended April 3, 2021 of $128. In addition, in the quarter ended April 2,
2022, the Company had other loss of $58.



Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with
GAAP, we also use non-GAAP financial measures and Key Performance Indicators
("KPIs") in addition to our GAAP results. We believe non-GAAP financial measures
and KPIs may provide useful information for evaluating our cash operating
performance, ability to service debt, compliance with debt covenants and
measurement against competitors. This information should be considered as
supplemental in nature and should not be considered in isolation or as a
substitute for the related financial information prepared in accordance with
GAAP. In addition, these non-GAAP financial measures may not be comparable to
similarly entitled measures reported by other companies.



  32

We present the following non-GAAP financial measure and KPIs in this report:

Revenue and Gross Profit by Business Streams We use this KPI to measure the
Company's mix of Revenue and respective profitability between its two main lines
of business due to their differing margins. For clarity, these lines of business
are not the Company's operating segments, as this information is not currently
regularly reviewed by the chief operating decision maker to allocate capital and
resources. Rather, we use this KPI to benchmark the Company against the
industry.

The following table details revenue and gross margin by segment:

                              APRIL 2, 2022      Mix       APRIL 3, 2021      Mix
Commercial Staffing - US     $        28,609       57 %   $        30,121       61 %

Professional Staffing - US             4,329        9 %             3,771        8 %
Professional Staffing - UK            16,955       34 %            15,059  

    31 %
Total Revenue                $        49,893              $        48,951

Commercial Staffing - US     $         4,719       56 %   $         4,838       60 %

Professional Staffing - US             1,204       14 %               954       12 %
Professional Staffing - UK             2,590       30 %             2,223       28 %
Total Gross Profit           $         8,513              $         8,015

Commercial Staffing - US                16.5 %                       16.1 %
Professional Staffing - US              27.8 %                       25.3 %
Professional Staffing - UK              15.3 %                       14.8 %

Total Gross Margin                      17.1 %                       16.4 %




Adjusted EBITDA This measure is defined as net income (loss) attributable to
common stock before: interest expense, benefit from income taxes; depreciation
and amortization; acquisition, capital raising and other non-recurring expenses;
other non-cash charges; impairment of goodwill; re-measurement gain on
intercompany note; restructuring charges; gain from sale of business; PPP
Forgiveness Gain; other income; and charges the Company considers to be
non-recurring in nature such as legal expenses associated with litigation,
professional fees associated potential and completed acquisitions. We use this
measure because we believe it provides a more meaningful understanding of the
profit and cash flow generation of the Company.



  33






                                                                         TRAILING          TRAILING
                                                                      

TWELVE MONTHS TWELVE MONTHS

                                APRIL 2, 2022       APRIL 3, 2021      APRIL 3, 2022     APRIL 2, 2021
Net loss                       $        (2,324 )   $        (1,688 )   $       7,522     $     (10,333 )

Interest expense and
amortization of debt
discount and deferred
financing costs                            670               1,157             3,370             6,122
Provision for (Benefit from)
income taxes                                 6                  37              (388 )             108
Depreciation and
amortization                               751                 815             3,055             3,520
EBITDA                         $          (897 )   $           321     $      13,559     $        (583 )

Acquisition, capital
raising, restructuring
charges and other
non-recurring expenses (1)               1,188                 826             3,872             6,209
Other non-cash charges (2)                  16                 220               158               697
Re-measurement (gain) loss
on intercompany note                       443                (128 )             831            (1,387 )
Restructuring charges                        -                   -                 -                21
Gain on business sale                        -                   -                 -              (124 )
Impairment of goodwill                       -                   -             3,104                 -
Other loss (income)                         58                (107 )         (19,412 )            (244 )
Adjusted EBITDA                $           808     $         1,132     $       2,112     $       4,589

Adjusted EBITDA of Divested
Business (3)                                                           $           -     $          (8 )

Pro Forma TTM Adjusted
EBITDA (4)                                                             $       2,112     $       4,581

Adjusted Gross Profit TTM
(5)                                                                    $      35,938     $      30,365

TTM Adjusted EBITDA as
percentage of adjusted gross
profit TTM                                                                       5.9 %            15.1 %

(1) Acquisition, fundraising and other non-recurring expenses mainly

relate to fundraising costs, acquisition and integration costs,

and legal fees incurred in connection with matters out of the ordinary

business course. Due to government restrictions, the Company had

to temporarily close some of its offices and, due to social distancing

restrictions, could not make full use of these facilities for

time periods during the year.

(2) Other non-cash expenses mainly relate to employee stock options and shares

compensation expense, expense for shares issued to directors for the board

services and the consideration paid for the consulting services.

(3) Adjusted EBITDA of discontinued operations for the period preceding the disposal

Date.

(4) Pro forma adjusted EBITDA excludes adjusted EBITDA from discontinued operations

      for the period prior to the divestment date.

  (5) Adjusted Gross Profit excludes gross profit of business divested in
      September 2020, for the period prior to divestment date.




Operating Leverage This measure is calculated by dividing the growth in Adjusted
EBITDA by the growth in Adjusted Gross Profit, on a trailing 12-month basis. We
use this KPI because we believe it provides a measure of our efficiency for
converting incremental gross profit into Adjusted EBITDA.



  34






                                                April 2, 2022        April 3, 2021

Adjusted Gross Profit - TTM (Current Period)   $        35,938      $      

30,365

Adjusted Gross Profit - TTM (Prior Period)              30,365             

39,281

Adjusted gross profit – Increase (decrease) $ $5,573

(8,916)

Adjusted EBITDA – TTM (Current Period) $ $2,112

4,589

Adjusted EBITDA - TTM (Prior Period)                     4,589             

  8,954
Adjusted EBITDA - Decline                      $        (2,477 )    $        (4,365 )

Operating Leverage                                       (44.4 )%              49.0 %

Leverage ratio Calculated as total debt, net, gross of any initial issue discount, divided by pro forma adjusted EBITDA for the last 12 months. We use this key performance indicator as an indicator of our ability to service debt on a forward-looking basis.

                                                    April 2, 2022        January 1, 2022
Total Debt, Net                                    $          9,444     $           9,502
Addback: Total Debt Discount and Deferred
Financing Costs                                                (175 )                (256 )
Total Term Debt                                    $          9,619     $           9,758

TTM Adjusted EBITDA                                $          2,112     $           4,589

Pro Forma TTM Adjusted EBITDA                      $          2,112     $  

        4,589

Pro Forma Leverage Ratio                                      4.55x                 4.01x




Operating Cash Flow Including Proceeds from Accounts Receivable Financing
calculated as net cash (used in) provided by operating activities plus net
proceeds from accounts receivable financing. Because much of our temporary
payroll expense is paid weekly and in advance of clients remitting payment for
invoices, operating cash flow is often weaker in staffing companies where
revenue and accounts receivable are growing. Accounts receivable financing is
essentially an advance on client remittances and is primarily used to fund
temporary payroll. As such, we believe this measure is helpful to investors as
an indicator of our underlying operating cash flow.



On February 8, 2018, CBS Butler Holdings Limited ("CBS Butler"), Staffing 360
Solutions Limited and The JM Group, entered into a new arrangement with HSBC
Invoice Finance (UK) Ltd ("HSBC") which provides for HSBC to purchase the
subsidiaries' accounts receivable up to an aggregate amount of £11,500 across
all three subsidiaries. The terms of the arrangement provide for HSBC to fund
90% of the purchased accounts receivable upfront and, a secured borrowing line
of 70% of unbilled receivables capped at £1,000 (within the overall aggregate
total facility of £11,500). The arrangement has an initial term of 12 months,
with an automatic rolling three-month extension and carries a service charge of
1.80%. Under ASU 2016-16, "Statement of Cash Flows (Topic 230, Classification of
Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues
Task Force), the upfront portion of the sale of accounts receivable is
classified within operating activities, while the deferred purchase price
portion (or beneficial interest), once collected, is classified within investing
activities. On April 20, 2020, the terms of the loan with HSBC was amended
whereby no capital repayments will be made between April 2020 to September 2020,
and only interest payments will be made during this time. On May 15, 2020, the
Company entered into a three-year term loan with HSBC in the UK for £1,000.



                                                             QUARTERS ENDED
                                                    APRIL 2, 2022       APRIL 3, 2021
Net cash (used in) provided by operating
activities                                         $        (2,856 )   $   

167

Collection of UK factoring facility deferred
purchase price                                               1,877         

1,741

Repayments on accounts receivable financing, net            (2,036 )       

(5,475)

Net cash used in operating activities including
proceeds from accounts receivable financing, net   $        (3,015 )   $   

    (3,567 )

Leverage ratio and cash flow from operations, including proceeds from financing accounts receivable, should be considered along with the information in the “Liquidity and Capital Resources” section, below.

  35

Cash and capital resources

Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Historically, we have funded our operations through term loans,
promissory notes, bonds, convertible notes, private placement offerings and
sales of equity.



Our primary uses of cash have been for debt repayments, repayment of deferred
consideration from acquisitions, professional fees related to our operations and
financial reporting requirements and for the payment of compensation, benefits
and consulting fees. The following trends may occur as the Company continues to
execute on its strategy:



  ? An increase in working capital requirements to finance organic growth,

  ? Addition of administrative and sales personnel as the business grows,

? Increased advertising, public relations and sales promotions for

and new brands as we expand into existing markets or enter new markets,

  ? A continuation of the costs associated with being a public company, and

  ? Capital expenditures to add technologies.




Our liquidity may be negatively impacted by the significant costs associated
with our public company reporting requirements, costs associated with newly
applicable corporate governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all
of these applicable rules and regulations could significantly increase our legal
and financial compliance costs and increase the use of resources.

As at and for the quarter ended April 2, 2022the Company had a working capital deficit of $19,449accumulated deficit of $86,345and a net loss of $2,324.

The accompanying financial statements have been prepared in conformity with
GAAP, which contemplate continuation of the Company as a going concern. The
Company has unsecured payment due in the next 12 months associated with a
historical acquisition and secured current debt arrangements representing
approximately $9,223 which are in excess of cash and cash equivalents on hand,
in addition to funding operational growth requirements. Historically, the
Company has funded such payments either through cash flow from operations or the
raising of capital through additional debt or equity. If the Company is unable
to obtain additional capital, such payments may not be made on time. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments or classifications that may result from the possible inability of
the Company to continue as a going concern.



In addition, beginning in January 2023 the Company has numerous contractual
lease obligations representing an aggregate of approximately $4,454 related to
current lease agreements. The Company intends to fund the majority of this by a
combination of cash flow from operations, as well as the raising of capital
through additional debt or equity.



  36






The financial statements included in this quarterly report have been prepared
assuming that we will continue as a going concern, which contemplates the
recoverability of assets and the satisfaction of liabilities in the normal
course of business. Significant assumptions underlie this belief, including,
among other things, that there will be no material adverse developments in our
business, liquidity, capital requirements and that our credit facilities with
our lenders will remain available to us.



Operating activities

For the quarter ended April 2, 2022, net cash used in operations of $2,856 was
primarily attributable to net loss of $2,324 and changes in operating assets and
liabilities totaling $2,091 offset by non-cash adjustments of $1,559. Changes in
operating assets and liabilities primarily relates to an increase in accounts
receivable of $5,621, increase in payables and accrued expense of $3,999,
increase in payables to related parties of $122, increase in prepaid expenses
and other current assets of $526, decrease in other assets of $812, decrease in
current liabilities of $128 and decrease in long term liabilities and other of
$749. Total non-cash adjustments of $1,558 primarily includes depreciation and
amortization of intangible assets of $655, stock-based compensation of $42,
amortization of debt discounts and deferred financing of $96, right of use
assets amortization of $324 and foreign currency re-measurement loss on
intercompany loan of $443.



For the quarter ended April 3, 2021, net cash provided by operations of $167 was
primarily attributable to net loss of $1,688 and changes in operating assets and
liabilities totaling $657 offset by non-cash adjustments of $1,198. Changes in
operating assets and liabilities primarily relates to an increase in accounts
receivable of $1,006, increase in payables and accrued expense of $1,451,
increase in payables to related parties of $807, increase in prepaid expenses
and other current assets of $334, increase in other assets of $784, increase in
current liabilities of $80 and decrease in long term liabilities of $158 and
increase in other of $601. Total non-cash adjustments of $1,198 primarily
includes depreciation and amortization of intangible assets of $731, stock-based
compensation of $219, amortization of debt discounts and deferred financing of
$84, right of use assets amortization of $292 and foreign currency
re-measurement gain on intercompany loan of $128.



Investing activities

For the quarter ended April 2, 2022net cash provided by investing activities totaled $1,835 mainly due to $42 the purchase of goods and equipment and $1,877 related to the collection of UK deferred purchase price of the factoring facility.

For the quarter ended April 3, 2021the net cash flows generated by investing activities were $1,741 related to the collection of UK deferred purchase price of the factoring facility.

Financing activities

For the quarter ended April 2, 2022net cash used in financing activities totaled $2,153 mainly due to refunds of $2,036 on the financing of accounts receivable, net and, repayment of the term loan of $117.

For the quarter ended April 3, 2021, net cash flows used in financing activities
totaled $7,816 primarily due to proceeds from sale of common stock of $19,670
offset by repayments of $5,475 on accounts receivable financing, net, repayment
of term loan of $313, repayment of related party term loan of $14,724, dividends
paid to Jackson of $420, redemption of Series E preferred stock of $4,908 and
third party financing costs of $1,646.

Off-balance sheet arrangements

We have no off-balance sheet arrangements.

  37

Significant Accounting Policies and Estimates

See the Annual Report on Form 10-K filed with the SECOND on June 24, 2022 for the year ended January 1, 2022. There have been no changes to our critical policies in the past three months April 2, 2022.

Recent accounting pronouncements

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on
the issuer's accounting for convertible debt instruments by removing the
separation models for (1) convertible debt with a cash conversion feature and
(2) convertible instruments with a beneficial conversion feature. As a result,
entities will not separately present in equity an embedded conversion feature in
such debt and will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. The elimination of these models will
reduce reported interest expense and increase reported net income for entities
that have issued a convertible instrument that is within the scope of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method
for calculating diluted earnings per share and treasury stock method will be no
longer available. ASU 2020-06 is applicable for fiscal years beginning after
December 15, 2021, with early adoption permitted no earlier than fiscal years
beginning after December 15, 2020. The Company adopted this ASU in this fiscal
year. This standard did not have an impact on our financial statements.

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