0001477932-18-002866.txt : 20180601 0001477932-18-002866.hdr.sgml : 20180601 20180601163109 ACCESSION NUMBER: 0001477932-18-002866 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 58 CONFORMED PERIOD OF REPORT: 20161231 FILED AS OF DATE: 20180601 DATE AS OF CHANGE: 20180601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Staffing Group, Ltd. CENTRAL INDEX KEY: 0001561622 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 990377457 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-55654 FILM NUMBER: 18875479 BUSINESS ADDRESS: STREET 1: 717 GREEN VALLEY ROAD STREET 2: SUITE 200 CITY: GREENSBORO STATE: NC ZIP: 27408 BUSINESS PHONE: 678-401-8601 MAIL ADDRESS: STREET 1: 717 GREEN VALLEY ROAD STREET 2: SUITE 200 CITY: GREENSBORO STATE: NC ZIP: 27408 FORMER COMPANY: FORMER CONFORMED NAME: AVIANA, CORP. DATE OF NAME CHANGE: 20121105 10-K/A 1 tsgl_10ka.htm FORM 10-K/A tsgl_10ka.htm
 
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One)

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

For the fiscal year ended December 31, 2016

or

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

For the transition period from                      to                   

Commission file number: 333-185083

The Staffing Group Ltd.
(Exact name of registrant as specified in its charter)

 

Nevada   99-0377457
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    

 

125 Townpark Drive, Suite 300    
Kennesaw, GA   30144
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (678) 881-0834

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐   No  ☒

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained herein, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer ☐ Smaller reporting company ☒
    Emerging growth company ☐

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of June 30, 2016 was $1,325,558.

As of June 1, 2017, the registrant had 1,689,706 shares of common stock issued and outstanding. 

 
 
 
 

TABLE OF CONTENTS

 

    Page
PART I  
Item 1. Business.  1
Item 1A. Risk Factors. 6
Item 1B.   Unresolved Staff Comments.  6
Item 2. Properties. 6
Item 3. Legal Proceedings. 6
Item 4. Mine Safety Disclosures. 6
     
PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 7
Item 6. Selected Financial Data. 8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 21
Item 8. Financial Statements and Supplementary Data. 22
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 23
Item 9A. Controls and Procedures. 23
Item 9B. Other Information. 25
     
PART III  
Item 10. Directors, Executive Officers and Corporate Governance. 26
Item 11. Executive Compensation. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 29
Item 13. Certain Relationships and Related Transactions, and Director Independence. 29
Item 14. Principal Accountant Fees and Services. 31
     
PART IV  
Item 15. Exhibits 32
     
SIGNATURES 33

 

 
 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.

 

From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public.  Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors.  Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

 
 

 

EXPLANATORY NOTE

 

 

The Company is amending its previously filed 2016 annual report because the audit opinion included within the Company’s 2016 original annual report was incorrect because it failed to include the emphasis of the matter paragraph regarding the Company’s going concern. The amended 2016 annual report is being filed to include the correct opinion. There were no other changes to the previously filed financial statements or notes thereto.

 

PART I

 

Item 1. Business.

 

Our Company and Corporate History

 

We were originally incorporated under the laws of the State of Nevada on June 11, 2012 under the name Aviana, Corp.  Our original business was a Poland based corporation that operated 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, Ltd. (“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.

 

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 263,076 shares of our common stock.

 

  ● Three of our shareholders agreed to cancel the following shares:

 

  (i) Joseph Albunio agreed to cancel 167,728 shares of his common stock. After the cancellation he owns 10,000 shares of our common stock.

 

  (ii) Brian McLoone agreed to cancel 56,728 shares of his common stock. After the cancellation he owns 121,000 shares of our common stock.

 

  (iii) Luidmila Yuziuk agreed to cancel 38,619 shares of her common stock. After the cancellation, she does not own any shares of our common stock.

 

Following the Exchange Agreement, there were 702,000 shares of our common stock issued and outstanding, which included 263,076 shares held by former stockholders of EmployUS and 121,000 by Brian McLoone, EmployUS’s Chief Operations Officer and The Staffing Group, Ltd’s Chief Executive Officer, but not a stockholder of EmployUS prior to the merger. As a result, the Company’s pre-merger stockholders, excluding Brian McLoone, held approximately 45.28% of the Company’s issued and outstanding shares of common stock and the former stockholder of EmployUS, including Brian McLoone, held approximately 54.72%.

 

The Exchange Agreement was accounted for as a reverse merger and recapitalization and EmployUS was 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 are reflected in the financial statements prior to the closing are 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.

 

 -1-

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its current directors, at that time, Brian McLoone and Brent Callais.

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

On December 22, 2015, the Company entered into a Licensing Agreement with Labor Smart, Inc. whereby Labor Smart, Inc. has granted the Company an exclusive license to use their trademarked name in connection with general advertising materials, point of sale displays and other promotional materials. As consideration for the use of the trademarked name, the Company agreed to pay to Labor Smart, Inc. a one-time fee of $5,000 for each newly opened branch location that is opened under the name of Labor Smart, Inc.

 

On December 28, 2015, the Company incorporated a 100% owned subsidiary, Staff Fund I, LLC, a Nevada Limited Liability Company. This subsidiary currently operates one staffing location in Montgomery, Alabama. Staff Fund I, LLC has reserved 49% of its outstanding membership units for sale to new investors.

 

On December 31, 2015, Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumed all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company. It additional all existing operations of the Company were disposed of in the split-off transaction except for the business continued in our subsidiary, Staff Fund I, LLC.

 

In conjunction with the split-off transaction, the Company received notice of the resignation of Brian McLoone as Chief Executive Officer and Director, and Brent Callais as Director and the Board of Directors of the Company appointed Ms. Kimberly Thompson as Interim Chief Executive Officer of the Company.

 

In January 2016, the Company commenced operations of one (1) staffing location Montgomery, Alabama through the subsidiary, Staff Fund I, LLC. This subsidiary recruits, hires, employs and manages skilled and unskilled workers that it places with its client companies.

 

On March 8, 2016, the Company approved and effected a 1-for 50 reverse stock split of issued and outstanding common shares. All share information has been revised to reflect the reverse stock split from the Company’s inception.

 

 -2-

On April 1, 2016, the Company purchased the operating assets of four (4) branch locations in Charlotte, NC, Indianapolis, IN, Nashville, TN and Raleigh, NC from Labor Smart, Inc. for consideration with a fair value of $2,666,000. The one-time fee of $5,000 for the (4) newly opened branches which were opened under the Labor Smart, Inc. name totaling $20,000 was waived. As a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer (“CEO”) of the Company in addition the CEO stepped down from any former position she held with Labor Smart, Inc. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes.

 

On September 12, 2016, the Company cancelled the Licensing Agreement with Labor Smart, Inc and, as such, no longer operates under the Labor Smart trademarked name. The Company currently operates under its legal name, The Staffing Group Ltd.

 

Subsidiaries

 

On December 28, 2015, the Company incorporated a 100% owned subsidiary, Staff Fund I, LLC, a Nevada Limited Liability Company. This subsidiary currently operates one staffing location in Montgomery, Alabama. Staff Fund I, LLC has reserved 49% of its outstanding membership units for sale to new investors.

  

Description of Business

 

Prior to the split-off transaction, the Company reviewed the historical financial performance of EmployUS, Ltd. and gave consideration to other opportunities for growth in other segments in the staffing industry which the Company believes will be more profitable. As a result, on December 31, 2015, the Company disposed of its wholly owned subsidiary, EmployUS Ltd., in a split-off transaction which included all the assets, liabilities and operations of EmployUS Ltd.

 

The Company currently operates five (5) staffing locations in Charlotte and Raleigh, North Carolina, Indianapolis, Indiana, Nashville, Tennessee, Montgomery, Alabama. Our Montgomery location is operated through our subsidiary, Staff Fund I, LLC. Staff Fund I, LLC recruits, hires, employs and manages skilled and unskilled workers that we place with our client companies.

 

Services offered 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

 

 -3-

Since December 31, 2015, to grow our business, we have employed a professional selling branch manager and administrative support staff at the Montgomery branch. The Company plans an aggressive expansion throughout the Southeast U.S. whereby we will open additional branches. We expect to incorporate a new company each time we open a new branch. The startup capital for each branch is expected to be raised by crowdfunding with new investor ownership limited to 49% of each branch.

 

Our Industry

 

We are primarily focused in the on-demand blue collar staffing industry. The primary placements we make are to companies in the construction industry, light industrial, refuse industry, retail, and hospitality businesses.

 

In addition, the Company is actively sourcing acquisition targets in the staffing industry. While our current focus is blue collar staffing, we are seeking acquisition opportunities in every staffing vertical segment with planned targets in IT Staffing, home healthcare, professional firms and disaster response.

 

Products and Services

 

We are a service provider that is in the business of providing temporary staffing solutions. We provide general laborers to construction, light industrial, refuse, retail, and hospitality businesses and recruit, hire, train and manage skilled workers so our clients doesn’t have to. By eliminating the administrative requirements of finding and employing skilled and unskilled workers our clients have the ability to focus on the important task of managing and growing their business and not worry about staffing their projects. We currently operate five branch locations.

 

Additionally, we plan to seek out acquisition targets in other segments of the staffing industry as we execute an aggressive buy and build roll-up strategy to grow our business.  

 

Seasonality of the Business

 

Generally, we expect our revenues to be higher and gross margin percent to be higher during the second and third fiscal quarters as compared to the first and fourth fiscal quarters each year. During the second and third quarters we receive the majority of our contracts to supply labor to construction firms. Contracts for construction work tends to be both larger in dollar amount and to be more profitable than our other contracts.

 

Concentration or Dependence on Key Vendors, Suppliers or Clients

 

We, are not dependent on any single supplier or client. From time to time, we may experience high customer concentration, especially in our busier quarterly periods.

 

Marketing

 

After the split-off transaction of the EmployUS assets and liabilities on December 31, 2015, our marketing efforts have changed to be more focused on attracting acquisition targets, in line with our new focus of growth by acquisitions. As we acquire new staffing businesses, we intend to analyze each business to determine the best mix of marketing expenditures to maximize return on investment. We anticipate that online and social media marketing will become a large part of our marketing efforts. Additionally, we intend to rely on telemarketing and direct mail as a means to market the services. We use licensed customer relationship management software to manage new leads and opportunities. This software allows us to automate many marketing functions and will be more relied upon as we scale up our business.

 

 -4-

Competition

 

The staffing industry is highly competitive and fragmented throughout the United States.  There are multiple staffing companies that fill a wide variety of positions and service a wide variety of industries. There is no one company dominant in the temporary staffing industry, however, there are several large competitors with substantially more resources and market visibility than us. The Company believes that the primary factors in obtaining and retaining customers are the cost of services, the quality of employees provided, the responsiveness of service, and the number of markets that can be serviced.

 

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 the Company, its current and future subsidiaries 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. On September 12, 2016, the Company cancelled the Licensing Agreement with Labor Smart, Inc and, as such, no longer operates under the Labor Smart trademarked name. The Company currently operates under its legal name, The Staffing Group Ltd.

 

Research and Development

 

We are a provider of staffing services for blue-collar jobs. We do not spend any resources on research and development. As our business grows, we expect to develop and train our staff to better understand our clients and to ensure that we are meeting the needs of our clients.

 

Employees

 

As of May 19, 2017, we have one (1) full time executive and (13) full-time branch level employees, including those of our subsidiary, Staff Fund I, LLC.  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.

 

Corporation Information

 

Our principal executive offices are located at 125 Townpark Drive, Suite 300, Kennesaw GA 30144. Our telephone number is 678-881-0834. Our website is www.staffinggroupltd.com.

 

 -5-

Item 1A.  Risk Factors.

 

This information is not required for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments.

 

This information is not required for smaller reporting companies.

 

Item 2.  Properties.

 

The Company’s corporate headquarters are located in Kennesaw, Georgia. The Company currently leases space located at 125 Townpark Drive, Suite 300, Kennesaw, GA 30144. The lease is for a term of 12 months beginning on January 1, 2016 and was renewed for a further 12 months beginning January 1, 2017. Our lease payments are $169 and $176 per month in 2016 and 2017, respectively. The Company believes that the current location is sufficient for the Company’s needs at this time.

 

The Company currently has no investment policies as they pertain to real estate, real estate interests, or real estate mortgages.

 

We also have five (5) other offices. A brief summary of locations, term of lease and monthly rent is as follows:

 

Lease Location   Term of Lease   Base Monthly Rent  
Montgomery, Alabama   1/1/2014 to 7/31/2017   $ 1,305  
Kennesaw, Georgia   1/1/2017 to 12/31/2017   $ 176  
Raleigh, North Carolina   10/1/2016 to 9/30/2017   $ 2,895  
Indianapolis, Indiana   7/1/2013 to 6/30/2018   $ 902  
Charlotte, North Carolina   5/1/2016 to 4/30/2019   $ 1,417  
Nashville, Tennessee   6/1/2016 to 5/31/2019   $ 2,000  

  

The 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.

 

Item 3.  Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

 -6-

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

From August 2013 until October 2013, the Company’s common stock has been listed for quotation on the OTCBB under the symbol “AVIA”. Since October 2013, the Company’s common stock has been listed for quotation on the OTCBB under the symbol “TSGL.”

 

Price Range of Common Stock

 

The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

 

    High   Low
Fiscal Year 2015                
First quarter ended March 31, 2015   $ 2.25     $ 0.40  
Second quarter ended June 30, 2015   $ 3.38     $ 0.76  
Third quarter ended September 30, 2015   $ 3.95     $ 1.20  
Fourth quarter ended December 31, 2015   $ 2.50     $ 1.13  
                 
Fiscal Year 2016                
First quarter ended March 31, 2016   $ 2.50     $ 1.44  
Second quarter ended June 30, 2016   $ 3.39     $ 1.05  
Third quarter ended September 30, 2016   $ 1.95     $ 0.30  
Fourth quarter ended December 31, 2016   $ 1.12     $ 0.18  

 

Approximate Number of Equity Security Holders

 

As of June 1, 2017, there were 52 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.

 

Dividends

 

There are no restrictions in the Company’s articles of incorporation or bylaws that prevent the Company from declaring dividends.  The Nevada Revised Statutes, however, do prohibit the Company from declaring dividends where, after giving effect to the distribution of the dividend:

 

  1. The Company would not be able to pay the debts as they become due in the usual course of business; or
     
  2. The Company’s total assets would be less than the sum of the total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

 -7-

The Company has not declared any dividends, and the Company does not plan to declare any dividends in the foreseeable future.

 

Unregistered Sales of Equity Securities

 

Common Stock

 

On April 1, 2016, the Company issued 600,000 shares of common stock with a fair value of $1,080,000 ($1.80 per share based on the closing price of the Company common stock on March 31, 2016 in conjunction with the Agreement for Purchase and Sale of Assets (Note 3).

 

On April 1, 2016, as a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company.

 

On April 25, 2016, the Board of Directors authorized the issuance of 60,000 shares of common stock of the Company to Kimberly Thompson, the Chief Executive Officer of the Company, for compensation valued at $109,200 ($1.82 per share) which was expensed immediately and is included in selling, general and administrative expense in the consolidated statement of operations.

 

On July 11, 2016, the Company issued 7,000 shares of common stock for $7,000 in cash ($1.00 per share).

 

On December 19, 2016, Group 10 Holdings LLC, the holder of a Convertible Promissory Note (see Note 10) converted 63,300 shares of common stock of the Company with a fair value of $12,660 to settle $5,570 of principal and interest.

 

All of the securities issued herein 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.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

 

Item 6.      Selected Financial Data.

 

We are not required to provide the information required by this Item because we are a smaller reporting company.

 

 -8-

Item 7. 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 The Staffing Group Ltd. for the years ended December 31, 2016 and 2015, should be read in conjunction with the Selected Consolidated Financial Statements, of The Staffing Group Ltd.’s, financial statements, and the notes to those consolidated 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 original business was a Poland based corporation that operated 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, Ltd. (“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.

 

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 263,076 shares of our common stock.

 

  ● Three of our shareholders agreed to cancel the following shares:

 

  (i) Joseph Albunio agreed to cancel 167,728 shares of his common stock. After the cancellation he owns 10,000 shares of our common stock.

 

  (ii) Brian McLoone agreed to cancel 56,728 shares of his common stock. After the cancellation he owns 121,000 shares of our common stock.

 

  (iii) Luidmila Yuziuk agreed to cancel 38,619 shares of her common stock. After the cancellation, she does not own any shares of our common stock.

 

 -9-

Following the Exchange Agreement, there were 702,000 shares of our common stock issued and outstanding, which included 263,076 shares held by former stockholders of EmployUS and 121,000 by Brian McLoone, EmployUS’s Chief Operations Officer and The Staffing Group, Ltd’s Chief Executive Officer, but not a stockholder of EmployUS prior to the merger. As a result, the Company’s pre-merger stockholders, excluding Brian McLoone, held approximately 45.28% of the Company’s issued and outstanding shares of common stock and the former stockholder of EmployUS, including Brian McLoone, held approximately 54.72%.

 

The Exchange Agreement was accounted for as a reverse merger and recapitalization and EmployUS was 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 are reflected in the financial statements prior to the closing are 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.

 

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its current directors, at that time, Brian McLoone and Brent Callais.

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

On December 22, 2015, the Company entered into a Licensing Agreement with Labor Smart, Inc. whereby Labor Smart, Inc. has granted the Company an exclusive license to use their trademarked name in connection with general advertising materials, point of sale displays and other promotional materials. As consideration for the use of the trademarked name, the Company agreed to pay to Labor Smart, Inc. a one-time fee of $5,000 for each newly opened branch location that is opened under the name of Labor Smart, Inc.

 

On December 28, 2015, the Company incorporated a 100% owned subsidiary, Staff Fund I, LLC, a Nevada Limited Liability Company. This subsidiary currently operates one staffing location in Montgomery, Alabama. Staff Fund I, LLC has reserved 49% of its outstanding membership units for sale to new investors.

 

On December 31, 2015, Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumed all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company. It additional all existing operations of the Company was disposed of in the split-off transaction except for the business continued in our subsidiary, Staff Fund I, LLC.

 

 -10-

In conjunction with the split-off transaction, the Company received notice of the resignation of Brian McLoone as Chief Executive Officer and Director, and Brent Callais as Director and the Board of Directors of the Company appointed Ms. Kimberly Thompson as Interim Chief Executive Officer of the Company.

 

The split-off of EmployUS, Ltd. to the controlling shareholders is a common control transaction and recorded at book value. Any difference between the proceeds received by the Company and the book value of assets and liabilities of EmployUS, Ltd. is recognized as a capital transaction with no gain and loss recorded. EmployUS, Ltd., as a subsidiary, was determined to be a component of Company and disposed of by other than sale.

 

In January 2016, the Company commenced operations of one (1) staffing location Montgomery, Alabama through the subsidiary, Staff Fund I, LLC. This subsidiary recruits, hires, employs and manages skilled and unskilled workers that it places with its client companies.

 

On March 8, 2016, the Company approved and effected a 1-for 50 reverse stock split of issued and outstanding common shares. All share information has been revised to reflect the reverse stock split from the Company’s inception.

 

On April 1, 2016, the Company purchased the operating assets of four (4) branch locations in Charlotte, NC, Indianapolis, IN, Nashville, TN and Raleigh, NC from Labor Smart, Inc. for consideration with a fair value of $2,666,000. The one-time fee of $5,000 for the (4) newly opened branches which were opened under the Labor Smart, Inc. name totaling $20,000 was waived. As a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company in addition the CEO stepped down from any former position she held with Labor Smart, Inc. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes. These consolidated financial statements report the financial position, operations and cash flows of the acquired business (the “Predecessor”). SEC Regulations require the Predecessor to be reported when the acquired business succeeds substantially all of the business and the Company’s own operations before the succession appear insignificant to the operations acquired.

 

On September 12, 2016, the Company cancelled the Licensing Agreement with Labor Smart, Inc and, as such, no longer operates under the Labor Smart trademarked name. The Company currently operates under its legal name, The Staffing Group Ltd.

 

On December 31, 2016, the Company operated five (5) staffing locations in Charlotte, North Carolina, Indianapolis, Indiana, Nashville, Tennessee Raleigh, North Carolina and Montgomery, Alabama. Our Montgomery, Alabama staffing location is operated through our subsidiary, Staff Fund I, LLC. During the year ended December 31, 2016. Staff Fund I, LLC issued membership interests for cash proceeds of $14,000. At December 31, 2016, 7% of Staff Fund I, LLC membership interest are held by non-controlling interests.

 

We are a service provider that is in the business of providing temporary staffing solutions. We provide general laborers to construction, light industrial, refuse, retail, and hospitality businesses and recruit, hire, train and manage skilled workers so our clients doesn’t have to. By eliminating the administrative requirements of finding and employing skilled and unskilled workers our clients the ability to focus on the important task of managing and growing their business and not worry about staffing their projects

 

 -11-

Additionally, we plan to seek out acquisition targets in other segments of the staffing industry as we execute a buy and build roll-up strategy to grow our business.  

 

Seasonality

Generally, we expect our revenues to be higher and gross margin percent to be higher during the second and third fiscal quarters as compared to the first and fourth fiscal quarters each year. During the second and third quarters we receive the majority of our contracts to supply labor to construction firms. Contracts for construction work tends to be both larger in dollar amount and to be more profitable than our other contracts.

 

Use of Non-GAAP Financial Information

In addition to results in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), this annual report on Form 10-K also includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission.  The Company defines EBITDA as loss from continuing operations, plus interest expense net of interest income, provision for income taxes, depreciation and amortization.  The Company defines Adjusted EBITDA as these items plus change in fair value of derivative liabilities, pretax.  EBITDA and Adjusted EBITDA are measures used by management to evaluate ongoing operations and as a general indicator of its operating cash flow (in conjunction with a cash flow statement that also includes, among other items, changes in working capital and the effect of non-cash charges). Management believes these measurements are useful to investors because they are frequently used by securities analysts, investors and other interested parties in the comparative evaluation of companies. Because not all companies use identical calculations, the Company’s presentation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.  EBITDA and Adjusted EBITDA are not recognized terms under GAAP, do not purport to be alternatives to, and should be considered in addition to, and not as a substitute for or superior to, net income (loss) as a measure of operating performance or to cash flows from operating activities or any other performance measures derived in accordance with GAAP as a measure of liquidity.  Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use as they do not reflect certain cash requirements, such as interest payments, tax payments and debt service requirements.

 

Pursuant to the requirements of Regulation G, a reconciliation of EBITDA and Adjusted EBITDA to GAAP, loss from continuing operations has been provided in the table below.

 

RECONCILIATION OF GAAP, LOSS FROM CONTINUING OPERATIONS TO EBITDA AND ADJUSTED EBITDA

 

    Year Ended December 31, 2016   Year Ended
December 31, 2015		     For the Three Months Ended March 31, 2016
(Predecessor)		   Year Ended December 31, 2015
(Predecessor)
GAAP, loss from continuing operations   $ (3,853,796 )   $ (479,738 )     $ (125,471 )   $ (74,216 )
Add:                                  
  Provision for income taxes     —         —           —         —    
  Interest expense     2,581,198       4,265         11,489       124,821  
  Amortization of intangible assets     180,000       —           —         —    
  Impairment of intangible assets     1,374,000       —           —         —    
EBITDA     281,402       (475,473 )       (113,982 )     50,605  
Change in fair value of derivative liabilities     (132,195 )     —           —         —    
Adjusted EBITDA   $ 149,207     $ (475,473 )     $ (113,982 )   $ 50,605  

 

 -12-

Year Ended December 31, 2016 compared to 2015

 

The following table presents a summary of continuing operations for the year ended December 31, 2016 with comparative operations from the Four Branches (Charlotte, North Carolina, Indianapolis, Indiana, Nashville, Tennessee and Raleigh, North Carolina) acquired on April 1, 2016 from the carved-out financial statements Labor Smart, Inc for the year ended December 31, 2015 (the “Predecessor”).

 

    2016     2015
Net Revenues               (Predecessor)   
Contract staffing services   $ 4,277,777       $ 5,962,254  
                   
Cost of Services     2,907,847         4,468,986  
                   
Gross Margin     1,369,930         1,493,268  
                   
Selling, General and Administrative                  
Amortization of intangible assets     180,000         —    
Impairment of intangible assets     1,374,000         —    
Payroll and related expenses     441,837         429,392  
General and administrative expenses     778,886         1,013,271  
Total Selling, General and Administrative     2,774,723         1,442,663  
                   
(Loss) Income (Loss) from Operations     (1,404,793 )       50,605  
                   
Other (Expenses) Income                  
Interest expense     (2,581,198 )       (124,821 )
Change in fair value of derivative liabilities     132,195         —    
      (2,449,003 )       (124,821 )
                   
Net (loss)     (3,853,796 )       (74,216 )

 

Net loss attributed to non-controlling interest

     (1,989 )       —    
                   
Net loss attributed to The Staffing Group Ltd.   $ (3,851,807 )     $ (74,216 )

 

Net Revenues:

 

Contract staffing services were $4,277,777 for the year ended December 31, 2016, a decrease of $1,684,477 or 28.3% from $5,962,254 (Predecessor) for the year ended December 31, 2015. The decrease in revenue is primarily due the Company’s decision of not accepting new contracts from third party vendors. Many of the contracts with third party vendors have gross margins less than 8%. The Company currently will only bid on contracts with expected gross greater than 30%.

 

 -13-

Cost of Services:

 

Cost of staffing services were $2,907,847 for the year ended December 31, 2016, a decrease of $1,561,139 or 34.9% from $4,468,986 (Predecessor) for the year ended December 31, 2015. The decrease in cost of services is due to the decrease in net revenues and increase in gross profit percentage. Fluctuations in cost of sales items are based on the number of contracts on going at a given point in time.

 

Gross Profit:

 

Gross profit was $1,369,930 for the year ended December 31, 2016, which is approximately 32.0% of contract staffing services revenue, from $1,493,268 (Predecessor) for the year ended December 31, 2015, which is approximately 25.1% of contract staffing services revenue. The increase in gross profit is due to the Company seeking out contracts with higher gross profit percentage.

 

Selling, General and Administrative Expenses:

 

Amortization of intangible assets of $180,000 relates to identifiable intangible assets of $1,200,000 acquired on April 1, 2016 which are being amortized on a straight-line over 5 years.

 

An identifiable intangible asset and goodwill impairment charge totaling $1,374,000 was recorded as of December 31, 2016. The impairment was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. The loss of the customers was caused by administrative issues on sale. The remaining goodwill, non-compete agreements and customer relationships reported on the consolidated balance sheet at December 31, 2016 related to the Charlotte, NC and Indianapolis, IN locations.

 

Payroll and related expenses were $441,837 for the year ended December 31, 2016, an increase of $12,445 or 2.9% from $429,392 (Predecessor) for the year ended December 31, 2015. The increase in primarily due to stock-based compensation valued at $109,200 paid during the year ended December 31, 2016. On April 25, 2016, 60,000 shares of common stock were issued to Kimberly Thompson, our CEO. The Predecessor did not issued stock-based compensation for the comparable period Selling, general and administrative expense comprise legal, audit, accounting, transfer agent, printing and other costs related to SEC filings and matters relating to being a public company.

 

Selling, general and administrative expenses were $778,886 for the year ended December 31, 2016, a decrease of $234,385 or approximately 23.1%, from $1,013,271 (Predecessor) for the year ended December 31, 2015.

 

Income from Operations:

 

Loss from operations was $1,404,793 for the year ended December 31, 2016, a decrease of $1,354,188 or approximately 2,676%, from income from operations of $50,605 (Predecessor) for the year ended December 31, 2015.

 

Other Expenses:

 

Other expenses were $2,449,003 for the year ended December 31, 2016, an increase of $2,573,824 or approximately 2,062%, from $(124,821) (Predecessor) for the year ended December 31, 2015.

 

 -14-

The increase in other (expenses) income is primarily due to:

 

i) The Company incurred interest expense of $2,581,198 during the year ended December 31, 2016 for amortization of debt discount and interest due on notes payable and convertible promissory notes payable. On April 1, 2016, the Company issued thirty (30) shares of the Company’s Series B Stock to TCA as an advisory fee with a fair value of $750,000. The Series B Stock was issued in conjunction with the convertible note payable issued to TCA and was recorded as debt discount.
ii)
iii) Other expenses include a decrease in the fair value of the derivative liabilities of $132,195 for the year ended December 31, 2016.

 

In the comparative period for the year ended December 31, 2015, the Predecessor incurred carved-out interest expense of $124,821 for costs incurred for factoring accounts receivable. The Predecessor did not incur comparable expenses for amortization of debt discount and interest due on notes payable and convertible promissory notes payable and change in the fair value of directive liabilities.

 

Liquidity and Capital Resources

 

As of December 31, 2016, we had a minimal cash balance.

 

Net cash provided by operating activities was $156,607 for the year ended December 31, 2016 as compared to net cash provided by operating activities of $515,571 (Predecessor) for the year ended December 31, 2015. The net cash used by operating activities was primarily due to our net loss of $3,853,796 and increase of accounts receivable of $881,775 which was offset by amortization of debt discount of $2,366,870, impairment of intangible assets of $1,374,000 and increase of accounts payable and accrued liabilities of $952,158.

 

Net cash used by investing activities was $1,081,364 for the purchase of equipment of $1,364 and business acquisition of the Four Branches of $1,080,000 for the year ended December 31, 2016 as compared to $0 (Predecessor) for the year ended December 31, 2015.

 

Net cash provided by financing activities amounted to $924,757 for the year ended December 31, 2016, compared to net cash used by financing activities of $515,571 (Predecessor) for the year ended December 31, 2015. Cash flows provided from financing activities includes proceeds from the issuance of convertible notes of $1,430,710, a $28,500 advance from Labor Smart, Inc., a shareholder of the Company, and $14,000 received from member’s subscription in Staff Fund I, LLC which was offset by repayment of convertible notes of $678,609.

 

Note Payable – Related Party

On April 1, 2016, in conjunction with the Agreement for Purchase and Sale of Assets (Note 4), the Company issued an unsecured non-interest bearing promissory note to Labor Smart, Inc., due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at a market interest rate of 20% per annum. At December 31, 2016, the promissory note has been recorded net of debt discount of $163,801. Amortization of debt discount of $85,199 has been included in interest expense in the consolidated statements of loss for the year ended December 31, 2016, respectively. The debt discount is being amortized on the effective interest method.

 

 -15-

Convertible Note Payable – Related Party

On December 18, 2015, the Company entered into a Convertible Promissory Note (“Note”) with Labor Smart Inc. (“Holder”) in the original principal amount of $80,000 bearing a 12% annual interest rate and maturing on December 16, 2016. As December 31, 2016, the Note is past due. In conjunction with the issuance of the Note, as further consideration, the Company issued the Holder one (1) share of Series A Preferred Stock of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 75% of the market price which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid within 120 days of date of issue at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At December 31, 2016, the Note includes principal of $80,000 and accrued interest of $39,432. See Note 11 – Convertible Promissory Note Derivative Liability – Related Party.

 

Convertible Notes Payable

On March 29, 2016, with an effective date of April 5, 2016, in conjunction with the Agreement for Purchase and Sale of Assets (Note 3), the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA agreed to loan up to a maximum of three million dollars ($3,000,000) to us for working capital purposes. A total of $1,300,000 was funded by TCA in connection with the closing of the Agreement. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Senior Secured Revolving Convertible Promissory Note (the “Revolving Note”), the repayment of which is secured by Security Agreements executed by us and our subsidiary, The Staff Fund I, LLC. Pursuant to the Security Agreements, the repayment of the Revolving Note is secured by a security interest in substantially all of our assets in favor of TCA. The initial Revolving Note in the amount of $1,300,000 is due and payable along with interest thereon on October 5, 2016, and bears interest at the minimum rate of 12% per annum, increasing to 22% per annum upon the occurrence of an Event of Default, as defined in the Credit Agreement. Upon an Event of Default, TCA shall have the right to convert all or any portion of the Revolving Note into shares of the Company’s common stock. The conversion rate shall be 85% of the lowest VWAP of the Company’s stock for the five days preceding the conversion date. The Credit Agreement provides for certain contractual rights to TCA. TCA has influence and veto power over key decisions which effect operating, investing and financing activities of the Company including the right to approve the transfer agent, maintenance of insurance, approve the selection of management after performing background investigations, approve all capital expenditures, approve issuance of stock, approve opening new bank accounts and approve change in control of the Company.  The Credit Agreement also provides that all cash receipts from customers are required to be deposited in a lock box account. Distributions from the lock box account are made to the Company only after obligations to TCA are satisfied. TCA with absolute discretion may withhold cash in the lock box in order to protect collateral. During the year ended December 31, 2016, the Company paid $620,511 in cash for principal and $129,942 for interest and fees. At December 31, 2016, the Note includes principal of $679,489 and accrued interest of $203,025 and the Note is past due. See Note 11 – Convertible Promissory Note Derivative Liability.

 

 -16-

On May 26, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Group 10 Holdings, LLC (“Holder”) in the original principal amount of $100,000 bearing a 10% annual interest rate and maturing December 26, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 55% of the lowest trading price of any day during the 25 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may prepay the Note at any time while outstanding for no prepayment penalty. During the year ended December 31, 2016, the Company issued 63,300 shares of common stock for principal and interest of $5,570. At December 31, 2016, the Note includes principal of $94,430 and accrued interest of $87,881. See Note 11 – Convertible Promissory Note Derivative Liability.

 

On September 27, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Carebourn Capital, L.P. (“Holder”) in the original principal amount of $236,325 less transaction costs of $36,325 bearing a 12% annual interest rate and maturing September 27, 2017. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the average of the three lowest trading prices of any day during the 20 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the Note if repaid within 180 days of date of issue at 130% of the original principal amount plus interest and between 181 days and 364 days at 150% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. During the year ended December 31, 2016, the Company paid $58,096 in cash for principal and interest. At December 31, 2016, the Note includes principal of $178,229 and accrued interest of $42,186 less unamortized debt discount of $174,816. See Note 11 – Convertible Promissory Note Derivative Liability.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2016, the Company had a stockholders’ deficit of $2,984,065 and a working capital deficit of $3,506,230. For the year ended December 31, 2016, the Company had a net loss of $3,853,796. The Company’s stockholders’ deficiency is primarily due to, among other reasons, funding its historical costs.

 

The Company’s principal sources of liquidity include cash from operations and proceeds from debt and equity financings. As of December 31, 2016, the Company had minimal cash.

 

 -17-

The Company is funding its operations primarily through the sale of equity, convertible notes payable and shareholder loans. In the event the Company experiences liquidity and capital resources constraints because of greater than anticipated sales growth or acquisition needs, the Company may need to raise additional capital in the form of equity and/or debt financing including refinancing its current debt. Issuances of additional shares will result in dilution to its existing shareholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund any potential acquisition needs or increased growth. 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 its business, results of operations and financial condition. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.

 

 -18-

2017 Outlook

 

On December 31, 2015, we refocused our growth strategy. Going forward, we intend to focus on strategic growth acquisitions. As a result of the split-off transactions on December 31, 2015, we believe that the likelihood of successful acquisitions has increased as significant liabilities have been derecognized from our consolidated balance sheet.

 

Our goal in 2017 is to complete a platform acquisition for a number of branch offices. Thereafter, we plan to continue to grow by way of acquisition of additional branch offices. We will also seek to fully grow and develop new branch locations.

 

Due to increased regulations, rising state unemployment insurance rates that are required to be paid by businesses, rising workers insurance compensation rates and uncertainty regarding the Affordable Care Act, we believe that small staffing companies are prime for acquisition.

 

In order to successfully complete our growth plan as outline in the 2017 outlook, we anticipate using cash from operations to continue to fund our business operations and as the Company implements its planned expansion throughout the Southeast U.S. The startup capital for each branch is expected to be raised by crowdfunding with new investor ownership limited to 49% of each branch.

 

In the event that we need to access the capital markets and sell equity in order to fund operations or further our growth strategy, 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. 

 

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

 

Critical Accounting Policies

 

The preparation of consolidated financial statements in conformity with 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.

 

Use of Estimates

 

The preparation of consolidated 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, evaluation of impairment of long lived assets, valuation allowance for deferred tax assets and valuation of derivative liabilities. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.

 

 -19-

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 reasonable assured; and (iv) services have been rendered.

 

 Convertible Promissory Notes

 

i) Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

ii) Debt Discount

The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480, applies to certain contracts involving a company's own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:

– A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to a fixed dollar amount,

– Variations in something other than the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer's equity shares, or

– Variations inversely related to changes in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.

If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

iii) Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible promissory notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

 -20-

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements as of December 31, 2016 and 2015.

 

Recent Accounting Pronouncements

 

We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term.  The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.  Those standards have been addressed in Note 2 to the audited financial statement included elsewhere and in this, our Annual Report, filed on Form 10-K for the year ended December 31, 2016.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

 

We are not required to provide the information required by this Item because we are a smaller reporting company

 

 -21-

Item 8.  Financial Statements.

 

 

The Staffing Group Ltd.

December 31, 2016 and 2015

Index to the Financial Statements

 

Contents   Page(s)
     
Reports of Independent Registered Public Accounting Firm   F-1
     
Consolidated Balance Sheets at December 31, 2016 and 2015   F-3
     
Consolidated Statements of Operations for the Years Ended December 31, 2016 and 2015   F-4
     
Consolidated Statement of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015   F-5
     
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015   F-6
     
Notes to the Consolidated Financial Statements   F-7

 

 -22-

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Audit Committee of the

Board of Directors and Shareholders

of The Staffing Group, Ltd.

 

We have audited the accompanying consolidated balance sheets of The Staffing Group, Ltd. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, 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 audit 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 audit 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 consolidated financial position of The Staffing Group, Ltd, as of December 31, 2016 and 2015, and the consolidated 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.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s business plan is dependent on raising additional capital in the form of equity and or debt financing as the Company’s cash and working capital as of December 31, 2016 are not sufficient to complete its planned activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Marcum LLP

New York, NY

June 20, 2017

 

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Audit Committee of the

Board of Directors and Shareholders

of Labor Smart, Inc.

 

We have audited the accompanying carve-out balance sheet of the four branches of Labor Smart, Inc. (a segment of Labor Smart, Inc.) (the “Predecessor”) as of December 31, 2015 and the related carve-out statements of operations, stockholder’s deficit and cash flows for the three months ended March 31, 2016 and the year ended December 31, 2015. These financial statements are the responsibility of the Predecessor’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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Predecessor is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 Predecessor’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 carve-out financial statements referred to above present fairly, in all material respects, the financial position of four branches of Labor Smart, Inc. as of December 31, 2015, the results of its operations and its cash flows for the three months ended March 31, 2016 and year ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 of the consolidated financial statements, the carve-out financial statements of the four branches of Labor Smart, Inc. (a segment of Labor Smart, Inc.) reflect the assets, liabilities, revenues, and expenses directly attributable to the Predecessor, as well as allocations deemed reasonable by management, to present the financial position, results of operations and cash flows of the Predecessor on a stand-alone basis and do not necessarily reflect the financial position, results of operations and cash flows of the Predecessor in the future or what they would have been had the Predecessor been a separate, stand-alone entity during the periods presented.

 

Marcum LLP

New York, NY
June 20, 2017

 

F-2

The Staffing Group Ltd., and Subsidiary

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2016   December 31, 2015     December 31, 2015
ASSETS             (Predecessor)
               
CURRENT ASSETS                          
Accounts receivable, net   $ 836,797     $ —         $ 456,296  
Prepaid expenses and other current assets     2,833       —           7,547  
Total Current Assets     839,630       —           463,843  
                           
Property and equipment, net     1,364       —           4,963  
Identifiable intangible assets, net of accumulated amortization of $72,000 and $0, respectively     407,000       —           —    
Goodwill     705,000       —           —    
                           
TOTAL ASSETS   $ 1,952,994     $ —         $ 468,806  
                           
LIABILITIES AND STOCKHOLDERS' DEFICIT                          
                           
CURRENT LIABILITIES                          
Bank indebtedness   $ 123,156     $ —         $ —    
Accounts payable     396,079       —           467,280  
Accounts payable - related party     430,978       —           —    
Accrued liabilities     41,200       —           —    
Accrued liabilities - related party     139,715       55,815         —    
Loan payable to factor     —         —           238,051  
Convertible note payable - related party, including accrued interest of $39,432 and $1,408, net of debt discount of $0 and $77,143, respectively     119,432       4,265         —    
Convertible notes payable - including accrued interest of $333,092 and $0, net of debt discount of $174,816 and $0, respectively     1,110,424       —           —    
Notes payable - related parties     107,000       107,000         —    
Derivative liability     1,099,376       178,959         —    
Due to stockholder     28,500       —           —    
60 shares of Preferred Stock, par value $0.001, designated as Series B Convertible Preferred Stock, 30 and 0 shares issued and outstanding as of December 31, 2016 and 2015, respectively. Liquidation preference of $750,000. (Note 12)     750,000       —           —    
Total Current Liabilities     4,345,860       346,039         705,331  
                           
Note payable - related parties, net of debt discount of $163,801 and $0, respectively     591,199       —           —    
                           
TOTAL LIABILITIES     4,937,059       346,039         705,331  
                           
Commitments and contingencies (Note 10)                          
                           
STOCKHOLDERS' DEFICIT                          
Preferred stock, no par value: 5,000,000 shares authorized 5 shares of Preferred Stock, par value $0.001, designated as Series A Preferred Stock, 1 and 1 shares issued and outstanding as of December 31, 2016 and 2015, respectively     —         —           —    
Common stock par value $0.001: 150,000,000 shares authorized; 1,332,736 and 602,436 shares issued and outstanding as of December 31, 2016 and 2015, respectively     1,332       602         —    
Additional paid-in capital     3,635,789       2,434,749         —    
Accumulated deficit     (6,633,197 )     (2,781,390 )       —    
Total shareholder's deficit - predecessor     —         —              
TOTAL THE STAFFING GROUP LTD. STOCKHOLDERS' DEFICIT     (2,996,076 )     (346,039 )       —    
Non-controlling interest     12,011       —           —    
TOTAL STOCKHOLDERS' DEFICIT     (2,984,065 )     (346,039 )          
TOTAL STOCKHOLDERS' DEFICIT - PREDECESSOR                       (236,525 )
                           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 1,952,994     $ —         $ 468,806  

 

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

 

F-3

The Staffing Group Ltd., and Subsidiary

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Year Ended December 31,     For the Three Months Ended March 31, 2016   For the Year Ended December 31, 2015
    2016   2015     (Predecessor)   (Predecessor)
                   
NET REVENUES                                  
Contract staffing services   $ 4,277,777     $ —         $ 1,339,669     $ 5,962,254  
                                   
COST OF SERVICES     2,907,847       —           992,493       4,468,986  
                                   
GROSS PROFIT     1,369,930       —           347,176       1,493,268  
                                   
SELLING, GENERAL AND ADMINISTRATIVE                                  
Amortization of intangible assets     180,000       —           —         —    
Impairment of customer relationships and non-compete agreements     613,000       —           —         —    
Impairment of goodwill     761,000       —           —         —    
Payroll and related expenses     441,837       —           117,623       429,392  
Selling, general and administrative expenses     778,886       326,514         343,535       1,013,271  
TOTAL SELLING, GENERAL AND ADMINISTRATIVE     2,774,723       326,514         461,158       1,442,663  
                                   
(LOSS) INCOME FROM OPERATIONS     (1,404,793 )     (326,514 )       (113,982 )     50,605  
                                   
OTHER (EXPENSES) INCOME                                  
Interest expense     (2,581,198 )     (4,265 )       (11,489 )     (124,821 )
Other expense     —         (50,000 )       —         —    
Change in fair value of derivative liabilities     132,195       (98,959 )       —         —    
TOTAL OTHER EXPENSE     (2,449,003 )     (153,224 )       (11,489 )     (124,821 )
                                   
LOSS FROM CONTINUING OPERATONS BEFORE PROVISION FOR INCOME TAXES     (3,853,796 )     (479,738 )       (125,471 )     (74,216 )
                                   
Provision for income taxes     —         —           —         —    
                                   
LOSS FROM CONTINUING OPERATIONS     (3,853,796 )     (479,738 )       (125,471 )     (74,216 )
                                   
INCOME FROM DISCONTINUED OPERATIONS                                  
(including income taxes of $0 and $0 for 2016 and 2015, respectively (Note 5)     —         207,374         —         —    
                                   
NET LOSS     (3,853,796 )     (272,364 )       (125,471 )     (74,216 )
                                   
NET LOSS ATTRIBUTED TO NON-CONTROLLING INTEREST     (1,989 )     —           —         —    
                                   
NET LOSS ATTRIBUTED TO THE STAFFING GROUP LTD.   $ (3,851,807 )   $ (272,364 )     $ (125,471 )   $ (74,216 )
                                   
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS   $ (3.51 )   $ (0.64 )                  
BASIC NET INCOME PER COMMON SHARE FROM DISCONTINUED OPERATIONS   $ —       $ 0.28                    
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE   $ (3.51 )   $ (0.36 )                  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted                                  
Basic and diluted     1,097,984       744,400                    

 

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

 

F-4

The Staffing Group Ltd., and Subsidiary

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

 

    Series A Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Non-controlling       Total shareholder's
    Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total     deficit
                                                                        (Predecessor)  
Balance - December 31, 2014     —       $ —         744,436     $ 744     $ 1,670,180     $ (2,509,026 )   $ —       $ (838,102 )     $ —    
                                                                           
Series A Preferred Stock issued     2       —         —         —         —         —         —         —           —    
Common stock issued for cash     —         —         40,000       40       79,960       —         —         80,000         —    
Series A Preferred Stock issued in conjunction with convertible note payable     1       —         —         —         —         —         —         —           —    
Cancellation of Series A Preferred Stock and Common Stockin split-off transaction     (2 )     —         (182,000 )     (182 )     684,609       —         —         684,427         —    
Net loss     —         —         —         —         —         (272,364 )     —         (272,364 )       —    
                                                                           
Balance - December 31, 2015     1       —         602,436       602       2,434,749       (2,781,390 )     —         (346,039 )       143,510  
                                                                           
Common stock issued for cash     —         —         7,000       7       6,993       —         —         7,000         —    
Common stock issued for services     —         —         60,000       60       109,140       —         —         109,200         —    
Common stock issued in conjunction with Agreement for Purchase and Sale of Assets     —         —         600,000       600       1,079,400       —         —         1,080,000         —    
Series B Preferred Stock issued in conjunction with convertible note payable     —         —         —         —         —         —         —         —           —    
Common stock issued for convertible stock     —         —         63,300       63       5,507       —         —         5,570         —    
Non-controlling interest contribution     —         —         —         —         —         —         14,000       14,000         —    
Net contributions     —         —         —         —         —         —         —         —           (305,819 )
Net loss     —         —         —         —         —         (3,851,807 )     (1,989 )     (3,853,796 )       (74,216 )
                                                                           
Balance - December 31, 2016     1     $ —         1,332,736     $ 1,332     $ 3,635,789     $ (6,633,197 )   $ 12,011     $ (2,984,065 )     $ (236,525 )

 

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

 

F-5

The Staffing Group Ltd., and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the Year Ended December 31,     For the Three Months Ended March 31, 2016   For the Year Ended December 31, 2015
    2016   2015     (Predecessor)   (Predecessor)
                   
CASH FLOWS FROM OPERATING ACTIVITIES                                  
Net loss   $ (3,853,796 )   $ (272,364 )     $ (125,471 )   $ (74,216 )
Adjustments to reconcile net loss to net                                  
cash provided by operating activities:                                  
Bad debt expense     44,978       —           —         —    
Depreciation     —         —           993       3,971  
Amortization of intangible assets     180,000       —           —         —    
Impairment of customer relationships and non-compete agreements     613,000       —           —         —    
Impairment of goodwill     761,000                            
Amortization of debt discount     2,366,870       4,265         11,489       124,821  
Stock-based compensation     109,200       —           —         —    
Change in fair value of derivative liabilities     (132,195 )     98,959         —         —    
Changes in operating assets and liabilities:                                  
Accounts receivable     (881,775 )     —           (22,569 )     162,081  
Prepaid expenses and other current assets     (2,833 )     120,548         —         600  
Accounts payable     396,080       49,431         129,895       298,314  
Accounts payable - related party     430,978       —           —         —    
Accrued liabilities     41,200       —           —         —    
Accrued liabilities - related party     83,900       —           —         —    
Net cash (used in) discontinued operations     —         —           —         —    
NET CASH PROVIDED BY OPERATING ACTIVITIES     156,607       839         (5,663 )     515,571  
                                   
CASH FLOWS FROM INVESTING ACTIVITIES                                  
Purchase of equipment     (1,364 )     —           —         —    
Business acquisition - purchase of four branches     (1,080,000 )     —           —         —    
Cash used for split-off of subsidiary, EmployUS, Ltd.     —         (25,710 )                  
Net cash (used in) discontinued operations     —         272,062         —         —    
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES     (1,081,364 )     246,352         —         —    
                                   
CASH FLOWS FROM FINANCING ACTIVITIES                                  
Increase in bank indebtedness     123,156       —           —         —    
Proceeds from common stock     7,000       80,000         —         —    
Net cash used to repay loan payable to factor     —         —           (220,105 )     (209,752 )
Proceeds from convertible notes payable     1,430,710       80,000         —         —    
Repayment of convertible notes payable     (678,609 )     —           —         —    
Advance from stockholder     28,500       —           —         —    
Repayment to stockholder     —         (8,609 )       —         —    
Non-controlling interest     14,000       —           —         —    
Net distribution to Labor Smart, Inc.     —         —           225,768       (305,819 )
Net cash (used in) discontinued operations     —         (398,582 )       —         —    
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     924,757       (247,191 )       5,663       (515,571 )
                                   
NET INCREASE IN CASH     —         —           —         —    
                                   
CASH, BEGINNING OF YEAR     —         —           —         —    
                                   
CASH, END OF YEAR   $ —       $ —         $ —       $ —    
                                   
SUPPLEMENTAL CASH FLOW INFORMATION                                  
Cash paid for taxes   $ —       $ —         $ —       $ —    
Cash paid for interest   $ 129,942     $ —         $ —       $ —    
                                   
NON-CASH ACTIVITIES                                  
Series B Preferred Stock issued in connection with issuance of convertible notes payable   $ 750,000     $ —                      
Note payable issued in connection with business acquisition   $ 506,000     $ —                      
Common Stock issued in connection with business acquisition   $ 1,080,000     $ —                      
Common Stock issued convertible stock   $ 5,570     $ —                      

 

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

 

F-6

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 1 - Description of Business

 

EmployUS, LLC (“EmployUS”) a Delaware Limited Liability Company, was formed on September 30, 2010 having a perpetual existence and was 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, EmployUS, was expanded to provide services on most major construction, chemical, and maritime projects in the Southeast United States. From its single initial project four years ago, EmployUS, grew to nine offices in three states, with more than 300 customers and that provided employment to over 4,500 individuals as of December 31, 2014.

 

Effective July 1, 2013, EmployUS, 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 EmployUS became EmployUS, Ltd. (“EmployUS, Ltd.”).

 

On January 22, 2014, The Staffing Group Ltd. (“the Company”) entered into a Share Exchange Agreement (the “Exchange Agreement”) with EmployUS, Ltd., all of the stockholders of EmployUS, Ltd. (the “EmployUS, Ltd. Shareholders”), and the Company’s controlling stockholders. The Exchange 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, the Company issued an aggregate of 263,076 to the shareholders of EmployUS Ltd in exchange for the transfer of the EmployUS, Ltd. common stock. Additionally, three of the Company’s stockholders agreed to cancel an aggregate of 263,076 of the Company’s common stock.

   

Following the Exchange Agreement, there are 702,000 shares of the Company’s common stock issued and outstanding, which include 263,076 shares held by the former stockholders of EmployUS, Ltd. and 121,000 shares held by Brian McLoone, EmployUS Ltd.’s Chief Operating Officer but not a stockholder of EmployUS Ltd. prior to the merger. As a result, EmployUS, Ltd. pre-merger stockholders, including Brian McLoone, hold approximately 54.72% of the Company’s issued and outstanding shares of common stock and the former stockholders of the Company hold approximately 45.28%.

 

Upon closing of the Exchange Agreement, EmployUS, Ltd. became a wholly owned subsidiary of the Company. The Company ceased its prior operations and became engaged in the business of EmployUS, Ltd. As the Company was formerly a shell company, no pro forma disclosures were required. The Exchange Agreement was accounted for as a reverse merger and recapitalization and EmployUS, Ltd. was deemed to be the acquirer in the reverse merger for accounting purposes and the Company was deemed the legal acquirer. The Company therefore, take on EmployUS, Ltd.’s operating history.

 

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its current, at that time, directors, Brian McLoone and Brent Callais.

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

F-7

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 1 - Description of Business (Continued)

 

The fair value of Series A Preferred Stock was determined to be $0 per share as the holders do not have the right to receive dividends or distributions, the holders do not have the right to receive asset upon any liquidation of the Company and the Company may redeem Series A Preferred Stock for no consideration.

 

On December 22, 2015, the Company entered into a Licensing Agreement with Labor Smart, Inc. whereby Labor Smart, Inc. has granted the Company an exclusive license to use their trademarked name in connection with general advertising materials, point of sale displays and other promotional materials. As consideration for the use of the trademarked name, the Company agreed to pay to Labor Smart, Inc. a one-time fee of $5,000 for each newly opened branch location that is opened under the name of Labor Smart, Inc.

 

On December 28, 2015, the Company incorporated a subsidiary, Staff Fund I, LLC, a Nevada Limited Liability Company.

 

On December 31, 2015, the Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumes all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company.

 

The financial results of EmployUS, Ltd. qualifies for reporting as a discontinued operations. A substantial portion of the Company’s 2015 financial statements have been reclassified to conform to the reporting of discontinued operations adopted in the current year. (See Note 4).

 

In January 2016, the Company commenced operations of one (1) staffing location Montgomery, Alabama through the subsidiary, Staff Fund I, LLC. This subsidiary recruits, hires, employs and manages skilled and unskilled workers that it places with its client companies. During the year ended December 31, 2016. Staff Fund I, LLC issued membership interests for cash proceeds of $14,000. At December 31, 2016, 7% of Staff Fund I, LLC’s membership interest are held by non-controlling interest.

 

F-8

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 1 - Description of Business (Continued)

 

On April 1, 2016, the Company purchased the operating assets of four (4) branch locations in Charlotte, NC, Indianapolis, IN, Nashville, TN and Raleigh, NC from Labor Smart, Inc. for consideration with a fair value of $2,666,000. The one-time fee of $5,000 for the (4) newly opened branches which were opened under the Labor Smart, Inc. name totaling $20,000 was waived. As a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company in addition the CEO stepped down from any former position she held with Labor Smart, Inc. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes. (See Note 4). These consolidated financial statements report the financial position, operations and cash flows of the acquired business (the “Predecessor”). SEC Regulations require the Predecessor to be reported when the acquired business succeeds substantially all of the business and the Company’s own operations before the succession appear insignificant to the operations acquired.

 

On September 12, 2016, the Company cancelled the licensing agreement with Labor Smart, Inc and, as such, no longer operates under the Labor Smart trademarked name. The Company currently operates under its legal name, The Staffing Group Ltd.

 

Note 2 - Summary of Significant Accounting Policies

 

Basis of presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange Commission (“SEC”).

 

As a result of the split-off of EmployUs, Ltd. the consolidated balance sheets as of December 31, 2015 and 2015 and the related consolidated statements of operations and cash flows present the results and accounts of EmployUs, Ltd. as discontinued operations. All prior periods presented in the consolidated statements of operations and consolidated statement of cash flows discussed herein have been restated to conform to such presentation.

 

The carve-out financial statements have been prepared to demonstrate the historical results of operations, financial position, equity and cash flows of the Four Branches for the indicated periods under the Seller’s management. Accordingly, the carve-out financial statements do not reflect the presentation and classification of the Four Branches’ operations in the same manner as the Company. These financial statements were prepared on a "carve-out" basis from Labor Smart's accounts and reflects the historical accounts directly attributable to these four branches together with allocations of costs and expenses. The predecessor financial statement may not be indicative of future performance and my not reflect what their results of operations, financial position and cash flows would have been had those four units operated as an independent entity. Certain estimates, including allocation from Labor Smart, have been made to provide financial statements for stand-alone reporting purposes. Allocation of cost was based on the percentage of revenue. All inter-company transactions between Labor Smart and these four units are classified as net transfer to parent in the financial statements.

 

F-9

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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, evaluation of impairment of long lived assets, valuation allowance for deferred tax assets and valuation of derivative liabilities. 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 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.

 

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. As of December 31, 2016 and 2015, the Company did not have any cash equivalents.

 

Cash - Restricted

 

Restricted cash represents cash in a lockbox account by held by TCA Global Credit Master Fund, LP in accordance with the Senior Secured Revolving Credit Facility Agreement. No cash was considered restricted at December 31, 2016 and 2015. (See Note 8)

 

F-10

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

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 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 $44,978, and $0 (Predecessor) at December 31, 2016 and 2015, respectively, was recorded in these consolidated financial statements. 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.

 

Net (Loss) Income per Common Share

 

Net (loss) income per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period.  Diluted net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the year ended December 31, 2016, the Company had potentially 14,522,170 dilutive shares of common stock related to convertible notes payable as determined using the if-converted method and no potentially dilutive securities for the year ended December 31, 2015.

 

Property and Equipment

 

Property and equipment is 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.

 

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 remaining lease term

 

F-11

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

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.

 

Identifiable Intangible Assets

 

Identifiable intangible assets consist primarily of customer relationships and non-compete contracts. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Customer relationships and non-compete contracts are amortized on a straight-line basis over an estimated life of five years.

 

An identifiable intangible assets impairment charge of $613,000 (comprising customer relationships of $577,000 and non-compete agreements of $36,000) was recorded as at December 31, 2016.

 

Goodwill

 

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis at the reporting unit level. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company will conduct its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill.

 

F-12

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

A goodwill impairment charge of $761,000 was recorded as at December 31, 2016. The impairment of goodwill was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. See Note 4 – Business Acquisition.

 

Opening balance at December 31, 2015 $                0
Purchase of goodwill 1,466,000
Impairment of goodwill (761,000)
Closing balance at December 31, 2016 $    705,000

 

Future changes in the industry could impact the results of future annual impairment tests. There can be no assurance that future tests of goodwill impairment will not result in additional impairment charges.

 

Fair Value Measurement

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC (“ASC 820-10”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

  Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
  Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
  Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

The carrying amounts reported in the Company’s consolidated financial statements for accounts receivable, prepaid expenses, accounts payable, accrued expenses, and payroll liabilities approximate their fair value because of the immediate or short-term nature of these consolidated financial instruments. The carrying amounts reported in the consolidated balance sheet for its line of credit and convertible notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place.

 

F-13

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

Impairment

Goodwill and other indefinite-lived intangible assets are tested for impairment annually, at the end of the fourth quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate it is more likely than not that the carrying amount may be impaired. Additionally, the Company continually evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. The factors used to determine fair value are subject to management’s judgement and expertise and include, but are not limited to, the present value of future cash flows, net of estimated operating costs, internal forecasts, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected.

These assumptions represent level 3 inputs. Impairment of the Company’s goodwill and intangibles for the year ended December 31, 2016 was $761,000 and 613,000, respectively. There were no impairment charges during the year ended December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):

    December 31, 2016
    Level 1   Level 2   Level 3
Liabilities:            
Derivative liability   $ —       $ —       $ 1,099,376  
                         
      December 31, 2015  
      Level 1        Level 2        Level 3  
Liabilities:                        
Derivative liability   $ —       $ —       $ 178,958  

 

Assets measured at fair value on a non-recurring basis are as follows:

 

  December 31, 2016  
  Level 1  Level 2  Level 3  Total Impairments
Assets:        
Intangible assets  $           -     $           -     $            407,000  $                    613,000
Goodwill  $           -     $           -     $            705,000  $                    761,000
Total assets  $           -     $           -     $        1,112,000  $                1,374,000

 

F-14

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

Advertising

 

The Company charges advertising costs to expense as incurred. Advertising costs were $8,231 and $11,614 (Predecessor) for the years ended December 31, 2016 and 2015, respectively.

 

Concentration of Credit Risk

 

The Company did not have any other customers that exceeded 10% of either revenue or accounts receivable in either 2016 or 2015.

 

Convertible Promissory Notes

 

i) Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

ii) Debt Discount

The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480, applies to certain contracts involving a Company's own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:

– A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to a fixed dollar amount,

– Variations in something other than the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer's equity shares, or

– Variations inversely related to changes in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.

If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

iii) Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

F-15

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible promissory notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

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 consolidated 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.

 

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 North Carolina, Indiana, Tennessee, 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, 2016.

 

There were no uncertain tax positions that would require recognition in the financial statements through December 31, 2016. 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 Company accounts for income taxes under ASC 740-10-30.  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts.” The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which was issued by the FASB in August 2015 and extended the original effective date by one year. The Company is currently evaluating the impact of adopting the available methodologies of ASU 2014-09 and 2015-14 upon its financial statements in future reporting periods. The Company has not yet selected a transition method. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect the guidance will have on its financial statements and what changes to systems and controls may be warranted.

 

F-16

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs. 

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes. The new standard simplifies the presentation of deferred tax assets and liabilities on the balance sheet.  Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet.  The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet.  This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements

 

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 is intended to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the effect that ASU 2016-15 will have on the Company’s consolidated financial position and results of operations.

 

F-17

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 2 - Summary of Significant Accounting Policies (Continued)

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 along with amending other parts of the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require a prospective approach. The Company is currently evaluating the impact of adopting this guidance.

 

Note 3 – going concern and Capital resources

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2016, the Company had a stockholders’ deficit of $2,984,065 and a working capital deficit of $3,506,230. For the year ended December 31, 2016 the Company had a net loss of $3,853,796. The Company’s stockholders’ deficiency is primarily due to, among other reasons, funding its historical net losses.

 

The Company’s principal sources of liquidity include cash from operations and proceeds from debt and equity financings. As of December 31, 2016, the Company had $123,156 in bank indebtedness.

 

The Company is funding its operations primarily through the sale of equity, convertible notes payable and shareholder loans. In the event the Company experiences liquidity and capital resources constraints because of greater than anticipated sales growth or acquisition needs, the Company may need to raise additional capital in the form of equity and/or debt financing including refinancing its current debt. Issuances of additional shares will result in dilution to its existing shareholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund any potential acquisition needs or increased growth. 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 its business, results of operations and financial condition. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.

 

F-18

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 4 – business acquisition

 

On April 1, 2016, the Company entered into an Agreement for Purchase and Sale of Assets (the “Agreement”) with Labor Smart, Inc. (the “Seller”), related party and shareholder of the Company. Pursuant to the Agreement, the Company purchased from the Seller the operating assets of four (4) branch locations (Charlotte, North Carolina, Indianapolis, Indiana, Nashville, Tennessee and Raleigh, North Carolina), which includes customer lists, title to certain leases for real or personal property, contracts, fixed assets, and business records (collectively the “Four Branches”). The Seller retained all open accounts receivable related to the prior operations of the branch locations and was responsible for all operating liabilities. In consideration for the Four Branches, the Company paid the Seller total consideration with a fair value of $2,666,000, paid as follows: (i) $890,890 in cash, (ii) 600,000 shares of the Company’s common stock at a fair value of $1,080,000 ($1.80 per share based on the closing price of the Company common stock on March 31, 2016), (iii) a non-interest bearing promissory note due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. The Company assumed no liabilities in the business acquisition. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at an annual market interest rate of 20% per annum. (iv) payoff of certain of the Seller’s outstanding debt totaling $29,110, and (v) direct payment to the IRS on behalf of the Seller in the amount of $160,000 (the “Purchase Price”).

 

On April 1, 2016, as a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes.

 

Assets acquired and liabilities assumed in the Agreement were recorded on the Company’s Consolidated Balance Sheet as of the acquisition date of April 1, 2016 based upon their estimated fair values. The results of operations of businesses acquired by the Company have been included in the statements of operations since the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired and liabilities assumed were allocated to goodwill.

 

The preliminary allocation of the purchase price and the estimated fair market values of the assets acquired and liabilities assumed are shown below:

 

Customer Relationships  $ 1,130,000
Non-compete Agreements 70,000
Goodwill 1,466,000
Purchase Price $ 2,666,000

 

F-19

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 4 – business acquisition (Continued)

 

Unaudited pro forma results of operations information for the year ended December 31, 2015 as if the Company and the entities described above had been combined on January 1, 2015 are as follows. The pro forma results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future.

 

    For the Year Ended December 31, 2016   For the Year Ended December 31, 2015
Net revenues   $ 5,617,446     $ 5,962,254  
Income (loss) from operations   $ (1,518,775 )   $ (275,909 )
Net loss   $ (3,979,267 )   $ (346,580 )
Net loss per share   $ (3.62 )   $ (0.47 )

 

Revenue and costs are generally allocated using specific identification and include corporate administrative expenses, finance, legal, tax, treasury and other general corporate services.

 

The carve-out financial information include revenue and expenses of Labor Smart, Inc., allocated to the Four Branches (“Predecessor”) for certain functions provided by Labor Smart, including compensation and benefits, occupancy, information technology costs, finance and interest costs, legal, tax, deferred tax, treasury and other general corporate services. These expenses have been allocated to the results of the Four Branches based on one of four allocation cost drivers:

1)                   Revenues attributable to the Four Branches,

2)                   The headcount of employees within the Four Branches and Labor Smart

3)                   The identification of costs specific to the Four Branches; and

4)                   Allocation of finance and interest costs based on proceeds from the sales of the Four Branches by Labor Smart.

 

Management considers the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, the Four Branches, The allocations may not; however, reflect the expenses the Four Branches would have incurred as an independent entity for the periods presented.

 

Predecessor financial information has been provided in these consolidated financial statements as the Company acquired the Four Branches and the operations of the Company before the acquisition of the Four Branches were insignificant relative to the operations acquired. The historical results of operations, financial position, equity and cash flows of the Four Branches may not be indicative of what they actually would have been had the Four Branches been a separate stand-alone entity, nor are they indicative of what the Four Branches’ results of operations, financial position, equity and cash flows may be in the future. The carve-out financial statements have been prepared to demonstrate the historical results of operations, financial position, equity and cash flows of the Four Branches for the indicated periods under the Seller’s management. Accordingly, the carve-out financial statements do not reflect the presentation and classification of the Four Branches’ operations in the same manner as the Company.

 

F-20

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 5 – DISCONTINUED OPERATIONS

 

On December 31, 2015, the Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. Completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd.. In consideration thereof, Pour Les Enfant assumed all liabilities of EmployUS, Ltd. Associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated with the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agreed to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation.

 

The following table summarizes the results from discontinued operations for the year ended December 31, 2015:

 

NET REVENUES        
Contract staffing services   $ 13,657,933  
         
COST OF SERVICES     11,125,247  
GROSS PROFIT     2,532,686  
SELLING, GENERAL AND ADMINISTRATIVE     2,156,504  
         
INCOME FROM OPERATIONS     376,182  
OTHER EXPENSE     (168,808 )
         
INCOME FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES     207,374  
         
(Provision) benefit for income taxes     -  
         
NET  INCOME OF EMPLOYUS, LTD.   $ 207,374  

 

Note 6 – Identifiable Intangible Assets

 

Intangible assets comprise customer relationships and non-compete agreements which are recorded at cost.

 

    December 31, 2016   December 31, 2015
Customer relationships   $ 451,000     $ —    
Non-compete agreements     28,000       —    
      479,000       —    
Accumulated amortization     (72,000 )     —    
Identifiable Intangible Assets   $ 407,000     $ —    

 

On April 1, 2016, the Company acquired customer relationships and non-compete agreements costing $1,130,000 and $70,000, respectively, and commenced amortization upon closing of the business acquisition for the Four Branches.

 

An identifiable intangible assets impairment charge of $613,000 (comprising customer relationships of $577,000 and non-compete agreements of $36,000) was recorded as at December 31, 2016. The impairment of identifiable intangible assets was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. See Note 4 – Business Acquisition.

 

During the year ended December 31, 2016 and 2015, $180,000 (comprising customer relationships of $169,500 and non-compete agreements of $10,500) and $0, respectively, was recorded as amortization. The Company estimates amortization over the next four years is $95,865 per annum and amortization of $23,940 in the fifth year.

 

F-21

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 7 – accounts payable – related party

 

At December 31, 2016 and 2015, $430,978 and $0, respectively, is due to Labor Smart Inc for trade payables related to payroll costs.

 

NOTE 8 – notes payable – related party

 

On May 20, 2014, the Company issued a promissory note for $94,500 for cash to a shareholder of the Company that is to be repaid in full by May 20, 2015. The note accrues interest expense at 10% per annum and in accordance with the promissory note, there is a late fee of $100 per day for each day the note remains unpaid beyond the maturity date. Interest and late fee expense for the years ended December 31, 2016 and 2015 was $46,050 and $15,251, respectively. The Company recorded late fees payable of $59,000 and $22,400 and accrued interest payable of $24,131 and $14,681, as of December 31, 2016 and December 31, 2015, respectively, and is included in accounts payable and accrued expenses – related party as of December 31, 2016 and 2015.

 

On July 14, 2014, the Company issued a promissory note for $12,500 for cash to a shareholder of the Company that is to be repaid in full by July 14, 2015. The note accrues interest expense at 10% per annum and in accordance with the promissory note, there is a late fee of $100 per day for each day the note remains unpaid beyond the maturity date. Interest and late fee expense for the year ended December 31, 2016 and 2015 was $37,850 and $1,833, respectively. The Company recorded late fees payable of $53,500 and $16,900 and accrued interest payable of $3,083 and $1,833, as of December 31, 2016 and 2015, respectively, and is included in accounts payable and accrued expenses – related party as of December 31, 2016 and 2015.

 

On April 1, 2016, in conjunction with Agreement for Purchase and Sale of Assets (Note 4), the Company issued an unsecured non-interest bearing promissory note to Labor Smart, Inc., due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at a market interest rate of 20% per annum. At December 31, 2016, the promissory note has been recorded net of debt discount of $163,801. Amortization of debt discount of $85,199 has been included in interest expense in the consolidated statements of loss for the year ended December 31, 2016, respectively. The debt discount is being amortized on the effective interest method.

 

Note 9 – convertible promissory note – related party

 

On December 18, 2015, the Company entered into a Convertible Promissory Note (“Note”) with Labor Smart Inc. (“Holder”) in the original principal amount of $80,000 bearing a 12% annual interest rate and maturing on December 16, 2016. . As December 31, 2016, the Note is past due. In conjunction with the issuance of the Note, as further consideration, the Company issued the Holder one (1) share of Series A Preferred Stock of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 75% of the market price which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid within 120 days of date of issue at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At December 31, 2016, the Note includes principal of $80,000 and accrued interest of $39,431 See Note 11 – Convertible Promissory Note Derivative Liability – Related Party.

 

F-22

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 10 – convertible promissory notes

 

On March 29, 2016, with an effective date of April 5, 2016, in conjunction with the Agreement for Purchase and Sale of Assets (Note 3), the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA agreed to loan up to a maximum of three million dollars ($3,000,000) to us for working capital purposes. A total of $1,300,000 was funded by TCA in connection with the closing of the Agreement. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Senior Secured Revolving Convertible Promissory Note (the “Revolving Note”), the repayment of which is secured by Security Agreements executed by us and our subsidiary, The Staff Fund I, LLC. Pursuant to the Security Agreements, the repayment of the Revolving Note is secured by a security interest in substantially all of our assets in favor of TCA. The initial Revolving Note in the amount of $1,300,000 is due and payable along with interest thereon on October 5, 2016, and bears interest at the minimum rate of 12% per annum, increasing to 22% per annum upon the occurrence of an Event of Default, as defined in the Credit Agreement. Upon an Event of Default, TCA shall have the right to convert all or any portion of the Revolving Note into shares of the Company’s common stock. The conversion rate shall be 85% of the lowest VWAP of the Company’s stock for the five days preceding the conversion date. The Credit Agreement provides for certain contractual rights to TCA. TCA has influence and veto power over key decisions which effect operating, investing and financing activities of the Company including the right to approve the transfer agent, maintenance of insurance, approve the selection of management after performing background investigations, approve all capital expenditures, approve issuance of stock, approve opening new bank accounts and approve change in control of the Company.  The Credit Agreement also provides that all cash receipts from customers are required to be deposited in a lock box account. Distributions from the lock box account are made to the Company only after obligations to TCA are satisfied. TCA with absolute discretion may withhold cash in the lock box in order to protect collateral. During the year ended December 31, 2016, the Company paid $620,511 in cash for principal and $129,942 for interest and fees. At December 31, 2016, the Note includes principal of $679,489 and accrued interest of $203,025 and the Note is past due. See Note 11 – Convertible Promissory Note Derivative Liability.

 

On May 26, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Group 10 Holdings, LLC (“Holder”) in the original principal amount of $100,000 bearing a 10% annual interest rate and maturing December 26, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 55% of the lowest trading price of any day during the 25 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may prepay the Note at any time while outstanding for no prepayment penalty. During the year ended December 31, 2016, the Company issued 63,300 shares of common stock for principal and interest of $5,570. At December 31, 2016, the Note includes principal of $94,430 and accrued interest of $87,881 See Note 11 – Convertible Promissory Note Derivative Liability.

 

On September 27, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Carebourn Capital, L.P. (“Holder”) in the original principal amount of $236,325 less transaction costs of $36,325 bearing a 12% annual interest rate and maturing September 27, 2017. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the average of the three lowest trading prices of any day during the 20 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the Note if repaid within 180 days of date of issue at 130% of the original principal amount plus interest and between 181 days and 364 days at 150% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. During the year ended December 31, 2016, the Company paid $58,096 in cash for principal and interest. At December 31, 2016, the Note includes principal of $178,229 and accrued interest of $42,186 less unamortized debt discount of $174,816. See Note 11 – Convertible Promissory Note Derivative Liability.

 

F-23

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 11 – Derivative Liability

 

The Convertible Promissory Notes with Labor Smart, Inc. with an issue date of December 18, 2015, TCA Global Credit Master Fund, LP with an issue date of April 5, 2016, Group 10 Holdings, LLC with an issue date of May 26, 2016 and Carebourn Capital, L.P. with and issue date of September 27, 2016 were accounted for under ASC 815.  The variable conversion price is not considered predominately based on a fixed monetary amount settleable with a variable number of shares due to the volatility and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liability has been measured at fair value at December 31, 2016 using the binominal lattice model.

 

The inputs into the binominal lattice model are as follows:

 

    Inception   December 31, 2015   December 31, 2016
Conversion price   $0.0188  - $1.4178 per share   $0.0225 per share   $0.099  - $0.135 per share
Risk free rate      0.51% - 0.64 %     0.64 %     0.62 %
Expected volatility     188%  – 355 %     355 %     185% – 205 %
Dividend yield     0 %     0 %     0 %
Expected life     0.50 – 1.0 years       0.96 years       0.50 – 0.74 years  

 

Changes in convertible promissory note derivative liability during the year ended December 31, 2016 were as follows:

 

    December 31, 2016   December 31, 2015
Opening balance   $ 178,959     $ 0  
Initial valuation of derivatives     1,052,612       99,554  
Initial loss on derivatives     0       (19,554 )
Change in fair value of derivative
Liability		     (132,195 )     98,959  
Closing balance   $ 1,099,376     $ 178,959  

 

Note 12 – due to stockholder

 

Amounts due to stockholder of $28,500 is non-interest bearing, unsecured and have no specific terms of repayment.

 

F-24

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 13 – Series B Preferred Stock

 

On March 29, 2016, the Board of Directors Board designated sixty (60) shares of preferred stock, par value $0.001 per share as Series B Preferred Stock (“Series B Stock”). The Series B Stock is being issued to the owner of the Series B Preferred Stock (“Holder”) in connection with the Senior Secured Revolving Credit Facility Agreement between the Company and TCA, effective as of April 5, 2016 (Note 3). The Series B Stock is non-voting and not entitled to dividends. Upon liquation, dissolution or winding up of the Company, the Holder is entitled to a liquidation preference of $25,000 per share of Series B Stock. The Holder may convert Series B Stock into shares of authorized but unissued common stock equal to $25,000 divided by the average VWAP for five business days immediately prior to the conversion date.

 

The Company has classified Series B Stock as a liability in these consolidated financial statements in accordance with ASC 480, Liabilities – Distinguishing Liabilities from Equity, as the Series B Stock has a fixed monetary amount known at inception and is settable in a variable amount shares based on the fair value of the shares of the Company’s common stock.

 

On April 1, 2016, the Company issued thirty (30) shares of the Company’s Series B Stock to TCA an advisory fee with a fair value of $750,000. The Series B Stock was issued in conjunction with the convertible note payable issued to TCA and was recorded as debt discount. The amount was classified as a current liability as the shares are expected to be redeemed within one year.

 

Note 14 – Stockholders’ Equity

 

On March 8, 2016, the Company approved and effected a 1-for 50 reverse stock split of issued and outstanding common shares. All share information has been revised to reflect the reverse stock split from the Company’s inception.

 

Preferred Stock

 

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.

 

On November 13, 2015, the Company’s Board of Directors approved and filed a Certificate of Designation designating five (5) shares of the blank check preferred stock as Series A Preferred Stock par value $0.001 as defining the rights, preferences and privileges of such series of Preferred Stock. For each share of Series A Preferred Stock, the holder has a voting right equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. The Series A Preferred Stock does not have the right to receive dividends and distributions and does not have the right to received assets upon any liquidation. The Series A Preferred Stock may be redeemed by the Company at no consideration.

 

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its then current directors, Brian McLoone and Brent Callais.

 

F-25

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 14 – Stockholders’ Equity (Continued)

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

The fair value of Series A Preferred Stock was determined to be $0 per share as the holders do not have the right to receive dividends or distributions, the holders do not have the right to receive asset upon any liquidation of the Company and the Company may redeem Series A Preferred Stock for no consideration.

 

On December 31, 2015, Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumes all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company.

 

Common Stock

 

On November 30, 2015, the Company entered into a private placement securities purchase agreement with Labor Smart, Inc. to which the Company issued 40,000 shares of its common stock at a price of $2.00 per share for an aggregate purchase price of $80,000 in gross proceeds. 

 

On April 1, 2016, the Company issued 600,000 shares of common stock with a fair value of $1,080,000 ($1.80 per share based on the closing price of the Company common stock on March 31, 2016) in conjunction with the Agreement for Purchase and Sale of Assets (Note 3).

 

On April 1, 2016, as a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company.

 

On April 25, 2016, the Board of Directors authorized the issuance of 60,000 shares of common stock of the Company to Kimberly Thompson, the Chief Executive Officer of the Company, for compensation valued at $109,200 ($1.82 per share) is expensed immediately and is included in selling, general and administrative expense in the consolidated statement of operations.

 

On July 11, 2016, the Company issued 7,000 shares of common stock for $7,000 in cash ($1.00 per share).

 

F-26

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 14 – Stockholders’ Equity (Continued)

 

On December 19, 2016, Group 10 Holdings LLC, the holder of a Convertible Promissory Note (see Note 10) converted 63,300 shares of common stock of the Company with a fair value of $12,660 to settle $5,570 of principal and interest.

 

Non-controlling interest

 

During the year ended December 31, 2016, the subsidiary of the Company, Staff Fund I, LLC, issued membership interests for cash proceeds of $14,000.

 

Opening balance at December 31, 2015   $ 0  
Issue of membership interest     14,000  
Net loss attributed to non-controlling interest     (1,989 )
Closing balance at December 31, 2016   $ 12,011  

 

 

Note 15 – Income Tax Provision 

 

The Company had no income tax expense due to operating losses incurred for the year ended December 31, 2016 and 2015.

 

The reconciliation between the statutory income tax rate and the effective tax rate is as follows:

 

              (Predecessor)
    December 31,   December 31,     December 31,
    2016   2015     2015
Computed expected tax expense     (34 %)     (34 %)       (34 %)
State taxes, net of federal benefit     (4 %)     (1 %)       (1 %)
Permanent difference     23 %     7 %       0 %
Write-off of net operating losses due to Section 382     4 %     11 %       0 %
Change in valuation allowance     11 %     17 %       35 %
Income tax provision (benefit)     0 %     0 %       0 %

 

The types of temporary differences that give rise to deferred tax assets and liabilities are as follows:

 

              (Predecessor)
    December 31,   December 31,     December 31,
    2016   2015     2015
Deferred tax assets:                          
  Net operating loss   $ 182,100     $ 300,050       $ 25,975  
  Intangible assets     535,600       —           —    
  Valuation allowance     (717,700 )     (300,050 )       (25,975 )
Net deferred tax assets   $ —       $ —         $ —    
                           

 

F-27

 

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 15 – Income Tax Provision (Continued)

 

As of December 31, 2016, the Company has net operating loss carryforwards of approximately $483,200 for federal and state tax purposes, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2034 and 2036. Based on the Company’s preliminary analysis, management believes that its ability to utilize previously accumulated net operating loss carryforwards are subject to annual limitations due to a change in ownership occurred during the year. The estimated annual limitation is approximately $23,000. As of December 31, 2016, the Company recorded the impact of such limitations.

 

The Company, after considering all available evidence, fully reserved its deferred tax asset since it is more likely than not that such benefits will not be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. During the year ended December 31, 2016, the Company increased its valuation allowance by $417,650.

 

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

 

If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the consolidated statements of operations. As of December 31, 2016 and 2015, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2016 and 2015. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

 

F-28

 

The Staffing Group Ltd. and Subsidiary

NOTES TO consolidated FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 16 - Contingencies and Commitments

 

Litigation

 

The Company may be subject to 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 five of its branch offices and for its corporate headquarters, located in Kennesaw, Georgia. For the years ended December 31, 2016 and 2015 rent expense was $78,466 and $6,000 (Predecessor), respectively.

 

As of December 31, 2016, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, are as follows:

 

Years   Amount
  2017     $ 89,626  
  2018       48,133  
  2019       16,512  
  Total     $ 154,271  

 

Note 17- Subsequent Events

 

From January 1, 2017 to May 9, 2017, the holders of Convertible Promissory Notes (see Note 10) converted 292,100 shares of common stock of the Company to settle $16,344 of principal and interest.

 

On February 26, 2017, the holder of Series B Preferred Stock (see Note 13) converted 64,870 shares of the Company to settle one-half (0.5) share of Series B Stock of the Company with a liquidation preference of $12,974.

 

F-29

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None 

 

Item 9A.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

The Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016, the end of the period covered by this report. Based upon that evaluation, the Company’s CEO concluded that the Company’s disclosure controls and procedures are not effective at the reasonable assurance level due to the material weaknesses described below:

 

1. The Company’s board of directors has no audit committee, independent director or member with financial expertise which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting.
2. The Company does not have sufficient segregation of duties within its accounting functions, which is a basic internal control.  Due to its size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of its failure to have segregation of duties on its assessment of its disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

In light of the material weaknesses, the management of the Company performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America.  Accordingly, we believe that our consolidated financial statements included herein fairly present, in all material respects, our consolidated financial condition, consolidated results of operations and cash flows as of and for the reporting periods then ended.

   

Remediation of Material Weaknesses

 

We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by adding independent directors or members with financial expertise and/or hiring a full-time CFO, with SEC reporting experience, in the future when working capital permits and by working with our independent registered public accounting firm and refining our disclosure controls and procedures.  To date, we have not been successful in reducing the number of audit adjustments, but will continue our efforts in the coming fiscal year as more fully detailed below.

 

-23-

Management's Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officer and effected by the issuer’s 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 accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

  · Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
  · Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and
  · Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.  However, these inherent limitations are known features of the financial reporting process.  Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of the end of our most recent fiscal year, management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013 and SEC guidance on conducting such assessments.  Based on that evaluation, management concluded that, as of December 31, 2016, such internal control over financial reporting was not effective.  This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors and a financial expert on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets  (3) we have not conducted a formal assessment of whether the policies that have been implemented address the specific risks of misstatement, due to the change control (4) we do not have not have a fully effective mechanism for monitoring the system of internal controls (5) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2016.

-24-

To address the material weaknesses set forth above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only the management's report in this annual report.

 

Management's Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2017 when funding is available. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2017.

 

Changes in Internal Controls over Financial Reporting

 

Except for actions taken to remedy the material weaknesses described above and change in management and accounting staff due to the split-off transaction, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.

 

Item 9B.    Other Information.

 

None.

 

-25-

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

Our directors, executive officers and key employees are listed below. The number of directors is determined by our board of directors. All directors hold office until the next annual meeting of the board or until their successors have been duly elected and qualified. Officers are elected by the board of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board of directors.

 

NAME   AGE   POSITION
Kimberly Thompson   49   Interim Chief Executive Officer and Sole Director (Principal Executive Officer and Principal Financial and Accounting Officer)

 

Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

 

Kimberly Thompson

 

Kimberly Thompson, our Interim Chief Executive Office appointed on December 31, 2016, has 25 years of operational expertise.  Ms. Thompson is also serving as Chief Operating Officer of Labor Smart, Inc., our controlling shareholder. Ms. Thompson has held this office since November 2014. Ms. Thompson was previously an operations manager for Tip Top Roofers, Inc., from August 2000 to November 2014. Mrs. Thompson is an energetic leader and excels in implementing processes that drive revenue growth, financial performance, and operational excellence with a strong focus on customer satisfaction and brand loyalty. In her most recent position, Mrs. Thompson lead the operations team for the largest commercial roofing company in the southeast US.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

• 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 Securities and Exchange 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;

 

-26-

• 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.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

 

Term of Office

 

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

 

Code of Ethics

 

The Company does not currently have a code of ethics, and because the Company has only limited business operations and only two officers and directors, the Company believes that a code of ethics would have limited utility.  The Company intends to adopt such a code of ethics as the Company’s business operations expand and the Company has more directors, officers, and employees. 

 

Board of Directors and Director Nominees

 

Since our board of directors has no independent directors, the decisions of the Board regarding director nominees are made by persons who have an interest in the outcome of the determination. The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, at any time not less than 10 days prior to the next annual board meeting at which a slate of director nominees is adopted, the board of directors will accept written submissions from proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the security holder submitting the proposed nominee believes that the nomination would be in the best interests of our security holders. If the proposed nominee is not the same person as the security holder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee's qualifications to serve on the board of directors, as well as a list of references.

 

-27-

The board of directors identifies director nominees through a combination of referrals from different people, including management, existing board members and security holders. Once a candidate has been identified, the board of directors reviews the individual's experience and background and may discuss the proposed nominee with the source of the recommendation. If the board of directors believes it to be appropriate, board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of the slate of director nominees submitted to security holders for election to the board of directors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

The Company does not have a class of securities registered under the Exchange Act and therefore its directors, executive officers, and any persons holding more than ten percent of the Company’s common stock are not required to comply with Section 16 of the Exchange Act.

 

Item 11.  Executive Compensation.

 

Summary Compensation Table

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2016 and 2015 in all capacities for the accounts of our executives.

 

Name and                   Option          
principal               Stock   awards   All Other   Total  
position   Year   Salary($)   Bonus($)   Award(s)($)   ($)   Compensation($)   ($)  
                               
Kimberly Thompson   2016   78,700   -   109,200   -   -   187,900  
Interim Chief Executive Office and Sole Director   2015   -   -   -   -   -   -  
                               
Brian McLoone,   2015   167,720   -   -   -   -   167,720  
President, CEO, CFO, Treasurer, Chief Accounting Officer and Secretary                              

 

Director Compensation

 

We have provided no compensation to our directors for their services provided as directors.

 

Employment Agreements

 

The Company has not entered into any employment agreements with any of its officers.

 

-28-

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth certain information regarding our shares of common stock beneficially owned as of May 9, 2017, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

 

For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of April 7, 2016. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of April 7, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise specified, the address of each of the persons set forth below is care of the company at the address of: 400 Poydras St., Suite 1165, New Orleans, LA 70130.

 

Name and Address   Beneficial
Ownership		   Percentage
of Class (1)
Kimberly Thompson, Interim Chief Executive Office and Sole Director     60,000       3.55 %
All officers/directors as a group (1 person)     —         —   %
Labor Smart, Inc., 3270 Florence Road, Suite 200, Powder Springs, GA 30127 (2)     640,000       37.88 %

 

  (1) Based on 1,689,706 shares of common stock outstanding.
  (2) Ryan Schadel has sole voting and dispositive power and control over Labor Smart Inc.

 

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.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

 

Related Party Transactions

 

On December 18, 2015, the Company entered into a Convertible Promissory Note (“Note”) with Labor Smart Inc. (“Holder”) in the original principal amount of $80,000 bearing a 12% annual interest rate and maturing on December 16, 2016. In conjunction with the issuance of the Note, as further consideration, the Company issued the Holder one (1) share of Series A Preferred Stock of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 75% of the market price which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid within 120 days of date of issue at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At December 31, 2016, the Note includes principal of $80,000 and accrued interest of $39,431 less unamortized debt discount of $0.

 

-29-

At December 31, 2016 and 2015, the Company had outstanding notes outstanding of $107,000 from a stockholder and accrued interest and late fees of $139,715 and $55,814, respectively.

 

On April 1, 2016, in conjunction with Agreement for Purchase and Sale of Assets (Note 4), the Company issued an unsecured non-interest bearing promissory note to Labor Smart, Inc., due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at a market interest rate of 20% per annum. At December 31, 2016, the promissory note has been recorded net of debt discount of $163,801. Amortization of debt discount of $85,199 has been included in interest expense in the consolidated statements of loss for the year ended December 31, 2016, respectively. The debt discount is being amortized on the effective interest method.  

 

At December 31, 2016 and 2015, convertible promissory note derivative liability due to Labor Smart Inc. is $82,865 and $0, respectively.

 

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);

 

  ● 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.

 

-30-

Corporate Governance

 

For reasons similar to those described above, the Company does not have a nominating nor audit committee of the board of directors. The board of directors consists of one director. At such time that the Company has a larger board of directors and generates revenue, the Company will propose creating committees of its board of directors, including both a nominating and an audit committee. Accordingly, the Company does not have an audit committee financial expert.

 

Item 14.  Principal Accounting Fees and Services.

 

The total fees charged to the Company for audit services were $151,648, for audit-related services were $0, for tax services were $0, and for other services were $0 during the year ended December 31, 2016.

 

The total fees charged to the Company for audit services were $98,600, for audit-related services were $0, for tax services were $0, and for other services were $0 during the year ended December 31, 2015.

 

-31-

PART IV

 

Item 15.  Exhibits, Financial Statement Schedules.

 

Exhibit        
Number   Exhibit Title   Filing Method
         
3.1(i)   Articles of Incorporation dated June 11, 2012  

Incorporated by

Reference

         
3.1(ii)   Certificate of Amendment to Articles of Incorporation dated September 12, 2013   Incorporate by Reference
         
3.2   Bylaws. (1)  

Incorporated by

Reference

         
31.1   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith
         
32.1*   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Furnished herewith
         
101.INS   XBRL Instance Document   Filed herewith
         
101.SCH   XBRL Taxonomy Schema   Filed herewith
         
101.CAL   XBRL Taxonomy Calculation Linkbase   Filed herewith
         
101.DEF   XBRL Taxonomy Definition Linkbase   Filed herewith
         
101.LAB   XBRL Taxonomy Label Linkbase   Filed herewith
         
101.PRE   XBRL Taxonomy Presentation Linkbase   Filed herewith

 

In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed. 

 

  (1) Incorporated by reference to the exhibit in the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 21, 2012.
  (2) Incorporated by reference to the exhibit in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2013.

 

-32-

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

    THE STAFFING GROUP LTD.
     
Dated: June 1, 2018 By: /s/ Kimberly Thompson
    Kimberly Thompson
    Duly Authorized Officer, Interim Chief Executive Officer
    And Sole Director
    (Principal Executive Officer and Principal Financial and
    Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/Kimberly Thompson   Interim Chief Executive Office and Sole Director   June 1, 2018
Kimberly Thompson   (Principal Executive Officer and Principal Financial and    
    Accounting Officer)    
         

 

-33-

 EX-31.1 2 tsgl_ex311.htm CERTIFICATION tsgl_ex311.htm

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Kimberly Thompson, certify that:

 

1.    I have reviewed this quarterly report on Form 10-K of The Staffing Group Ltd.;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

 

Date: June 1, 2018 By: /s/ Kimberly Thompson  
    Kimberly Thompson  
    Duly Authorized Officer, Interim Chief Executive Officer  
    And Sole Director  
    (Principal Executive Officer and Principal Financial and  
    Accounting Officer)  

  

 

 EX-32.1 3 tsgl_ex321.htm CERTIFICATION tsgl_ex321.htm

EXHIBIT 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of The Staffing Group Ltd., (the “Company”) on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kimberly Thompson, Chief Executive Officer and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

 

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: June 1, 2018 By: /s/ Kimberly Thompson  
    Kimberly Thompson  
    Duly Authorized Officer, Interim Chief Executive Officer and Sole Director  
    (Principal Executive Officer and Principal Financial and  
    Accounting Officer)  

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

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Document And Entity Information - USD ($)
 12 Months Ended
Dec. 31, 2016
Jun. 30, 2017
Jun. 01, 2017
Document And Entity Information [Abstract]      
Entity Registrant Name Staffing Group, Ltd.    
Trading Symbol TSGL    
Entity Central Index Key 0001561622    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers Yes    
Entity Current Reporting Status No    
Entity Filer Category Smaller Reporting Company    
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2016    
Document Fiscal Year Focus 2016    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Public Float   $ 1,325,558  
Entity Common Stock, Shares Outstanding     1,689,706
XML 11 R2.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2016
Dec. 31, 2015
CURRENT ASSETS    
Accounts receivable, net $ 836,797
Prepaid expenses and other current assets 2,833
Total Current Assets 839,630
Property and equipment, net 1,364
Identifiable intangible assets, net of accumulated amortization of $72,000 and $0, respectively 407,000
Goodwill 705,000
TOTAL ASSETS 1,952,994 0
CURRENT LIABILITIES:    
Bank indebtedness 123,156
Accounts payable 396,079
Accounts payable - related party 430,978
Accrued liabilities 41,200
Accrued liabilities - related party 139,715 55,815
Loan payable to factor
Convertible note payable - related party, including accrued interest of $39,432 and $1,408, net of debt discount of $0 and $77,143, respectively 119,432 4,265
Convertible notes payable - including accrued interest of $333,092 and $0, net of debt discount of $174,816 and $0, respectively 1,110,424
Notes payable - related party 107,000 107,000
Derivative liability 1,099,376 178,959
Due to stockholder 28,500
60 shares of Preferred Stock, par value $0.001, designated as Series B Convertible Preferred Stock, 30 and 0 shares issued and outstanding as of December 31, 2016 and 2015, respectively. Liquidation preference of $750,000. 750,000
Total Current Liabilities 4,345,860 346,039
Note payable - related parties, net of debt discount of $163,801 and $0, respectively 591,199
TOTAL LIABILITIES 4,937,059 346,039
Commitments and contingencies (Note 13)
STOCKHOLDERS' DEFICIT    
Common stock par value $0.001: 150,000,000 shares authorized; 1,332,736 and 602,436 shares issued and outstanding as of December 31, 2016 and 2015, respectively 1,332 602
Additional paid-in capital 3,635,789 2,434,749
Accumulated deficit (6,633,197) (2,781,390)
TOTAL STOCKHOLDERS' DEFICIT (2,996,076) (346,039)
Non-controlling interest 12,011
TOTAL STOCKHOLDERS' DEFICIT (2,984,065) (346,039)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,952,994 0
Predecessor [Member]    
CURRENT ASSETS    
Accounts receivable, net   456,296
Prepaid expenses and other current assets   7,547
Total Current Assets   463,843
Property and equipment, net   4,963
Identifiable intangible assets, net of accumulated amortization of $72,000 and $0, respectively  
Goodwill  
TOTAL ASSETS   468,806
CURRENT LIABILITIES:    
Bank indebtedness  
Accounts payable   467,280
Accounts payable - related party  
Accrued liabilities  
Accrued liabilities - related party  
Loan payable to factor   238,051
Convertible note payable - related party, including accrued interest of $39,432 and $1,408, net of debt discount of $0 and $77,143, respectively  
Convertible notes payable - including accrued interest of $333,092 and $0, net of debt discount of $174,816 and $0, respectively  
Notes payable - related party  
Derivative liability  
Due to stockholder  
60 shares of Preferred Stock, par value $0.001, designated as Series B Convertible Preferred Stock, 30 and 0 shares issued and outstanding as of December 31, 2016 and 2015, respectively. Liquidation preference of $750,000.  
Total Current Liabilities   705,331
Note payable - related parties, net of debt discount of $163,801 and $0, respectively  
TOTAL LIABILITIES   705,331
STOCKHOLDERS' DEFICIT    
Additional paid-in capital  
Accumulated deficit  
TOTAL STOCKHOLDERS' DEFICIT  
Non-controlling interest  
TOTAL STOCKHOLDERS' DEFICIT   (236,525)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 468,806
XML 12 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2016
Dec. 31, 2015
Preferred stock, no par value $ 0 $ 0
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares, issued 1,332,736 602,421
Common stock, shares outstanding 1,332,736 602,421
Series B Preferred Stock [Member]    
Preferred stock, shares authorized 60 60
Preferred stock, shares issued 0 30
Preferred stock, shares outstanding 0 30
Series A Preferred Stock [Member]    
Preferred stock, shares authorized 5 5
Preferred stock, shares issued 1 1
Preferred stock, shares outstanding 1 1
XML 13 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
 3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2016
Dec. 31, 2015
NET REVENUES      
Contract staffing services   $ 4,277,777
COST OF SERVICES   2,907,847
GROSS PROFIT   1,369,930
SELLING, GENERAL AND ADMINSTRATIVE      
Amortization of intangible assets   180,000
Impairment of customer relationships and non-compete agreements   613,000
Impairment of goodwill   761,000
Payroll and related expenses   441,837
Selling, general and administrative expenses   778,886 326,514
TOTAL SELLING, GENERAL AND ADMINISTRATIVE   2,774,723 326,514
(LOSS) FROM OPERATIONS   (1,404,793) (326,514)
INCOME (LOSS) FROM OPERATIONS      
Interest expense   (2,581,198) (4,265)
Other expense   (50,000)
Change in fair value of derivative liabilities   132,195 (98,959)
TOTAL OTHER EXPENSE   (2,449,003) (153,224)
LOSS FROM CONTINUING OPERATONS BEFORE PROVISION FOR INCOME TAXES   (3,853,796) (479,738)
Provision for income taxes  
LOSS FROM CONTINUING OPERATIONS   (3,853,796) (479,738)
INCOME FROM DISCONTINUED OPERATIONS (including income taxes of $0 and $0 for 2016 and 2015, respectively (Note 5)   207,374
NET LOSS   (3,853,796) (272,364)
NET LOSS ATTRIBUTED TO NON-CONTROLLING INTEREST   (1,989)
NET LOSS ATTRIBUTED TO THE STAFFING GROUP LTD.   $ (3,853,796) $ (272,364)
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS   $ (3.51) $ (0.64)
BASIC NET INCOME PER COMMON SHARE FROM DISCONTINUED OPERATIONS   0.28
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE   $ (3.51) $ (0.36)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted   1,097,984 744,400
Predecessor [Member]      
NET REVENUES      
Contract staffing services $ 1,339,669   $ 5,962,254
COST OF SERVICES 992,493   4,468,986
GROSS PROFIT 347,176   1,493,268
SELLING, GENERAL AND ADMINSTRATIVE      
Amortization of intangible assets  
Impairment of customer relationships and non-compete agreements  
Impairment of goodwill  
Payroll and related expenses 117,623   429,392
Selling, general and administrative expenses 343,535   1,013,271
TOTAL SELLING, GENERAL AND ADMINISTRATIVE 461,158   1,442,663
(LOSS) FROM OPERATIONS (113,982)   50,605
INCOME (LOSS) FROM OPERATIONS      
Interest expense (11,489)   (124,821)
Other expense  
Change in fair value of derivative liabilities  
TOTAL OTHER EXPENSE (11,489)   (124,821)
LOSS FROM CONTINUING OPERATONS BEFORE PROVISION FOR INCOME TAXES (125,471)   (74,216)
Provision for income taxes  
LOSS FROM CONTINUING OPERATIONS (125,471)   (74,216)
INCOME FROM DISCONTINUED OPERATIONS (including income taxes of $0 and $0 for 2016 and 2015, respectively (Note 5)  
NET LOSS (125,471)   (74,216)
NET LOSS ATTRIBUTED TO NON-CONTROLLING INTEREST  
NET LOSS ATTRIBUTED TO THE STAFFING GROUP LTD. $ (125,471)   $ (74,216)
XML 14 R5.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]    
Income Taxes, Discontinued Operations $ 0 $ 0
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($)
Series A Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit
Noncontrolling Interest
Predecessor [Member]
Total
Balance at Dec. 31, 2014 $ 744 $ 1,670,180 $ (2,509,026)   $ (838,102)
Balance (in shares) at Dec. 31, 2014   744,436          
Series A Preferred Stock issued 2            
Stock issued for cash $ 40 79,960   80,000
Stock issued for cash (in shares)   40,000          
Series A Preferred Stock issued in conjunction with convertible note payable (in shares) 1            
Cancellation of Series A Preferred Stock and Common Stock in split-off transaction $ (182) 684,609   684,427
Cancellation of Series A Preferred Stock and Common Stock in split-off transaction (in shares) (2) (182,000)          
Common stock issued for convertible stock            
Net loss (272,364) $ (74,216) (272,364)
Balance at Dec. 31, 2015 $ 602 2,434,749 (2,781,390) 143,510 (346,039)
Balance (in shares) at Dec. 31, 2015 1 602,436          
Stock issued for cash $ 7 6,993 7,000
Stock issued for cash (in shares)   7,000          
Common stock issued for services $ 60 109,140 109,200
Common stock issued for services, in shares   60,000          
Common stock issued in conjunction with Agreement for Purchase and Sale of Assets $ 600 1,079,400 1,080,000
Common stock issued in conjunction with Agreement for Purchase and Sale of Assets, in shares   600,000          
Series B Preferred Stock issued in conjunction with convertible note payable
Common stock issued for convertible stock $ 63 5,507 5,570
Common stock issued for convertible stock, in shares   63,300          
Non-controlling interest contribution 14,000 14,000
Net contributions (305,819)
Net loss (3,851,807) (1,989) (74,216) (3,853,796)
Balance at Dec. 31, 2016 $ 1,332 $ 3,635,789 $ (6,633,197) $ 12,011 $ (236,525) $ (2,984,065)
Balance (in shares) at Dec. 31, 2016 1 1,332,736          
XML 16 R7.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
 3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2016
Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income   $ (3,853,796) $ (272,364)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:      
Bad debt expense   44,978
Depreciation  
Amortization of intangible assets   180,000
Impairment of customer relationships and non-compete agreements   613,000
Impairment of goodwill   761,000
Amortization of debt discount   2,366,870 4,265
Stock-based compensation   109,200
Change in fair value of derivative liabilities   (132,195) 98,959
Changes in operating assets and liabilities:      
Accounts receivable   (881,775)
Prepaid expenses and other current assets   (2,833) 120,548
Accounts payable   396,080 49,431
Accounts payable - related party   430,978
Accured liabilities   41,200
Accrued liabilities - related party   83,900
Net cash (used in) discontinued operations  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   156,607 839
CASH FLOWS FROM INVESTING ACTIVITIES      
Purchase of equipment   (1,364)
Business acquisition - purchase of four branches   (1,080,000)
Cash used for split-off of subsidiary, EmployUS, Ltd.   (25,710)
Net cash provided by discontinued operations   272,062
NET CASH PROVIDED BY INVESTING ACTIVITIES   (1,081,364) 246,352
CASH FLOWS FROM FINANCING ACTIVITIES      
Increase in bank indebtedness   123,156
Proceeds from common stock   7,000 80,000
Net cash received from loan payable to factor  
Proceeds from convertible notes payable   1,430,710 80,000
Repayment of convertible notes payable   (678,609)
Advance from stockholder   28,500
Repayment to stockholder   (8,609)
Non-controlling interest   14,000
Net distribution to Labor Smart, Inc.  
Net cash by (provided) discontinued operations   (398,582)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES   924,757 (247,191)
NET INCREASE IN CASH  
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD  
SUPPLEMENTAL CASH FLOW INFORMATION      
Cash paid for taxes  
Cash paid for interest   129,942
NON-CASH ACTIVITIES      
Series B Stock issued in connection with issuance of convertible notes payable   750,000
Note payable issued in connection with business acquisition   506,000
Common Stock issued in connection with business acquisition   1,080,000
Common Stock issued convertible stock   5,570
Predecessor [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income (125,471) (74,216) (74,216)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:      
Bad debt expense  
Depreciation 993   3,971
Amortization of intangible assets  
Impairment of customer relationships and non-compete agreements  
Amortization of debt discount 11,489   124,821
Stock-based compensation  
Change in fair value of derivative liabilities  
Changes in operating assets and liabilities:      
Accounts receivable (22,569)   162,081
Prepaid expenses and other current assets   600
Accounts payable 129,895   298,314
Accounts payable - related party  
Accured liabilities  
Accrued liabilities - related party  
Net cash (used in) discontinued operations  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,663)   515,571
CASH FLOWS FROM INVESTING ACTIVITIES      
Purchase of equipment  
Business acquisition - purchase of four branches  
Net cash provided by discontinued operations  
NET CASH PROVIDED BY INVESTING ACTIVITIES  
CASH FLOWS FROM FINANCING ACTIVITIES      
Increase in bank indebtedness  
Proceeds from common stock  
Net cash received from loan payable to factor (220,105)   (209,752)
Proceeds from convertible notes payable  
Repayment of convertible notes payable  
Advance from stockholder  
Repayment to stockholder  
Non-controlling interest  
Net distribution to Labor Smart, Inc. 225,768   (305,819)
Net cash by (provided) discontinued operations  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 5,663   (515,571)
NET INCREASE IN CASH  
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD  
SUPPLEMENTAL CASH FLOW INFORMATION      
Cash paid for taxes  
Cash paid for interest  
NON-CASH ACTIVITIES      
Common Stock issued convertible stock    
Noncontrolling Interest      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income   (1,989)
NON-CASH ACTIVITIES      
Common Stock issued convertible stock    
Accumulated Deficit      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income   (3,851,807) (272,364)
NON-CASH ACTIVITIES      
Common Stock issued convertible stock    
Additional Paid-in Capital [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income  
NON-CASH ACTIVITIES      
Common Stock issued convertible stock   5,507  
Series A Preferred Stock [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income  
NON-CASH ACTIVITIES      
Common Stock issued convertible stock    
Common Stock [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net (loss) income  
NON-CASH ACTIVITIES      
Common Stock issued convertible stock   $ 63  
XML 17 R8.htm IDEA: XBRL DOCUMENT v3.8.0.1
DESCRIPTION OF BUSINESS
 12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS

Note 1 - Description of Business

 

EmployUS, LLC (“EmployUS”) a Delaware Limited Liability Company, was formed on September 30, 2010 having a perpetual existence and was 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, EmployUS, was expanded to provide services on most major construction, chemical, and maritime projects in the Southeast United States. From its single initial project four years ago, EmployUS, grew to nine offices in three states, with more than 300 customers and that provided employment to over 4,500 individuals as of December 31, 2014.

 

Effective July 1, 2013, EmployUS, 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 EmployUS became EmployUS, Ltd. (“EmployUS, Ltd.”).

 

On January 22, 2014, The Staffing Group Ltd. (“the Company”) entered into a Share Exchange Agreement (the “Exchange Agreement”) with EmployUS, Ltd., all of the stockholders of EmployUS, Ltd. (the “EmployUS, Ltd. Shareholders”), and the Company’s controlling stockholders. The Exchange 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, the Company issued an aggregate of 263,076 to the shareholders of EmployUS Ltd in exchange for the transfer of the EmployUS, Ltd. common stock. Additionally, three of the Company’s stockholders agreed to cancel an aggregate of 263,076 of the Company’s common stock.

   

Following the Exchange Agreement, there are 702,000 shares of the Company’s common stock issued and outstanding, which include 263,076 shares held by the former stockholders of EmployUS, Ltd. and 121,000 shares held by Brian McLoone, EmployUS Ltd.’s Chief Operating Officer but not a stockholder of EmployUS Ltd. prior to the merger. As a result, EmployUS, Ltd. pre-merger stockholders, including Brian McLoone, hold approximately 54.72% of the Company’s issued and outstanding shares of common stock and the former stockholders of the Company hold approximately 45.28%.

 

Upon closing of the Exchange Agreement, EmployUS, Ltd. became a wholly owned subsidiary of the Company. The Company ceased its prior operations and became engaged in the business of EmployUS, Ltd. As the Company was formerly a shell company, no pro forma disclosures were required. The Exchange Agreement was accounted for as a reverse merger and recapitalization and EmployUS, Ltd. was deemed to be the acquirer in the reverse merger for accounting purposes and the Company was deemed the legal acquirer. The Company therefore, take on EmployUS, Ltd.’s operating history.

 

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its current, at that time, directors, Brian McLoone and Brent Callais.

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

The fair value of Series A Preferred Stock was determined to be $0 per share as the holders do not have the right to receive dividends or distributions, the holders do not have the right to receive asset upon any liquidation of the Company and the Company may redeem Series A Preferred Stock for no consideration.

 

On December 22, 2015, the Company entered into a Licensing Agreement with Labor Smart, Inc. whereby Labor Smart, Inc. has granted the Company an exclusive license to use their trademarked name in connection with general advertising materials, point of sale displays and other promotional materials. As consideration for the use of the trademarked name, the Company agreed to pay to Labor Smart, Inc. a one-time fee of $5,000 for each newly opened branch location that is opened under the name of Labor Smart, Inc.

 

On December 28, 2015, the Company incorporated a subsidiary, Staff Fund I, LLC, a Nevada Limited Liability Company.

 

On December 31, 2015, the Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumes all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company.

 

The financial results of EmployUS, Ltd. qualifies for reporting as a discontinued operations. A substantial portion of the Company’s 2015 financial statements have been reclassified to conform to the reporting of discontinued operations adopted in the current year. (See Note 4).

 

In January 2016, the Company commenced operations of one (1) staffing location Montgomery, Alabama through the subsidiary, Staff Fund I, LLC. This subsidiary recruits, hires, employs and manages skilled and unskilled workers that it places with its client companies. During the year ended December 31, 2016. Staff Fund I, LLC issued membership interests for cash proceeds of $14,000. At December 31, 2016, 7% of Staff Fund I, LLC’s membership interest are held by non-controlling interest.

 

On April 1, 2016, the Company purchased the operating assets of four (4) branch locations in Charlotte, NC, Indianapolis, IN, Nashville, TN and Raleigh, NC from Labor Smart, Inc. for consideration with a fair value of $2,666,000. The one-time fee of $5,000 for the (4) newly opened branches which were opened under the Labor Smart, Inc. name totaling $20,000 was waived. As a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company in addition the CEO stepped down from any former position she held with Labor Smart, Inc. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes. (See Note 4). These consolidated financial statements report the financial position, operations and cash flows of the acquired business (the “Predecessor”). SEC Regulations require the Predecessor to be reported when the acquired business succeeds substantially all of the business and the Company’s own operations before the succession appear insignificant to the operations acquired.

 

On September 12, 2016, the Company cancelled the licensing agreement with Labor Smart, Inc and, as such, no longer operates under the Labor Smart trademarked name. The Company currently operates under its legal name, The Staffing Group Ltd.
XML 18 R9.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2 - Summary of Significant Accounting Policies

 

Basis of presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange Commission (“SEC”).

 

As a result of the split-off of EmployUs, Ltd. the consolidated balance sheets as of December 31, 2015 and 2015 and the related consolidated statements of operations and cash flows present the results and accounts of EmployUs, Ltd. as discontinued operations. All prior periods presented in the consolidated statements of operations and consolidated statement of cash flows discussed herein have been restated to conform to such presentation.

 

The carve-out financial statements have been prepared to demonstrate the historical results of operations, financial position, equity and cash flows of the Four Branches for the indicated periods under the Seller’s management. Accordingly, the carve-out financial statements do not reflect the presentation and classification of the Four Branches’ operations in the same manner as the Company. These financial statements were prepared on a "carve-out" basis from Labor Smart's accounts and reflects the historical accounts directly attributable to these four branches together with allocations of costs and expenses. The predecessor financial statement may not be indicative of future performance and my not reflect what their results of operations, financial position and cash flows would have been had those four units operated as an independent entity. Certain estimates, including allocation from Labor Smart, have been made to provide financial statements for stand-alone reporting purposes. Allocation of cost was based on the percentage of revenue. All inter-company transactions between Labor Smart and these four units are classified as net transfer to parent in the financial statements.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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, evaluation of impairment of long lived assets, valuation allowance for deferred tax assets and valuation of derivative liabilities. 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 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.

 

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. As of December 31, 2016 and 2015, the Company did not have any cash equivalents.

 

Cash - Restricted

 

Restricted cash represents cash in a lockbox account by held by TCA Global Credit Master Fund, LP in accordance with the Senior Secured Revolving Credit Facility Agreement. No cash was considered restricted at December 31, 2016 and 2015. (See Note 8)

 

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 $44,978, and $0 (Predecessor) at December 31, 2016 and 2015, respectively, was recorded in these consolidated financial statements. 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.

 

Net (Loss) Income per Common Share

 

Net (loss) income per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period.  Diluted net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the year ended December 31, 2016, the Company had potentially 14,522,170 dilutive shares of common stock related to convertible notes payable as determined using the if-converted method and no potentially dilutive securities for the year ended December 31, 2015.

 

Property and Equipment

 

Property and equipment is 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.

 

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 remaining 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.

 

Identifiable Intangible Assets

 

Identifiable intangible assets consist primarily of customer relationships and non-compete contracts. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Customer relationships and non-compete contracts are amortized on a straight-line basis over an estimated life of five years.

 

An identifiable intangible assets impairment charge of $613,000 (comprising customer relationships of $577,000 and non-compete agreements of $36,000) was recorded as at December 31, 2016.

 

Goodwill

 

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis at the reporting unit level. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company will conduct its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill.

 

A goodwill impairment charge of $761,000 was recorded as at December 31, 2016. The impairment of goodwill was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. See Note 4 – Business Acquisition.

 

Opening balance at December 31, 2015 $                0
Purchase of goodwill 1,466,000
Impairment of goodwill (761,000)
Closing balance at December 31, 2016 $    705,000

  

Future changes in the industry could impact the results of future annual impairment tests. There can be no assurance that future tests of goodwill impairment will not result in additional impairment charges.

 

Fair Value Measurement

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC (“ASC 820-10”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

  Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
  Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
  Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

 

The carrying amounts reported in the Company’s consolidated financial statements for accounts receivable, prepaid expenses, accounts payable, accrued expenses, and payroll liabilities approximate their fair value because of the immediate or short-term nature of these consolidated financial instruments. The carrying amounts reported in the consolidated balance sheet for its line of credit and convertible notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place.

 

 Impairment

Goodwill and other indefinite-lived intangible assets are tested for impairment annually, at the end of the fourth quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate it is more likely than not that the carrying amount may be impaired. Additionally, the Company continually evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. The factors used to determine fair value are subject to management’s judgement and expertise and include, but are not limited to, the present value of future cash flows, net of estimated operating costs, internal forecasts, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected.

These assumptions represent level 3 inputs. Impairment of the Company’s goodwill and intangibles for the year ended December 31, 2016 was $761,000 and 613,000, respectively. There were no impairment charges during the year ended December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):

   December 31, 2016
   Level 1  Level 2  Level 3
Liabilities:         
Derivative liability  $—     $—     $1,099,376 
                
    December 31, 2015 
    Level 1     Level 2     Level 3 
Liabilities:               
Derivative liability  $—     $—     $178,958 

 

Assets measured at fair value on a non-recurring basis are as follows:

 

  December 31, 2016  
  Level 1  Level 2  Level 3  Total Impairments
Assets:        
Intangible assets  $           -     $           -     $            407,000  $                    613,000
Goodwill  $           -     $           -     $            705,000  $                    761,000
Total assets  $           -     $           -     $        1,112,000  $                1,374,000

 

Advertising

 

The Company charges advertising costs to expense as incurred. Advertising costs were $8,231 and $11,614 (Predecessor) for the years ended December 31, 2016 and 2015, respectively.

 

Concentration of Credit Risk

 

The Company did not have any other customers that exceeded 10% of either revenue or accounts receivable in either 2016 or 2015.

 

Convertible Promissory Notes

 

i)Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

ii)Debt Discount

The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480, applies to certain contracts involving a Company's own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:

– A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to a fixed dollar amount,

– Variations in something other than the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer's equity shares, or

– Variations inversely related to changes in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.

If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

iii)Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible promissory notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

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 consolidated 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.

 

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 North Carolina, Indiana, Tennessee, 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, 2016.

 

There were no uncertain tax positions that would require recognition in the financial statements through December 31, 2016. 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 Company accounts for income taxes under ASC 740-10-30.  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts.” The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which was issued by the FASB in August 2015 and extended the original effective date by one year. The Company is currently evaluating the impact of adopting the available methodologies of ASU 2014-09 and 2015-14 upon its financial statements in future reporting periods. The Company has not yet selected a transition method. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect the guidance will have on its financial statements and what changes to systems and controls may be warranted.

 

There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs. 

In November 2015, the FASB issued ASU 2015-17, Income Taxes. The new standard simplifies the presentation of deferred tax assets and liabilities on the balance sheet.  Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet.  The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet.  This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements

 

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 is intended to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the effect that ASU 2016-15 will have on the Company’s consolidated financial position and results of operations.

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 along with amending other parts of the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require a prospective approach. The Company is currently evaluating the impact of adopting this guidance.
XML 19 R10.htm IDEA: XBRL DOCUMENT v3.8.0.1
GOING CONCERN AND CAPITAL RESOURCES
 12 Months Ended
Dec. 31, 2016
Liquidity And Capital Resources [Abstract]  
GOING CONCERN AND CAPITAL RESOURCES

Note 3 – going concern and Capital resources

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2016, the Company had a stockholders’ deficit of $2,984,065 and a working capital deficit of $3,506,230. For the year ended December 31, 2016 the Company had a net loss of $3,853,796. The Company’s stockholders’ deficiency is primarily due to, among other reasons, funding its historical net losses.

  

The Company’s principal sources of liquidity include cash from operations and proceeds from debt and equity financings. As of December 31, 2016, the Company had $123,156 in bank indebtedness.

 

The Company is funding its operations primarily through the sale of equity, convertible notes payable and shareholder loans. In the event the Company experiences liquidity and capital resources constraints because of greater than anticipated sales growth or acquisition needs, the Company may need to raise additional capital in the form of equity and/or debt financing including refinancing its current debt. Issuances of additional shares will result in dilution to its existing shareholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund any potential acquisition needs or increased growth. 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 its business, results of operations and financial condition. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.
XML 20 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ACQUISITION
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
BUSINESS ACQUISITION

Note 4 – business acquisition

 

On April 1, 2016, the Company entered into an Agreement for Purchase and Sale of Assets (the “Agreement”) with Labor Smart, Inc. (the “Seller”), related party and shareholder of the Company. Pursuant to the Agreement, the Company purchased from the Seller the operating assets of four (4) branch locations (Charlotte, North Carolina, Indianapolis, Indiana, Nashville, Tennessee and Raleigh, North Carolina), which includes customer lists, title to certain leases for real or personal property, contracts, fixed assets, and business records (collectively the “Four Branches”). The Seller retained all open accounts receivable related to the prior operations of the branch locations and was responsible for all operating liabilities. In consideration for the Four Branches, the Company paid the Seller total consideration with a fair value of $2,666,000, paid as follows: (i) $890,890 in cash, (ii) 600,000 shares of the Company’s common stock at a fair value of $1,080,000 ($1.80 per share based on the closing price of the Company common stock on March 31, 2016), (iii) a non-interest bearing promissory note due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. The Company assumed no liabilities in the business acquisition. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at an annual market interest rate of 20% per annum. (iv) payoff of certain of the Seller’s outstanding debt totaling $29,110, and (v) direct payment to the IRS on behalf of the Seller in the amount of $160,000 (the “Purchase Price”).

 

On April 1, 2016, as a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. As such, at December 31, 2016, Kimberly Thompson controlled the majority of shareholder votes.

 

Assets acquired and liabilities assumed in the Agreement were recorded on the Company’s Consolidated Balance Sheet as of the acquisition date of April 1, 2016 based upon their estimated fair values. The results of operations of businesses acquired by the Company have been included in the statements of operations since the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired and liabilities assumed were allocated to goodwill.

 

The preliminary allocation of the purchase price and the estimated fair market values of the assets acquired and liabilities assumed are shown below:

 

Customer Relationships  $ 1,130,000
Non-compete Agreements 70,000
Goodwill 1,466,000
Purchase Price $ 2,666,000

 

Unaudited pro forma results of operations information for the year ended December 31, 2015 as if the Company and the entities described above had been combined on January 1, 2015 are as follows. The pro forma results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future.

 

   For the Year Ended December 31, 2016  For the Year Ended December 31, 2015
Net revenues  $5,617,446   $5,962,254 
Income (loss) from operations  $(1,518,775)  $(275,909)
Net loss  $(3,979,267)  $(346,580)
Net loss per share  $(3.62)  $(0.47)

 

Revenue and costs are generally allocated using specific identification and include corporate administrative expenses, finance, legal, tax, treasury and other general corporate services.

 

The carve-out financial information include revenue and expenses of Labor Smart, Inc., allocated to the Four Branches (“Predecessor”) for certain functions provided by Labor Smart, including compensation and benefits, occupancy, information technology costs, finance and interest costs, legal, tax, deferred tax, treasury and other general corporate services. These expenses have been allocated to the results of the Four Branches based on one of four allocation cost drivers:

1) Revenues attributable to the Four Branches,

2) The headcount of employees within the Four Branches and Labor Smart

3) The identification of costs specific to the Four Branches; and

4) Allocation of finance and interest costs based on proceeds from the sales of the Four Branches by Labor Smart.

 

Management considers the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, the Four Branches, The allocations may not; however, reflect the expenses the Four Branches would have incurred as an independent entity for the periods presented.

 

Predecessor financial information has been provided in these consolidated financial statements as the Company acquired the Four Branches and the operations of the Company before the acquisition of the Four Branches were insignificant relative to the operations acquired. The historical results of operations, financial position, equity and cash flows of the Four Branches may not be indicative of what they actually would have been had the Four Branches been a separate stand-alone entity, nor are they indicative of what the Four Branches’ results of operations, financial position, equity and cash flows may be in the future. The carve-out financial statements have been prepared to demonstrate the historical results of operations, financial position, equity and cash flows of the Four Branches for the indicated periods under the Seller’s management. Accordingly, the carve-out financial statements do not reflect the presentation and classification of the Four Branches’ operations in the same manner as the Company.
XML 21 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
DISCONTINUED OPERATIONS
 12 Months Ended
Dec. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
DISCONTINUED OPERATIONS

Note 5 – DISCONTINUED OPERATIONS

 

On December 31, 2015, the Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. Completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd.. In consideration thereof, Pour Les Enfant assumed all liabilities of EmployUS, Ltd. Associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated with the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agreed to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation.

 

The following table summarizes the results from discontinued operations for the year ended December 31, 2015:

 

NET REVENUES        
Contract staffing services   $ 13,657,933  
         
COST OF SERVICES     11,125,247  
GROSS PROFIT     2,532,686  
SELLING, GENERAL AND ADMINISTRATIVE     2,156,504  
         
INCOME FROM OPERATIONS     376,182  
OTHER EXPENSE     (168,808 )
         
INCOME FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES     207,374  
         
(Provision) benefit for income taxes     -  
         
NET  INCOME OF EMPLOYUS, LTD.   $ 207,374  
XML 22 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
IDENTIFIABLE INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
IDENTIFIABLE INTANGIBLE ASSETS

Note 6 – Identifiable Intangible Assets

 

Intangible assets comprise customer relationships and non-compete agreements which are recorded at cost.

 

   December 31, 2016  December 31, 2015
Customer relationships  $451,000   $—   
Non-compete agreements   28,000    —   
    479,000    —   
Accumulated amortization   (72,000)   —   
Identifiable Intangible Assets  $407,000   $—   

 

On April 1, 2016, the Company acquired customer relationships and non-compete agreements costing $1,130,000 and $70,000, respectively, and commenced amortization upon closing of the business acquisition for the Four Branches.

 

An identifiable intangible assets impairment charge of $613,000 (comprising customer relationships of $577,000 and non-compete agreements of $36,000) was recorded as at December 31, 2016. The impairment of identifiable intangible assets was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. See Note 4 – Business Acquisition.

 

During the year ended December 31, 2016 and 2015, $180,000 (comprising customer relationships of $169,500 and non-compete agreements of $10,500) and $0, respectively, was recorded as amortization. The Company estimates amortization over the next four years is $95,865 per annum and amortization of $23,940 in the fifth year.
XML 23 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
ACCOUNTS PAYABLE - RELATED PARTY
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
ACCOUNTS PAYABLE - RELATED PARTY

Note 7 – accounts payable – related party

 

At December 31, 2016 and 2015, $430,978 and $0, respectively, is due to Labor Smart Inc for trade payables related to payroll costs.
XML 24 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTES PAYABLE - RELATED PARTY
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
NOTES PAYABLE - RELATED PARTY

NOTE 8 – notes payable – related party

 

On May 20, 2014, the Company issued a promissory note for $94,500 for cash to a shareholder of the Company that is to be repaid in full by May 20, 2015. The note accrues interest expense at 10% per annum and in accordance with the promissory note, there is a late fee of $100 per day for each day the note remains unpaid beyond the maturity date. Interest and late fee expense for the years ended December 31, 2016 and 2015 was $46,050 and $15,251, respectively. The Company recorded late fees payable of $59,000 and $22,400 and accrued interest payable of $24,131 and $14,681, as of December 31, 2016 and December 31, 2015, respectively, and is included in accounts payable and accrued expenses – related party as of December 31, 2016 and 2015.

 

On July 14, 2014, the Company issued a promissory note for $12,500 for cash to a shareholder of the Company that is to be repaid in full by July 14, 2015. The note accrues interest expense at 10% per annum and in accordance with the promissory note, there is a late fee of $100 per day for each day the note remains unpaid beyond the maturity date. Interest and late fee expense for the year ended December 31, 2016 and 2015 was $37,850 and $1,833, respectively. The Company recorded late fees payable of $53,500 and $16,900 and accrued interest payable of $3,083 and $1,833, as of December 31, 2016 and 2015, respectively, and is included in accounts payable and accrued expenses – related party as of December 31, 2016 and 2015.

 

On April 1, 2016, in conjunction with Agreement for Purchase and Sale of Assets (Note 4), the Company issued an unsecured non-interest bearing promissory note to Labor Smart, Inc., due on April 1, 2018 with a face amount of $755,000 and a fair value of $506,000. In accordance with FASB ASC 835-30 "Imputation of Interest", interest has been imputed on the promissory note at a market interest rate of 20% per annum. At December 31, 2016, the promissory note has been recorded net of debt discount of $163,801. Amortization of debt discount of $85,199 has been included in interest expense in the consolidated statements of loss for the year ended December 31, 2016, respectively. The debt discount is being amortized on the effective interest method.
XML 25 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE - RELATED PARTY
 12 Months Ended
Dec. 31, 2016
Property, Plant and Equipment [Abstract]  
CONVERTIBLE PROMISSORY NOTE - RELATED PARTY

Note 9 – convertible promissory note – related party

 

On December 18, 2015, the Company entered into a Convertible Promissory Note (“Note”) with Labor Smart Inc. (“Holder”) in the original principal amount of $80,000 bearing a 12% annual interest rate and maturing on December 16, 2016. . As December 31, 2016, the Note is past due. In conjunction with the issuance of the Note, as further consideration, the Company issued the Holder one (1) share of Series A Preferred Stock of the Company. Each share of Series A Preferred Stock gives the holder voting rights equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 75% of the market price which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid within 120 days of date of issue at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At December 31, 2016, the Note includes principal of $80,000 and accrued interest of $39,431 See Note 11 – Convertible Promissory Note Derivative Liability – Related Party.
XML 26 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTES
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
CONVERTIBLE PROMISSORY NOTES

Note 10 – convertible promissory notes

 

On March 29, 2016, with an effective date of April 5, 2016, in conjunction with the Agreement for Purchase and Sale of Assets (Note 3), the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA agreed to loan up to a maximum of three million dollars ($3,000,000) to us for working capital purposes. A total of $1,300,000 was funded by TCA in connection with the closing of the Agreement. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Senior Secured Revolving Convertible Promissory Note (the “Revolving Note”), the repayment of which is secured by Security Agreements executed by us and our subsidiary, The Staff Fund I, LLC. Pursuant to the Security Agreements, the repayment of the Revolving Note is secured by a security interest in substantially all of our assets in favor of TCA. The initial Revolving Note in the amount of $1,300,000 is due and payable along with interest thereon on October 5, 2016, and bears interest at the minimum rate of 12% per annum, increasing to 22% per annum upon the occurrence of an Event of Default, as defined in the Credit Agreement. Upon an Event of Default, TCA shall have the right to convert all or any portion of the Revolving Note into shares of the Company’s common stock. The conversion rate shall be 85% of the lowest VWAP of the Company’s stock for the five days preceding the conversion date. The Credit Agreement provides for certain contractual rights to TCA. TCA has influence and veto power over key decisions which effect operating, investing and financing activities of the Company including the right to approve the transfer agent, maintenance of insurance, approve the selection of management after performing background investigations, approve all capital expenditures, approve issuance of stock, approve opening new bank accounts and approve change in control of the Company.  The Credit Agreement also provides that all cash receipts from customers are required to be deposited in a lock box account. Distributions from the lock box account are made to the Company only after obligations to TCA are satisfied. TCA with absolute discretion may withhold cash in the lock box in order to protect collateral. During the year ended December 31, 2016, the Company paid $620,511 in cash for principal and $129,942 for interest and fees. At December 31, 2016, the Note includes principal of $679,489 and accrued interest of $203,025 and the Note is past due. See Note 11 – Convertible Promissory Note Derivative Liability.

 

On May 26, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Group 10 Holdings, LLC (“Holder”) in the original principal amount of $100,000 bearing a 10% annual interest rate and maturing December 26, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 55% of the lowest trading price of any day during the 25 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may prepay the Note at any time while outstanding for no prepayment penalty. During the year ended December 31, 2016, the Company issued 63,300 shares of common stock for principal and interest of $5,570. At December 31, 2016, the Note includes principal of $94,430 and accrued interest of $87,881 See Note 11 – Convertible Promissory Note Derivative Liability.

 

On September 27, 2016, the Company entered into a Convertible Promissory Note (“Note”) with Carebourn Capital, L.P. (“Holder”) in the original principal amount of $236,325 less transaction costs of $36,325 bearing a 12% annual interest rate and maturing September 27, 2017. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the average of the three lowest trading prices of any day during the 20 consecutive trading days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the Note if repaid within 180 days of date of issue at 130% of the original principal amount plus interest and between 181 days and 364 days at 150% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. During the year ended December 31, 2016, the Company paid $58,096 in cash for principal and interest. At December 31, 2016, the Note includes principal of $178,229 and accrued interest of $42,186 less unamortized debt discount of $174,816. See Note 11 – Convertible Promissory Note Derivative Liability.
XML 27 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY - RELATED PARTY
 12 Months Ended
Dec. 31, 2016
Line of Credit Facility [Abstract]  
DERIVATIVE LIABILITY

Note 11 – Derivative Liability

 

The Convertible Promissory Notes with Labor Smart, Inc. with an issue date of December 18, 2015, TCA Global Credit Master Fund, LP with an issue date of April 5, 2016, Group 10 Holdings, LLC with an issue date of May 26, 2016 and Carebourn Capital, L.P. with and issue date of September 27, 2016 were accounted for under ASC 815.  The variable conversion price is not considered predominately based on a fixed monetary amount settleable with a variable number of shares due to the volatility and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liability has been measured at fair value at December 31, 2016 using the binominal lattice model.

 

The inputs into the binominal lattice model are as follows:

 

   Inception  December 31, 2015  December 31, 2016
Conversion price  $0.0188  - $1.4178 per share  $0.0225 per share  $0.099  - $0.135 per share
Risk free rate    0.51% - 0.64%   0.64%   0.62%
Expected volatility   188%  – 355%   355%   185% – 205%
Dividend yield   0%   0%   0%
Expected life   0.50 – 1.0 years    0.96 years    0.50 – 0.74 years 

 

Changes in convertible promissory note derivative liability during the year ended December 31, 2016 were as follows:

 

   December 31, 2016  December 31, 2015
Opening balance  $178,959   $0 
Initial valuation of derivatives   1,052,612    99,554 
Initial loss on derivatives   0    (19,554)
Change in fair value of derivative
Liability		   (132,195)   98,959 
Closing balance  $1,099,376   $178,959 
XML 28 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
DUE TO STOCKHOLDER
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
DUE TO STOCKHOLDER

Note 12 – due to stockholder

 

Amounts due to stockholder of $28,500 is non-interest bearing, unsecured and have no specific terms of repayment.
XML 29 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
SERIES B PREFERRED STOCK
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
SERIES B PREFERRED STOCK

Note 13 – Series B Preferred Stock

 

On March 29, 2016, the Board of Directors Board designated sixty (60) shares of preferred stock, par value $0.001 per share as Series B Preferred Stock (“Series B Stock”). The Series B Stock is being issued to the owner of the Series B Preferred Stock (“Holder”) in connection with the Senior Secured Revolving Credit Facility Agreement between the Company and TCA, effective as of April 5, 2016 (Note 3). The Series B Stock is non-voting and not entitled to dividends. Upon liquation, dissolution or winding up of the Company, the Holder is entitled to a liquidation preference of $25,000 per share of Series B Stock. The Holder may convert Series B Stock into shares of authorized but unissued common stock equal to $25,000 divided by the average VWAP for five business days immediately prior to the conversion date.

 

The Company has classified Series B Stock as a liability in these consolidated financial statements in accordance with ASC 480, Liabilities – Distinguishing Liabilities from Equity, as the Series B Stock has a fixed monetary amount known at inception and is settable in a variable amount shares based on the fair value of the shares of the Company’s common stock.

 

On April 1, 2016, the Company issued thirty (30) shares of the Company’s Series B Stock to TCA an advisory fee with a fair value of $750,000. The Series B Stock was issued in conjunction with the convertible note payable issued to TCA and was recorded as debt discount. The amount was classified as a current liability as the shares are expected to be redeemed within one year.
XML 30 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' DEFICIT
 12 Months Ended
Dec. 31, 2016
Related Party Transactions [Abstract]  
STOCKHOLDERS EQUITY

Note 14 – Stockholders’ Equity

 

On March 8, 2016, the Company approved and effected a 1-for 50 reverse stock split of issued and outstanding common shares. All share information has been revised to reflect the reverse stock split from the Company’s inception.

 

Preferred Stock

 

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.

 

On November 13, 2015, the Company’s Board of Directors approved and filed a Certificate of Designation designating five (5) shares of the blank check preferred stock as Series A Preferred Stock par value $0.001 as defining the rights, preferences and privileges of such series of Preferred Stock. For each share of Series A Preferred Stock, the holder has a voting right equal to 2 votes for every one share of common stock outstanding at the time of a vote of shareholders and does not have any additional rights or preferences. The Series A Preferred Stock does not have the right to receive dividends and distributions and does not have the right to received assets upon any liquidation. The Series A Preferred Stock may be redeemed by the Company at no consideration.

 

On November 13, 2015, the Board of Directors approved the issuance of two (2) shares of Series A Preferred Stock to each of its then current directors, Brian McLoone and Brent Callais.

 

On December 18, 2015, the Board approved the issuance of one (1) share of Series A Preferred Stock to Labor Smart, Inc., a 18.45% shareholder of common stock, in conjunction with the issuance of a convertible promissory note dated December 18, 2015.

 

The fair value of Series A Preferred Stock was determined to be $0 per share as the holders do not have the right to receive dividends or distributions, the holders do not have the right to receive asset upon any liquidation of the Company and the Company may redeem Series A Preferred Stock for no consideration.

 

On December 31, 2015, Company entered into a Stock Purchase Agreement (“SPA”) with Pour Les Enfant, LLC, a Louisiana limited liability company (“Pour Les Enfant”). Pursuant to the SPA, the Company, as sole shareholder of EmployUS, Ltd. completed the split-off by transferring to Pour Les Enfant all outstanding shares and tangible assets of EmployUS, Ltd. (the “split-off transaction”). In consideration thereof, Pour Les Enfant assumes all liabilities of EmployUS, Ltd. associated with monies owed to the Internal Revenue Service for late payroll taxes; and all corporate, personal, and validity guarantees associated the Crestmark Bank Loan and Security Agreement. Pursuant to the SPA, Brent Callais and Brian McLoone, directors, executives and controlling shareholders of the Company, each agree to transfer to the Company 91,000 shares of the Company’s common stock and one share of the Company’s preferred stock, for immediate cancellation. As a result of the cancellation of the two (2) preferred shares by Brent Callais and Brian McLoone, there was a change in control of the Company as Labor Smart, Inc. holds the one (1) remaining outstanding preferred share of the Company.

  

Common Stock

 

On November 30, 2015, the Company entered into a private placement securities purchase agreement with Labor Smart, Inc. to which the Company issued 40,000 shares of its common stock at a price of $2.00 per share for an aggregate purchase price of $80,000 in gross proceeds. 

 

On April 1, 2016, the Company issued 600,000 shares of common stock with a fair value of $1,080,000 ($1.80 per share based on the closing price of the Company common stock on March 31, 2016) in conjunction with the Agreement for Purchase and Sale of Assets (Note 3).

 

On April 1, 2016, as a requirement of the purchase of the operating assets, the one (1) issued and outstanding share of Series A Preferred Stock owed by Labor Smart, Inc. was transferred to Kimberly Thompson, the Chief Executive Officer of the Company.

 

On April 25, 2016, the Board of Directors authorized the issuance of 60,000 shares of common stock of the Company to Kimberly Thompson, the Chief Executive Officer of the Company, for compensation valued at $109,200 ($1.82 per share) is expensed immediately and is included in selling, general and administrative expense in the consolidated statement of operations.

 

On July 11, 2016, the Company issued 7,000 shares of common stock for $7,000 in cash ($1.00 per share).

 

On December 19, 2016, Group 10 Holdings LLC, the holder of a Convertible Promissory Note (see Note 10) converted 63,300 shares of common stock of the Company with a fair value of $12,660 to settle $5,570 of principal and interest.

 

Non-controlling interest

 

During the year ended December 31, 2016, the subsidiary of the Company, Staff Fund I, LLC, issued membership interests for cash proceeds of $14,000.

 

Opening balance at December 31, 2015  $0 
Issue of membership interest   14,000 
Net loss attributed to non-controlling interest   (1,989)
Closing balance at December 31, 2016  $12,011 
XML 31 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAX PROVISION
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAX PROVISION

Note 15 – Income Tax Provision 

 

The Company had no income tax expense due to operating losses incurred for the year ended December 31, 2016 and 2015.

 

The reconciliation between the statutory income tax rate and the effective tax rate is as follows:

 

           (Predecessor)
   December 31,  December 31,    December 31,
   2016  2015    2015
Computed expected tax expense   (34%)   (34%)     (34%)
State taxes, net of federal benefit   (4%)   (1%)     (1%)
Permanent difference   23%   7%     0%
Write-off of net operating losses due to Section 382   4%   11%     0%
Change in valuation allowance   11%   17%     35%
Income tax provision (benefit)   0%   0%     0%

 

The types of temporary differences that give rise to deferred tax assets and liabilities are as follows:

 

           (Predecessor)
   December 31,  December 31,    December 31,
   2016  2015    2015
Deferred tax assets:                 
  Net operating loss  $182,100   $300,050     $25,975 
  Intangible assets   535,600    —        —   
  Valuation allowance   (717,700)   (300,050)     (25,975)
Net deferred tax assets  $—     $—       $—   

 

As of December 31, 2016, the Company has net operating loss carryforwards of approximately $483,200 for federal and state tax purposes, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2034 and 2036. Based on the Company’s preliminary analysis, management believes that its ability to utilize previously accumulated net operating loss carryforwards are subject to annual limitations due to a change in ownership occurred during the year. The estimated annual limitation is approximately $23,000. As of December 31, 2016, the Company recorded the impact of such limitations.

 

The Company, after considering all available evidence, fully reserved its deferred tax asset since it is more likely than not that such benefits will not be realized in future periods. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. During the year ended December 31, 2016, the Company increased its valuation allowance by $417,650.

 

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

 

If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the consolidated statements of operations. As of December 31, 2016 and 2015, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2016 and 2015. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONTINGENCIES AND COMMITMENTS
 12 Months Ended
Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
CONTINGENCIES AND COMMITMENTS

Note 16 - Contingencies and Commitments

 

Litigation

 

The Company may be subject to 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 five of its branch offices and for its corporate headquarters, located in Kennesaw, Georgia. For the years ended December 31, 2016 and 2015 rent expense was $78,466 and $6,000 (Predecessor), respectively.

 

As of December 31, 2016, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, are as follows:

 

Years   Amount    
2017   $ 89,626    
2018     48,133    
2019     16,512    
Total   $ 154,271    
XML 33 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUBSEQUENT EVENTS
 12 Months Ended
Dec. 31, 2016
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

Note 17- Subsequent Events

 

From January 1, 2017 to May 9, 2017, the holders of Convertible Promissory Notes (see Note 10) converted 292,100 shares of common stock of the Company to settle $16,344 of principal and interest.

 

On February 26, 2017, the holder of Series B Preferred Stock (see Note 13) converted 64,870 shares of the Company to settle one-half (0.5) share of Series B Stock of the Company with a liquidation preference of $12,974.
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
BASIS OF PRESENTATION

Basis of presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange Commission (“SEC”).

 

As a result of the split-off of EmployUs, Ltd. the consolidated balance sheets as of December 31, 2015 and 2015 and the related consolidated statements of operations and cash flows present the results and accounts of EmployUs, Ltd. as discontinued operations. All prior periods presented in the consolidated statements of operations and consolidated statement of cash flows discussed herein have been restated to conform to such presentation.

The carve-out financial statements have been prepared to demonstrate the historical results of operations, financial position, equity and cash flows of the Four Branches for the indicated periods under the Seller’s management. Accordingly, the carve-out financial statements do not reflect the presentation and classification of the Four Branches’ operations in the same manner as the Company. These financial statements were prepared on a "carve-out" basis from Labor Smart's accounts and reflects the historical accounts directly attributable to these four branches together with allocations of costs and expenses. The predecessor financial statement may not be indicative of future performance and my not reflect what their results of operations, financial position and cash flows would have been had those four units operated as an independent entity. Certain estimates, including allocation from Labor Smart, have been made to provide financial statements for stand-alone reporting purposes. Allocation of cost was based on the percentage of revenue. All inter-company transactions between Labor Smart and these four units are classified as net transfer to parent in the financial statements.
PRINCIPLES OF CONSOLIDATION

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated.
USE OF ESTIMATES

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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, evaluation of impairment of long lived assets, valuation allowance for deferred tax assets and valuation of derivative liabilities. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
REVENUE RECOGNITION

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

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.
CASH AND CASH EQUIVALENTS

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. As of December 31, 2016 and 2015, the Company did not have any cash equivalents.
CASH - RESTRICTED

Cash - Restricted

 

Restricted cash represents cash in a lockbox account by held by TCA Global Credit Master Fund, LP in accordance with the Senior Secured Revolving Credit Facility Agreement. No cash was considered restricted at December 31, 2016 and 2015. (See Note 8)
ACCOUNTS RECEIVABLE

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 $44,978, and $0 (Predecessor) at December 31, 2016 and 2015, respectively, was recorded in these consolidated financial statements. 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.
NET (LOSS) INCOME PER COMMON SHARE

Net (Loss) Income per Common Share

 

Net (loss) income per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period.  Diluted net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the year ended December 31, 2016, the Company had potentially 14,522,170 dilutive shares of common stock related to convertible notes payable as determined using the if-converted method and no potentially dilutive securities for the year ended December 31, 2015.
PROPERTY AND EQUIPMENT

Property and Equipment

 

Property and equipment is 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.

 

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 remaining lease term
LONG-LIVED ASSETS

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.
IDENTIFIABLE INTANGIBLE ASSETS

Identifiable Intangible Assets

 

Identifiable intangible assets consist primarily of customer relationships and non-compete contracts. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Customer relationships and non-compete contracts are amortized on a straight-line basis over an estimated life of five years.

 

An identifiable intangible assets impairment charge of $613,000 (comprising customer relationships of $577,000 and non-compete agreements of $36,000) was recorded as at December 31, 2016.
GOODWILL

Goodwill

 

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis at the reporting unit level. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company will conduct its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill.

 

A goodwill impairment charge of $761,000 was recorded as at December 31, 2016. The impairment of goodwill was due to the loss of significantly all of the customers at the Nashville, TN and Raleigh, NC branches acquired on April 1, 2016. See Note 4 – Business Acquisition.

 

Opening balance at December 31, 2015 $                0
Purchase of goodwill 1,466,000
Impairment of goodwill (761,000)
Closing balance at December 31, 2016 $    705,000

 

Future changes in the industry could impact the results of future annual impairment tests. There can be no assurance that future tests of goodwill impairment will not result in additional impairment charges.
FAIR VALUE MEASUREMENT

Fair Value Measurement

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC (“ASC 820-10”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

  Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
  Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
  Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

 

The carrying amounts reported in the Company’s consolidated financial statements for accounts receivable, prepaid expenses, accounts payable, accrued expenses, and payroll liabilities approximate their fair value because of the immediate or short-term nature of these consolidated financial instruments. The carrying amounts reported in the consolidated balance sheet for its line of credit and convertible notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place.

 Impairment

Goodwill and other indefinite-lived intangible assets are tested for impairment annually, at the end of the fourth quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate it is more likely than not that the carrying amount may be impaired. Additionally, the Company continually evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. The factors used to determine fair value are subject to management’s judgement and expertise and include, but are not limited to, the present value of future cash flows, net of estimated operating costs, internal forecasts, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected.

These assumptions represent level 3 inputs. Impairment of the Company’s goodwill and intangibles for the year ended December 31, 2016 was $761,000 and 613,000, respectively. There were no impairment charges during the year ended December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):

  December 31, 2016
  Level 1  Level 2  Level 3
Liabilities:      
Derivative liability  $           -     $           -     $        1,099,376
       
  December 31, 2015
  Level 1  Level 2  Level 3
Liabilities:      
Derivative liability  $           -     $           -     $            178,958

 

Assets measured at fair value on a non-recurring basis are as follows:

 

  December 31, 2016  
  Level 1  Level 2  Level 3  Total Impairments
Assets:        
Intangible assets  $           -     $           -     $            407,000  $                    613,000
Goodwill  $           -     $           -     $            705,000  $                    761,000
Total assets  $           -     $           -     $        1,112,000  $                1,374,000

 
ADVERTISING

Advertising

 

The Company charges advertising costs to expense as incurred. Advertising costs were $8,231 and $11,614 (Predecessor) for the years ended December 31, 2016 and 2015, respectively.
CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

 

The Company did not have any other customers that exceeded 10% of either revenue or accounts receivable in either 2016 or 2015.
CONVERTIBLE PROMISSORY NOTES

  Convertible Promissory Notes

 

i)Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

ii)Debt Discount

The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480, applies to certain contracts involving a Company's own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:

– A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to a fixed dollar amount,

– Variations in something other than the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer's equity shares, or

– Variations inversely related to changes in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.

If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

iii)Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible promissory notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.
INCOME TAXES

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 consolidated 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.

 

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 North Carolina, Indiana, Tennessee, 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, 2016.

 

There were no uncertain tax positions that would require recognition in the financial statements through December 31, 2016. 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 Company accounts for income taxes under ASC 740-10-30.  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

 

In April 2015, the FASB issued a new accounting standard which changes the presentation of debt issuance costs in financial statements. Under the new standard, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The accounting standard is effective for annual reporting periods beginning after December 15, 2015 and was adopted in the first quarter of 2016.

 

In March 2016, the FASB issued a new accounting standard which is intended to simplify the accounting for share-based compensation. This standard simplifies the accounting for income taxes in relation to share-based compensation, modifies the accounting for forfeitures, and modifies the statutory tax withholding requirements. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the new accounting standard will have on its consolidated financial position, results of operations or cash flows.
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ACQUISITION (Tables)
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Schedule of Assets Acquired and Liabilities Assumed at Fair Value, Business Acquisitions
Customer Relationships  $ 1,130,000
Non-compete Agreements 70,000
Goodwill 1,466,000
Purchase Price $ 2,666,000
Schedule of Unaudited pro Forma Results Of Operations
   For the Year Ended December 31, 2016  For the Year Ended December 31, 2015
Net revenues  $5,617,446   $5,962,254 
Income (loss) from operations  $(1,518,775)  $(275,909)
Net loss  $(3,979,267)  $(346,580)
Net loss per share  $(3.62)  $(0.47)
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
DISCONTINUED OPERATIONS (Tables)
 12 Months Ended
Dec. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Schedule of Discontinued Operations
NET REVENUES        
Contract staffing services   $ 13,657,933  
         
COST OF SERVICES     11,125,247  
GROSS PROFIT     2,532,686  
SELLING, GENERAL AND ADMINISTRATIVE     2,156,504  
         
INCOME FROM OPERATIONS     376,182  
OTHER EXPENSE     (168,808 )
         
INCOME FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES     207,374  
         
(Provision) benefit for income taxes     -  
         
NET  INCOME OF EMPLOYUS, LTD.   $ 207,374  
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
IDENTIFIABLE INTANGIBLE ASSETS (Tables)
 12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets
   December 31, 2016  December 31, 2015
Customer relationships  $451,000   $—   
Non-compete agreements   28,000    —   
    479,000    —   
Accumulated amortization   (72,000)   —   
Identifiable Intangible Assets  $407,000   $—   
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY - RELATED PARTY (Tables)
 12 Months Ended
Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Change in convertible promissory note derivative liability - related party [Table Text Block]

The inputs into the binominal lattice model are as follows:

 

   Inception  December 31, 2015  December 31, 2016
Conversion price  $0.0188  - $1.4178 per share  $0.0225 per share  $0.099  - $0.135 per share
Risk free rate    0.51% - 0.64%   0.64%   0.62%
Expected volatility   188%  – 355%   355%   185% – 205%
Dividend yield   0%   0%   0%
Expected life   0.50 – 1.0 years    0.96 years    0.50 – 0.74 years 

 

Changes in convertible promissory note derivative liability during the year ended December 31, 2016 were as follows:

 

   December 31, 2016  December 31, 2015
Opening balance  $178,959   $0 
Initial valuation of derivatives   1,052,612    99,554 
Initial loss on derivatives   0    (19,554)
Change in fair value of derivative
Liability		   (132,195)   98,959 
Closing balance  $1,099,376   $178,959 

 

 
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' DEFICIT (Tables)
 12 Months Ended
Dec. 31, 2016
Stockholders Deficit Tables  
Schedule of Non Controlling Interest
Opening balance at December 31, 2015  $0 
Issue of membership interest   14,000 
Net loss attributed to non-controlling interest   (1,989)
Closing balance at December 31, 2016  $12,011 
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONTINGENCIES AND COMMITMENTS (Tables)
 12 Months Ended
Dec. 31, 2016
Contingencies And Commitments Tables  
Schedule of future minimum lease payments due
Years   Amount    
2017   $ 89,626    
2018     48,133    
2019     16,512    
Total   $ 154,271    
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ACQUISITION (Details) - USD ($)
Apr. 02, 2016
Dec. 31, 2016
Dec. 31, 2015
Customer Relationships   $ 451,000  
Non-complete Agreements   28,000  
Goodwill   $ 705,000
Labor Smart Inc [Member]      
Customer Relationships $ 1,130,000    
Non-complete Agreements 70,000    
Goodwill 1,466,000    
Purchase Price $ 2,666,000    
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ACQUISITION (Details 2) - USD ($)
 3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2016
Dec. 31, 2015
Income (loss) from operations   $ (1,404,793) $ (326,514)
Net loss   $ (3,853,796) $ (272,364)
Net loss per share   $ (3.51) $ (0.36)
Predecessor [Member]      
Income (loss) from operations $ (113,982)   $ 50,605
Net loss $ (125,471)   (74,216)
Labor Smart Inc [Member] | Pro Forma [Member]      
Net revenues   $ 5,617,446 5,962,254
Income (loss) from operations   (1,518,775) (275,909)
Net loss   $ (3,979,267) $ (346,580)
Net loss per share   $ (3.62) $ (0.47)
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ACQUISITION (Details Narrative) - USD ($)
 12 Months Ended
Apr. 02, 2016
Dec. 31, 2016
Dec. 31, 2015
Cash Paid   $ 1,080,000
Shares Issued for Business Acquisition   1,332,736 602,421
Common Stock at Fair Value   $ 1,332 $ 602
Labor Smart Inc [Member]      
Total Consideration Paid, Fair Value $ 2,666,000    
Cash Paid $ 890,890    
Shares Issued for Business Acquisition 600,000    
Common Stock at Fair Value $ 1,080,000    
Promissory Note, Face Value 755,000    
Promissory Note, Fair Value 506,000    
Outstanding Debt 29,110    
Payment to IRS on behalf of Labor Smart, Inc. $ 160,000    
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.8.0.1
DISCONTINUED OPERATIONS (Details) - USD ($)
 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
NET REVENUES    
Contract staffing services $ 4,277,777
COST OF SERVICES 2,907,847
GROSS PROFIT 1,369,930
SELLING, GENERAL AND ADMINISTRATIVE 778,886 326,514
INCOME (LOSS) FROM OPERATIONS (1,404,793) (326,514)
OTHER EXPENSE (2,449,003) (153,224)
(Provision) benefit for income taxes 0 0
NET INCOME OF EMPLOYUS, LTD. 207,374
Discontinued Operations [Member]    
NET REVENUES    
Contract staffing services   13,657,933
COST OF SERVICES   11,125,247
GROSS PROFIT   2,532,686
SELLING, GENERAL AND ADMINISTRATIVE   2,156,504
INCOME (LOSS) FROM OPERATIONS   376,182
OTHER EXPENSE   (168,808)
INCOME FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES   207,374
(Provision) benefit for income taxes  
NET INCOME OF EMPLOYUS, LTD.   $ 207,374
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.8.0.1
IDENTIFIABLE INTANGIBLE ASSETS (Details)
Dec. 31, 2016
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Customer Relationships $ 451,000
Non-complete Agreements 28,000
Identifiable Intangible Assets, Gross 479,000
Accumulated amortization (72,000)
Identifiable Intangible Assets $ 407,000
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.8.0.1
IDENTIFIABLE INTANGIBLE ASSETS (Details Narrative)
Dec. 31, 2016
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
2016 $ 95,865
2017 95,865
2018 95,865
2019 95,865
2020 $ 23,940
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE - RELATED PARTY (Details Narrative)
Dec. 31, 2015
USD ($)
Convertible Promissory Note - Related Party Details Narrative  
Convertible Promissory Note, Original Principal Amount $ 80,000
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY - RELATED PARTY (Details) - $ / shares
 12 Months Ended
Dec. 31, 2015
Dec. 18, 2015
Dec. 31, 2016
Conversion price $ 0.0225    
Risk free rate 0.64%   0.62%
Expected volatility 355.00%    
Dividend yield     0.00%
Expected life 11 months 16 days    
Minimum [Member]      
Conversion price   $ 0.0188 $ .099
Risk free rate   0.51%  
Expected volatility   188.00% 185.00%
Expected life   6 months 6 months
Maximum [Member]      
Conversion price   $ 1.4178 $ .135
Risk free rate   0.64%  
Expected volatility   355.00% 205.00%
Expected life   1 year 8 months 26 days
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY - RELATED PARTY (Details 2) - USD ($)
 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Convertible Promissory Note Derivative Liability - Related Party Details 2    
Opening balance $ 178,959  
Initial valuation of derivatives 1,052,612 $ 99,554
Initial loss on derivatives   (19,554)
Change in fair value of derivative liability (132,195) 98,959
Closing balance $ 1,099,376 $ 178,959
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' DEFICIT (Details Narrative) - USD ($)
 3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2016
Dec. 31, 2015
Apr. 29, 2015
Jul. 01, 2014
Class of Stock [Line Items]          
Common Stock, Par or Stated Value Per Share   $ 0.001 $ 0.001    
Proceeds from Issuance of Common Stock   $ 7,000 $ 80,000    
Preferred Stock, Shares Authorized   5,000,000 5,000,000    
Common Stock, Shares, Issued   1,332,736 602,421    
Share-based Compensation   $ 109,200    
Debt Conversion, Converted Instrument, Shares Issued   293,334      
Stock Issued During Period, Value, Issued for Services   $ (109,200)      
Predecessor [Member]          
Class of Stock [Line Items]          
Proceeds from Issuance of Common Stock      
Share-based Compensation      
Stock Issued During Period, Value, Issued for Services        
Common Stock [Member]          
Class of Stock [Line Items]          
Stock Issued During Period, Shares, New Issues   7,000 40,000    
Stock Issued During Period, Shares, Issued for Services   60,000      
Stock Issued During Period, Value, Issued for Services   $ (60)      
Additional Paid-in Capital [Member]          
Class of Stock [Line Items]          
Stock Issued During Period, Value, Issued for Services   (109,140)      
Series A Preferred Stock [Member]          
Class of Stock [Line Items]          
Stock Issued During Period, Value, Issued for Services        
Accumulated Deficit          
Class of Stock [Line Items]          
Stock Issued During Period, Value, Issued for Services        
Noncontrolling Interest          
Class of Stock [Line Items]          
Stock Issued During Period, Value, Issued for Services        
Parent [Member]          
Class of Stock [Line Items]          
Common Stock, Par or Stated Value Per Share         $ 0.001
Convertible Notes Payable [Member]          
Class of Stock [Line Items]          
Debt Conversion, Converted Instrument, Amount   $ 60,000      
Debt Conversion, Converted Instrument, Shares Issued   5,867      
Debt Instrument, Convertible, Conversion Price   $ 0.225      
Debt Instrument, Increase, Accrued Interest   $ 6,000      
TwoInvestor [Member] | StockPurchaseAgreement [Member]          
Class of Stock [Line Items]          
Common Stock, Par or Stated Value Per Share   $ 0.30   $ 0.15  
Proceeds from Issuance of Common Stock   $ 60,000      
Common Stock, Shares, Issued   200,000   26,668  
InvestorOne [Member]          
Class of Stock [Line Items]          
Common Stock, Par or Stated Value Per Share   $ 0.15      
Stock Issued During Period, Shares, New Issues   600,000      
Proceeds from Issuance of Common Stock   $ 90,000      
Consultant [Member] | ConsultingAgreement [Member]          
Class of Stock [Line Items]          
Common Stock, Par or Stated Value Per Share   $ 0.50      
Stock Issued During Period, Shares, Issued for Services   1,000,000      
Share-based Compensation   $ 379,452      
Stock Issued During Period, Value, Issued for Services   $ (500,000)      
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' DEFICIT (Details) - USD ($)
 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Stockholders Deficit Details    
Opening Balance  
Issue of membership interest 14,000
Net loss attributed to non-controlling interest (1,989)
Ending Balance $ 12,011
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONTINGENCIES AND COMMITMENTS (Details Narrative) - USD ($)
 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Operating Leases, Rent Expense $ 78,466  
Predecessor [Member]    
Operating Leases, Rent Expense   $ 6,000
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONTINGENCIES AND COMMITMENTS (Details)
Dec. 31, 2016
USD ($)
Contingencies And Commitments Details  
2017 $ 89,626
2018 48,133
2019 16,512
Total $ 154,271
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