What changed in this filing

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Item 1A. Risk Factors

2021-03-11 compared with 2020-03-12 · 63 added, 43 removed, 211 unchanged (33% of the section changed)

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Additional risks not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or results of operations.

Past financial performance should not be considered to be a reliable indicator of future financial performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Company and Our Business

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

The staffing services market is highly competitive with limited barriers to entry.

We compete in national, regional and local markets with approximately 20,000 full-service and specialized temporary staffing companies.

The workforce solution market is highly competitive with limited barriers to entry.

We compete in national, regional and local markets with approximately 25,000 full-service and specialized workforce solution companies.

We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.

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• Aggressively price products and services and increase benefits in ways that we may not be able to match.

In order to compete effectively in our markets, we must target our potential client partners carefully, continue to improve our efficiencies and the scope and quality of our services, and rely on our service quality, innovation, education and program clarity.

In order to compete effectively in our markets, we must target our potential client partners carefully, continue to improve our efficiencies and the scope and quality of our workforce solutions, and rely on our service quality, innovation, education and program clarity.

If our competitive advantages are not compelling or sustainable, then we are unlikely to increase or sustain profits and our stock price could significantly decline.

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Geographic revenue in excess of 10% of our consolidated revenue in fiscal year 2020 and the related percentage for fiscal years 2019 and 2018 was generated in the following areas:

2020 2019 2018

Maryland 11 % 11 % 11 %

Massachusetts 14 % 1 % 2 %

Tennessee 14 % 15 % 14 %

Texas 23 % 28 % 29 %

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

A downturn of the U.S.

or global economy could result in our client partners using fewer workforce solutions and services or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

Because demand for workforce solutions and services, particularly staffing services, is sensitive to changes in the level of economic activity, our business may suffer during economic downturns.

During periods of weak economic growth or economic contraction, the demand for staffing services typically declines.

When demand drops, our operating profit is typically impacted

unfavorably as we experience a deleveraging of our selling and administrative expense base as expenses may not decline as quickly as revenues.

In periods of decline, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our branch network and brands.

or global economy could result in our client partners using fewer workforce solutions or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business.

Because demand for workforce solutions is sensitive to changes in the level of economic activity, our business may suffer during economic downturns.

During periods of weak economic growth or economic contraction, the demand for such workforce solutions typically declines.

When demand drops, our operating profit is typically impacted unfavorably as we experience a deleveraging of our selling and administrative expense base as expenses may not decline as quickly as revenues.

In periods of decline, we can only reduce selling and administrative expenses to a certain level without negatively impacting the long-term potential of our brands.

Additionally, during economic downturns companies may slow the rate at which they pay their vendors, or they may become unable to pay their obligations.

If our client partners become unable to pay amounts owed to us, or pay us more slowly, then our cash flow and profitability may materially suffer.

Our service agreements may be terminated on short notice, leaving us vulnerable to loss of a significant amount of client partners in a short period of time.

Our service agreements with our client partners are generally cancelable by the client partners with little or no notice to us.

Our business depends on a strong reputation and anything that harms our reputation will likely harm our results.

As a provider of workforce solutions, as well as consultant services, our reputation is dependent upon the performance of the field talent we place with our client partners and the services rendered by our consultants.

We depend on our reputation and name recognition to secure engagements and to hire qualified field talent and consultants.

If our client partners become dissatisfied with the performance of those field talent or consultants or if any of those field talent or consultants engage in or are believed to have engaged in conduct that is harmful to our client partners, our ability to maintain or expand our client base may be significantly harmed.

Moreover, use of our copyrights, trademarks, service marks, trade names, domain names, or other intellectual property by third parties, including but not limited to unauthorized use by third parties for criminal purposes or otherwise, even if such use is outside our reasonable control, may significantly harm our reputation or the value of our copyrights, trademarks, service marks, trade names, domain names, or other intellectual property, or subject us to legal proceedings, and therefore have a material adverse effect on our business, results of operations, or financial condition.

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

Our operations and financial success depend significantly on our leadership management team and team members.

The loss of any key members of this group could have a material adverse effect on our business, financial condition and results of operations.

We depend on our ability to attract and retain qualified field talent.

We depend on our ability to attract qualified field talent who possess the skills and experience necessary to meet the workforce solution requirements of our client partners.

We must continually evaluate our base of available qualified personnel to keep pace with changing client partner needs.

Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future.

There can be no assurance that qualified personnel will continue to be available.

Our success is substantially dependent on our ability to recruit and retain qualified field talent.

Our workforce solution agreements may be terminated on short notice, leaving us vulnerable to loss of a significant amount of client partners in a short period of time.

Our workforce solution agreements with our client partners are generally cancellable by the client partners with little or no notice to us.

As a result, a significant number of our client partners can terminate their agreements with us at any time, making us particularly vulnerable to a significant decrease in revenue within a short period of time that could be difficult to quickly replace.

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Increasing the growth and profitability of our business is particularly dependent upon our ability to retain existing client partners and capture additional client partners.

Our ability to do so is dependent upon our ability to provide high quality services and offer competitive prices.

Our ability to do so is dependent upon our ability to provide high quality workforce solutions and offer competitive prices.

If we are unable to execute these tasks effectively, we may not be able to attract a significant number of new client partners and our existing client partners base could decrease, either or both of which could have a materially adverse impact on our revenues.

Our business depends on a strong reputation and anything that harms our reputation will likely harm our results.

As a provider of temporary and permanent workforce solutions as well as consultant services, our reputation is dependent upon the performance of the field talent we place with our client partners and the services rendered by our consultants.

We depend on our reputation and name recognition to secure engagements and to hire qualified field talent and consultants.

Acquisitions and new business initiatives may not be successful.

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In accordance with generally accepted accounting principles, we are required to review our goodwill and intangible assets for impairment at least annually.

Our goodwill and intangibles assets were $25.2 million and $33.8 million , respectively, at the end of 2019 .

Our goodwill and intangibles assets were $32.1 million and $33.8 million, respectively, at the end of fiscal year 2020.

An unfavorable evaluation could cause us to write-off these assets in future periods.

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We generally assume responsibility for and manage the risks associated with our team members and field talent payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as group health and retirement benefits.

These obligations are fixed, whether or not the client partner makes payments required by our services agreement, which exposes us to credit risks.

These obligations are fixed, whether or not the client partner makes payments required by our workforce solutions agreement, which exposes us to credit risks.

We attempt to mitigate this risk by generally invoicing our client partners weekly and having a high number of client partners who are geographically and industry diverse.

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While the specific laws and regulations vary among these jurisdictions, some require some form of licensing and often have statutory requirements for workplace safety and notice of change in obligation of workers’ compensation coverage in the event of contract termination.

Although compliance with these requirements imposes some additional financial risk on us, particularly with respect to those client partners who breach their payment obligation to us, such compliance has not had a material adverse effect on our business to date.

Compliance with these requirements imposes some additional financial risk on us, particularly with respect to those client partners who breach their payment obligation to us.

Any inability or failure to comply with government regulation could materially harm our business.

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

Temporary staffing service providers typically assign personnel in the workplaces of other businesses.

Workforce solution providers typically assign personnel in the workplaces of other businesses.

The risks of these activities include possible claims relating to:

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There can also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on commercially reasonable terms or be sufficient in amount or scope of coverage.

We depend on our ability to attract and retain qualified field talent.

We depend on our ability to attract qualified field talent who possess the skills and experience necessary to meet the staffing requirements of our client partners.

We must continually evaluate our base of available qualified personnel to keep pace with changing client partner needs.

Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future.

There can be no assurance that qualified personnel will continue to be available.

Our success is substantially dependent on our ability to recruit and retain qualified field talent.

federal tax regulations and interpretations could adversely affect us.

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Our operations are heavily dependent on the ability of team members, field talent and consultants to travel from business to business and from location to location.

Any public health emergencies, including a real or potential pandemic such as those caused by the avian flu, SARS, Ebola, Coronavirus, or even a particularly virulent flu, could decrease demand for our services and our ability to offer them.

Uncharacteristic or significant weather conditions can affect travel and the ability of businesses to remain open, which could lead to decreased ability to offer our services and materially adversely affect our short-term results of operations.

Any public health emergencies, including a real or potential pandemic such as those caused by the avian flu, SARS, Ebola, COVID-19, or even a particularly virulent flu, could decrease demand for our workforce solutions and our ability to offer them.

Uncharacteristic or significant weather conditions can affect travel and the ability of businesses to remain open, which could lead to decreased ability to offer our workforce solutions and materially adversely affect our short-term results of operations.

Although we cannot predict such events or their consequences, these events could materially adversely affect our stock price, reputation, business and financial condition.

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

Our operations and financial success depends significantly on our leadership management team and team members.

The loss of any key members of this group could have a material adverse effect on our business, financial condition and results of operations.

Our business, results of operations, and financial condition have been and may continue to be adversely impacted in material respects by the COVID-19 pandemic, and future adverse impacts could be material and difficult to predict.

Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions, non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets.

These effects have had a significant impact on our business, including reduced demand for our workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of which have contributed to a decline in revenues and other significant adverse impacts on our financial results.

Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate.

Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise.

As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected.

We continue to observe the impact of the COVID-19 outbreak on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments.

We expect that the social distancing measures, the changing operational status of our client partners, production levels at client partners facilities, and general business uncertainty will continue to effect demand in all our segments.

Risks Related to Our Information Technology, Cybersecurity and Data Protection

Our results of operations and ability to grow could be materially negatively affected if we cannot successfully keep pace with technological changes impacting the development and implementation of our services and the evolving needs of our client partners.

Our success depends on our ability to keep pace with rapid technological changes affecting both the development and implementation of our services and the staffing needs of our client partners.

Our results of operations and ability to grow could be materially negatively affected if we cannot successfully keep pace with technological changes impacting the development and implementation of our workforce solutions and the evolving needs of our client partners.

Our success depends on our ability to keep pace with rapid technological changes affecting both the development and implementation of our workforce solutions and the needs of our client partners.

Technological advances such as artificial intelligence, machine learning, and automation are impacting industries served by all our lines of business.

In addition, our business relies on a variety of technologies, including those that support hiring and tracking, order management, billing, and client data analytics.

In April 2019, our board of directors authorized $10.0 million over a three year period to enhance our technology infrastructure.

If we do not sufficiently invest in new technology and industry developments, appropriately implement new technologies, or evolve our business at sufficient speed and scale in response to such developments, or if we do not make the right strategic investments to respond to these developments, our services, results of operations, and ability to develop and maintain our business could be negatively affected.

If we do not sufficiently invest in new technology and industry developments, appropriately implement new technologies, or evolve our business at sufficient speed and scale in response to such developments, or if we do not make the right strategic investments to respond to these developments, our workforce solutions, results of operations, and ability to develop and maintain our business could be negatively affected.

We are dependent upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, or if our security measures are breached, our client partner and field talent relationships and our ability to attract new client partners may be adversely affected.

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Precautions in place to protect us from, or minimize the effect of, such events may not be adequate.

In addition, our business involves the storage and transmission of field talent or client partners’ proprietary information, and security breaches, computer viruses or Cyber-attacks, including attacks motivated by grievances against the business services industry in general or against us in particular, could expose us to a risk of loss of this information, litigation and possible liability.

In addition, our business involves the storage and transmission of field talent or client partners’ proprietary information, and security breaches, computer viruses or Cyber-attacks, including attacks motivated by grievances against the business industry in general or against us in particular, could expose us to a risk of loss of this information, litigation and possible liability.

If our security measures are breached as a result of third-party action, field talent error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to client partner data, our reputation may be damaged, we may be subject to government sanctions, our business may suffer and we could incur significant liability.

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As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.

If an actual or perceived breach of our security occurs, we could be liable and the market perception of our services could be harmed or result in increased costs or loss of revenue.

The potential risk of security breaches and cyber-attacks may increase as we introduce new service offerings.

If an actual or perceived breach of our security occurs, we could be liable and the market perception of our workforce solutions could be harmed or result in increased costs or loss of revenue.

The potential risk of security breaches and cyber-attacks may increase as we introduce new workforce solution offerings.

We maintain insurance with respect to many of such claims;

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• changes in financial or operational estimates or projections;

conditions in markets generally;

• duration and impact of the COVID-19 pandemic and efforts to mitigate its spread;

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

• conditions in markets generally;

• sales of significant amounts of our common stock;

• being in the Russell 2000 Index;

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

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Failure of our control systems to prevent and detect errors or fraud could materially adversely impact us.

During the quarter ended June 28, 2020, management identified a deficiency in our internal controls over financial reporting, which is related to the quantitative assessment of impairment of goodwill and intangible assets.

Management has determined that the aggregate impact of this deficiency resulted in a material weakness.

The material weakness did not result in any identified misstatements in the current period consolidated financial statements, nor in any restatements of consolidated financial statements previously reported by us, and there were no changes in previously released financial results.

For a discussion of our internal controls over financial reporting and a description of the identified material weakness, see Part II, Item 9A Controls and Procedures of this Annual Report on Form 10-K.

We cannot be sure we will pay dividends in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

Prior to December 19, 2014, we had not paid cash dividends on our common stock.

While we have declared and paid dividends for the prior twenty-one quarterly periods, we are limited in our ability to pay dividends by our credit agreement, and therefore, we cannot be certain if we will pay any cash dividends to holders of our common stock in the foreseeable future.

While we have declared and paid dividends for the prior twenty-five quarterly periods, we are limited in our ability to pay dividends by our credit agreement, and therefore, we cannot be certain if we will pay any cash dividends to holders of our common stock in the foreseeable future.

Any future determination with respect to the payment of dividends will be at the discretion of our board of directors and will be dependent upon, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, contractual restrictions, future prospects, general economic conditions and other factors considered relevant by our board of directors.

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We have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), a statutory provision that may have the effect of delaying, hindering or preventing some takeovers of our company.

person became an “interested stockholder,” unless (with certain exceptions) the business combination or the transaction in which the person became an “interested stockholder” is approved in a prescribed manner.

In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an “interested stockholder,” unless (with certain exceptions) the business combination or the transaction in which the person became an “interested stockholder” is approved in a prescribed manner.

Accordingly, we will not be subject to any anti-takeover effects of Section 203.

Our certificate of incorporation contains provisions that have the same effect as Section 203, except that they generally provide that Taglich Private Equity LLC, Taglich Brothers, Inc.

or any of their respective affiliates or associates, including any investment funds or portfolio companies managed by any of the foregoing, or any other person with whom any of the foregoing act as a group for the purpose of acquiring, voting or disposing of our shares, or any person that becomes an interested stockholder as a result of a transfer of 5% or more of our voting stock by the forgoing persons to such person, will be excluded from the “interested stockholder” definition in our certificate of incorporation and will therefore not be subject to the restrictions set forth therein that have the same effect as Section 203.

or any of their respective affiliates or associates, including any investment funds or portfolio companies managed by any of the

foregoing, or any other person with whom any of the foregoing act as a group for the purpose of acquiring, voting or disposing of our shares, or any person that becomes an interested stockholder as a result of a transfer of 5% or more of our voting stock by the forgoing persons to such person, will be excluded from the “interested stockholder” definition in our certificate of incorporation and will therefore not be subject to the restrictions set forth therein that have the same effect as Section 203.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors