UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event Reported): February 14, 2014
The Staffing Group Ltd.
(Exact name of registrant as specified in its charter)
Nevada | 333-185083 | 99-0377457 |
(State or other jurisdiction of | (Commission File Number) | (IRS Employer Identification No.) |
incorporation or organization) | ||
400 Poydras Street, Suite 1165 New Orleans, LA 70130 |
||
(Address of principal executive offices) | ||
(504) 525-7955 | ||
(Registrant’s telephone number, including area code) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “seeks,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand; financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims.
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Unless the context otherwise requires, all references in this Report to “we,’’ ‘‘us,’’ ‘‘our’’ and “the Company” refer collectively to The Staffing Group Ltd., a Nevada corporation, and its subsidiaries, including EmployUS Ltd., a private Nevada corporation.
Item 1.01 | Entry into a Material Definitive Agreement |
As previously disclosed in our Current Report on Form 8-K filed on January 27, 2014, on January 22, 2014, we entered into a Share Exchange Agreement (the “Exchange Agreement”) with EmployUS Ltd., a Nevada corporation (“EmployUS”), all of the stockholders of EmployUS (the “EmployUS Shareholders”), and our controlling stockholders. The following items were conditions to the closing of the Exchange Agreement:
- | The Company will have received an audit report of EmployUS with respect to its two most recently completed fiscal years from an independent accounting firm that is registered with the Public Company Accounting Oversight Board; |
- | The Company and EmployUS shall obtain shareholder approval; and |
- | The Company will complete a capital raise of at least $1,500,000. |
The Company has received an audit report with respect to EmployUS’s two most recently completed fiscal years ended December 31, 2012 and 2011, respectively. Additionally, both we and EmployUS have obtained shareholder approval for the Exchange Agreement. With respect to the capital raise of $1,500,000, both parties have agreed to amend that requirement to reduce the total amount of the capital raise to $1,000,000 and allow the raise to occur post-closing.
Accordingly, with all of the closing conditions having been met or amended, effective as of February 14, 2014, the Exchange Agreement is closed. A copy of the final, fully executed copy of the Exchange Agreement is attached hereto as Exhibit 2.1.
For additional information with respect to the Exchange Agreement and the business of the acquired entity, please see the disclosures set forth in Item 2.01 to this Current Report, which disclosures are incorporated into this item by reference.
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Item 2.01 | Completion of Acquisition or Disposition of Assets |
On January 22, 2014, we entered into the Exchange Agreement with EmployUS which agreement closed on February 14, 2014. Pursuant to the terms and conditions of the final, fully executed Exchange Agreement, and upon the consummation of the closing:
● | Each share of EmployUS’s common stock issued and outstanding immediately prior to the closing of the Exchange Agreement was converted into the right to receive an aggregate of 13,153,800 shares of our common stock. | |
● |
Three of our shareholders agreed to cancel the following shares: (i) Joseph Albunio agreed to cancel 8,386,413 shares of his common stock. After the cancellation he owns 500,000 shares of our common stock. (ii) Brian McLoone agreed to cancel 2,836,413 shares of his common stock. After the cancellation he owns 6,050,000 shares of our common stock. (iii) Luidmila Yuziuk agreed to cancel 1,930,972 shares of her common stock. After the cancellation, she does not own any shares of our common stock. | |
After the closing of the Exchange Agreement, our capitalization of the Company is as follows:
Shareholder | # of Shares Owned | Percentage Ownership |
Broadsmoore Group | 7,103,800 | 20.24% |
BD Callais | 6,050,000 | 17.24% |
Brian McLoone | 6,050,000 | 17.24% |
Joseph Albunio | 500,000 | 1.42% |
Iroquois Master Fund | 1,883,309 | 5.37% |
Float Shares | 13,512,902 | 38.49% |
Total Outstanding | 35,100,011 |
The purposes of the transactions described in this Current Report were to complete a reverse merger with the result being that EmployUS became a wholly-owned subsidiary of The Staffing Group Ltd. The Staffing Group, Ltd’s business operations will now focus on the business of EmployUS.
The foregoing description of the Exchange Agreement, Closing and related transactions does not purport to be complete and is qualified in its entirety by reference to the complete text of (i) the Exchange Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K; and (ii) the other documents and disclosures associated with this transaction, each of which is incorporated herein by reference.
Following the Exchange Agreement, as of the date of this current report on Form 8-K, there are 35,100,011 shares of our common stock issued and outstanding, which include 13,153,800 shares held by the former stockholders of EmployUS and 6,050,000 by Brian McLoone, EmployUS’s Chairman and a stockholder of The Safety Group , LTD. but not a stockholder of EmployUS prior to the merger . As a result, our pre-merger stockholders, exclusive of Brian McLoone, hold approximately 45.28% of our issued and outstanding shares of common stock and the former stockholders of EmployUS including Brian McLoone hold approximately 54.72%.
The shares of common stock issued to the former stockholders of EmployUS in connection with the Exchange Agreement were not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act and Regulation D promulgated thereunder, which exempts transactions by an issuer not involving any public offering. These securities may not be offered or sold absent registration or an applicable exemption from the registration requirements. We have not committed to registering these shares for resale. Certificates representing these shares contain a legend stating the restrictions applicable to such shares.
Changes to the Business. We intend to carry on EmployUS’s business as our sole line of business. We have relocated our executive offices to 400 Poydras Street, Suite 1165, New Orleans, LA 7013 and our telephone number is (504) 525-7955.
Accounting Treatment. The Exchange Agreement is being accounted for as a reverse merger and recapitalization and EmployUS is deemed to be the acquirer in the reverse merger for accounting purposes. Consequently, the assets and liabilities and the historical operations of the Company that will be reflected in the financial statements prior to the closing will be those of EmployUS, and the consolidated financial statements of the Company after completion of the reverse merger will include the assets and liabilities of EmployUS, historical operations of EmployUS and operations of EmployUS from the Closing Date of the Exchange Agreement.
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Tax Treatment. The reverse merger is intended to constitute a tax-deferred exchange of property governed by Section 351 of the United States Internal Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as may be available under the Code. Any gain required to be recognized will be subject to regular individual or corporate federal income taxes, as the case may be.
DESCRIPTION OF BUSINESS
EmployUS is a full service turnkey staffing company formed in September of 2010. Initially established to respond to the relief and recovery of the major oil spill in the Gulf of Mexico, EmployUS has since expanded to work on most major construction, chemical, and maritime projects in the Southeast United States. Brent Callais, the company’s founder, used his relationships as a prominent former politician to quickly expand operations throughout the state of Louisiana. From its single initial project three years ago, EmployUS has aggressively grown to 10 offices in 3 states with more than 150 customers. In 2012, we sent over 3,000 part-time employees to our 150 customers.
The company is led by a management team consisting of industry professionals that capitalizes on their team’s extensive business experience, track record of profitable growth and nationwide network of client relationships. EmployUS recruits, hires, employs and manages skilled workers, eliminating the need for the client do so. By eliminating this necessary administrative requirement of identifying and employing skilled workers, the client has the ability to focus on the important task of managing and growing their own business without needing to worry about the company’s labor needs.
The services provided include:
· | Payroll related taxes | |
· | Workers’ compensation coverage | |
· | General liability insurance | |
· | Professional risk management team | |
· | 24/7 availability of office staff | |
· | Safety equipment & training programs | |
· | Drug & alcohol screenings | |
· | Background checks/MVR reports | |
· | Temporary to permanent workers. |
To expand the company’s business, the leadership team employs a professional sales team with a lead generation system that targets new customers and utilizes sources such as permits issued for construction projects. The company plans on an aggressive expansion of their existing business and sales model throughout the United States and internationally. In addition, the Company has forged relationships with industry leaders within the safety, training, oil & gas, and risk mitigation sectors. The prospective synergy between these various, interrelated industries and their leaders, we believe, will create growth and increased margins due to the existing pipeline of business and management overlap.
Corporate History
We were originally incorporated under the laws of the State of Nevada on June 11, 2012 under the name Aviana, Corp. Our registration statement was declared effective on January 23, 2013. Our original business was a Poland based corporation that operates a consulting business in EMF (electromagnetic fields), Microwave, Electrical and Ionizing detection, shielding and protection in Poland. We were unsuccessful in operating our business and on August 27, 2013 we entered into a binding letter of intent with EmployUS. It was in connection with that letter of intent that our prior officer and director, Liudmila Yuziuk, resigned and we appointed Mr. Brian McLoone as our sole officer and director. In addition, we changed our name to The Staffing Group, Ltd to better represent our new business operations.
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Our Industry
EmployUS LTD primary focus is the blue collar staffing industry. The primary placements that EmployUS LTD makes are to companies in the construction industry, light industrial, refuse industry, stevedoring and ship repair.
Products and Services
We are a service provider that is in the business of providing temporary staffing solutions in the way of general laborers to construction, light industrial, refuse, ship repair and stevedoring companies. EmployUS recruits, hires, trains and manages skilled workers so the client doesn’t have to. By eliminating the administrative requirements of finding and employing skilled workers, EmployUS gives our clients the ability to focus on the important task of managing and growing their business and not worry about staffing their projects. Services included when utilizing EmployUS for temporary labor are payroll related taxes, workers’ compensation insurance, general liability Insurance, personal protective equipment, safety training programs, drug and alcohol screening, background checks. EmployUS is currently working in 3 states in the Southeast United States. EmployUS has one location in Jackson Mississippi, three locations in Florida (Tampa, Sarasota, Titusville), and six locations in Louisiana (New Orleans, Baton Rouge, Houma, Lafayette, Slidell, Bridge City).
EmployUS relies on a workforce from the local communities that we and our clients operate in. We do not provide a tangible product that relies on the availability of raw materials. We rely on the services being provided by each employee. EmployUS provides temporary help to customers within a 40 mile radius of each location. We recruit locally so that we do not logistical problems dispatching the workforce.
Seasonality of the Business
EmployUS operates throughout the entire year. Our work is not seasonal, however, historical data shows that the 3rd quarter is the strongest quarter of the year and December through January tend to be the slowest time due to the holidays.
Concentration or Dependence on Key Vendors, Suppliers or Clients
EmployUS is not dependent on any single supplier and our product is based on the manpower that we provide. Currently, EmployUS has over 150 active clients spread out through 10 locations. Our single largest customer is Progressive Waste. They are currently using our services in five (5) of our locations. They account for approximately 24% of our gross revenue for the 9 months ended September 30, 2013.
Marketing
EmployUS LTd. relies on a trained sales force to market its services in the territories that it has locations. The marketing plan consists of field sales calls by both account executives as well as branch managers. EmployUS LTD also relies on telemarketing and direct mail as a means to market our services. Lastly we utilize local state and national industry associations to market our company. Through the efforts of our staff, a solid relationship has been established with our current customers. Many of our clients start by using us at one location and then refer us to other locations in the same or sometimes different markets. Our primary source of generating sales leads is through field sales calls. This provides us the opportunity to visit prospective clients in their work environment, which we believe will increase our chances of doing business with them. Staffing is a highly competitive industry and building relationships is the primary way to grow your market share.
Subsidiaries
Following the Closing of the Exchange Agreement, EmployUS became our wholly-owned subsidiary. We are the legal acquirer in this transaction. Neither we nor EmployUS have any other subsidiaries.
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Competition
The staffing industry is highly competitive and fragmented throughout the Southeast United States. There are multiple staffing companies that fill a wide variety of positions and service a wide variety of industries. Our competition would be those that focus on blue collar staffing. The largest competitor is Labor Ready with over 600 locations nationwide and they are in all of our markets. Pacesetters is another company that has over 70 locations in the Southeast and they are in all of our Florida markets. Trillium Staffing and Savard Staffing are two smaller companies that we compete with and they are in every one of our markets in Louisiana. In addition to these companies previously mentioned each office has at a minimum ten other local staffing companies that they directly compete with.
Regulatory Matters/Compliance
We are not aware of any need for any government approval of our principal services. We do not anticipate any governmental regulations on our business. However, we do provide workers compensation insurance for all our employees and we must ensure we are adhering to all OSHA requirements. We are responsible for all federal, state and local taxes for our employees. When working in a port all employees must have a T.W.I.C. identification card which ensures they are authorized to work in heightened security atmosphere. Employees that work on federally funded projects have their wages determined and validated by the federal government based on The Davis Bacon Act. Like all large employers EmployUS will also have to adhere to the Affordable Care Act
Intellectual Property
We do not have any intellectual property or proprietary rights to any of our services.
Research and Development
We are a provider of staffing services for blue-collar jobs. We do not spend any resources on research and development. We incur approximately $100,000 per year on developing and training our staffers to better understand our clients and to ensure that we are meeting the needs of our clients.
Employees
As of February 14, 2014, we have twenty-three (23) full-time employees. None of these employees are represented by collective bargaining agreements and the Company considers it relations with its employees to be good.
Additionally, we do employ a number of part-time employees that are staffed with our clients. These employees are hired on a part-time and as-needed basis. At any one time, we would have approximately 3,000 part-time employees staffed with our clients.
Properties
The Company’s corporate headquarters is located in New Orleans, Louisiana. The Company currently leases space located at 400 Poydras Street, Suite 1165, New Orleans, LA 70130. The lease is for a term of thirty seven months beginning on September 1, 2013. Our lease payments are $1,978.67 until September 30, 2014 and each year thereafter the monthly base rent increases to $2,040.50 per month for the next year and then $2,102.33 per month for the final year of the lease.
We have nine (9) other offices. A brief summary of locations, term of lease and monthly rent is as follows:
Lease Location | Term of Lease | Base Monthly Rent |
Titusville, Florida | 1/14/2014 - 12/31/2014 | $525 |
Jackson, Mississippi | 5/1/2012 - 11/1/2014 | $800 |
Sarasota, Floria | Month to Month | $160.50 |
Bridge City, Louisiana | 9/2/2013 - 8/31/2015 | $1,000 |
Houma, Louisiana |
4/1/2013 - 10/1/2013 (with automatic 6 month extension) |
$700 |
Slidell, Louisiana | 6/25/2013 - 6/30/2014 | $700 |
Prairieville, Louisiana | 12/1/2013 - 2/28/2014 | $800 |
Jefferson Parish, Louisiana | 1/1/2014 - 12/31/2015 | $1,350 |
Tampa, Florida | 8/1/2013 - 7/31/2014 | $1,005.80 |
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Each of these offices are used as a place to recruit local staff to service our clients. We also have sales staff at each location to meet with prospective clients.
Corporation Information
Our principal executive offices are located at 400 Poydras Street, Suite 1165, New Orleans, Louisiana 70130. Our telephone number is (504) 525-7955. Our website is www.employusllc.com.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition or cash flows.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of EmployUS for the fiscal years ended December 31, 2012 and 2011, and the nine month periods ended September 30, 2013 and 2012, should be read in conjunction with the Selected Consolidated Financial Data, EmployUS’s financial statements, and the notes to those financial statements that are included elsewhere in this Current Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Current Report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
We were originally incorporated under the laws of the State of Nevada on June 11, 2012 under the name Aviana, Corp. Our registration statement was declared effective on January 23, 2013. Our original business was a Poland based corporation that operates a consulting business in EMF (electromagnetic fields), Microwave, Electrical and Ionizing detection, shielding and protection in Poland. We were unsuccessful in operating our business and on August 27, 2013 we entered into a binding letter of intent with EmployUS. It was in connection with that letter of intent that our prior officer and director, Liudmila Yuziuk, resigned and we appointed Mr. Brian McLoone as our sole officer and director. In addition, we changed our name to The Staffing Group, Ltd to better represent our new business operations.
EmployUS is a full service turnkey staffing company formed in September of 2010. Initially established to respond to the relief and recovery of the major oil spill in the Gulf of Mexico, EmployUS has since expanded to work on most major construction, chemical, and maritime projects in the Southeast United States. Brent Callais, the company’s founder, used his relationships as a prominent former politician to quickly expand operations throughout the state of Louisiana. From its single initial project three years ago, EmployUS has grown to 10 offices in 3 states with more than 150 customers and we have provided staffing needs of over 3,000 people to our 150 customers.
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The company is led by a management team consisting of industry professionals that capitalizes on their team’s extensive business experience, track record of profitable growth and nationwide network of client relationships. EmployUS recruits, hires, employs and manages skilled workers, eliminating the need for the client do so. By eliminating this necessary administrative requirement of identifying and employing skilled workers, the client has the ability to focus on the important task of managing and growing their own business without needing to worry about the company’s labor needs.
The services provided include:
· | Payroll related taxes | |
· | Workers’ compensation coverage | |
· | General liability insurance | |
· | Professional risk management team | |
· | 24/7 availability of office staff | |
· | Safety equipment & training programs | |
· | Drug & alcohol screenings | |
· | Background checks/MVR reports | |
· | Temporary to permanent workers. |
Nine months ended September 30, 2013 compared to nine months ended September 30, 2012
Results of Operation
The following table presents a summary of operating information for the nine months ended September 30, 2013 and 2012:
2013 | 2012 | |||||||
Net Revenues | ||||||||
Contract staffing services | $ | 10,276,195 | $ | 9,442,461 | ||||
Cost of Services | (8,212,125 | ) | (7,343,553 | ) | ||||
Gross Profit | 2,064,070 | 2,098,908 | ||||||
Selling, General and Administrative | ||||||||
Selling, general and administrative | 652,722 | 838,313 | ||||||
Payroll and related expenses | 838,286 | 911,438 | ||||||
Total Selling, General and Administrative | 1,491,008 | 1,749,751 | ||||||
Income from Operations | 573,062 | 349,157 | ||||||
Other Income (Expense) | ||||||||
Interest expense | (69,270 | ) | (66,978 | ) | ||||
Other income (expense | 7,744 | (96,985 | ) | |||||
Total Other Income (Expense) | (61,526 | ) | (163,963 | ) | ||||
Income before Provision for Income Taxes | 511,536 | 185,194 | ||||||
Provision for Income Taxes | (54,564 | ) | -- | |||||
Net Income | $ | 456,972 | $ | 185,194 |
Nine months ended September 30, 2013 compared to nine months ended September 30, 2012
Contract Staffing Services:
Contract staffing services increased by $833,734 or approximately 8.8%, from $9,442,461for the nine months ended September 30, 2012 to $10,276,195 for the nine months ended September 30, 2013. The increase was due primarily to organic growth of the Company as well as the opening of two new locations in the beginning of the third quarter 2013.
Cost of Services:
Cost of services increased by $868,572 or approximately 11.8%, from $7,343,553 for the nine months ended September 31, 2012 to $8,212,125 for the nine months ended September 30, 2013. The increase was due primarily to the initial cost of opening the two new locations as well as the addition of a new account that has a lower gross profit margin than the Company’s blended average.
Gross profit:
Gross profit decreased by $34,838, or approximately 1.7%, from $2,098,908 for the nine months ended September 30, 2012 to $2,064,070 for the nine months ended September 30, 2013. The decrease was due primarily to the initial cost of opening the two new locations as well as the addition of a new account that has a lower gross profit margin than the companies blended average.
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Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $652,722 for the nine months ended September 30, 2013, a decrease of $185,591, or approximately 22.1%, from $838,313 for the nine months ended September 30, 2012. The decrease was due primarily to the Company reducing overall spending as well as the closing of the corporate office and moving it into one of our existing offices.
Payroll and Related Expenses:
Payroll and related expenses were $838,286 for the nine months ended September 30, 2013, a decrease of $73,152, or approximately 8.0%, from $911,438 for the nine months ended September 30, 2012. The decrease was due primarily to reduction in staff and reallocating their responsibilities to others already on staff.
Depreciation and Amortization Expenses:
Depreciation and amortization expenses were $5,773 for the nine months ended September 30, 2013, a decrease of $8,039, or approximately 58.2%, from $13,812 for the nine months ended September 30, 2012. The decrease was primarily due to the disposal of assets and moving from our corporate offices in November 2012 into one of our existing offices, which accounted for a large amount of depreciation in 2012.
Other Income (Expenses):
Other income (expenses) were $61,526 for the nine months ended September 30, 2013, an decrease of $102,437, or approximately 62.5%, from $163,963 for the nine months ended September 30, 2012. The decrease was primarily due to the cessation of penalties for the outstanding IRS payroll liabilities in 2013.
Net Income Before Provision for Income Taxes:
As a result of the above factors, net income before provision for income taxes of $511,536 was recognized for the nine months ended September 30, 2013 as compared to net income before provision for income taxes of $185,194 for the nine months ended September 30, 2012, an increase of $326,342 or approximately 176.2%. The increase was primarily due to a reduction in overall spending, closing of the corporate office and reduction in staff.
Year Ended December 31, 2012 compared to Year Ended December 31, 2011
The following table presents a summary of operating information by segments for the year ended December 30, 2012 and 2011:
2012 | 2011 | |||||||
Net Revenues | ||||||||
Contract staffing services | $ | 12,606,480 | $ | 8,709,654 | ||||
Cost of Services | 9,944,098 | 7,139,306 | ||||||
Gross Profit | 2,662,382 | 1,570,348 | ||||||
Selling, General and Administrative | ||||||||
Selling, general and administrative | 1,050,524 | 1,223,610 | ||||||
Payroll and related expenses | 1,274,565 | 1,470,629 | ||||||
Total Selling, General and Administrative | 2,325,089 | 2,694,239 | ||||||
Income (Loss) from Operations | 337,293 | (1,123,891 | ) | |||||
Other Expenses | ||||||||
Interest expense | (107,675 | ) | (33,801 | ) | ||||
Other expense | (340,737 | ) | (653,253 | ) | ||||
Loss on disposal of assets | (80,104 | ) | -- | |||||
Total Other Expenses | (528,516 | ) | (687,054 | ) | ||||
Net Loss | $ | (191,223 | ) | $ | (1,810,945 | ) |
Contract Staffing Services:
Contract staffing services increased by $3,896,826 or approximately 44.7%, from $8,709,654 for the year ended December 31, 2011 to $12,606,480 for the year ended December 31, 2012. The increase was due primarily to organic growth of our existing customers as well as expansion resulting in two additional locations.
Cost of Services:
Cost of services increased by $2,804,792 or approximately 39.3%, from $7,139,306 for the year ended December 31, 2011 to $9,944,098 for the year ended December 31, 2012. The increase was due primarily to the corresponding increase in sales.
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Gross profit:
Gross profit increased by $1,092,034, or approximately 69.5%, from $1,570,348 for the year ended December 31, 2011 to $2,662,382 for the year ended December 31, 2012. The increase was due primarily to the corresponding increase in sales.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $1,050,524 for the year ended December 31, 2012, a decrease of $173,086, or approximately 14.1%, from $1,223,610 for the year ended December 31, 2011. The decrease was due primarily to expansion costs in 2011, while not having as much expansion in 2012, so that amount was decreased as well as cutting overall spending.
Payroll and Related Expenses:
Payroll and related expenses were $1,274,565 for the year ended December 31, 2012, a decrease of $196,064, or approximately 13.3%, from $1,470,629 for the year ended December 31, 2011. The decrease was due primarily to elimination of unnecessary staff in an effort to streamline costs.
Depreciation and Amortization Expenses:
Depreciation and amortization expenses were $17,386 for the year ended December 31, 2012, an increase of $11,772, or approximately 209.7%, from $5,614 for the year ended December 31, 2011. The increase was primarily due to a large amount of assets being purchased in the latter half of 2011, so there was not a full year of depreciation in 2011 as opposed to 2012.
Other Expenses:
Other expenses were $528,516 for the year ended December 31, 2012, a decrease of $158,538, or approximately 23.1%, from $687,054 for the year ended December 31, 2011. The decrease was primarily due to buyout fees in 2011 with a factoring company.
Net Loss:
As a result of the above factors, net loss of $191,223 was recognized for the year ended December 31, 2012, as compared to net loss of $1,810,945 for the year ended December 31, 2011, a decrease of $1,619,722 or approximately 89.4%. The decrease was primarily due to an increase in gross profit in 2012, a reduction in selling, general and administrative expenses, and a reduction in penalties and interest relating to outstanding payroll tax liabilities.
Liquidity and Capital Resources
Our principal sources of liquidity include cash from operations and proceeds from debt and equity financings. The debt provided net borrowing of approximately $66,309 for the nine months ended September 30, 2013.
As of September 30, 2013, we had cash balances of $23,047 as compared to $25,356 as of September 30, 2012, representing a decrease of $2,309. The decrease was primarily due to outstanding checks at September 30, 2013. At September 30, 2013, we had a working capital deficiency of $805,566.
Net cash used in operating activities was $206,365 for the nine months ended September 30, 2013 as compared to $554,752 in the first nine months of 2012. The decrease of $348,387 was primarily due to an increase in net income for the nine months ended September 30, 2013.
Net cash used in investing activities was $58,315 in the nine months ended September 30, 2013 as compared to net cash used of $76,854 in the nine months ended September 30, 2012, a decrease of $18,539, which was primarily due to no purchases of fixed assets in 2013.
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Net cash provided by financing activities amounted to $91,333 in the nine months ended September 30, 2013, compared to net cash provided in the nine months ended September 30, 2012 of $618,365, representing a decrease in net cash flow by financing activities of $527,032. This was primarily due to less of a need to borrow from the line the of credit, and rely more on operating income.
Bank loans/Line of Credit
EmployUS has a line of credit with Crestmark Bank for working capital and capital investment and one loan from an investor made in connection with the planned merger.
1. | In October 2011, EmployUS entered into an account purchase agreement with Crestmark Bank to provide working capital. The account purchase agreement allows Crestmark to advance the Company funds on eligible accounts receivable at its sole discretion. The term of the facility is three years with an interest rate equal to the Prime Rate plus 2.75% per annum (6% floor), a maintenance fee of 0.6% per month of the average monthly loan balance, and a facility fee equal to 1% of the maximum loan amount. The line is secured by collateral consisting of all of the Company’s assets. The Company is currently compliant with all covenants. The balance due to Crestmark as of September 30, 2013, December 31, 2012 and 2011 was $1,268,763, $1,017,897 and $487,591 respectively. Interest and fees paid to Crestmark for the years ended December 31, 2012 and 2011 was $246,597 and $29,988, respectively. |
2. | On January 8, 2014, in connection with a possible equity transaction, we received a capital investment of $150,000 from 1 investor. The investor purchased our common stock at a price of $0.15 per share for a total issuance of stock of 1,000,000 shares for the $150,000 investment. |
We believe that our currently available working capital, credit facilities referred to above and the expected additional capitalization related to our planned acquisition should be adequate to sustain our operations at the current level for the next twelve months.
2014-2015 Outlook
EmployUS LTD has grown organically from one location in the beginning of 2011 to ten locations by the end of 2013 with sales exceeding $15,000,000. The 2014 – 2015 growth plan is going to be a three tiered approach. The first tier involves growing the volume of our current locations. The expectation is that we should collectively increase the sales by 20% from our existing locations. Tier two involves organic expansion. By maximizing the current relationships with our existing customers, EmployUS LTD intends to open three additional locations by the end of 2014 and then 3 additional locations in 2015. The final tier will be growth through acquisition. Due to increased regulations, rising state unemployment rates that are required to be paid by businesses, rising workers compensation rates and uncertainty regarding the Affordable Care Act, we believe that small staffing companies are prime for acquisition. EmployUS intends to pursue possibly acquiring one or two small staffing companies each year.
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In order to successfully complete our 2014-2015 outlook, we anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.
Off-Balance Sheet Arrangements
None.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.
The audited consolidated financial statements include all adjustments including normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows of EmployUS for the periods presented. The results of operations for the years ended December 30, 2012 are not necessarily indicative of operating results expected for future periods.
Basis of Presentation
The accompanying consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America.
Basis of Consolidation
The consolidated financial statements include the accounts of our one operating subsidiary. All significant inter-company transactions and balances are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long lived assets. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
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Revenue Recognition
Contract staffing service revenues are recognized when services are rendered. The Company recognizes revenue in accordance Accounting Standards Codification (“ASC”) 605 “Revenue Recognition”, which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence that an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonable assured; and (iv) services have been rendered.
Accounts Receivable
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Property and Equipment
Repairs and maintenance are expensed, while additions and betterments are capitalized. The cost and related accumulated depreciation of assets sold or retired are eliminated from the accounts and any gains or losses are reflected in earnings.
Fair Value Measurements
We measure our financial assets and liabilities in accordance with U.S. GAAP. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. For certain of our financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short maturities. The fair value of debt is not determinable due to the terms of the debt and the lack of a comparable market for such debt. These tiers include:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
Our financial instruments include cash, trade receivables and debt. The carrying amounts of cash and trade receivables approximate fair value due to their short maturities. We believe that our indebtedness approximates fair value based on current yields for debt instruments with similar terms.
Research and development
Research and software development costs are expensed as incurred.
Long-Lived Assets
We review the carrying value of our long-lived assets whenever events or changes in circumstances indicate that the carrying values may no longer be appropriate. Recoverability of carrying values is assessed by estimating future net cash flows from the assets. Based on management’s evaluations, no impairment charge was deemed necessary at September 30, 2013 and December 31, 2012. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact management’s assumptions as to sales prices, rental rates, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although management believes the assumptions used in testing for impairment are reasonable, changes in any one of the assumptions could produce a significantly different result.
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RISK FACTORS
Risks Related to Our Business
Key employees are essential to expanding our business.
Brian McLoone and Brent Callais are essential to our ability to continue to grow and expand our business. They have established relationships within the industry in which we operate. If either were to leave us, our growth strategy might be hindered, which could materially affect our business and limit our ability to increase revenue.
The Company may lose its top management without employment agreements.
Our operations depend substantially on the skills, knowledge and experience of the present management. The Company has no other full or part-time individuals devoted to the development of our Company. Furthermore, the Company does not maintain key man life insurance. Without an employment contract, we may lose the present management of the Company to other pursuits without a sufficient warning and, consequently, we may be forced to terminate our operations.
We do not have a majority of independent directors serving on our board of directors, which could present the potential for conflicts of interest.
After the Closing of the Exchange Agreement, Brian McLoone and Brent Callais are our directors. As a result, we do not have a majority of independent directors serving on our Board. In the absence of a majority of independent directors, our executive officers could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our stockholders, generally, and the controlling officers, stockholders or directors.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we will have significant requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
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Lack of experience as officers of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.
Following the Closing of the Exchange Agreement, it may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures.
We compete with many other companies in the market for temporary, part-time blue-collar staffing services which may result in lower prices for our services, reduced operating margins and an inability to maintain or increase our market share.
We compete with other similarly situated companies in a highly fragmented market that includes national, regional and local service providers, as well as service providers with global operations. These companies have services that are similar to ours, and certain of these companies have substantially larger or have significantly greater financial resources than we do. There can be no assurance that we will be able to compete effectively against our competitors or timely implement new products and services. Many of our competitors attempt to differentiate themselves by offering lower priced alternatives to our staffing solutions and, it is possible, customers could elect to utilize less comprehensive solutions than the ones we offer due to the lower costs. Some competition may even be willing to accept less profitable business in order to grow revenue. Increased competition and cost pressures affecting the staffing market in general may result in lower prices for our services, reduced operating margins and the inability to maintain or increase our market share.
Our growth is dependent on the willingness of new customers to outsource their staffing work to us.
We plan to grow, in part, by capitalizing on perceived market opportunities to provide our services to new customers. These new customers must be willing to outsource services which may otherwise have been performed within their organizations. Many customers may prefer to remain with their current provider or keep their staffing needs rather than outsource such services to us.
We will employ individuals on a temporary basis and place them in our customers’ workplaces. We have limited control over our customers’ workplace environments.
We employ individuals on a temporary basis and place them in our customers' workplaces. We have limited control over our customers' workplace environments. As the employer of record of our temporary workers we incur a risk of liability for various workplace events, including claims for personal injury, wage and hour requirements, discrimination or harassment, and other actions or inactions of our temporary workers. In addition, some or all of these claims may give rise to litigation including class action litigation.
We may be unable to attract and retain sufficient qualified temporary workers.
We compete with other temporary staffing companies to meet our customer needs and we must continually attract qualified temporary workers to fill positions. Attracting and retaining some skilled temporary employees depends on factors such as desirability of the assignment, location, and the associated wages and other benefits. We have in the past experienced worker shortages and we may experience such shortages in the future. Further, if there is a shortage of temporary workers, the cost to employ these individuals could increase. If we are unable to pass those costs through to our customers, it could materially and adversely affect our business.
We may have additional tax liabilities that exceed our estimates.
We are subject to federal taxes and a multitude of state and local taxes in the United States and taxes in foreign jurisdictions. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. And, we currently have tax liens on our business. The final determination of tax audits and any related litigation and the current tax liens could be materially different from our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business.
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Risks Related to Our Securities
There is no market for our common stock.
There is currently no market for our common stock. Furthermore, an active trading market for our common stock may never develop or, if developed, it may not be maintained. Our shareholders may be unable to sell their securities unless a market can be established or maintained.
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because we were engaged in a reverse merger, it may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we were engaged in a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of the Company since there is little incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Our common stock will be considered a “penny stock.”
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore may be a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares.
The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
OTCBB securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent than those of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
● | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
● | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
● | “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
● | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
● | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
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Our management is aware of the abuses that have occurred historically in the penny stock market.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our common stock. We plan to retain any future earning to finance growth.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of officers and director as of December 31, 2013. Our executive officers are elected annually by our Board of Directors. Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
Name | Age | Position |
Brian McLoone | 42 | Chief Executive Officer and Director |
Brent Callais | 33 | Director |
Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years.
Brian McLoone, age 42, brings over 20 years’ experience owning and operating various staffing companies. Most recently, Mr. McLoone served as the Vice President of Operations for Workers Temporary Staffing (2002 – 2010). Mr. McLoone managed 36 locations that were responsible for over $40,000,000.00 in annual Revenue. These locations collectively put over 20,000 people to work on an annual basis. Mr. McLoone was responsible for negotiating the terms on workers compensation and all other insurance policies. Additionally Mr. McLoone was involved in the securing of funding with different banking and financial institutions. He managed a staff of over 100 employees and was directly responsible for the day to day operations of the company as well as overseeing the risk management department. He negotiated all contract for both clients and vendors. Prior to this, Mr. McLoone was a partial owner of Advantage Leasing and Staffing (1999 – 2002). He was the vice President of Operations responsible for hiring, contract negotiations, risk management as well as determining the expansion plan for future growth of the company. Prior to starting Advantage Leasing and Staffing, Mr. McLoone spent time working as both a manager and district manager in the staffing field in both Florida and North Carolina (1991 – 1999). Brian started working in the staffing industry while attending Florida State University where he earned a Bachelor’s of Science degree.
Mr. Brian McLoone is qualified to serve as a director of this company because of his knowledge and experience in the staffing business and his prior experience working with this Company as an executive officer.
Brent Callais, age 33, currently CEO of EmployUS, has an extensive economic development track record in both the private and public sector including job creation and preservation. Prior to EmployUS, Brent served as southeast regional manager for one of the nation’s largest staffing companies, overseeing the company’s response to the BP oil spill and the deployment of more than a thousand workers per day. Prior to that, he served as corporate lobbyist for the oil and gas industry where he secured more than $300 million worth of Economic Development Grants, creating more than 3,000 jobs.
He has testified before Congress on behalf of small businesses, and is an active philanthropist and community leader focused on education and economic development. Brent graduated from Nicholls State University with a bachelor’s degree in Political Science and History. He was also inducted into the Nicholls State University Hall of Fame.
Mr. Brent Callais is qualified to serve as a director of this company because of his knowledge and experience in the staffing business and his prior experience working as President of EmployUS.
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As of the date of this Current Report, there has not been any material plan, contract or arrangement (whether or not written) to which any of our officers or directors are a party in connection with their appointments as officers or directors of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of the date of closing (assuming the closing of the Exchange Agreement has been consummated) by (i) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. Immediately following the closing of the Exchange Agreement, we have 35,100,011 shares of common stock issued and outstanding.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures include shares of our Common Stock issuable upon securities convertible or exchangeable into shares of our Common Stock within sixty (60) days of the Merger, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.
Name and Address | Beneficial Ownership | Percentage of Class (1) | ||||||
Brian McLoone | 6,050,000 | 17.24 | % | |||||
BD Callais | 6,050,000 | 17.24 | % | |||||
All officers/directors as a group (2 persons) | 12,100,000 | 34.47 | % | |||||
Broadsmoore Group | 7,103,800 | 20.24 | % | |||||
Iroquois Master Fund | 1,883,309 | 5.37 | % |
(1) Based on 35,100,011 shares of common stock outstanding.
We are not aware of any arrangement, including any pledge by any person of securities of the registrant or any of its parents, the operation of which may at a subsequent date result in a change in control of the registrant.
EXECUTIVE COMPENSATION
During the years ended December 31, 2013 and 2012, no compensation was paid to Liudmila Yuziuk, our former president, treasurer, secretary and director. Ms. Yuziuk resigned as our sole executive officer and director in connection with the change of control that occurred on August 27, 2013.
The following table sets forth information regarding each element of compensation that was paid or awarded to the named executive officers of EmployUS for its fiscal year ended December 31, 2013 and 2012:
Name and Principal Position | Year | Salary
($) | Bonus ($) | Stock
Awards ($) | Option
Awards ($) | Non-Equity
Incentive Plan Compensation ($) | All Other Compensation ($) | Total
($) | ||||||||||||||||||||||||
Brian McLoone | 2013 | $ | 159,086 | - | - | - | - | - | $ | 159,086 | ||||||||||||||||||||||
President and Chief Executive Officer | 2012 | $ | 160,827 | - | - | - | - | - | $ | 160,827 |
Employment Agreements
We have not entered into employment agreements with our officers and directors. Additionally, we have not approved any retirement benefit plan, termination or severance provisions for any of our named executive officers.
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Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards held by any of our officers as of December 31, 2013. We have not adopted a formal equity incentive plan but reserve the right for our board of directors to authorize and adopt some form of equity compensation plan for employees.
Board of Directors
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death, resignation or removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses incurred by them in connection with attending board meetings, but they do not receive any other compensation for serving on the board.
Related Party Transactions
In 2012, the Company rented two office spaces from related party companies, both of which are owned by Brent Callais, who is the CEO and a Member of the Company. The terms for the corporate office in New Orleans were originally $6,000 per month, from April 2011 through April 2018. In July 2011, the mortgage was refinanced and the rent was increased to $11,000 per month, for the same term. The Company paid rent of $78,540 for the nine months ended September 30, 2012 for the corporate office location. The lease was terminated in November 2012 upon sale of the building. The other location in Galliano, LA, was a month to month lease, with monthly payments of $1,200, beginning in November, 2010, and ending in January 2012. The total rent paid for the location in Galliano, LA, was $1,200 for the nine months ended September 30, 2012. The Company did not rent these office locations in 2013.
The Company has recognized income for staffing services from two related parties during the nine months ended September 30, 2013, both of which are owned by Brent Callais, who is the CEO and a Member of the Company. The total income from one party was $17,186 and $4,204 from the other during the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the total income from one party was $3,965 and $3,204 from the other.
Director Independence
Currently, we have no independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
● | the director is, or at any time during the past three years was, an employee of the Company; |
● | the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
● | a family member of the director is, or at any time during the past three years was, an executive officer of the Company; |
● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
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● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or |
● | the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit. |
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
● | been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Ethics
We have not adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, because of the small number of persons involved in the management of the Company.
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DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists of 75,000,000 shares of common stock, par value $0.001 per share. Immediately after giving effect to the shares issued in the Closing of the reverse merger, there were 35,100,011 shares of our common stock issued and outstanding. We have not authorized the issuance of any preferred stock.
Common Stock
The following is a summary of the material rights and restrictions associated with our common stock.
The holders of our common stock currently have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled to one non-cumulative vote per share on all matters on which stock holders may vote. Please refer to the Company’s Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of the Company’s securities.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Indemnification of Directors and Officers
Under our Articles of Incorporation, no director or officer will be held personally liable to us or our stockholders for damages of breach of fiduciary duty as a director or officer unless such breach involves intentional misconduct, fraud, a knowing violation of law, or a payment of dividends in violation of the law. Under our bylaws, directors and officers will be indemnified to the fullest extent allowed by the law against all damages and expenses suffered by a director or officer being party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative. This same indemnification is provided pursuant to Nevada Revised Statutes, Chapter 78.
The general effect of the foregoing is to indemnify a control person, officer or director from liability, thereby making us responsible for any expenses or damages incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity, provided they did not engage in fraud or criminal activity.
Any repeal or modification of these provisions approved by our shareholders shall be prospective only, and shall not adversely affect any limitation on the liability of a director or officer of ours existing as of the time of such repeal or modification.
Anti-Takeover Effect of Nevada Law, Certain By-Law Provisions
The Nevada Business Corporation Law contains a provision governing “acquisition of controlling interest” (Nevada Revised Statutes 78.378 -78.3793). This law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested shareholders of the corporation elects to restore such voting rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges:
● | 20 to 331/3%; |
● | 331/3 to 50%; or |
● | more than 50%. |
A “control share acquisition” is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control shares. The shareholders or board of directors of a corporation may elect to exempt the stock of the corporation from the provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from the control share acquisition act.
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The control share acquisition act is applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An Issuing Corporation is a Nevada corporation, which:
● | has 200 or more shareholders, with at least 100 of such shareholders being both shareholders of record and residents of Nevada; and |
● | does business in Nevada directly or through an affiliated corporation. |
At this time, we do not have 100 shareholders of record resident of Nevada. Therefore, the provisions of the control share acquisition act do not apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control of us, regardless of whether such acquisition may be in the interest of our shareholders.
The Nevada “Combination with Interested Shareholders Statute” (Nevada Revised Statutes 78.411 -78.444) may also have an effect of delaying or making it more difficult to effect a change in control of us. This statute prevents an “interested shareholder” and a resident domestic Nevada corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination” to include any merger or consolidation with an “interested shareholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an “interested shareholder” having:
● | an aggregate market value equal to 5 percent or more of the aggregate market value of the assets of the corporation; |
● | an aggregate market value equal to 5 percent or more of the aggregate market value of all outstanding shares of the corporation; or |
● | representing 10 percent or more of the earning power or net income of the corporation. |
An “interested shareholder” means the beneficial owner of 10 percent or more of the voting shares of a resident domestic corporation, or an affiliate or associate thereof. A corporation affected by the statute may not engage in a “combination” within three years after the interested shareholder acquires its shares unless the combination or purchase is approved by the board of directors before the interested shareholder acquired such shares. If approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors or a majority of the voting power held by disinterested shareholders, or if the consideration to be paid by the interested shareholder is at least equal to the highest of:
● | the highest price per share paid by the interested shareholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became an interested shareholder, whichever is higher; |
● | the market value per common share on the date of announcement of the combination or the date the interested shareholder acquired the shares, whichever is higher; or |
● | if higher for the holders of preferred stock, the highest liquidation value of the preferred stock. |
Trading Information
Our common stock is currently approved for quotation on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority, Inc. under the symbol “TSGL.OB” and there is a limited trading market for our stock.
Transfer Agent
The transfer agent for our common stock is Island Stock Transfer at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760, and its telephone number is (727) 289-0010.
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Item 3.02 | Unregistered Sales of Equity Securities |
On February 14, 2014, we issued 13,153,800 shares of our common stock to the former stockholders of EmployUS, pursuant to the terms of the Exchange Agreement. The securities issued in this transaction were not registered under the Securities Act, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act. Each of the former stockholders of EmployUS who received shares of our common stock pursuant to the Exchange Agreement were accredited investors (as defined by Rule 501 under the Securities Act) at the time of the Closing.
Information set forth in Items 1.01 and 2.01 of this Current Report on Form 8-K with respect to the issuance of unregistered equity securities in connection with the Exchange Agreement is incorporated by reference into this Item 3.02.
Item 5.01 | Changes in Control of Registrant. |
Reference is made to the disclosure set forth under Items 1.01 and 5.02 of this Report, which disclosure is incorporated herein by reference.
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers. |
In connection with the closing of the Exchange Agreement, by a consent to action without meeting by unanimous consent of the stockholders of the Company (the “Stockholders”), the Stockholders appointed Brent Callais to serve as a Director of the Company. Mr. Callais was the founder and 50% owner of our newly acquired subsidiary, EmployUS Ltd.
Brent Callais, age 33, currently CEO of EmployUS, has an extensive economic development track record in both the private and public sector including job creation and preservation. Prior to EmployUS, Brent served as southeast regional manager for one of the nation’s largest staffing companies, overseeing the company’s response to the BP oil spill and the deployment of more than a thousand workers per day. Prior to that, he served as corporate lobbyist for the oil and gas industry where he secured more than $300 million worth of Economic Development Grants, creating more than 3,000 jobs.
He has testified before Congress on behalf of small businesses, and is an active philanthropist and community leader focused on education and economic development. Brent graduated from Nicholls State University with a bachelor’s degree in Political Science and History. He was also inducted into the Nicholls State University Hall of Fame.
Mr. Brent Callais is qualified to serve as a director of this company because of his knowledge and experience in the staffing business and his prior experience working as President of EmployUS.
As of the date of this Report, there has not been any material plan, contract or arrangement (whether or not written) to which any of our officers or directors are a party in connection with their appointments as officers or directors of the Company.
Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On February 14, 2014, as a result of the closing of the Exchange Agreement, we changed our fiscal year end from September 30 to December 31.
Item 5.06 | Change in Shell Company Status. |
Following the closing of the Exchange Agreement described in Item 2.01 of this Current Report on Form 8-K, we believe that we are not a shell corporation as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
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Item 9.01 | Financial Statements and Exhibits. |
(a) Financial Statements of Businesses Acquired. In accordance with Item 9.01(a), EmployUS’s audited financial statements for the years ended December 31, 2012 and 2011, and the unaudited financial statements for the nine month periods ended September 30, 2013 and 2012 are filed in this Current Report on Form 8-K as Exhibit 99.1 and 99.2, respectively.
(b) Pro Forma Financial Information. In accordance with Item 9.01(b), our pro forma financial statements are filed in this Current Report on Form 8-K as Exhibit 99.3.
(c) Exhibits.
The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
Exhibit No. | Description |
2.1 | Amended and Final Share Exchange Agreement dated January 22, 2014 |
3.1 | Certificate of Amendment for Name Change dated September 12, 2013 |
99.1 | Audited Balance Sheets of the Company as of December 31, 2012 and 2011, and the Related Audited Statements of Operations, Shareholders’ Equity, and Cash Flows for the years ended December 31, 2012 and 2011. |
99.2 | Condensed Balance Sheets of the Company for the nine months ended September 30, 2013 and 2012, and the Related Condensed Statements of Operations, Shareholders’ Equity, and Cash Flows for each of the nine months ended September 30, 2013 and 2012. |
99.3 | Pro forma unaudited combined financial statements as of September 30, 2013, nine months ended September 30, 2013 and year ended December 31, 2012 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 14, 2014
The Staffing Group Ltd. | ||
By: | /s/ Brian McLoone | |
Brian McLoone | ||
Chief Executive Officer and President |
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SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT, dated as of February 14, 2014 (this “Agreement”) by and EmployUS Ltd., a Nevada corporation (“EmployUS”), the stockholders of EmployUS set forth on Schedule I hereto (the “EmployUS Shareholders”), The Staffing Group Ltd., a Nevada corporation (“Staffing”), and the stockholders of Staffing set forth on Schedule II hereto (the “Staffing Controlling Stockholder[s]”).
WHEREAS, the EmployUS Shareholders own 100% of the issued and outstanding shares of EmployUS (such shares being hereinafter referred to as the “EmployUS Shares”); and
WHEREAS, (i) the EmployUS Shareholders and EmployUS believe it is in their respective best interests for the EmployUS Shareholders to exchange all of the EmployUS Shares for 13,153,800 newly-issued shares as set forth on Schedule III hereto (the “Staffing Shares”) of common stock, $0.001 par value per share, of Staffing (the “Common Stock”), which, at the time of this Agreement, shall constitute approximately 37.47% of the issued and outstanding shares of Staffing Common Stock immediately after the closing of the transactions contemplated herein, and (ii) Staffing believes it is in its best interest and the best interest of its stockholders to acquire the EmployUS Shares in exchange for the Staffing Shares, all upon the terms and subject to the conditions set forth in this Agreement (the “Share Exchange”);
WHEREAS, this Agreement will cause EmployUS to become a wholly-owned subsidiary of Staffing;
WHEREAS, Staffing shall complete a private placement offering of shares of Common Stock in an aggregate amount of $1,000,000 or an amount agreeable to EmployUS at some point following the Closing;
WHEREAS, on or before the closing of the Share Exchange, Joseph Albunio owning 8,886,413 shares of Common Stock, agree to cancel 8,386,413 shares of Common Stock pursuant to a cancellation agreement (the “Albunio Cancellation”);
WHEREAS, on or before the closing of the Share Exchange, Brian McLoone owning 8,886,413 shares of Common Stock, agree to cancel 2,836,413 shares of Common Stock pursuant to a cancellation agreement (the “McLoone Cancellation”); and
WHEREAS, on or before the closing of the Share Exchange, Luidmila Yuziuk owning 1,930,972 shares of Common Stock agree to cancel all shares of Common Stock pursuant to a cancellation agreement (the “Yuziuk Cancellation” and together with the McLoone Cancellation and the Albunio Cancellation, the “Share Cancellation”).
NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF EMPLOYUS SHARES FOR STAFFING SHARES, PRIVATE PLACEMENT AND CANCELLATION
Section 1.1 Agreement to Exchange EmployUS Shares for Staffing Shares. On the Closing Date (as hereinafter defined) and upon the terms and subject to the conditions set forth in this Agreement, the EmployUS Shareholders shall assign, transfer, convey and deliver the EmployUS Shares to Staffing. In consideration and exchange for the EmployUS Shares, Staffing shall issue, transfer, convey and deliver the Staffing Shares to the EmployUS Shareholders.
Section 1.2 Closing and Actions at Closing. The closing of the Share Exchange (the “Closing”) shall take place remotely via the exchange of documents and signatures at 10:00 a.m. E.D.T. on the day the conditions to closing set forth in Articles V and VI herein have been satisfied or waived, or at such other time and date as the parties hereto shall agree in writing (the “Closing Date”).
Section 1.3 Directors of Staffing at Closing Date. On the Closing Date, EmployUs shall have the right to appoint members to the Staffing Board.
Section 1.4 Private Placement. At some point following the Closing, Staffing shall complete a Private Placement Offering of an aggregate amount of $1,000,000 of Common Stock at a per share price to be agreed upon by the Company (the “Private Placement Offering”).
Section 1.5 Cancellations. On or before the Closing, Joseph Albunio owning an aggregate of 8,886,413 shares of Common Stock shall cancel 8,386,413 shares of his Common Stock and following such cancellation acknowledges that he will own 500,000 shares the Company’s Common Stock. On or before the Closing, Brian McLoone owning an aggregate of 8,886,413 shares of Common Stock shall cancel 2,836,413 shares of his Common Stock and following such cancellation acknowledges that he will own 6,050,000 shares the Company’s Common Stock. On or before the Closing, Luidmila Yuziuk owning an aggregate of 1,930,972 shares of Common Stock shall cancel all 1,930,972 shares of his Common Stock and following such cancellation acknowledges that he will own 0 shares the Company’s Common Stock.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STAFFING
Staffing represents, warrants and agrees that all of the statements in the following subsections of this Article II are true and complete as of the date hereof.
Section 2.1 Corporate Organization.
a. Staffing is a corporation duly organized, validly existing and in good standing under the laws of Nevada, and has all requisite corporate power and authority to own its properties and assets and governmental licenses, authorizations, consents and approvals to conduct its business as now conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its activities makes such qualification and being in good standing necessary, except where the failure to be so qualified and in good standing will not have a Material Adverse Effect on the activities, business, operations, properties, assets, condition or results of operation of Staffing. “Material Adverse Effect” means, when used with respect to Staffing, any event, occurrence, fact, condition, change or effect, which, individually or in the aggregate, would reasonably be expected to be materially adverse to the business, operations, properties, assets, condition (financial or otherwise), or operating results of Staffing, or materially impair the ability of Staffing to perform its obligations under this Agreement, excluding any change, effect or circumstance resulting from (i) the announcement, pendency or consummation of the transactions contemplated by this Agreement, or (ii) changes in the United States securities markets generally.
b. Copies of the certificate of incorporation and by-laws of Staffing with all amendments thereto, as of the date hereof (the “Staffing Charter Documents”), have been furnished to the EmployUS Shareholders and to EmployUS, and such copies are accurate and complete as of the date hereof. The minute books of Staffing are current as required by law, contain the minutes of all meetings of the Staffing Board and stockholders of Staffing from its date of incorporation to the date of this Agreement, and adequately reflect all material actions taken by the Staffing Board and stockholders of Staffing. Staffing is not in violation of any of the provisions of the Staffing Charter Documents.
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Section 2.2 Capitalization of Staffing.
a. The authorized capital stock of Staffing consists of 75,000,000 shares of Common Stock of which 35,100,011 are issued and outstanding immediately prior to this Share Exchange.
b. All of the issued and outstanding shares of Common Stock of Staffing immediately prior to this Share Exchange are, and all shares of Common Stock of Staffing when issued in accordance with the terms hereof will be, duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance with all applicable U.S. federal and state securities laws and state corporate laws, and have been issued free of preemptive rights of any security holder. As of the date of this Agreement there are no outstanding or authorized options, warrants, agreements, commitments, conversion rights, preemptive rights or other rights to subscribe for, purchase or otherwise acquire or receive any shares of Staffing’s capital stock, nor are there or will there be any outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights, pre-emptive rights or rights of first refusal with respect to Staffing or any Common Stock, or any voting trusts, proxies or other agreements, understandings or restrictions with respect to the voting of Staffing’s capital stock. There are no registration or anti-dilution rights, and there is no voting trust, proxy, rights plan, anti-takeover plan or other agreement or understanding to which Staffing is a party or by which it is bound with respect to any equity security of any class of Staffing. Staffing is not a party to, and it has no knowledge of, any agreement restricting the transfer of any shares of the capital stock of Staffing.
c. There are no outstanding contractual obligations (contingent or otherwise) of Staffing to retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or other ownership interests in, Staffing or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other person.
Section 2.3 Subsidiaries and Equity Investments. Staffing does not directly or indirectly own any capital stock or other securities of, or any beneficial ownership interest in, or hold any equity or similar interest, or have any investment in any corporation, limited liability company, partnership, limited partnership, joint venture or other company, person or other entity.
Section 2.4 Authorization, Validity and Enforceability of Agreements. Staffing has all corporate power and authority to execute and deliver this Agreement and all agreements, instruments and other documents to be executed and delivered in connection with the transactions contemplated by this Agreement to perform its obligations hereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by Staffing and the consummation by Staffing of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action of Staffing, and no other corporate proceedings on the part of Staffing are necessary to authorize this Agreement or to consummate the transactions contemplated hereby and thereby. This Agreement constitutes the valid and legally binding obligation of Staffing and is enforceable in accordance with its terms, except as such enforcement may be limited by general equitable principles, or by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors rights generally. Staffing does not need to give any notice to, make any filings with, or obtain any authorization, consent or approval of any government or governmental agency or other person in order for it to consummate the transactions contemplated by this Agreement, other than filings that may be required or permitted under states securities laws, the Securities Act and/or the Exchange Act resulting from the issuance of the Staffing Shares.
Section 2.5 No Conflict or Violation. Neither the execution and delivery of this Agreement by Staffing, nor the consummation by Staffing of the transactions contemplated hereby will: (i) contravene, conflict with, or violate any provision of the Staffing Charter Documents; (ii) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency, court, administrative panel or other tribunal to which Staffing is subject, (iii) conflict with, result in a breach of, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which Staffing is a party or by which it is bound, or to which any of its assets or properties are subject; or (iv) result in or require the creation or imposition of any encumbrance of any nature upon or with respect to any of Staffing’s assets, including without limitation the Staffing Shares.
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Section 2.6 Litigation. There is no action, suit, proceeding or investigation (“Action”) pending or, to the knowledge of Staffing, currently threatened against Staffing or any of its affiliates, that may affect the validity of this Agreement or the right of Staffing to enter into this Agreement or to consummate the transactions contemplated hereby or thereby. There is no Action pending or, to the knowledge of Staffing, currently threatened against Staffing or any of its affiliates, before any court or by or before any governmental body or any arbitration board or tribunal, nor is there any judgment, decree, injunction or order of any court, governmental department, commission, agency, instrumentality or arbitrator against Staffing or any of its affiliates. Neither Staffing nor any of its affiliates is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no Action by Staffing or any of its affiliates relating to Staffing currently pending or which Staffing or any of its affiliates intends to initiate.
Section 2.7 Compliance with Laws. Staffing has been and is in compliance with, and has not received any notice of any violation of any, applicable law, order, ordinance, regulation or rule of any kind whatsoever, including without limitation the Securities Act, the Exchange Act, the applicable rules and regulations of the SEC or the applicable securities laws and rules and regulations of any state.
Section 2.8 Books, Financial Records and Internal Controls. All the accounts, books, registers, ledgers, Staffing Board minutes and financial and other records of whatsoever kind of Staffing have been fully, properly and accurately kept and completed; there are no material inaccuracies or discrepancies of any kind contained or reflected therein; and they give and reflect a true and fair view of the financial, contractual and legal position of Staffing. Staffing maintains a system of internal accounting controls sufficient, in the judgment of Staffing, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences.
Section 2.9 Employee Benefit Plans. Staffing does not have any “Employee Benefit Plan” as defined in the U.S. Employee Retirement Income Security Act of 1974 or similar plans under any applicable laws.
Section 2.10 Tax Returns, Payments and Elections. Staffing has filed all Tax (as defined below) returns, statements, reports, declarations and other forms and documents (including, without limitation, estimated tax returns and reports and material information returns and reports) (“Tax Returns”) required pursuant to applicable law to be filed with any Tax Authority (as defined below). All such Tax Returns are accurate, complete and correct in all material respects, and Staffing has timely paid all Taxes due and adequate provisions have been and are reflected in Staffing’s Financial Statements for all current taxes and other charges to which Staffing is subject and which are not currently due and payable. None of Staffing’s federal income tax returns have been audited by the Internal Revenue Service. Staffing has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against the Staffing for any period, nor of any basis for any such assessment, adjustment or contingency. Staffing has withheld or collected from each payment made to each of its employees, if applicable, the amount of all Taxes (including, but not limited to, United States income taxes and other foreign taxes) required to be withheld or collected therefrom, and has paid the same to the proper Tax Authority. For purposes of this Agreement, the following terms have the following meanings: “Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means any and all taxes including, without limitation, (x) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, value added, net worth, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any United States, local or foreign governmental authority or regulatory body responsible for the imposition of any such tax (domestic or foreign) (a “Tax Authority”), (y) any liability for the payment of any amounts of the type described in (x) as a result of being a member of an affiliated, consolidated, combined or unitary group for any taxable period or as the result of being a transferee or successor thereof, and (z) any liability for the payment of any amounts of the type described in (x) or (y) as a result of any express or implied obligation to indemnify any other person.
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Section 2.11 No Debt Obligations. Upon the Closing Date, Staffing will have no debt, obligations or liabilities of any kind whatsoever other than with respect to the transactions contemplated hereby. Staffing is not a guarantor of any indebtedness of any other person, entity or corporation.
Section 2.12 No Broker Fees. No brokers, finders or financial advisory fees or commissions will be payable by or to Staffing or any of their affiliates with respect to the transactions contemplated by this Agreement.
Section 2.13 No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or anticipated by Staffing to arise, between Staffing and any accountants and/or lawyers formerly or presently engaged by Staffing. Staffing is current with respect to fees owed to its accountants and lawyers.
Section 2.14 Disclosure. This Agreement and any certificate attached hereto or delivered in accordance with the terms hereby by or on behalf of Staffing in connection with the transactions contemplated by this Agreement do not contain any untrue statement of a material fact or omit any material fact necessary in order to make the statements contained herein and/or therein not misleading.
Section 2.15 No Undisclosed Events or Circumstances. No event or circumstance has occurred or exists with respect to Staffing or its respective businesses, properties, prospects, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement by Staffing but which has not been so publicly announced or disclosed. Staffing has not provided to EmployUS, or the EmployUS Shareholders, any material non-public information or other information which, according to applicable law, rule or regulation, was required to have been disclosed publicly by Staffing but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement.
Section 2.16 Disclosure. This Agreement and any certificate attached hereto or delivered in accordance with the terms hereof by or on behalf of Staffing or any of the Staffing Controlling Stockholders in connection with the transactions contemplated by this Agreement, when taken together, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein and/or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EMPLOYUS
EmployUS represents, warrants and agrees that all of the statements in the following subsections of this Article III, pertaining to EmployUS, are true and complete as of the date hereof.
Section 3.1 Incorporation. is a company duly incorporated, validly existing, and in good standing under the laws of the state of Nevada and has the corporate power and is duly authorized under all applicable laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of EmployUS’ articles of incorporation. EmployUS has taken all actions required by law, its articles of incorporation, or otherwise to authorize the execution and delivery of this Agreement. EmployUS has full power, authority, and legal capacity and has taken all action required by law, its articles of incorporation and otherwise to consummate the transactions herein contemplated.
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Section 3.2 Authorized Shares. The number of shares which EmployUS is authorized to issue consists of 200,000,000 shares of common stock, par value $0.001 per share. There are currently 30,000,000 shares issued and outstanding. The issued and outstanding shares are validly issued, fully paid, and non-assessable and not issued in violation of the preemptive or other rights of any person.
Section 3.3 Subsidiaries and Predecessor Corporations. EmployUS does not have any subsidiaries, and does not own, beneficially or of record, any shares of any other corporation.
Section 3.4 Financial Statements.
Prior to Closing, EmployUS shall obtain its audited balance sheet and the related audited statements of operations, stockholders’ equity and cash flows for the period from inception through December 31, 2012 together with the notes to such statements and the opinion of Marcum LLP, independent certified public accountants.
All such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved. The balance sheets are true and accurate and present fairly as of their respective dates the financial condition of EmployUS. As of the date of such balance sheets, except as and to the extent reflected or reserved against therein, EmployUS had no liabilities or obligations (absolute or contingent) which should be reflected in the balance sheets or the notes thereto prepared in accordance with generally accepted accounting principles, and all assets reflected therein are properly reported and present fairly the value of the assets of EmployUS, in accordance with generally accepted accounting principles. The statements of operations, stockholders’ equity and cash flows reflect fairly the information required to be set forth therein by generally accepted accounting principles.
Except as disclosed in Schedule 3.4, EmployUS has duly and punctually paid all Governmental fees and taxation which it has become liable to pay and has duly allowed for all taxation reasonably foreseeable and is under no liability to pay any penalty or interest in connection with any claim for governmental fees or taxation and EmployUS has made any and all proper declarations and returns for taxation purposes and all information contained in such declarations and returns is true and complete and full provision or reserves have been made in its financial statements for all Governmental fees and taxation.
The books and records, financial and otherwise, of EmployUS are, in all material aspects, complete and correct and have been maintained in accordance with good business and accounting practices.
All of EmployUS’ assets are reflected on its financial statements, and EmployUS has no material liabilities, direct or indirect, matured or unmatured, contingent or otherwise.
Section 3.5 Information. The information concerning EmployUS set forth in this Agreement is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.
Section 3.6 Absence of Certain Changes or Events.There has not been any material adverse change in the business, operations, properties, assets, or condition (financial or otherwise) of EmployUS; and EmployUS has not (i) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its shares; (ii) made any material change in its method of management, operation or accounting, (iii) entered into any other material transaction other than sales in the ordinary course of its business; or (iv) made any increase in or adoption of any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees.
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Section 3.7 Litigation and Proceedings. There are no actions, suits, proceedings, or investigations pending or, to the knowledge of EmployUS after reasonable investigation, threatened by or against EmployUS or affecting EmployUS or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. EmployUS does not have any knowledge of any material default on its part with respect to any judgment, order, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances.
Section 3.8 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate or modify the terms of any indenture, mortgage, deed of trust, or other material agreement, or instrument to which EmployUS is a party or to which any of its assets, properties or operations are subject.
Section 3.9 Compliance With Laws and Regulations. To the best of its knowledge, EmploysUS has complied with all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of EmployUS or except to the extent that noncompliance would not result in the occurrence of any material liability for EmployUS. This compliance includes, but is not limited to, the filing of all reports to date with federal and state securities authorities.
Section 3.10 Approval of Agreement. The Board of Directors of EmployUS has authorized the execution and delivery of this Agreement by EmployUS and has approved this Agreement and the transactions contemplated hereby.
Section 3.11 Valid Obligation. This Agreement and all agreements and other documents executed by EmployUS in connection herewith constitute the valid and binding obligation of EmployUS, enforceable in accordance with its or their terms, except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and subject to the qualification that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EMPLOYUS SHAREHOLDERS
The EmployUS Shareholders hereby represents and warrants to Staffing:
Section 4.1 Authority. The EmployUS Shareholders have the right, power, authority and capacity to execute and deliver this Agreement to which the EmployUS Shareholders is a party, to consummate the transactions contemplated by this Agreement to which the EmployUS Shareholders is a party, and to perform the EmployUS Shareholders’ obligations under this Agreement to which the EmployUS Shareholders is a party. This Agreement has been duly and validly authorized and approved, executed and delivered by the EmployUS Shareholders. Assuming this Agreement has been duly and validly authorized, executed and delivered by the parties thereto other than the EmployUS Shareholders, this Agreement is duly authorized, executed and delivered by the EmployUS Shareholders and constitutes the legal, valid and binding obligation of the EmployUS Shareholders, enforceable against the EmployUS Shareholders in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors rights generally.
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Section 4.2 No Conflict. Neither the execution or delivery by the EmployUS Shareholders of this Agreement to which the EmployUS Shareholders is a party nor the consummation or performance by the EmployUS Shareholders of the transactions contemplated hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of the EmployUS Shareholders (if the EmployUS Shareholders is not a natural person); (b) contravene, conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, any agreement or instrument to which the EmployUS Shareholders is a party or by which the properties or assets of the EmployUS Shareholders are bound; or (c) contravene, conflict with, or result in a violation of, any Law or Order to which the EmployUS Shareholders, or any of the properties or assets of the EmployUS Shareholders, may be subject.
Section 4.3 Litigation. There is no pending Action against the EmployUS Shareholders that involves the EmployUS Shares or that challenges, or may have the effect of preventing, delaying or making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement or the business of EmployUS and, to the knowledge of the EmployUS Shareholders, no such Action has been threatened, and no event or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Action.
Section 4.4 Acknowledgment. The EmployUS Shareholders understand and agree that the Staffing Shares to be issued pursuant to this Agreement have not been registered under the Securities Act or the securities laws of any state of the U.S. and that the issuance of the Staffing Shares is being effected in reliance upon an exemption from registration afforded either under Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering or Regulation D promulgated thereunder or Regulation S for offers and sales of securities outside the U.S.
Section 4.5 Stock Legends. The EmployUS Shareholders hereby agrees with Staffing as follows:
a. Securities Act Legend Accredited Investors. The certificates evidencing the Staffing Shares issued to the EmployUS Shareholders will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR (3) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, AND BASED ON AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE BEEN SATISFIED.
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b. Other Legends. The certificates representing such Staffing Shares, and each certificate issued in transfer thereof, will also bear any other legend required under any applicable law, including, without limitation, any U.S. state corporate and state securities law, or contract.
c. Opinion. The EmployUS Shareholders shall not transfer any or all of the Staffing Shares pursuant to Rule 144, under the Securities Act, Regulation S or absent an effective registration statement under the Securities Act and applicable state securities law covering the disposition of the Staffing Shares, without first providing Staffing with an opinion of counsel (which counsel and opinion are reasonably satisfactory to Staffing) to the effect that such transfer will be made in compliance with Rule 144, under the Securities Act, Regulation S or will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable U.S. state securities laws.
Section 4.6 Ownership of Shares. The EmployUS Shareholders are both the record and beneficial owner of the EmployUS Shares. The EmployUS Shareholders are not the record or beneficial owner of any other shares of EmployUS. The EmployUS Shareholders has and shall transfer at the Closing, good and marketable title to the EmployUS Shares, free and clear of all liens, claims, charges, encumbrances, pledges, mortgages, security interests, options, rights to acquire, proxies, voting trusts or similar agreements, restrictions on transfer or adverse claims of any nature whatsoever, excepting only restrictions on future transfers imposed by applicable law.
Section 4.7 Pre-emptive Rights. At Closing, no EmployUS Shareholders has any pre-emptive rights or any other rights to acquire any shares of EmployUS that have not been waived or exercised.
Section 4.8 Accredited Investor. All EmployUS Shareholders receiving shares of Staffing pursuant to this Agreement are “accredited investors” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
ARTICLE V
CONDITIONS TO OBLIGATIONS OF EMPLOYUS
AND THE EMPLOYUS SHAREHOLDERS
The obligations of EmployUS and the EmployUS Shareholders to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or before the Closing Date, of the following conditions, any one or more of which may be waived by EmployUS and the EmployUS Shareholders at their sole discretion:
Section 5.1 Representations and Warranties of Staffing. All representations and warranties made by Staffing in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except insofar as the representations and warranties relate expressly and solely to a particular date or period, in which case, subject to the limitations applicable to the particular date or period, they will be true and correct in all material respects on and as of the Closing Date with respect to such date or period.
Section 5.2 Agreements and Covenants. Staffing shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with on or prior to the Closing Date.
Section 5.3 Consents and Approvals. All consents, waivers, authorizations and approvals of any governmental or regulatory authority, domestic or foreign, and of any other person, firm or corporation, required in connection with the execution, delivery and performance of this Agreement shall be in full force and effect on the Closing Date.
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Section 5.4 No Violation of Orders. No preliminary or permanent injunction or other order issued by any court or governmental or regulatory authority, domestic or foreign, nor any statute, rule, regulation, decree or executive order promulgated or enacted by any government or governmental or regulatory authority, which declares this Agreement invalid in any respect or prevents the consummation of the transactions contemplated hereby, or which materially and adversely affects the assets, properties, operations, prospects, net income or financial condition of Staffing shall be in effect; and no action or proceeding before any court or governmental or regulatory authority, domestic or foreign, shall have been instituted or threatened by any government or governmental or regulatory authority, domestic or foreign, or by any other person, or entity which seeks to prevent or delay the consummation of the transactions contemplated by this Agreement or which challenges the validity or enforceability of this Agreement.
Section 5.5 Other Closing Documents. Staffing shall have received such certificates, instruments and documents in confirmation of the representations and warranties of Staffing, Staffing’s performance of its obligations hereunder, and/or in furtherance of the transactions contemplated by this Agreement as the EmployUS Shareholders and/or their respective counsel may reasonably request.
Section 5.6 Documents. Staffing must have caused the following documents to be delivered to EmployUS and the EmployUS Shareholders:
a. share certificates evidencing the Staffing Shares registered in the name of the EmployUS Shareholders;
b. a Secretary’s Certificate, dated the Closing Date, certifying attached copies of (A) the Staffing Charter Documents, (B) the resolutions of the Staffing Board approving this Agreement and the transactions contemplated hereby and thereby; and (C) the incumbency of each authorized officer of Staffing signing this Agreement to which Staffing is a party;
c. an Officer’s Certificate, dated the Closing Date, certifying as to Sections 5.1, 5.2, 5.3, 5.4, 5.7, and 5.9.
d. this Agreement is duly executed;
e. such other documents as EmployUS may reasonably request for the purpose of (A) evidencing the accuracy of any of the representations and warranties of Staffing, (B) evidencing the performance of, or compliance by Staffing with any covenant or obligation required to be performed or complied with by Staffing, (C) evidencing the satisfaction of any condition referred to in this Article V, or (D) otherwise facilitating the consummation or performance of any of the transactions contemplated by this Agreement.
Section 5.7 No Material Adverse Effect. There shall not have been any event, occurrence or development that has resulted in or could result in a Material Adverse Effect on or with respect to Staffing.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF STAFFING
The obligations of Staffing to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or before the Closing Date, of the following conditions, any one or more of which may be waived by Staffing in its sole discretion:
Section 6.1 Representations and Warranties of EmployUS and the EmployUS Shareholders. All representations and warranties made by EmployUS and the EmployUS Shareholders on behalf of themselves individually in this Agreement shall be true and correct on and as of the Closing Date except insofar as the representation and warranties relate expressly and solely to a particular date or period, in which case, subject to the limitations applicable to the particular date or period, they will be true and correct in all material respects on and as of the Closing Date with respect to such date or period.
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Section 6.2 Agreements and Covenants. EmployUS and the EmployUS Shareholders shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by each of them on or prior to the Closing Date.
Section 6.3 Consents and Approvals. All consents, waivers, authorizations and approvals of any governmental or regulatory authority, domestic or foreign, and of any other person, firm or corporation, required in connection with the execution, delivery and performance of this Agreement, shall have been duly obtained and shall be in full force and effect on the Closing Date.
Section 6.4 Audit Report. Staffing shall have received an audit report of EmployUS with respect to its two most recently completed fiscal years from an independent accounting firm that is registered with the Public Company Accounting Oversight Board.
Section 6.5 No Violation of Orders. No preliminary or permanent injunction or other order issued by any court or other governmental or regulatory authority, domestic or foreign, nor any statute, rule, regulation, decree or executive order promulgated or enacted by any government or governmental or regulatory authority, domestic or foreign, that declares this Agreement invalid or unenforceable in any respect or which prevents the consummation of the transactions contemplated hereby, or which materially and adversely affects the assets, properties, operations, prospects, net income or financial condition of EmployUS shall be in effect; and no action or proceeding before any court or government or regulatory authority, domestic or foreign, shall have been instituted or threatened by any government or governmental or regulatory authority, domestic or foreign, or by any other person, or entity which seeks to prevent or delay the consummation of the transactions contemplated by this Agreement or which challenges the validity or enforceability of this Agreement.
Section 6.6 Other Closing Documents. Staffing shall have received such certificates, instruments and documents in confirmation of the representations and warranties of EmployUS and the EmployUS Shareholders, the performance of EmployUS and the EmployUS Shareholders’ respective obligations hereunder and/or in furtherance of the transactions contemplated by this Agreement as Staffing or its counsel may reasonably request.
Section 6.7 Documents. EmployUS and the EmployUS Shareholders must deliver to Staffing at the Closing:
a. share certificates evidencing the number of EmployUS Shares, along with executed share transfer forms transferring such EmployUS Shares to Staffing, together with a certified copy of a board resolution of EmployUS approving the registration of the transfer of such shares to Staffing (subject to Closing and payment of stamp duty);
b. this Agreement to which EmployUS and the EmployUS Shareholders is a party, duly executed;
c. such other documents as Staffing may reasonably request for the purpose of (a) evidencing the accuracy of any of the representations and warranties of EmployUS and the EmployUS Shareholders , (b) evidencing the performance of, or compliance by EmployUS and the EmployUS Shareholders with, any covenant or obligation required to be performed or complied with by EmployUS and the EmployUS Shareholders, as the case may be, (c) evidencing the satisfaction of any condition referred to in this Article VI, or (d) otherwise facilitating the consummation or performance of any of the transactions contemplated by this Agreement.
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Section 6.8 No Claim Regarding Stock Ownership or Consideration. There must not have been made or threatened by any Person, any claim asserting that such Person (a) is the holder of, or has the right to acquire or to obtain beneficial ownership of the EmployUS Shares, or any other stock, voting, equity, or ownership interest in, EmployUS, or (b) is entitled to all or any portion of the Staffing Shares.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Survival of Provisions. The respective representations, warranties, covenants and agreements of each of the parties to this Agreement (except covenants and agreements which are expressly required to be performed and are performed in full on or before the Closing Date) shall expire on the first day of the one-year anniversary of the Closing Date (the “Survival Period”). The right to indemnification, payment of damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of damages, or other remedy based on such representations, warranties, covenants, and obligations.
Section 7.2 Indemnification.
a. Indemnification Obligations in favor of the Controlling Stockholders of Staffing. From and after the Closing Date until the expiration of the Survival Period, EmployUS shall reimburse and hold harmless the Staffing Controlling Stockholders (each such person and his heirs, executors, administrators, agents, successors and assigns is referred to herein as a “Staffing Indemnified Party”) against and in respect of any and all damages, losses, settlement payments, in respect of deficiencies, liabilities, costs, expenses and claims suffered, sustained, incurred or required to be paid by any Staffing Indemnified Party, and any and all actions, suits, claims, or legal, administrative, arbitration, governmental or other procedures or investigation against any Staffing Indemnified Party, which arises or results from a third-party claim brought against a Staffing Indemnified Party to the extent based on a breach of the representations and warranties with respect to the business, operations or assets of EmployUS. All claims of Staffing pursuant to this Section 7.2 shall be brought by the Staffing Controlling Stockholders on behalf of Staffing and those Persons who were stockholders of Staffing immediately prior to the Closing Date. In no event shall any such indemnification payments exceed $100,000 in the aggregate from EmployUS. No claim for indemnification may be brought under this Section 7.2(a) unless all claims for indemnification, in the aggregate, total more than $10,000.
b. Indemnification in favor of EmployUS and the EmployUS Shareholders. From and after the Closing Date until the expiration of the Survival Period, the Staffing Controlling Stockholders will, severally and not jointly, indemnify and hold harmless EmployUS, the EmployUS Shareholders, and their respective officers, directors, agents, attorneys and employees, and each person, if any, who controls or may “control” (within the meaning of the Securities Act) any of the forgoing persons or entities (hereinafter referred to individually as a “EmployUS Indemnified Person”) from and against any and all losses, costs, damages, liabilities and expenses arising from claims, demands, actions, causes of action, including, without limitation, legal fees, (collectively, “Damages”) arising out of any (i) any breach of representation or warranty made by Staffing or the Staffing Controlling Stockholders in this Agreement, and in any certificate delivered by Staffing or the Staffing Controlling Stockholders pursuant to this Agreement, (ii) any breach by Staffing or the Staffing Controlling Stockholders of any covenant, obligation or other agreement made by Staffing or the Staffing Controlling Stockholders in this Agreement, and (iii) a third-party claim based on any acts or omissions by Staffing or the Staffing Controlling Stockholders. In no event shall any such indemnification payments exceed $100,000 in the aggregate from all Staffing Controlling Stockholders. No claim for indemnification may be brought under this Section 7.2(b) unless all claims for indemnification, in the aggregate, total more than $10,000.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Publicity. No party shall cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without the consent of the other parties, unless a press release or announcement is required by law. If any such announcement or other disclosure is required by law, the disclosing party agrees to give the non-disclosing parties prior notice and an opportunity to comment on the proposed disclosure.
Section 8.2 Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns; provided, however, that no party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other parties.
Section 8.3 Fees and Expenses. Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses.
Section 8.4 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been given or made if in writing and delivered personally or sent by registered or certified mail (postage prepaid, return receipt requested)or facsimile to the parties at the following addresses:
If to EmployUS or the EmployUS Shareholders, to:
400 Poydras St., Suite 1165
New Orleans, LA 70130
Attn: Brent Callais, CEO
With a copy to (which copy shall not constitute notice):
If to Staffing or the Staffing Controlling Stockholders, to:
400 Poydras St., Suite 1165
New Orleans, LA 70130
Attn: Brian McLoone, CEO
With a copy to (which copy shall not constitute notice):
Szaferman, Lakind, Blumstein & Blader, P.C.
101 Grovers Mill Road, Second Floor
Lawrenceville, NJ 08648
Attn: Gregg E. Jaclin, Esq.
or to such other persons or at such other addresses as shall be furnished by any party by like notice to the others, and such notice or communication shall be deemed to have been given or made as of the date so delivered or mailed. No change in any of such addresses shall be effective insofar as notices under this Section 8.4 are concerned unless such changed address is located in the United States of America (or, in the case of the EmployUS Shareholders or EmployUS, in the United States of America) and notice of such change shall have been given to such other party hereto as provided in this Section 8.4.
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Section 8.5 Entire Agreement. This Agreement, together with the exhibits hereto, represents the entire agreement and understanding of the parties with reference to the transactions set forth herein and no representations or warranties have been made in connection with this Agreement other than those expressly set forth herein or in the exhibits, certificates and other documents delivered in accordance herewith. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement and all prior drafts of this Agreement, all of which are merged into this Agreement. No prior drafts of this Agreement and no words or phrases from any such prior drafts shall be admissible into evidence in any action or suit involving this Agreement.
Section 8.6 Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible so as to be valid and enforceable.
Section 8.7 Titles and Headings. The Article and Section headings contained in this Agreement are solely for convenience of reference and shall not affect the meaning or interpretation of this Agreement or of any term or provision hereof.
Section 8.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.
Section 8.9 Convenience of Forum; Consent to Jurisdiction. The parties to this Agreement, acting for themselves and for their respective successors and assigns, without regard to domicile, citizenship or residence, hereby expressly and irrevocably elect as the sole judicial forum for the adjudication of any matters arising under or in connection with this Agreement, and consent and subject themselves to the jurisdiction of, the courts of the State of New York located in County of New York, and/or the United States District Court for the Southern District of New York, in respect of any matter arising under this Agreement. Service of process, notices and demands of such courts may be made upon any party to this Agreement by personal service at any place where it may be found or giving notice to such party as provided in Section 8.4.
Section 8.10 Enforcement of the Agreement. The parties hereto agree that irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereto, this being in addition to any other remedy to which they are entitled at law or in equity.
Section 8.11 Governing Law. This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of New York without giving effect to the choice of law provisions thereof.
Section 8.12 Amendments and Waivers. Except as otherwise provided herein, no amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the parties hereto. No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any such prior or subsequent occurrence.
[Remainder of this page intentionally left blank]
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[SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
EMPLOYUS LTD. | |
By: | |
Name: Brent Callais | |
Title: Chief Executive Officer | |
THE STAFFING GROUP LTD. | |
By: | |
Name: Brian McLoone | |
Title: Chief Executive Officer |
STAFFING’S CONTROLLING STOCKHOLDERS | |
By: | |
Brian McLoone | |
Number of Shares Owned: 8,886,413 | |
% Ownership: 25.3% | |
By: | |
Joseph Albunio | |
Number of Shares Owned: 8,886,413 | |
% Ownership: 25.3% |
IN WITNESS WHEREOF, the parties below hereto have executed this Agreement as of the date first above written and consent to the cancellation of their shares of Staffing in conformity with this executed Agreement as of the date first above written.
By: | |
Name: Luidmila Yuziuk | |
By: | |
Name: Brian McLoone | |
By: | |
Name: Joseph Albunio |
[SIGNATURE PAGE OF EMPLOYUS SHARHOLDERS
TO SHARE EXCHANGE AGREEMENT]
EMPLOYUS SHAREHOLDERS | |
By: | |
BD CALLAIS | |
By: | |
BROADSMOORE GROUP |
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SCHEDULE I
EmployUS’ Pre-Closing Shareholder List
Shareholder | Number of Shares | Percent Ownership | ||||||
BD Callais | 15,000,000 | 50 | % | |||||
Broadsmoore Group | 15,000,000 | 50 | % | |||||
Total Shares Outstanding | 30,000,000 |
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SCHEDULE II
The Staffing Group Ltd.
Pre-Closing Shareholder List
Shareholder | Number of Shares | Percent Ownership of Company * | ||||||
Brian McLoone | 8,886,413 | 25.3 | % | |||||
Joseph Albunio | 8,886,413 | 25.3 | % | |||||
Total Shares | 17,772,826 | 50.63 | % |
* Based on 35,100,011 shares outstanding.
17 |
SCHEDULE III
The Staffing Group Ltd.
Issuance to EmployUS Shareholders
Shareholder | Number of Shares | Percent Ownership* | ||||||
BD Callais | 6,050,000 | 17.24 | % | |||||
Broadsmoore Group | 7,103,800 | 20.24 | % | |||||
Total Shares Outstanding | 13,153,800 | 37.48 | % |
* Based on 35,100,011 shares outstanding immediately following the share issuance
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Schedule 3.4 – Financial Statements
EmployUS Ltd. f/k/a EmployUS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
EmployUS Ltd. f/k/a EmployUS, LLC
CONTENTS
Report of Independent Registered Public Accounting Firm | 1 |
Financial Statements | |
Balance Sheets - as of December 31, 2012 and 2011 | 2 |
Statements of Operations - for the years ended December 31, 2012 and 2011 | 3 |
Statements of Stockholders’ Deficit - for the years ended December 31, 2012 and 2011 | 4 |
Statements of Cash Flows - for the years ended December 31, 2012 and 2011 | 5 |
Notes to Financial Statements | 6-15 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders of
EmployUS Ltd. f/k/a EmployUS, LLC
We have audited the accompanying balance sheets of EmployUS Ltd. f/k/a EmployUS, LLC (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EmployUS Ltd. f/k/a EmployUS, LLC as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
New York, NY
February 14, 2014
1 |
EmployUS Ltd. f/k/a EmployUS, LLC
BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011 |
2012 | 2011 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 196,394 | $ | 38,597 | ||||
Accounts receivable, net | 1,378,036 | 1,049,625 | ||||||
Due from related party, net | -- | 311,998 | ||||||
Prepaid expenses and other current assets | 9,869 | 32,502 | ||||||
Total Current Assets | 1,584,299 | 1,432,722 | ||||||
Property and Equipment, Net | 33,537 | 68,331 | ||||||
Security Deposits | 6,637 | 6,160 | ||||||
Total Assets | $ | 1,624,473 | $ | 1,507,213 | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 322,461 | $ | 513,058 | ||||
Line of credit | 1,017,897 | 487,591 | ||||||
Due to stockholder | 429,373 | 423,652 | ||||||
Current portion of payroll related liabilities | 297,303 | 1,114,933 | ||||||
Total Current Liabilities | 2,067,034 | 2,539,234 | ||||||
Long-Term Portion of Payroll Related Liabilities | 780,683 | -- | ||||||
Total Liabilities | 2,847,717 | 2,539,234 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' Deficit | ||||||||
Preferred stock, no par value, 5,000,000 shares authorized , none issued and outstanding | -- | -- | ||||||
Common stock, $0.001 par value, 200,000,000 shares authorized, 30,000,000 share issued and outstanding | 30,000 | 30,000 | ||||||
Additional paid in capital | 748,924 | 748,924 | ||||||
Accumulated deficit | (2,002,168 | ) | (1,810,945 | ) | ||||
Total Stockholders' Deficit | (1,223,244 | ) | (1,032,021 | ) | ||||
Total Liabilities and Stockholders' Deficit | $ | 1,624,473 | $ | 1,507,213 |
The accompanying notes are an integral part of these financial statements.
2 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
STATEMENTS OF OPERATIONS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
2012 | 2011 | |||||||
Net Revenues | ||||||||
Contract staffing services | $ | 12,606,480 | $ | 8,709,654 | ||||
Cost of Services | 9,944,098 | 7,139,306 | ||||||
Gross Profit | 2,662,382 | 1,570,348 | ||||||
Selling, General and Administrative | ||||||||
Selling, general and administrative | 1,050,524 | 1,223,610 | ||||||
Payroll and related expenses | 1,274,565 | 1,470,629 | ||||||
Total Selling, General and Administrative | 2,325,089 | 2,694,239 | ||||||
Income (Loss) from Operations | 337,293 | (1,123,891 | ) | |||||
Other Expenses | ||||||||
Interest expense | (107,675 | ) | (33,801 | ) | ||||
Other expense | (340,737 | ) | (653,253 | ) | ||||
Loss on disposal of assets | (80,104 | ) | -- | |||||
Total Other Expenses | (528,516 | ) | (687,054 | ) | ||||
Net Loss | $ | (191,223 | ) | $ | (1,810,945 | ) |
The accompanying notes are an integral part of these financial statements.
3 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||||||||||||
STATEMENTS OF STOCKHOLDERS' DEFICIT | |||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Additional | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Totals | ||||||||||||||||||||||
Balance - December 31, 2010 | -- | $ | -- | -- | $ | -- | $ | -- | $ | 778,924 | $ | 778,924 | ||||||||||||||||
Recapitalization in connection with conversion of | ||||||||||||||||||||||||||||
Company status from an LLC to a C Corporation | -- | -- | 30,000,000 | 30,000 | 748,924 | (778,924 | ) | -- | ||||||||||||||||||||
Net loss | -- | -- | -- | -- | -- | (1,810,945 | ) | (1,810,945 | ) | |||||||||||||||||||
Balance - December 31, 2011 | -- | -- | 30,000,000 | 30,000 | 748,924 | (1,810,945 | ) | (1,032,021 | ) | |||||||||||||||||||
Net loss | -- | -- | -- | -- | -- | (191,223 | ) | (191,223 | ) | |||||||||||||||||||
Balance - December 31, 2012 | -- | $ | -- | 30,000,000 | $ | 30,000 | $ | 748,924 | $ | (2,002,168 | ) | $ | (1,223,244 | ) |
The accompanying notes are an integral part of these financial statements.
4 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
STATEMENTS OF CASH FLOWS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
2012 | 2011 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (191,223 | ) | $ | (1,810,945 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Provision for doubtful accounts | 12,583 | 227,647 | ||||||
Loss on disposal of assets | 80,104 | -- | ||||||
Depreciation expense | 17,386 | 5,614 | ||||||
Interest on line of credit | 79,843 | 8,388 | ||||||
Reserve for related party receivable | 166,431 | -- | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (340,994 | ) | 518,008 | |||||
Prepaid expenses and other current assets | 22,633 | (9,703 | ) | |||||
Security deposits | (477 | ) | (4,860 | ) | ||||
Accounts payable and accrued expenses | (190,597 | ) | 394,121 | |||||
Payroll and related liabilities | (36,947 | ) | 646,835 | |||||
Net Cash Used in Operating Activities | (381,258 | ) | (24,985 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Net change in related party advances | 145,567 | (311,998 | ) | |||||
Purchase of property and equipment | (62,696 | ) | (73,144 | ) | ||||
Net Cash Provided by (Used In) Investing Activities | 82,871 | (385,142 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Net proceeds from line of credit | 450,463 | 479,203 | ||||||
Advances from stockholder | 5,721 | -- | ||||||
Payments to stockholder | -- | (270,385 | ) | |||||
Net Cash Provided by Financing Activities | 456,184 | 208,818 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 157,797 | (201,219 | ) | |||||
Cash and Cash Equivalents - Beginning of Year | 38,597 | 239,816 | ||||||
Cash and Cash Equivalents - End of Year | $ | 196,394 | $ | 38,597 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest | $ | 100,331 | $ | 29,968 |
The accompanying notes are an integral part of these financial statements.
5 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 1 - Description of Business
EmployUS Ltd. f/k/a EmployUS, LLC (the “Company”), a Delaware Limited Liability Company, was formed on September 30, 2010 having a perpetual existence and is a full service turnkey staffing company. Initially established to respond to the relief and recovery of the major oil spill in the Gulf of Mexico, the Company has since expanded to provide services on most major construction, chemical, and maritime projects in the Southeast United States. From its single initial project three years ago, the Company has aggressively grown to ten offices in three states, with more than 150 customers and over 3,000 people employed in 2012. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. As a result of these changes, the new name of the Company is EmployUS Ltd. The total number of authorized shares of common stock is 200,000,000 having a par value of $0.001 per share. The two members of the Company, each owning 50%, received 15,000,000 shares of the Company’s common stock. Since EmployUS, LLC and EmployUS Ltd. had common ownership, the initial basis of the assets and liabilities recorded by EmployUS, Ltd were the historical carrying value of these assets and liabilities of EmployUS, LLC. The Company has also retroactively reflected the issuance of the shares of common stock to the members of EmployUS, LLC as if the transaction occurred on January 1, 2011.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long-lived assets. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
6 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 2 - Summary of Significant Accounting Policies (continued)
Revenue Recognition
Contract staffing service revenues are recognized when services are rendered. The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition”, which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence that an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) services have been rendered.
Cost of Contract Staffing Services
The cost of contract staffing services includes the wages, related payroll taxes, and employee benefits of the Company’s employees while they work on contract assignments for the period in which the related revenue is recognized.
Income Taxes
For the period prior to July 1, 2013, the Company was not subject to Federal and State income taxes, as it was a limited liability company. Each member was responsible for the tax liability, if any, related to its proportionate share of the Company’s taxable income. Accordingly, no provision for income taxes was reflected in the accompanying financial statements. The Company had concluded that it was a pass-through entity, and there were no uncertain tax positions that would require recognition in the financial statements.
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. The Company is subject to file tax returns in the states of Louisiana, Alabama and Mississippi. Generally, federal, state and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 31, 2012.
The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment as a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as selling, general and administrative expenses.
7 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 2 - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less when purchased as cash equivalents. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (FDIC) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions, and has not experienced any losses in such accounts.
Concentration of Credit Risk
For the years ended December 31, 2012 and 2011, Customer A accounted for 16.2% and 14.3% of the Company’s net revenue, respectively. Customer A’s accounts receivable was 25.7% and 20.0% of the Company’s total accounts receivable as of December 31, 2012 and 2011, respectively. Customer B accounted for approximately 18.6% of the Company’s net revenue for the year ended December 31, 2012, Customer C accounted for approximately 11.0% of the Company’s net revenue for the year ended December 31, 2011. Customer D accounted for 13.0% and 16.4% of the Company’s accounts receivable as of December 31, 2012 and 2011, respectively.
Accounts Receivable
The Company extends credit to its customers based on an evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered doubtful due to credit issues. This allowance reflects management’s estimate of the potential losses inherent in the accounts receivable balance, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for their production cycle, generally results in a nominal provision for doubtful accounts. Based on management’s review of accounts receivable, an allowance for doubtful accounts of $215,064 and $206,342 was considered necessary as of December 31, 2012 and 2011, respectively. The Company charges uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The Company does not accrue interest on past due receivables.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized.
8 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 2 - Summary of Significant Accounting Policies (continued)
Property and Equipment (continued)
The costs of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized in the results from operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Computer and office equipment | 5 years | |
Furniture and fixtures | 7 years | |
Leasehold improvements |
Shorter of improvements’ useful life or initial lease term |
Long-Lived Assets
On a periodic basis, management assesses whether there are any indicators that the value of the Company’s long-lived assets may be impaired. An asset’s value may be impaired only if management’s estimate of the aggregate future cash flows, on an undiscounted basis, to be generated by the asset are less than the carrying value of the asset.
If impairment has occurred, the loss is measured as the excess of the carrying amount of the asset over its fair value. The Company’s estimates of aggregate future cash flows expected to be generated by each long-lived asset are based on a number of assumptions that are subject to economic and market uncertainties. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved. No impairment was identified during the years ended December 31, 2012 and 2011.
Fair Value Measurement
The carrying amounts reported in the Company’s financial statements for accounts receivable, prepaid expenses, accounts payable, and accrued expenses approximate their fair value because of the immediate or short-term nature of these financial instruments. The carry amounts reported in the balance sheet for its line of credit approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place. The Company’s short term financial instruments include cash, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The carrying value of these instruments approximate fair value as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.
9 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 2 - Summary of Significant Accounting Policies (continued)
Advertising
The Company charges advertising costs to expense as incurred. Advertising costs were $4,930 and $66,702 for the years ended December 31, 2012 and 2011, respectively.
Recently Issued Authoritative Guidance
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance was effective for the Company beginning on January 1, 2012. The adoption of this standard did not materially affect the Company’s financial statements.
Other recent accounting pronouncements are not believed by management to have a material impact on the Company’s present or future financial statements.
Note 3 - Liquidity and Capital Resources
As of December 31, 2012, the Company had a stockholders’ deficit of $1,223,244. The Company had a net loss of $191,223 and $1,810,945 for the fiscal years ended December 31, 2012 and 2011, respectively. At December 31, 2012, the Company had a working capital deficit of $482,735 compared to $1,106,512 at December 31, 2011. The Company’s’ stockholders’ deficit is primarily due to, among other reasons, penalties and interest relating to unpaid payroll tax liabilities in 2011, a bad debt of approximately $206,000 on one receivable, which accounted for 13.0% of the total receivables, and an increase in staff payroll and rent, due to an expansion of operations. The Company’s liquidity and capital resources have decreased significantly as a result of the net operating losses the Company incurred during the years ended December 31 2012 and 2011. The Company is currently delinquent with past due payroll tax liabilities from 2010 and 2011 however, since late 2011 the Company has been remitting payroll taxes on a current basis. The Company is uncertain that it will be able to generate operating profits on a sustainable basis, or at all, as the Company continues to expand its infrastructure and further develop its marketing efforts.
10 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 3 - Liquidity and Capital Resources (continued)
Although the Company can provide no assurances, it believes its cash on hand, and anticipated cash flow from operations, will provide sufficient liquidity and capital resources to fund its business for at least the next twelve months, as a result of new and substantial contracts entered into in 2013. In the event the Company continues to experience liquidity and capital resources constraints because of continuing operating losses, greater than anticipated sales growth or otherwise, the Company may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to the Company, or at all, then the Company may need to curtail its operations and/or take additional measures to conserve and manage its liquidity and capital resources, any of which would have a material adverse effect on our business, results of operations and financial condition.
Note 4 - Due from Related Party
As of December 31, 2011, the Company had a balance due from a real estate entity owned by Brent Callais, the Company’s chairman and one of its stockholders. The funds owed by the real estate entity were used to finance its purchase of a corporate office building, in which the Company also leased part of the space for its corporate headquarters.
During November 2012, the real estate entity sold the building at an amount which was less than the corresponding mortgage, and, as such, the Company wrote off $166,431, the remaining balance of the advance. Such amount is included in other expense in the statement of operations for the year ended December 31, 2012.
Note 5 - Property and Equipment
Property and equipment consisted of the following as of December 31, 2012 and 2011:
2012 | 2011 | |||||||
Furniture and fixtures | $ | 24,484 | $ | 24,484 | ||||
Computer equipment and software | 7,154 | 7,154 | ||||||
Office equipment | 13,944 | 13,944 | ||||||
Leasehold improvements | -- | 28,368 | ||||||
45,582 | 73,950 | |||||||
Less: accumulated depreciation | (12,045 | ) | (5,619 | ) | ||||
Property and Equipment, Net | $ | 33,537 | $ | 68,331 |
Depreciation expense for the years ended December 31, 2012 and 2011 was $17,386 and $5,614, respectively.
11 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 6 - Line of Credit
In October 2011, the Company entered into an account purchase agreement with Crestmark Bank (“Crestmark”) to provide working capital financing. The account purchase agreement allows Crestmark to advance the Company funds on eligible accounts receivable at its sole discretion. The term of the facility is three years with an interest rate equal to the Prime Rate plus 2.75% per annum (6% floor), a maintenance fee of 0.6% per month of the average monthly loan balance, and a facility fee equal to 1% of the maximum loan amount. The line is secured by collateral consisting of all of the Company’s assets. The Company is currently compliant with all covenants. The balance due to Crestmark as of December 31, 2012 and 2011 was $1,017,897 and $487,591 respectively. Interest and fees paid to Crestmark for the years ended December 31, 2012 and 2011 was $246,597 and $29,988, respectively, which were satisfied by additional borrowings under the line of credit.
Note 7 - Due to Stockholder
There is a total due to a stockholder of the Company of $429,373 and $423,652 as of December 31, 2012 and 2011, respectively, arising from cash advances made to the Company for working capital purposes. These balances included accrued interest in the amount of 9% per annum, which aggregated $21,540 in 2012 and $2,276 in 2011.
Note 8 - Related-Party Transactions
During 2012 and 2011, the Company rented two office spaces from related-party companies, both of which are owned by Brent Callais, who is the CEO and a stockholder of the Company. The terms for the corporate office in New Orleans were originally $6,000 per month, from April 2011 through April 2018. In July 2011, the mortgage was refinanced and the rent was increased to $11,000 per month for the same term. The Company paid rent of $87,980 and $44,000 for the years ended December 31, 2012 and 2011, respectively, for the corporate office location. The other location in Galliano, LA was a month-to-month lease, with monthly payments of $1,200, beginning in November 2010, and ending in January 2012. The total rent paid for the location in Galliano, LA was $1,200 and $14,400 for the years ended December 31, 2012 and 2011, respectively.
The Company has recognized income for staffing services from two related parties during the year ended December 31, 2012, both of which are owned by Brent Callais, who is the CEO and a stockholder of the Company. The total income from one party was $10,649 and $5,374 from the other. There was no revenue recognized from these related parties in the year ended December 31, 2011. The Company recognized income from a different related party in 201l that equaled $7,500. There was no income recognized from this related party in 2012.
12 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 8 - Related-Party Transactions (continued)
Disposals of property and equipment consisted of improvements relating to the termination of the lease of the Company’s corporate office at 629 St. Charles, New Orleans, which had an original cost of $91,064 and $28,368 in fiscal 2012 and 2011, respectively. Upon sale of the building and termination of the lease, the Company recognized a loss on disposal of assets of $80,104 for the year ended December 31, 2012.
As of December 31, 2012 and 2011, the Company owed related parties $-0- and $6,030 in expense reimbursements, respectively, which are included in accounts payable and accrued expenses in the accompanying balance sheets.
Note 9 - Payroll Liabilities
The Company has past due payroll liabilities due to the Internal Revenue Service (“IRS”) and the Louisiana Department of Revenue (“LA Dept of Rev”) for unpaid payroll taxes, penalties, and interest for 2011 and 2010. The unpaid payroll taxes to the IRS for these periods totaled $891,386. The unpaid payroll taxes to the LA Dept of Rev for these periods totaled $102,635.
The Company has a payment plan in place with the IRS, whereby effective on April 25, 2012, it made an initial payment of $4,118, and subsequent monthly payments of $16,474 on the 28th of every month starting on May 28, 2012, until April 28, 2014, where a balloon payment of $200,000 is due. The IRS has issued a notice of Federal Tax Lien against the Company’s property until the amount is paid in full. The Company is currently negotiating a repayment plan with the LA Dept of Rev.
As of December 31, 2012 and 2011, the past due balance due to the IRS, including penalties, interest, and fees, totaled $978,370 and $1,015,317, respectively. The Company incurred $201,423 and $219,744 in penalties and interest from the IRS during the years ended December 31, 2012 and 2011, respectively.
As of December 31, 2012 and 2011, the past due balance due to the LA Dept of Rev, including penalties, interest, and fees, totaled $99,616 for both years. The Company incurred $-0- and $18,880 in penalties and interest from the LA Dept of Rev during the years ended December 31, 2012 and 2011, respectively.
13 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 10 - Preferred Stock
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. As a result of these changes, the Company has authorized 5,000,000 shares of preferred stock, no par value. As these are considered “black check” preferred shares, the terms of the preferred stock are to be determined by the board of directors of the Company in the near future.
Note 11 - Contingencies and Commitments
Litigation
The Company is a defendant in various claims relating to matters arising in the ordinary course of business that are typically covered by insurance. The amount of liability, if any, from these claims cannot be determined with certainty; however, management is of the opinion that the outcomes will not have a material adverse impact on the Company’s financial position or results of operations.
Leases
The Company leases space for all thirteen of its branch offices, which are located either in downtown or suburban business centers, and for its corporate headquarters, located in New Orleans, Louisiana. Branch offices are generally leased over periods from one to three years, and also on a month-to-month basis. For the years ended December 31, 2012 and 2011, rent expense was $158,309 and $122,908, respectively. As of December 31, 2012, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, totaled $34,621, as follows: 2013 - $25,371; 2014 - $9,250.
Note 12 - Subsequent Events
The Company has evaluated subsequent events through the date these financial statements were issued.
On May 13, 2013, the Company signed three secured convertible promissory notes totaling $60,000 that carry an interest rate of 10% per annum and mature on May 13, 2014. These notes may be converted into common stock at a price of 75% of the per share consideration paid by the investors in a qualified financing. The notes are secured by collateral consisting of all tangible and intangible assets of the Company.
14 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
NOTES TO FINANCIAL STATEMENTS | |||
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 |
Note 12 - Subsequent Events (continued)
Effective on July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation, and its state of registration from Delaware to Nevada. As a result of these changes, the new name of the Company is EmployUS Ltd.
On August 27, 2013, the Company entered into a non-binding letter of intent with Aviana Corp. (“Aviana”), whereas the Company will commence negotiation and preparation of a definitive share exchange agreement (the “Transaction”), whereby Aviana will exchange all of its shares of common stock for shares of the Company’s common stock, which upon the completion of the Transaction will constitute approximately 100% of the Company’s issued and outstanding common stock. Upon completion of the transaction, the Company will become a wholly-owned subsidiary of Aviana.
In September 2013, the Company began leasing new corporate office space in New Orleans, Louisiana. The term of the lease is 37 months and the total rent owed during the lease term is $73,458.
On January 22, 2014, the Company entered into the Exchange Agreement with The Staffing Group, Ltd. which agreement closed on February 14, 2014. Pursuant to the terms and conditions of the final, fully executed Exchange Agreement, and upon the consummation of the closing:
● | Each share of the Company’s common stock issued and outstanding immediately prior to the closing of the Exchange Agreement was converted into the right to receive an aggregate of 13,153,800 shares of The Staffing Group, Ltd.’s common stock. |
● | Three of The Staffing Group, Ltd.’s shareholders agreed to cancel the following shares: |
(i) | Joseph Albunio agreed to cancel 8,386,413 shares of his common stock. After the cancellation he owns 500,000 shares of The Staffing Group, Ltd. common stock. |
(ii) | Brian McLoone agreed to cancel 2,836,413 shares of his common stock. After the cancellation he owns 6,050,000 shares of The Staffing Group, Ltd. common stock. |
(iii) | Luidmila Yuziuk agreed to cancel 1,930,972 shares of her common stock. After the cancellation, she does not own any shares of The Staffing Group, Ltd. common stock. |
Following the Exchange Agreement, as of the date of this current report on Form 8-K, there are 35,100,011 shares of The Staffing Group, Ltd. common stock issued and outstanding, which include 13,153,800 shares held by the former stockholders of the Company and 6,050,000 by Brian McLoone, the Company’s Chairman and a stockholder of The Safety Group, LTD. but not a stockholder of the Company prior to the merger. As a result, The Staffing Group, Ltd.’s pre-merger stockholders, exclusive of Brian McLoone, hold approximately 45.28% of The Staffing Group, Ltd.’s issued and outstanding shares of common stock and the former stockholders of the Company including Brian McLoone hold approximately 54.72%.
Conditions for the closing of the Share Exchange Agreement include:
• | The Staffing Group will have received an audit report with respect to the Company’s two most recently completed fiscal years from an independent accounting firm that is registered with the Public Company Accounting Oversight Board; and | |
• | The Staffing Group and the Company will obtain stockholder approval. |
Upon closing of the Share Exchange Agreement, the Company will become a wholly owned subsidiary of the Staffing Group. The Staffing Group will cease its prior operations and engage in the business of the Company.
15 |
EmployUS Ltd. f/k/a EmployUS, LLC
CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
EmployUS Ltd. f/k/a EmployUS, LLC
CONTENTS
Financial Statements
Condensed Balance Sheets - as of September 30, 2013 (Unaudited) | |
and December 31, 2012 | 1-2 |
Condensed Statements of Income - For the nine months ended | |
September 30, 2013 and 2012 (Unaudited) | 3 |
Condensed Statements of Cash Flows - For the nine months ended | |
September 30, 2013 and 2012 (Unaudited) | 4-5 |
Notes to Condensed Financial Statements | 6-15 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
CONDENSED BALANCE SHEETS | |||
AS OF SEPTEMBER 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012 |
September 30, | December 31, | |||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 23,047 | $ | 196,394 | ||||
Accounts receivable, net | 1,856,635 | 1,378,036 | ||||||
Deferred financing costs, net | 15,616 | -- | ||||||
Due from related parties | 58,315 | -- | ||||||
Prepaid expenses and other current assets | 13,897 | 9,869 | ||||||
Total Current Assets | 1,967,510 | 1,584,299 | ||||||
Property and Equipment, Net | 27,764 | 33,537 | ||||||
Security Deposits | 11,530 | 6,637 | ||||||
Total Assets | $ | 2,006,804 | $ | 1,624,473 | ||||
Liabilities and Members' Deficiency | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 78,173 | $ | 322,461 | ||||
Line of credit | 1,268,763 | 1,017,897 | ||||||
Convertible notes payable | 60,000 | -- | ||||||
Due to stockholder | 447,629 | 429,373 | ||||||
Income taxes payable | 54,564 | -- | ||||||
Current portion of payroll related liabilities | 863,947 | 297,303 | ||||||
Total Current Liabilities | 2,773,076 | 2,067,034 | ||||||
Long-Term Portion of Payroll Related Liabilities | -- | 780,683 | ||||||
Total Liabilities | $ | 2,773,076 | $ | 2,847,717 |
The accompanying notes are an integral part of these financial statements.
1 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
CONDENSED BALANCE SHEETS | |||
AS OF SEPTEMBER 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012 |
September 30, | December 31, | |||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
Commitments and Contingencies | ||||||||
Stockholders' Deficiency | ||||||||
Preferred stock, no par value, 5,000,000 shares authorized, | ||||||||
none issued and outstanding | $ | -- | $ | -- | ||||
Common stock, $0.001 par value, 200,000,000 shares | ||||||||
authorized, 30,000,000 issued and outstanding | 30,000 | 30,000 | ||||||
Additional paid-in capital | 748,924 | 748,924 | ||||||
Accumulated deficit | (1,545,196 | ) | (2,002,168 | ) | ||||
Total Stockholders' Deficit | (766,272 | ) | (1,223,244 | ) | ||||
Total Liabilities and Stockholders' Deficiency | $ | 2,006,804 | $ | 1,624,473 |
The accompanying notes are an integral part of these financial statements.
2 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
CONDENSED STATEMENTS OF INCOME | |||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 | |||
(UNAUDITED) |
2013 | 2012 | |||||||
Net Revenues | ||||||||
Contract staffing services | $ | 10,276,195 | $ | 9,442,461 | ||||
Cost of Services | (8,212,125 | ) | (7,343,553 | ) | ||||
Gross Profit | 2,064,070 | 2,098,908 | ||||||
Selling, General and Administrative | ||||||||
Selling, general and administrative | 652,722 | 838,313 | ||||||
Payroll and related expenses | 838,286 | 911,438 | ||||||
Total Selling, General and Administrative | 1,491,008 | 1,749,751 | ||||||
Income from Operations | 573,062 | 349,157 | ||||||
Other Income (Expense) | ||||||||
Interest expense | (69,270 | ) | (66,978 | ) | ||||
Other income (expense | 7,744 | (96,985 | ) | |||||
Total Other Income (Expense) | (61,526 | ) | (163,963 | ) | ||||
Income before Provision for Income Taxes | 511,536 | 185,194 | ||||||
Provision for Income Taxes | (54,564 | ) | -- | |||||
Net Income | $ | 456,972 | $ | 185,194 |
The accompanying notes are an integral part of these financial statements.
3 |
EmployUS Ltd. f/k/a EmployUS, LLC | ||||||||
CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 | ||||||||
(UNAUDITED) | ||||||||
2013 | 2012 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | 456,972 | $ | 185,194 | ||||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Provision for doubtful accounts | 132 | -- | ||||||
Depreciation expense | 5,773 | 13,812 | ||||||
Interest on line of credit | 184,557 | 178,873 | ||||||
Interest on stockholder loans | 28,232 | 16,125 | ||||||
Amortization of deferred financing costs | 9,384 | -- | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (478,731 | ) | (763,232 | ) | ||||
Prepaid expenses and other current assets | (4,028 | ) | 24,028 | |||||
Security deposits | (4,893 | ) | 48 | |||||
Accounts payable and accrued expenses | (189,724 | ) | (262,434 | ) | ||||
Payroll and related liabilities | (214,039 | ) | 52,834 | |||||
Net Cash Used in Operating Activities | (206,365 | ) | (554,752 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Net change in related party advances | (58,315 | ) | (14,159 | ) | ||||
Purchase of property and equipment | -- | (62,695 | ) | |||||
Net Cash Provided by (Used In) Investing Activities | (58,315 | ) | (76,854 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Net proceeds from line of credit | 66,309 | 618,131 | ||||||
Proceeds from convertible notes payable | 60,000 | -- | ||||||
Deferred financing costs | (25,000 | ) | -- | |||||
Payments to stockholder | (9,976 | ) | -- | |||||
Advances from stockholder | -- | 234 | ||||||
Net Cash Provided by Financing Activities | $ | 91,333 | $ | 618,365 |
The accompanying notes are an integral part of these financial statements.
4 |
EmployUS Ltd. f/k/a EmployUS, LLC | |||
CONDENSED STATEMENTS OF CASH FLOWS | |||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 | |||
(UNAUDITED) |
2013 | 2012 | |||||||
Net Decrease in Cash and Cash Equivalents | $ | (173,347 | ) | $ | (13,241 | ) | ||
Cash and Cash Equivalents - Beginning of Year | 196,394 | 38,597 | ||||||
Cash and Cash Equivalents - End of Year | $ | 23,047 | $ | 25,356 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest | $ | 69,270 | $ | 66,978 |
The accompanying notes are an integral part of these financial statements.
5 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 1 - Description of Business
EmployUS, LLC (the “Company”), a Delaware Limited Liability Company, was formed on September 30, 2010 having a perpetual existence and is a full service turnkey staffing company. Initially established to respond to the relief and recovery of the major oil spill in the Gulf of Mexico, the Company has since expanded to provide services on most major construction, chemical, and maritime projects in the Southeast United States. From its single initial project three years ago, the Company has aggressively grown to ten offices in three states with more than 150 customers and over 3,000 people employed in 2012. The condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. As a result of these changes, the new name of the Company is EmployUS Ltd. The total number of authorized shares of common stock is 200,000,000 having a par value of $0.001 per share. The two members of the Company, each owning 50%, received 15,000,000 shares of the Company’s common stock. Since EmployUS, LLC and EmployUS Ltd. had common ownership, the initial basis of the assets and liabilities recorded by EmployUS, Ltd were the historical carrying value of these assets and liabilities of EmployUS, LLC. The Company has also retroactively reflected the issuance of the shares of common stock to the members of EmployUS, LLC as if the transaction occurred on January 1, 2011.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. It is recommended that these condensed financial statements be read in conjunction with the financial statements and related disclosures for the years ended December 31, 2012 and 2011 included elsewhere in this filing on Form 8-K. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that can be expected for the year ended December 31, 2013.
6 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 2 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long lived assets. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
Revenue Recognition
Contract staffing service revenues are recognized when services are rendered. The Company recognizes revenue in accordance Accounting Standards Codification (“ASC”) 605 “Revenue Recognition”, which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence that an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonable assured; and (iv) services have been rendered.
Cost of Contract Staffing Services
The cost of contract staffing services includes the wages, related payroll taxes, and employee benefits of the Company’s employees while they work on contract assignments for the period in which the related revenue is recognized.
Income Taxes
For the period prior to July 1, 2013, the Company was not subject to Federal and State income taxes, as it was a limited liability company. Each member was responsible for the tax liability, if any, related to its proportionate share of the Company’s taxable income. Accordingly, no provision for income taxes was reflected in the accompanying condensed financial statements through June 30, 2013. The Company had concluded that it was a pass-through entity through June 30, 2013 and a taxable entity thereafter. There were no uncertain tax positions that would require recognition in the condensed financial statements through September 30, 2013.
7 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 2 - Summary of Significant Accounting Policies (continued)
Income Taxes (continued)
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. The Company is subject to file tax returns in the states of Louisiana, Alabama and Mississippi. Generally, federal, state and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 31, 2012.
The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment as a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors.
The provision for income taxes of $54,564 for the period from July 1, 2013 (date of change in corporate status to a “C” Corporation) through September 30, 2013, represented estimated federal and state income taxes. The effective tax rate for the nine months ended December 31, 2013 was 32% and diverged from the combined federal and state statutory rates strictly due to differences in the tax rates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less when purchased as cash and cash equivalents. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (FDIC) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions, and has not experienced any losses in such accounts.
Concentration of Credit Risk
For the nine months ended September 30, 2013, Customer A accounted for 24.1% of the Company’s net revenue. Customer A’s accounts receivable was 33.6% of the Company’s total accounts receivable as of September 30, 2013. Customer B and C accounted for approximately 16.7% and 21.6% of the Company’s net revenue for the nine months ended September 30, 2012, respectively. Customer B accounted for 25.7% of the Company’s accounts receivable as of December 31, 2012.
8 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 2 - Summary of Significant Accounting Policies (continued)
Accounts Receivable
The Company extends credit to its customers based on an evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. This allowance reflects management’s estimate of the potential losses inherent in the accounts receivable balance, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for their production cycle, generally results in a nominal provision for doubtful accounts. Based on management’s review of accounts receivable, an allowance for doubtful accounts of $215,196 and $215,064 was considered necessary as of September 30, 2013 and December 31, 2012, respectively. The Company charges uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The Company does not accrue interest on past due receivables.
Fair Value Measurement
The carrying amounts reported in the Company’s financial statements for accounts receivable, prepaid expenses, accounts payable, and accrued expenses approximate their fair value because of the immediate or short-term nature of these financial instruments. The carry amounts reported in the balance sheet for its line of credit approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place. The Company’s short term financial instruments include cash, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The carrying value of these instruments approximate fair value as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.
Recently Issued Authoritative Guidance
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under this new guidance, companies must present this unrecognized tax benefit in the financial statements as a reduction to deferred tax assets created by net operating losses or other tax credits from prior periods that occur in the same taxing jurisdiction. If the unrecognized tax benefit exceeds such credits it should be presented in the financial statements as a liability. This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013.
9 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 2 - Summary of Significant Accounting Policies (continued)
Fair Value Measurement (continued)
The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Management does not believe there are any other recently issued authoritative guidance that would have a material impact to the condensed financial statements.
Note 3 - Liquidity and Capital Resources
As of September 30, 2013, the Company had a stockholders’ deficit of $766,272. The Company had net income of $456,972 and $185,194 for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013, the Company had a working capital deficit of $805,566 compared to $482,735 at December 31, 2012. The Company’s stockholders’ deficit is primarily due to, among other reasons, penalties and interest relating to unpaid payroll tax liabilities in 2011, a bad debt of approximately $206,000 in 2012 on one receivable, and an increase in staff payroll and rent, due to an expansion of operations. The Company is currently delinquent with past due payroll tax liabilities from 2010 and 2011 however, since late 2011 the Company has been remitting payroll taxes in accordance with the plan on a current basis. The Company is uncertain you that it will be able to continue to generate operating profits on a sustainable basis, as the Company continues to expand its infrastructure and further develop its marketing efforts.
Although the Company can provide no assurances, it believes its cash on hand, and anticipated cash flow from operations, will provide sufficient liquidity and capital resources to fund its business for at least the next twelve months, as a result of new and substantial contracts entered into in 2013. In the event the Company continues to experience liquidity and capital resources constraints because of increased operations, less than anticipated sales growth or otherwise, the Company may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to the Company, or at all, then the Company may need to curtail its operations and/or take additional measures to conserve and manage its liquidity and capital resources, any of which would have a material adverse effect on our business, results of operations and financial condition.
10 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 4 - Deferred Financing Costs
In May 2013, in connection with the issuance of the convertible promissory notes, the Company incurred legal fees of $25,000 directly related to this financing. These costs are being amortized over the term of the convertible promissory notes, which began in May 2013, and come due in May 2014 on the straight-line method, which approximates the interest rate method. As of September 30, 2013, the Company’s accumulated amortized financing costs were $9,384.
Note 5 - Due from Related Parties
During the nine months ended September 30, 2013, the Company had advanced funds to two separate related parties owned by stockholders of the Company on a non-interest basis, for $50,000 and $8,557, respectively. The $50,000 advance was repaid in October 2013, and the $8,557 balance will be repaid within a year.
Note 6 - Line of Credit
In October 2011, the Company entered into an account purchase agreement with Crestmark Bank (“Crestmark”) to provide working capital financing. The account purchase agreement allows Crestmark to
advance the Company funds on eligible accounts receivable at its sole discretion. The term of the facility is three years with an interest rate equal to the Prime Rate plus 2.75% per annum (6% floor), a maintenance fee of 0.6% per month of the average monthly loan balance, and a facility fee equal to 1% of the maximum loan amount. The line is secured by collateral consisting all of the Company’s assets. The Company is currently compliant with all covenants. The balance due to Crestmark as of September 30, 2013 and December 31, 2012 was $1,268,763 and $1,017,897, respectively. Interest and fees paid to Crestmark for the nine months ended September 30, 2013 and 2012, were $184,557 and $178,873, respectively, which were satisfied by additional borrowings under the line of credit.
Note 7 - Convertible Notes Payable
On May 13, 2013, the Company
issued three separate $20,000 secured convertible promissory notes. The maturity date of the convertible promissory notes is May
13, 2014,
11 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 7 - Convertible Notes Payable (continued)
and they bear interest at a rate of ten percent (10%) per annum. The notes are secured by collateral consisting of all tangible and intangible assets of the Company. Once the Company changed its corporate status from a limited liability company to a “C” corporation on July 1, 2013, the secured convertible promissory notes and any accrued interest became convertible at the option of the holder into shares of the Company’s common stock, with the conversion rate being 75% of the consideration per share paid by the investors in the next Qualified Financing arrangement. The principal portion of the convertible promissory notes cannot be prepaid prior to the maturity date, though any accrued interest can be paid in cash or by conversion into shares of the Company’s common stock.
In accordance with ASC 470, “Accounting for Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” the convertible promissory notes are considered to have a beneficial conversion feature as the effective conversion price will be less than the lowest paid price by others investors in a future qualified financing, which is defined as a private placement offering of the Company’s securities to be completed after the consummation of any transaction affecting the structure of the Company, and before the maturity date of May 13, 2014.
In addition, in accordance with ASC 815 the conversion feature is considered to be a derivative instrument as the conversion price can be lowered if the Company issues securities at a lower price in a future qualified financing, as defined. As the qualified offering has yet to occur, an assessment of the fair value of the contingent conversion feature cannot be measured as of date of issuance of the secured convertible notes.
For the nine months ended September 30, 2013, the Company accrued interest on the convertible promissory notes amount to $2,333.
Note 8 - Due to Stockholder
There is a total due to a stockholder of the Company of $447,629 and $429,373 as of September 30, 2013 and December 31, 2012, respectively, arising from cash advances made to the Company for working capital purposes. These balances included accrued interest in the amount of 9% per annum, which equals $28,232 for the nine months ended September 30, 2013 and $16,125 for the nine months ended September 30, 2012.
12 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 9 - Related Party Transactions
In 2012, the Company rented two office spaces from related party companies, both of which are owned by Brent Callais, who is the CEO and a stockholder of the Company. The terms for the corporate office in New Orleans were originally $6,000 per month, from April 2011 through April 2018. In July 2011, the mortgage was refinanced and the rent was increased to $11,000 per month, for the same term. The Company paid rent of $78,540 for the nine months ended September 30, 2012 for the corporate office location. The lease was terminated in November 2012 upon sale of the building. The other location in Galliano, LA, was a month to month lease, with monthly payments of $1,200, beginning in November, 2010, and ending in January 2012. The total rent paid for the location in Galliano, LA, was $1,200 for the nine months ended September 30, 2012. The Company did not rent these office locations in 2013.
The Company has recognized income for staffing services from two related parties during the nine months ended September 30, 2013, both of which are owned by Brent Callais, who is the CEO and a stockholder of the Company. The total income from one party was $17,186 and $4,204 from the other during the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the total income from one party was $3,965 and $3,204 from the other.
Note 10 - Payroll Liabilities
The Company has past due payroll liabilities due to the Internal Revenue Service (“IRS”) for unpaid payroll taxes, penalties and interest for 2011 and 2010. The unpaid payroll taxes to the IRS for these periods totaled $891,386.
The Company has a payment plan in place with the IRS whereby effective on April 25, 2012, it made an initial payment of $4,118, and subsequent monthly payments of $16,474 on the 28th of every month starting on May 28, 2012, until April 28, 2014, where a balloon payment of $200,000 is due. The IRS has issued a notice of Federal Tax Lien against the Company’s property until the amount is paid in full.
As of September 30, 2013 and December 31, 2012, the past due balance due to the IRS, including penalties, interest and fees, totaled $809,057 and $978,370, respectively. The Company incurred $0 and $68,486 in penalties and interest from the IRS during the nine months ended September 30, 2013 and 2012, respectively.
As of September 30, 2013 and December 31, 2012, the past due balance due to the LA Dept of Rev, including penalties, interest, and fees, totaled $0 and $99,616, respectively.
13 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 11 - Preferred Stock
Effective July 1, 2013, the Company changed its corporate status from a limited liability company to a “C” corporation and its state of registration from Delaware to Nevada. As a result of these changes, the Company has authorized 5,000,000 shares of preferred stock, no par value. As these are considered “blank check” preferred shares, the terms of the preferred stock are to be determined by the board of directors of the Company in the near future.
Note 12 - Contingencies and Commitments
Litigation
The Company is a defendant in various claims relating to matters arising in the ordinary course of business that are typically covered by insurance. The amount of liability if any from these claims cannot be determined with certainty; however, management is of the opinion that the outcomes will not have a material adverse impact on the Company’s financial position or results of operations.
Leases
The Company leases space for thirteen of its branch offices, which are located either in downtown or suburban business centers, and for its corporate headquarters, located in New Orleans, Louisiana. Branch offices are generally leased over periods from one to three years, and also on a month to month basis.
In September 2013, the Company began leasing new corporate office space in New Orleans, Louisiana. The term of the lease is 37 months and the total rent owed during the lease term is $73,458.
For the nine months ended September 30, 2013 and 2012, rent expense was $54,711 and $132,314, respectively. As of September 30, 2013, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, totaled $147,690 as follows: October 1, 2013 to Dec 31, 2013 - $22,678, December 31, 2014 - $66,620, December 31, 2015 - $39,471, 2016 – $18,921.
14 |
EmployUS Ltd. f/k/a EmployUS, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
Note 13 - Subsequent Events
The Company has evaluated subsequent events through the date these financial statements were issued.
On January 22, 2014, the Company entered into the Exchange Agreement with The Staffing Group Ltd. which agreement closed on February 14, 2014. Pursuant to the terms and conditions of the final, fully executed Exchange Agreement, and upon the consummation of the closing:
● | Each share of the Company’s common stock issued and outstanding immediately prior to the closing of the Exchange Agreement was converted into the right to receive an aggregate of 13,153,800 shares of The Staffing Group Ltd.’s common stock. |
● | Three of The Staffing Group Ltd’s shareholders agreed to cancel the following shares: |
(i) | Joseph Albunio agreed to cancel 8,386,413 shares of his common stock. After the cancellation he owns 500,000 shares of The Staffing Group common stock. |
(ii) | Brian McLoone agreed to cancel 2,836,413 shares of his common stock. After the cancellation he owns 6,050,000 shares of The Staffing Group common stock. |
(iii) | Luidmila Yuziuk agreed to cancel 1,930,972 shares of her common stock. After the cancellation, she does not own any shares of The Staffing Group common stock. |
Following the Exchange Agreement, as of the date of this current report on Form 8-K, there are 35,100,011 shares of The Staffing Group common stock issued and outstanding, which include 13,153,800 shares held by the Company’s former stockholders and 6,050,000 by Brian McLoone, The Company’s Chairman and a stockholder of The Safety Group, LTD. but not a stockholder of the Company prior to the merger. As a result, The Staffing Group Ltd.’s pre-merger stockholders, exclusive of Brian McLoone, hold approximately 45.28% of The Staffing Group Ltd.’s issued and outstanding shares of common stock and the former stockholders of the Company including Brian McLoone hold approximately 54.72%.
Conditions for the closing of the Share Exchange Agreement include:
· | The Staffing Group will have received an audit report with respect to the Company’s two most recently completed fiscal years from an independent accounting firm that is registered with the Public Company Accounting Oversight Board; and |
· | The Staffing Group and the Company will obtain stockholder approval |
Upon closing of the Share Exchange Agreement, the Company will become a wholly owned subsidiary of the Staffing Group. The Staffing Group will cease its prior operations and engage in the business of the Company.
15 |
EmployUS Ltd.
Pro Forma Condensed Combined Financial Statements
(Unaudited)
Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet as of September 30, 2013 (unaudited) | 4 |
Pro Forma Condensed Combined Statement of Income (unaudited) | |
for the nine months ended September 30, 2013 | 5 |
Pro Forma Condensed Combined Statement of Income (unaudited) | |
for the period ended December 31, 2012 | 6 |
Notes to Pro Forma Condensed Combined Financial Statements (unaudited) | 7-8 |
2 |
Unaudited Pro Forma Condensed Combined Financial Information
On January 22, 2014, The Staffing Group Ltd. (“TSGL”) entered into a Share Exchange Agreement (the “Exchange Agreement”) with EmployUS Ltd., a Nevada corporation ( the “Company”), all of the stockholders of the Company (the “EmployUS Shareholders”), and TSGL’s controlling stockholders, upon which the agreement closed on February 14, 2014. Pursuant to the terms and conditions of the final, fully executed Exchange Agreement, and upon the consummation of the closing:
● | Each share of the Company’s common stock issued and outstanding immediately prior to the closing of the Exchange Agreement was converted into the right to receive an aggregate of 13,153,800 shares of TSGL’s common stock. |
● | Three of TSGL’s shareholders agreed to cancel the following shares: |
(i) | Joseph Albunio agreed to cancel 8,386,413 shares of his common stock. After the cancellation he owns 500,000 shares of our common stock. |
(ii) | Brian McLoone agreed to cancel 2,836,413 shares of his common stock. After the cancellation he owns 6,050,000 shares of our common stock. |
(iii) | Luidmila Yuziuk agreed to cancel 1,930,972 shares of her common stock. After the cancellation, she does not own any shares of our common stock. |
The purposes of the transactions described above were to complete a reverse merger with the result being that EmployUS became a wholly-owned subsidiary of The Staffing Group, Ltd. The Staffing Group, Ltd’s business operations will now focus on the business of EmployUS.
Following the Exchange Agreement, as of the date of this current report on Form 8-K, there are 35,100,011 shares of our common stock issued and outstanding, which include 13,153,800 shares held by the former stockholders of EmployUS and 6,050,000 by Brian McLoone, EmployUS’s Chairman and a stockholder of The Safety Group , LTD. but not a stockholder of EmployUS prior to the merger . As a result, our pre-merger stockholders, exclusive of Brian McLoone, hold approximately 45.28% of our issued and outstanding shares of common stock and the former stockholders of EmployUS including Brian McLoone hold approximately 54.72%
Based on the fact that after the exchange: (i) the former stockholders of TSGL control the Company, (ii) the officers and directors of TSGL have become the Company’s officers and directors, (iii) the Company’s only business is the business that had been previously conducted by TSGL, for accounting purposes, TSGL is treated as the acquirer. The acquisition will be accounted for as a “reverse merger” and recapitalization since the sellers of TSGL will control the combined company immediately following the completion of the Share Exchange. Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements in this report filed on Form 8-K are those of TSGL and are recorded at the historical cost basis of TSGL. The Company’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of TSGL after consummation of the Merger.
The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of EmployUS Ltd. (the “Company”) reverse acquisition of The Staffing Group Ltd. (“TSGL”). The unaudited pro forma condensed combined information has been prepared treating the transaction as a reverse merger whereby the Company is the acquirer for accounting purposes.
The following unaudited pro forma condensed combined balance sheet assumes the related transaction described in the notes hereto had occurred on the date for the period presented. The unaudited pro forma condensed combined balance sheet as of September 30, 2013 is based on the unaudited historical balance sheet of the Company and the audited balance sheet of TSGL as of September 30, 2013.
3 |
The following unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2013 assumes the related transactions described in the notes hereto had occurred on January 1, 2013. The statement is based on the unaudited statements of income of the Company and derived from the audited statements of operations of TSGL for the nine months ended September 30, 2013.
The following unaudited pro forma condensed combined statement of income for the year ended December 31, 2012 assumes the related transaction described in the notes hereto had occurred on January 1, 2012. The statement is based on the audited statements of income of the Company for the year ended December 31, 2012, and the unaudited statements of operations of TSGL for the period June 11, 2012 (inception) through December 31, 2012. As TSGL began its operations on June 11, 2012, their statement of income for the year ended December 31, 2012 was a short year from June 11, 2012 through December 31, 2012.
The unaudited pro forma condensed combined statements of income give effect to the merger as if it occurred at the beginning of each period presented. These unaudited pro forma condensed combined financial statements are prepared by management for informational purposes and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future combined results or operations of financial position of the Company.
4 |
EmployUS Ltd.
Pro Forma Condensed Combined Balance Sheet
As of September 30, 2013
(Unaudited)
(Expressed in US Dollars)
The Staffing | ||||||||||||||||||
EmployUS, Ltd. | Group, Ltd. | Adjustments | Notes | Proforma | ||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents | $ | 23,047 | $ | - | $ | 150,000 | b | $ | 173,047 | |||||||||
Accounts receivable, net | 1,856,635 | - | - | 1,856,635 | ||||||||||||||
Deferred financing costs, net | 15,616 | - | - | 15,616 | ||||||||||||||
Due from related parties | 58,315 | - | - | 58,315 | ||||||||||||||
Prepaid expenses and other current assets | 13,897 | 2,000 | - | 15,897 | ||||||||||||||
Total Current Assets | 1,967,510 | 2,000 | 150,000 | 2,119,510 | ||||||||||||||
Property and equipment, net | 27,764 | - | - | 27,764 | ||||||||||||||
Security deposits | 11,530 | - | - | 11,530 | ||||||||||||||
TOTAL ASSETS | $ | 2,006,804 | $ | 2,000 | $ | 150,000 | $ | 2,158,804 | ||||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Accounts payable and accrued expenses | $ | 78,173 | $ | 20 | $ | - | $ | 78,193 | ||||||||||
Line of credit | 1,268,763 | - | - | 1,268,763 | ||||||||||||||
Convertible notes payable | 60,000 | - | - | 60,000 | ||||||||||||||
Due to stockholder | 447,629 | 8,474 | - | 456,103 | ||||||||||||||
Income taxes payable | 54,564 | - | - | 54,564 | ||||||||||||||
Current portion of payroll related liabilities | 863,947 | - | - | 863,947 | ||||||||||||||
Total Current Liabilities | 2,773,076 | 8,494 | - | 2,781,570 | ||||||||||||||
TOTAL LIABILITIES | 2,773,076 | 8,494 | - | 2,781,570 | ||||||||||||||
STOCKHOLDERS' DEFICIT | ||||||||||||||||||
Preferred stock, no par value, 5,000,000 shares authorized , none issued and outstanding | - | - | - | - | ||||||||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized, 30,000,000 shares issued and outstanding at September 30, 2013 | 30,000 | - | (30,000 | ) | a | - | ||||||||||||
Common stock, $0.001 par value, 75,000,000 shares authorized, 35,100,011 shares issued and outstanding at September 30, 2013 | - | 34,000 | 1,100 | a, b, c | 35,100 | |||||||||||||
Additional paid in capital | 748,924 | 489,600 | (351,194 | ) | a, b, c | 887,330 | ||||||||||||
Accumulated deficit | (1,545,196 | ) | (530,094 | ) | 530,094 | a, c | (1,545,196 | ) | ||||||||||
TOTAL STOCKHOLDERS' DEFICIT | (766,272 | ) | (6,494 | ) | 150,000 | (622,766 | ) | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 2,006,804 | $ | 2,000 | $ | 150,000 | $ | 2,158,804 |
(a) - Reverse Merger Adjustment - 13,153,800 shares of TSGL common stock issued in reverse merger, while all outstanding shares of EUL are acquired by TSGL. Three shareholders cancelled a combined 13,153,798 shares of TSGL's common stock. The accumulated deficit of The Staffing Group is adjusted as part of the recapitalization.
Additional paid-in capital | 500,094 | |||||||
Common stock (EUL shares eliminated) | 30,000 | |||||||
Common stock (TSGL shares cancelled) | 13,153 | |||||||
Deficit accumulated during the development stage (TSGL) | 530,094 | |||||||
Common stock (TSGL shares issued) | 13,153 | |||||||
(b) - Bridge Financing - 1,000,000 shares of common stock were issued to Clifton R. McDonnell Roth IRA in accordance with a bridge financing on January 8, 2014 for a total of $150,000 cash at a share price of $0.15 in contemplation of the reverse merger.
Cash | 150,000 | |||||||
Common stock | 1,000 | |||||||
Additional paid-in capital | 149,000 | |||||||
(c) - Consulting Services Adjustment - 100,000 shares of common stock was issued in accordance with the January 8, 2014 Board resolution to Almoroli Advisors for consulting services in connection with the equity financing, which is recorded as a direct charge to the equity issuance.
Additional paid-in capital | 100 | |||||||
Common stock | 100 | |||||||
(d) - Weighted Average Shares - the unaudited pro forma combined statements of income assume the Share Exchange and merger occurred as of the beginning of the nine month period ended September 30, 2013 and at the beginning of the year ended December 31, 2012. Therefore, the weighted average number of shares outstanding for the nine month period ended September 30, 2013 , and for the year ended December 31, 2012 equals the total number of shares outstanding upon completion of the Share Exchange and merger as follows:
Pre-Share Exchange Transaction TSGL Common Shares Outstanding: | 34,000,009 | |||
TSGL Common Shares Issued for all outstanding Shares of the Company: | 13,153,800 | |||
TSGL Common Shares Cancelled: | (13,153,798 | ) | ||
TSGL Common Shares Issued to investor at $0.15 per share pursuant to bridge financing: | 1,000,000 | |||
TSGL Common Shares Issued to consultant at par value in connection with financing: | 100,000 | |||
Total TSGL Common Shares Outstanding Post-Share Exchange: | 35,100,011 |
5 |
EmployUS Ltd
Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2013
(Unaudited)
(Expressed in US Dollars)
The Staffing | ||||||||||||||||||
EmployUS, Ltd. | Group, Ltd. | |||||||||||||||||
For the nine | For the nine | |||||||||||||||||
months ended | months ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2013 | 2013 | Adjustments | Notes | Proforma | ||||||||||||||
NET REVENUES: | ||||||||||||||||||
Service revenue | $ | 10,276,195 | $ | - | $ | - | $ | 10,276,195 | ||||||||||
Cost of contract services | (8,212,125 | ) | - | - | (8,212,125 | ) | ||||||||||||
GROSS PROFIT | 2,064,070 | - | - | 2,064,070 | ||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE: | ||||||||||||||||||
Selling, general and administrative | 652,722 | 525,747 | - | 1,178,469 | ||||||||||||||
Payroll and related expenses | 838,286 | - | - | 838,286 | ||||||||||||||
TOTAL SELLING, GENERAL AND ADMINISTRATIVE | 1,491,008 | 525,747 | - | 2,016,755 | ||||||||||||||
INCOME (LOSS) FROM OPERATIONS | 573,062 | (525,747 | ) | - | 47,315 | |||||||||||||
OTHER (EXPENSE) INCOME: | ||||||||||||||||||
Interest expense | (69,270 | ) | - | - | (69,270 | ) | ||||||||||||
Other (expense) income | 7,744 | - | - | 7,744 | ||||||||||||||
TOTAL OTHER (EXPENSE) INCOME | (61,526 | ) | - | - | (61,526 | ) | ||||||||||||
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 511,536 | (525,747 | ) | - | (14,211 | ) | ||||||||||||
PROVISION FOR INCOME TAXES | (54,564 | ) | - | - | (54,564 | ) | ||||||||||||
NET INCOME (LOSS) | $ | 456,972 | $ | (525,747 | ) | $ | - | $ | (68,775 | ) | ||||||||
INCOME (LOSS) PER SHARE: | ||||||||||||||||||
Basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | ||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||
Basic and diluted | 34,000,011 | d | 35,100,011 |
6 |
EmployUS Ltd
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2012
(Unaudited)
(Expressed in US Dollars)
The Staffing | ||||||||||||||||||
Group, Ltd. | ||||||||||||||||||
EmployUS, Ltd. | For the period | |||||||||||||||||
For the | June 11, 2012 | |||||||||||||||||
year ended | (inception) to | |||||||||||||||||
December 31, | December 31, | |||||||||||||||||
2012 | 2012 | Adjustments | Notes | Proforma | ||||||||||||||
NET REVENUES: | ||||||||||||||||||
Service revenue | $ | 12,606,480 | $ | 2,000 | $ | - | $ | 12,608,480 | ||||||||||
Cost of contract services | (9,944,098 | ) | - | - | (9,944,098 | ) | ||||||||||||
GROSS PROFIT | 2,662,382 | 2,000 | - | 2,664,382 | ||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE: | ||||||||||||||||||
Selling, general and administrative | 1,050,524 | 6,347 | - | 1,056,871 | ||||||||||||||
Payroll and related expenses | 1,274,565 | - | - | 1,274,565 | ||||||||||||||
TOTAL SELLING, GENERAL AND ADMINISTRATIVE | 2,325,089 | 6,347 | - | 2,331,436 | ||||||||||||||
INCOME (LOSS) FROM OPERATIONS | 337,293 | (4,347 | ) | - | 332,946 | |||||||||||||
OTHER (EXPENSE) INCOME: | ||||||||||||||||||
Interest expense | (107,675 | ) | - | - | (107,675 | ) | ||||||||||||
Other (expense) income | (340,737 | ) | - | - | (340,737 | ) | ||||||||||||
Loss on disposal of assets | (80,104 | ) | - | - | (80,104 | ) | ||||||||||||
TOTAL OTHER (EXPENSE) INCOME | (528,516 | ) | - | - | (528,516 | ) | ||||||||||||
NET LOSS BEFORE PROVISION FOR INCOME TAXES | (191,223 | ) | (4,347 | ) | - | (195,570 | ) | |||||||||||
PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||||
NET LOSS | $ | (191,223 | ) | $ | (4,347 | ) | $ | - | $ | (195,570 | ) | |||||||
INCOME (LOSS) PER SHARE: | ||||||||||||||||||
Basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||
Basic and diluted | 34,000,011 | d | 35,100,011 |
7 |
EmployUS Ltd.
Notes to Pro Forma Condensed Combined Financial Statements
As of September 30, 2013
(Unaudited)
(Expressed in US Dollars)
1. | Basis of Presentation |
The unaudited pro forma condensed combined financial statements of EmployUS Ltd. (the “Company”) reflects financial information, which gives pro forma effect to the acquisition agreement dated January 22, 2014 with The Staffing Group Ltd. (“TSGL”) (the “Agreement” or “Acquisition”).
On January 22, 2014, TSGL entered into a Share Exchange Agreement (the “Exchange Agreement”) with the Company, all of the stockholders of the Company (the “EmployUS Shareholders”), and TSGL’s controlling stockholders, upon which the agreement closed on February 14, 2014. Pursuant to the terms and conditions of the final, fully executed Exchange Agreement, and upon the consummation of the closing:
● | Each share of the Company’s common stock issued and outstanding immediately prior to the closing of the Exchange Agreement was converted into the right to receive an aggregate of 13,153,800 shares of TSGL’s common stock. |
● | Three of TSGL’s shareholders agreed to cancel the following shares: |
(i) | Joseph Albunio agreed to cancel 8,386,413 shares of his common stock. After the cancellation he owns 500,000 shares of our common stock. |
(ii) | Brian McLoone agreed to cancel 2,836,413 shares of his common stock. After the cancellation he owns 6,050,000 shares of our common stock. |
(iii) | Luidmila Yuziuk agreed to cancel 1,930,972 shares of her common stock. After the cancellation, she does not own any shares of our common stock. |
The purposes of the transactions described above were to complete a reverse merger with the result being that EmployUS became a wholly-owned subsidiary of The Staffing Group Ltd. The Staffing Group, Ltd’s business operations will now focus on the business of EmployUS.
Following the Exchange Agreement, as of the date of this current report on Form 8-K, there are 35,100,011 shares of our common stock issued and outstanding, which include 13,153,800 shares held by the former stockholders of EmployUS and 6,050,000 by Brian McLoone, EmployUS’s Chairman and a stockholder of The Safety Group , LTD. but not a stockholder of EmployUS prior to the merger . As a result, our pre-merger stockholders, exclusive of Brian McLoone, hold approximately 45.28% of our issued and outstanding shares of common stock and the former stockholders of EmployUS including Brian McLoone hold approximately 54.72%
The unaudited pro forma condensed combined balance sheet was prepared as if the above acquisition occurred on September 30, 2013 combining the September 30, 2013 financial position of TSGL with that of the Company. The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2013 gives effect to the transaction as if the merger had occurred on the beginning of the reporting periods for the two entities, combining the unaudited results of the Company with the audited results of TSGL at September 30, 2013. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2012 gives effect to the transaction as if the merger had occurred on the beginning of the reporting periods for the two entities, combining the audited results of the Company with the unaudited results of TSGL at December 31, 2012. As TSGL began its operations on June 11, 2012, their statement of income for the year ended December 31, 2012 was a short year from June 11, 2012 through December 31, 2012.
The pro forma combined financial information is unaudited. The unaudited pro forma combined financial information is not necessarily indicative of the combined results which actually would have occurred if the above transaction had been consummated at the beginning of the periods presented; nor does it purport to present the results of operations for future periods.
8 |
EmployUS Ltd.
Notes to Pro Forma Condensed Combined Financial Statements
As of September 30, 2013
(Unaudited)
(Expressed in US Dollars)
2. | Significant Accounting Policies |
The unaudited pro forma condensed combined financial information has been prepared based on the historical information of the Company and TSGL giving effect to the reverse merger of TSGL with the Company. Certain note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by SEC rules and regulations.
3. | Pro Forma Adjustments |
The following adjustments are reflected in the unaudited pro forma condensed combined financial statements:
(a) | This adjustment gives effect to the Share Exchange from the Exchange Agreement described in Note 1. The outstanding shares of the Company have been eliminated, along with the accumulated deficit of TSGL. In addition, 13,153,800 shares of TSGL common stock were issued at par value, along with the cancellation of 13,153,798 shares of TSGL common stock. The remaining balance went to additional paid in capital. |
(b) | In accordance with a bridge financing on January 8, 2014, 1,000,000 shares of TSGL common stock were issued to Clifton R. McDonnell Roth IRA at a share price of $0.15 for a total of $150,000 cash in contemplation of the reverse merger. |
(c) | In accordance with the January 8, 2014 board of directors’ resolution, 100,000 shares of TSGL common stock were issued to Almoroli Advisors for consulting services rendered in arranging the equity financing. The issuance of the shares were recorded at par value. |
(d) | These unaudited pro forma combined statements of income assume the Share Exchange and merger occurred as of the beginning of the nine month period ended September 30, 2013 and at the beginning of the year ended December 31, 2012. Therefore, the weighted average number of shares outstanding for the nine month period ended September 30, 2013 , and for the year ended December 31, 2012 equals the total number of shares outstanding upon completion of the Share Exchange and merger as follows: |
Pre-Share Exchange Transaction TSGL Common Shares Outstanding: | 34,000,009 | |||
TSGL Common Shares Issued for all outstanding Shares of the Company: | 13,153,800 | |||
TSGL Common Shares Cancelled: | (13,153,798 | ) | ||
TSGL Common Shares Issued to investor at $0.15 per share pursuant to bridge financing: | 1,000,000 | |||
TSGL Common Shares Issued to consultant at par value in connection with financing: | 100,000 | |||
Total TSGL Common Shares Outstanding Post-Share Exchange: | 35,100,011 |
9 |
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