staf-10kt_20161231.htm

Securities registered under Section 12(b) of the Exchange Act: Common Stock, par value $0.00001.

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 Exchange 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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one)

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

As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $9,587,626 based on the closing price (last sale of the day) for the registrant’s common stock on the Nasdaq exchange on June 30, 2016 of $1.58 per share.

As of April 12, 2017, 14,498,979 shares of common stock, $0.00001 par value, were outstanding.

This Annual Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, on Form 10-K/T (“Annual Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “could,” “should,” “intends,” “plans,” “estimates,” “goal,” “target,” “possible,” “potential” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers' capital projects or the inability of our customers to pay our fees; the termination of a major customer contract or project; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; negative outcome of pending and future claims and litigation; government policies, legislation or judicial decisions adverse to our businesses; potential cost overruns and possible rejection of our business model and/or sales methods; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to us or at all; and our ability to comply with our contractual covenants, including in respect of our debt. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the entirety of this Annual Report, including the “Risk Factors” in Item 1A of this Annual Report and the other reports and documents we file from time to time with the Securities and Exchange Commission (“SEC”), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

As used in this Annual Report, the terms “we,” “us,” “our,” “Staffing 360” and the “Company” mean Staffing 360 Solutions, Inc. and its subsidiaries, unless otherwise indicated. All dollar amounts in this Annual Report are expressed in thousands of U.S. dollars, unless otherwise indicated.

The disclosures set forth in this report should be read in conjunction with our financial statements and notes thereto for the transition period ended December 31, 2016.

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”) was incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation, which changed its name to Staffing 360 Solutions, Inc., ticker symbol “STAF”, on March 16, 2012. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring, suitable, mature, profitable, operating, domestic and international staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, information technology (“IT”), engineering, administration and light industrial disciplines.

All amounts in this Annual Report are expressed in thousands, except share and per share amounts, or unless otherwise indicated.

On February 28, 2017, the board of directors (the “Board”) approved the change of the Company’s fiscal year end from May 31 to a 52-53 week year ending on the Saturday closest to the 31^st of December, effective December 31, 2016. This transition report on Form 10-K/T reports our financial results for the period from June 1, 2016 through December 31, 2016, which we refer to as the “Transition Period” in this report. Following the Transition Period, we will file annual reports for each twelve month period ended the Saturday closest to December 31 of each year beginning with December 31, 2017.

We are a high-growth international staffing company engaged in the acquisition of United States (“U.S.”) and United Kingdom (“U.K.”) based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the accounting and finance, IT, engineering, administration (collectively, the “Professional Sector”) and light industrial (“Light Industrial Sector”) disciplines. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets. To date, we have completed six acquisitions that are more fully described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company generated revenue of $109.4 million, $165.6 million, $128.8 million and $41.2 million for the Transition Period, fiscal years ended May 31, 2016, 2015 and 2014, respectively. This growth has been achieved primarily through acquisitions, while operations continued to grow organically 11.1% during the transition period and, on average, grew 8.8% between the fiscal years ended May, 31 2014 and 2016.

The staffing industry is divided into three major segments: temporary staffing services, professional employer organizations (“PEOs”) and placement agencies. Temporary staffing services provide workers for limited periods, often to substitute for absent permanent workers or to help during periods of peak demand. These workers, who are often employees of the temporary staffing agency, will generally fill clerical, technical, or industrial positions. PEOs, sometimes referred to as employee leasing agencies, contract to provide workers to customers for specific functions, often related to human resource management. In many cases, a customer’s employees are hired by a PEO and then contracted back to the customer. Placement agencies, sometimes referred to as executive recruiters or headhunters, find workers to fill permanent positions at customer companies. These agencies may specialize in placing senior managers, mid-level managers, technical workers, or clerical and other support workers.

The Company considers itself a temporary staffing company within the broader staffing industry. However, the Company provides permanent placements at the request of existing clients and some consulting services.

Staffing companies identify potential candidates through online advertising and referrals, and interview, test and counsel workers before sending them to the customer for approval. Pre-employment screening can include skills assessment, drug tests and criminal background checks. The personnel staffing industry has been radically changed by the internet. Many employers list available positions with one or several internet personnel sites like www.monster.com or www.careerbuilder.com, and on their own sites. Personnel agencies operate their own sites and often still work as intermediaries by helping employers accurately describe job openings and by screening candidates who submit applications.

Major end-use customers include businesses from a wide range of industries such as manufacturing, construction, wholesale and retail. Marketing involves direct sales presentations, referrals from existing clients and advertising. Agencies compete both for customers and workers. Depending on market supply and demand at any given time, agencies may allocate more resources either to finding potential employers or potential workers. Permanent placement agencies work either on a retained or on a contingency basis. Clients may retain an agency for a specific job search or on contract for a specific period. Temporary staffing services charge customers a fixed price per hour or a standard markup on prevailing hourly rates.

For many staffing companies, demand is lower late in the fourth calendar quarter and early in the first calendar quarter, partly because of holidays, and higher during the rest of the year. Staffing companies may have high receivables from customers. Temporary staffing agencies and PEOs must manage a high cash flow because they funnel payroll payments from employers. Cash flow imbalances also occur because agencies must pay workers even though they haven't been paid by clients.

The revenue of staffing companies depends on the number of jobs they fill, which in turn can depend upon the economic environment. During economic slowdowns, many client companies stop hiring altogether. Internet employment sites expand a company’s ability to find workers without the help of traditional agencies. Staffing companies often work as intermediaries, helping employers accurately describe job openings and screen candidates. Increasing the use of sophisticated, automated job description and candidate screening tools could make many traditional functions of personnel agencies obsolete. Free social networking sites such as LinkedIn and Facebook are also becoming a common way for recruiters and employees to connect without the assistance of a staffing agency.

To avoid large placement agency fees, big companies may use in-house personnel staff, current employee referrals, or human resources consulting companies to find and hire new personnel. Because placement agencies typically charge a fee based on a percentage of the first year's salary of a new worker, companies with many jobs to fill have a financial incentive to avoid agencies.

Many staffing companies are small and may depend heavily on a few big customers for a large portion of revenue. Large customers may lead to increased revenue, but also expose agencies to higher risks. When major accounts experience financial hardships, and have less need for temporary employment services, agencies stand to lose large portions of revenue.

The loss of a staff member who handles a large volume of business may result in a large loss of revenue for a staffing company. Individual staff members, rather than the staffing company itself, usually develop strong relationships with customers. Staff members who move to another staffing company are often able to move customers with them.

Some of the best opportunities for temporary employment are in industries traditionally active in seasonal cycles, such as manufacturing, construction, wholesale and retail. However, seasonal demand for workers creates cash flow fluctuations throughout the year.

Staffing companies are regulated by the U.S. Department of Labor (“DOL”) and the Equal Employment Opportunity Commission (“EEOC”), and often by state authorities. Many federal anti-discrimination rules regulate the type of information that employment firms can request from candidates or provide to customers about candidates. In addition, the relationship between the agency and the temporary employees, or employee candidates may not always be clear, resulting in legal and regulatory uncertainty. PEOs are often considered co-employers along with the client, but the PEO is responsible for employee wages, taxes and benefits. State regulation aims to ensure that PEOs provide the benefits they promise to workers.

Start-up costs for a staffing company are very low. Individual offices can be profitable, but consolidation is driven mainly by the opportunity for large agencies to develop national relationships with big customers. Some agencies expand by starting new offices in promising markets, but most prefer to buy existing independent offices with proven staff and an existing customer roster.

At some companies, temporary workers have become such a large part of the workforce that staffing company employees sometimes work at the customer's site to recruit, train, and manage temporary employees. The Company has a number of onsite relationships with its customers. Staffing companies try to match the best qualified employees for the customer's needs, but often provide additional training specific to that company, such as instruction in the use of proprietary software.

Some personnel consulting firms and human resource departments are increasingly using psychological tests to evaluate potential job candidates. Psychological or liability testing has gained popularity, in part, due to recent fraud scandals. In addition to stiffer background checks, headhunters often check the credit history of prospective employees.

We believe the trends of outsourcing entire departments and dependence on temporary and leased workers will expand opportunities for staffing companies. Taking advantage of their expertise in assessing worker capabilities, some staffing companies manage their

clients’ entire human resource functions. Human resources outsourcing (“HRO”) may include management of payroll, tax filings, and benefit administration services. HRO may also include recruitment process outsourcing (“RPO”), whereby an agency manages all recruitment activities for a client.

New online technology is improving staffing efficiency. For example, some online applications coordinate workflow for staffing agencies, their clients and temporary workers, and allow agencies and customers to share work order requests, submit and track candidates, approve timesheets and expenses, and run reports. Interaction between candidates and potential employers is increasingly being handled online.

Initially viewed as rivals, some Internet job-search companies and traditional employment agencies are now collaborating. While some Internet sites do not allow agencies to use their services to post jobs or look through resumes, others find that agencies are their biggest customers, earning the sites a large percentage of their revenue. Some staffing companies contract to help client employers find workers online.

The Company’s staffing divisions face competition in attracting clients as well as temporary candidates. The staffing industry is highly competitive, with a number of firms offering services similar to those provided by the Company on a national, regional or local basis. In many areas, the local staffing companies are our strongest competitors. The most significant competitive factors in the staffing business are price and reliability of service. The Company believes its competitive advantage stems from its experience in niche markets, and commitment to the specialized employment market, along with its growing global presence.

The staffing industry is characterized by a large number of competing companies in a fragmented sector. Major competitors also exist across the sector, but as the industry affords low barriers to entry, new entrants are constantly introduced to the marketplace.

The top layer of competitors includes large corporate staffing and employment companies which have yearly revenue of $75 million or more. The next (middle) layer of the competition consists of medium-sized entities with yearly revenue of $10 million or more. The largest portion of the marketplace is the bottom layer of this competitive landscape consisting of small, individual-sized or family-run operations. As barriers to entry are low, sole proprietors, partnerships and small entities routinely enter the industry.

The Company employs approximately 200 full-time employees as part of our internal operations. Additionally, the Company employs more than 4,300 individuals that are placed directly with our clients through our various operating subsidiaries.

There are numerous and varied risks that may prevent us from achieving our goals, including those described below. You should carefully consider the risks described below and the other information included in this Form 10-K/T, including our consolidated financial statements and related notes. Our business, financial condition, and results of operations, could be harmed by any of the following risks. If any of the events or circumstances described below were to occur, our business, the financial condition and the results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and investors could lose part or all of their investment. The risks below are not the only risks we face. Additional risks not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or results of operations.

We have incurred significant losses since our inception and anticipate that we will incur continued losses for the next several years and thus may never achieve or maintain profitability.

We anticipate that we will incur operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with the staffing industry, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Expected future operating losses will have an adverse effect on our cash resources, stockholders’ equity and working capital.

Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business, maintain our development efforts, diversify our portfolio of staffing companies, or continue our operations. A decline in our value could also cause you to lose all or part of your investment.

We have significant debt that could adversely affect our financial health and prevent us from fulfilling our obligations or put us at a competitive disadvantage.

Our level of debt and the limitations imposed on us by our lenders could have a material impact on investors, including the requirement to use a portion of our cash flow from operations for debt service rather than for our operations and the need to comply with the various covenants associated with such debt. Additionally, we may not be able to obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing. We could also be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions, or we may be disadvantaged compared to competitors with less leverage.

Our debt instruments contain covenants that could limit our financing options and liquidity position, which would limit our ability to grow our business.

Covenants in our debt instruments impose operating and financial restrictions on us. These restrictions prohibit or limit our ability to, among other things:

Our failure to comply with the restrictions in our debt instruments could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. The lenders may require fees and expenses to be paid or other changes to terms in connection with waivers or amendments. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates.

In addition, these restrictions may limit our ability to obtain additional financing, withstand downturns in our business or take advantage of business opportunities. Moreover, additional debt financing we may seek, if permitted, may contain terms that include more restrictive covenants, may require repayment on an accelerated schedule or may impose other obligations that limit our ability to grow our business, acquire needed assets, or take other actions we might otherwise consider appropriate or desirable.

The exercise of our current debt instruments could be highly dilutive to the holdings of our existing stockholders.

Certain of our current debt instruments are highly dilutive. The number of shares of our common stock that may be issued pursuant to the conversion premiums in such debt instruments and if we elect to pay such dividends in shares may be significant, but cannot be determined at this time because the applicable calculations are based on our stock price during a period surrounding the date of the conversion. The exercise of our existing outstanding dilutive Common Stock equivalents, which are exercisable for or convertible into shares of our Common Stock, would dilute the proportionate ownership and voting power of existing stockholders and may cause the market price for our common stock to decline.

We have significant working capital needs and if we are unable to satisfy those needs from cash generated from our operations or borrowings under our debt instruments, we may not be able to continue our operations.

We require significant amounts of working capital to operate our business. We often have high receivables from our customers, and as a staffing company, we are prone to cash flow imbalances because we funnel payroll payments from employers to temporary workers. Cash flow imbalances also occur because we must pay temporary workers even when we have not been paid by our customers. If we experience a significant and sustained drop in operating profits, or if there are unanticipated reductions in cash inflows or increases in cash outlays, we may be subject to cash shortfalls. If such a shortfall were to occur for even a brief period of time, it may have a significant adverse effect on our business. In particular, we use working capital to pay expenses relating to our temporary workers and to satisfy our workers’ compensation liabilities. As a result, we must maintain sufficient cash availability to pay temporary workers and fund related tax liabilities prior to receiving payment from customers.

In addition, our operating results tend be unpredictable from quarter to quarter. Demand for our services is typically lower during traditional national vacation periods in the United States and United Kingdom when customers and candidates are on vacation. No single quarter is predictive of results from future periods. Any extended period of time with low operating results or cash flow imbalances could have a material adverse effect on our business, financial condition and results of operations.

We derive working capital for our operations through cash generated by our operating activities and borrowings under our debt instruments. We believe that our current sources of capital are adequate to meet our working capital needs. However, our available sources of capital are limited. If our working capital needs increase in the future, we may be forced to seek additional sources of capital, which may not be available on commercially reasonable terms. The amount we are entitled to borrow under our debt instruments is calculated monthly based on the aggregate value of certain eligible trade accounts receivable generated from our operations, which are affected by financial, business, economic and other factors, as well as by the daily timing of cash collections and cash outflows. The aggregate value of our eligible accounts receivable may not be adequate to allow for borrowings for other corporate purposes, such as capital expenditures or growth opportunities, which could reduce our ability to react to changes in the market or industry conditions.

We will need to raise additional capital to meet our business requirements in the future, which is likely to be challenging, could be highly dilutive and may cause the market price of our common stock to decline.

As of December 31, 2016, the Company had a working capital deficiency of $15,091, an accumulated deficit of $47,847, for the seven months ended December 31, 2016 a net loss of $3,610, and, as of the date these financial statements are issued, the Company has approximately $4,377 associated debt and other amortizing obligations, due in the next 12 months. As a result of our recent financings, we believe that we will be able to fund our operations, implement our business plan and pursue the acquisition of broad spectrum staffing companies through the next twelve months. However, we will need to raise additional capital to pursue growth opportunities, improve our infrastructure, finance our operations and otherwise make investments in assets and personnel that will allow us to remain competitive. Additional capital would be used to accomplish the following:

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of our securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.

In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.

Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

A more active, liquid trading market for our common stock may not develop, and the price of our common stock may fluctuate significantly.

Although our common stock is listed on the NASDAQ Capital Market, it has only been traded on the NASDAQ Capital Market since September 29, 2015, when our common stock uplisted to the national exchange. Before that time, our common stock was traded on the OTCBB tier of the over-the-counter securities market run by FINRA, as well as OTCQB run by OTC Markets, and it first began trading on February 15, 2013. Historically, the market price of our common stock has fluctuated over a wide range. Between our stock split occurring on September 17, 2015 and March 7, 2017, our common stock traded in a range from $0.54 to $7.74 per share. There has been relatively limited trading volume in the market for our common stock, and a more active, liquid public trading market may not develop or may not be sustained. In addition, on January 25, 2017, we received a letter from the Listing Qualifications Department of the NASDAQ Capital Market notifying us that, based upon the closing bid price of our common stock for the previous 30 consecutive business days, the common stock did not meet the minimum bid price of $1.00 per share required by NASDAQ Listing Rule 5550(a)(2), initiating an automatic 180 calendar-day grace period for us to regain compliance.

Limited liquidity in the trading market for our common stock may adversely affect a stockholder's ability to sell its shares of common stock at the time it wishes to sell them or at a price that it considers acceptable. If a more active, liquid public trading market does not develop, or if our shares are delisted from the NASDAQ Capital Market, we may be limited in our ability to raise capital by selling shares of common stock and our ability to acquire other companies or assets by using shares of our common stock as consideration. In addition, if there is a thin trading market or "float" for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile and it would be harder for a stockholder to liquidate any investment in our common stock. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including:

The stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in the staffing industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially reduce our stock price.

An investment in our common stock requires a long-term commitment, with no certainty of return. Because we did not become a public reporting company by the traditional means of conducting an underwritten initial public offering of our common stock, we may be unable to establish a liquid market for our common stock. In addition, investment banks may be less likely to agree to underwrite primary or secondary offerings on our behalf or our stockholders in the future than they would if we had become a public reporting company by means of an underwritten initial public offering of common stock. If all or any of the foregoing risks occur, it would have a material adverse effect on us.

The United States Financial Industry Regulatory Authority, or FINRA, sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares. FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.

The ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Our management, including our Executive Chairman and Chief Financial Officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

In addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, cause downgrades in our future debt ratings leading to higher borrowing costs and affect how our stock trades. This could, in turn, negatively affect our ability to access public debt or equity markets for capital.

We are a party to certain legal proceedings that are currently pending, including NewCSI, Inc. vs. Staffing 360 Solutions, Inc. and Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc., as further described in this Form 10-K/T. In addition, from time to time, we may become involved in various claims, disputes and legal or regulatory proceedings that arise in the ordinary course of business and relate to contractual and other obligations. Due to the uncertainties of litigation, we can give no assurance that we will prevail on any claims made against us in any such lawsuit. Also, we can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results. Adverse outcomes in some or all of these claims may result in significant monetary damages that could adversely affect our ability to conduct our business.

The potential U.K. exit from the European Union as a result of the U.K. triggering Article 50 of the Treaty on European Union could harm our business, financial condition or results of operations.

On March 29, 2017, the U.K. triggered Article 50 of the Treaty on European Union by notifying the European Council of its intention to withdraw from the European Union (commonly referred to as the “Brexit”). Negotiations have commenced to determine the future terms of the U.K.’s relationship with the European Union, including the terms of trade between the U.K. and the European Union. The effects of Brexit will depend on any agreements the U.K. makes to retain access to European Union markets either during a transitional period or more permanently. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which European Union laws to replace or replicate.

The announcement of Brexit also created (and the actual exit of the U.K. from the European Union may create future) global economic uncertainty. The actual exit of the U.K. from the European Union could cause disruptions to and create uncertainty surrounding our business. Any of these effects of Brexit (and the announcement thereof), and others we cannot anticipate, could harm our business, financial condition or results of operations.

Our revenue may be adversely affected by fluctuations in currency exchange rates.

A significant portion of our expenditures are expected to be derived or spent in British pounds. However, we report our financial condition and results of operations in U.S. dollars. As a result, fluctuations between the U.S. dollar and the British pound will impact the amount of our revenues and net income. For example, if the British pound appreciates relative to the U.S. dollar, the fluctuation will result in a positive impact on the revenues that we report. However, if the British pound depreciates relative to the U.S. dollar, which was the case during 2016, there will be a negative impact on the revenues we report due to such fluctuation. It is possible that the impact of currency fluctuations will result in a decrease in reported consolidated sales even though we may have experienced an

increase in sales transacted in the British pound. Conversely, the impact of currency fluctuations may result in an increase in reported consolidated sales despite declining sales transacted in the British pound. The exchange rate from the U.S. dollar to the British pound has fluctuated substantially in the past and may continue to do so in the future. Though we may choose to hedge our exposure to foreign currency exchange rate changes in the future, there is no guarantee such hedging, if undertaken, will be successful.

We depend on attracting, integrating, managing, and retaining qualified personnel.

Our success is substantially dependent upon our ability to attract, integrate, manage and retain personnel who possess the skills and experience necessary to fulfill our customers’ needs. Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors or modifications to our total compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified personnel, our business, financial condition and results of operations may suffer. Our future success also depends upon our ability to manage the performance of our personnel. Failure to successfully manage the performance of our personnel could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income.

In addition to the members of our own team, our success is substantially dependent on our ability to recruit and retain qualified temporary workers who possess the skills and experience necessary to meet the staffing requirements of our customers. We are required to continually evaluate our base of available qualified personnel to keep pace with changing customer needs. Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available.

Our revenue can vary because our customers can terminate their relationship with us at any time with limited or no penalty.

We focus on providing mid-level professional and light industrial personnel on a temporary assignment-by-assignment basis, which customers can generally terminate at any time or reduce their level of use when compared to prior periods. To avoid large placement agency fees, large companies may use in-house personnel staff, current employee referrals, or human resources consulting companies to find and hire new personnel. Because placement agencies typically charge a fee based on a percentage of the first year’s salary of a new worker, companies with many jobs to fill have a large financial incentive to avoid agencies.

Our business is also significantly affected by our customers’ hiring needs and their views of their future prospects. Our customers may, on very short notice, terminate, reduce or postpone their recruiting assignments with us and, therefore, affect demand for our services. As a result, a significant number of our customers can terminate their agreements with us at any time, making us particularly vulnerable to a significant decrease in revenue within a short period of time that could be difficult to quickly replace. This could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to retain existing customers or attract new customers, our results of operations could suffer.

Increasing the growth and profitability of our business is particularly dependent upon our ability to retain existing customers and capture additional customers. Our ability to do so is dependent upon our ability to provide high quality services and offer competitive prices. If we are unable to execute these tasks effectively, we may not be able to attract a significant number of new customers and our existing customer base could decrease, either or both of which could have an adverse impact on our revenues.

We operate in an intensely competitive and rapidly changing business environment, and there is a substantial risk that our services could become obsolete or uncompetitive.

The markets for our services are highly competitive. Our markets are characterized by pressures to provide high levels of service, incorporate new capabilities and technologies, accelerate job completion schedules and reduce prices. Furthermore, we face competition from a number of sources, including other executive search firms and professional search, staffing and consulting firms. Several of our competitors have greater financial and marketing resources than we do. New and existing competitors are aided by technology, and the market has low barriers to entry. Furthermore, Internet employment sites expand a company’s ability to find workers without the help of traditional agencies. Personnel agencies often work as intermediaries, helping employers accurately describe job openings and screen candidates. Increasing the use of sophisticated, automated job description and candidate screening tools could make many traditional functions of staffing companies obsolete. Specifically, the increased use of the internet may attract technology-oriented companies to the professional staffing industry. Free social networking sites such as LinkedIn and Facebook are also becoming a common way for recruiters and employees to connect without the assistance of a staffing company.

Our future success will depend largely upon our ability to anticipate and keep pace with those developments and advances. Current or future competitors could develop alternative capabilities and technologies that are more effective, easier to use or more economical than our services. In addition, we believe that, with continuing development and increased availability of information technology, the industries in which we compete may attract new competitors. If our capabilities and technologies become obsolete or uncompetitive, our related sales and revenue would decrease. Due to competition, we may experience reduced margins on our services, loss of market share, and loss of customers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business, financial condition and results of operations could be materially adversely affected.

Customers’ demand for our services may fluctuate widely with changes in economic conditions in the markets in which we operate. Those conditions include slower employment growth or reductions in employment, which directly impact our service offerings. As a staffing company, our revenue depends on the number of jobs we fill, which in turn depends on economic growth. During economic slowdowns, many customer companies stop hiring altogether. For example, in prior economic downturns, many employers in our operating regions reduced their overall workforce to reflect the slowing demand for their products and services. We may face lower demand and increased pricing pressures during these periods, which this could have a material adverse effect on our business, financial condition and results of operations.

We could be adversely affected by risks associated with acquisitions and joint ventures.

We are engaged in the acquisition of U.S. and U.K. based staffing companies, and our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. To date, we have completed six acquisitions. We intend to expand our business through acquisitions of complementary businesses, services or products, subject to our business plans and management's ability to identify, acquire and develop suitable investments or acquisition targets in both new and existing service categories. In certain circumstances, acceptable investments or acquisition targets might not be available. Acquisitions involve a number of risks, including:

Our business plan for continued growth through acquisitions is subject to certain inherent risks, including accessing capital resources, potential cost overruns and possible rejection of our business model and/or sales methods. Therefore, we provide no assurance that we will be successful in carrying out our business plan. We continue to pursue additional debt and equity financing to fund our business plan. We have no assurance that future financing will be available to us on acceptable terms or at all.

In addition, if we incur indebtedness to finance an acquisition, it may reduce our capacity to borrow additional amounts and require us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the cash resources available to us to fund capital expenditures, pursue other acquisitions or investments in new business initiatives and meet general corporate and working capital needs. This increased indebtedness may also limit our flexibility in planning for, and reacting to, changes in or challenges relating to our business and industry. The use of our common stock or other securities (including those convertible into or exchangeable or exercisable for our common stock) to finance any such acquisition may also result in dilution of our existing shareholders.

The potential risks associated with future acquisitions could disrupt our ongoing business, result in the loss of key customers or personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial condition.

We are dependent upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, our customer relationships and our ability to attract new customers may be adversely affected.

Our business could be interrupted by damage to or disruption of our computer and telecommunications equipment and software systems, and we may lose data. Our customers’ businesses may be adversely affected by any system or equipment failure we experience. As a result of any of the foregoing, our relationships with our customers may be impaired, we may lose customers, our ability to attract new customers may be adversely affected and we could be exposed to contractual liability. Precautions in place to protect us from, or minimize the effect of, such events may not be adequate. If an interruption by damage to or disruption of our computer and telecommunications equipment and software systems occurs, we could be liable and the market perception of our services could be harmed.

We could be harmed by improper disclosure or loss of sensitive or confidential company, employee, associate or customer data, including personal data.

In connection with the operation of our business, we store, process and transmit a large amount of data, including personnel and payment information, about our employees, customers, associates and candidates, a portion of which is confidential and/or personally sensitive. In doing so, we rely on our own technology and systems, and those of third party vendors we use for a variety of processes. We and our third party vendors have established policies and procedures to help protect the security and privacy of this information. Unauthorized disclosure or loss of sensitive or confidential data may occur through a variety of methods. These include, but are not limited to, systems failure, employee negligence, fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties, including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who may develop and deploy viruses, worms or other malicious software programs.

Such disclosure, loss or breach could harm our reputation and subject us to government sanctions and liability under our contracts and laws that protect sensitive or personal data and confidential information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data and other practices we and our third party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. The potential risk of security breaches and cyberattacks may increase as we introduce new services and offerings, such as mobile technology. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which we provide services. Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.

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

We employ people internally and in the workplaces of other businesses. Many of these individuals have access to customer information systems and confidential information. The risks of these activities include possible claims relating to:

We may incur fines and other losses or negative publicity with respect to these problems. In addition, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation. There can be no assurance that the corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. There can also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on reasonable terms or be sufficient in amount or scope of coverage.

Our compliance with complicated regulations concerning corporate governance and public disclosure has resulted in additional expenses. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain given our management’s relative inexperience with operating public companies.

We are faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure. In addition, as a staffing company, we are regulated by the U.S. Department of Labor, the Equal Employment Opportunity Commission, and often by state authorities. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing compliance work.

Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

The requirements of being a public company place significant demands on our resources.

As a public company, we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules subsequently implemented by the Securities and Exchange Commission and the NASDAQ Capital Market, have imposed various requirements on public companies. New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, and changes in required accounting practices and rules adopted by the Securities and Exchange Commission and the by NASDAQ Capital Market, would likely result in increased costs to us as we respond to their requirements.

Shareholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain and maintain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.

We do not intend to pay dividends on our common stock. Consequently, your ability to achieve a return on your investment will depend on the appreciation in the price of our common stock.

We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings, if any, for the development, operation, and expansion of our business, and we do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Any return to holders of our common stock would therefore be limited to the appreciation of their stock.

We are limited in our ability to pay dividends by certain of our existing agreements. In addition, so long as any shares of Series A Preferred Stock are outstanding, as they are at this time, we are not able to declare, pay or set apart for payment any dividend on any shares of common stock, unless at the time of such dividend we have paid all accrued and unpaid dividends on the outstanding shares of Series A Preferred Stock. Therefore, we cannot be certain if we will pay any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur,

as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the stockholders of common stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our company. In this event, you could lose some or all of your investment.

The Company leases 4,157 square feet of space at 641 Lexington Avenue, Suite 2701, New York, NY 10022, its headquarters and principal location. The Company’s lease for this space will expire in 2022. The Company currently has a total of 16 facilities throughout the U.S. and the U.K. This includes a U.K. office in London, as well as offices in the following states in the U.S.: New York, Connecticut, Massachusetts, Rhode Island, New Hampshire and North Carolina.

All offices are operated from leased space ranging from approximately 500 to 10,100 square feet, typically through operating leases with terms that range from six months to five years, and thus with expirations from 2017 through 2022. We believe that our facilities are adequate for our current requirements and that the Company’s leasing strategies provide us with sufficient flexibility to accommodate our business needs.

On May 22, 2014, NewCSI, Inc. (“NewCSI”) the former owners of Control Solutions International, filed a complaint in the United States District Court for the Western District of Texas, Austin Division, against the Company arising from the terms of the Stock Purchase Agreement dated August 14, 2013 between the Company and NewCSI. NewCSI claims that the Company breached a provision of the Stock Purchase Agreement (“SPA § 2.7”) that required the Company to calculate and pay to NewCSI 50% of certain “Deferred Tax Assets” within 90 days after December 31, 2013, subject to certain criteria. The Complaint sought payment of the amount allegedly owed under SPA § 2.7 and acceleration of earn-out payments provided for in the Stock Purchase Agreement of $1,400, less amounts paid to date, and attorneys’ fees. The Company responded denying the material allegations and interposing numerous affirmative defenses. On October 8, 2014, NewCSI filed a Motion of Summary Judgment (the “Motion”). On March 30, 2015, a Magistrate Judge of the District Court issued a Report and Recommendation that the District Court deny the Motion. The Recommendation became a final decision on April 13, 2015.

On December 31, 2014, NewCSI filed an amended complaint to which NewCSI added an additional count asserting an “Adjustment Event” had occurred requiring an acceleration of earn-out payments provided for in the CSI Stock Purchase Agreement of $2,100, less amounts paid as of December 31, 2014 totaling $429 (balance of $1,671 at December 31, 2014), should the Company or CSI “be unable, or admit in writing its inability, to pay its debts as they mature.” The Company responded denying the material allegations and interposing numerous affirmative defenses, including that the earn-out liability was fully expensed at the time of the acquisition and fully accrued for on the Company’s balance sheet as part of the purchase accounting at the time of the acquisition. The final pretrial conference in this matter was held April 22, 2015. A jury was selected on May 14, 2015, and the trial was held May 18-20, 2015. On May 20, 2015, the jury rendered a verdict, finding that the Company had not complied with SPA § 2.7 and owed $154, but that NewCSI had not proven that the Company or CSI had become unable to pay debts as they came due. The Court had held that it was not a question for the jury to decide if damages for breach of SPA § 2.7 should include accelerated earn-out payments.

On June 3, 2015, NewCSI filed a Motion for Entry of Judgment as Matter of Law seeking entry of a judgment in the amount of $154, plus accelerated earn-out payments in the amount of $1,152, plus statutory interest. NewCSI did not challenge the jury verdict on the ability to pay issue. Also on June 3, 2015, the Company filed a Motion for Entry of Judgment as a Matter of Law seeking entry of judgment against NewCSI on the jury’s finding that the Company had not complied with SPA § 2.7, or, in the alternative, for a reduction of damages to $154 and to hold that NewCSI may not be awarded accelerated earn-out payments as that would result in an illegal penalty.

On October 21, 2015, judgment was entered in this action in favor of NewCSI and against the Company in the amount of $1,307, plus pre-judgment interest, post-judgment interest, and costs.

On January 26, 2016, the District Court set the bond in respect of the NewCSI litigation at $1,384. The Company has filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit seeking reversal of the judgment and posted a supersedeas bond to stay the execution of the judgment pending appeal. On April 18, 2016, the Court granted the NewCSI shareholders’ request for payment of attorneys’ fees, but reserved judgment on the amount of fees to award pending the outcome of the Company’s appeal. As of January 2016, the NewCSI shareholders have claimed they have incurred $552 in attorney’s fees, which could increase during the pendency of the appeal. On November 3, 2016, oral arguments for the appeal were heard and now the Company is awaiting further instruction from the United States Court of Appeals for the Fifth Circuit.

We believe that the Company acted in a manner consistent with our contractual rights, and we intend to aggressively defend the Company against NewCSI. Nevertheless, there can be no assurance that the outcome of this litigation will be favorable to the Company.

On November 13, 2015, in a separate proceeding, the Company initiated an arbitration proceeding before JAMS against three former officers of the Company. In its demand for arbitration and statement of claim, the Company alleged that these individuals breached their employment agreements with the Company and the fiduciary duties each owed to the Company. The three respondents responded with a counterclaim alleging wrongful termination and have moved to dismiss the arbitration, as well as moved for severance in relation to the remainder of their contracts. On July 20, 2016, the arbitrator decided in favor of both of the respondents’ motions. Further on September 21, 2016 the arbitrator rendered the final award, which was set at $1,433. The Company is awaiting an order from the Court confirming the award. In addition, the Company has calculated interest and made a payment towards legal fees included in the final award amount. As of December 31, 2016 the balance is $1,607. This amount has already been fully accrued for and expensed on the Company’s balance sheet.

On February 17, 2016, a previous law firm filed suit in the Supreme Court of the State of New York alleging that the Company owes $759, for legal services rendered. The Company disagreed with the quantity and quality of legal services provided by the firm to the Company. On March 17, 2016, the Company reached a settlement with the law firm in the amount of $505 to be paid in equal installments over 24 months beginning in April 2016.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Shares of the Company’s common stock are traded on the Nasdaq Capital Market under the ticker symbol “STAF”. The high and low sales price per share of the Company’s common stock for each quarter during the last two fiscal years, as well as the Transition Period is shown below. Please note that historical share prices before September 17, 2015, have been adjusted to account for the 1-10 reverse stock split that occurred on such date.

As of April 12, 2017, there were approximately 3,000 shareholders of record of the Company’s common stock.

Common Stock: The Company has never paid any cash dividends on our common stock, and we do not anticipate paying any dividends with respect to those securities in the foreseeable future. The declaration and payment of future dividends will be at the discretion of the Company’s Board and will depend upon many factors, including the Company’s earnings, cash flow, financial condition and capital requirements. Our current business plan is to retain any future earnings to finance the expansion and development of our business.

Under Nevada law, except as otherwise provided in the articles of incorporation, no distribution (including dividends on, or redemption or repurchases of, shares of capital stock) may be made if, after giving effect to such distribution, the corporation would not be able to pay its debts as they become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of preferred stockholders. As a result, the Company has not paid any dividends associated with its Series A Preferred Stock.

Other than those sales of unregistered securities that have been disclosed by the Company in quarterly reports on Form 10-Q, current reports on Form 8-K, and as described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Financings,” the Company has not recently sold any unregistered securities.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We are incorporated in the State of Nevada. As a rapidly growing public company in the international staffing sector, our high-growth business model is based on finding and acquiring suitable, mature, profitable, operating, U.S. and U.K. based staffing companies. Our targeted consolidation model is focused specifically on the accounting and finance, IT, engineering, administration (the “Professional Sector”) and light industrial (the “Light Industrial Sector”) disciplines.

Our business plan is to expand and grow through multiple acquisitions, which may require additional financing, while continuing to supplement this with organic growth. The Company generated revenue of $109.4 million, $165.6 million, $128.8 million and $41.2 million for the Transition Period and fiscal years ended May 31, 2016, 2015 and 2014, respectively. This growth has been achieved primarily through acquisitions, while operations continued to grow organically 11.1% during the transition period and, on average, grew 8.8% between the fiscal years ended May, 31 2014 and 2016.

We are a high-growth international staffing company engaged in the acquisition of U.S. and U.K. based staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting primarily the Professional and Light Industrial Sectors. Our typical acquisition model is based on paying consideration in the form of cash, stock, earn-outs and/or promissory notes. In furthering our business model, the Company is regularly in discussions and negotiations with various suitable, mature acquisition targets.

Acquired on November 4, 2013, Control Solutions International, Inc. and its wholly owned subsidiary Canada Control Solutions International, Inc. (“CCSI”) (collectively (“CSI”), is a professional services company specializing in a broad spectrum of risk management, financial, internal audit and IT solutions.

Acquired on January 3, 2014, Initio International Holdings Limited (“Initio”) (the “Initio Acquisition”) is comprised of a U.S. and U.K. division. Initio’s U.S. division, Monroe Staffing Services LLC (“Monroe”), was established in 1969 and is a full-service staffing agency serving companies ranging from Fortune 100 companies to new start-ups, specializing in Professional and Light Industrial Sectors. Monroe has 11 offices located in the U.S., including offices in Connecticut, Massachusetts, Rhode Island, New Hampshire and North Carolina. Initio’s U.K. division (“Longbridge”), was established in 1989 and is an international multi-sector recruitment company catering to the sales and marketing, technology, legal and IT solutions sectors.

Acquired on February 28, 2014, Poolia UK Ltd. (“Poolia”) operates its professional staffing services from its office in London and focuses on providing temporary, contract and permanent qualified professionals to various banking, financial and commercial clients across the U.K. Subsequent to its acquisition, Poolia merged with Longbridge.

On May 17, 2014, the Company acquired 100% of the issued and outstanding capital stock of PeopleSERVE, Inc. (“PSI”) and 49% of the issued and outstanding capital stock of PeopleSERVE PRS, Inc. (“PRS”). In May 2016, the Company acquired the remaining 51% of PRS for $101. PSI and PRS provide IT staffing support to companies in the governmental, commercial and educational sectors.

Acquired on July 8, 2015, Lighthouse Placement Services, LLC specializes in placing professionals in the engineering, pharmaceutical, biotechnology and IT sectors.

Acquired on November 5, 2015, The JM Group Limited (“The JM Group”) provides IT workforce solutions to a diverse set of clients across the financial services, professional services and corporate sectors in the U.K.

During the first and second quarters of the year ended May 31, 2015, the Company conducted a thorough review and evaluation of its business operations and strategies, the forecast for the staffing industry, and the business environment in general. The Company concluded that it was imperative to take immediate action to reduce short and medium-term debt service obligations, consulting/advisory agreements, employment costs and other corporate commitments that were overburdening the Company’s working capital and ability to fund continuing business operations, raise additional equity capital and/or debt, and execute its business plan. As such, on September 3, 2014, the Company formally established a Restructuring Committee to evaluate and formalize a plan, referred to as the “Pathway to Profitability” or the “Restructuring Plan”, to restructure the Company’s approach to existing debt and its operational and corporate commitments. The Restructuring Plan was presented and adopted by the Board on September 3, 2014. As of May 31, 2016, this Restructuring Plan is complete.

Certain targeted initiatives have been and are being achieved as part of the Restructuring Plan through the following actions:

During the Transition Period and fiscal 2016, the Company generated $109.4 million and $165.6 million of revenue, respectively. During the most recent three months ended December 31, 2016, the Company generated $49.4 million of revenue. The Company believes the acquisitions consummated during fiscal 2015 and 2016 are performing as expected. We believe that we can continue to grow these businesses and that they will allow us to attract further acquisitions in line with our stated strategic plan of achieving $300 million of annualized revenue.

The Company operates in three countries and currencies; U.S. (U.S. Dollar), U.K. (Pound Sterling) and Canada (Canadian dollar), although its operations in Canada represent less than 0.1% of total revenues. During the Transition Period and fiscal year ended May

31, 2016, revenues generated in the U.K. were approximately 14% of total consolidated revenue and in the fiscal year ended May 31, 2015, approximately 6%. As a result, the Company’s exposure to foreign currency movement is not considered significant.

During the periods being reported, growth in bill rates can be attributed to accelerating wage inflation due to lower unemployment and fewer available candidates. In addition, bill rates in the industrial and office/clerical staffing skill segments have risen due to pass-through of new administrative and health insurance costs related to the Affordable Care Act (ACA) employer mandate which took effect January 1st, 2015. Going forward, minimum wage increases in several states are projected to have a ripple effect of boosting pay and bill rates in the industrial and office/clerical staffing skill segments.

For the transition period ended December 31, 2016 as compared to the unaudited period June 1, 2015 to December 26, 2015

Unaudited results of operations for the period June 1, 2015 to December 26, 2015 is provided here for discussion and analysis purposes. The following table sets forth the results of our operations for the transition period ended December 31, 2016 and for the period June 1, 2015 to December 26, 2015 indicated as a percentage of revenue:

For the transition period ended December 31, 2016, revenue grew 19.7% to $109,422 as compared to $91,423 for the period June 1, 2015 to December 26, 2015. Of that growth, 11.1% was organic, 9.2% was from the acquisitions of Lighthouse and The JM Group, and (0.6%) was from foreign currency translation.

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the transition period ended December 31, 2016 and the period June 1, 2015 to December 26, 2015, direct cost of revenue was $90,285 and $75,116, respectively, or growth of 20.2%, compared to growth in revenue of 19.7%, and is further discussed in the gross profit and gross margin comments below.

Gross profit for the transition period ended December 31, 2016 and the period June 1, 2015 to December 26, 2015 was $19,137 and $16,316, respectively, representing gross margin of 17.5% and 17.8% for each period, respectively. The decrease in margin is primarily attributable to the acquisition of The JM Group and strong organic growth in the Light Industrial segment (both at lower margins than the Company’s average).

For the transition period ended December 31, 2016, operating expenses amounted to $19,766 as compared to $18,435 for the period June 1, 2015 to December 26, 2015, an increase of $1,331 or 7.2%. Total operating expenses increased on an absolute basis, mainly resulting from the acquisition of Lighthouse and The JM Group, partially offset by decreases in professional fees and non-cash compensation expenses. However, as a percentage of revenue, these amounts were an improvement from 20.2% for the period June 1, 2015 to December 26, 2015 to 18.1% for the transition period ended December 31, 2016.

While cash operating expenses, defined as Total operating expenses excluding depreciation and amortization as well as other non-cash charges, grew on an absolute basis from $15,002 to $17,546 for the period June 1, 2015 to December 26, 2015 and for the transition period ended December 31, 2016, respectively, this represents a decline as a percentage of revenue from 16.4% to 16.0% for the same periods.

For the transition period ended December 31, 2016 and for the period June 1, 2015 to December 26, 2015, Other Expenses primarily includes interest and financing expense of $2,791 and $1,947, respectively, other expense (income) of $162 and $(39), respectively and other restructuring costs totaling $10 and $12, respectively. The restructuring charges incurred during 2016 were residual charges resulting from the Company’s implementation of its Restructuring Plan during 2015.

For the fiscal year ended May 31, 2016 as compared to the fiscal year ended May 31, 2015

The following table sets forth the results of our operations for the fiscal years ended May, 2016 and 2015 indicated as a percentage of revenue:

For the fiscal year ended May 31, 2016, revenue grew 28.5% to $165,552 as compared to $128,829 for the fiscal year ended May 31, 2015. Of that growth, 7.1% was organic, 21.8% was from the acquisition of The JM Group, and (0.4%) was from foreign currency translation.

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the fiscal years ended May 31, 2016 and 2015, cost of revenue was $136,505 and $106,281, respectively, or growth of 28.4%, which is consistent with the change in revenue.

Gross profit for the fiscal years ended May 31, 2016 and 2015 was $29,047 and $22,548, respectively, representing gross margin of 17.5% for both years. While business mix changed during the year with the addition of Lighthouse and The JM Group (at higher and lower margins respectively than the Company’s average), underlying margins were approximately in line with the prior year.

For the fiscal year ended May 31, 2016, operating expenses amounted to $33,645 as compared to $30,017 for the fiscal year ended May 31, 2015, an increase of $3,628 or 12.1%. Total operating expenses increased on an absolute basis, mainly resulting from the acquisition of Lighthouse and The JM Group. However, as a percentage of revenue, these amounts were an improvement from 23.3% for the fiscal year ended May 31, 2015 to 20.3% for the fiscal year ended May 31, 2016.

While cash operating expenses grew on an absolute basis from $23,958 to $28,601 for the fiscal years ended May 31, 2015 and 2016, respectively, this represents a significant decline as a percentage of revenue from 18.6% to 17.3% for the same periods, reflecting the success of our Pathway to Profitability initiative.

For the fiscal years ended May 31, 2016 and 2015, Other Expenses primarily includes interest and financing expense of $5,343 and $5,866, respectively, other income of $566 and $142, respectively and other restructuring costs totaling $21 and $5,237, respectively. The restructuring charges in 2016 were residual charges resulting from the Company’s implementation of its Restructuring Plan during 2015.

For the unaudited period December 27, 2015 to December 31, 2016 as compared to the unaudited period December 28, 2014 to December 26, 2015

Presentation of the period December 27, 2015 to December 31, 2016 is not required for a transition report. However, as the Company has changed its fiscal year end to a 52-53 week period ending on the last Saturday closest to December 31^st, future periods to be reported will be on this basis; and as such, we have included the period December 27, 2015 to December 31, 2016 compared to the period December 28, 2014 to December 26, 2015 to provide a more complete view of the Company’s performance on this basis. Comparison of results for these periods is slightly impacted by the fact that the period December 27, 2015 to December 31, 2016, has seven calendar days more than the period December 28, 2014 to December 26, 2015. However, the Company believes the impact of this difference is immaterial.

The following table sets forth the results of our operations for the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015 indicated as a percentage of revenue:

For the period December 27, 2015 to December 31, 2016, revenue grew 27.1% to $183,542 as compared to $144,408 for the period December 28, 2014 to December 26, 2015. Of that growth, 10.5% was organic, 17.1% was from the acquisitions of Lighthouse and The JM Group, and (0.5%) was from foreign currency translation.

Direct cost of services includes the variable cost of labor and various non-variable costs (e.g., insurance) relating to employees (temporary and permanent) as well as sub-contractors and consultants. For the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015, direct cost of revenue was $151,673 and $119,132, respectively, or growth of 27.3%, compared to growth in revenue of 27.0%, and is further discussed in the gross profit and gross margin comments below.

Gross profit for the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015 was $31,869 and $25,276, respectively, representing gross margin of 17.4% and 17.5% for each period, respectively. The decrease in margin is primarily attributable to the acquisition of The JM Group and strong organic growth in the Light Industrial segment (both at lower margins than the Company’s average).

For the period December 27, 2015 to December 31, 2016, operating expenses amounted to $34,978 as compared to $30,798 for the period December 28, 2014 to December 26, 2015, an increase of $4,180 or 13.6%. Total operating expenses increased on an absolute

basis, mainly resulting from the acquisition of Lighthouse and The JM Group, partially offset by decreases in professional fees and non-cash compensation expenses. However, as a percentage of revenue, these amounts were an improvement from 21.3% for the period December 28, 2014 to December 31, 2015 to 19.1% for the period December 27, 2015 to December 31, 2016.

While cash operating expenses, defined as Total operating expenses excluding Depreciation and amortization as well as other non-cash charges, grew on an absolute basis from $25,016 to $31,147 for the period December 28, 2014 to December 26, 2015 and for the period December 27, 2015 to December 31, 2016, respectively, this represents a decline as a percentage of revenue from 17.3% to 17.0% for the same periods.

For the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015, Other Expenses primarily includes interest and financing expense of $5,035 and $3,933, respectively, other expense (income) of $(365) and $(22), respectively and other restructuring costs totaling $19 and $(428), respectively. The restructuring charges in 2016 were residual charges resulting from the Company’s implementation of its Restructuring Plan during 2015.

To supplement our consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we also use non-GAAP financial measures and Key Performance Indicators (“KPIs”) in addition to our GAAP results. We believe non-GAAP financial measures and KPIs may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.

Revenue and Gross Profit by Service Segment We use this KPI to measure the Company’s mix of Revenue and respective profitability between its two main lines of business due to their differing margins. For clarity, these lines of business are not the Company’s operating segments, as this information is not currently regularly reviewed by the chief operating decision maker to allocate capital and resources. Rather, we use this KPI to benchmark the Company against the industry.

The following table details Revenue and Gross Profit by Sector for the transition period ended December 31, 2016 and for the period June 1, 2015 to December 26, 2015, respectively:

The following table details Revenue and Gross Profit by Sector for the fiscal years ended May 31, 2016 and 2015, respectively:

The following table details Revenue and Gross Profit by Sector for the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015, respectively:

Adjusted EBITDA This measure is defined as net loss attributable to common stock before: interest expense, benefit from (provision for) income taxes; income (loss) from discontinued operations, net of tax; other (income) expense, net, in operating income (loss); amortization and impairment of identifiable intangible assets; impairment of goodwill; depreciation; operational restructuring and other charges; other income (expense), net, below operating income (loss); non-cash expenses associated with stock compensation; and charges the Company considers to be non-recurring in nature such as legal expenses associated with litigation, professional fees associated potential and completed acquisitions. We use this measure because we believe it provides a more meaningful understanding of the profit and cash flow generation of the Company.

The following table provides a reconciliation of Adjusted EBITDA for the transition period ended December 31, 2016 and for the period June 1, 2015 to December 26, 2015 respectively, to its most directly comparable GAAP measure:

Adjusted EBITDA for the transition period ended December 31, 2016 of $3,261, a 38.2% increase from $2,359 for the period June 1, 2015 to December 26, 2015. This growth is attributable to earnings from the acquisition of Lighthouse and The JM Group, successful execution of our Pathway to Profitability initiative, as well as flow through of revenue arising from organic growth.

The following table provides a reconciliation of Adjusted EBITDA for the fiscal years ended May 31, 2016 and 2015 respectively, to its most directly comparable GAAP measure:

Adjusted EBITDA for the fiscal year ended May 31, 2016 of $4,111, grew over 400% from $752 for the fiscal year ended May 31, 2015. This growth is attributable to earnings from the acquisition of Lighthouse and The JM Group, successful execution of our Pathway to Profitability initiative, as well as flow through of revenue arising from organic growth.

The following table provides a reconciliation of Adjusted EBITDA for the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26 2015 respectively, to its most directly comparable GAAP measure:

Adjusted EBITDA for the period December 27, 2015 to December 31, 2016 of $5,013, grew 87.8% from $2,670 for the period December 28, 2014 to December 26, 2015. This growth is attributable to earnings from the acquisition of Lighthouse and The JM Group, successful execution of our Pathway to Profitability initiative, as well as flow through of revenue arising from organic growth.

Operating Leverage This measure is calculated by dividing the growth in Adjusted EBITDA by the growth in Gross Profit, on a trailing 12-month basis. We use this KPI because we believe it provides a measure of the Company’s efficiency for converting incremental gross profit into Adjusted EBITDA. The period December 27, 2105 to December 31, 2016 includes the Transition Period, Operating Leverage for the Transition Period is not separately shown as it would be duplicative.

The following table details the Company’s Operating Leverage for the fiscal years ended May 31, 2016 and 2015, respectively:

The following table details the Company’s Operating Leverage for the period December 27, 2015 to December 31, 2016 and for the period December 28, 2014 to December 26, 2015, respectively:

Operating leverage in TTM December 26, 2015 is unusually high due to the reversal from negative TTM Adjusted EBITDA - Prior Year to positive TTM Adjusted EBITDA - Current Year.

Leverage Ratio Calculated as Total Long Term Debt, Net, gross of any Original Issue Discount, plus Earnouts, less assets held against Long Term Debt, divided by Adjusted EBITDA for the trailing 12-months. We use this KPI as an indicator of the Company’s ability to service its debt prospectively.

The following table details the Company’s Leverage Ratio as of May 31, 2016 and 2015, respectively:

The following table details the Company’s Leverage Ratio as of December 31, 2016 and December 26, 2015, respectively:

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Historically, we have funded our operations through promissory notes, bonds, convertible notes, private placement offerings and from advances from our majority shareholders/officers/directors.

Our primary uses of cash have been for professional fees related to our operations and financial reporting requirements and for the payment of compensation, benefits and consulting fees. The following trends may occur as the Company continues to execute on its strategy:

As a result of our recent financings, we believe that we will be able to fund our operations, implement our business plan and pursue the acquisition of a broad spectrum of staffing companies through the next twelve months. However, we will need to raise additional capital to pursue growth opportunities, improve our infrastructure and otherwise make investments in assets and personnel that will allow us to remain competitive. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a potential downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations could significantly increase our legal and financial compliance costs and increase the use of resources.

As of December 31, 2016, the Company had a working capital deficiency of $15,091, an accumulated deficit of $47,847, for the transition period ended December 31, 2016 a net loss of $3,610, and, as of the date these financial statements are issued, the Company has approximately $4,377 associated debt and other amortizing obligations, due in the next 12 months.

The amounts due discussed above, are a subset of the Company’s total gross debt obligations as of December 31, 2016 of $9,010, as compared with $11,977 as of the Company’s most recent year ended May 31, 2016. Those balances are comprised of various instruments that can be summarized as follows:

These obligations mature over the period between January 2017 and April 2019, with interest being paid primarily at the same time principal is paid.

Other significant obligations of the Company as of December 31, 2016 not classified as debt are:

In January 2017, the Company entered into an amendment agreement in which, the parties refinanced an aggregate amount of $2,708 million of notes and extended all amortization payments (collectively “the Amendment”) to October 1, 2018. The new gross balance of the remaining note was $3,126. The Amendment had an 8% interest rate, with no interest payments due until October 1, 2017, payable quarterly thereafter, and an overall term of 21 months with principal due at maturity. The Amendment was convertible into shares of common stock at a price of $3.00 per share at holder’s election, and the holder has agreed to eliminate the 20% pre-payment penalty for an early redemption. In connection with the refinancing, the Company issued the holder 600,000 shares of common stock. Later in January 2017, the amended note was paid in full.

In addition, in January 2017, the Company closed financing with Jackson Investment Group, LLC (“JIG”) in the amount of $7,400 million. The financing is a term loan, maturing in July 2018 and carries interest at 6%. No interest or principal is due until maturity. In connection with the transaction, JIG received 1,650,000 shares of common stock and 3,150,000 warrants, exercisable for five years, with a cash exercise price of $1.35. At JIG’s election, 50% of accrued interest may be converted into shares of common stock at a conversion price of $2.00.

In connection with the JIG financing, in addition to paying $3,126 to satisfy the Amendment, the Company satisfied in full the earn-out liability associated with the Company’s acquisition of The JM Group of $1,026 and related interest, as well as approximately, $562 of debt obligations that were due in January 2017.

excess of the 19.99% limit, and amended the warrant agreement to allow JIG to purchase up to an additional 825,463 shares of common stock at $1.00 per share. The original warrant agreement was also amended to increase JIG’s warrants to 3,702,075 based on the anti-dilution clause contained therein, and adjust the exercise price to $1.00 per warrant. The second note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of June 8, 2019; however, in the event the Company satisfies all of its outstanding obligations with Midcap Financial Trust, the maturity date will be adjusted to July 25, 2018. No interest or principal is payable until maturity. At any time during the term of the note, upon notice to JIG, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to JIG an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The note’s principal is not convertible into shares of common stock; however, 50% of the accrued interest on the note can be converted into shares of common stock, at the sole election of JIG prior to maturity, at a conversion price equal to $1.50 per share. The proceeds of this transaction were used to redeem the remaining shares and conversion rights of the Series D Preferred Stock.

While management’s projected cash flows are forecasted to be sufficient to meet the Company’s obligations over the next 12 months, management believes it is prudent to continue its capital raising efforts in case its forecast is not achieved. Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, increased gross profit from organic revenue growth and managing and reducing operating and overhead costs.

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. In addition, the Company has received a letter of support from a significant shareholder pertaining to the arbitration loss, whereby the shareholder has agreed to provide funds to the Company sufficient to settle the arbitration loss in full referred to in Note 12, in return for consideration as may be agreed.

However, based upon an evaluation of the Company’s continued growth trajectory, past success in raising capital and meetings its obligations as well as its plans for raising capital discussed above, management believes that the Company is a going concern.

For the transition period ended December 31, 2016, net cash used in operations was $1,208. The Company’s principal source of financing for its operation is its accounts receivable lines of credit which is included in financing activities. During the transition period, net draws from such lines of credit were $1,739. Net cash used was primarily attributable to the net loss of $3,610, changes in operating assets and liabilities totaling $1,232, offset by non-cash adjustments of $3,634. Changes in operating assets and liabilities primarily relates to an increase in accounts receivable of $1,896, an increase in other assets of $627, offset by a decrease in prepaid expenses of $399, an increase in accounts payable and accrued expenses of $542, and increase in other of $380. Non-cash adjustments of $3,634 primarily relates to depreciation and amortization of $1,773, amortization of debt discount and beneficial conversion feature of $1,409, share based compensation totaling $392, loss on settlement of debt of $162, offset by other of $104.

For the year ended May 31, 2016, net cash provided by operations was $2,094. The Company’s principal source of financing for its operation is its accounts receivable lines of credit which is included in financing activities. During the year ended May 31, 2016, net draws from such lines of credit were $850. Net cash provided by operating activities was primarily attributable to the net loss of $9,485 offset by changes in operating assets and liabilities totaling $4,231, which primarily relates to a decrease in accounts receivable of $2,098, a decrease in prepaid expenses of $55, an increase in other assets of $637, an increase in accounts payable and accrued expenses of $2,800, a decrease in other current liabilities of $10, an increase in other long-term liabilities of $388 and a decrease in other of $288, non-cash adjustments of $5,508 of depreciation and amortization, share based compensation totaling $2,151, modification expense of $93, gain on settlement of debt of $566, interest paid in common stock of $113 and write-off of fixed assets of $49.

Cash used in operations was $3,129 for the fiscal year ended May 31, 2015, The Company’s principal source of financing for its operation is its accounts receivable lines of credit which is included in financing activities. During the year ended May 31, 2015, net draws from such lines of credit were $1,755. Net cash used on operating activities was primarily attributable to the net loss of $17,550 offset by changes in operating assets and liabilities totaling $306, which primarily relates to an increase in accounts payable and accrued expenses of $2,656, an increase in prepaid expenses of $142, an increase in other assets of $380, an increase in accounts receivable of $1,723, a decrease in other current liabilities of $142, an increase in other long-term liabilities of $118 and a decrease in other of $81, non-cash adjustments of $6,931 of depreciation and amortization, impairment of intangibles of $703, warrants issued for interest of $2,213, modification expense of $3,093, gain on settlement of debt of $921, gain on conversion of earn-out liability of $486, interest paid in stock of $420, write-off of fixed assets of $46 and share based compensation of $2,058.

For the transition period ended December 31, 2016, net cash flows used in investing activities was $1,269 and was attributable to payments to sellers of Lighthouse and JM Group of $946, fixed assets purchases of $221, and payments due to earn outs for $102.

For the year ended May 31, 2016, net cash flows used in investing activities was $5,290 and was attributable to the purchase of fixed assets of $205, payments due to earn-out agreements totaling $160, posting of surety bond of $1,405, purchase of variable interest entity of $101 and acquisition of businesses, net of cash acquired of $3,419.

For the year ended May 31, 2015, net cash flows used in investing activities was $2,014 and was attributable to the purchase of fixed assets of $255, payments due to sellers totaling $1,347, payments of $383 made for the earn-out agreement and cash relinquished in sale of subsidiary (Cyber 360) of $29.

For the transition period ended December 31, 2016, net cash flows provided by financing activities totaled $1,160 and was attributable to proceeds private placements of $2,495, proceeds from accounts receivable financing of $1,739, proceeds from promissory notes issued of $670, offset by repayments of promissory notes $2,607, repayment of accounts receivable over advance of $863, and financing costs associated with private placements of $274.

For the year ended May 31, 2016, net cash flows provided by financing activities totaled $5,146 and was attributable to proceeds relating to accounts receivable financing of $1,713, proceeds of $4,742 from the issuance of convertible promissory notes, proceeds from private placements of $2,851 and proceeds of $1,990 from the issuance of promissory notes. In addition, the Company paid $896 in third-party financing costs, repaid $664 in convertible notes, repaid promissory notes of $3,115, repaid bonds totaling $1,102 and paid third-party financing costs associated with private placements totaling $302.

For the year ended May 31, 2015, net cash flows provided by financing activities totaled $3,857 and was attributable to proceeds relating to accounts receivable financing of $1,755, proceeds of $404 from the issuance of convertible promissory notes, proceeds of $5,405 from the issuance of promissory notes and proceeds of $2,042 from the issuance of convertible bonds. In addition, the Company paid $1,428 in third-party financing costs, repaid $1,100 in convertible notes, and repaid promissory notes of $3,221.

Our significant accounting policies are fully described in Note 2 to our consolidated financial statements for the transition period ended December 31, 2016 contained herein.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment”. The amendments in this update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The guidance is effective for annual periods fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this update 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.

restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.

In March 2016, the FASB issued ASU 2016-09, “Stock Compensation”, regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement–Period Adjustments”. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for annual reporting periods beginning after December 15, 2015. The Adoption of this guidance has no material impact on the Company’s financial statements.

Contracts with Customers, Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing”, clarifying the implementation guidance on identifying performance obligations and licensing. The amendments in this ASU clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently assessing the potential impact of adopting ASU 2014-09, ASU 2016-08 and ASU 2016-10 on its financial statements and related disclosures.

We have audited the accompanying consolidated balance sheets of Staffing 360 Solutions, Inc. (the “Company”) as of December 31, 2016, May 31, 2016 and 2015 and the related consolidated statements of operations, comprehensive loss, statements of changes in equity and cash flows for the period in the transition year ended December 31, 2016 and the two years in the period ended May 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Staffing 360 Solutions, Inc. at December 31, 2016, May 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the transition period ended December 31, 2016 and each of the years in the two year period ended May 31, 2016, in conformity with U.S. generally accepted accounting principles.

	December 31,			May 31,			May 31,
	2016			2016			2015
ASSETS
Current Assets:
Cash and cash equivalents	$	650		$	1,969		$	19
Accounts receivable, net		22,274			20,378			18,760
Prepaid expenses and other current assets		613			1,012			1,023
Total Current Assets		23,537			23,359			19,802

Property and equipment, net		919			880			506
Goodwill		15,779			14,833			8,400
Identifiable Intangible assets, net		9,149			10,741			10,569
Other assets		4,573			3,946			1,904
Total Assets	$	53,957		$	53,759		$	41,181
LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable and accrued expenses	$	18,110		$	17,595		$	11,282
Current portion of long term debt		3,639			6,098			2,591
Accounts receivable financing		15,605			14,729			13,016
Other current liabilities		1,274			1,497			317
Total Current Liabilities		38,628			39,919			27,206

Long-term debt		3,997			3,186			2,312
Other long-term liabilities		3,054			3,142			2,161
Total Liabilities		45,679			46,247			31,679

Series D Preferred Stock, 5,000 designated, $10,000 stated value; 93, 0 and 0 shares issued and outstanding, respectively		612			—			—

Commitments and contingencies		—			—			—

Equity:
Staffing 360 Solutions, Inc. Equity:
Preferred stock, $0.00001 par value, 20,000,000 shares authorized;
Series A Preferred Stock, 1,663,008 designated, $10.00 stated value, 1,663,008 shares issued and outstanding as of December 31, 2016, May 31, 2016 and 2015, respectively		—			—			—
Series B Preferred Stock, 200,000 designated, $10.00 stated value, 0, 133,000 and 0 shares issued and outstanding as of December 31, 2016, May 31, 2016 and 2015, respectively		—			—			—
Series C Preferred Stock, 2,000,000 designated, $1.00 stated value, 0, 175,439 and 0 shares issued and outstanding as of December 31, 2016, May 31, 2016 and 2015, respectively		—			—			—
Common stock, $0.00001 par value, 20,000,000 shares authorized; 9,139,795, 6,306,744 and 4,368,924 shares issued and outstanding as of December 31, 2016, May 31, 2016 and 2015, respectively		—			—			—
Additional paid in capital		54,658			51,474			42,884
Accumulated other comprehensive income		855			159			(27	)
Accumulated deficit		(47,847	)		(44,121	)		(34,408	)
Total Staffing 360 Solutions, Inc. Equity		7,666			7,512			8,449
Non-controlling interest		—			—			1,053
Total Equity		7,666			7,512			9,502
Total Liabilities, Mezzanine Equity and Equity	$	53,957		$	53,759		$	41,181

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

	Transition Period Ended			Fiscal Years Ended
	December 31,			May 31,
	2016			2016			2015
Revenue	$	109,422		$	165,552		$	128,829

Cost of revenue, excluding depreciation and amortization stated below		90,285			136,505			106,281

Gross Profit		19,137			29,047			22,548

Operating Expenses:
Selling, general and administrative expenses, excluding depreciation and amortization stated below		17,993			30,781			25,736
Depreciation and amortization		1,773			2,864			2,711
Impairment of identifiable intangibles		—			—			703
Operating expenses - restructuring		—			—			867
Total Operating Expenses		19,766			33,645			30,017

Loss From Operations		(629	)		(4,598	)		(7,469	)

Other (Expenses) Income:
Interest expense		(1,382	)		(2,699	)		(1,646	)
Amortization of beneficial conversion feature		(430	)		(727	)		(2,475	)
Amortization of debt discount and deferred financing		(979	)		(1,917	)		(1,745	)
Other (expense) income		(162	)		566			142
Gain on conversion of earn-out liability - restructuring		—			—			486
Interest expense - restructuring		—			—			(2,542	)
Gain on settlement of debt - restructuring		—			—			779
Modification expense		(2	)		(72	)		—
Modification expense - restructuring		(10	)		(21	)		(3,093	)
Total Other Expenses		(2,965	)		(4,870	)		(10,094	)

Loss Before Provision For Income Tax		(3,594	)		(9,468	)		(17,563	)

(Provision for) benefit from income taxes		(16	)		(17	)		60

Net Loss From Continued Operations		(3,610	)		(9,485	)		(17,503	)

Net Loss From Discontinued Operations		—			—			(47	)

Net Loss		(3,610	)		(9,485	)		(17,550	)

Net income attributable to non-controlling interest		—			28			471

Net Loss Before Preferred Share Dividends		(3,610	)		(9,513	)		(18,021	)

Dividends - Series A preferred stock		116			200			50

Net loss attributable to common stock	$	(3,726	)	$	(9,713	)	$	(18,071	)

Basic and Diluted Net Loss per Share:

Continuing Operations	$	(0.45	)	$	(1.93	)	$	(4.57	)

Discontinued Operations	$	—		$	—		$	(0.01	)

Attributable to Common Stock	$	(0.46	)	$	(1.98	)	$	(4.72	)

Weighted Average Shares Outstanding – Basic and Diluted		8,105,236			4,909,809			3,829,164

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

	Preferred Stock - Series A				Preferred Stock - Series B				Preferred Stock - Series C				Preferred Stock - Series D				Common Stock				Additional		Accumulated Other			Non-
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Paid In Capital		Comprehensive Income (Loss)			controlling Interest		Accumulated Deficit			Total Equity
Balance May 31, 2014		—	$	—		—	$	—		—	$	—		—	$	—		3,295,073	$	—	$	26,410	$	(37	)	$	583	$	(16,337	)	$	10,619
Shares issued for conversion of officers bonuses		1,663,008		—		—		—		—		—		—		—		—		—		778		—			—		—			778
Common stock issued to consultants		—		—		—		—		—		—		—		—		23,250		—		215		—			—		—			215
Common stock issued pursuant to conversion of convertible notes payable		—		—		—		—		—		—		—		—		40,000		—		600		—			—		—			600
Common stock issued pursuant to conversion of accrued interest related to convertible notes payable		—		—		—		—		—		—		—		—		791		—		12		—			—		—			12
Shares issued in connection with convertible notes		—		—		—		—		—		—		—		—		8,450		—		123		—			—		—			123
Shares issued to board of directors as compensation		—		—		—		—		—		—		—		—		30,250		—		284		—			—		—			284
Shares issued to private placement agent		—		—		—		—		—		—		—		—		1,651		—		28		—			—		—			28
Shares issued in connection with convertible bonds - Series A		—		—		—		—		—		—		—		—		10,600		—		174		—			—		—			174
Shares issued in connection with settlement agreement		—		—		—		—		—		—		—		—		27,500		—		256		—			—		—			256
Common stock issued as interest on debt		—		—		—		—		—		—		—		—		43,375		—		309		—			—		—			309
Shares issued in connection with convertible bonds - Series B		—		—		—		—		—		—		—		—		9,815		—		124		—			—		—			124

	Preferred Stock - Series A				Preferred Stock - Series B				Preferred Stock - Series C				Preferred Stock - Series D				Common Stock				Additional		Accumulated Other			Non-
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Paid In Capital		Comprehensive Income (Loss)			controlling Interest		Accumulated Deficit			Total Equity
Shares issued in connection with extensions of convertible bonds - Series A		—		—		—		—		—		—		—		—		9,290		—		94		—			—		—			94
Shares issued in connection with extensions of convertible note		—		—		—		—		—		—		—		—		2,604		—		17		—			—		—			17
Shares issued as conversion of accounts payable		—		—		—		—		—		—		—		—		23,662		—		216		—			—		—			216
Shares issued as conversion of Initio Promissory Notes - Debt		—		—		—		—		—		—		—		—		305,603		—		2,290		—			—		—			2,290
Shares issued as conversion of Initio Promissory Notes - Interest		—		—		—		—		—		—		—		—		30,236		—		226		—			—		—			226
Modification expense		—		—		—		—		—		—		—		—		—		—		3,093		—			—		—			3,093
Shares issued in connection with convertible bonds - Series A		—		—		—		—		—		—		—		—		370,969		—		3,710		—			—		—			3,710
Shares issued for conversion of earnout liability		—		—		—		—		—		—		—		—		113,405		—		340		—			—		—			340
Shares issued as a bonus		—		—		—		—		—		—		—		—		22,400		—		188		—			—		—			188
Beneficial conversion feature		—		—		—		—		—		—		—		—		—		—		846		—			—		—			846
Warrants issued		—		—		—		—		—		—		—		—		—		—		2,213		—			—		—			2,213
Options issued		—		—		—		—		—		—		—		—		—		—		338		—			—		—			338
Dividends - Preferred Stock - Series A		—		—		—		—		—		—		—		—		—		—		—		—			—		(50	)		(50	)
Foreign currency translation gain		—		—		—		—		—		—		—		—		—		—		—		10			—		—			10
Non-controlling interest		—		—		—		—		—		—		—		—		—		—		—		—			470		—			470
Net loss		—		—		—		—		—		—		—		—		—		—		—		—			—		(18,021	)		(18,021	)
Balance May 31, 2015		1,663,008		—		—		—		—		—		—		—		4,368,924		—		42,884		(27	)		1,053		(34,408	)		9,502

	Preferred Stock - Series A				Preferred Stock - Series B				Preferred Stock - Series C				Preferred Stock - Series D				Common Stock				Additional		Accumulated Other			Non-
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Paid In Capital		Comprehensive Income (Loss)			controlling Interest		Accumulated Deficit			Total Equity
Balance May 31, 2015		1,663,008	$	—		—	$	—		—	$	—		—	$	—		4,368,924	$	—	$	42,884	$	(27	)	$	1,053	$	(34,408	)	$	9,502

Common stock issued to consultants		—		—		—		—		—		—		—		—		81,746		—		349		—			—		—			349
Common stock issued pursuant to issuance of convertible notes payable		—		—		—		—		—		—		—		—		125,000		—		507		—			—		—			507
Shares issued to board of directors as compensation		—		—		—		—		—		—		—		—		107,000		—		531		—			—		—			531
Shares issued to employees		—		—		—		—		—		—		—		—		260,310		—		879		—			—		—			879
Modification expense		—		—		—		—		—		—		—		—		—		—		93		—			—		—			93
Shares issued pursuant to acquisition of subsidiary		—		—		—		—		—		—		—		—		102,460		—		700		—			—		—			700
Beneficial conversion feature		—		—		—		—		—		—		—		—		—		—		1,105		—			—		—			1,105
Fair value of warrants issued		—		—		—		—		—		—		—		—		—		—		413		—			—		—			413
Fair value of options issued		—		—		—		—		—		—		—		—		—		—		358		—			—		—			358
Shares issued in connection with extensions of convertible bonds - Series A		—		—		—		—		—		—		—		—		4,375		—		24		—			—		—			24
Shares issued in connection with extensions of convertible bonds - Series B		—		—		—		—		—		—		—		—		2,750		—		12		—			—		—			12
Shares issued to private placement agent in relation to extension of Series B bond offerings		—		—		—		—		—		—		—		—		29,731		—		114		—			—		—			114
Shares issued in connection with conversion of accrued bonuses		—		—		—		—		—		—		—		—		17,709		—		42		—			—		—			42
Preferred shares issued in connection with convertible notes		—		—		133,000		—		—		—		—		—		—		—		315		—			—		—			315

	Preferred Stock - Series A				Preferred Stock - Series B				Preferred Stock - Series C				Preferred Stock - Series D				Common Stock				Additional			Accumulated Other		Non-
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Paid In Capital			Comprehensive Income (Loss)		controlling Interest			Accumulated Deficit			Total Equity
Shares issued in connection with promissory notes		—		—		—		—		—		—		—		—		25,000		—		65			—		—			—			65
Common shares issued for private placement		—		—		—		—		—		—		—		—		888,705		—		2,090			—		—			—			2,090
Preferred shares issued for private placement		—		—		—		—		175,439		—		—		—		—		—		460			—		—			—			460
Dividends - Preferred Stock - Series A		—		—		—		—		—		—		—		—		—		—		—			—		—			(200	)		(200	)
Tender offer		—		—		—		—		—		—		—		—		164,477		—		(18	)		—		—			—			(18	)
Warrant exchange		—		—		—		—		—		—		—		—		128,557		—		(430	)		—		—			—			(430	)
Foreign currency translation gain		—		—		—		—		—		—		—		—		—		—		—			186		—			—			186
Non-controlling interest		—		—		—		—		—		—		—		—		—		—		—			—		28			—			28
Purchase of non-controlling interest		—		—		—		—		—		—		—		—		—		—		981			—		(1,081	)		—			(100	)
Net loss		—		—		—		—		—		—		—		—		—		—		—			—		—			(9,513	)		(9,513	)
Balance May 31, 2016		1,663,008		—		133,000		—		175,439		—		—		—		6,306,744		—		51,474			159		—			(44,121	)		7,512

	Preferred Stock - Series A				Preferred Stock - Series B					Preferred Stock - Series C					Preferred Stock - Series D				Common Stock				Additional		Accumulated Other		Non-
	Shares		Par Value		Shares			Par Value		Shares			Par Value		Shares		Par Value		Shares		Par Value		Paid In Capital		Comprehensive Income (Loss)		controlling Interest		Accumulated Deficit			Total Equity
Balance May 31, 2016		1,663,008	$	—		133,000		$	—		175,439		$	—		—	$	—		6,306,744	$	—	$	51,474	$	159	$	-	$	(44,121	)	$	7,512

Common stock issued to consultants		—		—		—			—		—			—		—		—		38,297		—		66		—		—		—			66
Shares issued to board of directors as compensation		—		—		—			—		—			—		—		—		12,750		—		20		—		—		—			20
Shares issued to employees		—		—		—			—		—			—		—		—		9,800		—		43		—		—		—			43
Modification expense		—		—		—			—		—			—		—		—		—		—		12		—		—		—			12
Shares issued pursuant to acquisition of subsidiary		—		—		—			—		—			—		—		—		20,000		—		20		—		—		—			20
Fair value of options issued		—		—		—			—		—			—		—		—		—		—		210		—		—		—			210
Shares issued in connection with convertible notes		—		—		(133,000	)		—		—			—		—		—		133,000		—		—		—		—		—			—
Shares issued in connection with extension of convertible notes		—		—		—			—		—			—		—		—		890,910		—		1,149		—		—		—			1,149
Shares issued in connection with extension of convertible bonds - Series B		—		—		—			—		—			—		—		—		1,250		—		2		—		—		—			2
Common shares issued for private placement		—		—		—			—		—			—		—		—		210,645		—		426		—		—		—			426
Shares issued in connection with conversion of private placement		—		—		—			—		(175,439	)		—				—		175,439		—		—		—		—		—			—
Dividends - Preferred Stock - Series A		—		—		—			—		—			—		—		—		—		—		—		—		—		(116	)		(116	)
Preferred shares issued - Series D		—		—		—			—		—			—		93		—		1,340,960		—		1,183		—		—		—			1,183
Shares issued in connection with LTIP		—		—		—			—		—			—		—		—		—		—		53		—		—		—			53
Foreign currency translation gain		—		—		—			—		—			—		—		—		—		—		—		696		—		—			696
Net loss		—		—		—			—		—			—		—		—		—		—		—		—		—		(3,610	)		(3,610	)
Balance December 31, 2016		1,663,008	$	—		—		$	—		—		$	—		93	$	—		9,139,795	$	—	$	54,658	$	855	$	—	$	(47,847	)	$	7,666

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

	Transition Period Ended			Fiscal Years Ended
	December 31,			May 31,
	2016			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,610	)	$	(9,485	)	$	(17,550	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net loss from discontinued operations		—			—			47
Depreciation		181			232			158
Write off of property and equipment		—			49			46
Amortization of identifiable intangible assets		1,592			2,632			2,553
Amortization of debt discount, deferred financing costs and beneficial conversion feature		1,409			2,644			4,220
Impairment of identifiable intangibles		—			—			703
Stock based compensation		392			2,151			2,058
Warrants issued as interest to noteholders		—			—			2,213
Modification expense		(104	)		93			3,093
Gain on settlement of debt		162			(566	)		(921	)
Gain on conversion of earn-out liability		—			—			(486	)
Interest paid in common stock		2			113			420
Changes in operating assets and liabilities:
Accounts receivable		(1,896	)		2,098			(1,723	)
Prepaid expenses and other current assets		399			55			(142	)
Other assets		(627	)		(637	)		(380	)
Accounts payable and accrued expenses		542			2,800			2,618
Accounts payable - Related parties		—			(175	)		38
Other current liabilities		30			(10	)		(142	)
Other long-term liabilities		(60	)		388			118
Other, net		380			(288	)		(81	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES - CONTINUING OPERATIONS		(1,208	)		2,094			(3,140	)
NET CASH PROVIDED BY OPERATING ACTIVITIES - DISCONTINUED OPERATIONS		—			—			11
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(1,208	)		2,094			(3,129	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired		—			(3,419	)		—
Acquisition - payments due to seller		(946	)		—			(1,347	)
Payments for earn-outs		(102	)		(160	)		(383	)
Posting of surety bond		—			(1,405	)		—
Cash relinquished in sale of subsidiary		—			—			(29	)
Purchase of variable interest entity		—			(101	)		—
Purchase of property and equipment		(221	)		(205	)		(255	)
NET CASH USED IN INVESTING ACTIVITIES		(1,269	)		(5,290	)		(2,014	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Third-party financing costs		—			(896	)		(1,428	)
Proceeds from convertible notes		—			4,742			404
Third party financing cost associated with repayment of debt		—			(71	)		—
Repayment of convertible notes		—			(664	)		(1,100	)
Proceeds from promissory notes		670			1,990			5,405
Repayment of promissory notes		(2,607	)		(3,115	)		(3,221	)
Proceeds from accounts receivable financing, net		1,739			850			1,755
Proceeds (prepayment) from overadvance of accounts receivable financing		(863	)		863			—
Proceeds from private placements		2,495			2,851			—
Financing cost associated with private placements		(274	)		(302	)		—
Proceeds from sale of bonds		—			—			2,042
Repayment of bonds		—			(1,102	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,160			5,146			3,857

NET (DECREASE) INCREASE IN CASH		(1,317	)		1,950			(1,286	)

Foreign currency translation		(2	)		—			9

CASH - Beginning of period		1,969			19			1,296

CASH - End of period	$	650		$	1,969		$	19

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

(All amounts in thousands, except share and par values, unless otherwise indicated)

The Company effected a one-for-ten reverse stock split on September 17, 2015. Following the reverse split, the Company’s issued and outstanding shares of common stock decreased from 45,732,674 to 4,573,360. All share and per share information in these consolidated financial statements has been retroactively adjusted to reflect this reverse stock split.

These consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles in the United States (“GAAP”), expressed in U.S. dollars.

The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.

In July 2016, the Company received an unfavorable ruling in the matter of Staffing 360 Solutions, Inc. v. Former Officers of Staffing 360 Solutions, Inc., for which, as of the December 31, 2016, $1,607 has been accrued. The timing of payment for this loss is not yet known. It requires confirmation of the award by a Court, the date for which has not yet been set.

On January 26, 2017, the Company entered into a $7,400 million financing transaction with Jackson Investment Group, LLC. The capital was used in part to pay short-term debt obligations. As of the date these financial statements are issued, the Company has approximately $4,377 million associated with debt and other amortizing obligations, due in the next 12 months. The Company’s projected cash flows from operations include the assumption that the arbitration loss will be paid in the next 12 months, and are sufficient to address this and its other obligations in the normal course of business.

On February 28, 2017, the Board of Directors (the “Board”) approved the change of the Company’s fiscal year end from May 31 to a 52-53 week year ending on the Saturday closest to the 31^st of December. This may be a date that occurs in January of the following calendar year. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. In a 53 week fiscal year, one quarter will consist of 14 weeks. This transition report on Form 10-K/T covers the transition period beginning on June 1, 2016 through December 31, 2016. Annual reports on Form 10-K/T covering 52-53 week years will be filed thereafter. As a result of the change in fiscal year end, this filing includes financial statements showing the Company’s financial results for the transition period from June 1, 2016 through December 31, 2016 (the “Transition Period”). The comparative information provided for the period from June 1, 2015 to

(All amounts in thousands, except share and par values, unless otherwise indicated)

December 26, 2015 presented in the notes hereto is unaudited as it represents an interim period during the fiscal year ended May 31, 2016.

On May 17, 2014, the Company purchased 49% of the issued and outstanding common stock of PeopleServe PRS, Inc. (“PRS”). At the date of acquisition, the Company concluded that the Company was the primary beneficiary of PRS's results as it would have effective control over the operations of PRS, similarly to PeopleSERVE, Inc. (“PSI”), and expected to absorb the majority of PRS’ expected losses and expected residual returns. Accordingly, the Company consolidated the results of PRS. All inter-company transactions have been eliminated. Non-controlling interest in PRS was recorded in accordance with the provisions of Accounting Standards Codification (“ASC”) 810 “Consolidation”, and reported as a component of equity, separate from the parent company’s equity.

As of May 31, 2015, the total assets and liabilities of PRS are $2,531 and $1,610, respectively. The total revenue and expenses for the year ended May 31, 2015 are $11,177 and $10,254, respectively.

On April 29, 2016, the Company entered into an Agreement whereby it purchased the remaining 51% of ownership of PRS. The purchase was recorded in the consolidated balance sheet as a $981 increase in paid in capital and a $1,081 reduction in non-controlling interest. On the date of the Agreement, the Company paid cash of $100 to the PRS shareholder. Upon payment and as of May 31, 2016, the Company now owns 100% of PRS and will no longer report non-controlling interest for PRS.

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced the Company may differ materially and adversely from its estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected. Significant estimates for the Transition Period and years ended May 31, 2016 and 2015, respectively, include the valuation of intangible assets, including goodwill, liabilities associated with earn-out obligations, testing long-lived assets for impairment, valuation reserves against deferred tax assets and valuation of financial instruments.

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company records taxes on customer transactions due to governmental agencies as a receivable and a liability on the consolidated balance sheets.

Costs for advertising are expensed when incurred. Advertising expenses for the Company are not material.

From time to time, the Company may become involved in various claims, disputes and legal or regulatory proceedings that arise in the ordinary course of business and relate to contractual and other obligations. The Company assesses its potential contingent and other liabilities by analyzing its claims, disputes and legal and regulatory matters using all available information, and developing its views on estimated losses in consultation with its legal and other advisors. The Company determines whether a loss from a contingency

(All amounts in thousands, except share and par values, unless otherwise indicated)

should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. If the contingency is not probable or cannot be reasonably estimated, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss may be incurred. Expenses associated with legal contingencies are expensed as incurred.

The Company records a liability for significant costs associated with exit or disposal activities, including lease termination costs, certain employee severance costs associated with formal restructuring plans, facility closings or other similar activities and related asset impairments, when the liability is incurred.

The determination of when the Company accrues for severance and related costs depends on whether the termination benefits are provided under a one-time benefit arrangement or under an ongoing benefit arrangement. Where the Company has either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, it recognizes severance costs when they are both probable and estimable. Costs associated with restructuring actions that include one-time severance benefits are only recorded once a liability has been incurred, including when management with the proper level of authority has committed to a restructuring plan and the plan has been communicated to employees. These charges are included in operational restructuring and other charges on the consolidated statements of operations. Other charges include knowledge transfer costs directly related to the restructuring initiatives and are expensed as incurred.

The Company considers all highly liquid instruments with original maturities of three months or less when acquired, to be cash equivalents. The Company had no cash equivalents at December 31, 2016, May 31, 2016 and May 31, 2015.

Accounts receivable are presented net of an allowance for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after all efforts to collect have been exhausted. At December 31, 2016, May 31, 2016 and 2015, the Company had an allowance for doubtful accounts of $372, $382, and $270 respectively.

The Company utilizes Accounting Standards Codification (“ASC”) Topic 740, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company applies the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of the date of this filing, the Company is current on all corporate, federal and state tax returns.

Assets and liabilities of subsidiaries operating in foreign countries are translated into U.S. dollars using the exchange rate in effect at the balance sheet date and equity is translated at historical rate. Results of operations are translated using average exchange rates. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in a separate

(All amounts in thousands, except share and par values, unless otherwise indicated)

component of stockholders’ equity (accumulated other comprehensive income), while gains and losses resulting from foreign currency transactions are included in operations.

Costs incurred in connection with obtaining certain financing are deferred and amortized on a straight-line basis over the term of the related obligation. In accordance with Accounting Standards Update (“ASU”) 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs”, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount.

In accordance with ASC 805, "Business Combinations”, the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and, in some instances, may retain the services of an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.

In accordance with ASC 820, “Fair Value Measurements and Disclosures”, the Company measures and accounts for certain assets and liabilities at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, and establishes a framework for measuring fair value and standards for disclosure about such fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2016, May 31, 2016 and 2015.

Cash is considered to be highly liquid and easily tradable as of December 31, 2016, May 31, 2016 and 2015, therefore classified as Level 1 within our fair value hierarchy.

ASC 825-10-25, “Fair Value Option” expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method over the estimated useful lives for each category as follows:

(All amounts in thousands, except share and par values, unless otherwise indicated)

Amortization of leasehold improvements is computed using the straight-line method over the shorter of the life of the lease or the estimated useful life of the assets. Maintenance and repairs are charged to expense as incurred. Major improvements are capitalized.

At the time of retirement or disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in Other income/(expenses).

In accordance with ASC 360 “Property, Plant, and Equipment”, the Company periodically reviews its long-lived assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount. The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350-30-35-4, requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. There were no impairments recorded for the periods presented.

Due to the Company changing its year end to the Saturday closest to the 31^st of December, the Company performed its annual goodwill impairment testing as of October 1, 2016, and going forward will be performed annually on the first day of its fourth fiscal quarter of every year, to coincide with the Company’s annual planning cycle.

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, “Derivative and Hedging”.

Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

(All amounts in thousands, except share and par values, unless otherwise indicated)

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control and could require net cash settlement, then the contract shall be classified as an asset or a liability.

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718, “Compensation – Stock Compensation”, which requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees”.

Accumulated other comprehensive income (loss) consisted of cumulative foreign currency translation adjustments at December 31, 2016, May 31, 2016 and 2015.

Certain reclassifications have been made to conform the prior period data to the current presentations. In accordance with ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs”, debt issuance costs related to a recognized debt liability are now presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. These reclassifications had no impact on reported results of operations.

The Company has reclassified the Midcap Additional Term Loan from Long-term debt to Other long-term liabilities, as this represents the long-term portion of funds received from the Accounts receivable financing facility. This reclassification had no material impact on reported results of operations.

On February 27, 2015, the Company entered into a Stock Purchase Agreement to sell Cyber 360, Inc. (“Cyber 360”) to former owners of The Revolution Group, Ltd. with an effective date of January 1, 2015 for an aggregate purchase price of $1.00 (whole dollars) and the settlement of the remaining earn-out obligation under the original purchase agreement. In connection with the sale, all agreements executed in connection with the original acquisition of Cyber 360’s business and all obligations thereunder, except as set forth below, were terminated. As a result of the sale, the Company no longer owns Cyber 360.

In connection with the sale and in full settlement of the remaining earn-out obligations, the Company issued 113,405 shares of the Company’s common stock with a fair value of $3.00 per share.

In accordance with ASC 205-20 “Discontinued Operations”, the results of the discontinued business have been presented as discontinued operations for the fiscal year ended May 31, 2015. The operational results of Cyber 360 are presented in the “Net loss from discontinued operations” line item on the fiscal 2015 Consolidated Statements of Operations.

Revenue, operating loss, and net loss from discontinued operations were as follows:

(All amounts in thousands, except share and par values, unless otherwise indicated)

carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The guidance is effective for annual periods fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

(All amounts in thousands, except share and par values, unless otherwise indicated)

retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for annual reporting periods beginning after December 15, 2015. The Adoption of this guidance has no material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 supersedes the revenue recognition requirements of FASB ASC Topic 605, “Revenue Recognition” and most industry-specific guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606, “Revenue from Contracts with Customers”. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers, Deferral of the Effective Date”. ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers, Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing”, clarifying the implementation guidance on identifying performance obligations and licensing. The amendments in this ASU clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently assessing the potential impact of adopting ASU 2014-09, ASU 2016-08 and ASU 2016-10 on its financial statements and related disclosures.

The Company utilizes the guidance per ASC 260, “Earnings per Share”. Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Our Series A preferred stock holders receive certain dividends or dividend equivalents that are considered participating securities and our loss per share is computed using the two-class method. Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock share equivalents consist of common shares issuable upon the conversion of preferred stock, convertible notes and the exercise of stock options and warrants (calculated using the modified treasury stock method). Such securities, shown below, presented on a common share equivalent basis and outstanding as of December 31, 2016, May 31, 2016 and 2015 have been excluded from the per share computations, since their inclusion would be anti-dilutive:

Convertible preferred shares include the Company’s Series D Preferred Stock which contains both a fixed and variable conversion feature that fluctuates with the Company’s stock price. In addition, other restrictions prevent the holders from converting all of the Series D Preferred Stock at the same time. As a result, it is difficult to estimate the exact amount of shares of common stock the Series

(All amounts in thousands, except share and par values, unless otherwise indicated)

D Preferred Stock could be converted into at any time. As a result, only the fixed portion of the conversion features are included in the amounts above.

In April 2017, the Company entered into an agreement with Holders of the Series D Preferred shares to redeem the remaining 62 shares of Series D Preferred Stock and terminate all future conversion rights, in return for $1,500 in cash and 300,000 shares of common stock.

Depreciation expense for the Transition Period and years ended May 31, 2016 and 2015, was $181, $232, and $158, respectively. In addition, the Company wrote off fixed assets totaling $0, $49 and $46 for the same periods, respectively.

(All amounts in thousands, except share and par values, unless otherwise indicated)

	December 31, 2016
	Tradenames			Non-Compete			Customer Relationships			Total
Identifiable intangible assets, gross	$	6,289		$	2,368		$	9,890		$	18,547
Accumulated impairment losses		(311	)		(142	)		(1,084	)		(1,537	)
Accumulated amortization		(1,253	)		(1,661	)		(4,947	)		(7,861	)
Identifiable intangible assets, net	$	4,725		$	565		$	3,859		$	9,149

	May 31, 2016
	Tradenames			Non-Compete			Customer Relationships			Total
Identifiable intangible assets, gross	$	6,289		$	2,368		$	9,890		$	18,547
Accumulated impairment losses		(311	)		(142	)		(1,084	)		(1,537	)
Accumulated amortization		(1,241	)		(1,345	)		(3,683	)		(6,269	)
Identifiable intangible assets, net	$	4,737		$	881		$	5,123		$	10,741

	May 31, 2015
	Tradenames			Non-Compete			Customer Relationships			Total
Identifiable intangible assets, gross	$	5,892		$	2,368		$	7,483		$	15,743
Accumulated impairment losses		(311	)		(142	)		(1,084	)		(1,537	)
Accumulated amortization		(666	)		(801	)		(2,170	)		(3,637	)
Identifiable intangible assets, net	$	4,915		$	1,425		$	4,229		$	10,569

The weighted average useful life remaining of identifiable intangible assets remaining is 7.1 years.

Amortization of identifiable intangible assets for the Transition Period, years ended May 31, 2016 and 2015 was $1,592, $2,632, and $2,553, respectively.

As of December 31, 2016, estimated annual amortization expense for each of the next five fiscal years is as follows:

(All amounts in thousands, except share and par values, unless otherwise indicated)

In November 2013, Control Solutions International, Inc. (“CSI”), entered into a financing services agreement by which it assigns accounts receivable to fund working capital with Sterling National Bank (“Sterling”). Pursuant to this agreement, Sterling may advance up to 90% of the face value of eligible accounts receivable. The borrowings carry interest at a rate of 0.025% per day, or 9.0% per annum, from the date of the advance until the date of repayment. There is no ending date to the agreement, only a closing fee of $500 (whole dollars) upon termination.

In February 2014, Longbridge Recruitment 360 Limited, wholly owned by Staffing 360 Solutions Limited (“Staffing U.K.”) entered into an agreement with ABN AMRO Commercial Finance PLC (“ABN AMRO”) under which it borrows money against eligible accounts receivable. Under this agreement, the Borrower may receive advances of up to 90% on temporary placements and 75% on permanent placements of the face value of eligible receivables. The borrowings carried interest at a rate of 2.50% above the Sterling Libor rate of 3.90%. The aggregate limit is £1,250, which is cross guaranteed by all of our U.K. subsidiaries and backed by all of the assets of our U.K. entities.

On November 5, 2015, an amendment to the existing agreement with ABN AMRO was entered into, raising the limit on the line from £1.25 million to £3.5 million at a 2.5% interest rate plus the Bank of England base rate of 0.5%. With this new agreement the borrower receives advances of 90% on both temporary and permanent placements of the face value of eligible receivables. Additionally, a two-year term loan was entered into with ABN-AMRO Commercial Finance for £750 to partially fund the acquisition of The JM Group Limited (“The JM Group”) and it bears an interest rate of 3% plus the Bank of England base rate of 0.5%. The new facility and the term loan are cross guaranteed by all of our UK subsidiaries and backed by all of the assets of our U.K. entities.

On March 29, 2017, Longbridge Recruitment 360 Limited and The JM Group each received a reservation of rights letter from ABN AMRO bank with respect to technical noncompliance with certain financial covenants contained in their financing documents with the bank. There was no financial impact of receiving this letter.

(All amounts in thousands, except share and par values, unless otherwise indicated)

Effective November 1, 2012, the Company’s subsidiary, Monroe Staffing Services, LLC (“Monroe”) entered into a $14.0 million line of credit (“Credit and Security Agreement”) with Wells Fargo Bank, NA. The Credit and Security Agreement was subject to certain accounts receivable limitations with interest at one month Libor plus 5.0% on the greater of $5.0 million or the actual loan balance outstanding, and was to expire on October 31, 2015. The Credit and Security Agreement was subject to an annual facility fee, certain covenants and was secured by all of the assets of Monroe.

Effective July 25, 2014, the Company joined with its subsidiaries, Monroe, PSI and PRS, (collectively the “Borrowers”) in an Amended and Restated Credit and Security Agreement and a new Credit and Security Agreement (“Credit Facility”) with Wells Fargo Bank, NA. This Credit Facility increased the line of credit amount from $14.0 million to $15.0 million and modified the covenants to permit, with certain limitations, the transfer of funds amongst the Borrowers. All other terms and conditions remained unchanged. On April 8, 2015, the Company effectively cancelled the Wells Fargo Credit Facility. Associated with this cancellation, the Company paid an early termination fee of $100. The effective rate during the year ended May 31, 2015 was 5.15%. At December 31, 2016, May 31, 2016 and 2015, the balance outstanding under this Credit Facility was $0.

On April 8, 2015, Monroe and PSI, each a wholly owned subsidiary of the Company, entered into a $22.0 million revolving loan facility with MidCap Funding X Trust (“MidCap”), with the option to increase the amount to up to $47.0 million. On July 13, 2015, in connection with the Company’s acquisition of Lighthouse Placement Services, LLC (“Lighthouse”), the $22.0 million revolving loan facility was amended to include Lighthouse and the Company’s existing subsidiary, Faro Recruitment America, Inc., as borrowers. The revolving loan’s term is four years. The interest rate is LIBOR plus 4.0%, with a LIBOR floor of 1.0% per annum. The Company may prepay all or any portion of the balance at any time subject to a prepayment premium of: (i) 2.0% if prepaid in the first year of the loan; and (ii) 1.0% if prepaid thereafter. This loan is secured by a first priority lien in favor of MidCap on all of the Company’s US based assets except for the CSI assets. The Company entered into customary pledge and guaranty agreements to evidence the security interest in favor of MidCap.

On April 8, 2015, PRS entered into a $3.0 million revolving loan facility with MidCap. At the time, the Company held a 49% equity interest in PRS. The revolving loan’s term was four years. The interest rate was LIBOR plus 4.0%, with a LIBOR floor of 1.0% per annum. The Company may prepay all or any portion of the balance at any time subject to a prepayment premium of: (i) 2.0% if prepaid in the first year of the loan; and (ii) 1.0% if prepaid thereafter. This loan was secured by a first priority lien in favor of MidCap on all of the Company’s US based assets except for the assets of CSI. The Company entered into customary pledge and guaranty agreements to evidence the security interest in favor of MidCap.

On July 11, 2016, the Company, PRS and MidCap amended the agreements to join the PRS facility with Monroe and PSI’s facility for a total facility of $25.0 million (the “Midcap Facility”).

The availability to the Company under the Midcap Facility is reduced by any outstanding letters of credit. The Midcap Facility allows the Company to issue letters of credit up to $150. As of December 31, 2016, $85 letters of credit were issued and outstanding.

In addition, in January 2017, Midcap further reduced the Company’s availability for any past due taxes. The reserve to reduce the Company’s availability builds at a rate of $2.5 per day up to the amount of the past due taxes.

The facility provides events of default including: (i) failure to make payment of principal or interest on any MidCap loans when required, (ii) failure to perform obligations under the facility and related documents, (iii) not paying its debts as such debts become due and similar insolvency matters, and (iv) material adverse changes to the Company (subject to a 10-day notice and cure period). Upon an event of default, the Company’s obligations under the credit facility may, or in the event of insolvency or bankruptcy will automatically, be accelerated. Upon the occurrence of any event of default, facility will bear interest at a rate equal to the lesser of: (i) 3.0% above the rate of interest applicable to such obligations immediately prior to the occurrence of the event of default; and (ii) the maximum rate allowable under law.

Under the terms of this agreement, the Company is subject to affirmative covenants which are customary for financings of this type, including: (i) maintain good standing and governmental authorizations, (ii) provide certain information and notices to MidCap, (iii) deliver monthly reports and quarterly financial statements to MidCap, (iv) maintain insurance, (v) discharge all taxes, (vi) protect their intellectual property, and (vii) generally protect the collateral granted to MidCap. The Company is also subject to negative covenants

(All amounts in thousands, except share and par values, unless otherwise indicated)

customary for financings of this type, including that it may not: (i) enter into a merger or consolidation or certain change of control events, (ii) incur liens on the collateral, (iii) except for certain permitted acquisitions, acquire any significant assets other than in the ordinary course of business, (iv) assume certain additional senior debt, or (v) amend any of their organizational documents. During the period August 31, 2015 through May 31, 2016, the Company was not in compliance with one or more of the covenants, however, did receive a waiver from MidCap for such covenants during this period. On July 11, 2016, the Company and MidCap amended the agreement and related covenants prospectively. The Company has been in compliance with the covenants.

At December 31, 2016, May 31, 2016 and 2015, the total outstanding balance of all facilities was $15,605, $14,729, and $13,016, respectively.

On April 8, 2015, the Company entered into an additional four-year term loan with Midcap Financial Trust, associated with the accounts receivable financing line of credit, of up to $1,300 bearing interest at 4.0% plus LIBOR, with a LIBOR floor of 1.0% per annum, provided, that the Additional Term Loan shall be limited to an amount equal to 5.0% of each $1,000 of the aggregate net amount of the Eligible Accounts (as such term is defined in the S360 Credit Agreement) minus the amount of any reserves and/or adjustments provided for in the S360 Credit Agreement. The initial borrowing of the Additional Term Loan was $700 and shall be payable in full on April 8, 2019. As of May 31, 2015, the outstanding balance was $700. Subsequently, there were two additional borrowings for $50 each.

On February 8, 2016, the Company amended the terms of the agreement to draw an additional $500 and adjust the interest rate to 9.0% plus LIBOR, with a LIBOR floor of 1%. The maturity date was unchanged. As part of the amendment, the Company issued Midcap Financial Trust 25,000 shares of common stock and recorded a debt discount of $65. Net of the remaining unamortized debt discount of $57, the remaining loan balance is $1,243. As of December 31, 2016, the outstanding balance is $1,300.

On January 26, 2017, the payment terms of the Additional Term Loan were amended. Commencing on February 1, 2017 and continuing the first day of each calendar month, the Company shall make principal payments of $50 each month with the entire remaining balance due on the maturity date. In addition, in the event the Company should raise capital in aggregate of $2.5 million, the Company must paid $500 of such capital towards the Additional Term Loan; and if the Company should raise capital cumulatively in aggregate of $4.0 million, an additional $500 of such capital must be paid towards the Additional Term Loan.

The Company has reclassified the Midcap Additional Term Loan from Long-term debt to Other current liabilities for $550 and Other long-term liabilities for $750, as this represents funds received from the Accounts receivable financing facility. These reclassifications had no impact on reported results of operations.

(All amounts in thousands, except share and par values, unless otherwise indicated)

	December 31,			May 31,
	2016			2016			2015
Bonds:
Bonds - Series A	$	—		$	—		$	175
Bonds - Series B		50			55			981

Convertible Notes:
12% Convertible Note		—			—			100
8% Convertible Note (February 5, 2015)		—			—			204
Non-interest bearing convertible note (January 6, 2016)		359			359			—
Non-interest bearing convertible note (September 10, 2016)		477			—			—
8% Convertible Note (July 8, 2015)		1,960			3,920			—
8% Convertible Note (February 8, 2016)		728			728			—
Lighthouse - Seller Note #1		1,874			2,124			—
Lighthouse - Seller Note #2		234			390			—

Promissory Notes:
The JM Group - Seller Note		—			—			—
Staffing (UK) - Seller Note		112			144			199
PeopleServe - Seller Note		329			789			1,578

Term Loans:
Sterling National Bank		168			272			52
Midcap Financial Trust		2,025			2,375			2,937
ABN AMRO		694			821			—

Less Debt Discount		(1,374	)		(2,693	)		(1,323	)

Total Debt		7,636			9,284			4,903

Less: Current Portion		(3,639	)		(6,098	)		(2,591	)

Total Long-Term Debt	$	3,997		$	3,186		$	2,312

From April 21, 2014 through May 27, 2014, the Company raised $950 from two accredited investors through the issuance of five short-term, 12% convertible promissory notes. The holders of these notes received an aggregate of 19,000 common stock shares. These notes had varying maturity dates.

During July 2014, the Company amended and restated each of the five aforementioned promissory notes. Other than for $150, which was repaid, the remaining balance of $800 was amended and restated with the same basic terms as the original promissory notes, other than that they became due upon demand. These note holders received either 250 or 500 common stock shares monthly for every $100 loaned. The holder could convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. These notes were paid in full in April 2015.

From May 14, 2014 through May 19, 2014, the Company raised $600 from five accredited investors through the issuance of five short-term 12% convertible promissory notes. These notes were payable upon the earlier of the (i) completion of the Company’s Series A Bond offering, (ii) completion of the Company’s senior debt facility, or (iii) July 12, 2014. These note holders received an aggregate of 12,000 common stock shares. These holders were entitled to convert, at their sole election, the principal amount and any unpaid interest into common stock shares at $15.00 per share. On July 14, 2014, all five of these holders converted principal of $600 into 40,000 common stock shares and accrued interest of $12 into 792 common stock shares.

(All amounts in thousands, except share and par values, unless otherwise indicated)

On May 27, 2014, the Company raised $50 from an accredited investor through the issuance of a short-term 12% convertible promissory note. This note was payable upon the earlier of the (i) completion of the Company’s Series A Bond offering, (ii) completion of the Company’s senior debt facility, or (iii) July 12, 2014. The note holder received 1,000 common stock shares. The note holder was entitled to convert, at his sole election, the principal amount and any unpaid interest into common stock shares at $15.00 per share. On July 25, 2014, the Company repaid this note.

On June 22, 2014, the Company raised $100 from an accredited investor through the issuance of a short-term 12% convertible promissory note. This note was payable upon the earlier of the (i) completion of the Series A Bond Offering, (ii) completion of the Company’s senior debt facility, or (iii) eight weeks from the original issuance date. The note holder received 2,000 common stock shares. The holder was entitled to convert, at his sole election, the principal amount and any unpaid interest due under the note into common stock shares at $15.00 per share. The Company recorded a debt discount of $29 and a beneficial conversion feature of $64 for the issuance of the 2,000 common stock shares. In August 2014, this note was repaid in full.

On July 29, 2014, the Company completed its Series A bond financing. The Company raised an aggregate of $4,059 from 70 accredited investors and issued an aggregate of 40,585 common stock shares. As part of the Series A Bond offering, the placement agent was entitled to: (i) a fee in cash up to an amount equal to 10% of the aggregate gross proceeds, (ii) a non-accountable expense allowance of up to 2% of the aggregate gross proceeds, and (iii) common stock shares equal to 10% of the aggregate number of common stock shares issued. The placement agent was paid $487 and issued 1,210 common stock shares.

Each bond purchaser received additional equity consideration of 500 common stock shares for each $50 investment. Accordingly, the Company issued an aggregate of 40,585 common stock shares to the bond purchasers and recorded a debt discount of $662 and beneficial conversion of $1,883. Through May 31, 2015, the debt discount and beneficial conversion feature were fully amortized.

On or about September 10, 2014, the Company offered an early conversion incentive to all outstanding Series A Bonds to convert principal and interest on or prior to the maturity date of October 15, 2014. The conversion terms offered a discount from the original terms of $15.00 per common stock share with no warrants to conversion at $10.00 per common stock share and one warrant exercisable until October 15, 2017 at $20.00 per common stock share for every $2.00 of principal and interest converted. The modification of conversion price from $20.00 to $10.00 resulted in the Company recording a modification expense of $1,977. On October 15, 2014, certain bondholders elected to convert a portion of the outstanding Series A Bonds under the conversion terms totaling $3,529 in principal and $181 in accrued interest into 370,969 common stock shares and 185,486 warrants exercisable at $20.00 per common stock share. The additional modification associated with the inclusion of warrants resulted in the Company recording a modification expense of $951.

On October 15, 2014, the Company agreed with the remaining 10 bond holders to extend the maturity date of the outstanding Convertible Bonds, $530 in principal and $27 in accrued interest. In addition, the Company accelerated the remaining interest expense and recorded $24 of interest expense as part of the restructuring. Eight of these bond holders totaling $430 in principal agreed to extend the maturity to April 15, 2015 in exchange for 4,513 common stock shares, valued at $63. The remaining two bond holders totaling $100 in principal and $7 in accrued interest were repaid in full on December 11, 2014.

On May 11, 2015, the Company agreed with three of the remaining 10 bond holders to extend the maturity date of the outstanding Convertible Bonds, $175 in principal and $16 in accrued interest. The three remaining bond holders agreed to extend the maturity to October 15, 2015 in exchange for 7,382 common stock shares, valued at $48. The remaining seven bond holders totaling $255 in principal and $286 in accrued interest were repaid in full in May 2015.

On November 10, 2015, the Company agreed to amend and extend the maturity date of the bonds to April 15, 2016. The three remaining bond holders agreed to extend the maturity to April 15, 2016 in exchange for 4,375 common stock shares, valued at $244.

During the fiscal years ended May 31, 2016 and 2015, the Company recorded $18 and $202 of interest expense. In addition, the Company recorded amortization of debt discount and beneficial conversion feature of $0 and $2,176, respectively. Through May 31, 2015, the debt discount and beneficial conversion feature were fully amortized. Net of the remaining unamortized debt discount of $0, the remaining loan balance is $0. In May 2016, the Series A Bonds were paid in full.

(All amounts in thousands, except share and par values, unless otherwise indicated)

From October 3, 2014 through November 24, 2014, the Company completed multiple closings of its best efforts private offering of 12% Series B Convertible Bonds (“Series B Bonds”) with certain accredited investors. Pursuant to purchase agreements, the Company issued Series B Bonds in the aggregate of $982 to 21 accredited investors.

In addition to the Series B Bonds, each holder received 500 common stock shares for each $50 principal amount of Series B Bond investment. Accordingly, the Company issued an aggregate of 9,815 common stock shares to the holders. As a result, the Company recorded a debt discount of $124 and a beneficial conversion of $100.

As part of the Series B Bond offering, the placement agent was entitled to: (i) a fee in cash of $88 which equals 9% of the aggregate gross proceeds raised, plus reimbursement of certain expense, (ii) 589 common stock shares equal to 6% of the Equity Consideration issued, and (iii) a three year warrant, exercisable at $20.00 per share, to purchase 2,945 common stock shares with such exercise price subject to certain adjustments.

On or prior to September 30, 2015 (the “Maturity Date”), the holder must notify the Company whether the repayment will be made in cash or in common stock shares of the Company. At the Maturity Date, if the Series B Bond will be repaid in common stock shares, then the Series B Bond shall be repaid in common stock shares as follows: (i) in the event the Company’s common stock shares are trading at $26.70 or higher based on a 10-Day VWAP immediately prior to the Maturity Date, then the repayment conversion price shall be set at $20.00 per share, or (ii) in the event the Company’s common stock shares are trading below $26.70 based on a 10-Day Volume Weighted Average Price (“VWAP”), then the repayment conversion price shall be set at a 25% discount to the 10-Day VWAP calculated immediately prior to the Maturity Date, provided however, that in no event will the repayment conversion price be less than $15.00. The holders may elect to convert the Series B Bonds, including all unpaid coupon payments, at any time prior to the Maturity Date into common stock shares at a conversion price of $20.00 per share.

On November 13, 2014, the Series B Bond agreement was amended as follows: (i) in the event the Company’s common stock shares are trading at $26.70 or higher based on a 10-Day VWAP immediately prior to the Maturity Date, then the repayment price shall be set at $20.00 per share, or (ii) in the event the Company’s common stock shares are trading below $26.70 based on a 10-Day VWAP, then the repayment price shall be set at a 25% discount to the 10-Day VWAP calculated immediately prior to the Maturity Date, provided however, that in no event will the repayment conversion price be less than $12.00. The purchasers may elect to convert the Series B Bonds, including all accrued but unpaid coupon payments at any time prior to the Maturity Date into common stock shares at a conversion price of $20.00 per share. As a result of the amendment, the Company recorded a modification expense totaling $154.

Effective October 30, 2015, the Company entered into the following amended agreements:

(All amounts in thousands, except share and par values, unless otherwise indicated)

As a result of the change in conversion rate from $12.00 per share to $10.00 per share in Amendments 1, 2a and 2b, the Company recorded a modification expense totaling $72.

The remaining Series B Holder who did not agree to the amended terms described above was paid in full ($25 in principal and $1 in accrued interest) in accordance with the original terms of the Series B Bonds.

As part of the Series B Bond amendments, the placement agent was entitled to 2% of the aggregate amount extended under amendments 1, 2a and 2b as equity consideration for a total of 17,630 common stock shares valued at $80.

On March 30, 2016, the Series B holders of Amendment 1, further extended the maturity date to September 30, 2016. As consideration for amending the terms of the Series B Bonds, they received 2,750 shares of common stock valued at $12. The principal and accrued but unpaid interest will be due on the date of maturity.

On September 30, 2016, the Company amended two Series B bonds totaling $50. The holders received a total of 1,250 common stock shares. In addition, the bonds were extended for six months and will mature on March 31, 2017. On October 27, 2016 the Company paid $5 in principal and interest.

Through December 31, 2016, the Company paid a total of $931 in principal. Net of the unamortized debt discount and beneficial conversion of $0, the remaining loan balance is $50.

On December 10, 2014, the Company issued a 12% promissory note in the amount of $100. On or prior to the maturity date, April 15, 2015, the holder could elect to convert all or part of the principal and accrued interest into common stock shares at $10.00 per share. In addition, for every $1.00 of principal converted, the Company will issue a warrant to purchase one-half of a common stock share at $20.00 per common stock share exercisable for a term of three years. As additional consideration, the Company agreed to issue 1,000 common stock shares upon execution of this agreement. Accordingly, the Company recorded an original issue discount of $5 for the 1,000 common stock shares issued which was fully amortized as of May 31, 2015.

On May 11, 2015, the Company agreed to extend the maturity date of the note, $100 in principal and $11 in accrued interest and agreed to extend the maturity to October 15, 2015 in exchange for 2,787 common stock shares, valued at $18.

On November 10, 2015, the Company agreed to further amend and extend the maturity date of the note to April 15, 2016 and agreed to pay one-sixth of the principal amount on the 15^t^h of every month, beginning on December 15, 2015, until paid in full. The Company also agreed to pay all unpaid and accrued interest through the date of the amended agreement and prepay interest through December 15, 2015. In addition, the holder of the amended note can, at any time, convert any unpaid principal and accrued interest at a conversion rate of $10.00 per share. In addition, for every $1.00 of principal converted, the Company will issue a warrant to purchase one-half of a common stock share at $20.00 per common stock share exercisable for a term of three years. In May 2016, this note was repaid in full.

On February 5, 2015, the Company issued an 8% promissory note in the amount of $204 due on November 5, 2015, with a conversion feature commencing 180 days after the loan issuance date. The loan was convertible at a 39% discount to the average share price on the lowest three trading prices during the ten days prior to conversion. In connection with this note, the Company recorded a $178 discount related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note was converted or repaid.

On July 24, 2015, the Company paid the note holder $283 as full payment of the debt. The cash payment was applied against the principal balance of $204, accrued interest of $8 and a prepayment fee of $71. In accordance with ASC 470-50-40-2 “Debt

(All amounts in thousands, except share and par values, unless otherwise indicated)

Modifications and Extinguishments”, the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt shall be recognized in income as gains and losses. In addition, the reporting entity should derecognize the beneficial conversion feature (“BCF”) by calculating the intrinsic value of the conversion option at the extinguishment date and allocate that amount to additional paid in capital to redeem the BCF. As a result of the early extinguishment, the Company reversed the remaining unamortized portion of the debt discount of $66 and recognized it as a loss. In addition, the Company derecognized the BCF by calculating the intrinsic value of the conversion feature on the date of extinguishment amounting to $170 and allocated to additional paid in capital. The net effect amounted in a gain on early debt extinguishment amounting to $32. During the fiscal year ended May 31, 2016, the Company recorded $2 of interest expense and paid in full all accrued interest related to this loan totaling $8.

On June 23, 2015, the Company issued a non-interest bearing $359 convertible promissory note. The financing had an OID of $54, a term of six months and was convertible into common stock at a price of $11.50 per share. As part of the debt raise, other debt issuance costs amounted to $5 which related to legal fees and $54 related to the OID. This note was paid in full in December 2015.

On January 6, 2016, the Company issued a non-interest bearing $359 convertible promissory note. The financing had an OID of $54, a term of six months and was convertible into common stock at a price of $11.50 per share. As part of the debt raise, other debt issuance costs amounted to $5 which related to legal fees and $54 related to the OID. On July 8, 2016, the Company paid $59 in the form of an extension fee and extended the term for an additional six months. This note was paid in full in January 2017.

On September 10, 2016, the Company entered into a non-interest bearing convertible note for $477, whereby the Company received cash of $400. This note was due to mature in March 2017. In March 2017, the Company extended the note to September 2017 with a new maturity value of $565.

On April 11, 2017, the Company entered into a non-interest bearing convertible note for $477, whereby the Company received cash of $400. This note is due to mature in October 2017.

On July 8, 2015, the Company issued an 8% convertible debenture valued at $3.92 million with a maturity date of April 1, 2017. Principal payments were due as follows: July 1, 2016 - $980, October 2016 - $980, January 1, 2017 - $980 and April 1, 2017 - $980. The financing had an OID of $280, a term of 21 months and was convertible into common stock at a price of $10.00 per share at the lender’s election. In connection with the financing, the Company issued 125,000 shares of common stock and 392,000 warrants exercisable for a term of five years at an initial exercise price of $10.00 (subject to adjustment). As part of the debt raise, other debt issuance costs amounted to $409, $129 of which related to legal and due diligence fees and $280 related to the OID. On December 30, 2015, the Company converted the 392,000 warrants to 100,000 Series B preferred shares. As a result of the conversion of warrants to preferred shares, the Company reduced the debt discount by $855. As a result of the OID, the common shares and preferred shares issued, the Company recorded a debt discount and beneficial conversion expense of $2,820. For the Transition Period and the fiscal years ended May 31, 2016 and 2015, the Company recorded amortization expense totaling $980, $1,619 and $0, respectively. On July 1, 2016, the Company paid cash of $980 in principal and on October 1, 2016, the Company separately converted $980 in principal into 890,910 shares of common stock. Net of the remaining unamortized debt discount of $419, the remaining loan balance was $1,541.

On February 8, 2016, the Company issued an 8% convertible debenture valued at $728 with a maturity date of July 1, 2017. Principal payments were due as follows: January 1, 2017 - $364 and July 1, 2017 - $364. The financing had a 12% OID amounting to $78, a term of 15 months and is convertible into common stock at a price of $10.00 per share at the lender’s election. In connection with the financing, the Company issued 13,000 shares of series B preferred stock. As a result of the OID, the debt issuance costs, and preferred shares issued, the Company recorded a debt discount of $187. For the fiscal years ended May 31, 2016 and 2015, the Company

(All amounts in thousands, except share and par values, unless otherwise indicated)

recorded amortization expense totaling $42 and $0, respectively. Net of the remaining unamortized debt discount of $145, the remaining loan balance was $583. As part of the debt raise, other debt issuance costs amounted to $150, $72 of which related to legal fees and commissions and $78 related to the OID.

Amendment of 8% Convertible Note – July 8, 2015 and 8% Convertible Note – February 8, 2016

On January 3, 2017, the Company entered into an amendment agreement in which, the parties refinanced an aggregate amount of $2.7 million of indebtedness and extending all amortization payments for the two 8% convertible notes dated July 8, 2015 and February 8, 2016 (collectively, the “Amendment”) to October 1, 2018, which was approximately 21 months from the date of the refinancing.

The Amendment had a new face value of $3.1 million, and an 8% interest rate, with no interest payments due until October 1, 2017, payable quarterly thereafter, and an overall term of 21 months with principal due at maturity. The Amendment was convertible into shares of common stock at a price of $3.00 per share at holder’s election, and the holder has agreed to eliminate the 20% pre-payment penalty for an early redemption. In connection with the refinancing, the Company issued the holder 600,000 shares of common stock, valued at $498. The Amendment resulted in the extinguishment of the old notes of $2.7 million and recording of the new debt and debt issue costs. The Company recorded a $923 loss upon extinguishment. On January 26, 2017, the Amendment was paid in full resulting a loss of $498.

On July 8, 2015, the Company acquired Lighthouse. In connection with the acquisition, the Company issued an unsecured promissory note of $2,498 bearing interest at 6% over three years (“Lighthouse - Seller Note #1”), and an unsecured promissory note of $625 bearing interest at 6% over two years (“Lighthouse - Seller Note #2”) (collectively, the “Lighthouse Notes”). The remaining principal payments for Lighthouse – Seller Note #1 are due as follows: January 8, 2017 - $125, April 8, 2017 - $125, July 8, 2017 - $125, October 8, 2017 - $375, January 8, 2018 - $375, April 8, 2018 - $375 and July 8, 2018 - $375. The remaining principal payments for Lighthouse – Seller Note #2 are due as follows: January 8, 2017 - $78, April 8, 2017 - $78 and July 8, 2017 - $78. The Lighthouse Notes and any unpaid accrued interest are convertible at any time prior to maturity at a conversion price equal to the greater of (i) 80% of the VWAP price as of the date of notice given and (ii) the Company’s common stock price as of the date of notice given. During the Transition Period, the Company paid $406 in principal towards the Lighthouse Notes.

On December 16, 2014, the Company issued a promissory note to Sterling National bank in the amount of $250. The note bears interest at 18% per annum and originally had a maturity date of March 31, 2015 that was subsequently modified to have no maturity date. Through May 31, 2016, the note was paid in full.

On July 24, 2015, the Company, through its wholly owned subsidiary CSI, issued a promissory note to Sterling National Bank in the amount of $350. The note bears interest at 18% per annum and has a maturity date of October 24, 2017. The remaining principal and interest payments are paid monthly at $18 per month through maturity.

Pursuant to the acquisition of The JM Group on November 5, 2015, the Company executed and delivered to the sellers a six-month promissory note (“The JM Group Promissory Note”) in the principal amount of £500 ($770). The JM Group Promissory Note bears interest at the rate of 6% per annum. Payments were made in three monthly installments beginning on the four-month anniversary of the closing date. The monthly installments were first applied to accrued interest and then to principal. This note was paid in full in May 2016.

On November 5, 2015, the Company entered into a two-year term loan agreement with ABN AMRO Bank in the amount of £750 ($1,096), Principal payments are made in monthly installments of £31. This loan bears interest at 3.0% plus the Bank of England base rate of 0.5%. In June 2016, the Company borrowed an additional £250. All terms of the original loan remain unchanged. For the Transition Period, the Company paid principal totaling $270. As of December 31, 2016, the remaining principal balance is £563 ($704). On March 29, 2017, Longbridge Recruitment 360 Limited and The JM Group each received a reservation of rights letter from

(All amounts in thousands, except share and par values, unless otherwise indicated)

ABN AMRO bank with respect to technical noncompliance with certain financial covenants contained in their financing documents with the bank. There was no financial impact of receiving this letter.

On April 8, 2015, the Company entered in to a four-year term loan agreement with Midcap Financial Trust in the amount of $3,000. This loan bears interest at 9.0% plus LIBOR, with a LIBOR floor of 1.0% per annum with principal payments of $62.5 per month. On February 8, 2016 the Company amended the terms of the agreement to modify the principal amortization and the maturity date to September 1, 2018. As a result, principal payments for the Midcap Financial Trust - Term Loan are as follows: March 2016 to June 2016, no principal due; July 2016 to October 2016, $37.5 per month; November 2016 to August 2018 - $100 per month; and $25 due on September 1, 2018. Through December 31, 2016, the Company repaid principal of $975. As of December 31, 2016, the remaining principal balance is $2,025.

On January 26, 2017, the Company entered into a note and warrant purchase agreement with Jackson Investment Group LLC (“JIG”) for $7,400. Under the terms of this agreement, the Company issued to the JIG 1,650,000 shares of common stock and warrant agreement which allows JIG to purchase up to 3,150,000 shares of common stock at $1.35 per share. The note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of July 25, 2018. No interest or principal is payable until maturity. At any time during the term of the note, upon notice to JIG, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to JIG an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The note’s principal is not convertible into shares of common stock; however 50% of the accrued interest on the note can be converted into shares of common stock, at the sole election of JIG prior to maturity, at a conversion price equal to $2.00 per share. On March 14, 2017, the Company and JIG amended the Warrant Agreement to include a blocker preventing JIG from owning more than 19.99% of the Company’s shares outstanding as of January 26, 2017, until the such ownership is approved by the shareholders consistent with Nasdaq Rule 5635(b).

In connection with the warrant agreement associated with this note, beginning on the date six months from the note agreement closing date, the warrant entitles JIG to purchase up to 3,150,000 shares of common stock at an initial exercise price of $1.35 per share (subject to adjustment). The warrants are exercisable for a term of four and a half (4.5) years thereafter. The exercise price is subject to anti-dilution protection, including protection in circumstances where common stock is issued pursuant to the terms of certain existing convertible securities, provided that the exercise price shall not be adjusted below a price that is less than the consolidated closing bid price of the common stock.

In April 2017, the Company amended the note and warrant purchase agreement with JIG and entered into a second subordinated secured note with JIG for $1,650. Under the terms of this amended agreement, the Company issued to JIG 296,984 shares of common stock, with an additional 370,921 shares of common stock to be issued upon shareholder approval of the issuance of shares to JIG in excess of the 19.99% limit, and amended the warrant agreement to allow JIG to purchase up to an additional 825,463 shares of common stock at $1.00 per share. The original warrant agreement was also amended to increase JIG’s warrants to 3,702,075 based on the anti-dilution clause contained therein, and adjust the exercise price to $1.00 per warrant. The second note accrues interest on the principal amount at a rate of 6% per annum and has a maturity date of June 8, 2019; however, in the event the Company satisfies all of its outstanding obligations with Midcap Financial Trust, the maturity date will be adjusted to July 25, 2018. No interest or principal is payable until maturity. At any time during the term of the note, upon notice to JIG, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the note by paying to JIG an amount not less than $100 of the outstanding principal (and in multiples of $100), plus any accrued but unpaid interest and liquidated damages and other amounts due under the note. The note’s principal is not convertible into shares of common stock; however, 50% of the accrued interest on the note can be converted into shares of common stock, at the sole election of JIG prior to maturity, at a conversion price equal to $1.50 per share. The proceeds of this transaction were used to redeem the remaining shares and conversion rights of the Series D Preferred Stock.

(All amounts in thousands, except share and par values, unless otherwise indicated)

Scheduled principal payments of debt as of April 1, 2017, reflecting the transactions after December 31, 2016, are as follows:

In November of 2016, the Company engaged Source Capital Group, Inc. to act as a placement agent to conduct a general solicitation private placement offering solely to accredited investors under Rule 506(c) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. The private placement expired on January 31, 2017. In connection with the private placement, the Company filed certificates of designation for Series E-1 and E-2 preferred shares. No shares have been issued and in January 2017, the Company had the certificates of designation withdrawn.

On September 17, 2015, the Company effected a one-for-ten reverse stock split. Following the reverse split, the Company’s issued and outstanding shares of common stock decreased from 45,732,674 to 4,573,360. All share and per share information has been retroactively adjusted to reflect this reverse stock split.

On March 23, 2016, the Company’s universal shelf registration statement (“Shelf Registration”), originally filed on Form S-3 on January 4, 2016 with the United States Securities and Exchange Commission, was declared effective.

On April 4, 2016, the Company, through a public offering under the Shelf Registration, sold 527,000 shares of common stock at $2.85 for a total of $1,502.

In May 2016, the Company, through a public offering under the Shelf Registration, sold 361,705 shares of common stock at $2.35 for a total of $850.

The issuance of 2,833,051 common stock shares during the Transition Period is summarized below:

The Company’s authorized common stock consists of 20,000,000 shares having a par value of $0.00001. As of December 31, 2016 and May 31, 2016, the Company has issued and outstanding 9,139,795, and 6,306,744 common stock shares, respectively. On January

(All amounts in thousands, except share and par values, unless otherwise indicated)

26, 2017, the Company received shareholder approval to amend the Company’s Articles of Incorporation to increase the number of shares of common stock available for issuance from 20,000,000 to 40,000,000.

Subsequent to December 31, 2016, the Company issued 600,000 shares as part of the January 2017 Amendment, 1,650,000 shares in connection with the JIG Term Loan, 790,000 shares to employee and board members, 1,673,000 shares as part of Series D conversions, 300,000 shares in connection with the April 2017 Series D pay off, and 296,984 shares related to the April 2017 JIG Amendment.

On May 29, 2015, the Company filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock with the Nevada Secretary of State, whereby the Company designated 1,663,008 shares of preferred stock as Series A Preferred Stock, par value $0.00001 per share. The Series A Preferred Stock has a stated value of $10.00 per share and is entitled to a 12% dividend, payable pursuant to Nevada law.

Shares of the Series A Preferred Stock are convertible into shares of common stock at the holder’s election at any time prior to December 31, 2018 (the “Redemption Date”), at a conversion rate of one and three tenths (1.3) shares of common stock for every 10 shares of Series A Preferred Stock that the Holder elects to convert. Except as otherwise required by law, the Series A Preferred Stock shall have no voting rights.

In the event of a liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Company legally available for distribution, prior to and in preference to distributions to the holders of the Company’s common stock, par value $0.00001 per share or classes and series of securities of the Company which by their terms do not rank senior to the Series A Preferred Stock, and either in preference to or pari passu with the holders of any other series of Preferred Stock that may be issued in the future that is expressly made senior or pari passu, as the case may be, an amount equal to the Stated Value of the Series A Preferred Stock less any dividends previously paid out on the Series A Preferred Stock.

The holders will be entitled to receive cash dividends at the rate of 12% of the Stated Value per annum, payable monthly in cash, prior to and in preference to any declaration or payment of any dividend on the common stock. So long as any shares of Series A Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend on any shares of common stock, unless at the time of such dividend the Company shall have paid all accrued and unpaid dividends on the outstanding shares of Series A Preferred Stock.

The Certificate of Designation filed on May 29, 2015, designating the Series A Preferred Stock, was filed in connection with the Company’s issuance of an aggregate of 1,663,008 shares of Series A Preferred Stock to Brendan Flood and Matthew Briand for the conversion of the Gross Profit Appreciation Bonus (as defined in each employment agreement) associated with their employment agreements. The Certificate of Designation was approved and related issuances were ratified by the Company’s Board and compensation committee on May 29, 2015.

Up until the Redemption Date, holders may convert their shares into common stock at their election. On the Redemption Date, the Company shall redeem all of the shares of Series A Preferred Stock of each Holder, for cash or for shares of common stock in the Company’s sole discretion. If the Redemption Purchase Price is paid in shares of common stock, the holders shall initially receive one and three tenths (1.3) shares of common stock for each $10.00 of the Redemption Purchase Price. If the Redemption Purchase Price is paid in cash, the redemption price paid to each Holder shall be equal to the Stated Value for each share of Series A Preferred Stock, multiplied by the number of shares of Series A Preferred Stock held by such Holder, less the aggregate amount of dividends paid to such Holder through the Redemption Date.

As of December 31, 2016, May 31, 2016 and 2015, we had issued and outstanding 1,663,008 Series A Preferred Stock shares and accrued dividends totaling $366, $250 and $50, respectively.

(All amounts in thousands, except share and par values, unless otherwise indicated)

sum of its total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of preferred stockholders. As a result, the Company has not paid any dividends associated with the Series A Preferred Stock.

On December 30, 2015, the Company filed a Certificate of Designations, Preferences and Rights of Series B Preferred Stock with the Nevada Secretary of State, pursuant to which the Company designated 200,000 shares as Series B Preferred Stock, par value $0.00001 per share. The Series B Preferred Stock shall have a stated value of $10.00 per share. Except as otherwise required by law, the Series B Preferred Stock shall have no voting rights.

In the event of a liquidation, dissolution or winding up of the Company, the remaining assets of the Company available for distribution to its stockholders shall be distributed on a pari passu basis among the holders of shares of the Series B Preferred Stock and the holders of the Company’s common stock, par value $0.00001 per share, pro rata based on the number of shares held by each such holder.

There will be no dividends associated with the Series B Preferred Stock or payable to the holders. If a holder elects to convert the Series B Preferred Stock into common stock, then the holder will have the same rights and receive the same dividends, if any, as the holders of the common Stock.

At any time, each holder may elect to convert the shares of Series B Preferred Stock held by such holder into shares of common stock. Upon the Series B Conversion, a holder shall receive one share of common stock for every one share of Series B Preferred Stock that the holder elects to convert; provided, however, that (i) to the extent that the holder’s right to receive such amount of common Stock upon conversion of the shares of Series B Preferred Stock would result in the holder holding in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the Series B Preferred Stock, then the holder shall not be entitled to convert such shares of Series B Preferred Stock into a number of common stock that exceeds such beneficial ownership limitation, and (ii) notwithstanding any other provision of the Certificate of Designation to the contrary, in no event can conversion of the Series B Preferred Stock pursuant the Certificate of Designation result in the issuance of shares of common stock that would exceed the “Exchange Cap”. The "Exchange Cap" shall be deemed to have been reached if, at any time prior to the shareholders of the Company approving any transaction(s) pursuant to which Series B Preferred Stock, any stock or other securities convertible into or exchangeable for common stock and/or common stock are issuable that may be aggregated with such shares of common stock issuable upon conversion of Series B Preferred Stock, the number of shares of common stock issuable under outstanding shares of Series B Preferred Stock and other convertible securities and shares of common stock issued pursuant to such transactions(s) would exceed 19.9% of the shares of common stock outstanding as of the date of the earliest transaction(s).

The holders of two-thirds of the Series B Preferred Stock then outstanding, upon notice to the Company, may increase or decrease the beneficial ownership limitation; provided, that the beneficial ownership limitation in no event shall exceed 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the outstanding Series B Preferred Stock.

On December 30, 2015, the Company converted 392,000 warrants to 100,000 Series B Preferred Stock. In connection with the February 8, 2016 Note, the Company issued 13,000 shares of Series B Preferred Stock. In April 2016, the Company issued 20,000 shares of Series B Preferred Stock for advisory services rendered.

On July 8, 2016, holders of Series B Preferred Stock elected to convert all 133,000 shares to 133,000 shares of common stock.

At December 31, 2016, the Company has no Series B shares issued and outstanding.

On April 6, 2016, the Company filed a Certificate of Designation of Series C Preferred Shares with the Nevada Secretary of State, whereby the Company designated 500,000 shares as Series C Preferred Shares, par value $0.00001 per share. The Series C Preferred Shares shall have a stated value of $1.00 per share (the “Stated Value”). The Certificate of Designation sets forth the voting powers, designations, preferences, privileges, limitations, restrictions and relative rights applicable to the Series C Preferred Shares. Except as otherwise required by law, the Series C Preferred Shares shall have no voting rights.

(All amounts in thousands, except share and par values, unless otherwise indicated)

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of shares of the Series C Preferred Shares shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $0.00001 for each share of Series C Preferred Shares before any distribution or payment shall be made to the holders of any junior securities and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of Company’s common stock would receive if the Series C Preferred Shares were fully converted (disregarding for such purposes any conversion limitations under the Certificate of Designation) to common stock which amounts shall be paid pari passu with all holders of common stock.

Except for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designation, Holders are entitled to dividends on shares of Series C Preferred Shares equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series C Preferred Shares.

Each share of Series C Preferred Shares shall be convertible at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations set forth in the Certificate of Designation) determined by dividing the Stated Value of such share of Series C Preferred Shares by the conversion price for the Series C Preferred Shares, which shall equal $1.00, subject to adjustment in accordance with the Certificate of Designation. Holders may effect conversions by providing the Company with a conversion notice in accordance with form and procedures set forth in the Certificate of Designation. The shares of common stock underlying the Series C Preferred Shares offered by this prospectus supplement will be fully paid and non-assessable.

The “Beneficial Ownership Limitation” with respect to the Series C Preferred Shares is 4.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of Series C Preferred Shares held by the applicable Holder. A Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation applicable to its Series C Preferred Shares; provided, that the Beneficial Ownership Limitation in no event shall exceed 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of Series C Preferred Shares held by the applicable Holder.

On April 7, 2016 the Company issued 175,439 shares of Series C Preferred Shares at $2.85 for a total of $500.

On June 16, 2016, the Company filed an Amendment to the Certificate of Designation for the Series C Preferred Stock, par value $0.00001 per share. The Amendment increased the number of Series C Preferred Stock from 500,000 shares authorized to 2,000,000 shares authorized.

On June 24, 2016, holders of Series C Preferred Stock elected to convert all 175,439 shares to 175,439 shares of common stock.

At December 31, 2016, the Company has no Series C shares issued and outstanding.

On June 27, 2016, the Company filed a Certificate of Designation of Series D Preferred Stock with the Nevada Secretary of State, whereby the Company designated 5,000 shares as Series D Preferred, par value $0.00001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock shall have a face value of $10,000 (whole dollars) per share (the “Face Value”), original issue discount of 5% (“OID”) and conversion price of $2.50 per share. The Certificate of Designation sets forth the voting powers, designations, preferences, privileges, limitations, restrictions and relative rights applicable to the Series D Preferred Stock. Except as otherwise required by law, the Series D Preferred Stock shall have no voting rights, except: (a) during a period where a dividend (or part of a dividend) is in arrears; (b) on a proposal to reduce the Company's share capital; (c) on a resolution to approve the terms of a buy-back agreement; (d) on a proposal to wind up the Company; (e) on a proposal for the disposal of all or substantially all the Company's property, business and undertaking; and (f) during the winding-up of the entity.

Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after payment or provision for payment of debts and other liabilities of the Company, pari passu with any distribution or payment made to the holders of Preferred Stock and common stock by reason of their ownership thereof, the holders of Series D Preferred Stock (each a “Holder”) will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series D Preferred Stock equal to $10,000.00 (whole dollars), plus an amount equal to any accrued but unpaid In-Kind Accrual thereon.

(All amounts in thousands, except share and par values, unless otherwise indicated)

Commencing on the date of the issuance of any such shares of Series D Preferred Stock, each outstanding share of Series D Preferred Stock will accrue a cumulative in-kind payment accrual (“In-Kind Accrual”), at a rate equal to 6.50% per annum, subject to adjustment as provided in this Certificate of Designations, of the Face Value. In-Kind Accrual will be payable with respect to any shares of Series D Preferred Stock upon any of the following: (a) upon redemption of such shares in accordance with the Certificate of Designation; (b) upon conversion of such shares in accordance with the Certificate of Designation; and (c) when, as and if otherwise declared by the Board of the Company.

Each share of Series D Preferred Stock shall be convertible at the option of the Company and Holder thereof, in accordance with the Certificate of Designation, into that number of shares of common stock (subject to the limitations set forth in the Certificate of Designation) determined by dividing the Face Value of such share of Series D Preferred Stock by the conversion price for the Series D Preferred Stock, which shall equal $2.50, subject to adjustment in accordance with the Certificate of Designation. Holders may effect conversions by providing the Company with a conversion notice in accordance with form and procedures set forth in the Certificate of Designation. The shares of common stock underlying the Series D Preferred Stock offered by this prospectus supplement will be fully paid and non-assessable.

The Company may not issue shares of common stock to any Holder which, when aggregated with all other shares of common stock then deemed beneficially owned by such Holder, would result in such Holder owning more than 4.99% of all common stock outstanding immediately after giving effect to such issuance; provided, however, that such Holder may increase such amount to 9.99% upon not less than 61 days’ prior notice to the Company.

On June 24, 2016, the Company entered into a Securities Purchase Agreement with certain purchasers pursuant to which the Company sold to the purchasers 211 shares of the Company’s Series D Preferred Stock at a face value of $10,000 (whole dollars) per share of Series D Preferred, and Original Issue Discount of 5% and a conversion price into common stock of $2.50 per share, for aggregate proceeds of approximately $2,000 before placement fees and estimated offering expenses. The offering of the Series D Preferred Stock was made under the Company’s Shelf Registration.

During the Transition Period, holders of this series converted 118 shares of Series D Preferred Stock to 1,340,960 shares of common stock.

Subsequent to December 31, 2016, holders of Series D Preferred Stock, converted an additional 31.3 units resulting in the issuance of 1,673,000 shares of common stock.

Due to the contingent nature of the cash redemption feature of the Series D Preferred Stock, the Company has classified the shares as temporary equity on the consolidated balance sheets. In addition, at the commitment date these were issued, the Company determined that a beneficial conversion feature existed in the amount of $615, which was recorded within Additional Paid-In Capital on the consolidated balance sheet.

On September 22, 2016, the Company and Holders of the Series D Preferred shares agreed that a Trigger Event, as defined in the Stock Purchase Agreement between Staffing 360 Solutions, Inc. and Holders of the Series D Preferred shares dated June 24, 2016, filed as an exhibit to our Current Report on Form 8-K on June 27, 2016 (the “Series D Purchase Agreement”), had occurred as of September 22, 2016. A Trigger Event gives the holders of the Series D Preferred Stock certain additional rights and removes certain restrictions in respect of the Series D Preferred Stock, as set forth in the Series D Purchase Agreement. Holders of the Series D Preferred shares has agreed not to submit any additional conversion notices until the Company obtains stockholder approval for the transaction, so long as such approval is obtained by January 31, 2017. The Company obtained stockholder approval for the transaction on January 26, 2017 and has subsequently issued 1,673,000 shares as part of Series D conversion.

(All amounts in thousands, except share and par values, unless otherwise indicated)

On March 29, 2016, the Company filed a Tender Offer Statement (“Tender Offer”), offering to certain holders of the Company’s outstanding warrants to elect to receive an aggregate of 906,633 shares of the Company’s common stock, by agreeing to receive 20 common stock shares in exchange for every 100 warrants tendered by the holders of Warrants. The Warrants consisted of (i) warrants to purchase an aggregate of 89,729 Shares issued to certain investors in connection with private placement offerings from April and June of 2013, (ii) warrants to purchase an aggregate of 86,362 Shares issued to certain investors in connection with a bridge financing from November and December of 2013, (iii) warrants to purchase an aggregate of 500,000 Shares that were issued to certain investors in connection with the Company’s private placement offerings from January through March of 2014, (iv) warrants to purchase an aggregate of 185,510 Shares that were issued upon the conversion of outstanding Series A Bonds that were issued in July 2014, (v) warrants to purchase 2,945 Shares issued to the placement agent in connection with the offering of Series B Bonds in October and November of 2014, (vi) warrants to purchase 12,000 Shares issued to MidCap Financial Trust in connection with the Company’s accounts receivable credit facility and term loan in April of 2015, (vii) warrants to purchase 30,087 Shares issued to a placement agent in connection with several of the Company’s capital raises across the calendar year 2015.

The Tender Offer expired on April 26, 2016 and as of that date, a total of 822,224 warrants were validly tendered and not withdrawn. Such tendered warrants represented approximately 91% of the warrants included in the Tender Offer. Under the terms of the Tender Offer, the Company accepted all tendered warrants, and issued an aggregate of 164,477 shares of our common stock in exchange.

In the month of May 2016, in separate agreements, various other warrant holders elected to receive an aggregate of 128,557 shares of the Company’s common stock, by agreeing to receive 35 shares of common stock in exchange for every 100 warrants.

Transactions involving the Company’s warrant issuance are summarized as follows:

(All amounts in thousands, except share and par values, unless otherwise indicated)

On January 28, 2014, our Board adopted the 2014 Equity Incentive Plan (the “2014 Plan”). Under the 2014 Plan, we may grant options to employees, directors, senior management of the company and, under certain circumstances, consultants. The purpose of the 2014 Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the company and its affiliates. A maximum of 250,000 shares of common stock has been reserved for issuance under this plan. The 2014 Plan expires on January 28, 2024. As of December 31, 2016, all 250,000 shares have been issued.

Our Board will administer the plan unless and until the Board delegates administration to a committee, consisting of one or more members, that has been appointed by the Board, except that once our common stock begins trading publicly, the committee will consist solely of two or more outside directors as defined in the Treasury Regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. The authority to administer the 2014 Plan currently resides with the Compensation Committee of the Board (the “Compensation Committee”). They have the power to determine which persons eligible under the plan will be granted option awards.

Option awards are not transferable other than by will or by the laws of descent and distribution unless otherwise provided in the individual option agreement.

In the event of a change in control, then, without the consent or action required of any holder of an option award (in such holder’s capacity as such):

(i) Any surviving corporation or acquiring corporation or any parent or affiliate thereof, as determined by the Board in its discretion, will assume or continue any option awards outstanding under the plan in all or in part or shall substitute to similar stock awards in all or in part; or

(ii) In the event any surviving corporation or acquiring corporation does not assume or continue any option awards or substitute to similar stock awards, for those outstanding under the plan, then: (a) all unvested option awards will expire (b) vested options will terminate if not exercised at or prior to such change in control; or

(iii) Upon change in control the Board may, in its sole discretion, accelerate the vesting, partially or in full, in the sole discretion of the Board and on a case-by-case basis of one or more option awards as the Board may determine to be appropriate prior to such events.

Notwithstanding the above, in case of change in control, in the event all or substantially all of the shares of common stock of the company are to be exchanged for securities of another company, then each holder of an option award shall be obliged to sell or exchange, as the case may be, any shares such holder hold or purchased under the plan, in accordance with the instructions issued by the Board, whose determination shall be final.

In the event of termination of the option holders employment with the Company or any of its affiliates, or if applicable, the termination of services given to the Company or any of its affiliates by consultants of the Company or any of its affiliates for cause (as defined in the plan), all outstanding option awards granted to such option holder (whether vested or not) will immediately expire and terminate on the date of such termination and the holder of option awards will not have any right in connection to such outstanding option awards, unless otherwise determined by the board of directors. The shares of common stock covered by such option awards will revert to the plan.

On September 23, 2015, our Board adopted the 2015 Omnibus Incentive Plan (the “2015 Plan”). This plan has not been approved by our stockholders. Under the 2015 Plan, we may grant options to employees, directors, senior management of the company and, under

(All amounts in thousands, except share and par values, unless otherwise indicated)

certain circumstances, consultants. The purpose of the 2015 Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the company and its affiliates.

The 2015 Plan provides for an aggregate of 450,000 shares of common stock to be available for awards under the 2015 Plan (“Awards”). The number of shares available for grant pursuant to Awards under the 2015 Plan is referred to as the “Available Shares”. If an Award is forfeited, canceled, or if any Option terminates, expires or lapses without being exercised, the common stock subject to such Award will again be made available for future grant. However, shares that are used to pay the exercise price of an Option or that are withheld to satisfy the Participant’s tax withholding obligation will not be available for re-grant under the 2015 Plan.

The Plan will have a term of ten years and no further Awards may be granted under the 2015 Plan after that date.

The Compensation Committee may grant Awards of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Stock Bonus Awards, Performance Compensation Awards (including cash bonus awards) (each as defined under the 2015 Plan) or any combination of the foregoing. Notwithstanding, the Compensation Committee may not grant to any one person in any one calendar year Awards (i) for more than 150,000 shares of common stock in the aggregate or (ii) payable in cash in an amount exceeding $600 in the aggregate.

Each Award may be exercised during the participant’s lifetime only by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative and may not be otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution. The Compensation Committee, however, may permit Awards (other than Incentive Stock Options) to be transferred to family

Nevada		68-0680859
(State of incorporation)		(I.R.S. Employer Identification)

		PAGE
	PART I	4
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	6
ITEM 1B.	Unresolved Staff Comments	15
ITEM 2.	Properties	15
ITEM 3.	Legal Proceedings	15
ITEM 4.	Mine Safety Disclosures	16

	PART II	17
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
ITEM 6.	Selected Financial Data	17
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
ITEM 8.	Financial Statements and Supplementary Data	35
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
ITEM 9A.	Controls and Procedures	35
ITEM 9B.	Other Information	36

	PART III	37
ITEM 10.	Directors, Executive Officers and Corporate Governance	37
ITEM 11.	Executive Compensation	41
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	52
ITEM 14.	Principal Accounting Fees and Services	52

	PART IV	54
ITEM 15.	Exhibits, Financial Statement Schedules	54

SIGNATURES		60

	High		Low
Fiscal Year 2015, Quarters Ended
August 31, 2014	$	22.00	$	14.50
November 30, 2014		20.40		6.00
February 28, 2015		8.00		2.50
May 31, 2015		9.40		2.50
Fiscal Year 2016, Quarters Ended
August 31, 2015		9.00		3.50
November 30, 2015		10.24		3.49
February 29, 2016		5.99		2.14
May 31, 2016		4.76		1.80
Transition Period 2016
June 1, 2016 to December 31, 2016		3.70		0.62

	For the Transition Period Ended December 31, 2016			% of Revenue			For the Period June 1, 2015 - December 26, 2015			% of Revenue			Growth
							(Unaudited)
Revenue	$	109,422			100.0	%	$	91,432			100.0	%		19.7	%
Direct cost of revenue		90,285			82.5	%		75,116			82.2	%		20.2	%
Gross profit		19,137			17.5	%		16,316			17.8	%		17.3	%
Operating expenses		19,766			18.1	%		18,435			20.2	%		7.2	%
Loss from operations		(629	)		(0.6	)%		(2,119	)		(2.3	)%		(70.3	)%
Other expenses		(2,965	)		(2.7	)%		(3,111	)		(3.4	)%		(4.7	)%
(Provision) benefit for income taxes		(16	)		(0.0	)%		9			0.0	%		(280.5	)%
Net Loss From Discontinued Operations		—			0.0	%		—			0.0	%		0.0	%
Net loss	$	(3,610	)		(3.3	)%	$	(5,221	)		(5.7	)%		(30.9	)%

	For the Period December 27, 2015 - December 31, 2016			% of Revenue			For the Period December 28, 2014 - December 26, 2015			% of Revenue			Growth
	(Unaudited)						(Unaudited)
Revenue	$	183,542			100.0	%	$	144,408			100.0	%		27.1	%
Direct cost of revenue		151,673			82.6	%		119,132			82.5	%		27.3	%
Gross profit		31,869			17.4	%		25,276			17.5	%		26.1	%
Operating expenses		34,978			19.1	%		30,798			21.3	%		13.6	%
Loss from operations		(3,109	)		(1.7	)%		(5,522	)		(3.8	)%		(43.7	)%
Other expenses		(4,722	)		(2.6	)%		(3,523	)		(2.4	)%		34.0	%
(Provision) benefit for income taxes		(42	)		(0.0	)%		17			0.0	%		(340.7	)%
Net Loss From Discontinued Operations		—			0.0	%		—			0.0	%		0.0	%
Net loss	$	(7,873	)		(4.3	)%	$	(9,028	)		(6.3	)%		(12.8	)%

	For the Fiscal Years Ended May 31,
	2016			% of Revenue			2015			% of Revenue			Growth
Revenue	$	165,552			100.0	%	$	128,829			100.0	%		28.5	%
Direct cost of revenue		136,505			82.5	%		106,281			82.5	%		28.4	%
Gross profit		29,047			17.5	%		22,548			17.5	%		28.8	%
Operating expenses		33,645			20.3	%		30,017			23.3	%		12.1	%
Loss from operations		(4,598	)		(2.8	)%		(7,469	)		(5.8	)%		(38.4	)%
Other expenses		(4,870	)		(2.9	)%		(10,094	)		(7.8	)%		(51.8	)%
(Provision) benefit for income taxes		(17	)		(0.0	)%		60			0.0	%		(128.3	)%
Net Loss From Discontinued Operations		—			0.0	%		(47	)		(0.0	)%		(100.0	)%
Net loss	$	(9,485	)		(5.7	)%	$	(17,550	)		(13.6	)%		(46.0	)%

	Transition Period ended December 31, 2016			Mix		For the Period June 1, 2015 - December 26, 2015			Mix
						(Unaudited)
Light Industrial	$	60,529			55%	$	52,721			58%
Professional		48,893			45%		38,711			42%
Total Service Revenue	$	109,422				$	91,432

Light Industrial		9,351			49%		7,827			48%
Professional		9,786			51%		8,489			52%
Total Gross Profit	$	19,137				$	16,316

Light Industrial		15.4	%				14.8	%
Professional		20.0	%				21.9	%
Total Gross Margin		17.5	%				17.8	%

	Fiscal Years Ended May 31,
	2016			Mix		2015			Mix

Light Industrial	$	90,296			55%	$	79,499			62%
Professional		75,256			45%		49,330			38%
Total Service Revenue	$	165,552				$	128,829

Light Industrial		13,206			45%		10,842			48%
Professional		15,841			55%		11,706			52%
Total Gross Profit	$	29,047				$	22,548

Light Industrial		14.6	%				13.6	%
Professional		21.0	%				23.7	%
Total Gross Margin		17.5	%				17.5	%

	Transition Period Ended			For the Period June 1, 2015 -
	December 31, 2016			December 26, 2015
				(Unaudited)
Net loss attributable to common stock	$	(3,726	)	$	(5,329	)

Interest expense		1,382			1,527
Provision (benefit) for income taxes		16			(9	)
Depreciation and amortization (1)		3,182			3,388
EBITDA		854			(423	)

Acquisition, capital raising and other non-recurring expenses (2)		1,670			1,045
Other non-cash charges (3)		447			1,616
Restructuring charges		10			12
Impairment of intangibles		—			—
Modification expense		2			40
Dividends - Series A preferred stock		116			116
Other income / (expense)		162			(39	)
Net income attributable to non-controlling interest		—			(9	)
Adjusted EBITDA	$	3,261		$	2,358

Gross Profit	$	19,137		$	16,316

Adjusted operating expenses (4)	$	15,876		$	13,958
Adjusted operating expenses percentage of gross profit		83.0	%		85.5	%

		Page

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets at December 31, 2016, May 31, 2016 and 2015		F-2

Consolidated Statements of Operations for the Transition Period ended December 31, 2016, Fiscal Years ended May 31, 2016 and 2015		F-3

Consolidated Statements of Comprehensive Loss for the Transition Period ended December 31, 2016, Fiscal Years ended May 31, 2016 and 2015		F-4

Consolidated Statements of Changes in Equity for the Transition Period ended December 31, 2016, Fiscal Years ended May 31, 2016 and 2015		F-5

Consolidated Statements of Cash Flows for the Transition Period ended December 31, 2016, Fiscal Years ended May 31, 2016 and 2015		F-10

Notes to Consolidated Financial Statements		F-11

Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

Computers		3-5 years
Computer equipment		3-5 years
Network equipment		3-5 years
Software		3-5 years
Office equipment		3-7 years
Furniture and fixtures		3-7 years
Leasehold improvements		3-5 years

	Transition Period Ended		For the Years Ended
	December 31,		May 31,		May 31,
	2016		2016		2015
Revenue	$	—	$	—	$	1,936
Operating loss	$	—	$	—	$	(44	)
Net loss from discontinued operations	$	—	$	—	$	(47	)

As of December 31,	Amount
2017	$	2,728
2018		861
2019		629
2020		629
2021		629
Thereafter		3,673
Total	$	9,149


	•	Amendment 1 - Series B Holders owning an aggregate principal amount of $55 in Series B Bonds agreed to extend the Maturity Date of the Series B Bond to March 31, 2016 and decrease the conversion rate and the price of common stock issued as interest payments on the Series B Bonds to $10.00 per share. As consideration for amending the terms of the Series B Bonds, these Series B Holders received 2,500 shares of common stock for each $100 of principal amount of Series B Bond investment. The principal and accrued but unpaid interest will be due on the date of maturity.


	•	Amendment 2a - Series B Holders owning an aggregate principal amount of $427 in Series B Bonds agreed to modify the terms of the Series B Bonds to provide that (i) the Company shall make payments on the principal amount of the Series B Bonds in six equal tranches, every month, beginning on December 15, 2015 and (ii) the Company shall pay all accrued interest on the Series B Bonds by December 11, 2015, as calculated through December 15, 2015, at an increased rate of 18% beginning September 30, 2015. The interest rate reverted back to 12% for all interest payments made after December 15, 2015. In addition, the conversion rate and the price of common stock issued as interest payments on the Series B Bonds decreased from $12.00 to $10.00 per share. In May 2016, these bonds were paid in full.



	•	Amendment 3a - Series B Holders owning an aggregate principal amount of $75 in Series B Bonds agreed to extend the Maturity Date until November 6, 2015. These bond holders were paid in full ($75 in principal and $3 in accrued interest) in accordance with the term of the amendment. In May 2016, these bonds were paid in full.

	Number of				Fair Value at
	Common Stock		Fair Value at		Issuance
Shares issued to/for:	Shares		Issuance		(per share)
Consultants		38,297	$	65,808	$	1.56	—	$	1.96
Board and committees members		12,750		19,584		1.03	—		1.99
Employees		9,800		7,752		0.69	—		1.59
Acquisition of subsidiaries		20,000		20,400		1.02	—		1.02
Extension of Series B convertible bonds		1,250		1,700		1.36	—		1.36
Private placement		210,645		495,007		2.35	—		2.35
Conversion of Series B preferred stock		133,000		198,170		1.49	—		1.49
Conversion of Series C preferred stock		175,439		331,580		1.89	—		1.89
Conversion of Series D preferred stock		1,340,960		2,157,467		1.31	—		1.74
Shares issued in connection with conversion of convertible notes		890,910		1,149,274		1.29	—		1.29
		2,833,051	$	4,446,742

	Shares			Balance
Face Value	211			$	2,110
Original Issue Discount					(110	)
Beneficial Conversion Feature					(615	)
Beginning Balance, Net					1,385
Conversions		(118	)		(773	)
Ending Balance, Net	93			$	612

				Weighted
	Number of			Average
	Shares			Price Per Share
Outstanding at May 31, 2014		671,180		$	19.70
Issued		572,014			15.00
Exercised		—			—
Expired or cancelled		—			—
Outstanding at May 31, 2015		1,243,194			17.60
Issued		422,087			11.10
Exercised		—			—
Converted to common shares		(1,189,517	)		10.49
Converted to preferred shares		(392,000	)		10.00
Expired or cancelled		—			—
Outstanding at May 31, 2016		83,764		$	19.42
Issued		—			—
Expired or cancelled		(50,134	)		19.83
Outstanding at December 31, 2016		33,630		$	19.38