Acquisition of TAAG

3 Months Ended

Sep. 30, 2011

Acquisition of TAAG

Note 3 — Acquisition of TAAG

On March 31, 2011, the Company entered into an agreement with Fimmotaag, S.p.A., a privately held company, pursuant to which the Company acquired 100% of the issued and outstanding common stock of Techniques Appliquées aux Arts Graphiques, S.p.A. (“TAAG”)  in exchange for 336,921 shares of the Company’s common stock in addition to future payments payable under the terms of the purchase agreement (the “Earnout Payments”). TAAG is a printing and logistics company located outside of Paris, France. The acquisition has been accounted for as a purchase in accordance with current accounting guidance on business combinations. As such, the results of TAAG’s operations are included in the consolidated financial statements beginning April 1, 2011.

The purchase price of $1,572,254 consisted of the issuance of 336,921 shares of the Company’s common stock, valued at $1,212,916, based on the trading price of the Company’s common stock on March 31, 2011 ($3.60 per share), as well as an estimate of the Earnout Payments of $359,338. The Company made an allocation of purchase price to the fair value of the acquired assets as follows:

Purchase Price:
Value of 336,921 shares issued at close	$	1,212,916
Obligation for earnout		359,338
Total	$	1,572,254
Purchase Price Allocation
Fair value of net assets acquired	$	5,333,480
Fair value of liabilities assumed		(5,990,962	)
Deferred tax liability		(350,000	)
Intangible assets:
Customer list		661,193
Covenant not to compete		574,324
Goodwill		1,344,219
Total purchase price	$	1,572,254

The allocation to the assets and liabilities was made based upon an evaluation made by management with the assistance of an outside valuation firm.

The value of the customer list was based on a two year useful life. The forecasted gross revenues and anticipated earnings for TAAG were provided by the Company.  The Company prepared a forecast that reflected the anticipated revenues from each of the current customers of TAAG using a multi-period excess earnings method using a twenty year discounted cash flow approach.  The customer list value was discounted to a present value using a discount rate of 21%.

The value of the covenant not to compete is determined as the value of the revenue TAAG will not lose because it has a covenant not to compete in place.

Goodwill represents the excess of the purchase price of TAAG over the fair value of the identifiable assets acquired and liabilities assumed.

In accordance with the purchase agreement, the seller will be entitled to the Earnout Payments based upon the future performance of the acquired company.  The amounts of the Earnout Payments are based on TAAG’s achievement of certain income before taxes targets during each of the five years ending December 31, 2011 through December 31, 2015.  Each year, the Earnout Payment will be calculated based on the following formula: 20% of the first 200,000 Euros of net income before taxes of TAAG for the applicable year; plus 30% of the net income before taxes of TAAG between 200,000 and 300,000 Euros; plus 40% of the net income before taxes of TAAG in excess of 300,000 Euros.  Earnout Payments can be paid in cash or the Company’s common stock at Fimmotaag’s discretion.  We expect that the value of the Earnout Payments will be approximately $359,338 based on the earnings estimates for TAAG during the earnout period and we have recorded that amount as a liability as of September 30, 2011 and June 30, 2011.

The following sets out the unaudited pro forma operating results for the three months ended September 30, 2010 for the Company had the acquisition occurred as of July 1, 2010.  These amounts include amortization of the customer list and covenant not to compete:

	Three Months Ended September 30, 2010
	(Unaudited)
Net sales	$	9,041,064
Cost of sales		7,036,670
Gross profit		2,004,394
Operating expenses		2,563,338
Operating loss		(558,944	)
Other expense		(23,091	)
PRO FORMA NET LOSS	$	(582,035	)
Pro forma net loss per weighted average share, basic and diluted	$	(0.04	)