v2.4.1.9
ACQUISITIONS
6 Months Ended
Nov. 30, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
NOTE 14 - ACQUISITIONS
 
On April 26, 2013, the Company purchased all of the issued and outstanding common stock (“TRG Acquisition”) of TRG (subsequently renamed “Cyber 360, Inc.”). The aggregate consideration paid was $2,509,342, paid as follows: (i) cash at closing of $907,287; and (ii) 51,257 common stock shares valued at a price of $8.00 per share totaling $410,055. Additionally, the Company agreed to pay an earn-out of 20% of TRG’s gross profit over the next sixteen (16th) quarters, not to exceed $1,500,000. At closing, the Company estimated the performance-based compensation would be $1,192,000. During the fiscal year ended May 31, 2015, the Company paid $111,374 of the earn-out. This transaction was accounted for under the purchase method in accordance with ASC 805.
 
In connection with the TRG Acquisition, the Company identified and recognized intangible assets of $1,054,801 representing trade name, customer relationships and employment agreements/non-competes. The valuation provided for the trade name, customer relationships and employment agreements/non-competes was based on independent professional valuation services’ calculations. The assets were being amortized on a straight line basis over their estimated life of four (4) years, other than the trade name which is over fifteen (15) years. This resulted in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes was based on independent professional valuation services’ calculations.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
47,881
 
Intangible assets
 
 
1,054,801
 
Goodwill
 
 
1,412,646
 
Total
 
$
2,515,328
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
5,986
 
Net purchase price
 
$
2,509,342
 
 
On January 27, 2015, the Company’s board of directors voted unanimously to discontinue TRG and pursue the sale of this business. Effective January 1, 2015, the Company sold the TRG business. Therefore, the activity of this business is recorded as a discontinued operation and all its related assets have been eliminated from the current and comparative period balance sheets and subsequently sold.
 
On November 4, 2013, the Company purchased all of the issued and outstanding common stock of CSI and its wholly owned subsidiary CCSI. The aggregate consideration paid for the CSI Acquisition was $3,530,454 (“CSI Purchase Price”), payable as follows: (i) cash of $1,311,454; and (ii) issuance of 13,600 common stock shares valued at a price of $8.75 per share totaling $119,000. Additionally, the Company agreed to pay a performance-based earn-out equal to twenty percent (20%) of CSI’s and CCSI’s consolidated gross profit through the end of the sixteenth (16th) quarter, not to exceed a total of $2,100,000. As of November 30, 2015, the Company paid $628,777 of the earn-out. At November 30, 2015, the balance of the Earn-out liability was $1,471,223. This transaction was accounted for under the purchase method in accordance with ASC 805.
 
In connection with the CSI Acquisition, the Company identified and recognized intangible assets of $912,000 representing trade name, customer relationships and employment agreements/non-competes. The assets were being amortized on a straight line basis over their estimated life of four (4) years, other than the trade name which was over fifteen (15) years. This resulted in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes was based on independent professional valuation services’ calculations. During the fiscal year ended May 31, 2015 and 2014, the Company recognized amortization expense of $91,099 and $107,654, respectively. The impairment analysis performed as of May 31, 2014 and November 30, 2014, resulted in the Company impairing trade name, customer relationships and employment agreements/non-competes in the amount of $10,025 and $703,222, respectively. The intangible asset balance, net of impairment and accumulated amortization, at November 30, 2014 was $0 and remains $0 at November 30, 2015.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
1,475,716
 
Intangible assets
 
 
912,000
 
Goodwill
 
 
1,287,609
 
Total
 
$
3,675,325
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
144,871
 
Net purchase price
 
$
3,530,454
 
 
On January 3, 2014, the Company purchased all of the issued and outstanding common stock (“Initio Acquisition”) of Initio and its respective Subsidiaries.  The aggregate consideration paid was $13,289,563, paid as follows: (i) cash at closing of $6,440,000; (ii) 329,670 restricted common stock shares valued at $8.75 per share totaling $2,884,614; and (iii) three (3) year promissory notes totaling $3,964,949, each bearing interest at six percent (6%) per annum, amortized straight line over five (5) years. (See Note 6 – Promissory Notes). Upon closing of the Initio Acquisition, certain of the Initio Shareholders were appointed to the Company’s board of directors and entered into employment agreements. Initio was renamed Staffing (UK). This transaction was accounted for under the purchase method in accordance with ASC 805.
 
In connection with the acquisition of Staffing (UK), the Company identified and recognized an intangible asset of $10,050,000 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes was based on independent professional valuation services’ calculations. During the six months ended November 30, 2015 and 2014 the Company recognized amortization expense of $854,658 and $854,658, respectively. The Company will recognize amortization expense of $854,658 in the remainder of fiscal year ending 2016, $1,709,317 in the fiscal year ending 2017, $1,118,796 in the fiscal year ending 2018, $292,428 each year in the fiscal years 2019 through 2028 and $170,372 in the fiscal year ended 2029. The Intangible asset balance, net of accumulated amortization, at November 30, 2015 is $7,035,275.
 
Initio is a U.K. domiciled full-service staffing company with established brands in the United Kingdom and United States. Initio’s U.K. division, Longbridge, was established in 1989 as an international multi-sector recruitment company with a long successful history of catering to the sales and marketing, technology, legal and IT solutions sectors. Initio’s U.S. division, Monroe, was established in 1969 as a full-service consulting and staffing agency serving companies ranging from Fortune 100 to new start-up organizations. Monroe has fifteen (15) offices throughout Connecticut, Massachusetts, Rhode Island, New Hampshire and North Carolina.
  
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Total assets
 
$
15,550,449
 
Intangible assets
 
 
10,050,000
 
Goodwill
 
 
2,994,057
 
Total
 
$
28,594,506
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Total liabilities
 
$
15,254,943
 
Net purchase price
 
$
13,339,563
 
 
On February 28, 2014, the Company, through its wholly owned subsidiary, Staffing (UK), purchased substantially all of the business assets (“Poolia Acquisition”) of Poolia UK Ltd. (“Poolia UK”). The aggregate consideration paid was $1,626,266, paid as follows: (i) cash at closing approximately $1,237,500750,000); and (ii) cash subsequent to closing of approximately $388,766. As of May 31, 2015, the amount has been paid in full. 
 
In connection with the acquisition of Poolia UK, the Company identified and recognized an intangible asset of $465,321 representing customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the six months ended November 30, 2015 and 2014, the Company recognized amortization expense of $58,165 and $58,165, respectively. The Company will recognize amortization expense of $58,165 in the remainder of fiscal year ending 2016, $116,330 in the fiscal year ending 2017 and $87,248 in the fiscal year ending 2018. At November 30, 2015, the Intangible asset balance, net of accumulated amortization, is $261,743.
 
Poolia UK operates its professional staffing services from its London office and focuses on providing temporary, contract and permanent qualified professionals to various banking, financial and commercial clients across the U.K. All subsequent business activity from this acquisition is under a Staffing (UK) subsidiary.
  
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
1,207,897
 
Intangible assets
 
 
465,321
 
Goodwill
 
 
584,701
 
Total
 
$
2,257,919
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
631,653
 
Net purchase price
 
$
1,626,266
 
 
On May 17, 2014, the Company purchased all of the issued and outstanding common stock of PSI, a Massachusetts corporation, and forty-nine percent (49%) of the issued and outstanding common stock of PRS, a Massachusetts corporation, pursuant to a Stock Purchase Agreement dated May 17, 2014, by and among the Company, PS and seller, sole owner of all of the issued and outstanding common stock of PS. This transaction was accounted for under the purchase method in accordance with ASC 805.
 
The aggregate consideration paid for PS was $8,387,108, paid as follows: (i) cash of $2,705,675; (ii) 112,737 restricted common stock shares valued at $19.30 totaling $2,175,814; (iii) an unsecured promissory note of $2,367,466; and (iv) the Net Working Capital of $1,138,153.
 
In connection with the forty-nine percent (49%) acquisition of PRS, the Company recorded a non-controlling interest totaling $572,900. The results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. Through the six months ended November 30, 2015, the Company recorded net loss attributable to non-controlling interest totaling $220,913.
 
In connection with the acquisition of PS, the Company identified and recognized an intangible asset of $2,999,100 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on a straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. This results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the six months ended November 30, 2015 and 2014, the Company recognized amortization expense of $307,238 and $307,238, respectively. The Company will recognize amortization expense of $307,238 in the remainder of fiscal year ending 2016, $614,475 in the fiscal year ending 2017, $590,922 in the fiscal year ending 2018, $49,200 each year in the fiscal years 2019 through 2028 and $47,150 in the fiscal year ended 2029. At November 30, 2015, the Intangible asset balance, net of accumulated amortization, is $2,051,748.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
2,878,448
 
Intangible assets
 
 
2,999,100
 
Goodwill
 
 
4,789,880
 
Total
 
$
10,667,428
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
1,707,420
 
 
 
 
 
 
Non-controlling interest
 
 
572,900
 
Net purchase price
 
$
8,387,108
 
 
On July 8, 2015, the Company purchased one hundred percent (100%) of the membership interests in Lighthouse Placement Services, LLC. The aggregate purchase price was $6,133,521, paid as follows: (i) cash of $2,498,379; (ii) 62,460 restricted common stock shares valued at $8.20 totaling $512,168; (iii) three (3) year unsecured promissory note of $2,498,379 and (iv) two (2) year unsecured promissory note of $624,595. This transaction was accounted for under the purchase method in accordance with ASC 805.
 
In connection with the Lighthouse Acquisition, the Company identified and recognized intangible assets of $2,269,403 representing trade name, customer relationships and employment agreements/non-competes. The assets were being amortized on a straight line basis over their estimated life of four (4) years, other than the trade name which was over fifteen (15) years. This resulted in the sum of the future net cash flows discounted to its present day value. The fair value allocation for the trade name, customer relationships and employment agreements/non-competes resulting from the acquisition of Lighthouse was based on management’s estimates. The Company intends to retain the services of an independent valuation expert to determine the fair market value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on July 8, 2015. The Company anticipates this will be completed prior to filing its May 31, 2016 Form 10-K Annual Report and reflected in its upcoming audited consolidated financial statements at such date. During the six months ended November 30, 2015 and 2014, the Company recognized amortization expense of $189,543 and $0, respectively. The Company will recognize amortization expense of $227,451 in the remainder of fiscal year ending 2016, $454,903 in the fiscal year ending 2017, $454,903 in the fiscal year ending 2018, $454,903 in the fiscal year ending 2019, $75,391 in the fiscal year ending 2020, $40,890 each year in the fiscal years 2021 through 2030 and $3,408 in the fiscal year ending 2031. At November 30, 2015, the Intangible asset balance, net of accumulated amortization, is $2,079,860.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
153,990
 
Intangible assets
 
 
2,269,403
 
Goodwill
 
 
3,864,118
 
Total
 
$
6,287,511
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
153,990
 
Net purchase price
 
$
6,133,521
 
 
On November 5, 2015, the Company, through Longbridge Recruitment 360 Limited, a subsidiary of Staffing (UK), purchased one hundred percent (100%) of the issued and outstanding equity interests of The JM Group Limited. The aggregate purchase price was $3,517,218, paid as follows: (i) cash of £750,000 (approximately $1,155,000 USD); (ii) 40,000 restricted common stock shares valued at $4.70 totaling $188,000; (iii) six (6) month unsecured promissory note of £500,000 (approximately $770,000) (iv) performance based compensation in an amount in cash equal to £850,000 (approximately $1,310,000) and (v) an aggregate of 20,000 shares of Common Stock valued at $4.70 totaling $94,000, if the Anniversary Gross Profit is 100% or more the Completion Gross Profit; or if the Anniversary Gross Profit is greater than or equal to 75% of the Completion Gross Profit, but less than 100% of the Completion Gross Profit, an amount of shares equal to the product of (i) the Anniversary Gross Profit divided by the Completion Gross Profit and (ii) 20,000. This transaction was accounted for under the purchase method in accordance with ASC 805.
 
In connection with The JM Group Acquisition, the Company identified and recognized intangible assets of $1,142,779 representing trade name, customer relationships and employment agreements and non-competition agreements. The assets were being amortized on a straight line basis over their estimated life of four (4) years, other than the trade name which was over fifteen (15) years. This resulted in the sum of the future net cash flows discounted to its present day value. The fair value allocation for the trade name, customer relationships and employment agreements/non-competes resulting from the acquisition of Lighthouse was based on management’s estimates. The Company intends to retain the services of an independent valuation expert to determine the fair market value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on November 5, 2015. The Company anticipates this will be completed prior to filing its May 31, 2016 Form 10-K Annual Report and reflected in its upcoming audited consolidated financial statements at such date. During the six months ended November 30, 2015 and 2014, the Company recognized amortization expense of $19,187 and $0, respectively. The Company will recognize amortization expense of $114,437 in the remainder of fiscal year ending 2016, $229,071 in the fiscal year ending 2017, $229,071 in the fiscal year ending 2018, $229,071 in the fiscal year ending 2019, $107,457 in the fiscal year ending 2020, $20,591 each year in the fiscal years 2021 through 2030 and $8,579 in the fiscal year ending 2031. At November 30, 2015, the Intangible asset balance, net of accumulated amortization, is $1,123,592.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
ASSETS:
 
 
 
 
Current assets
 
$
5,138,078
 
Intangible assets
 
 
1,142,779
 
Goodwill
 
 
1,945,813
 
Total
 
$
8,226,670
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Current liabilities
 
$
4,709,452
 
Net purchase price
 
$
3,517,218
 
 
The following unaudited pro forma consolidated results of operations have been prepared, expressed in rounded thousands, as if the acquisition of CSI, Initio, Poolia UK, PS and Lighthouse had occurred as of June 1, 2015 and 2014: 
 
 
 
For the Six Months Ended
November 30,
 
For the Three Months Ended
November 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenues
 
$
89,200,501
 
$
88,713,029
 
$
45,705,851
 
$
44,494,373
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss from continuing operations
 
 
(4,748,250)
 
 
(12,533,981)
 
 
(3,179,823)
 
 
(8,714,329)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share from continuing operations
 
 
(1.02)
 
 
(3.56)
 
 
(0.67)
 
 
(2.44)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common stock shares – Basic and diluted
 
 
4,646,016
 
 
3,518,231
 
 
4,734,999
 
 
3,574,950