Document and Entity Information
Document and Entity Information | 3 Months Ended |
Nov. 30, 2019 | |
Document And Entity Information | |
Entity Registrant Name | ShiftPixy, Inc. |
Entity Central Index Key | 0001675634 |
Document Type | S-1 |
Amendment Flag | false |
Entity Small Business | true |
Entity Emerging Growth Company | true |
Entity Filer Category | Non-accelerated Filer |
Entity Ex Transition Period | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Nov. 30, 2019 | Aug. 31, 2019 |
Current assets | ||
Case | $ 49,000 | $ 1,561,000 |
Accounts receivable | 1,822,000 | 272,000 |
Unbilled accounts receivable | 11,347,000 | 9,478,000 |
Deposit - workers' compensation | 1,987,000 | 1,957,000 |
Prepaid expenses | 371,000 | 519,000 |
Other current assets | 164,000 | 244,000 |
Total current assets | 15,740,000 | 14,031,000 |
Fixed assets, net | 3,136,000 | 3,360,000 |
Deposits - workers' compensation | 6,167,000 | 6,281,000 |
Deposits and other assets | 124,000 | 124,000 |
Total assets | 25,167,000 | 23,796,000 |
Current liabilities | ||
Accounts payable and other current liabilities | 5,911,000 | 4,911,000 |
Payroll related liabilities | 17,469,000 | 16,412,000 |
Convertible notes, net | 3,426,000 | 3,351,000 |
Accrued workers' compensation costs | 1,987,000 | 1,957,000 |
Accrued Royalties | 1,800,000 | 1,800,000 |
Derivative Liability | 2,814,000 | 3,756,000 |
Total current liabilities | 33,407,000 | 32,187,000 |
Non-current liabilities | ||
Accrued workers' compensation costs | 6,194,000 | 4,379,000 |
Convertible notes, net | 778,000 | |
Total liabilities | 40,379,000 | 36,566,000 |
Commitments and contingencies | ||
Stockholders' deficit | ||
Preferred stock, 50,000,000 authorized shares; $0.0001 par value | ||
Common stock, 750,000,000 authorized shares; $0.0001 par value; 907,047 shares issued as of November 30, 2019 and August 31, 2019 | ||
Additional paid-in capital | 32,619,000 | 32,505,000 |
Treasury stock, at cost-13,953 shares as of November 30, 2019 and August 31, 2019 | (325,000) | (325,000) |
Accumulated deficit | (47,506,000) | (44,950,000) |
Total stockholders' deficit | (15,212,000) | (12,770,000) |
Total liabilities and stockholders' deficit | $ 25,167,000 | $ 23,796,000 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Sep. 28, 2016 |
Stockholders' deficit | ||||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | |
Preferred stock, shares par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | |
Common stock, shares authorized | 750,000,000 | 750,000,000 | 750,000,000 | |
Common stock, shares par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | |
Common stock, shares issued | 907,047 | 907,047 | 721,295 | |
Treasury stock, shares | 13,953 | 13,953 | 0 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Nov. 30, 2019 | Nov. 30, 2018 | |
Condensed Consolidated Statements of Operations (Unaudited) | ||
Revenues (gross billings of 110.7 million and 70.9 million less worksite employee payroll cost of 94.8 million and 60.4 million, respectively) | $ 15,866,000 | $ 10,520,000 |
Cost of revenue | 12,552,000 | 7,134,000 |
Gross profit | 3,314,000 | 3,386,000 |
Operating expenses: | ||
Salaries, wages and payroll taxes | 2,283,000 | 1,872,000 |
Commissions | 774,000 | 553,000 |
Professional fees | 840,000 | 624,000 |
External Software development | 353,000 | 310,000 |
General and administrative | 1,401,000 | 1,316,000 |
Total operating expenses | 5,651,000 | 4,675,000 |
Operating Loss | (2,337,000) | (1,289,000) |
Other income (expense) | ||
Interest expense | (1,161,000) | (957,000) |
Change in fair value of derivative liability | 942,000 | |
Total other income (expense) | (219,000) | (957,000) |
Net Loss | $ (2,556,000) | $ (2,246,000) |
Earnings Per Share, Basic and Diluted [Abstract] | ||
Basic and diluted | $ (2.86) | $ (3.11) |
Basic and diluted | 893,094 | 723,033 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) | Total | Treasury Stock [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Accumulated Deficit [Member] |
Balance, shares at Aug. 31, 2017 | 719,064 | ||||
Balance, amount at Aug. 31, 2017 | $ 5,615,000 | $ 15,016,000 | |||
Net Income (Loss) | (16,823,000) | ||||
Warrants exercised for cash, amount | 75,000 | 75,000 | |||
Common stock issued for services rendered, amount | 163,000 | $ 163,000 | |||
Warrants exercised for cash, shares | 938 | ||||
Common stock issued for services rendered, shares | 1,293 | ||||
Net Income (Loss) | $ (16,823,000) | ||||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | $ (7,755,000) | $ 18,468,000 | $ (26,223,000) | ||
Net Income (Loss) | (2,246,000) | ||||
Common shares issued upon conversion of convertible notes and interestk, amount | 1,645,000 | 1,645,000 | |||
Stock-based compensation expense 10Q | 77,000 | 77,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 16,624 | ||||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Common stock issued for services rendered, amount | 113,000 | 113,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Common stock issued for services rendered, shares | 966 | ||||
Net Income (Loss) | $ (2,246,000) | $ (2,246,000) | |||
Balance, shares at Nov. 30, 2018 | 745,573 | ||||
Balance, amount at Nov. 30, 2018 | $ (7,506,000) | $ 20,963,000 | $ (28,469,000) | ||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | $ (7,755,000) | $ 18,468,000 | $ (26,223,000) | ||
Net Income (Loss) | (18,700,000) | ||||
Common shares issued upon conversion of convertible notes and interest, shares | 105,776 | ||||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Common stock issued for services rendered, amount | $ 263,000 | $ 263,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Common stock issued for services rendered, shares | 4,985 | ||||
Net Income (Loss) | $ (18,727,000) | ||||
Balance, shares at Aug. 31, 2019 | 907,047 | ||||
Balance, amount at Aug. 31, 2019 | $ (12,770,000) | $ (325,000) | $ 32,505,000 | $ (44,950,000) | |
Net Income (Loss) | (2,556,000) | ||||
Stock-based compensation expense 10Q | 114,000 | 114,000 | |||
Net Income (Loss) | $ (2,556,000) | $ (2,556,000) | |||
Balance, shares at Nov. 30, 2019 | 907,047 | ||||
Balance, amount at Nov. 30, 2019 | $ (15,212,000) | $ (325,000) | $ 32,619,000 | $ (47,506,000) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Nov. 30, 2019 | Nov. 30, 2018 | |
OPERATING ACTIVITIES. | ||
Net Loss | $ (2,556,000) | $ (2,246,000) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 241,000 | 188,000 |
Amortization debt discount, debt issuance cost | 854,000 | 1,044,000 |
Share based compensation | 114,000 | 190,000 |
Gain on fair value of derivative liabilities | (942,000) | |
Changes in operating assets and liabilities | ||
Accounts receivable | (1,550,000) | (19,000) |
Unbilled accounts receivable | (4,469,000) | 1,434,000 |
Prepaid expenses | 148,000 | 184,000 |
Other current assets | 81,000 | (93,000) |
Deposits - workers' compensation | 82,000 | (892,000) |
Deposits and other assets | 26,000 | |
Accounts payable | 739,000 | |
Payroll related liabilities | 3,656,000 | (1,988,000) |
Accrued workers' compensation | 1,847,000 | 1,068,000 |
Other current liabilities | 260,000 | (726,000) |
Net cash used in operating activities | (1,495,000) | (1,590,000) |
INVESTING ACTIVITIES | ||
Purchase of fixed assets | (17,000) | (493,000) |
Net cash used in investing activities | (17,000) | (493,000) |
FINANCING ACTIVITIES | ||
Proceeds from exercise of warrants | 660,000 | |
Net cash provided by financing activities | 660,000 | |
Net decrease in cash | (1,512,000) | (1,423,000) |
Cash - Beginning of Period | 1,561,000 | 1,650,000 |
Cash - End of Period | 49,000 | 227,000 |
Supplemental Disclosure of Cash Flows Information: | ||
Cash paid for interest | 133,000 | |
Non-cash Investing and Financing Activities: | ||
Conversion of debt and accrued interest into common stock | $ 1,645,000 |
Nature of Operations
Nature of Operations | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Nature of Operations | ||
Note 1: Nature of Operations | ShiftPixy, Inc. (the “Company”) was incorporated on June 3, 2015. The Company is a specialized staffing service provider that provides solutions for large contingent part-time workforce demands, primarily in the restaurant, hospitality and maintenance service trades. The Company’s focus is on the restaurant industry in Southern California. Both ShiftPixy, Inc and its wholly-owned subsidiary, Shift Human Capital Management Inc. (“SHCM”), function as an employment administrative services (“EAS”) provider including services such as administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of workers’ compensation coverages and claims and provides workers compensation coverage written in the names of the clients (as may be required by some states). The Company has built a human resources information systems platform to assist in customer acquisition and hopes that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients recognize the value of the services provided by the parent Company. The Company is currently operating in one reportable segment. | ShiftPixy, Inc. (the “Company”) was incorporated on June 3, 2015. The Company is a specialized staffing service provider that provides solutions for large contingent part-time workforce demands, primarily in the restaurant, hospitality and maintenance service trades. The Company’s focus is on the restaurant industry in Southern California. Both ShiftPixy, Inc and its wholly-owned subsidiary, Shift Human Capital Management Inc. (“SHCM”), function as an employment administrative services (“EAS”) provider including services such as administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of workers’ compensation coverages and claims and provides workers compensation coverage written in the names of the clients (as may be required by some states). The Company has built a human resources information systems platform to assist in customer acquisition and hopes that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients recognize the value of the services provided by the parent Company. |
Summary of significant accounti
Summary of significant accounting policies | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Note 2: Summary of significant accounting policies | Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three months ended November 30, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2020. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2019, filed with the SEC on December 13, 2019. Principles of Consolidation The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of property and equipment; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instruments classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $11,347,000 and $9,478,000 as of November 30, 2019 and August 31, 2019, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2020 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs Concentration of Credit Risk The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The Company has not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively. However, four clients represent 92% of total accounts receivable both at November 30, 2019 and August 31, 2019. Impairment and Disposal of Long-Lived Assets The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of November 30, 2019, the Company classified $0.2 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of November 30, 2019, the Company had $2.0 million in deposit – workers’ compensation classified as a short-term asset and $6.2 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of November 30, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $5.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. Fair Value of Financial Instruments FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At November 30, 2019 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at November 30, 2019 or August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of November 30, 2019: March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 At November 30, 2019 and August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures and the fair value of the warrant liabilities based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. The Company used the following assumptions to estimate fair value of the derivatives as of November 30, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended November 30, 2019 or 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Research and Development During the three months ended November 30, 2019 and 2018 the Company incurred research and development costs of approximately $0.9 million and $0.4 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three months ended November 30, 2019 and 2018, respectively. Advertising Costs The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $304,000 and $379,000 for the three months ended November 30, 2019, and 2018, respectively. Reverse Stock Split On December 17, 2019 the Company implemented a 1 for 40 reverse stock split for all common share and common share equivalents including, options, warrants, and convertible notes. All common shares and common share equivalents are presented retroactively to reflect the reverse split. Earnings (Loss) Per Share The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 Stock-Based Compensation At November 30, 2019, the Company has one stock-based compensation plan under which the Company may issue awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. The Company elected to account for forfeitures as they occur, as such, compensation cost previously recognized for an unvested award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all of its treasury stock outstanding as of November 30, 2019 and August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. Reclassifications Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Revision of Financial Statements During the preparation of the restated condensed consolidated financial statements for the three and six months ended February 28, 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s condensed consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,000 (739,000 ) $ 5,570,000 Additional Paid-In Capital 19,729,000 1,232,000 20,961,000 Accumulated deficit (27,977,000 ) (493,000 ) (28,470,000 ) Net Loss (2,000,000 ) (246,000 ) (2,246,000 ) Net loss per share – Basic and diluted (2.77 ) (0.34 ) (3.11 ) Recent Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption. The Company expects to adopt the guidance using the modified retrospective method. | Basis of Presentation The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Principles of Consolidation The Company and its wholly-owned subsidiary have been consolidated in the accompanying consolidated financial statements. All intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of software, property and equipment; · Assumptions made in valuing equity instruments; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instrument classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $6,878,000 and $6,193,000 for the years ended August 31, 2019 and August 31, 2018, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2018 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs Segment Reporting The Company operates as one reportable segment under ASC 280, Segment Reporting Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company had no such investments as of August 31, 2019 or 2018. Concentration of Credit Risk The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses related to these balances and believes its credit risk to be minimal. As of August 31, 2019, there were $2,354,000 of cash in excess of the amounts insured by the FDIC. The Company had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. Four clients represent 92% of total accounts receivable at August 31, 2019, compared to four clients representing approximately 86% of its total accounts receivable at August 31, 2018. Fixed Assets Fixed assets are recorded at cost, less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Leasehold improvements are being amortized over the shorter of the useful life or the initial lease term. Fixed assets are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives of property and equipment for purposes of computing depreciation are as follows: Equipment: 5 years Furnitures & Fixtures: 5 - 7 years The amortization of these assets is included in depreciation expense on the consolidated statements of operations. Computer Software Development Software development costs relate primarily to software coding, systems interfaces and testing of the Company’s proprietary employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation and software maintenance costs are expensed as incurred. The capitalized computer software development costs are reported under the section fixed assets, net in the consolidated balance sheets. The Company determined that there were no material internal software development costs for the years ended August 31, 2018 or 2019. All capitalized software recorded was purchased from third party vendors. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally five years. Impairment and Disposal of Long-Lived Assets The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of August 31, 2019, the Company classified $0.1 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of August 31, 2019, the Company had $1.9 million in deposit – workers’ compensation classified as a short-term asset and $6.3 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of August 31, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $4.1 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. Debt issuance Costs and Debt discount Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets. Portions attributable to notes converted into equity are accelerated to interest expense upon conversion. Beneficial Conversion Features The intrinsic value of a beneficial conversion feature (“BCF”) inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the stated maturity using the straight-line method which approximates the effective interest method. If the note payable is retired prior to the end of the contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the BCF is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. Derivative financial instruments When a Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirement to be treated as a derivative: a) the settlement amount is determined by one or more underlying, typically the price of the Company’s stock, b) the settlement amount is determined by one or more notional amounts or payments provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provision, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares. When ShiftPixy, Inc., issues warrants to purchase its common stock, the Company evaluates whether they meet the requirements to be treated as derivative. Generally, warrants would be treated as a derivative if the provisions of the warrants agreements create uncertainty as to a) the number of shares to be issued upon exercise, or b) whether shares may be issued upon exercise. If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, ShiftPixy estimates the fair value of the derivative liability using the lattice-based option valuation model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statement of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreements are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the consolidated balance sheet date. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Fair Value of Financial Instruments FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At August 31, 2019 and August 31, 2018, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants at August 31, 2019, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 for the year ended August 31, 2019: Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 At August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield (1.76%) of a Treasury note and expected volatility of the Company’s common stock (100%) all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. At August 31, 2019, the Company estimated the fair value of the warrant liabilities based on the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk-free interest rate based on the average yield of a Treasury note (1.39%) and expected volatility of the Company’s common stock (119%) all as of the measurement dates. When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended August 31, 2019 and August 31, 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Advertising Costs The Company expenses advertising costs when incurred. Advertising costs incurred amounted to approximately $1.2 million and $0.5 million for the years ended August 31, 2019, and 2018, respectively. Research and Development During the years ended August 31, 2019 and 2018 the Company incurred research and development costs of approximately $2.3 million and $4.0 million, respectively. All costs were related to internally developed and contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0.9 million and $2.8 million of software costs were capitalized for the years ended August 31, 2019 and 2018, respectively. Income Taxes The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Under FASB ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Share-Based Compensation At August 31, 2019 and 2018, the Company has one stock-based compensation plan under which the Company may issue both share and stock option awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of operations on their fair values. Share grants are valued at the closing market price on the date of issuance which approximates fair value. For option grants, the grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. Option grants are typically issued with vesting depending on a term of service. For all employee stock options granted, the Company recognizes expense over the requisite service period over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since its Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Earnings (Loss) Per Share The Company utilizes FASB ASC 260, “Earnings per Share.” Basic loss per share is computed by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. The table below shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations. For the year ended August 31, 2019 2018 Losses per common share: Net loss allocated to common shareholders $ (18,727,000 ) $ (16,823,000 ) Weighted average shares outstanding 817,720 720,253 Basic and Fully Diluted net loss per common share $ (22.90 ) $ (23.36 ) Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all treasury stock outstanding as of August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. Revision of Financial Statements During 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s consolidated financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,000 (985,000 ) $ 6,171,000 Additional Paid-In Capital 17,234,000 1,231,000 18,465,000 Accumulated deficit (25,977,000 ) (246,000 ) (26,223,000 ) Net Loss $ (16,577,000 ) (246,000 ) $ (16,823,000 ) Net loss per share – Basic and diluted $ (23.02 ) - $ (23.36 ) Reclassifications Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Significant Recent Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company has evaluated Topic 606 and we plan to utilize the modified retrospective transition method upon the adoption of ASC 606. The Company is still in the process of finalizing its evaluation for the adoption of ASC 606, however, no material difference is expected. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. In March 2019, the FASB issued ASU 2019-01, which added guidance to ASC 842 that is simi |
Going Concern
Going Concern | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Going Concern | ||
Note 3: Going Concern | As of November 30, 2019, the Company had cash of $0.1 million and a working capital deficiency of $18.5 million. During the quarter ended November 30, 2019, the Company used approximately $1.5 million of cash in its operations, consisting of a net loss of $2.6 million, reduced by net non-cash charges and gains of $0.3 million and working capital changes of $0.8 million. During the year ended August 31, 2019, the Company used approximately $2.1 million of cash in its operations, consisting of a net loss of $18.7 million, reduced by net non-cash charges and gains of $10.8 million and working capital changes of $6.0 million. The Company has incurred recurring losses resulted in an accumulated deficit of $48 million as of November 30, 2019. These conditions raise substantial doubt as to the Company’s ability to continue as going concern within one year from issuance date of the financial statements. The ability of the Company to continue as a going concern is dependent upon generating profitable operations in the future and obtaining additional funds by way of public or private offering to meet the Company’s obligations and repay its liabilities when they become due. The Company has a recurring revenue business model that generated $12.4 million of gross profit for the year ended August 31, 2019 and $3.3 million for the quarter ended November 30, 2019. The Company’s plans and expectations for the next 12 months include raising additional capital to help fund expansion of its operations, including the continued development and support of its IT and HR platform and settling its outstanding debt as it comes due. The Company engaged an investment banking firm to assist the Company in (i) preparing information materials, (ii) advising the Company concerning the structure, price and conditions and (iii) organizing the marketing efforts with potential investors in connection with a financing transaction. Historically, the Company’s principal source of financing has come through the sale of its common stock and issuance of convertible notes. The Company successfully completed an Initial Public Offering (IPO) on NASDAQ on June 29, 2017, raising a total of $12 million ($10.9 million net of costs). In June 2018, the Company completed a private placement of 8% senior secured convertible notes to institutional investors raising $9 million of gross proceeds ($8.4 million net of costs). In March 2019, the Company completed a private placement of senior secured notes to institutional investors raising $3.75 million ($3.3 million net of costs). As of November 30, 2019 all of the $6.8 million of principal was in default. Subsequent to November 30, 2019, approximately $2.7 million of the notes in default were exchanged for new convertible notes payable. See Notes 4 and 9 for additional information. Subsequent to November 30, 2019 and as described in Note 9 below, in January 2020, the Company assigned approximately 60% of its customer contracts representing approximately 50% of its recurring gross profit in exchange for $9.7 million in cash and expects to receive $9.5 million ratably over the four years following the transaction close, subject to certain closing conditions. The Company will transfer $1.7 million of working capital after closing the transaction and approximately $6 million of the Company’s annualized gross profit. The Company believes that its current cash position, after collection of the proceeds from the January 2020 customer assignment transaction, along with its revenue growth and the financing from potential institutional investors will be sufficient to fund its operations for at least a year from the date these financials are available. If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months from the date of this report, the Company may need to curtail certain aspects of its operations or expansion activities, consider the sale of its assets, or consider other means of financing. The Company can give no assurance that it will be successful in implementing its business plan and obtaining financing on terms advantageous to the Company or that any such additional financing would be available to the Company. As such, these conditions raise substantial doubt as to its ability to continue as a going concern within one year from the issuance date of the financial statements. These consolidated financial statements do not include any adjustments from this uncertainty. | As of August 31, 2019, the Company had cash of $1.6 million and a working capital deficiency of $15.9 million. During the year ended August 31, 2019, the Company used approximately $2.1 million of cash in its operations, consisting of a net loss of $18.7 million, reduced by net non-cash charges and gains of $10.8 million and working capital changes of $6.0 million. For the most recent quarter ending August 31, 2019, cash flows used in operations were $0.5 million. The Company has incurred recurring losses resulted in an accumulated deficit of $45 million as of August 31, 2019. These conditions raise substantial doubt as to the Company’s ability to continue as going concern within one year from issuance date of the financial statements. The ability of the Company to continue as a going concern is dependent upon generating profitable operations in the future and obtaining additional funds by way of public or private offering to meet the Company’s obligations and repay its liabilities when they become due. The Company has a recurring revenue business model that generated $12.4 million of gross profit for the year of which $3.6 million is attributable to the fourth fiscal quarter. On an annualized basis, a projected twelve-month gross profit based solely on the fourth quarter would be $14.4 million. For the year ended August 31, 2019, the Company had $22.1 million of operating expenses, of which $1.4 million was non-cash depreciation and share based compensation. Of the remaining $20.7 million, $4.9 million was for software development and marketing related spending for the HRIS and mobile application systems, including licensing and related salaries and consulting fees, with an additional $1.4 million for legal services, settlements and costs. The Company’s plans and expectations for the next 12 months include raising additional capital to help fund expansion of its operations, including the continued development and support of its IT and HR platform and settling its outstanding debt as it comes due. The Company engaged an investment banking firm to assist the Company in (i) preparing information materials, (ii) advising the Company concerning the structure, price and conditions and (iii) organizing the marketing efforts with potential investors in connection with a financing transaction. With the added development and marketing investment into the mobile application, the Company anticipates the need to raise additional capital coupled with using its actual cash position and continue leveraging its payables until it reaches breakeven at about 25,000 worksite employees. Historically, the Company’s principal source of financing has come through the sale of its common stock and issuance of convertible notes. The Company successfully completed an Initial Public Offering (IPO) on NASDAQ on June 29, 2017, raising a total of $12 million ($10.9 million net of costs). In June 2018, the Company completed a private placement of 8% senior secured convertible notes to institutional investors raising $9 million of gross proceeds ($8.4 million net of costs). In March 2019, the Company completed a private placement of senior secured notes to institutional investors raising $3.75 million ($3.3 million net of costs). The Company believes that its current cash position, along with its revenue growth and the financing from potential institutional investors will be sufficient to fund its operations for at least a year from the date these financials are available. If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months from the date of this report, the Company may need to curtail certain aspects of its operations or expansion activities, consider the sale of its assets, or consider other means of financing. The Company can give no assurance that it will be successful in implementing its business plan and obtaining financing on terms advantageous to the Company or that any such additional financing would be available to the Company. As such, these conditions raise substantial doubt as to its ability to continue as a going concern within one year from the issuance date of the financial statements. These consolidated financial statements do not include any adjustments from this uncertainty. |
Senior Secured Convertible Note
Senior Secured Convertible Notes Payable (in default) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable (in default) | ||
Note 4: Senior Secured Convertible Notes Payable (in default) | The Company has issued three series of senior secured convertible notes payable. In general, each series is convertible into common shares of the Company. Senior Secured Convertible Notes Payable consist of the following: November 30, August 31, 2019 2019 (unaudited) Senior Secured Convertible notes, Principal $ 6,808,000 $ 6,808,000 Less debt discount and deferred financing costs (2,604,000 ) (3,457,000 ) Total outstanding convertible notes, net $ 4,204,000 $ 3,351,000 Less current portion of convertible notes payable (3,426,000 ) (3,351,000 ) Long-term convertible notes payable $ 778,000 $ - The following table rolls forward the Convertible Notes Payable balances from August 31, 2019 to November 30, 2019: Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Amortization of Interest Expense - 80,000 773,000 853,000 Balance at November 30, 2019 $ 6,808,000 (264,000 ) (2,340,000 ) $ 4,204,000 Less Current Amount (5,141,000 ) 174,000 1,541,000 (3,426,000 ) Long Term Balance at November 30, 2019 1,667,000 (90,000) (799,000) $ 778,000 The following table outlines the gross principal balance rollforward for each series from August 31, 2019 to November 30, 2019. Each series is described in further detail below. June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs - - (264,000 ) (264,000 ) Deferred Financing Costs - - (2,340,000 ) (2,340,000 ) Carrying Balance at November 30, 2019 $ 1,466,000 867,000 1,871,000 $ 4,204,000 Less Current Amount (1,466,000 ) (728,000 ) (1,232,000 ) (3,426,000 ) Long Term Balance at November 30, 2019 $ - 139,000 639,000 $ 778,000 During the quarters ended November 30, 2019 and 2018 the Company amortized $853,000 and $798,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 and March 2019 Notes. To date, the holders of the June Notes have converted $8,534,000 of principal, holders of December 2018 Notes have converted $22,000 of principal, and holders of March 2019 Notes have converted $275,000 of principal into common shares of the Company. There were no conversions of convertible notes during the fiscal quarter ending November 30, 2019. On June 3, 2019, one of its institutional investors filed a claim in the United States District Court, Southern District of New York seeking preliminary injunctive relief against the Company to immediately deliver one million shares of the Company’s common stock and to honor all future conversion requests duly submitted in accordance with the terms of the notes. On June 7, 2019, and June 10, 2019, the Company received notices from two of its institutional investors that the Company was in default due to missed principal and interest payments under the terms of the Notes. On June 27, 2019, the Company reported that is has informed its convertible note holders that it will cease honoring conversion requests of the 2018 and 2019 Notes forcing a voluntary default of these instruments. The Company is pursuing a renegotiation and amendment of these instruments in an effort to avoid litigation. The Company is requesting to amend the terms of the notes to remove the conversion features and revise the cash amortization, among other items. On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 21,750 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. As of November 30, 2019, after the exchange as described in Note 9, the Company classified $778,000 of the $1,245,000 carrying value of the notes exchanged as long-term liabilities. See also Note 8 for litigation related to the Convertible Notes Payable. From June 10, 2019 until November 30, 2019, the Company has accrued interest at the default interest rate for all note series representing approximately $0.6 million of additional interest payable of which $0.3 million is attributable to the quarter ending November 30, 2019. The Company has accrued an additional $1.8 million to accrued default liabilities as of November 30, 2019 and August 31, 2019, representing potential liability associated with the default of the notes payable for default premium, potential liquidating damages, and other costs associated with the notes in default. June 2018 Senior Convertible Notes (in default) On June 4, 2018, the Company issued $10 million of senior convertible notes (“June 2018 Notes”) to institutional investors with an original issue discount of $1 million for a purchase price of $9 million. The notes bear interest at a rate of 8%, with one year’s interest guaranteed, and have a maturity date of September 4, 2019. The Notes remain outstanding as of November 22, 2019. The company received cash proceeds of $8.4 million representing the $9 million purchase price, reduced by approximately $0.6 million of financing costs directly related to the issuance of the June 2018 Notes. Concurrent with the sale of the June 2018 Notes, the Company granted warrants to purchase 25,101 shares of common stock to its institutional investors and warrants to purchase 5,422 shares of common stock to its investment banker as placement fees, at an exercise price of $99.60, subject to down round price protection adjustment, as defined in the agreements. The warrants were valued at the date of issuance using the lattice-based option pricing model at $86.80 per warrant. Both the June 2018 Notes and the related warrants were issued with registration rights, whereby the Company was obligated to register the shares underlying the June 2018 Notes or was subject to registration rights penalties. The terms of June 2018 notes are summarized as follows: · Term: September 4, 2019; · Coupon: 8%; Default interest rate: 18%; · Convertible at the option of the holder at any time; · Conversion price is initially set at $99.60 but subject to down round price protection. After maturity, the conversion price will be set subsequently at the lesser of the then conversion price and 85% of the volume weighted average price for the trading date immediately prior to the application conversion date; and · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. December 2018 Notes (in default) On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company issued additional notes (“December 2018 Notes” in the amount of $889,000 on substantially the same terms as the June 2018 Notes except that the stated interest rate was 0% and the term of the December 2018 Notes was December 31, 2019. There was no recorded discount or deferred financing costs for the December 2018 Notes issued. March 2019 Bridge Financing (in default) On March 12, 2019, the Company issued convertible notes in the principal amount of $4,750,000 with an original issue discount of $1 million for a purchase price of $3,750,000 to certain of its existing institutional investors (“March 2019 Notes”) and mature on September 12, 2020. The Company received net cash proceeds of $3.3 million to be used for mobile application development and working capital. The Company incurred approximately $0.5 million of debt issuance costs that are incremental costs directly related to the issuance of the bridge financing senior convertible notes payable. The terms of the March 2019 convertible notes are summarized as follows: · Term: September 12, 2020; · Coupon: 0%; · Default interest rate: 18%; · Original issue discount: $1,000,000; · Convertible at the option of the holder at any time; · Initial conversion price is set at $1.67 but subject to down round price protection; · Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; · Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. In connection with the note, the Company issued 74,387 warrants (“March 2019 Warrants”), exercisable at $70, with a five-year term. The Company evaluated the warrants issued and determined that they were derivative liabilities. The Company estimated the fair value of the warrants using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, resulting in a fair value of $3,917,000. The Company estimated the aggregate fair value of the conversion feature derivative embedded in the debenture (“March 2019 Conversion Feature”) at issuance at $2,421,000 based on weighted probabilities of assumptions using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount resulted from bifurcating the warrants and the conversion feature being greater than the face amount of the debt and the original issue discount, and the excess amount of $2.6 million was immediately expensed as financing costs. | The Company has issued three series of senior secured convertible notes payable. In general, each series is convertible into common shares of the Company. Senior Secured Convertible Notes Payable consist of the following: August 31, August 31, 2019 2018 Senior Secured Convertible notes, Principal $ 6,808,000 $ 10,000,000 Less debt discount and deferred financing costs (3,457,000 ) (3,829,000 ) Total outstanding convertible notes, net $ 3,351,000 $ 6,171,000 Less current portion of convertible notes payable 3,351,000 ) (6,171,000 ) Long-term convertible notes payable $ - $ - The following table rolls forward the Convertible Notes Payable balances from August 31, 2018 to August 31, 2019: Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2018 $ 10,000,000 (617,000 ) (3,212,000 ) $ 6,171,000 Issuance of Notes Payable 5,639,000 (485,000 ) (4,750,000 ) 404,000 Conversion of Principal into Equity (8,395,000 ) - - (8,395,000 ) Amortization of Interest Expense - 758,000 4,849,000 5,607,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Less Current Amount (6,808,000 ) 344,000 3,113,000 (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - The following table outlines the gross principal balance rollforward for each series from August 31, 2018 to August 31, 2019. Each series is described in further detail below. June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2018 $ 10,000,000 - - $ 10,000,000 Issuance of Notes Payable - 889,000 4,750,000 5,639,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Conversion of Principal into Equity (8,098,000 ) (22,000 ) (275,000 ) (8,395,000 ) Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs (27,000 ) - (317,000 ) (344,000 ) Deferred Financing Costs (5,000 ) - (3,108,000 ) (3,113,000 ) Carrying Balance at August 31, 2019 $ 1,434,000 867,000 1,050,000 $ 3,351,000 Less Current Amount (1,434,000 ) (867,000 ) (1,050,000 ) (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - During the years ended August 31, 2019 and 2018 the Company amortized $5,607,000 and $951,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 and March 2019 Notes. During the year ended August 31, 2019, investors converted $8,395,000 of principal and $509,000 of interest expense into approximately 172,500 shares of common stock of the company. The Company has been converting the convertible notes in its shares of common stock at a fifteen percent (15%) discount to the lowest volume weighted average price (“VWAP”) whereas the terms of the agreement state that such discount to the original conversion price of $99.60 should have been initiated on or after the maturity date of the convertible notes or September 4, 2019. The accounting standards require the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. Included in the 172,500 shares issued for the 2019 conversions were approximately 67,500 shares valued at $3.8 million on the date of issuance at fair value and issued related to consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $3.8 million for the year ended August 31, 2019. There were no conversions of convertible notes during fiscal 2018. On June 3, 2019, one of its institutional investors filed claim in the United States District Court, Southern District of New York seeking preliminary injunctive relief against the Company to immediately deliver one million shares of the Company’s common stock and to honor all future conversion requests duly submitted in accordance with the terms of the notes. On June 7, 2019, and June 10, 2019, the Company received notices from two of its institutional investors that the Company was in default due to missed principal and interest payments under the terms of the Notes. On June 27, 2019, the Company reported that is has informed its convertible note holders that it will cease honoring conversion requests of the 2018 and 2019 Notes forcing a voluntary default of these instruments. The Company is pursuing a renegotiation and amendment of these instruments in an effort to avoid litigation. The Company is requesting to amend the terms of the notes to remove the conversion features and revise the cash amortization, among other items. See also Note 13 for litigation related to the Convertible Notes Payable. From June 10, 2019 until year end, the Company has accrued interest at the default interest rate for all note series representing approximately $0.3 million of additional interest payable. The Company has accrued an additional $1.8 million of additional accrued liabilities as of August 31, 2019 representing potential liability associated with the default of the notes payable for default premium, potential liquidating damages, and other costs associated with the notes in default. June 2018 Senior Convertible Notes (in default) On June 4, 2018, the Company issued $10 million of senior convertible notes (“June 2018 Notes”) to institutional investors with an original issue discount of $1 million for a purchase price of $9 million. The notes bear interest at a rate of 8%, with one year’s interest guaranteed, and have a maturity date of September 4, 2019. The Notes remain outstanding as of November 22, 2019. The company received cash proceeds of $8.4 million representing the $9 million purchase price, reduced by approximately $0.6 million of financing costs directly related to the issuance of the June 2018 Notes. Concurrent with the sale of the June 2018 Notes, the Company granted warrants to purchase 25,100 shares of common stock to its institutional investors and warrants to purchase 75,422 shares of common stock to its investment banker as placement fees, at an exercise price of $99.60, subject to down round price protection adjustment, as defined in the agreements. The warrants were valued at the date of issuance using the lattice-based option pricing model at $86.80 per warrant. Both the June 2018 Notes and the related warrants were issued with registration rights, whereby the Company was obligated to register the shares underlying the June 2018 Notes or was subject to registration rights penalties. During the year ended August 31, 2018, the Company accrued a loss of $3,500,000 for penalties associated with the registration rights penalties. With the issuance of the December 2018 Notes described below, the Company reduced the loss accrual to $889,000 and recorded a gain recovery on the accrued loss of $2,611,000 during the year ended August 31, 2019. The terms of June 2018 notes are summarized as follows: · Term: September 4, 2019; · Coupon: 8%; Default interest rate: 18%; · Convertible at the option of the holder at any time; · Conversion price is initially set at $99.60 but subject to down round price protection. After maturity, the conversion price will be set subsequently at the lesser of the then conversion price and 85% of the volume weighted average price for the trading date immediately prior to the application conversion date; and · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. Debt issuance costs The Company paid approximately $0.8 million of incremental issuance costs directly attributable to the issuance of the senior secured convertible notes. These costs were recorded as a discount to the convertible notes and they are amortized straight line over the term to interest expense, which approximates the effective interest method. Debt Discount During the year ended August 31, 2018, the Company recorded an aggregate debt discount of $4.1 million for the June 2018 Notes. The debt discount includes an initial $1 million resulting from the original issuance discount on the convertible notes and an initial $2.2 million resulting from the fair value of the warrants and $0.9 million resulting from the beneficial conversion feature on the non-detachable conversion option. The Company evaluated the warrants and determined that there was no embedded conversion feature as the warrants contained a set exercise price with an adjustment only based upon customary items including stock dividends and splits, subsequent rights offering and pro rata distributions and subject to down round price protection. The Company reviewed the guidance under ASC 470 Debt and allocated the proceeds from the sale of a debt instrument with stock purchase warrants based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. As a result, the Company allocated $2.2 million to the warrants and was recorded as a debt discount with an offset to additional paid in capital in the accompanying financial statements. The Company valued the issued warrants using the Lattice pricing model at $52.80 per warrant with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.78 percent, and annualized volatility of 122%. The debt discount is amortized straight-line over the stated life of the obligation, which approximates the effective interest method. Any conversions results in a pro-rata acceleration of unamortized debt discount and debt issuance costs to interest expense on the date of conversion. Event of default – August 2018 At the June 2018 issuance, the Company executed registration rights agreements with each of its institutional investors. These registration rights agreements require, among other things, that the initial registration statement should be (a) filed within 30 days of June 4, 2018, and (b) declared effective within 90 days of June 4, 2018. The Company’s registration statement was filed on October 1, 2018 and it was declared effective by the SEC on October 29, 2018; thus, both the filing and effectiveness deadlines were missed. The Company recorded in its consolidated financial statements the mandatory default amount as stipulated in the convertible note agreements. As of August 31, 2018, the Company recorded approximately $3.5 million, which is reported under current liabilities in its consolidated statement of operations, and a further $0.6 million of accrued interest. On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company increased the principal amount of the convertible notes by issuing $889,000 of December 2018 Notes in full settlement of the previously accrued $3.5 million default. The Company accrued an additional $1.8 million in liquidating damages and recognized an $811,000 gain on recovery of these accrued penalties. December 2018 Notes (in default) On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company issued additional notes (“December 2018 Notes” in the amount of $889,000 on substantially the same terms as the June 2018 Notes except that the stated interest rate was 0% and the term of the December 2018 Notes was December 31, 2019. There was no recorded discount or deferred financing costs for the December 2018 Notes issued. March 2019 Bridge Financing (in default) On March 12, 2019, the Company issued convertible notes in the principal amount of $4,750,000 with an original issue discount of $1 million for a purchase price of $3,750,000 to certain of its existing institutional investors (“March 2019 Notes”) and mature on September 12, 2020. The Company received net cash proceeds of $3.3 million to be used for mobile application development and working capital. The Company incurred approximately $0.5 million of debt issuance costs that are incremental costs directly related to the issuance of the bridge financing senior convertible notes payable. The terms of the March 2019 convertible notes are summarized as follows: · Term: September 12, 2020; · Coupon: 0%; · Default interest rate: 18%; · Original issue discount: $1,000,000; · Convertible at the option of the holder at any time; · Initial conversion price is set at $66.80 but subject to down round price protection; · Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; · Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. In connection with the note, the Company issued 74,390 warrants (“March 2019 Warrants”), exercisable at $70.00, with a five-year term. The Company evaluated the warrants issued and determined that they were derivative liabilities. The Company estimated the fair value of the warrants using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, resulting in a fair value of $3,917,000. The Company estimated the aggregate fair value of the conversion feature derivative embedded in the debenture (“March 2019 Conversion Feature”) at issuance at $2,421,000 based on weighted probabilities of assumptions using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount resulted from bifurcating the warrants and the conversion feature being greater than the face amount of the debt and the original issue discount, and the excess amount of $2.6 million was immediately expensed as financing costs. March 2019 Derivative Liabilities: Both the March 2019 Warrants and the March 2019 Conversion Feature are accounted for as derivative liabilities. As such, each derivative is marked to market at each reporting date. Prior to March 2019, the Company had no derivative liabilities. The following table provides the activity for the Company’s derivative liabilities for the year ended August 31, 2019. March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (3,069,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,256,000 The Company used the following assumptions to estimate fair value of the derivatives as of August 31, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability Risk free rate 1.76 % 1.39 % Market price per share $ 19.04 $ 19.04 Life of instrument in years 1.04 4.47 Volatility 100 % 119 % Dividend yield 0 % 0 % |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Stockholders' deficit | ||
Note 5: Stockholders' Equity | Common Stock and Warrants The Company issued no common shares or common stock warrants during the quarter ended November 30, 2019. No warrants were exercised, expired, or cancelled during the quarter ended November 30, 2019. The following tables summarize our warrants outstanding as of November 30, 2019: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70.00 74,390 4.3 June 2018 Notes Warrants $ 70.00 30,526 3.5 2017 PIPE Warrants $ 276.00 2,500 2.6 107,416 4.0 All warrants outstanding and exercise prices have been adjusted to reflect the 1:40 reverse split. | Preferred Stock In September 2016, the Company issued options to purchase preferred stock at $0.0001 per share. This issuance was approved by its shareholders. The number of options is equal to the lesser of (a) the number of shares of common stock held by such shareholder on September 28, 2016, which accounts for approximately 25.6 million shares, or (b) the number of shares of common stock held by such shareholder on date of the shareholder’s exercise of the aforesaid option. The preferred stock that is the subject of such contingent option provides a right to elect a majority of the directors on the Board of Directors of the Corporation and does not include any rights to dividends, conversion to shares of common stock, or preference upon liquidation of the Corporation. The contingent option is exercisable only upon the acquisition of a 20% or greater voting interest in the Corporation by a party other than the founding shareholders, or prior to any proposed merger, consolidation (in which the Corporation’s common stock is changed or exchanged), or sale of at least 50% of the Corporation’s assets or earning power (other than a reincorporation). The right to exercise the option terminates on December 31, 2023. Common Shares During the year ended August 31, 2019, the Company issued 6,688 shares of common stock following the exercise of warrants and received gross proceeds of $660,000. During the year ended August 31, 2018, the Company issued 938 shares of common stock following the exercise of warrants with an exercise price of $80.00 and received gross proceeds of $75,000. As described more fully in Note 8, during the year ended August 31, 2019, the Company issued 174,081 shares of common stock in satisfaction of principal and accrued interest following conversion of convertible notes into shares of common stock. Issuances of common shares to directors for services The Company awards shares of common stock to its independent directors under its 2017 Stock Option / Stock Issuance Plan (the “Plan”) as compensation for their services as directors. These awards are typically valued at market value on the date of the award. For the year ended August 31, 2019 the Company issued 4,985 shares valued at $263,000 to its directors. Treasury Stock In June 2019, the Company advanced $325,000 in cash to Steven Holmes, a significant shareholder and service provider to the Company. In July 2019, Mr. Holmes repaid the advance by returning 13,954 shares of Mr. Holmes common share holdings, valued at $23.28 per share in full settlement of the advance and which was the market value on the date of settlement. The shares were retired in fiscal 2019 in accordance with company policy. See also Note 11. Common Stock Warrants During the year ended August 31, 2018, the Company issued warrants to purchase 30,523 shares of common stock to investors in connection with the senior secured convertible notes, with exercise price of $99.60 per warrant with expiration date of 5 years and subject to down round price protection and reset the warrant price to $70.00 in 2019 concurrent with the March 2019 Note financing warrant issuance. The Company valued the warrants at issuance using the Lattice option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.78 percent, and annualized volatility of 120%. The Company valued the revised warrants on March 12, 2019 using the Lattice option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 4.2 years, risk free rates of 2.41 percent, and annualized volatility of 122%. During the year ended August 31, 2019, the Company issued warrants to purchase 74,390 shares of common stock in connection with the March 2019 Notes, with exercise price of $70.00 per warrant with expiration date of 5 years. The Company valued the issued warrants using the Black-Scholes option-pricing model at $52.80 per warrant with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.49%, and annualized volatility of 122%. The fair value of the warrants issued were incorporated into the financing loss and March 2019 Notes discount described in Note 8 above. The following tables summarize the Company’s warrants outstanding as of August 31, 2019 and 2018: Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2017 64,887 1.5 $ 119.60 Issued 30,526 5.3 $ 99.60 (Exercised) (938 ) 1.2 80.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2018 94,475 2.13 $ 113.60 Issued 74,390 5.0 $ 70 (Exercised) (6,688 ) 0.45 98.80 (Cancelled) - - - (Expired) (54,761 ) - 114.80 Warrants outstanding, August 31, 2019 107,416 4.42 $ 74.80 The following table summarizes information about warrants outstanding as of August 31, 2019: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70 74,390 4.6 June 2018 Notes Warrants $ 70 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based Compensation
Share based Compensation | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Share based Compensation | ||
Note 6: Share based compensation | In March 2017, the Company adopted the 2017 Stock Option / Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), each of which is exercisable into shares of common stock (“Options”) or shares of common stock (“share grants”). The Company has reserved a total of 250,000 shares of common stock for issuance under the Plan as of November 30, 2019. Of these shares, as of November 30, 2019, approximately 83,000 options and 7,000 shares have been designated by the Board of Directors for issuance and approximately 38,000 of the options have been forfeited and returned to the option pool under the Plan due to employment terminations. As of November 30, 2019, approximately 200,000 shares remain issuable of which 167,000 are eligible to be issued as ISOs and 200,000 are eligible to be issued as either share grants or NQ stock options. No options or shares were granted during the quarter ended November 30, 2019. For all options granted thus far to November 30, 2019, each option is immediately exercisable and has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, and the balance vest in equal monthly installments over the next 36 months of service. All options granted to date have a ten-year term. Share grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Share based compensation expense consisted of employee stock option compensation expense of $114,000 and $77,000 for the quarters ended November 30, 2019 and 2018, respectively. At November 30, 2019, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 2.1 years for outstanding grants was $1.4 million. A summary of option activity was as follows: Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2019 50,749 8.95 $ 95.20 Granted – – $ – Exercised – – $ – Forfeited (5,286 ) 8.44 $ 69.01 Balance at November 30, 2019 45,463 8.67 $ 98.30 Options outstanding as of November 30, 2019 had aggregate intrinsic value of $0. Option vesting activity was as follows: Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2019 10,291 8.04 $ 152.80 Vested 2,232 8.44 $ 146.82 Exercised – – $ – Forfeited (488 ) 0.08 $ 116.32 Balance at November 30, 2019 12,035 7.87 $ 153.19 The following table summarizes information about stock options outstanding and vested at November 30, 2019: Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-$40.00 6,625 9.52 $ 23.31 – – $ – $40.01–$80.00 13,729 9.34 $ 51.21 – – $ – $80.01–$120.00 11,224 8.45 $ 103.15 4,384 8.41 $ 103.53 $120.01–$160.00 12,625 7.79 $ 157.71 6.860 7.56 $ 157.41 $160.01-$391.60 1,260 7.63 $ 391.60 791 7.63 $ 391.60 45,463 8.67 $ 98.30 12,035 7.87 $ 153.19 The number of options and exercise prices have been presented retroactively for the 1 for 40 December 17, 2019 reverse split. | In March 2017, the Company adopted the 2017 Stock Option / Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), each of which is exercisable into shares of common stock (“Options”) or shares of common stock (“share grants”). The Company has reserved a total of 250,000 shares of common stock for issuance under the Plan as of August 31, 2019. Of these shares, as of August 31, 2019, approximately 82,500 options and 7,500 shares have been designated by the Board of Directors for issuance and approximately 32,500 of the options have been forfeited and returned to the option pool under the Plan due to employment terminations. As of August 31, 2019, approximately 195,000 million shares remain issuable of which 167,500 are eligible to be issued as ISOs and 195,000 are eligible to be issued as either share grants or NQ stock options. During 2018 and 2019 both common share grants and stock options were issued to employees and non-officer directors of the Company. Shares issued for services for 2019 and 2018 consist solely of grants to non-officer directors. For all options granted thus far to August 31, 2019, each option is immediately exercisable and has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, and the balance vest in equal monthly installments over the next 36 months of service. All options granted to date have a ten year term. Share grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model and the following assumptions: 2019 2018 Expected life 4.0 years 4.0 years Estimated volatility 119 % 121 % Risk-free interest rate 1.70%-2.90 % 2.01%-2.83 % Dividends - - Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Share based compensation expense consisted of the following for the years ended August 31, 2019 and 2018: Year ended August 31, 2019 Year ended August 31, 2018 Shares issued for services $ 263,000 $ 163,000 Employee stock options 369,000 200,000 Balance at August 31, 2019 $ 632,000 $ 363,000 At August 31, 2019, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 1.7 years for outstanding grants was $1.6 million. A summary of option activity was as follows: Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2017 19,750 9.58 $ 184.80 Granted 23,719 10.0 $ 105.60 Exercised – – $ – Forfeited (9,750 ) 8.49 $ 154.80 Balance, August 31, 2018 33,719 9.77 $ 138.00 Granted 36,073 10.0 $ 63.60 Exercised – – $ – Forfeited (19,043 ) 8.06 $ 111.20 Balance at August 31, 2019 50,749 8.95 $ 95.20 Options outstanding as of August 31, 2019 and 2018 had aggregate intrinsic value of $575,000 and $1,000 respectively. Option vesting activity was as follows: Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2017 -- -- $ - Vested 5,364 8.83 $ 184.80 Exercised – – $ – Forfeited (850 ) 8.54 $ 177.20 Balance, August 31, 2018 4,514 8.57 $ 182.40 Vested 7,410 – $ 137.20 Exercised – – $ – Forfeited (1,633 ) 8.10 $ 164.40 Balance at August 31, 2019 10,291 8.04 $ 152.80 The following table summarizes information about stock options outstanding and vested at August 31, 2019: Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-40.00 8,125 9.77 $ 22.40 – – $ – $40.01–$80.00 15,761 9.59 $ 51.60 – – $ – $80.01–$120.00 12,864 8.67 $ 104.00 4,202 8.63 $ 105.20 $120.01–$160.00 12,625 8.04 $ 155.20 5,373 7.60 $ 158.40 $160.01-$391.60 1,375 7.88 $ 391.60 716 7.88 $ 391.60 50,749 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Related Parties
Related Parties | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Related Parties | ||
Note 7: Related Parties | J. Stephen Holmes, our Sales Manager is an advisor to and significant shareholder of the Company. The Company incurred $180,000 and $180,000 in professional fees for management consulting services in the three months ended November 30, 2019, and 2018, respectively. | Scott Absher, Chief Executive Officer, Director, and a significant shareholder of the Company became a Company employee on April 1, 2016. During the year ended August 31, 2019 and 2018, the Company recorded $750,000 and $750,000, respectively as compensation for his role as CEO in accordance with his employment agreement. On March 15, 2017, Scott Absher was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017, with expiration date of March 14, 2027, at an exercise price of $4160.00. J. Stephan Holmes is an advisor to and a significant shareholder of the Company. The Company incurred $720,000 and $700,000 in such professional fees to J. Stephen Holmes for management consulting services for the year ended August 31, 2019 and 2018, respectively and recorded in professional fees on the statement of operations. On March 15, 2017, Stephan Holmes was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017, with expiration date of March 14, 2027, at an exercise price of $4160.00. In June 2019 the Company advanced Mr. Holmes $325,000 in cash and recorded the advance as a short term note receivable. In July 2019, Mr. Holmes provided 13,954 shares of common stock of the Company valued at $23.20 per share in satisfaction of the cash advance. On May 15, 2017, Mark Absher, Director, In-House Counsel, and brother of Scott Absher, was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017 with expiration date of March 14, 2027, at an exercise price of $4160.00. On May 10, 2018, Mark Absher was also granted an additional 1,250 options to purchase common stock at an exercise price of $100.00 and exercisable in May 2018 with expiration date in May 2028. During the year ended August 31, 2019 and 2018, the Company recorded $275,000 and $300,000, respectively as compensation for his role as Registered In-House Counsel in accordance with his employment agreement. Mark Absher resigned in February 2019 and all options granted were cancelled during the fiscal year ending August 31, 2019. For the year ended August 31, 2019 the following issuances were made to the Company’s directors: Date Issued Shares Issue Price per Share Value Ken Weaver August 2019 1,995 $ 18.80 (A) $ 37,500 Ken Weaver May 2019 1,202 $ 31.20 (B) 37,500 Ken Weaver November 2018 308 $ 122.00 (C) 37,500 Sean Higgins September 2018 329 $ 114.00 (D) 37,500 Sean Higgins April 2019 412 $ 91.20 (E) 37,500 Whitney White September 2018 329 $ 114.00 (D) 37,500 Whitney White April 2019 412 $ 91.20 (E) 37,500 4,987 $ 262,500 _____________ (A) Represents share grant for services performed between June 1, 2019 and November 30, 2019 and awarded in August 2019. (B) Represents share grant for services performed between December 1, 2019 and May 31, 2019 and awarded in May 2019. (C) Represents share grant for services performed between June 1, 2018 and November 30, 2018 and awarded by the Board of Directors in August 2018. (D) On September 28, 2017 the Company awarded two directors 658 shares of common stock of which 50% vested on the date marking their six-month service anniversary and 50% for the remaining service through November 28, 2018. (E) Represents share grant for services performed between September 29, 2018 and March 28, 2019 and awarded in March 2019 |
Contingencies
Contingencies | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Contingencies | ||
Note 8: Contingencies | Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will be resolved only when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. During the ordinary course of business, the Company is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flow. Convertible Note related litigation: During 2019, three of the Company’s note holders have filed complaints: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019 ShiftPixy was served with a complaint filing by Alpha Capital Anstalt (ACA) in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes, specifically one for $310,000 submitted on June 20, 2019. ACA sought an injunction requiring the Company to issue 25,000 common shares, damages for the claimed breaches, and attorney’s fees. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of November 30, 2019, the Company had convertible notes outstanding with ACA for approximately $1.7 million consisting of $0.3 million of the June 2018 series, $0.2 million of the December 2018 series and $1.2 million of the March 2019 series. In January 2020, Alpha was awarded a judgement for $500,000 consisting of the $310,000 notes and $190,000 of damages. The damages are fully accrued for as of November 30, 2019 in the default penalty accrual as described in Note 4 above. On January 16, 2020 Alpha Capital converted all remaining June and December 2018 Note balances at $12.20 per share. On January 20, 2020 the Company paid the damages award in cash. Dominion Capital LLC v. ShiftPixy, Inc.; On July 18, 2019 ShiftPixy was served with a complaint filing by Dominion Capital LLC in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes. Dominion sought injunctive relief, injunction to prohibit buyback, breach of contract on the June 2018, December 2018, and March 2019 notes, and declaratory judgment. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of November 30, 2019, the Company had convertible notes outstanding with Dominion for approximately $1.5 million consisting of $0.7 million of the June 2018 series, $0.2 million of the December 2018 series and $0.6 million of the March 2019 series.The Company expects to have a judgment awarded to Dominion later in January 2020 and is in discussions to settle the litigation. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019 MEF filed a complaint in the United States District Court, Southern District of New York. MEF seeks monetary relief of $2.1 million and seeks to appoint themselves as receiver of the Company. As of November 30, 2019 the Company had convertible notes outstanding to MEF at approximately $0.7 million face value consisting of approximately $0.5 million and $0.2 million for the June 2018 and December 2018 notes respectively. In November 2019 the Company filed a motion in response to the receiver request. On January 17, 2020 the Company and MEF I settled all claims and repaid all note principal remaining, accrued damages, and accrued interest and with issuance of 20,000 shares of common stock and payment of $725,000 in cash. The total of $969,000 was fully accrued for as of November 30, 2019. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures, over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11 million but has not received the majority of certain software modules. In addition to the non-delivery of the paid for user features, Kadima Ventures asserts that it is owed additional funds to turn over the work completed. The Company initiated litigation to force the delivery of the software modules paid for through fiscal 2019 and exit the development engagement. In April 2019, Kadima filed a complaint against ShiftPixy in the County of Maricopa, AZ alleging breach of contract, promissory estoppel and unjust enrichment and has demands for an additional $10 million prior to releasing the remaining features. The parties agreed to a transfer of the matter to an Arizona Commercial Court with the expectation that the matter would be sent to arbitration or mediation. In October 2019, Kadima provided the software code to a third party for technical evaluation of the software in question. The Company expects to enter into mediation once the technical evaluation is completed later in fiscal 2020. An answer to the Complaint is due January 31, 2020. Splond Litigation On April 8, 2019, claimant, Corey Splond, filed a class action lawsuit, naming ShiftPixy, Inc. and its client as defendants, claiming that he was scheduled to work for more than 8 hours during 24-hour periods without being paid overtime, to which he was entitled. In addition, claimant is seeking waiting time penalties for the delay in payment. This lawsuit is in the initial stages; the financial impact to the Company, if any, cannot be estimated. No liability has been recorded for this matter at this time. In the event of an unfavorable outcome the Company’s client is contractually obligated to indemnify the Company for misreported hours and portions of the claim would be covered under the Company’s employment practices liability insurance. | Software License The Company licenses software from a third party for utilization in its mobile application and HRIS system. The license agreement is for three years and contains an annual escalation beginning in May 2020. The license is month to month and is cancelable but is subject to a cancellation penalty calculated as 30% of the remaining contracted license payments if cancelled by the Company. Future minimum license payments under the license agreement at August 31, 2019, are as follows: Years ended August 31, 2020 $ 922,000 2021 1,015,000 2022 817,000 Total minimum payments $ 2,754,000 Operating Lease Effective April 15, 2016, the Company entered into a non-cancelable five-year operating lease for its Irvine facility. On July 25, 2017, the Company entered into a non-cancelable operating lease for expansion space at its Irvine offices with a termination date that coincides with the termination date of the prior lease and extended the terms of the original lease to extend until 2022. The leases for certain facilities contain escalation clauses relating to increases in real property taxes as well as certain maintenance costs. Future minimum lease payments under non-cancelable operating leases at August 31, 2019, are as follows: Years ended August 31, 2020 $ 382,000 2021 382,000 2022 319,000 Total minimum payments $ 1,083,000 Non-contributory 401(k) Plan The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employee who are at least 21 years of age and have completed 3 months of service. There were no employer contributions to the Plan for the years ended August 31, 2019 and 2018. Share Repurchase Plan On July 9, 2019, the Company’s Board of Directors authorized the repurchase of up to 250,000 shares of its outstanding common shares as market conditions warrant over a period of 18 months. The Company has not implemented the share repurchase plan to date and has not repurchased any shares under the plan. Litigation Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will be resolved only when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. During the ordinary course of business, the Company is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flow. Convertible Note related litigation: During 2019, three of the Company’s note holders have filed complaints: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019 ShiftPixy was served with a complaint filing by Alpha Capital Anstalt (ACA) in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes, specifically one for $310,000 submitted on June 20, 2019. ACA sought an injunction requiring the Company to issue 25,000 common shares, damages for the claimed breaches, and attorney’s fees. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with ACA for approximately $1.7 million consisting of $0.3 million of the June 2018 series, $0.2 million of the December 2018 series and $1.2 million of the March 2019 series. Dominion Capital LLC v. ShiftPixy; On July 18, 2019 ShiftPixy was served with a complaint filing by Dominion Capital LLC in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes. Dominion sought injunctive relief, injunction to prohibit buyback, breach of contract on the June 2018, December 2018, and March 2019 notes, and declaratory judgment. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with Dominion for approximately $1.5 million consisting of $0.7 million of the June 2018 series, $0.2 million of the December 2018 series and $0.6 million of the March 2019 series. Both ACA and Dominion have filed for summary judgment on their cases. The court referred those motions to a magistrate judge for a report and recommendation, and the magistrate judge filed his report on November 22, 2019, recommending that the court enter judgment for money damages in both cases consistent with the amounts accrued for by the Company, denying permanent injunctive relief, and granting declaratory relief with respect to the stock buyback program. The Company is awaiting a response from the court as of the date of this filing. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019 MEF filed a complaint in the United States District Court, Southern District of New York based upon the Company’s refusal to convert June 2018 notes. MEF seeks monetary relief of $2.1 million and seeks to appoint themselves as receiver of the Company. As of August 31, 2019 the Company had convertible notes outstanding to MEF at approximately $0.7 million face value consisting of approximately $0.5 million and $0.2 million for the June 2018 and December 2018 notes respectively. In November 2019 the Company filed a motion in response to the receiver request. A hearing on the receiver matter was conducted on November 20, 2019 and the Company is awaiting a response from the court on the hearing as of the date of this filing. Lyons Capital, LLC Litigation On June 21, 2018, ShiftPixy was served with a summons and complaint in connection with a claim by Lyons Capital, LLC, arising out of a contract wherein ShiftPixy, Inc., agreed to pay Lyons Capital, LLC, a total of 210,000 shares of the company’s common stock in exchange for introductions to brokers, research coverage, funds, investment banking firms, and market makers as well as board representation and business opportunities and for promotion of the company at Lyons Capital, LLC’s annual conference. This lawsuit was settled during fiscal 2019 for an immaterial amount which was included in general and administrative expenses on the statement of operations. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures, over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11 million but has not received the majority of certain software modules. In addition to the non-delivery of the paid for user features, Kadima Ventures asserts that it is owed additional funds to turn over the work completed. The Company initiated litigation to force the delivery of the software modules paid for through fiscal 2019 and exit the development engagement. In April 2019, Kadima filed a complaint against ShiftPixy in the County of Maricopa, AZ alleging breach of contract, promissory estoppel and unjust enrichment and has demands for an additional $10 million prior to releasing the remaining features. The parties agreed to a transfer of the matter to an Arizona Commercial Court with the expectation that the matter would be sent to arbitration or mediation. In October 2019, Kadima provided the software code to a third party for technical evaluation of the software in question. The Company expects to enter into mediation once the technical evaluation is completed later in fiscal 2020. An answer to the Complaint is due January 31, 2020. Splond Litigation On April 8, 2019, claimant, Corey Splond, filed a class action lawsuit, naming ShiftPixy, Inc. and its client as defendants, claiming that he was scheduled to work for more than 8 hours during 24-hour periods without being paid overtime, to which he was entitled. In addition, claimant is seeking waiting time penalties for the delay in payment. This lawsuit is in the initial stages; the financial impact to the Company, if any, cannot be estimated. No liability has been recorded for this matter at this time. In the event of an unfavorable outcome the Company’s client is contractually obligated to indemnify the Company for misreported hours and portions of the claim would be covered under the Company’s employment practices liability insurance. |
Subsequent Events
Subsequent Events | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Subsequent Events | ||
Note 9: Subsequent Events | On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 21,750 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. As of November 30, 2019, the Company classified $778,000 of the $1,245,000 carrying value of the notes exchanged as long-term liabilities. On December 17, 2019 the Company effected a 1 for 40 reverse stock split. All common shares, common share warrants, common share options, and convertible note conversion prices have been retroactively adjusted. On December 23, 2019, the Company issued 428 shares to each of Messrs. Higgins and White, both Directors of the Company, in settlement of shares promised in December 2018 but not issued. The fair value on the date issued for the combined issuance of 856 shares was $7,000. On January 6, 2020 the Company entered into an asset purchase agreement with a third party that assigned client contracts representing approximately 60% of the recurring business as of November 30, 2019 and certain operating assets in exchange for up to approximately $19.2 million of consideration. The Company received $9.7 million upon closing and expects to receive additional proceeds of approximately $2.4 million per year, payable monthly, for the next four years after certain transaction conditions are met. The Company evaluated the transaction and determined that as of November 30, 2019 the criteria were not met to designate any assets as assets held for sale. In January 2020, the Company paid the damages claim with Alpha Capital as described in Note 8 aboveIn January 2020, Alpha Capital Anstalt (ACA) was awarded a judgment for $500,000 consisting of the $310,000 notes and $190,000 of damages. The damages were fully accrued for as of November 30, 2019. On January 16, 2020, Alpha Capital converted all remaining June and December 2018 Note balances at $12.20 per share. January 20, 2020, the Company paid the damages award in cash. On January 17, 2020, the Company and MEF I settled all claims and repaid all note principal remaining, accrued damages, and accrued interest with the issuance of 20,000 shares of common stock and payment of $725,000 in cash. On January 22, 2020, the Company and Dominion Capital LLC settled all claims and repaid all note principal remaining, accrued damages, and accrued interest with the issuance of 83,543 shares of common stock and payment of $1,322,000 in cash. Management has evaluated subsequent events pursuant to the issuance of the interim unaudited consolidated financial statements and has determined that other than listed above, no other subsequent events exist through the date of this filing. | On November 14, the Company filed a preliminary proxy requesting a 1 for 40 reverse split of our common shares. We have received the majority shareholder approval for the reverse split and the Company expects the reverse split to be effective on December 16, 2019. On December 4, 2019 the Company received a notice from the Nasdaq Capital Market stating that the Company will be delisted on December 13, 2019 unless the Company files for a hearing by December 11, 2019. The Company requested a hearing on December 9, 2019 and has a hearing scheduled for January 23, 2020. On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 870,000 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. Management has evaluated subsequent events pursuant to the issuance of the consolidated financial statements and has determined that no additional subsequent events occurred through the date of this filing that would require disclosure. |
Summary of significant accoun_2
Summary of significant accounting policies (Policies) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three months ended November 30, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2020. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2019, filed with the SEC on December 13, 2019. | The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). |
Principles of Consolidation | The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated in consolidation. | The Company and its wholly-owned subsidiary have been consolidated in the accompanying consolidated financial statements. All intercompany balances have been eliminated in consolidation. |
Use of Estimates | The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of property and equipment; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instruments classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. | The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of software, property and equipment; · Assumptions made in valuing equity instruments; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instrument classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. |
Revenue Recognition | The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $11,347,000 and $9,478,000 as of November 30, 2019 and August 31, 2019, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2020 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs | The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $6,878,000 and $6,193,000 for the years ended August 31, 2019 and August 31, 2018, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2018 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs |
Concentration of Credit Risk | The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The Company has not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively. However, four clients represent 92% of total accounts receivable both at November 30, 2019 and August 31, 2019. | The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses related to these balances and believes its credit risk to be minimal. As of August 31, 2019, there were $2,354,000 of cash in excess of the amounts insured by the FDIC. The Company had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. Four clients represent 92% of total accounts receivable at August 31, 2019, compared to four clients representing approximately 86% of its total accounts receivable at August 31, 2018. |
Impairment and Disposal of Long-Lived Assets | The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment | The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment |
Workers' compensation | Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of November 30, 2019, the Company classified $0.2 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of November 30, 2019, the Company had $2.0 million in deposit – workers’ compensation classified as a short-term asset and $6.2 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of November 30, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $5.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. | Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of August 31, 2019, the Company classified $0.1 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of August 31, 2019, the Company had $1.9 million in deposit – workers’ compensation classified as a short-term asset and $6.3 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of August 31, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $4.1 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. |
Fair Value of Financial Instruments | FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At November 30, 2019 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at November 30, 2019 or August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of November 30, 2019: March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 At November 30, 2019 and August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures and the fair value of the warrant liabilities based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. The Company used the following assumptions to estimate fair value of the derivatives as of November 30, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended November 30, 2019 or 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. | FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At August 31, 2019 and August 31, 2018, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants at August 31, 2019, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 for the year ended August 31, 2019: Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 At August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield (1.76%) of a Treasury note and expected volatility of the Company’s common stock (100%) all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. At August 31, 2019, the Company estimated the fair value of the warrant liabilities based on the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk-free interest rate based on the average yield of a Treasury note (1.39%) and expected volatility of the Company’s common stock (119%) all as of the measurement dates. When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended August 31, 2019 and August 31, 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. |
Research and Development | During the three months ended November 30, 2019 and 2018 the Company incurred research and development costs of approximately $0.9 million and $0.4 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three months ended November 30, 2019 and 2018, respectively. | During the years ended August 31, 2019 and 2018 the Company incurred research and development costs of approximately $2.3 million and $4.0 million, respectively. All costs were related to internally developed and contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0.9 million and $2.8 million of software costs were capitalized for the years ended August 31, 2019 and 2018, respectively. |
Advertising Costs | The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $304,000 and $379,000 for the three months ended November 30, 2019, and 2018, respectively. | The Company expenses advertising costs when incurred. Advertising costs incurred amounted to approximately $1.2 million and $0.5 million for the years ended August 31, 2019, and 2018, respectively. |
Reverse Stock Split. | On December 17, 2019 the Company implemented a 1 for 40 reverse stock split for all common share and common share equivalents including, options, warrants, and convertible notes. All common shares and common share equivalents are presented retroactively to reflect the reverse split. | |
Earnings (Loss) Per Share | The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 | The Company utilizes FASB ASC 260, “Earnings per Share.” Basic loss per share is computed by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. The table below shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations. For the year ended August 31, 2019 2018 Losses per common share: Net loss allocated to common shareholders $ (18,727,000 ) $ (16,823,000 ) Weighted average shares outstanding 817,720 720,253 Basic and Fully Diluted net loss per common share $ (23.36 ) $ (0.58 ) Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Stock-Based Compensation | At November 30, 2019, the Company has one stock-based compensation plan under which the Company may issue awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. The Company elected to account for forfeitures as they occur, as such, compensation cost previously recognized for an unvested award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. | |
Treasury Stock | Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all of its treasury stock outstanding as of November 30, 2019 and August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. | Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all treasury stock outstanding as of August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. |
Reclassifications | Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. | Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. |
Revision of Financial Statements | During the preparation of the restated condensed consolidated financial statements for the three and six months ended February 28, 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s condensed consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,000 (739,000 ) $ 5,570,000 Additional Paid-In Capital 19,729,000 1,232,000 20,961,000 Accumulated deficit (27,977,000 ) (493,000 ) (28,470,000 ) Net Loss (2,000,000 ) (246,000 ) (2,246,000 ) Net loss per share – Basic and diluted (2.77 ) (0.34 ) (3.11 ) | |
Recent Accounting Standards | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption. The Company expects to adopt the guidance using the modified retrospective method. | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company has evaluated Topic 606 and we plan to utilize the modified retrospective transition method upon the adoption of ASC 606. The Company is still in the process of finalizing its evaluation for the adoption of ASC 606, however, no material difference is expected. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. In March 2019, the FASB issued ASU 2019-01, which added guidance to ASC 842 that is similar to the guidance in ASC 840-10-55-44 and states that, for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement. The amendments also clarify that lessors in the scope of ASC 942 must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows. In addition, the amendments clarify that entities are not subject to the transition disclosure requirements in ASC 250-10-50-3 related to the effect of an accounting change on certain interim period financial information. In November 2019, the FASB issued ASU 2019-10, which provides a one-year deferral of the effective dates of the new lease standard. The ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact that this standard will have on its consolidated financial statement. In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for the Company in the first quarter of fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company does not expect that the adoption of this ASU will have a significant impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU adds new disclosure requirements for Level 3 measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements. In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the statement of cash flow. This guidance is effective for fiscal year beginning after December 15, 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s financial statements. |
Summary of significant accoun_3
Summary of significant accounting policies (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies (Tables) | ||
Schedule of fair value of the Company's derivative liabilities | March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % | Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 |
Schedule of weighted average dilutive common shares | For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 | For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Schedule of financial statements | November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,000 (739,000 ) $ 5,570,000 Additional Paid-In Capital 19,729,000 1,232,000 20,961,000 Accumulated deficit (27,977,000 ) (493,000 ) (28,470,000 ) Net Loss (2,000,000 ) (246,000 ) (2,246,000 ) Net loss per share – Basic and diluted (2.77 ) (0.34 ) (3.11 ) |
Senior Secured Convertible No_2
Senior Secured Convertible Notes Payable (in default) (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable (in default) (Tables) | ||
Schedule of senior secured convertible notes payable | November 30, August 31, 2019 2019 (unaudited) Senior Secured Convertible notes, Principal $ 6,808,000 $ 6,808,000 Less debt discount and deferred financing costs (2,604,000 ) (3,457,000 ) Total outstanding convertible notes, net $ 4,204,000 $ 3,351,000 Less current portion of convertible notes payable (3,426,000 ) (3,351,000 ) Long-term convertible notes payable $ 778,000 $ - | August 31, August 31, 2019 2018 Senior Secured Convertible notes, Principal $ 6,808,000 $ 10,000,000 Less debt discount and deferred financing costs (3,457,000 ) (3,829,000 ) Total outstanding convertible notes, net $ 3,351,000 $ 6,171,000 Less current portion of convertible notes payable 3,351,000 ) (6,171,000 ) Long-term convertible notes payable $ - $ - |
Schedule of rolls forward the Convertible Notes Payable balances | Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Amortization of Interest Expense - 80,000 773,000 853,000 Balance at November 30, 2019 $ 6,808,000 (264,000 ) (2,340,000 ) $ 4,204,000 Less Current Amount (5,141,000 ) 174,000 1,541,000 (3,426,000 ) Long Term Balance at November 30, 2019 1,667,000 (90,000) (799,000) $ 778,000 | Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2018 $ 10,000,000 (617,000 ) (3,212,000 ) $ 6,171,000 Issuance of Notes Payable 5,639,000 (485,000 ) (4,750,000 ) 404,000 Conversion of Principal into Equity (8,395,000 ) - - (8,395,000 ) Amortization of Interest Expense - 758,000 4,849,000 5,607,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Less Current Amount (6,808,000 ) 344,000 3,113,000 (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - |
Gross principal balance rollforward | June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs - - (264,000 ) (264,000 ) Deferred Financing Costs - - (2,340,000 ) (2,340,000 ) Carrying Balance at November 30, 2019 $ 1,466,000 867,000 1,871,000 $ 4,204,000 Less Current Amount (1,466,000 ) (728,000 ) (1,232,000 ) (3,426,000 ) Long Term Balance at November 30, 2019 $ - 139,000 639,000 $ 778,000 | June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2018 $ 10,000,000 - - $ 10,000,000 Issuance of Notes Payable - 889,000 4,750,000 5,639,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Conversion of Principal into Equity (8,098,000 ) (22,000 ) (275,000 ) (8,395,000 ) Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs (27,000 ) - (317,000 ) (344,000 ) Deferred Financing Costs (5,000 ) - (3,108,000 ) (3,113,000 ) Carrying Balance at August 31, 2019 $ 1,434,000 867,000 1,050,000 $ 3,351,000 Less Current Amount (1,434,000 ) (867,000 ) (1,050,000 ) (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Stockholders' Equity (Tables) | ||
Summary of information about warrants outstanding | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70.00 74,390 4.3 June 2018 Notes Warrants $ 70.00 30,526 3.5 2017 PIPE Warrants $ 276.00 2,500 2.6 107,416 4.0 | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70 74,390 4.6 June 2018 Notes Warrants $ 70 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based compensation (Table
Share based compensation (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Share based compensation (Tables) | ||
Summary of option activity | Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2019 50,749 8.95 $ 95.20 Granted – – $ – Exercised – – $ – Forfeited (5,286 ) 8.44 $ 69.01 Balance at November 30, 2019 45,463 8.67 $ 98.30 | Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2017 19,750 9.58 $ 184.80 Granted 23,719 10.0 $ 105.60 Exercised – – $ – Forfeited (9,750 ) 8.49 $ 154.80 Balance, August 31, 2018 33,719 9.77 $ 138.00 Granted 36,073 10.0 $ 63.60 Exercised – – $ – Forfeited (19,043 ) 8.06 $ 111.20 Balance at August 31, 2019 50,749 8.95 $ 95.20 |
Schedule of Option vesting activity | Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2019 10,291 8.04 $ 152.80 Vested 2,232 8.44 $ 146.82 Exercised – – $ – Forfeited (488 ) 0.08 $ 116.32 Balance at November 30, 2019 12,035 7.87 $ 153.19 | of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2017 -- -- $ - Vested 5,364 8.83 $ 184.80 Exercised – – $ – Forfeited (850 ) 8.54 $ 177.20 Balance, August 31, 2018 4,514 8.57 $ 182.40 Vested 7,410 – $ 137.20 Exercised – – $ – Forfeited (1,633 ) 8.10 $ 164.40 Balance at August 31, 2019 10,291 8.04 $ 152.80 |
Summarizes of stock options outstanding | Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-$40.00 6,625 9.52 $ 23.31 – – $ – $40.01–$80.00 13,729 9.34 $ 51.21 – – $ – $80.01–$120.00 11,224 8.45 $ 103.15 4,384 8.41 $ 103.53 $120.01–$160.00 12,625 7.79 $ 157.71 6.860 7.56 $ 157.41 $160.01-$391.60 1,260 7.63 $ 391.60 791 7.63 $ 391.60 45,463 8.67 $ 98.30 12,035 7.87 $ 153.19 | Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $0.47-1.00 8,125 9.77 $ 22.40 – – $ – $40.01–$80.00 15,761 9.59 $ 51.60 – – $ – $80.01–$120.00 12,864 8.67 $ 104.00 4,202 8.63 $ 105.20 $120.01–$160.00 12,625 8.04 $ 155.20 5,373 7.60 $ 158.40 $160.01-$391.60 1,375 7.88 $ 391.60 716 7.88 $ 391.60 50,749 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Nature of Operations (Details N
Nature of Operations (Details Narrative) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Nature of Operations (Details Narrative) | ||
Date of incorporation | Jun. 3, 2015 | Jun. 3, 2015 |
State of incorporation | Wyoming | Wyoming |
Summary of significant accoun_4
Summary of significant accounting policies (Details ) - USD ($) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Beginning balance | $ 3,756,000 | |
Change in fair value | (942,000) | (2,569,000) |
Ending balance | 2,814,000 | 3,756,000 |
Beginning Balance of warrant liability | ||
Change in fair value of warrant liabilty | (3,013,000) | |
Ending balance of warrant liability | 904,000 | |
Beginning balance of Conversion features | ||
Change in fair value of conversion features | 444,000 | |
Ending balance of conversion features | $ 2,852,000 | |
March 2019 Warrant Liability [Member] | ||
Beginning Balance of warrant liability | 904,000 | |
Change in fair value of warrant liabilty | (602,000) | |
Ending balance of warrant liability | 302,000 | |
March 2019 Conversion Feature [Member] | ||
Beginning balance of Conversion features | 2,852,000 | |
Change in fair value of conversion features | (340,000) | |
Ending balance of conversion features | $ 2,512,000 |
Summary of significant accoun_5
Summary of significant accounting policies (Details 1) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Volatility | 119.00% | 121.00% | |
Dividend yield | 0.00% | 0.00% | |
March 2019 Warrant Liability [Member] | |||
Risk free rate | 1.62% | ||
Market price per share | $ 10.20 | ||
Life of instrument in years | 4 years 3 months 11 days | ||
Volatility | 102.00% | 119.00% | |
Dividend yield | 0.00% | 0.00% | |
March 2019 Conversion Feature [Member] | |||
Risk free rate | 1.60% | ||
Life of instrument in years | 9 months 14 days | ||
Volatility | 91.00% | ||
Dividend yield | 0.00% | ||
Market price per share conversion feature | $ 10.20 |
Summary of significant accoun_6
Summary of significant accounting policies (Details 2) - shares | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Total potentially dilutive shares | 1,042,814 | 209,810 | 650,027 | 228,466 |
Options [Member] | ||||
Total potentially dilutive shares | 45,463 | 37,271 | 50,749 | 33,594 |
Senior Secured Convertible Notes [Member] | ||||
Total potentially dilutive shares | 889,935 | 84,756 | 491,868 | 100,402 |
Warrant [Member] | ||||
Total potentially dilutive shares | 107,416 | 87,783 | 107,410 | 94,470 |
Summary of significant accoun_7
Summary of significant accounting policies (Details 3) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Additional Paid-In Capital | $ 32,619,000 | $ 32,505,000 | $ 18,468,000 | |
Accumulated deficit | (47,506,000) | (44,950,000) | (26,223,000) | |
Net Loss | $ (2,556,000) | $ (2,246,000) | $ (18,700,000) | $ (16,823,000) |
Net loss per share - Basic and diluted | $ (2.86) | $ (3.11) | $ (22.90) | $ (23.36) |
As Restated [Member] | ||||
Convertible note, net | $ 5,570,000 | |||
Additional Paid-In Capital | 20,961,000 | |||
Accumulated deficit | (28,470,000) | |||
Net Loss | $ (2,246,000) | |||
Net loss per share - Basic and diluted | $ (3.11) | |||
Adjustments [Member] | ||||
Convertible note, net | $ (739,000) | |||
Additional Paid-In Capital | 1,232,000 | |||
Accumulated deficit | (493,000) | |||
Net Loss | $ (246,000) | |||
Net loss per share - Basic and diluted | $ (0.34) | |||
As Previously Reported [Member] | ||||
Convertible note, net | $ 6,309,000 | |||
Additional Paid-In Capital | 19,729,000 | |||
Accumulated deficit | (27,977,000) | |||
Net Loss | $ (2,000,000) | |||
Net loss per share - Basic and diluted | $ (2.77) |
Summary of significant accoun_8
Summary of significant accounting policies (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||
Dec. 17, 2019 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Advertising costs | $ 304,000 | $ 379,000 | $ 500,000 | ||
Reverse stock split | 1 for 40 reverse stock split for all common share | ||||
Unbilled accounts receivable | $ 11,347,000 | 9,478,000 | 6,193,000 | ||
Research and developments costs | 900,000 | 400,000 | 4,000,000 | ||
Software cost | $ 0 | 400,000 | $ 900,000 | $ 2,800,000 | |
Concentration of credit risk, description | No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively | ||||
Options [Member] | |||||
Short term accrued workers compensation | $ 1,800,000 | $ 100,000 | |||
Long term accrued workers compensation | 5,900,000 | 300,000 | |||
Senior Secured Convertible Notes [Member] | |||||
Settlement claims | |||||
Warrant [Member] | |||||
Short term accrued workers compensation | 200,000 | 1,800,000 | |||
Long term accrued workers compensation | 300,000 | 4,100,000 | |||
Short-term asset and workers compensation - deposits | 2,000,000 | 1,900,000 | |||
Short-term asset and workers compensation - deposits | $ 6,200,000 | $ 6,300,000 | |||
Treasury Stock [Member] | |||||
Concentration of credit risk percent | 92.00% | 92.00% | 86.00% |
Going Concern (Details Narrativ
Going Concern (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||
Mar. 31, 2019 | Jun. 30, 2018 | Jun. 29, 2017 | Nov. 30, 2019 | Aug. 31, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Cash | $ 100,000 | $ 2,100,000 | $ 2,100,000 | |||||
Working capital deficit | (18,500,000) | (15,900,000) | (15,900,000) | |||||
Net Loss | (2,556,000) | $ (2,246,000) | (18,700,000) | $ (16,823,000) | ||||
Gross profit | 3,314,000 | 3,386,000 | 3,300,000 | 5,500,000 | ||||
Net non-charge charges and gains | (219,000) | (957,000) | 10,800,000 | |||||
Accumulated deficit | (47,506,000) | (44,950,000) | (44,950,000) | (26,223,000) | ||||
Working capital changes | 800,000 | 6,000,000 | ||||||
Proceeds from initial public offering, net of costs | ||||||||
Net cash used in operating activities | (1,495,000) | $ 500,000 | $ (1,590,000) | $ (2,086,000) | $ (9,538,000) | |||
Stock Option [Member] | ||||||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | |||||||
Proceeds from initial public offering | $ 12,000,000 | |||||||
Convertible Debt [Member] | ||||||||
Proceeds from initial public offering, net of costs | $ 3,300,000 | $ 8,400,000 | ||||||
Proceeds from initial public offering | $ 3,750,000 | $ 9,000,000 | ||||||
Principal amount | 6,800,000 | |||||||
Convertible notes payable | $ 2,700,000 | |||||||
January 2020 [Member] | Subsequent Event [Member] | ||||||||
Description for recurring gross profit in exchange | The Company assigned approximately 60% of its customer contracts representing approximately 50% of its recurring gross profit in exchange for $9.7 million in cash and expects to receive $9.5 million ratably over the four years following the transaction close, subject to certain closing conditions. The Company will transfer $1.7 million of working capital after closing the transaction and approximately $6 million of the Company’s annualized gross profit. |
Senior Secured Convertible No_3
Senior Secured Convertible Notes Payable (in default) (Details) - USD ($) | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Senior Secured Convertible Notes Payable (in default) (Details) | |||
Senior Secured Convertible notes, Principal | $ 6,808,000 | $ 6,808,000 | $ 10,000,000 |
Less debt discount and deferred financing costs | (2,604,000) | (3,457,000) | (3,829,000) |
Total outstanding convertible notes, net | 4,204,000 | 3,351,000 | 6,171,000 |
Less current portion of convertible notes payable | (3,426,000) | (3,351,000) | (6,171,000) |
Long-term convertible notes payable | $ 778,000 |
Senior Secured Convertible No_4
Senior Secured Convertible Notes Payable (in default) (Details 1) - USD ($) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Gross Principal | ||
Beginning Balance at August 31, 2019, Gross Principal | $ 6,808,000 | |
Amortization of Interest Expense, Gross Principle | ||
Ending Balance at November 30, 2019, Gross Principal | 6,808,000 | |
Less Current Gross Principal Amount | (5,141,000) | (6,808,000) |
Ending Balance Long Term Gross Principal balance at November 30, 2019 | 1,667,000 | |
Deferred Financing Costs | ||
Beginning Balance at August 31, 2019, Deferred Financing Costs | (344,000) | |
Amortization of Interest Expense, Deferred Financing Costs | 80,000 | 758,000 |
Ending Balance at November 30, 2019, Deferred Financing Costs | (264,000) | |
Less Current Amount, Deferred Financing Costs | 174,000 | 344,000 |
Ending Long-term Balance at November 30, 2019, Deferred Financing Costs | (90,000) | |
Note Discount | ||
Beginning Balance at August 31, 2019, Note Discount | (3,113,000) | |
Amortization of Interest Expense, Note discount | 773,000 | |
Ending Balance at November 30, 2019, Note Discount | (2,340,000) | (3,113,000) |
Less Current Amount, Note Discount | 1,541,000 | 3,113,000 |
Long-term Balance at November 30, 2019, Note Discount | (799,000) | |
Net | ||
Beginning Balance at August 31, 2019, Net | 3,351,000 | |
Amortization of Interest Expense, Net | 853,000 | 5,607,000 |
Ending Balance at November 30, 2019, Net | 4,204,000 | |
Less Curent Amount, Net | (3,426,000) | $ (3,351,000) |
Ending Long Term Balance at November 30, 2019, net | $ 778,000 |
Senior Secured Convertible No_5
Senior Secured Convertible Notes Payable (in default) (Details 2) - USD ($) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Gross Balance, Beginning | $ 6,808,000 | $ 10,000,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (264,000) | (344,000) |
Deferred Financing Costs | (2,340,000) | (3,113,000) |
Carrying Balance | 4,204,000 | 3,351,000 |
Less Current Amount, debt issuance costs | (3,426,000) | (3,351,000) |
Long Term Balance | 778,000 | |
June 2018 [Member] | ||
Gross Balance, Beginning | 1,466,000 | 10,000,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (27,000) | |
Deferred Financing Costs | (5,000) | |
Carrying Balance | 1,466,000 | (1,434,000) |
Less Current Amount | (1,466,000) | (1,434,000) |
Long Term Balance | ||
December 2018 Notes [Member] | ||
Less Discount and Debt Issuance Costs: | ||
Long Term Balance | 139,000 | |
Less Current Amount | (728,000) | (867,000) |
Gross Balance, Beginning | 867,000 | |
Less Discount and Debt Issuance Costs | ||
Debt Issuance Costs | ||
Deferred Financing Costs | ||
Carrying Balance | 867,000 | 867,000 |
March 2019 Notes [Member] | ||
Less Discount and Debt Issuance Costs: | ||
Long Term Balance | 639,000 | |
Less Current Amount | (1,232,000) | (1,050,000) |
Less Discount and Debt Issuance Costs | ||
Gross Balance, Beginning | 4,475,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (264,000) | (317,000) |
Deferred Financing Costs | (2,340,000) | (3,108,000) |
Carrying Balance | $ 1,871,000 | $ 1,050,000 |
Senior Secured Convertible No_6
Senior Secured Convertible Notes Payable (in default) (Details Narrative) - USD ($) | Dec. 05, 2019 | Mar. 12, 2019 | Jun. 04, 2018 | Dec. 31, 2018 | Dec. 20, 2018 | Jun. 30, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | Dec. 11, 2019 | Jun. 10, 2019 |
Long term liabilities | $ 1,245,000 | |||||||||||
Convertible notes, net | 778,000 | |||||||||||
Amortized Interest expense | 853,000 | $ 5,607,000 | $ 798,000 | |||||||||
Interest expense | 300,000 | 509,000 | ||||||||||
Additional accrued liabilities | 1,800,000 | 1,800,000 | ||||||||||
Accrued interest payable | 600,000 | |||||||||||
Additional interest payable | 300,000 | |||||||||||
Amortization debt discount and debt issuance cost | 854,000 | $ 1,044,000 | ||||||||||
Settlement amount | ||||||||||||
Additional liquidating damages | $ 1,800,000 | |||||||||||
Debt instrument converted amount, interest | ||||||||||||
Debt instrument converted amount shares issued | ||||||||||||
Amortized in cash amount | ||||||||||||
Interest rate | 18.00% | 8.00% | ||||||||||
Original issue discount | $ 1,000,000 | |||||||||||
Description for event of default | Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; Redemption at the option of the holder at 25% premium upon an event of default; Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. | |||||||||||
Convertible notes, Principal | $ 8,395,000 | |||||||||||
Common stock, shares issued | 907,047 | 907,047 | 721,295 | |||||||||
Warrants granted | 36,073 | 23,719 | ||||||||||
Original issue discount | $ 4,849,000 | |||||||||||
Expected volatility | 119.00% | 121.00% | ||||||||||
Warrant [Member] | ||||||||||||
Risk-free interest rate | 2.41% | 2.78% | ||||||||||
Expected volatility | 122.00% | 120.00% | ||||||||||
Institutional Investors [Member] | ||||||||||||
Convertible notes, Principal | 10,000,000 | |||||||||||
Reduced accrued loss | $ 889,000 | |||||||||||
Conversion price | ||||||||||||
Warrants exercise price | 99.60 | |||||||||||
Warrants purchase common stock, shares | 5,422 | |||||||||||
Warrants granted | 25,100 | |||||||||||
Debt issuance costs | $ 600,000 | |||||||||||
Proceeds from issuance of notes | $ 8,400,000 | |||||||||||
Maturity date | Sep. 4, 2019 | |||||||||||
Purchase price of notes | $ 9,000,000 | |||||||||||
Price per share | $ 86.80 | $ 63.60 | ||||||||||
Original issue discount | $ 1,000,000 | |||||||||||
Purchase price | $ 9,000,000 | |||||||||||
Conversion price description | ||||||||||||
Warrants exercise price | $ 99.60 | |||||||||||
Price per share | $ 86.80 | $ 63.60 | ||||||||||
Risk-free interest rate | 2.49% | 2.49% | ||||||||||
Expected volatility | 122.00% | 122.00% | ||||||||||
Fair value of the conversion feature derivative | $ 2,421,000 | $ 2,421,000 | ||||||||||
Financing costs | $ 2,600,000 | $ 2,600,000 | ||||||||||
Institutional Investors [Member] | Warrant [Member] | ||||||||||||
Warrants exercise price | 70 | 70.00 | ||||||||||
Warrants granted | 74,387 | 2,840,909 | ||||||||||
Price per share | $ 63.60 | $ 63.60 | ||||||||||
Risk-free interest rate | 2.49% | 2.49% | ||||||||||
Expected volatility | 122.00% | 122.00% | ||||||||||
Maturity term | 5 years | 5 years | ||||||||||
Fair value of common stovk | $ 3,917,000 | $ 3,917,000 | ||||||||||
June 2018 Senior Convertible Note [Member] | ||||||||||||
Maturity date | Sep. 4, 2019 | |||||||||||
Coupon rate | 8.00% | |||||||||||
Price per share | $ 99.60 | |||||||||||
Conversion price | 85.00% | |||||||||||
Amortization of principal in cash premium | 10.00% | |||||||||||
Lowest volume weighted average price | 15.00% | |||||||||||
Risk-free interest rate | 2.78% | |||||||||||
Expected volatility | 122.00% | |||||||||||
Maturity term | 5 years | |||||||||||
Maximum [Member] | ||||||||||||
Risk-free interest rate | 2.90% | 2.83% | ||||||||||
Exercise Prices Four [Member] | Maximum [Member] | ||||||||||||
Convertible notes, Principal | $ 4,750,000 | |||||||||||
Conversion price | $ 66.80 | |||||||||||
Warrants exercise price | 70.00 | |||||||||||
Warrants purchase common stock, shares | ||||||||||||
Warrants granted | 74,387 | |||||||||||
Conversion price description | Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; | |||||||||||
Debt issuance costs | $ 500,000 | |||||||||||
Proceeds from issuance of notes | $ 3,300,000 | |||||||||||
Maturity date | Sep. 12, 2020 | |||||||||||
Purchase price of notes | $ 3,750,000 | |||||||||||
December 2018 Notes [Member] | ||||||||||||
Convertible notes, Principal | $ 244,000 | 22,000 | ||||||||||
Reduced accrued loss | 889,000 | |||||||||||
March 2019 Notes [Member] | ||||||||||||
Convertible notes, Principal | 2,890,000 | 275,000 | ||||||||||
June Notes [Member] | ||||||||||||
Convertible notes, Principal | $ 8,534,000 | |||||||||||
Exchange Agreement [Member] | December 2018 Notes [Member] | ||||||||||||
Principal outstanding | 222,000 | |||||||||||
Principal outstanding, Revised | 244,000 | |||||||||||
Exchange Agreement [Member] | March 2019 Notes [Member] | ||||||||||||
Principal outstanding | 2,445,000 | |||||||||||
Principal outstanding, Revised | $ 2,890,000 | |||||||||||
Exchange Agreement [Member] | March 2019 Convertible Notes [Member] | ||||||||||||
Conversion price | $ 40 | |||||||||||
Exchanged note amount | $ 222,000 | |||||||||||
Common stock, shares issued | 21,750 | |||||||||||
Extended term description | Extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. | |||||||||||
Additional consideration | $ 200,000 | $ 200,000 | ||||||||||
Percentage of principal increased | 10.00% |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - USD ($) | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Warrants outstanding | $ 107,416 | ||
Weighted average life of outstanding warrants in years | 4 years | ||
Exercise price | $ 63.60 | $ 105.60 | |
March 2019 Notes Warrants [Member] | |||
Warrants outstanding | $ 74,390 | ||
Weighted average life of outstanding warrants in years | 4 years 3 months 19 days | ||
Exercise price | $ 70 | ||
June 2018 Notes Warrants [Member] | |||
Warrants outstanding | $ 30,526 | ||
Weighted average life of outstanding warrants in years | 3 years 6 months | ||
Exercise price | $ 70 | ||
2017 PIPE Warrants [Member] | |||
Warrants outstanding | $ 2,500 | ||
Weighted average life of outstanding warrants in years | 2 years 7 months 6 days | ||
Exercise price | $ 276 | $ 276 |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) | 3 Months Ended |
Nov. 30, 2019 | |
Warrant [Member] | |
Reverse split description | All warrants outstanding and exercise prices have been adjusted to reflect the 1:40 reverse split. |
Share based compensation (Detai
Share based compensation (Details) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Options | |||
Options outstanding, beginning balance | 50,749 | 1,348,745 | 19,750 |
Granted | 36,073 | 23,719 | |
Exercised | |||
Forfeited | (5,286) | (19,043) | (9,750) |
Options outstanding, ending balance | 45,463 | 50,749 | 33,719 |
Weighted Average Remaining Contractual Life (In years) | |||
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 11 months 12 days | 9 years 9 months 7 days | 9 years 6 months 29 days |
Weighted Average Remaining Contractual Life In Years, Granted | 10 years | 10 years | |
Weighted Average Remaining Contractual Life In Years, Forfeited | 8 years 5 months 9 days | 8 years 22 days | 8 years 5 months 27 days |
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 8 months 2 days | 8 years 11 months 12 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | |||
Weighted Average Exercise Price Beginning | $ 95.20 | $ 138 | $ 184.80 |
Granted | 63.60 | 105.60 | |
Exercised | |||
Forfeited | 69.01 | 111.20 | 154.80 |
Weighted Average Exercise Price Ending | $ 98.30 | $ 95.20 | $ 138 |
Share based compensation (Det_2
Share based compensation (Details 1) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Option | |||
Options Vested, Beginning balance | 10,291 | 4,514 | |
Vested | 2,232 | 7,410 | 5,364 |
Exercised | |||
Forfeited | (488) | (1,633) | (850) |
Options Vested, Ending balance | 12,035 | 10,291 | 4,514 |
Weighted Average Remaining Contractual Life (In years) | |||
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 15 days | 8 years 15 days | 8 years 6 months 25 days |
Weighted Average Remaining Contractual Life In Years, Vested | 8 years 5 months 9 days | 8 years 9 months 29 days | |
Weighted Average Remaining Contractual Life In Years, Forfeited | 29 days | 8 years 1 month 6 days | 8 years 6 months 14 days |
Weighted Average Remaining Contractual Life In Years, Ending balance | 7 years 10 months 14 days | 8 years 6 months 25 days | |
Weighted Average Exercise Price | |||
Weighted Average Exercise Price Beginning | $ 152.80 | $ 182.40 | |
Vested | 146.82 | 137.20 | 184.80 |
Forfeited | 164.40 | 177.20 | |
Exercised | 116.32 | ||
Weighted Average Exercise Price Ending | $ 153.19 | $ 152.80 | $ 182.40 |
Share based compensation (Det_3
Share based compensation (Details 2) - $ / shares | 3 Months Ended | 12 Months Ended |
Nov. 30, 2018 | Aug. 31, 2019 | |
Exercise Prices Five [Member] | Maximum [Member] | ||
Exercise Prices | $ 391.60 | $ 391.60 |
Exercise Prices Five [Member] | Minimum [Member] | ||
Exercise Prices | 160.01 | 160.01 |
Exercise Prices Four [Member] | Maximum [Member] | ||
Exercise Prices | 160 | 160 |
Exercise Prices Four [Member] | Minimum [Member] | ||
Exercise Prices | 120.01 | 120.01 |
Exercise Prices Three [Member] | Maximum [Member] | ||
Exercise Prices | 120 | 120 |
Exercise Prices Three [Member] | Minimum [Member] | ||
Exercise Prices | 80.01 | 80.01 |
Exercise Prices One [Member] | Maximum [Member] | ||
Exercise Prices | 40 | 40 |
Exercise Prices One [Member] | Minimum [Member] | ||
Exercise Prices | 18.80 | 18.80 |
Exercise Prices Two [Member] | Maximum [Member] | ||
Exercise Prices | 80 | 80 |
Exercise Prices Two [Member] | Minimum [Member] | ||
Exercise Prices | $ 40.01 | $ 40.01 |
Options Vested Five [Member] | ||
Number of options | 791 | 716 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Vested Four [Member] | ||
Number of options | 6,890 | 5,373 |
Weighted Average Remaining Contractual Life In Years | 7 years 6 months 21 days | 7 years 7 months 6 days |
Weighted Average Exercise Price | $ 157.41 | $ 158.40 |
Options Vested Three [Member] | ||
Number of options | 4,384 | 4,202 |
Weighted Average Remaining Contractual Life In Years | 8 years 4 months 28 days | 8 years 7 months 17 days |
Weighted Average Exercise Price | $ 103.53 | $ 105.20 |
Options Vested Two [Member] | ||
Number of options | ||
Weighted Average Remaining Contractual Life In Years | ||
Weighted Average Exercise Price | ||
Options Vested One [Member] | ||
Number of options | ||
Weighted Average Remaining Contractual Life In Years | ||
Weighted Average Exercise Price | ||
Options Vested [Member] | ||
Number of options | 12,035 | 10,291 |
Weighted Average Remaining Contractual Life In Years | 7 years 10 months 14 days | 8 years 15 days |
Weighted Average Exercise Price | $ 153.19 | $ 152.80 |
Options Outstanding and Exercisable Five [Member] | ||
Number of options | 1,260 | 1,375 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Outstanding and Exercisable Two [Member] | ||
Number of options | 13,729 | 15,761 |
Weighted Average Remaining Contractual Life In Years | 9 years 4 months 2 days | 9 years 7 months 2 days |
Weighted Average Exercise Price | $ 51.21 | $ 51.60 |
Options Outstanding and Exercisable [Member] | ||
Number of options | 45,463 | 50,749 |
Weighted Average Remaining Contractual Life In Years | 8 years 8 months 2 days | 8 years 11 months 12 days |
Weighted Average Exercise Price | $ 98.30 | $ 95.20 |
Options Outstanding and Exercisable Four [Member] | ||
Number of options | 12,625 | 12,625 |
Weighted Average Remaining Contractual Life In Years | 7 years 9 months 14 days | 8 years 15 days |
Weighted Average Exercise Price | $ 157.71 | $ 155.20 |
Options Outstanding and Exercisable Three [Member] | ||
Number of options | 11,224 | 12,864 |
Weighted Average Remaining Contractual Life In Years | 8 years 5 months 12 days | 8 years 8 months 2 days |
Weighted Average Exercise Price | $ 103.15 | $ 104 |
Options Outstanding and Exercisable One [Member] | ||
Number of options | 6,625 | 8,125 |
Weighted Average Remaining Contractual Life In Years | 9 years 6 months 7 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | $ 23.31 | $ 22.40 |
Share based compensation (Det_4
Share based compensation (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Common shares issued | |||||
Deferred share base compensation | $ 114,000 | $ 190,000 | $ 369,000 | $ 200,000 | |
Share Based Compensation [Member] | |||||
Common shares issued | 250,000 | 250,000 | |||
Option forfeited | 38,000 | 32,500 | |||
Option returned | 38,000 | 1,300,000 | |||
Common share issuable | 200,000 | 195,000 | |||
Common shares issueds | $ 167,000 | $ 167,500 | |||
Common shares issued to grant | 200,000 | 195,000 | |||
Aggregate intrinsic value | $ 0 | $ 1,000 | |||
Deferred share base compensation | $ 1,400,000 | $ 1,600,000 | |||
Remaining weighted average vesting periods | 2 years 1 month 6 days | 1 year 8 months 12 days | |||
Reverse split description | The number of options and exercise prices have been presented retroactively for the 1 for 40 December 17, 2019 reverse split. | ||||
Employee stock option compensation expense | $ 114,000 | $ 77,000 | |||
Board of Directors [Member] | |||||
Options shares | 83,000 | ||||
Designated shares | 7,000 | 7,500 |
Related Parties (Details Narrat
Related Parties (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||
May 10, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Professional fees | $ 840,000 | $ 624,000 | $ 3,918,000 | $ 2,078,000 | |
J. Steven Holmes [Member] | |||||
Professional fees | $ 180,000 | $ 180,000 | $ 720,000 | $ 700,000 |
Contingencies (Details Narrativ
Contingencies (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||||
Jan. 17, 2020 | Apr. 30, 2019 | Nov. 30, 2019 | Aug. 31, 2019 | Jan. 16, 2020 | Aug. 27, 2019 | Jun. 20, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Aug. 31, 2018 | Jun. 30, 2018 | |
Common stock shares issued | 907,047 | 907,047 | 721,295 | ||||||||
Software development cost | $ 1,400,000 | ||||||||||
Kadima Ventures [Member] | Software Development [Member] | |||||||||||
Software development cost | $ 8,500,000 | ||||||||||
Software modules cost | $ 11,000,000 | ||||||||||
Due date | Jan. 31, 2020 | ||||||||||
Additional cost | $ 10,000,000 | ||||||||||
Alpha Capital v. ShiftPixy, Inc. [Member] | |||||||||||
Convertible notes | $ 310,000 | ||||||||||
Convertible notes outstanding | $ 1,700,000 | 1,200,000 | 200,000 | 300,000 | |||||||
Common stock shares issued | 25,000 | ||||||||||
Proceeds from Notes Payable | $ 310,000 | ||||||||||
Damages incurred | 190,000 | ||||||||||
Total award money received | 500,000 | ||||||||||
Dominion Capital LLC v. ShiftPixy [Member] | |||||||||||
Convertible notes outstanding | 1,500,000 | 600,000 | 200,000 | 700,000 | |||||||
MEF I, LP v. ShiftPixy, Inc. [Member] | |||||||||||
Convertible notes | $ 2,100,000 | ||||||||||
Convertible notes outstanding | $ 700,000 | $ 200,000 | $ 500,000 | ||||||||
Accrued interest and accrued damages cash payment | $ 725,000 | ||||||||||
Accrued interest and accrued damages shares issued | 20,000 | ||||||||||
Proceeds from issuance of common stock | $ 969,000 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Jan. 31, 2020 | Jan. 22, 2020 | Dec. 05, 2019 | Jan. 17, 2020 | Dec. 17, 2019 | Nov. 30, 2019 | Jan. 16, 2020 | Dec. 23, 2019 | Dec. 11, 2019 | Aug. 31, 2019 | Jun. 20, 2019 | Aug. 31, 2018 |
Reverse stock split | The Company effected a 1 for 40 reverse stock split. | |||||||||||
Convertible notes, net | $ 778,000 | |||||||||||
Long term liabilities | $ 1,245,000 | |||||||||||
Common stock shares issued | 907,047 | 907,047 | 721,295 | |||||||||
Common stock, shares value | $ 0 | |||||||||||
White [Member] | ||||||||||||
Common stock shares issued | 428 | |||||||||||
Messrs. Higgins and White [Member] | ||||||||||||
Common stock shares issued | 856 | |||||||||||
Common stock, shares value | $ 7,000 | |||||||||||
Messrs. Higgins [Member] | ||||||||||||
Common stock shares issued | 428 | |||||||||||
Alpha Capital v. ShiftPixy, Inc. | ||||||||||||
Common stock shares issued | 25,000 | |||||||||||
Total award money received | $ 500,000 | |||||||||||
Proceeds from Notes Payable | 310,000 | |||||||||||
Damages incurred | 190,000 | |||||||||||
Subsequent Event [Member] | ||||||||||||
Reverse stock split | The Company effected a 1 for 40 reverse stock split. | |||||||||||
Subsequent Event [Member] | Alpha Capital v. ShiftPixy, Inc. | ||||||||||||
Total award money received | $ 500,000 | |||||||||||
Proceeds from Notes Payable | 310,000 | |||||||||||
Damages incurred | $ 190,000 | |||||||||||
Convertible notes per share | $ 12.20 | |||||||||||
Subsequent Event [Member] | MEF I, LP v. ShiftPixy, Inc. | ||||||||||||
Accrued interest and accrued damages shares issued | 20,000 | |||||||||||
Accrued interest and accrued damages cash payment | $ 725,000 | |||||||||||
Subsequent Event [Member] | Holder [Member] | ||||||||||||
Consideration value | $ 200,000 | |||||||||||
Common stock shares issued | 21,750 | |||||||||||
Common stock, shares value | $ 200,000 | |||||||||||
Subsequent Event [Member] | Dominion Capital LLC v. ShiftPixy [Member] | ||||||||||||
Accrued interest and accrued damages shares issued | 83,543 | |||||||||||
Accrued interest and accrued damages cash payment | $ 1,322,000 | |||||||||||
December 2018 Notes [Member] | Subsequent Event [Member] | Holder [Member] | ||||||||||||
Description for consideration exchange | consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. | |||||||||||
March 2019 Convertible Notes [Member] | Subsequent Event [Member] | Holder [Member] | ||||||||||||
Description for extended term | March 2019 notes to March 1, 2022 | |||||||||||
Conversion price | $ 40 | |||||||||||
Asset Purchase Agreement [Member] | On January 6, 2020 [Member] | ||||||||||||
Disposal of business, consideration received or receivable | 19,200,000 | |||||||||||
Disposal of business, consideration received | $ 9,700,000 | |||||||||||
Frequency of consideration receivables | Per year | |||||||||||
Percentage of recurring business sold | 60.00% | |||||||||||
Disposal of business, consideration receivables periodicaly | $ 2,400,000 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Condensed Consolidated Balance Sheets | ||
Cash | $ 1,561,000 | $ 1,650,000 |
Accounts receivable | 272,000 | 111,000 |
Unbilled accounts receivable | 9,478,000 | 6,193,000 |
Deposits-workers' compensation | 1,957,000 | 1,672,000 |
Prepaid expenses | 519,000 | 563,000 |
Other current assets | 244,000 | 259,000 |
Total current assets | 14,031,000 | 10,447,000 |
Fixed assets, net | 3,360,000 | 3,032,000 |
Deposits - workers' compensation. | 6,281,000 | 2,202,000 |
Deposits and other assets | 124,000 | 121,000 |
Total assets | 23,796,000 | 15,802,000 |
Current liabilities | ||
Accounts Payable, Current | 3,061,000 | 1,246,000 |
Payroll related liabilities | 16,412,000 | 9,477,000 |
Convertible notes, net | 3,351,000 | 6,171,000 |
Derivative Liability | 3,756,000 | |
Accrued workers' compensation costs. | 1,957,000 | 305,000 |
Default penalties accrual | 1,800,000 | 3,500,000 |
Other current liabilities | 32,187,000 | 1,956,000 |
Total current liabilities | 32,187,000 | 22,656,000 |
Non-current liabilities | ||
Accrued workers' compensation costs | 4,379,000 | 901,000 |
Total liabilities | 36,566,000 | 23,557,000 |
Commitments and contingencies | ||
Stockholders' deficit | ||
Preferred stock, 50,000,000 authorized shares; $0.0001 par value | ||
Common stock, 750,000,000 authorized shares; $0.0001 par value; 907,047 shares issued as of November 30, 2019 and August 31, 2019 | 0 | |
Additional paid-in capital | 32,505,000 | 18,468,000 |
Treasury stock, at cost-13,953 shares as of November 30, 2019 and August 31, 2019 | (325,000) | |
Accumulated deficit | (44,950,000) | (26,223,000) |
Total stockholders' deficit | (12,770,000) | (7,755,000) |
Total liabilities and stockholders' deficit | $ 23,796,000 | $ 15,802,000 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Aug. 31, 2019 | Aug. 31, 2018 |
Stockholders' deficit | ||
Preferred stock, shares par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, shares par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 750,000,000 | 750,000,000 |
Common stock, shares issued | 907,047 | 721,295 |
Treasury stock, shares | 13,953 | 0 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Condensed Consolidated Statements of Operations (Unaudited) | ||
Revenues (gross billings of 110.7 million and 70.9 million less worksite employee payroll cost of 94.8 million and 60.4 million, respectively) | $ 53,436,000 | $ 34,959,000 |
Cost of revenue | 41,046,000 | 29,458,000 |
Gross profit | 3,300,000 | 5,500,000 |
Operating expenses: | ||
Salaries, wages and payroll taxes | 7,702,000 | 5,383,000 |
Share-based compensation - general and administrative | 632,000 | 363,000 |
Commissions | 2,732,000 | 1,594,000 |
Professional fees | 3,918,000 | 2,078,000 |
Software development | 1,209,000 | 3,828,000 |
Marketing and advertising | 1,208,000 | 547,000 |
General and administrative | 3,823,000 | 3,005,000 |
Depreciation and amortization | 839,000 | 274,000 |
Total operating expenses | 22,063,000 | 17,072,000 |
Operating Loss | (9,673,000) | (11,572,000) |
Other income | ||
Interest expense | (8,507,000) | (1,751,000) |
Loss on debt extinguishment | (3,927,000) | |
Change in fair value of derivative | 2,569,000 | |
Gain (Loss) associated with note defaults, net | 811,000 | (3,500,000) |
Total Other income (expense) | (9,054,000) | (5,251,000) |
Net Loss | $ (18,700,000) | $ (16,823,000) |
Net loss per common share | ||
Basic and diluted | $ (22.90) | $ (23.36) |
Weighted average number of common shares | ||
Basic and diluted | 817,720 | 720,253 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity - USD ($) | Total | Warrant [Member] | Treasury Stock [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] |
Balance, shares at Aug. 31, 2017 | 719,064 | ||||
Balance, amount at Aug. 31, 2017 | $ 5,615,000 | $ (9,400,000) | $ 15,016,000 | ||
Warrants exercised for cash, shares | 37,500 | 938 | |||
Warrants issued with convertible debt | 859,000 | 859,000 | |||
Warrants exercised for cash, amount | 75,000 | 75,000 | |||
Net Income (Loss) | (16,823,000) | $ (16,823,000) | |||
Common stock issued for services rendered, shares | 1,293 | ||||
Stock-based compensation expense | 200,000 | 200,000 | |||
Intrinsic value due to beneficial conversion feature | 2,156,000 | $ 2,155,000 | |||
Common stock issued for services rendered, amount | $ 163,000 | $ 163,000 | |||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | $ (7,755,000) | $ (26,223,000) | $ 18,468,000 | ||
Warrants exercised for cash, shares | 6,688 | ||||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Net Income (Loss) | (2,246,000) | ||||
Common stock issued for services rendered, shares | 966 | ||||
Common stock issued for services rendered, amount | $ 113,000 | $ 113,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 16,624 | ||||
Balance, shares at Nov. 30, 2018 | 745,573 | ||||
Balance, amount at Nov. 30, 2018 | $ (7,506,000) | $ 20,963,000 | |||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | $ (7,755,000) | $ (26,223,000) | $ 18,468,000 | ||
Warrants exercised for cash, shares | 6,688 | 6,688 | |||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Reclass of derivative liability upon conversion of related convertible notes | 12,000 | 12,000 | |||
Net Income (Loss) | $ (18,727,000) | $ (18,727,000) | |||
Common stock issued for services rendered, shares | 4,985 | ||||
Stock-based compensation expense | $ 369,000 | $ 369,000 | |||
Treasury stock received for settlement of note receivable, shares | |||||
Shares issued to induce debt conversion, shares | 68,304 | ||||
Common stock issued for services rendered, amount | 263,000 | 263,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 105,776 | ||||
Common shares issued upon conversion of convertible notes and interest, amount | 8,904,000 | 8,904,000 | |||
Shares issued to induce debt conversion, amount | 3,829,000 | 3,829,000 | |||
Treasury stock received for settlement of note receivable, amount | $ (325,000) | $ (325,000) | |||
Balance, shares at Aug. 31, 2019 | 907,047 | ||||
Balance, amount at Aug. 31, 2019 | $ (12,770,000) | $ (44,950,000) | $ (325,000) | $ 32,505,000 | |
Net Income (Loss) | $ (2,556,000) | ||||
Balance, shares at Nov. 30, 2019 | 907,047 | ||||
Balance, amount at Nov. 30, 2019 | $ (15,212,000) | $ (325,000) | $ 32,619,000 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
OPERATING ACTIVITIES | ||
Net Income (Loss) | $ (18,700,000) | $ (16,823,000) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 839,000 | 274,000 |
Inducement loss on Note Conversions | 3,829,000 | |
Excess of derivative liabilities over Notes at issuance | 2,588,000 | |
Amortization of note discount and financing costs | $ 5,607,000 | $ 951,000 |
Stock issued for services | 263,000 | 163,000 |
Share based compensation | $ 369,000 | $ 200,000 |
Loss (Gain) associated with note defaults, net | (811,000) | 3,500,000 |
Cash paid for interest | 509,000 | |
Change in fair value derivative and warrant liability | (2,569,000) | |
Changes in operating assets and liabilities | ||
Accounts receivable | (161,000) | 318,000 |
Unbilled accounts receivable | (3,286,000) | (6,193,000) |
Prepaid expenses | 43,000 | (210,000) |
Other current assets | 15,000 | (243,000) |
Deposits - workers' compensation | (4,364,000) | (1,538,000) |
Deposits and other assets | (3,000) | 6,000 |
Accounts payable | 1,815,000 | 86,000 |
[Increase (Decrease) in Employee Related Liabilities] | 6,935,000 | 7,088,000 |
Accrued workers' compensation costs | 5,129,000 | 1,206,000 |
Other current liabilities | (106,000) | 1,677,000 |
Net cash used in operating activities | (2,086,000) | (9,538,000) |
INVESTING ACTIVITIES | ||
Purchase of fixed assets | (1,167,000) | (3,019,000) |
Issuance of related party note receivable | (325,000) | |
Net cash used in investing activities | (1,492,000) | (3,019,000) |
FINANCING ACTIVITIES | ||
Proceeds from issuance of convertible notes | 3,750,000 | 9,000,000 |
Issuance costs related to convertible notes | (485,000) | (765,000) |
Repayment of convertible notes | (436,000) | |
Proceeds from exercise of warrants | 660,000 | 75,000 |
Net cash provided by financing activities | 3,489,000 | 8,310,000 |
Net decrease in cash and cash equivalents | (89,000) | (4,247,000) |
Cash - Beginning of Period | 1,650,000 | 5,897,000 |
Cash - End of Period | $ 1,561,000 | $ 1,650,000 |
Supplemental Disclosure of Cash Flows Information: | ||
Cash paid during the year for: | ||
Interest | $ 226,000 | $ 133,000 |
Income taxes | ||
Non-cash investing and financing activities: | ||
Conversion of debt and accrued interest into common stock | 8,904,000 | |
Additional principal to settle registration rights penalties | 889,000 | |
Discharge of related party note receivable for common shares | 325,000 | |
Allocated fair value of beneficial conversion feature | 1,479,000 | |
Allocated fair value of warrants included with convertible notes | 2,271,000 | |
Debt discount due to the intrinsic value of beneficial conversion feature | 924,000 | |
Debt discount due to warrants included with convertible notes | $ 859,000 |
Nature of Operations_2
Nature of Operations | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Nature of Operations | ||
Note 1: Nature of Operations | ShiftPixy, Inc. (the “Company”) was incorporated on June 3, 2015. The Company is a specialized staffing service provider that provides solutions for large contingent part-time workforce demands, primarily in the restaurant, hospitality and maintenance service trades. The Company’s focus is on the restaurant industry in Southern California. Both ShiftPixy, Inc and its wholly-owned subsidiary, Shift Human Capital Management Inc. (“SHCM”), function as an employment administrative services (“EAS”) provider including services such as administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of workers’ compensation coverages and claims and provides workers compensation coverage written in the names of the clients (as may be required by some states). The Company has built a human resources information systems platform to assist in customer acquisition and hopes that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients recognize the value of the services provided by the parent Company. The Company is currently operating in one reportable segment. | ShiftPixy, Inc. (the “Company”) was incorporated on June 3, 2015. The Company is a specialized staffing service provider that provides solutions for large contingent part-time workforce demands, primarily in the restaurant, hospitality and maintenance service trades. The Company’s focus is on the restaurant industry in Southern California. Both ShiftPixy, Inc and its wholly-owned subsidiary, Shift Human Capital Management Inc. (“SHCM”), function as an employment administrative services (“EAS”) provider including services such as administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of workers’ compensation coverages and claims and provides workers compensation coverage written in the names of the clients (as may be required by some states). The Company has built a human resources information systems platform to assist in customer acquisition and hopes that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients recognize the value of the services provided by the parent Company. |
Summary of significant accoun_9
Summary of significant accounting policies | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Note 2: Summary of significant accounting policies | Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three months ended November 30, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2020. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2019, filed with the SEC on December 13, 2019. Principles of Consolidation The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of property and equipment; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instruments classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $11,347,000 and $9,478,000 as of November 30, 2019 and August 31, 2019, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2020 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs Concentration of Credit Risk The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The Company has not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively. However, four clients represent 92% of total accounts receivable both at November 30, 2019 and August 31, 2019. Impairment and Disposal of Long-Lived Assets The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of November 30, 2019, the Company classified $0.2 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of November 30, 2019, the Company had $2.0 million in deposit – workers’ compensation classified as a short-term asset and $6.2 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of November 30, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $5.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. Fair Value of Financial Instruments FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At November 30, 2019 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at November 30, 2019 or August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of November 30, 2019: March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 At November 30, 2019 and August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures and the fair value of the warrant liabilities based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. The Company used the following assumptions to estimate fair value of the derivatives as of November 30, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended November 30, 2019 or 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Research and Development During the three months ended November 30, 2019 and 2018 the Company incurred research and development costs of approximately $0.9 million and $0.4 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three months ended November 30, 2019 and 2018, respectively. Advertising Costs The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $304,000 and $379,000 for the three months ended November 30, 2019, and 2018, respectively. Reverse Stock Split On December 17, 2019 the Company implemented a 1 for 40 reverse stock split for all common share and common share equivalents including, options, warrants, and convertible notes. All common shares and common share equivalents are presented retroactively to reflect the reverse split. Earnings (Loss) Per Share The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 Stock-Based Compensation At November 30, 2019, the Company has one stock-based compensation plan under which the Company may issue awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. The Company elected to account for forfeitures as they occur, as such, compensation cost previously recognized for an unvested award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all of its treasury stock outstanding as of November 30, 2019 and August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. Reclassifications Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Revision of Financial Statements During the preparation of the restated condensed consolidated financial statements for the three and six months ended February 28, 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s condensed consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,000 (739,000 ) $ 5,570,000 Additional Paid-In Capital 19,729,000 1,232,000 20,961,000 Accumulated deficit (27,977,000 ) (493,000 ) (28,470,000 ) Net Loss (2,000,000 ) (246,000 ) (2,246,000 ) Net loss per share – Basic and diluted (2.77 ) (0.34 ) (3.11 ) Recent Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption. The Company expects to adopt the guidance using the modified retrospective method. | Basis of Presentation The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Principles of Consolidation The Company and its wholly-owned subsidiary have been consolidated in the accompanying consolidated financial statements. All intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of software, property and equipment; · Assumptions made in valuing equity instruments; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instrument classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $6,878,000 and $6,193,000 for the years ended August 31, 2019 and August 31, 2018, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2018 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs Segment Reporting The Company operates as one reportable segment under ASC 280, Segment Reporting Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company had no such investments as of August 31, 2019 or 2018. Concentration of Credit Risk The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses related to these balances and believes its credit risk to be minimal. As of August 31, 2019, there were $2,354,000 of cash in excess of the amounts insured by the FDIC. The Company had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. Four clients represent 92% of total accounts receivable at August 31, 2019, compared to four clients representing approximately 86% of its total accounts receivable at August 31, 2018. Fixed Assets Fixed assets are recorded at cost, less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Leasehold improvements are being amortized over the shorter of the useful life or the initial lease term. Fixed assets are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives of property and equipment for purposes of computing depreciation are as follows: Equipment: 5 years Furnitures & Fixtures: 5 - 7 years The amortization of these assets is included in depreciation expense on the consolidated statements of operations. Computer Software Development Software development costs relate primarily to software coding, systems interfaces and testing of the Company’s proprietary employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation and software maintenance costs are expensed as incurred. The capitalized computer software development costs are reported under the section fixed assets, net in the consolidated balance sheets. The Company determined that there were no material internal software development costs for the years ended August 31, 2018 or 2019. All capitalized software recorded was purchased from third party vendors. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally five years. Impairment and Disposal of Long-Lived Assets The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of August 31, 2019, the Company classified $0.1 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of August 31, 2019, the Company had $1.9 million in deposit – workers’ compensation classified as a short-term asset and $6.3 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of August 31, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $4.1 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. Debt issuance Costs and Debt discount Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets. Portions attributable to notes converted into equity are accelerated to interest expense upon conversion. Beneficial Conversion Features The intrinsic value of a beneficial conversion feature (“BCF”) inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the stated maturity using the straight-line method which approximates the effective interest method. If the note payable is retired prior to the end of the contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the BCF is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. Derivative financial instruments When a Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirement to be treated as a derivative: a) the settlement amount is determined by one or more underlying, typically the price of the Company’s stock, b) the settlement amount is determined by one or more notional amounts or payments provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provision, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares. When ShiftPixy, Inc., issues warrants to purchase its common stock, the Company evaluates whether they meet the requirements to be treated as derivative. Generally, warrants would be treated as a derivative if the provisions of the warrants agreements create uncertainty as to a) the number of shares to be issued upon exercise, or b) whether shares may be issued upon exercise. If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, ShiftPixy estimates the fair value of the derivative liability using the lattice-based option valuation model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statement of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreements are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the consolidated balance sheet date. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Fair Value of Financial Instruments FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At August 31, 2019 and August 31, 2018, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants at August 31, 2019, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 for the year ended August 31, 2019: Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 At August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield (1.76%) of a Treasury note and expected volatility of the Company’s common stock (100%) all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. At August 31, 2019, the Company estimated the fair value of the warrant liabilities based on the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk-free interest rate based on the average yield of a Treasury note (1.39%) and expected volatility of the Company’s common stock (119%) all as of the measurement dates. When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended August 31, 2019 and August 31, 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Advertising Costs The Company expenses advertising costs when incurred. Advertising costs incurred amounted to approximately $1.2 million and $0.5 million for the years ended August 31, 2019, and 2018, respectively. Research and Development During the years ended August 31, 2019 and 2018 the Company incurred research and development costs of approximately $2.3 million and $4.0 million, respectively. All costs were related to internally developed and contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0.9 million and $2.8 million of software costs were capitalized for the years ended August 31, 2019 and 2018, respectively. Income Taxes The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Under FASB ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Share-Based Compensation At August 31, 2019 and 2018, the Company has one stock-based compensation plan under which the Company may issue both share and stock option awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of operations on their fair values. Share grants are valued at the closing market price on the date of issuance which approximates fair value. For option grants, the grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. Option grants are typically issued with vesting depending on a term of service. For all employee stock options granted, the Company recognizes expense over the requisite service period over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since its Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Earnings (Loss) Per Share The Company utilizes FASB ASC 260, “Earnings per Share.” Basic loss per share is computed by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. The table below shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations. For the year ended August 31, 2019 2018 Losses per common share: Net loss allocated to common shareholders $ (18,727,000 ) $ (16,823,000 ) Weighted average shares outstanding 817,720 720,253 Basic and Fully Diluted net loss per common share $ (22.90 ) $ (23.36 ) Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all treasury stock outstanding as of August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. Revision of Financial Statements During 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s consolidated financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,000 (985,000 ) $ 6,171,000 Additional Paid-In Capital 17,234,000 1,231,000 18,465,000 Accumulated deficit (25,977,000 ) (246,000 ) (26,223,000 ) Net Loss $ (16,577,000 ) (246,000 ) $ (16,823,000 ) Net loss per share – Basic and diluted $ (23.02 ) - $ (23.36 ) Reclassifications Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Significant Recent Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company has evaluated Topic 606 and we plan to utilize the modified retrospective transition method upon the adoption of ASC 606. The Company is still in the process of finalizing its evaluation for the adoption of ASC 606, however, no material difference is expected. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. In March 2019, the FASB issued ASU 2019-01, which added guidance to ASC 842 that is simi |
Going Concern_2
Going Concern | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Going Concern | ||
Note 3: Going Concern | As of November 30, 2019, the Company had cash of $0.1 million and a working capital deficiency of $18.5 million. During the quarter ended November 30, 2019, the Company used approximately $1.5 million of cash in its operations, consisting of a net loss of $2.6 million, reduced by net non-cash charges and gains of $0.3 million and working capital changes of $0.8 million. During the year ended August 31, 2019, the Company used approximately $2.1 million of cash in its operations, consisting of a net loss of $18.7 million, reduced by net non-cash charges and gains of $10.8 million and working capital changes of $6.0 million. The Company has incurred recurring losses resulted in an accumulated deficit of $48 million as of November 30, 2019. These conditions raise substantial doubt as to the Company’s ability to continue as going concern within one year from issuance date of the financial statements. The ability of the Company to continue as a going concern is dependent upon generating profitable operations in the future and obtaining additional funds by way of public or private offering to meet the Company’s obligations and repay its liabilities when they become due. The Company has a recurring revenue business model that generated $12.4 million of gross profit for the year ended August 31, 2019 and $3.3 million for the quarter ended November 30, 2019. The Company’s plans and expectations for the next 12 months include raising additional capital to help fund expansion of its operations, including the continued development and support of its IT and HR platform and settling its outstanding debt as it comes due. The Company engaged an investment banking firm to assist the Company in (i) preparing information materials, (ii) advising the Company concerning the structure, price and conditions and (iii) organizing the marketing efforts with potential investors in connection with a financing transaction. Historically, the Company’s principal source of financing has come through the sale of its common stock and issuance of convertible notes. The Company successfully completed an Initial Public Offering (IPO) on NASDAQ on June 29, 2017, raising a total of $12 million ($10.9 million net of costs). In June 2018, the Company completed a private placement of 8% senior secured convertible notes to institutional investors raising $9 million of gross proceeds ($8.4 million net of costs). In March 2019, the Company completed a private placement of senior secured notes to institutional investors raising $3.75 million ($3.3 million net of costs). As of November 30, 2019 all of the $6.8 million of principal was in default. Subsequent to November 30, 2019, approximately $2.7 million of the notes in default were exchanged for new convertible notes payable. See Notes 4 and 9 for additional information. Subsequent to November 30, 2019 and as described in Note 9 below, in January 2020, the Company assigned approximately 60% of its customer contracts representing approximately 50% of its recurring gross profit in exchange for $9.7 million in cash and expects to receive $9.5 million ratably over the four years following the transaction close, subject to certain closing conditions. The Company will transfer $1.7 million of working capital after closing the transaction and approximately $6 million of the Company’s annualized gross profit. The Company believes that its current cash position, after collection of the proceeds from the January 2020 customer assignment transaction, along with its revenue growth and the financing from potential institutional investors will be sufficient to fund its operations for at least a year from the date these financials are available. If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months from the date of this report, the Company may need to curtail certain aspects of its operations or expansion activities, consider the sale of its assets, or consider other means of financing. The Company can give no assurance that it will be successful in implementing its business plan and obtaining financing on terms advantageous to the Company or that any such additional financing would be available to the Company. As such, these conditions raise substantial doubt as to its ability to continue as a going concern within one year from the issuance date of the financial statements. These consolidated financial statements do not include any adjustments from this uncertainty. | As of August 31, 2019, the Company had cash of $1.6 million and a working capital deficiency of $15.9 million. During the year ended August 31, 2019, the Company used approximately $2.1 million of cash in its operations, consisting of a net loss of $18.7 million, reduced by net non-cash charges and gains of $10.8 million and working capital changes of $6.0 million. For the most recent quarter ending August 31, 2019, cash flows used in operations were $0.5 million. The Company has incurred recurring losses resulted in an accumulated deficit of $45 million as of August 31, 2019. These conditions raise substantial doubt as to the Company’s ability to continue as going concern within one year from issuance date of the financial statements. The ability of the Company to continue as a going concern is dependent upon generating profitable operations in the future and obtaining additional funds by way of public or private offering to meet the Company’s obligations and repay its liabilities when they become due. The Company has a recurring revenue business model that generated $12.4 million of gross profit for the year of which $3.6 million is attributable to the fourth fiscal quarter. On an annualized basis, a projected twelve-month gross profit based solely on the fourth quarter would be $14.4 million. For the year ended August 31, 2019, the Company had $22.1 million of operating expenses, of which $1.4 million was non-cash depreciation and share based compensation. Of the remaining $20.7 million, $4.9 million was for software development and marketing related spending for the HRIS and mobile application systems, including licensing and related salaries and consulting fees, with an additional $1.4 million for legal services, settlements and costs. The Company’s plans and expectations for the next 12 months include raising additional capital to help fund expansion of its operations, including the continued development and support of its IT and HR platform and settling its outstanding debt as it comes due. The Company engaged an investment banking firm to assist the Company in (i) preparing information materials, (ii) advising the Company concerning the structure, price and conditions and (iii) organizing the marketing efforts with potential investors in connection with a financing transaction. With the added development and marketing investment into the mobile application, the Company anticipates the need to raise additional capital coupled with using its actual cash position and continue leveraging its payables until it reaches breakeven at about 25,000 worksite employees. Historically, the Company’s principal source of financing has come through the sale of its common stock and issuance of convertible notes. The Company successfully completed an Initial Public Offering (IPO) on NASDAQ on June 29, 2017, raising a total of $12 million ($10.9 million net of costs). In June 2018, the Company completed a private placement of 8% senior secured convertible notes to institutional investors raising $9 million of gross proceeds ($8.4 million net of costs). In March 2019, the Company completed a private placement of senior secured notes to institutional investors raising $3.75 million ($3.3 million net of costs). The Company believes that its current cash position, along with its revenue growth and the financing from potential institutional investors will be sufficient to fund its operations for at least a year from the date these financials are available. If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months from the date of this report, the Company may need to curtail certain aspects of its operations or expansion activities, consider the sale of its assets, or consider other means of financing. The Company can give no assurance that it will be successful in implementing its business plan and obtaining financing on terms advantageous to the Company or that any such additional financing would be available to the Company. As such, these conditions raise substantial doubt as to its ability to continue as a going concern within one year from the issuance date of the financial statements. These consolidated financial statements do not include any adjustments from this uncertainty. |
Accounts Receivable
Accounts Receivable | 12 Months Ended |
Aug. 31, 2019 | |
Accounts Receivable | |
Note 4: Accounts Receivable | Accounts receivables, which represent outstanding gross billings to clients, are reported net of allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of specific accounts and by making a general provision, based on its past experiences, for other potentially uncollectible amounts. The provision for doubtful accounts during the fiscal years ending August 31, 2019 and 2018 was not material. The Company makes an accrual at the end of each accounting period for the obligations associated with the earned but unpaid wages of its worksite employees and for the accrued gross billings associated with such wages. These accruals are included in unbilled accounts receivable. The Company generally requires clients to pay invoices for service fees no later than 1 day prior to the applicable payroll date. As such the Company generally does not require collateral. |
Fixed Assets
Fixed Assets | 12 Months Ended |
Aug. 31, 2019 | |
Fixed Assets | |
Note 5: Fixed Assets | Fixed assets consisted of the following at August 31, 2019 and 2018: August 31, 2019 August 31, 2018 Equipment $ 372,000 $ 228,000 Furniture & fixtures 412,000 329,000 Software 3,737,000 2,797,000 Leasehold improvements 41,000 41,000 4,562,000 3,395,000 Accumulated depreciation & amortization (1,202,000 ) (363,000 ) Fixed assets, net $ 3,360,000 $ 3,032,000 Depreciation and amortization expense for the years ended August 31, 2019 and 2018, was $839,000 and $274,000, respectively. Software consists primarily of customized software purchased from third party providers and which is incorporated into the Company’s HRIS platform and related mobile application. Information related to capitalized software costs is as follows: August 31, 2019 August 31, 2018 Software costs capitalized $ 3,737,000 $ 2,797,000 Software costs amortized (904,000 ) (190,000 ) Software costs, Net $ 2,833,000 $ 2,607,000 The Company has evaluated certain development costs of its software solution in accordance with ASC Topic 350-40, Internal Use Software, which outlines the stages of computer software development and specifies when capitalization of costs is required. Projects that are determined to be in the development stage are capitalized and amortized over their useful lives of five years. Projects that are determined to be within the preliminary stage are expensed as incurred. For the years ended August 31, 2019 and 2018 no internally developed software was capitalized. A substantial portion of the capitalized software is attributable to a third party with whom the Company is in litigation. The Company evaluated the asset value as of August 31, 2019 and determined that no asset impairment is required for this customized third party software. Amortization expense included in the depreciation and amortization expense disclosed above for the years ended August 31, 2019 and 2018, was $714,000 and $190,000, respectively. The weighted average remaining life of amortizable software assets was 3.56 years as August 31, 2019. Amortization expense for capitalized software is expected to approximate the following for each of the next five fiscal years and thereafter: Amount 2020 814,000 2021 814,000 2022 744,000 2023 458,000 2024 3,000 |
Workers Compensation
Workers Compensation | 12 Months Ended |
Aug. 31, 2019 | |
Workers Compensation | |
Note 6: Workers Compensation | The Company has two workers compensation programs in effect during the years ended August 31, 2019 and 2018. The Everest program covered corporate and worksite employees from July 1, 2017 until June 30, 2018 and the SUNZ program covered corporate and worksite employees since July 1, 2018. The following table summarizes the workers’ compensation deposit for the years ended August 31, 2019 and 2018: Everest Program SUNZ Program Total Workers’ Comp Deposit at August 31, 2017 $ 2,335,000 - $ 2,335,000 Premiums paid (819,000 ) - (819,000 ) Paid in deposits - 2,386,000 2,386,000 Claim losses - (28,000 ) (28,000 ) Workers’ Comp Deposit at August 31, 2018 $ 1,516,000 2,358,000 $ 3,874,000 Premiums paid (144,000 ) - (144,000 ) Paid in deposits - 7,730,000 7,730,000 Claim losses (149,000 ) (1,850,000 ) (1,999,000 ) Deposit refund (1,223,000 ) - (1,223,000 ) Workers’ Comp Deposit at August 31, 2019 $ - 8,238,000 $ 8,238,000 Less Current Amount - (1,957,000 ) (1,957,000 ) Long Term Balance at August 31, 2019 $ - 6,281,000 $ 6,281,000 The following table summarizes the accrued workers’ compensation liability for the years ended August 31, 2019 and 2018: Everest Program SUNZ Program Total Workers’ Comp Liability at August 31, 2017 - - - Claim loss development $ 572,000 662,000 $ 1,234,000 Paid in losses - (28,000 ) (28,000 ) Workers’ Comp Liability at August 31, 2018 $ 572,000 634,000 $ 1,206,000 Claim loss development - 7,129,000 7,129,000 Paid in losses (149,000 ) (1,850,000 ) (1,999,000 ) Workers’ Comp Liability at August 31, 2019 $ 423,000 5,913,000 $ 6,336,000 Less Current Amount (159,000 ) (1,798,000 ) (1,957,000 ) Long Term Balance at August 31, 2019 $ 264,000 4,115,000 $ 4,379,000 |
Accrued Payroll and Related Lia
Accrued Payroll and Related Liabilities | 12 Months Ended |
Aug. 31, 2019 | |
Accrued Payroll and Related Liabilities | |
Note 7: Accrued Payroll and Related Liabilities | Accrued payroll liabilities consisted of the following at August 31, 2019 and 2018: August 31, 2019 August 31, 2018 Accrued Payroll $ 7,812,000 $ 4,522,000 Accrued Payroll Taxes 8,201,000 4,609,000 Corporate employee accrued paid time off 399,000 346,000 Accrued Payroll and related liabilities $ 16,412,000 $ 9,477,000 Accrued payroll and accrued payroll taxes represent payroll liabilities associated with its client worksite employees as well as corporate employees of the Company. |
Senior Secured Convertible No_7
Senior Secured Convertible Notes Payable (in default) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable (in default) | ||
Note 4: Senior Secured Convertible Notes Payable (in default) | The Company has issued three series of senior secured convertible notes payable. In general, each series is convertible into common shares of the Company. Senior Secured Convertible Notes Payable consist of the following: November 30, August 31, 2019 2019 (unaudited) Senior Secured Convertible notes, Principal $ 6,808,000 $ 6,808,000 Less debt discount and deferred financing costs (2,604,000 ) (3,457,000 ) Total outstanding convertible notes, net $ 4,204,000 $ 3,351,000 Less current portion of convertible notes payable (3,426,000 ) (3,351,000 ) Long-term convertible notes payable $ 778,000 $ - The following table rolls forward the Convertible Notes Payable balances from August 31, 2019 to November 30, 2019: Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Amortization of Interest Expense - 80,000 773,000 853,000 Balance at November 30, 2019 $ 6,808,000 (264,000 ) (2,340,000 ) $ 4,204,000 Less Current Amount (5,141,000 ) 174,000 1,541,000 (3,426,000 ) Long Term Balance at November 30, 2019 1,667,000 (90,000) (799,000) $ 778,000 The following table outlines the gross principal balance rollforward for each series from August 31, 2019 to November 30, 2019. Each series is described in further detail below. June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs - - (264,000 ) (264,000 ) Deferred Financing Costs - - (2,340,000 ) (2,340,000 ) Carrying Balance at November 30, 2019 $ 1,466,000 867,000 1,871,000 $ 4,204,000 Less Current Amount (1,466,000 ) (728,000 ) (1,232,000 ) (3,426,000 ) Long Term Balance at November 30, 2019 $ - 139,000 639,000 $ 778,000 During the quarters ended November 30, 2019 and 2018 the Company amortized $853,000 and $798,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 and March 2019 Notes. To date, the holders of the June Notes have converted $8,534,000 of principal, holders of December 2018 Notes have converted $22,000 of principal, and holders of March 2019 Notes have converted $275,000 of principal into common shares of the Company. There were no conversions of convertible notes during the fiscal quarter ending November 30, 2019. On June 3, 2019, one of its institutional investors filed a claim in the United States District Court, Southern District of New York seeking preliminary injunctive relief against the Company to immediately deliver one million shares of the Company’s common stock and to honor all future conversion requests duly submitted in accordance with the terms of the notes. On June 7, 2019, and June 10, 2019, the Company received notices from two of its institutional investors that the Company was in default due to missed principal and interest payments under the terms of the Notes. On June 27, 2019, the Company reported that is has informed its convertible note holders that it will cease honoring conversion requests of the 2018 and 2019 Notes forcing a voluntary default of these instruments. The Company is pursuing a renegotiation and amendment of these instruments in an effort to avoid litigation. The Company is requesting to amend the terms of the notes to remove the conversion features and revise the cash amortization, among other items. On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 21,750 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. As of November 30, 2019, after the exchange as described in Note 9, the Company classified $778,000 of the $1,245,000 carrying value of the notes exchanged as long-term liabilities. See also Note 8 for litigation related to the Convertible Notes Payable. From June 10, 2019 until November 30, 2019, the Company has accrued interest at the default interest rate for all note series representing approximately $0.6 million of additional interest payable of which $0.3 million is attributable to the quarter ending November 30, 2019. The Company has accrued an additional $1.8 million to accrued default liabilities as of November 30, 2019 and August 31, 2019, representing potential liability associated with the default of the notes payable for default premium, potential liquidating damages, and other costs associated with the notes in default. June 2018 Senior Convertible Notes (in default) On June 4, 2018, the Company issued $10 million of senior convertible notes (“June 2018 Notes”) to institutional investors with an original issue discount of $1 million for a purchase price of $9 million. The notes bear interest at a rate of 8%, with one year’s interest guaranteed, and have a maturity date of September 4, 2019. The Notes remain outstanding as of November 22, 2019. The company received cash proceeds of $8.4 million representing the $9 million purchase price, reduced by approximately $0.6 million of financing costs directly related to the issuance of the June 2018 Notes. Concurrent with the sale of the June 2018 Notes, the Company granted warrants to purchase 25,101 shares of common stock to its institutional investors and warrants to purchase 5,422 shares of common stock to its investment banker as placement fees, at an exercise price of $99.60, subject to down round price protection adjustment, as defined in the agreements. The warrants were valued at the date of issuance using the lattice-based option pricing model at $86.80 per warrant. Both the June 2018 Notes and the related warrants were issued with registration rights, whereby the Company was obligated to register the shares underlying the June 2018 Notes or was subject to registration rights penalties. The terms of June 2018 notes are summarized as follows: · Term: September 4, 2019; · Coupon: 8%; Default interest rate: 18%; · Convertible at the option of the holder at any time; · Conversion price is initially set at $99.60 but subject to down round price protection. After maturity, the conversion price will be set subsequently at the lesser of the then conversion price and 85% of the volume weighted average price for the trading date immediately prior to the application conversion date; and · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. December 2018 Notes (in default) On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company issued additional notes (“December 2018 Notes” in the amount of $889,000 on substantially the same terms as the June 2018 Notes except that the stated interest rate was 0% and the term of the December 2018 Notes was December 31, 2019. There was no recorded discount or deferred financing costs for the December 2018 Notes issued. March 2019 Bridge Financing (in default) On March 12, 2019, the Company issued convertible notes in the principal amount of $4,750,000 with an original issue discount of $1 million for a purchase price of $3,750,000 to certain of its existing institutional investors (“March 2019 Notes”) and mature on September 12, 2020. The Company received net cash proceeds of $3.3 million to be used for mobile application development and working capital. The Company incurred approximately $0.5 million of debt issuance costs that are incremental costs directly related to the issuance of the bridge financing senior convertible notes payable. The terms of the March 2019 convertible notes are summarized as follows: · Term: September 12, 2020; · Coupon: 0%; · Default interest rate: 18%; · Original issue discount: $1,000,000; · Convertible at the option of the holder at any time; · Initial conversion price is set at $1.67 but subject to down round price protection; · Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; · Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. In connection with the note, the Company issued 74,387 warrants (“March 2019 Warrants”), exercisable at $70, with a five-year term. The Company evaluated the warrants issued and determined that they were derivative liabilities. The Company estimated the fair value of the warrants using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, resulting in a fair value of $3,917,000. The Company estimated the aggregate fair value of the conversion feature derivative embedded in the debenture (“March 2019 Conversion Feature”) at issuance at $2,421,000 based on weighted probabilities of assumptions using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount resulted from bifurcating the warrants and the conversion feature being greater than the face amount of the debt and the original issue discount, and the excess amount of $2.6 million was immediately expensed as financing costs. | The Company has issued three series of senior secured convertible notes payable. In general, each series is convertible into common shares of the Company. Senior Secured Convertible Notes Payable consist of the following: August 31, August 31, 2019 2018 Senior Secured Convertible notes, Principal $ 6,808,000 $ 10,000,000 Less debt discount and deferred financing costs (3,457,000 ) (3,829,000 ) Total outstanding convertible notes, net $ 3,351,000 $ 6,171,000 Less current portion of convertible notes payable 3,351,000 ) (6,171,000 ) Long-term convertible notes payable $ - $ - The following table rolls forward the Convertible Notes Payable balances from August 31, 2018 to August 31, 2019: Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2018 $ 10,000,000 (617,000 ) (3,212,000 ) $ 6,171,000 Issuance of Notes Payable 5,639,000 (485,000 ) (4,750,000 ) 404,000 Conversion of Principal into Equity (8,395,000 ) - - (8,395,000 ) Amortization of Interest Expense - 758,000 4,849,000 5,607,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Less Current Amount (6,808,000 ) 344,000 3,113,000 (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - The following table outlines the gross principal balance rollforward for each series from August 31, 2018 to August 31, 2019. Each series is described in further detail below. June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2018 $ 10,000,000 - - $ 10,000,000 Issuance of Notes Payable - 889,000 4,750,000 5,639,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Conversion of Principal into Equity (8,098,000 ) (22,000 ) (275,000 ) (8,395,000 ) Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs (27,000 ) - (317,000 ) (344,000 ) Deferred Financing Costs (5,000 ) - (3,108,000 ) (3,113,000 ) Carrying Balance at August 31, 2019 $ 1,434,000 867,000 1,050,000 $ 3,351,000 Less Current Amount (1,434,000 ) (867,000 ) (1,050,000 ) (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - During the years ended August 31, 2019 and 2018 the Company amortized $5,607,000 and $951,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 and March 2019 Notes. During the year ended August 31, 2019, investors converted $8,395,000 of principal and $509,000 of interest expense into approximately 172,500 shares of common stock of the company. The Company has been converting the convertible notes in its shares of common stock at a fifteen percent (15%) discount to the lowest volume weighted average price (“VWAP”) whereas the terms of the agreement state that such discount to the original conversion price of $99.60 should have been initiated on or after the maturity date of the convertible notes or September 4, 2019. The accounting standards require the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. Included in the 172,500 shares issued for the 2019 conversions were approximately 67,500 shares valued at $3.8 million on the date of issuance at fair value and issued related to consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $3.8 million for the year ended August 31, 2019. There were no conversions of convertible notes during fiscal 2018. On June 3, 2019, one of its institutional investors filed claim in the United States District Court, Southern District of New York seeking preliminary injunctive relief against the Company to immediately deliver one million shares of the Company’s common stock and to honor all future conversion requests duly submitted in accordance with the terms of the notes. On June 7, 2019, and June 10, 2019, the Company received notices from two of its institutional investors that the Company was in default due to missed principal and interest payments under the terms of the Notes. On June 27, 2019, the Company reported that is has informed its convertible note holders that it will cease honoring conversion requests of the 2018 and 2019 Notes forcing a voluntary default of these instruments. The Company is pursuing a renegotiation and amendment of these instruments in an effort to avoid litigation. The Company is requesting to amend the terms of the notes to remove the conversion features and revise the cash amortization, among other items. See also Note 13 for litigation related to the Convertible Notes Payable. From June 10, 2019 until year end, the Company has accrued interest at the default interest rate for all note series representing approximately $0.3 million of additional interest payable. The Company has accrued an additional $1.8 million of additional accrued liabilities as of August 31, 2019 representing potential liability associated with the default of the notes payable for default premium, potential liquidating damages, and other costs associated with the notes in default. June 2018 Senior Convertible Notes (in default) On June 4, 2018, the Company issued $10 million of senior convertible notes (“June 2018 Notes”) to institutional investors with an original issue discount of $1 million for a purchase price of $9 million. The notes bear interest at a rate of 8%, with one year’s interest guaranteed, and have a maturity date of September 4, 2019. The Notes remain outstanding as of November 22, 2019. The company received cash proceeds of $8.4 million representing the $9 million purchase price, reduced by approximately $0.6 million of financing costs directly related to the issuance of the June 2018 Notes. Concurrent with the sale of the June 2018 Notes, the Company granted warrants to purchase 25,100 shares of common stock to its institutional investors and warrants to purchase 75,422 shares of common stock to its investment banker as placement fees, at an exercise price of $99.60, subject to down round price protection adjustment, as defined in the agreements. The warrants were valued at the date of issuance using the lattice-based option pricing model at $86.80 per warrant. Both the June 2018 Notes and the related warrants were issued with registration rights, whereby the Company was obligated to register the shares underlying the June 2018 Notes or was subject to registration rights penalties. During the year ended August 31, 2018, the Company accrued a loss of $3,500,000 for penalties associated with the registration rights penalties. With the issuance of the December 2018 Notes described below, the Company reduced the loss accrual to $889,000 and recorded a gain recovery on the accrued loss of $2,611,000 during the year ended August 31, 2019. The terms of June 2018 notes are summarized as follows: · Term: September 4, 2019; · Coupon: 8%; Default interest rate: 18%; · Convertible at the option of the holder at any time; · Conversion price is initially set at $99.60 but subject to down round price protection. After maturity, the conversion price will be set subsequently at the lesser of the then conversion price and 85% of the volume weighted average price for the trading date immediately prior to the application conversion date; and · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. Debt issuance costs The Company paid approximately $0.8 million of incremental issuance costs directly attributable to the issuance of the senior secured convertible notes. These costs were recorded as a discount to the convertible notes and they are amortized straight line over the term to interest expense, which approximates the effective interest method. Debt Discount During the year ended August 31, 2018, the Company recorded an aggregate debt discount of $4.1 million for the June 2018 Notes. The debt discount includes an initial $1 million resulting from the original issuance discount on the convertible notes and an initial $2.2 million resulting from the fair value of the warrants and $0.9 million resulting from the beneficial conversion feature on the non-detachable conversion option. The Company evaluated the warrants and determined that there was no embedded conversion feature as the warrants contained a set exercise price with an adjustment only based upon customary items including stock dividends and splits, subsequent rights offering and pro rata distributions and subject to down round price protection. The Company reviewed the guidance under ASC 470 Debt and allocated the proceeds from the sale of a debt instrument with stock purchase warrants based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. As a result, the Company allocated $2.2 million to the warrants and was recorded as a debt discount with an offset to additional paid in capital in the accompanying financial statements. The Company valued the issued warrants using the Lattice pricing model at $52.80 per warrant with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.78 percent, and annualized volatility of 122%. The debt discount is amortized straight-line over the stated life of the obligation, which approximates the effective interest method. Any conversions results in a pro-rata acceleration of unamortized debt discount and debt issuance costs to interest expense on the date of conversion. Event of default – August 2018 At the June 2018 issuance, the Company executed registration rights agreements with each of its institutional investors. These registration rights agreements require, among other things, that the initial registration statement should be (a) filed within 30 days of June 4, 2018, and (b) declared effective within 90 days of June 4, 2018. The Company’s registration statement was filed on October 1, 2018 and it was declared effective by the SEC on October 29, 2018; thus, both the filing and effectiveness deadlines were missed. The Company recorded in its consolidated financial statements the mandatory default amount as stipulated in the convertible note agreements. As of August 31, 2018, the Company recorded approximately $3.5 million, which is reported under current liabilities in its consolidated statement of operations, and a further $0.6 million of accrued interest. On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company increased the principal amount of the convertible notes by issuing $889,000 of December 2018 Notes in full settlement of the previously accrued $3.5 million default. The Company accrued an additional $1.8 million in liquidating damages and recognized an $811,000 gain on recovery of these accrued penalties. December 2018 Notes (in default) On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolved all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company issued additional notes (“December 2018 Notes” in the amount of $889,000 on substantially the same terms as the June 2018 Notes except that the stated interest rate was 0% and the term of the December 2018 Notes was December 31, 2019. There was no recorded discount or deferred financing costs for the December 2018 Notes issued. March 2019 Bridge Financing (in default) On March 12, 2019, the Company issued convertible notes in the principal amount of $4,750,000 with an original issue discount of $1 million for a purchase price of $3,750,000 to certain of its existing institutional investors (“March 2019 Notes”) and mature on September 12, 2020. The Company received net cash proceeds of $3.3 million to be used for mobile application development and working capital. The Company incurred approximately $0.5 million of debt issuance costs that are incremental costs directly related to the issuance of the bridge financing senior convertible notes payable. The terms of the March 2019 convertible notes are summarized as follows: · Term: September 12, 2020; · Coupon: 0%; · Default interest rate: 18%; · Original issue discount: $1,000,000; · Convertible at the option of the holder at any time; · Initial conversion price is set at $66.80 but subject to down round price protection; · Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; · Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. In connection with the note, the Company issued 74,390 warrants (“March 2019 Warrants”), exercisable at $70.00, with a five-year term. The Company evaluated the warrants issued and determined that they were derivative liabilities. The Company estimated the fair value of the warrants using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, resulting in a fair value of $3,917,000. The Company estimated the aggregate fair value of the conversion feature derivative embedded in the debenture (“March 2019 Conversion Feature”) at issuance at $2,421,000 based on weighted probabilities of assumptions using the Lattice pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $63.60, a risk-free interest rate of 2.49% and expected volatility of the Company’s common stock of 122%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount resulted from bifurcating the warrants and the conversion feature being greater than the face amount of the debt and the original issue discount, and the excess amount of $2.6 million was immediately expensed as financing costs. March 2019 Derivative Liabilities: Both the March 2019 Warrants and the March 2019 Conversion Feature are accounted for as derivative liabilities. As such, each derivative is marked to market at each reporting date. Prior to March 2019, the Company had no derivative liabilities. The following table provides the activity for the Company’s derivative liabilities for the year ended August 31, 2019. March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (3,069,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,256,000 The Company used the following assumptions to estimate fair value of the derivatives as of August 31, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability Risk free rate 1.76 % 1.39 % Market price per share $ 19.04 $ 19.04 Life of instrument in years 1.04 4.47 Volatility 100 % 119 % Dividend yield 0 % 0 % |
Stockholders' Equity_2
Stockholders' Equity | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Stockholders' deficit | ||
Note 5: Stockholders' Equity | Common Stock and Warrants The Company issued no common shares or common stock warrants during the quarter ended November 30, 2019. No warrants were exercised, expired, or cancelled during the quarter ended November 30, 2019. The following tables summarize our warrants outstanding as of November 30, 2019: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70.00 74,390 4.3 June 2018 Notes Warrants $ 70.00 30,526 3.5 2017 PIPE Warrants $ 276.00 2,500 2.6 107,416 4.0 All warrants outstanding and exercise prices have been adjusted to reflect the 1:40 reverse split. | Preferred Stock In September 2016, the Company issued options to purchase preferred stock at $0.0001 per share. This issuance was approved by its shareholders. The number of options is equal to the lesser of (a) the number of shares of common stock held by such shareholder on September 28, 2016, which accounts for approximately 25.6 million shares, or (b) the number of shares of common stock held by such shareholder on date of the shareholder’s exercise of the aforesaid option. The preferred stock that is the subject of such contingent option provides a right to elect a majority of the directors on the Board of Directors of the Corporation and does not include any rights to dividends, conversion to shares of common stock, or preference upon liquidation of the Corporation. The contingent option is exercisable only upon the acquisition of a 20% or greater voting interest in the Corporation by a party other than the founding shareholders, or prior to any proposed merger, consolidation (in which the Corporation’s common stock is changed or exchanged), or sale of at least 50% of the Corporation’s assets or earning power (other than a reincorporation). The right to exercise the option terminates on December 31, 2023. Common Shares During the year ended August 31, 2019, the Company issued 6,688 shares of common stock following the exercise of warrants and received gross proceeds of $660,000. During the year ended August 31, 2018, the Company issued 938 shares of common stock following the exercise of warrants with an exercise price of $80.00 and received gross proceeds of $75,000. As described more fully in Note 8, during the year ended August 31, 2019, the Company issued 174,081 shares of common stock in satisfaction of principal and accrued interest following conversion of convertible notes into shares of common stock. Issuances of common shares to directors for services The Company awards shares of common stock to its independent directors under its 2017 Stock Option / Stock Issuance Plan (the “Plan”) as compensation for their services as directors. These awards are typically valued at market value on the date of the award. For the year ended August 31, 2019 the Company issued 4,985 shares valued at $263,000 to its directors. Treasury Stock In June 2019, the Company advanced $325,000 in cash to Steven Holmes, a significant shareholder and service provider to the Company. In July 2019, Mr. Holmes repaid the advance by returning 13,954 shares of Mr. Holmes common share holdings, valued at $23.28 per share in full settlement of the advance and which was the market value on the date of settlement. The shares were retired in fiscal 2019 in accordance with company policy. See also Note 11. Common Stock Warrants During the year ended August 31, 2018, the Company issued warrants to purchase 30,523 shares of common stock to investors in connection with the senior secured convertible notes, with exercise price of $99.60 per warrant with expiration date of 5 years and subject to down round price protection and reset the warrant price to $70.00 in 2019 concurrent with the March 2019 Note financing warrant issuance. The Company valued the warrants at issuance using the Lattice option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.78 percent, and annualized volatility of 120%. The Company valued the revised warrants on March 12, 2019 using the Lattice option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 4.2 years, risk free rates of 2.41 percent, and annualized volatility of 122%. During the year ended August 31, 2019, the Company issued warrants to purchase 74,390 shares of common stock in connection with the March 2019 Notes, with exercise price of $70.00 per warrant with expiration date of 5 years. The Company valued the issued warrants using the Black-Scholes option-pricing model at $52.80 per warrant with the following assumptions: dividend yield of zero, years to maturity of 5 years, risk free rates of 2.49%, and annualized volatility of 122%. The fair value of the warrants issued were incorporated into the financing loss and March 2019 Notes discount described in Note 8 above. The following tables summarize the Company’s warrants outstanding as of August 31, 2019 and 2018: Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2017 64,887 1.5 $ 119.60 Issued 30,526 5.3 $ 99.60 (Exercised) (938 ) 1.2 80.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2018 94,475 2.13 $ 113.60 Issued 74,390 5.0 $ 70 (Exercised) (6,688 ) 0.45 98.80 (Cancelled) - - - (Expired) (54,761 ) - 114.80 Warrants outstanding, August 31, 2019 107,416 4.42 $ 74.80 The following table summarizes information about warrants outstanding as of August 31, 2019: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70 74,390 4.6 June 2018 Notes Warrants $ 70 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based Compensation_2
Share based Compensation | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Share based Compensation | ||
Note 6: Share based compensation | In March 2017, the Company adopted the 2017 Stock Option / Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), each of which is exercisable into shares of common stock (“Options”) or shares of common stock (“share grants”). The Company has reserved a total of 250,000 shares of common stock for issuance under the Plan as of November 30, 2019. Of these shares, as of November 30, 2019, approximately 83,000 options and 7,000 shares have been designated by the Board of Directors for issuance and approximately 38,000 of the options have been forfeited and returned to the option pool under the Plan due to employment terminations. As of November 30, 2019, approximately 200,000 shares remain issuable of which 167,000 are eligible to be issued as ISOs and 200,000 are eligible to be issued as either share grants or NQ stock options. No options or shares were granted during the quarter ended November 30, 2019. For all options granted thus far to November 30, 2019, each option is immediately exercisable and has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, and the balance vest in equal monthly installments over the next 36 months of service. All options granted to date have a ten-year term. Share grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Share based compensation expense consisted of employee stock option compensation expense of $114,000 and $77,000 for the quarters ended November 30, 2019 and 2018, respectively. At November 30, 2019, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 2.1 years for outstanding grants was $1.4 million. A summary of option activity was as follows: Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2019 50,749 8.95 $ 95.20 Granted – – $ – Exercised – – $ – Forfeited (5,286 ) 8.44 $ 69.01 Balance at November 30, 2019 45,463 8.67 $ 98.30 Options outstanding as of November 30, 2019 had aggregate intrinsic value of $0. Option vesting activity was as follows: Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2019 10,291 8.04 $ 152.80 Vested 2,232 8.44 $ 146.82 Exercised – – $ – Forfeited (488 ) 0.08 $ 116.32 Balance at November 30, 2019 12,035 7.87 $ 153.19 The following table summarizes information about stock options outstanding and vested at November 30, 2019: Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-$40.00 6,625 9.52 $ 23.31 – – $ – $40.01–$80.00 13,729 9.34 $ 51.21 – – $ – $80.01–$120.00 11,224 8.45 $ 103.15 4,384 8.41 $ 103.53 $120.01–$160.00 12,625 7.79 $ 157.71 6.860 7.56 $ 157.41 $160.01-$391.60 1,260 7.63 $ 391.60 791 7.63 $ 391.60 45,463 8.67 $ 98.30 12,035 7.87 $ 153.19 The number of options and exercise prices have been presented retroactively for the 1 for 40 December 17, 2019 reverse split. | In March 2017, the Company adopted the 2017 Stock Option / Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), each of which is exercisable into shares of common stock (“Options”) or shares of common stock (“share grants”). The Company has reserved a total of 250,000 shares of common stock for issuance under the Plan as of August 31, 2019. Of these shares, as of August 31, 2019, approximately 82,500 options and 7,500 shares have been designated by the Board of Directors for issuance and approximately 32,500 of the options have been forfeited and returned to the option pool under the Plan due to employment terminations. As of August 31, 2019, approximately 195,000 million shares remain issuable of which 167,500 are eligible to be issued as ISOs and 195,000 are eligible to be issued as either share grants or NQ stock options. During 2018 and 2019 both common share grants and stock options were issued to employees and non-officer directors of the Company. Shares issued for services for 2019 and 2018 consist solely of grants to non-officer directors. For all options granted thus far to August 31, 2019, each option is immediately exercisable and has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, and the balance vest in equal monthly installments over the next 36 months of service. All options granted to date have a ten year term. Share grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model and the following assumptions: 2019 2018 Expected life 4.0 years 4.0 years Estimated volatility 119 % 121 % Risk-free interest rate 1.70%-2.90 % 2.01%-2.83 % Dividends - - Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Share based compensation expense consisted of the following for the years ended August 31, 2019 and 2018: Year ended August 31, 2019 Year ended August 31, 2018 Shares issued for services $ 263,000 $ 163,000 Employee stock options 369,000 200,000 Balance at August 31, 2019 $ 632,000 $ 363,000 At August 31, 2019, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 1.7 years for outstanding grants was $1.6 million. A summary of option activity was as follows: Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2017 19,750 9.58 $ 184.80 Granted 23,719 10.0 $ 105.60 Exercised – – $ – Forfeited (9,750 ) 8.49 $ 154.80 Balance, August 31, 2018 33,719 9.77 $ 138.00 Granted 36,073 10.0 $ 63.60 Exercised – – $ – Forfeited (19,043 ) 8.06 $ 111.20 Balance at August 31, 2019 50,749 8.95 $ 95.20 Options outstanding as of August 31, 2019 and 2018 had aggregate intrinsic value of $575,000 and $1,000 respectively. Option vesting activity was as follows: Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2017 -- -- $ - Vested 5,364 8.83 $ 184.80 Exercised – – $ – Forfeited (850 ) 8.54 $ 177.20 Balance, August 31, 2018 4,514 8.57 $ 182.40 Vested 7,410 – $ 137.20 Exercised – – $ – Forfeited (1,633 ) 8.10 $ 164.40 Balance at August 31, 2019 10,291 8.04 $ 152.80 The following table summarizes information about stock options outstanding and vested at August 31, 2019: Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-40.00 8,125 9.77 $ 22.40 – – $ – $40.01–$80.00 15,761 9.59 $ 51.60 – – $ – $80.01–$120.00 12,864 8.67 $ 104.00 4,202 8.63 $ 105.20 $120.01–$160.00 12,625 8.04 $ 155.20 5,373 7.60 $ 158.40 $160.01-$391.60 1,375 7.88 $ 391.60 716 7.88 $ 391.60 50,749 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Related Parties_2
Related Parties | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Related Parties | ||
Note 7: Related Parties | J. Stephen Holmes, our Sales Manager is an advisor to and significant shareholder of the Company. The Company incurred $180,000 and $180,000 in professional fees for management consulting services in the three months ended November 30, 2019, and 2018, respectively. | Scott Absher, Chief Executive Officer, Director, and a significant shareholder of the Company became a Company employee on April 1, 2016. During the year ended August 31, 2019 and 2018, the Company recorded $750,000 and $750,000, respectively as compensation for his role as CEO in accordance with his employment agreement. On March 15, 2017, Scott Absher was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017, with expiration date of March 14, 2027, at an exercise price of $4160.00. J. Stephan Holmes is an advisor to and a significant shareholder of the Company. The Company incurred $720,000 and $700,000 in such professional fees to J. Stephen Holmes for management consulting services for the year ended August 31, 2019 and 2018, respectively and recorded in professional fees on the statement of operations. On March 15, 2017, Stephan Holmes was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017, with expiration date of March 14, 2027, at an exercise price of $4160.00. In June 2019 the Company advanced Mr. Holmes $325,000 in cash and recorded the advance as a short term note receivable. In July 2019, Mr. Holmes provided 13,954 shares of common stock of the Company valued at $23.20 per share in satisfaction of the cash advance. On May 15, 2017, Mark Absher, Director, In-House Counsel, and brother of Scott Absher, was granted 1,250 options to purchase common stock as part of the 2017 Plan, exercisable on March 15, 2017 with expiration date of March 14, 2027, at an exercise price of $4160.00. On May 10, 2018, Mark Absher was also granted an additional 1,250 options to purchase common stock at an exercise price of $100.00 and exercisable in May 2018 with expiration date in May 2028. During the year ended August 31, 2019 and 2018, the Company recorded $275,000 and $300,000, respectively as compensation for his role as Registered In-House Counsel in accordance with his employment agreement. Mark Absher resigned in February 2019 and all options granted were cancelled during the fiscal year ending August 31, 2019. For the year ended August 31, 2019 the following issuances were made to the Company’s directors: Date Issued Shares Issue Price per Share Value Ken Weaver August 2019 1,995 $ 18.80 (A) $ 37,500 Ken Weaver May 2019 1,202 $ 31.20 (B) 37,500 Ken Weaver November 2018 308 $ 122.00 (C) 37,500 Sean Higgins September 2018 329 $ 114.00 (D) 37,500 Sean Higgins April 2019 412 $ 91.20 (E) 37,500 Whitney White September 2018 329 $ 114.00 (D) 37,500 Whitney White April 2019 412 $ 91.20 (E) 37,500 4,987 $ 262,500 _____________ (A) Represents share grant for services performed between June 1, 2019 and November 30, 2019 and awarded in August 2019. (B) Represents share grant for services performed between December 1, 2019 and May 31, 2019 and awarded in May 2019. (C) Represents share grant for services performed between June 1, 2018 and November 30, 2018 and awarded by the Board of Directors in August 2018. (D) On September 28, 2017 the Company awarded two directors 658 shares of common stock of which 50% vested on the date marking their six-month service anniversary and 50% for the remaining service through November 28, 2018. (E) Represents share grant for services performed between September 29, 2018 and March 28, 2019 and awarded in March 2019 |
Income Taxes
Income Taxes | 12 Months Ended |
Aug. 31, 2019 | |
Income Taxes | |
Note 12: Income Taxes | Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes. Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income. The Company’s deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers would be limited under the Internal Revenue Code should a significant change in ownership occur within a three-year period. As of August 31, 2019, and 2018, the Company had cumulative net operating loss carryforwards of approximately $30,686,000 and $26,673,000 respectively, which begin to expire in 2029. The deferred tax assets primarily comprise net operating loss carryforwards and other net temporary deductible differences such as stock-based compensation, deferred rent, depreciation and workers’ compensation accrual. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management’s analysis, they concluded that it was more likely than not that the deferred tax asset would not be realized. Therefore, the Company established a full valuation allowance against the deferred tax assets. The change in the valuation allowance in 2019 and 2018 was approximately $5,159,000 and $3,493,000, respectively. Significant components of the net deferred tax assets as reflected on the Consolidated Balance Sheets are as follows: August 31, 2019 2018 in thousands Deferred tax liabilities: Depreciation $ (122,000 ) $ (21,000 ) Software development costs (845,000 ) (835,000 ) Total deferred tax liabilities (967,000 ) (856,000 ) Deferred tax assets: Net operating loss carryforward 9,157,000 8,010,000 Business interest 2,539,000 - Workers’ compensation accruals 1,763,000 360,000 Stock-based compensation 354,000 172,000 Deferred rent 15,000 16,000 Total deferred tax assets 13,828,000 8,558,000 Valuation allowance (12,861,000 ) (7,702,000 ) Total net deferred tax assets $ 967,000 $ 856,000 Net deferred tax assets $ - $ - Income tax expense consists of the following For the Year Ended August 31, Current 2019 2018 Federal $ - $ - State - - Total current - - Deferred Federal 4,422,000 2,994,000 State 737,000 499,000 Total deferred 5,159,000 3,493,000 Change in valuation allowance $ (5,159,000 ) $ (3,493,000 ) Total Income Tax Expense (Benefit) $ - $ - The reconciliation of the statutory federal rate to the Company’s effective income tax rate is as follows: August 31, August 31, 2019 2018 Pre-tax book loss $ 3,933,000 $ 4,145,000 Non-deductible penalties and other permanent differences (430,000 ) (177,000 ) State taxes (8.84%) 1,656,000 1,466,000 Redetermination of prior year taxes - - Enactment of the 2017 Tax Reform Act - (1,941,000 ) Change in valuation allowance (5,159,000 ) (3,493,000 ) Net income tax provision $ - $ - In December 2017, the Tax Cuts and Jobs Act was enacted, which reduces the U.S. statutory corporate tax rate from a maximum rate of 35% to 21% for the tax years beginning after December 31, 2017. For a corporation whose fiscal year begins before December 31, 2017 and ends after December 31, 2017, the IRS has issued guidance, in notice 2018-38, regarding the calculation of a blended current year tax rate. The Company followed this guidance in the calculation of the prior year tax benefit for the fiscal year ended August 31, 2018. The Calculation resulted in a 25% effective tax rate for fiscal year 2018. The Tax Cuts and Jobs Act resulted in the re-measurement of the federal portion of the Company’s deferred tax assets and valuation allowance as of August 31, 2018 from 35% to the new 21% tax rate. As a result, the reduction of the corporate tax rate resulted in a write-down of the gross deferred tax assets of approximately $1,277,000 and a corresponding write-down of the valuation allowance. The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of August 31, 2019, and 2018, the Company had no accrued interest and penalties related to uncertain tax positions. The Company’s net operating losses (“NOL”) may be limited by the provisions of IRC Section 382, for which the Company has not performed an analysis of the potential limitations. These limitations will be imposed when the Company attains taxable income against which the NOL will be utilized. The company had a NOL of $3,843,000 during the period ending August 31, 2019. This NOL has an indefinite life but are limited to 80%. As explained above, the Company has determined that it is more likely than not that the Company’s deferred tax assets related to NOL Carryforwards will not be utilized. The Company is subject to taxation in the U.S. The tax years for 2016 and forward are subject to examination by tax authorities. The Company is not currently under examination by any tax authority. Management has evaluated tax positions in accordance with FASB ASC 740, and has not identified any tax positions, other than those discussed above, that require disclosure. |
Commitment and contingencies
Commitment and contingencies | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Contingencies | ||
Note 8: Contingencies | Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will be resolved only when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. During the ordinary course of business, the Company is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flow. Convertible Note related litigation: During 2019, three of the Company’s note holders have filed complaints: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019 ShiftPixy was served with a complaint filing by Alpha Capital Anstalt (ACA) in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes, specifically one for $310,000 submitted on June 20, 2019. ACA sought an injunction requiring the Company to issue 25,000 common shares, damages for the claimed breaches, and attorney’s fees. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of November 30, 2019, the Company had convertible notes outstanding with ACA for approximately $1.7 million consisting of $0.3 million of the June 2018 series, $0.2 million of the December 2018 series and $1.2 million of the March 2019 series. In January 2020, Alpha was awarded a judgement for $500,000 consisting of the $310,000 notes and $190,000 of damages. The damages are fully accrued for as of November 30, 2019 in the default penalty accrual as described in Note 4 above. On January 16, 2020 Alpha Capital converted all remaining June and December 2018 Note balances at $12.20 per share. On January 20, 2020 the Company paid the damages award in cash. Dominion Capital LLC v. ShiftPixy, Inc.; On July 18, 2019 ShiftPixy was served with a complaint filing by Dominion Capital LLC in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes. Dominion sought injunctive relief, injunction to prohibit buyback, breach of contract on the June 2018, December 2018, and March 2019 notes, and declaratory judgment. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of November 30, 2019, the Company had convertible notes outstanding with Dominion for approximately $1.5 million consisting of $0.7 million of the June 2018 series, $0.2 million of the December 2018 series and $0.6 million of the March 2019 series.The Company expects to have a judgment awarded to Dominion later in January 2020 and is in discussions to settle the litigation. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019 MEF filed a complaint in the United States District Court, Southern District of New York. MEF seeks monetary relief of $2.1 million and seeks to appoint themselves as receiver of the Company. As of November 30, 2019 the Company had convertible notes outstanding to MEF at approximately $0.7 million face value consisting of approximately $0.5 million and $0.2 million for the June 2018 and December 2018 notes respectively. In November 2019 the Company filed a motion in response to the receiver request. On January 17, 2020 the Company and MEF I settled all claims and repaid all note principal remaining, accrued damages, and accrued interest and with issuance of 20,000 shares of common stock and payment of $725,000 in cash. The total of $969,000 was fully accrued for as of November 30, 2019. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures, over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11 million but has not received the majority of certain software modules. In addition to the non-delivery of the paid for user features, Kadima Ventures asserts that it is owed additional funds to turn over the work completed. The Company initiated litigation to force the delivery of the software modules paid for through fiscal 2019 and exit the development engagement. In April 2019, Kadima filed a complaint against ShiftPixy in the County of Maricopa, AZ alleging breach of contract, promissory estoppel and unjust enrichment and has demands for an additional $10 million prior to releasing the remaining features. The parties agreed to a transfer of the matter to an Arizona Commercial Court with the expectation that the matter would be sent to arbitration or mediation. In October 2019, Kadima provided the software code to a third party for technical evaluation of the software in question. The Company expects to enter into mediation once the technical evaluation is completed later in fiscal 2020. An answer to the Complaint is due January 31, 2020. Splond Litigation On April 8, 2019, claimant, Corey Splond, filed a class action lawsuit, naming ShiftPixy, Inc. and its client as defendants, claiming that he was scheduled to work for more than 8 hours during 24-hour periods without being paid overtime, to which he was entitled. In addition, claimant is seeking waiting time penalties for the delay in payment. This lawsuit is in the initial stages; the financial impact to the Company, if any, cannot be estimated. No liability has been recorded for this matter at this time. In the event of an unfavorable outcome the Company’s client is contractually obligated to indemnify the Company for misreported hours and portions of the claim would be covered under the Company’s employment practices liability insurance. | Software License The Company licenses software from a third party for utilization in its mobile application and HRIS system. The license agreement is for three years and contains an annual escalation beginning in May 2020. The license is month to month and is cancelable but is subject to a cancellation penalty calculated as 30% of the remaining contracted license payments if cancelled by the Company. Future minimum license payments under the license agreement at August 31, 2019, are as follows: Years ended August 31, 2020 $ 922,000 2021 1,015,000 2022 817,000 Total minimum payments $ 2,754,000 Operating Lease Effective April 15, 2016, the Company entered into a non-cancelable five-year operating lease for its Irvine facility. On July 25, 2017, the Company entered into a non-cancelable operating lease for expansion space at its Irvine offices with a termination date that coincides with the termination date of the prior lease and extended the terms of the original lease to extend until 2022. The leases for certain facilities contain escalation clauses relating to increases in real property taxes as well as certain maintenance costs. Future minimum lease payments under non-cancelable operating leases at August 31, 2019, are as follows: Years ended August 31, 2020 $ 382,000 2021 382,000 2022 319,000 Total minimum payments $ 1,083,000 Non-contributory 401(k) Plan The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employee who are at least 21 years of age and have completed 3 months of service. There were no employer contributions to the Plan for the years ended August 31, 2019 and 2018. Share Repurchase Plan On July 9, 2019, the Company’s Board of Directors authorized the repurchase of up to 250,000 shares of its outstanding common shares as market conditions warrant over a period of 18 months. The Company has not implemented the share repurchase plan to date and has not repurchased any shares under the plan. Litigation Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will be resolved only when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. During the ordinary course of business, the Company is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flow. Convertible Note related litigation: During 2019, three of the Company’s note holders have filed complaints: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019 ShiftPixy was served with a complaint filing by Alpha Capital Anstalt (ACA) in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes, specifically one for $310,000 submitted on June 20, 2019. ACA sought an injunction requiring the Company to issue 25,000 common shares, damages for the claimed breaches, and attorney’s fees. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with ACA for approximately $1.7 million consisting of $0.3 million of the June 2018 series, $0.2 million of the December 2018 series and $1.2 million of the March 2019 series. Dominion Capital LLC v. ShiftPixy; On July 18, 2019 ShiftPixy was served with a complaint filing by Dominion Capital LLC in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes. Dominion sought injunctive relief, injunction to prohibit buyback, breach of contract on the June 2018, December 2018, and March 2019 notes, and declaratory judgment. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with Dominion for approximately $1.5 million consisting of $0.7 million of the June 2018 series, $0.2 million of the December 2018 series and $0.6 million of the March 2019 series. Both ACA and Dominion have filed for summary judgment on their cases. The court referred those motions to a magistrate judge for a report and recommendation, and the magistrate judge filed his report on November 22, 2019, recommending that the court enter judgment for money damages in both cases consistent with the amounts accrued for by the Company, denying permanent injunctive relief, and granting declaratory relief with respect to the stock buyback program. The Company is awaiting a response from the court as of the date of this filing. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019 MEF filed a complaint in the United States District Court, Southern District of New York based upon the Company’s refusal to convert June 2018 notes. MEF seeks monetary relief of $2.1 million and seeks to appoint themselves as receiver of the Company. As of August 31, 2019 the Company had convertible notes outstanding to MEF at approximately $0.7 million face value consisting of approximately $0.5 million and $0.2 million for the June 2018 and December 2018 notes respectively. In November 2019 the Company filed a motion in response to the receiver request. A hearing on the receiver matter was conducted on November 20, 2019 and the Company is awaiting a response from the court on the hearing as of the date of this filing. Lyons Capital, LLC Litigation On June 21, 2018, ShiftPixy was served with a summons and complaint in connection with a claim by Lyons Capital, LLC, arising out of a contract wherein ShiftPixy, Inc., agreed to pay Lyons Capital, LLC, a total of 210,000 shares of the company’s common stock in exchange for introductions to brokers, research coverage, funds, investment banking firms, and market makers as well as board representation and business opportunities and for promotion of the company at Lyons Capital, LLC’s annual conference. This lawsuit was settled during fiscal 2019 for an immaterial amount which was included in general and administrative expenses on the statement of operations. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures, over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11 million but has not received the majority of certain software modules. In addition to the non-delivery of the paid for user features, Kadima Ventures asserts that it is owed additional funds to turn over the work completed. The Company initiated litigation to force the delivery of the software modules paid for through fiscal 2019 and exit the development engagement. In April 2019, Kadima filed a complaint against ShiftPixy in the County of Maricopa, AZ alleging breach of contract, promissory estoppel and unjust enrichment and has demands for an additional $10 million prior to releasing the remaining features. The parties agreed to a transfer of the matter to an Arizona Commercial Court with the expectation that the matter would be sent to arbitration or mediation. In October 2019, Kadima provided the software code to a third party for technical evaluation of the software in question. The Company expects to enter into mediation once the technical evaluation is completed later in fiscal 2020. An answer to the Complaint is due January 31, 2020. Splond Litigation On April 8, 2019, claimant, Corey Splond, filed a class action lawsuit, naming ShiftPixy, Inc. and its client as defendants, claiming that he was scheduled to work for more than 8 hours during 24-hour periods without being paid overtime, to which he was entitled. In addition, claimant is seeking waiting time penalties for the delay in payment. This lawsuit is in the initial stages; the financial impact to the Company, if any, cannot be estimated. No liability has been recorded for this matter at this time. In the event of an unfavorable outcome the Company’s client is contractually obligated to indemnify the Company for misreported hours and portions of the claim would be covered under the Company’s employment practices liability insurance. |
Subsequent Events_2
Subsequent Events | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Subsequent Events | ||
Note 9: Subsequent Events | On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 21,750 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. As of November 30, 2019, the Company classified $778,000 of the $1,245,000 carrying value of the notes exchanged as long-term liabilities. On December 17, 2019 the Company effected a 1 for 40 reverse stock split. All common shares, common share warrants, common share options, and convertible note conversion prices have been retroactively adjusted. On December 23, 2019, the Company issued 428 shares to each of Messrs. Higgins and White, both Directors of the Company, in settlement of shares promised in December 2018 but not issued. The fair value on the date issued for the combined issuance of 856 shares was $7,000. On January 6, 2020 the Company entered into an asset purchase agreement with a third party that assigned client contracts representing approximately 60% of the recurring business as of November 30, 2019 and certain operating assets in exchange for up to approximately $19.2 million of consideration. The Company received $9.7 million upon closing and expects to receive additional proceeds of approximately $2.4 million per year, payable monthly, for the next four years after certain transaction conditions are met. The Company evaluated the transaction and determined that as of November 30, 2019 the criteria were not met to designate any assets as assets held for sale. In January 2020, the Company paid the damages claim with Alpha Capital as described in Note 8 aboveIn January 2020, Alpha Capital Anstalt (ACA) was awarded a judgment for $500,000 consisting of the $310,000 notes and $190,000 of damages. The damages were fully accrued for as of November 30, 2019. On January 16, 2020, Alpha Capital converted all remaining June and December 2018 Note balances at $12.20 per share. January 20, 2020, the Company paid the damages award in cash. On January 17, 2020, the Company and MEF I settled all claims and repaid all note principal remaining, accrued damages, and accrued interest with the issuance of 20,000 shares of common stock and payment of $725,000 in cash. On January 22, 2020, the Company and Dominion Capital LLC settled all claims and repaid all note principal remaining, accrued damages, and accrued interest with the issuance of 83,543 shares of common stock and payment of $1,322,000 in cash. Management has evaluated subsequent events pursuant to the issuance of the interim unaudited consolidated financial statements and has determined that other than listed above, no other subsequent events exist through the date of this filing. | On November 14, the Company filed a preliminary proxy requesting a 1 for 40 reverse split of our common shares. We have received the majority shareholder approval for the reverse split and the Company expects the reverse split to be effective on December 16, 2019. On December 4, 2019 the Company received a notice from the Nasdaq Capital Market stating that the Company will be delisted on December 13, 2019 unless the Company files for a hearing by December 11, 2019. The Company requested a hearing on December 9, 2019 and has a hearing scheduled for January 23, 2020. On December 5, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 Convertible Notes. The exchange agreement and the related revised March 2019 note agreement revised the conversion price to $40.00 per share, extended the term of the March 2019 notes to March 1, 2022, provided for a revised quarterly amortization schedule beginning April 1, 2020, and removed certain anti-dilution terms of the related March 2019 warrants. The holder also exchanged $222,000 of December 2018 Notes by extending the term to coincide with the revised term of the March 2019 notes and for the revised amortization schedule. The Company agreed to issue an additional $200,000 of consideration to the holder, payable in common stock, as consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. On December 11, 2019, the Company issued 870,000 shares of common stock to the holder in satisfaction of the additional $200,000 of consideration. Management has evaluated subsequent events pursuant to the issuance of the consolidated financial statements and has determined that no additional subsequent events occurred through the date of this filing that would require disclosure. |
Reverse Stock Split
Reverse Stock Split | 3 Months Ended |
Nov. 30, 2019 | |
Reverse Stock Split | |
Note 15: Reverse Stock Split | On December 17, 2019, the Company implemented a 1 for 40 reverse stock split for all common share and common share equivalents including, options, warrants, and convertible notes. All common shares and common share equivalents are presented retroactively to reflect the reverse split. |
Summary of significant accou_10
Summary of significant accounting policies (Policies) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three months ended November 30, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2020. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2019, filed with the SEC on December 13, 2019. | The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). |
Principles of Consolidation | The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated in consolidation. | The Company and its wholly-owned subsidiary have been consolidated in the accompanying consolidated financial statements. All intercompany balances have been eliminated in consolidation. |
Use of Estimates | The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of property and equipment; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instruments classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. | The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of software, property and equipment; · Assumptions made in valuing equity instruments; · Assumptions made in valuing embedded derivatives and freestanding equity-linked instrument classified as liabilities; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. |
Revenue Recognition | The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $11,347,000 and $9,478,000 as of November 30, 2019 and August 31, 2019, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2020 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs | The Company provides an array of human resources and business solutions designed to help improve business performance. The Company accounts for its EAS revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/HCM (“Employment Administration Services”/ “Human Capital Management”) services. The Company recognizes revenue 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 enters into contracts with its clients for EAS services based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 30 days’ notice. Contract performance obligations are satisfied as services are rendered and the term between invoicing and when the performance obligations are satisfied is not significant. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. Gross billings are invoiced to each client concurrently with each periodic payroll of the Company’s worksite employees which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets and were $6,878,000 and $6,193,000 for the years ended August 31, 2019 and August 31, 2018, respectively. Consistent with the Company’s revenue recognition policy, direct costs do not include the payroll cost of its worksite employees. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. The Company has evaluated its revenue recognition policies in conjunction with its future expected business which may be migrating to a staffing business model. For fiscal years 2018 and 2019, there were no revenues which should have been evaluated under a staffing business model. Such a staffing business model would have included the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with staffing services. The Company reviewed the costs associated with acquiring its customers under ASC 340-10 Other Assets and Deferred Costs |
Segment Reporting | The Company operates as one reportable segment under ASC 280, Segment Reporting | |
Cash and cash Equivalents | The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company had no such investments as of August 31, 2019 or 2018. | |
Concentration of Credit Risk | The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The Company has not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively. However, four clients represent 92% of total accounts receivable both at November 30, 2019 and August 31, 2019. | The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses related to these balances and believes its credit risk to be minimal. As of August 31, 2019, there were $2,354,000 of cash in excess of the amounts insured by the FDIC. The Company had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. Four clients represent 92% of total accounts receivable at August 31, 2019, compared to four clients representing approximately 86% of its total accounts receivable at August 31, 2018. |
Fixed Assets | Fixed assets are recorded at cost, less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Leasehold improvements are being amortized over the shorter of the useful life or the initial lease term. Fixed assets are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives of property and equipment for purposes of computing depreciation are as follows: Equipment: 5 years Furnitures & Fixtures: 5 - 7 years The amortization of these assets is included in depreciation expense on the consolidated statements of operations. | |
Computer Software Development | Software development costs relate primarily to software coding, systems interfaces and testing of the Company’s proprietary employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation and software maintenance costs are expensed as incurred. The capitalized computer software development costs are reported under the section fixed assets, net in the consolidated balance sheets. The Company determined that there were no material internal software development costs for the years ended August 31, 2018 or 2019. All capitalized software recorded was purchased from third party vendors. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally five years. | |
Impairment and Disposal of Long-Lived Assets | The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment | The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment |
Workers' compensation | Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of November 30, 2019, the Company classified $0.2 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of November 30, 2019, the Company had $2.0 million in deposit – workers’ compensation classified as a short-term asset and $6.2 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of November 30, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $5.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. | Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. As of August 31, 2019, the Company classified $0.1 million in short term accrued workers’ compensation and $0.3 million in long term accrued workers’ compensation in the Company’s consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in its consolidated balance sheets. As of August 31, 2019, the Company had $1.9 million in deposit – workers’ compensation classified as a short-term asset and $6.3 million classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated balance sheets. As of August 31, 2019, the Company had short term accrued workers’ compensation costs of $1.8 million and long term accrued workers’ compensation costs of $4.1 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which takes into account the ongoing development of claims and therefore requires a significant level of judgment. In estimating ultimate loss rates, the Company utilizes historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee’s job responsibilities, their location, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into its workers’ compensation claims cost estimates. The estimated incurred claims are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. |
Debt issuance Costs and Debt discount | Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets. Portions attributable to notes converted into equity are accelerated to interest expense upon conversion. | |
Beneficial Conversion Features | The intrinsic value of a beneficial conversion feature (“BCF”) inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the stated maturity using the straight-line method which approximates the effective interest method. If the note payable is retired prior to the end of the contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the BCF is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. | |
Derivative financial instruments | When a Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirement to be treated as a derivative: a) the settlement amount is determined by one or more underlying, typically the price of the Company’s stock, b) the settlement amount is determined by one or more notional amounts or payments provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provision, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares. When ShiftPixy, Inc., issues warrants to purchase its common stock, the Company evaluates whether they meet the requirements to be treated as derivative. Generally, warrants would be treated as a derivative if the provisions of the warrants agreements create uncertainty as to a) the number of shares to be issued upon exercise, or b) whether shares may be issued upon exercise. If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, ShiftPixy estimates the fair value of the derivative liability using the lattice-based option valuation model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statement of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreements are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the consolidated balance sheet date. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. | |
Fair Value of Financial Instruments | FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At November 30, 2019 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at November 30, 2019 or August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of November 30, 2019: March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 At November 30, 2019 and August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures and the fair value of the warrant liabilities based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. The Company used the following assumptions to estimate fair value of the derivatives as of November 30, 2019, using the default rate of 75% of market price as a conversion price: March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended November 30, 2019 or 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. | FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. FASB 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At August 31, 2019 and August 31, 2018, the carrying value of certain financial instruments (cash, accounts receivable and payable, and other financial instruments) approximates fair value due to the short-term nature of the instruments. Convertible notes approximate fair value based on comparison of terms from similar instruments in the marketplace. The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are: · Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. · Level 2: Inputs to the valuation methodology include: o Quoted prices for similar assets or liabilities in active markets; o Quoted prices for identical or similar assets or liabilities in inactive markets o Inputs other than quoted prices that are observable for the asset or liability; o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability · Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company did not have any Level 1 or Level 2 assets and liabilities at August 31, 2019. The derivative liabilities associated with its March 2019 Convertible Notes (see Note 8), consisted of conversion feature derivatives and warrants at August 31, 2019, are Level 3 fair value measurements. The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 for the year ended August 31, 2019: Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 At August 31, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on weighted probabilities of assumptions used in the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield (1.76%) of a Treasury note and expected volatility of the Company’s common stock (100%) all as of the measurement dates, and the various estimated reset exercise prices weighted by probability. At August 31, 2019, the Company estimated the fair value of the warrant liabilities based on the Lattice-based option valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk-free interest rate based on the average yield of a Treasury note (1.39%) and expected volatility of the Company’s common stock (119%) all as of the measurement dates. When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended August 31, 2019 and August 31, 2018, there were no transfers of financial assets or financial liabilities between the hierarchy levels. |
Advertising Costs | The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $304,000 and $379,000 for the three months ended November 30, 2019, and 2018, respectively. | The Company expenses advertising costs when incurred. Advertising costs incurred amounted to approximately $1.2 million and $0.5 million for the years ended August 31, 2019, and 2018, respectively. |
Research and Development | During the three months ended November 30, 2019 and 2018 the Company incurred research and development costs of approximately $0.9 million and $0.4 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three months ended November 30, 2019 and 2018, respectively. | During the years ended August 31, 2019 and 2018 the Company incurred research and development costs of approximately $2.3 million and $4.0 million, respectively. All costs were related to internally developed and contracted software and related technology for the Company’s HRIS system and related mobile application. In addition, $0.9 million and $2.8 million of software costs were capitalized for the years ended August 31, 2019 and 2018, respectively. |
Income Taxes | The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Under FASB ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. | |
Share-Based Compensation | At August 31, 2019 and 2018, the Company has one stock-based compensation plan under which the Company may issue both share and stock option awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of operations on their fair values. Share grants are valued at the closing market price on the date of issuance which approximates fair value. For option grants, the grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. Option grants are typically issued with vesting depending on a term of service. For all employee stock options granted, the Company recognizes expense over the requisite service period over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since its Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. | |
Earnings (Loss) Per Share | The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 | The Company utilizes FASB ASC 260, “Earnings per Share.” Basic loss per share is computed by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. The table below shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations. For the year ended August 31, 2019 2018 Losses per common share: Net loss allocated to common shareholders $ (18,727,000 ) $ (16,823,000 ) Weighted average shares outstanding 817,720 720,253 Basic and Fully Diluted net loss per common share $ (23.36 ) $ (0.58 ) Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Treasury Stock | Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all of its treasury stock outstanding as of November 30, 2019 and August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. | Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 13. Shares provided are recorded at cost as treasury stock. The Company intends to retire all treasury stock outstanding as of August 31, 2019 in fiscal 2020. Any treasury stock retired is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit. |
Revision of Financial Statements | During 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s consolidated financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,000 (985,000 ) $ 6,171,000 Additional Paid-In Capital 17,234,000 1,231,000 18,465,000 Accumulated deficit (25,977,000 ) (246,000 ) (26,223,000 ) Net Loss $ (16,577,000 ) (246,000 ) $ (16,823,000 ) Net loss per share – Basic and diluted $ (23.02 ) - $ (23.36 ) | |
Reclassifications | Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. | Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. |
Recent Accounting Standards | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption. The Company expects to adopt the guidance using the modified retrospective method. | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. Topic 606 is effective for the company beginning with the fiscal year ending August 31, 2020. The Company has evaluated Topic 606 and we plan to utilize the modified retrospective transition method upon the adoption of ASC 606. The Company is still in the process of finalizing its evaluation for the adoption of ASC 606, however, no material difference is expected. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. In March 2019, the FASB issued ASU 2019-01, which added guidance to ASC 842 that is similar to the guidance in ASC 840-10-55-44 and states that, for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement. The amendments also clarify that lessors in the scope of ASC 942 must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows. In addition, the amendments clarify that entities are not subject to the transition disclosure requirements in ASC 250-10-50-3 related to the effect of an accounting change on certain interim period financial information. In November 2019, the FASB issued ASU 2019-10, which provides a one-year deferral of the effective dates of the new lease standard. The ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact that this standard will have on its consolidated financial statement. In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for the Company in the first quarter of fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company does not expect that the adoption of this ASU will have a significant impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU adds new disclosure requirements for Level 3 measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements. In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the statement of cash flow. This guidance is effective for fiscal year beginning after December 15, 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s financial statements. |
Summary of significant accou_11
Summary of significant accounting policies (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies (Tables) | ||
Schedule of estimated useful lives of property and equipment | Equipment: 5 years Furnitures & Fixtures: 5 - 7 years | |
Schedule of fair value of the Company's derivative liabilities | March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 Change in fair value (340,000 ) (602,000 ) (942,000 ) Balance at November 30, 2019 (unaudited) $ 2,512,000 302,000 $ 2,814,000 March 2019 Conversion Feature March 2019 Warrant Liability (unaudited) (unaudited) Risk free rate 1.60 % 1.62 % Market price per share $ 10.20 $ 10.20 Life of instrument in years 0.79 4.28 Volatility 91 % 102 % Dividend yield 0 % 0 % | Conversion Features Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (2,569,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,756,000 |
Schedule of earning per common share | For the year ended August 31, 2019 2018 Losses per common share: Net loss allocated to common shareholders $ (18,727,000 ) $ (16,823,000 ) Weighted average shares outstanding 817,720 720,253 Basic and Fully Diluted net loss per common share $ (22.90 ) $ (23.36 ) | |
Schedule of weighted average dilutive common shares | For the Three Months Ended November 30, 2019 For the Three Months Ended November 30, 2018 Options 45,463 37,271 Senior Secured Convertible Notes 889,935 84,756 Warrants 107,416 87,783 Total potentially dilutive shares 1,042,814 209,810 | For the year ended August 31, 2019 For the year ended August 31, 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 8) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Schedule of condensed financial statements | August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,000 (985,000 ) $ 6,171,000 Additional Paid-In Capital 17,234,000 1,231,000 18,465,000 Accumulated deficit (25,977,000 ) (246,000 ) (26,223,000 ) Net Loss $ (16,577,000 ) (246,000 ) $ (16,823,000 ) Net loss per share – Basic and diluted $ (23.02 ) - $ (23.36 ) |
Fixed Assets (Tables)
Fixed Assets (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Fixed Assets (Tables) | |
Schedule of Fixed Assets | August 31, 2019 August 31, 2018 Equipment $ 372,000 $ 228,000 Furniture & fixtures 412,000 329,000 Software 3,737,000 2,797,000 Leasehold improvements 41,000 41,000 4,562,000 3,395,000 Accumulated depreciation & amortization (1,202,000 ) (363,000 ) Fixed assets, net $ 3,360,000 $ 3,032,000 |
Schedule of capitalized software | August 31, 2019 August 31, 2018 Software costs capitalized $ 3,737,000 $ 2,797,000 Software costs amortized (904,000 ) (190,000 ) Software costs, Net $ 2,833,000 $ 2,607,000 |
Amortization expense for capitalized software | Amount 2020 814,000 2021 814,000 2022 744,000 2023 458,000 2024 3,000 |
Workers Compensation (Tables)
Workers Compensation (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Workers Compensation (Tables) | |
Summarizes of workers' compensation deposit | Everest Program SUNZ Program Total Workers’ Comp Deposit at August 31, 2017 $ 2,335,000 - $ 2,335,000 Premiums paid (819,000 ) - (819,000 ) Paid in deposits - 2,386,000 2,386,000 Claim losses - (28,000 ) (28,000 ) Workers’ Comp Deposit at August 31, 2018 $ 1,516,000 2,358,000 $ 3,874,000 Premiums paid (144,000 ) - (144,000 ) Paid in deposits - 7,730,000 7,730,000 Claim losses (149,000 ) (1,850,000 ) (1,999,000 ) Deposit refund (1,223,000 ) - (1,223,000 ) Workers’ Comp Deposit at August 31, 2019 $ - 8,238,000 $ 8,238,000 Less Current Amount - (1,957,000 ) (1,957,000 ) Long Term Balance at August 31, 2019 $ - 6,281,000 $ 6,281,000 |
Summarizes the accrued workers' compensation liability | Everest Program SUNZ Program Total Workers’ Comp Liability at August 31, 2017 - - - Claim loss development $ 572,000 662,000 $ 1,234,000 Paid in losses - (28,000 ) (28,000 ) Workers’ Comp Liability at August 31, 2018 $ 572,000 634,000 $ 1,206,000 Claim loss development - 7,129,000 7,129,000 Paid in losses (149,000 ) (1,850,000 ) (1,999,000 ) Workers’ Comp Liability at August 31, 2019 $ 423,000 5,913,000 $ 6,336,000 Less Current Amount (159,000 ) (1,798,000 ) (1,957,000 ) Long Term Balance at August 31, 2019 $ 264,000 4,115,000 $ 4,379,000 |
Accrued Payroll and Related L_2
Accrued Payroll and Related Liabilities (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Accrued Payroll and Related Liabilities (Tables) | |
Schedule of Accrued payroll liabilities | August 31, 2019 August 31, 2018 Accrued Payroll $ 7,812,000 $ 4,522,000 Accrued Payroll Taxes 8,201,000 4,609,000 Corporate employee accrued paid time off 399,000 346,000 Accrued Payroll and related liabilities $ 16,412,000 $ 9,477,000 |
Senior Secured Convertible No_8
Senior Secured Convertible Notes Payable (in default) (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable (in default) (Tables) | ||
Schedule of senior secured convertible notes payable | November 30, August 31, 2019 2019 (unaudited) Senior Secured Convertible notes, Principal $ 6,808,000 $ 6,808,000 Less debt discount and deferred financing costs (2,604,000 ) (3,457,000 ) Total outstanding convertible notes, net $ 4,204,000 $ 3,351,000 Less current portion of convertible notes payable (3,426,000 ) (3,351,000 ) Long-term convertible notes payable $ 778,000 $ - | August 31, August 31, 2019 2018 Senior Secured Convertible notes, Principal $ 6,808,000 $ 10,000,000 Less debt discount and deferred financing costs (3,457,000 ) (3,829,000 ) Total outstanding convertible notes, net $ 3,351,000 $ 6,171,000 Less current portion of convertible notes payable 3,351,000 ) (6,171,000 ) Long-term convertible notes payable $ - $ - |
Schedule of rolls forward the Convertible Notes Payable balances | Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Amortization of Interest Expense - 80,000 773,000 853,000 Balance at November 30, 2019 $ 6,808,000 (264,000 ) (2,340,000 ) $ 4,204,000 Less Current Amount (5,141,000 ) 174,000 1,541,000 (3,426,000 ) Long Term Balance at November 30, 2019 1,667,000 (90,000) (799,000) $ 778,000 | Gross Principal Deferred Financing Costs Note Discount Net Balance at August 31, 2018 $ 10,000,000 (617,000 ) (3,212,000 ) $ 6,171,000 Issuance of Notes Payable 5,639,000 (485,000 ) (4,750,000 ) 404,000 Conversion of Principal into Equity (8,395,000 ) - - (8,395,000 ) Amortization of Interest Expense - 758,000 4,849,000 5,607,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Balance at August 31, 2019 $ 6,808,000 (344,000 ) (3,113,000 ) $ 3,351,000 Less Current Amount (6,808,000 ) 344,000 3,113,000 (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - |
Gross principal balance rollforward | June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs - - (264,000 ) (264,000 ) Deferred Financing Costs - - (2,340,000 ) (2,340,000 ) Carrying Balance at November 30, 2019 $ 1,466,000 867,000 1,871,000 $ 4,204,000 Less Current Amount (1,466,000 ) (728,000 ) (1,232,000 ) (3,426,000 ) Long Term Balance at November 30, 2019 $ - 139,000 639,000 $ 778,000 | June 2018 Notes December 2018 Notes March 2019 Notes Total Gross Balance at August 31, 2018 $ 10,000,000 - - $ 10,000,000 Issuance of Notes Payable - 889,000 4,750,000 5,639,000 Repayment of Principal in cash (436,000 ) - - (436,000 ) Conversion of Principal into Equity (8,098,000 ) (22,000 ) (275,000 ) (8,395,000 ) Gross Balance at August 31, 2019 $ 1,466,000 867,000 4,475,000 $ 6,808,000 Less Discount and Debt Issuance Costs: Debt Issuance Costs (27,000 ) - (317,000 ) (344,000 ) Deferred Financing Costs (5,000 ) - (3,108,000 ) (3,113,000 ) Carrying Balance at August 31, 2019 $ 1,434,000 867,000 1,050,000 $ 3,351,000 Less Current Amount (1,434,000 ) (867,000 ) (1,050,000 ) (3,351,000 ) Long Term Balance at August 31, 2019 $ - - - $ - |
Schedule of derivative liabilities | March 2019 Conversion Feature March 2019 Warrant Liability Total Balance at August 31, 2018 $ - - $ - Initial recognition 2,421,000 3,917,000 6,338,000 Reclassification to equity (13,000 ) (13,000 ) Change in fair value 444,000 (3,013,000 ) (3,069,000 ) Balance at August 31, 2019 $ 2,852,000 904,000 $ 3,256,000 | |
Estimate fair value of the derivatives | March 2019 Conversion Feature March 2019 Warrant Liability Risk free rate 1.76 % 1.39 % Market price per share $ 19.04 $ 19.04 Life of instrument in years 1.04 4.47 Volatility 100 % 119 % Dividend yield 0 % 0 % |
Stockholders' Equity (Tables)_2
Stockholders' Equity (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Stockholders' Equity (Tables) | ||
Summary of warrants outstanding | Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2017 64,887 1.5 $ 119.60 Issued 30,526 5.3 $ 99.60 (Exercised) (938 ) 1.2 80.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2018 94,475 2.13 $ 113.60 Issued 74,390 5.0 $ 70 (Exercised) (6,688 ) 0.45 98.80 (Cancelled) - - - (Expired) (54,761 ) - 114.80 Warrants outstanding, August 31, 2019 107,416 4.42 $ 74.80 | |
Summary of information about warrants outstanding | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70.00 74,390 4.3 June 2018 Notes Warrants $ 70.00 30,526 3.5 2017 PIPE Warrants $ 276.00 2,500 2.6 107,416 4.0 | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years March 2019 Notes Warrants $ 70 74,390 4.6 June 2018 Notes Warrants $ 70 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based compensation (Tab_2
Share based compensation (Tables) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Share based compensation (Tables) | ||
Black-Scholes stock option pricing model | 2019 2018 Expected life 4.0 years 4.0 years Estimated volatility 119 % 121 % Risk-free interest rate 1.70%-2.90 % 2.01%-2.83 % Dividends - - | |
Share based compensation expense | Year ended August 31, 2019 Year ended August 31, 2018 Shares issued for services $ 263,000 $ 163,000 Employee stock options 369,000 200,000 Balance at August 31, 2019 $ 632,000 $ 363,000 | |
Summary of option activity | Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2019 50,749 8.95 $ 95.20 Granted – – $ – Exercised – – $ – Forfeited (5,286 ) 8.44 $ 69.01 Balance at November 30, 2019 45,463 8.67 $ 98.30 | Options Outstanding and Exercisable Weighted Average Weighted Number Remaining Average of Contractual Exercise Options Life Price (In years) Balance, August 31, 2017 19,750 9.58 $ 184.80 Granted 23,719 10.0 $ 105.60 Exercised – – $ – Forfeited (9,750 ) 8.49 $ 154.80 Balance, August 31, 2018 33,719 9.77 $ 138.00 Granted 36,073 10.0 $ 63.60 Exercised – – $ – Forfeited (19,043 ) 8.06 $ 111.20 Balance at August 31, 2019 50,749 8.95 $ 95.20 |
Schedule of Option vesting activity | Weighted Weighted Number Remaining Average of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2019 10,291 8.04 $ 152.80 Vested 2,232 8.44 $ 146.82 Exercised – – $ – Forfeited (488 ) 0.08 $ 116.32 Balance at November 30, 2019 12,035 7.87 $ 153.19 | of Contractual Exercise Options Vested Options Life Price (In years) Balance, August 31, 2017 -- -- $ - Vested 5,364 8.83 $ 184.80 Exercised – – $ – Forfeited (850 ) 8.54 $ 177.20 Balance, August 31, 2018 4,514 8.57 $ 182.40 Vested 7,410 – $ 137.20 Exercised – – $ – Forfeited (1,633 ) 8.10 $ 164.40 Balance at August 31, 2019 10,291 8.04 $ 152.80 |
Summarizes of stock options outstanding | Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $18.80-$40.00 6,625 9.52 $ 23.31 – – $ – $40.01–$80.00 13,729 9.34 $ 51.21 – – $ – $80.01–$120.00 11,224 8.45 $ 103.15 4,384 8.41 $ 103.53 $120.01–$160.00 12,625 7.79 $ 157.71 6.860 7.56 $ 157.41 $160.01-$391.60 1,260 7.63 $ 391.60 791 7.63 $ 391.60 45,463 8.67 $ 98.30 12,035 7.87 $ 153.19 | Options Outstanding and Exercisable Options Vested Weighted Average Weighted Weighted Weighted Number Remaining Average Number Remaining Average of Contractual Exercise of Contractual Exercise Exercise Prices Options Life Price Options Life Price (In years) (In years) $0.47-1.00 8,125 9.77 $ 22.40 – – $ – $40.01–$80.00 15,761 9.59 $ 51.60 – – $ – $80.01–$120.00 12,864 8.67 $ 104.00 4,202 8.63 $ 105.20 $120.01–$160.00 12,625 8.04 $ 155.20 5,373 7.60 $ 158.40 $160.01-$391.60 1,375 7.88 $ 391.60 716 7.88 $ 391.60 50,749 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Related Parties (Tables)
Related Parties (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Related Parties (Tables) | |
Schedule of issuance of shares | Date Issued Shares Issue Price per Share Value Ken Weaver August 2019 1,995 $ 18.80 (A) $ 37,500 Ken Weaver May 2019 1,202 $ 31.20 (B) 37,500 Ken Weaver November 2018 308 $ 122.00 (C) 37,500 Sean Higgins September 2018 329 $ 114.00 (D) 37,500 Sean Higgins April 2019 412 $ 91.20 (E) 37,500 Whitney White September 2018 329 $ 114.00 (D) 37,500 Whitney White April 2019 412 $ 91.20 (E) 37,500 4,987 $ 262,500 |
Income taxes (Tables)
Income taxes (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Income taxes (Tables) | |
Schedule of net deferred tax assets | August 31, 2019 2018 in thousands Deferred tax liabilities: Depreciation $ (122,000 ) $ (21,000 ) Software development costs (845,000 ) (835,000 ) Total deferred tax liabilities (967,000 ) (856,000 ) Deferred tax assets: Net operating loss carryforward 9,157,000 8,010,000 Business interest 2,539,000 - Workers’ compensation accruals 1,763,000 360,000 Stock-based compensation 354,000 172,000 Deferred rent 15,000 16,000 Total deferred tax assets 13,828,000 8,558,000 Valuation allowance (12,861,000 ) (7,702,000 ) Total net deferred tax assets $ 967,000 $ 856,000 Net deferred tax assets $ - $ - |
Schedule of Income tax expense | For the Year Ended August 31, Current 2019 2018 Federal $ - $ - State - - Total current - - Deferred Federal 4,422,000 2,994,000 State 737,000 499,000 Total deferred 5,159,000 3,493,000 Change in valuation allowance $ (5,159,000 ) $ (3,493,000 ) Total Income Tax Expense (Benefit) $ - $ - |
Reconciliation of the statutory federal rate | August 31, August 31, 2019 2018 Pre-tax book loss $ 3,933,000 $ 4,145,000 Non-deductible penalties and other permanent differences (430,000 ) (177,000 ) State taxes (8.84%) 1,656,000 1,466,000 Redetermination of prior year taxes - - Enactment of the 2017 Tax Reform Act - (1,941,000 ) Change in valuation allowance (5,159,000 ) (3,493,000 ) Net income tax provision $ - $ - |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Software License [Member] | |
Schedule of Future minimum lease payments | Years ended August 31, 2020 $ 922,000 2021 1,015,000 2022 817,000 Total minimum payments $ 2,754,000 |
Operating Lease [Member] | |
Schedule of Future minimum lease payments | Years ended August 31, 2020 $ 382,000 2021 382,000 2022 319,000 Total minimum payments $ 1,083,000 |
Nature of Operations (Details_2
Nature of Operations (Details Narrative) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Nature of Operations (Details Narrative) | ||
Date of incorporation | Jun. 3, 2015 | Jun. 3, 2015 |
State of incorporation | Wyoming | Wyoming |
Summary of significant accou_12
Summary of significant accounting policies (Details) | 12 Months Ended |
Aug. 31, 2019 | |
Equipment | 5 years |
Minimum [Member] | |
Furnitures & Fixtures | 5 years |
Maximum [Member] | |
Furnitures & Fixtures | 7 years |
Summary of significant accou_13
Summary of significant accounting policies (Details 1) - USD ($) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Summary of significant accounting policies (Details ) | ||
Beginning balance of Conversion features | ||
Initial recognition of conversion feature | 2,421,000 | |
Reclassification to equity of conversion features | (13,000) | |
Change in fair value of conversion features | 444,000 | |
Ending balance of conversion features | 2,852,000 | |
Beginning Balance of warrant liability | ||
Initial recognition of warrant liability | 3,917,000 | |
Reclassification to equity of warrant liability | ||
Change in fair value of warrant liabilty | (3,013,000) | |
Ending balance of warrant liability | 904,000 | |
Beginning balance | $ 3,756,000 | |
Initial recognition | 6,338,000 | |
Reclassification to equity | (13,000) | |
Change in fair value | (942,000) | (2,569,000) |
Ending balance | $ 2,814,000 | $ 3,756,000 |
Summary of significant accou_14
Summary of significant accounting policies (Details 3) - shares | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Total potentially dilutive shares | 1,042,814 | 209,810 | 650,027 | 228,466 |
Warrant [Member] | ||||
Total potentially dilutive shares | 107,416 | 87,783 | 107,410 | 94,470 |
Senior Secured Convertible Notes [Member] | ||||
Total potentially dilutive shares | 889,935 | 84,756 | 491,868 | 100,402 |
Options [Member] | ||||
Total potentially dilutive shares | 45,463 | 37,271 | 50,749 | 33,594 |
Summary of significant accou_15
Summary of significant accounting policies (Details 2) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Earnings per common share: | ||||
Net Loss | $ (2,556,000) | $ (2,246,000) | $ (18,700,000) | $ (16,823,000) |
Weighted average shares outstanding | 817,720 | 720,253 | ||
Basic and Fully Diluted net loss per common share | $ (2.86) | $ (3.11) | $ (22.90) | $ (23.36) |
Summary of significant accou_16
Summary of significant accounting policies (Details 4) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Additional Paid-In Capital | $ 32,619,000 | $ 32,505,000 | $ 18,468,000 | |
Accumulated deficit | (47,506,000) | (44,950,000) | (26,223,000) | |
Net Loss | $ (2,556,000) | $ (2,246,000) | $ (18,700,000) | $ (16,823,000) |
Basic and Fully Diluted net loss per common share | $ (2.86) | $ (3.11) | $ (22.90) | $ (23.36) |
Director Services [Member] | ||||
Convertible note, net | $ 7,156,000 | |||
Additional Paid-In Capital | 17,234,000 | |||
Accumulated deficit | (25,977,000) | |||
Net Loss | $ (16,577,000) | |||
Basic and Fully Diluted net loss per common share | $ (23.02) | |||
Share Based Compensation [Member] | ||||
Convertible note, net | $ 6,171,000 | |||
Additional Paid-In Capital | 18,465,000 | |||
Accumulated deficit | (26,223,000) | |||
Net Loss | $ (16,823,000) | |||
Basic and Fully Diluted net loss per common share | $ (23.36) | |||
Warrant Ten [Member] | ||||
Convertible note, net | $ (985,000) | |||
Additional Paid-In Capital | 1,231,000 | |||
Accumulated deficit | (246,000) | |||
Net Loss | $ (246,000) | |||
Basic and Fully Diluted net loss per common share |
Summary of significant accou_17
Summary of significant accounting policies (Details Narrative) - USD ($) | Mar. 12, 2019 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 |
Advertising costs | $ 304,000 | $ 379,000 | $ 500,000 | ||
Unbilled accounts receivable | 6,878,000 | 6,193,000 | |||
Research and developments costs | 900,000 | 400,000 | 4,000,000 | ||
Software cost | $ 0 | 400,000 | 900,000 | $ 2,800,000 | |
Cash in excess by FDIC | $ 2,354,000 | ||||
Concentration of credit risk, description | No one individual client represents more than 10% of revenues for the three months ended November 30, 2019, and 2018, respectively | ||||
Volatility | 119.00% | 121.00% | |||
Accounts Receivable [Member] | Four clients [Member] | |||||
Risk-free interest rate | 1.76% | ||||
Volatility | 100.00% | ||||
Warrant [Member] | |||||
Short term accrued workers compensation | $ 200,000 | $ 1,800,000 | |||
Long term accrued workers compensation | 300,000 | 4,100,000 | |||
Short-term asset and workers compensation - deposits | 2,000,000 | 1,900,000 | |||
Short-term asset and workers compensation - deposits | 6,200,000 | $ 6,300,000 | |||
Risk-free interest rate | 2.41% | 2.78% | |||
Volatility | 122.00% | 120.00% | |||
Senior Secured Convertible Notes [Member] | |||||
Settlement claims | |||||
Options [Member] | |||||
Short term accrued workers compensation | 1,800,000 | 100,000 | |||
Long term accrued workers compensation | $ 5,900,000 | $ 300,000 | |||
Treasury Stock [Member] | |||||
Concentration of credit risk percent | 92.00% | 92.00% | 86.00% | ||
Everest Program [Member] | July 2018 [Member] | |||||
Risk-free interest rate | 1.39% | ||||
Volatility | 119.00% |
Going Concern (Details Narrat_2
Going Concern (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||
Mar. 31, 2019 | Jun. 30, 2018 | Jun. 29, 2017 | Nov. 30, 2019 | Aug. 31, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Cash | $ 100,000 | $ 2,100,000 | $ 2,100,000 | |||||
Working capital deficit | (18,500,000) | (15,900,000) | (15,900,000) | |||||
Net Loss | (2,556,000) | $ (2,246,000) | (18,700,000) | $ (16,823,000) | ||||
Gross profit | 3,314,000 | 3,386,000 | 3,300,000 | 5,500,000 | ||||
Projected gross profit | 14,400,000 | |||||||
Total other income (expense) | (219,000) | (957,000) | 10,800,000 | |||||
Accumulated deficit | (47,506,000) | (44,950,000) | (44,950,000) | (26,223,000) | ||||
Operating expense | 5,651,000 | 4,675,000 | 22,063,000 | 17,072,000 | ||||
Working capital changes | 800,000 | 6,000,000 | ||||||
Proceeds from initial public offering, net of costs | ||||||||
Net cash used in operating activities | $ (1,495,000) | $ 500,000 | $ (1,590,000) | (2,086,000) | $ (9,538,000) | |||
Non cash depriciation | 1,400,000 | |||||||
Software developement & marketing | 4,900,000 | |||||||
Software development cost | $ 1,400,000 | |||||||
Stock Option [Member] | ||||||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | |||||||
Proceeds from initial public offering | $ 12,000,000 | |||||||
Convertible Debt [Member] | ||||||||
Proceeds from initial public offering, net of costs | $ 3,300,000 | $ 8,400,000 | ||||||
Proceeds from initial public offering | $ 3,750,000 | $ 9,000,000 |
Fixed Assets (Details)
Fixed Assets (Details) - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Accumulated depreciation & amortization | $ (1,202,000) | $ (363,000) |
Fixed Assets | 4,562,000 | 3,395,000 |
Fixed assets, net | 3,360,000 | 3,032,000 |
Minimum [Member] | ||
Fixed Assets | 3,737,000 | 2,797,000 |
Equipment [Member] | ||
Fixed Assets | 372,000 | 228,000 |
Furniture & Fixtures [Member] | ||
Fixed Assets | 412,000 | 329,000 |
Lyons Capital LLc [Member] | ||
Fixed Assets | $ 41,000 | $ 41,000 |
Fixed Assets (Details 1)
Fixed Assets (Details 1) - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Fixed Assets (Details) | ||
Software costs capitalized | $ 3,737,000 | $ 2,797,000 |
Software costs amortized | (904,000) | (190,000) |
Software costs, Net | $ 2,833,000 | $ 2,607,000 |
Fixed Assets (Details 2)
Fixed Assets (Details 2) | Aug. 31, 2019USD ($) |
Fixed Assets (Details) | |
2020 | $ 814,000 |
2021 | 814,000 |
2022 | 744,000 |
2023 | 458,000 |
2024 | $ 3,000 |
Fixed Assets (Details Narrative
Fixed Assets (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | |
Depreciation and amortization expense | $ 241,000 | $ 188,000 | $ 839,000 | $ 274,000 |
Furniture & Fixtures [Member] | ||||
Depreciation and amortization expense | $ 714,000 | $ 190,000 | ||
Weighted average remaining life of amortizable software | 3 years 6 months 21 days |
Workers Compensation (Details)
Workers Compensation (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Workers Comp Deposit Beginning Balance | $ 3,874,000 | $ 2,335,000 |
Premiums paid | (144,000) | (819,000) |
Paid in deposits | 7,730,000 | 2,386,000 |
Claim losses | (1,999,000) | (28,000) |
Deposit refund | (1,223,000) | |
Workers' Comp Deposit Ending balance | 8,238,000 | 3,874,000 |
Less Current Amount | (1,957,000) | |
Long Term Balance | 6,281,000 | |
Sunz Program One [Member] | ||
Workers Comp Deposit Beginning Balance | 2,358,000 | |
Premiums paid | ||
Paid in deposits | 7,730,000 | 2,386,000 |
Claim losses | (1,850,000) | (28,000) |
Deposit refund | ||
Workers' Comp Deposit Ending balance | 8,238,000 | 2,358,000 |
Less Current Amount | (1,957,000) | |
Long Term Balance | 6,281,000 | |
Everest Program One [Member] | ||
Workers Comp Deposit Beginning Balance | 1,516,000 | 2,335,000 |
Premiums paid | (144,000) | (819,000) |
Paid in deposits | ||
Claim losses | (149,000) | |
Deposit refund | (1,223,000) | |
Workers' Comp Deposit Ending balance | $ 1,516,000 | |
Less Current Amount | ||
Long Term Balance. |
Workers Compensation (Details 1
Workers Compensation (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Workers Comp Liability Beginning Balance | $ 1,206,000 | |
Claim loss developement | 6,703,000 | 1,234,000 |
Paid in losses | (1,999,000) | (28,000) |
Workers' Comp Liability ending balance | 6,336,000 | 1,206,000 |
Less Current Amount | (1,957,000) | |
Long Term Balance | 4,379,000 | |
Sunz Program One [Member] | ||
Workers' Comp Liability Ending balance | 5,913,000 | 634,000 |
Less Current Amount | (1,798,000) | |
Workers Comp Liability Beginning Balance | 634,000 | |
Claim loss developement | 7,129,000 | 7,129,000 |
Paid in losses | (1,850,000) | (28,000) |
Long Term Ending balance | 4,115,000 | |
Everest Program One [Member] | ||
Workers Comp Liability Beginning Balance | 572,000 | |
Claim loss developement | 572,000 | |
Paid in losses | (149,000) | |
Workers' Comp Liability Ending balance | 423,000 | $ 572,000 |
Less Current Amount | (159,000) | |
Long Term Ending balance | $ 264,000 |
Accrued Payroll and Related L_3
Accrued Payroll and Related Liabilities (Details) - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Accrued Payroll and Related Liabilities (Details) | ||
Accrued Payroll | $ 7,812,000 | $ 4,522,000 |
Accrued Payroll Taxes | 8,201,000 | 4,609,000 |
Corporate employee accrued paid time off | 399,000 | 346,000 |
Accrued Payroll and related liabilities | $ 16,412,000 | $ 9,477,000 |
Senior Secured Convertible No_9
Senior Secured Convertible Notes Payable (in default) (Details) - USD ($) | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Senior Secured Convertible Notes Payable (in default) (Details) | |||
Senior Secured Convertible notes, Principal | $ 6,808,000 | $ 6,808,000 | $ 10,000,000 |
Less debt discount and deferred financing costs | (2,604,000) | (3,457,000) | (3,829,000) |
Total outstanding convertible notes, net | 4,204,000 | 3,351,000 | 6,171,000 |
Less current portion of convertible notes payable | 3,426,000 | 3,351,000 | 6,171,000 |
Long-term convertible notes payable | $ 778,000 |
Senior Secured Convertible N_10
Senior Secured Convertible Notes Payable (in default) (Details 1) - USD ($) | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Gross Principal | |||
Beginning Balance at August 31, 2018, Gross Principal | $ 10,000,000 | ||
Issuance of Notes Payable, Gross Principle | 5,639,000 | ||
Conversion of Principal into Equity, Gross Principle | (8,395,000) | ||
Amortization of Interest Expense, Gross Principle | |||
Repayment of Principal in cash, Gross Principle | (436,000) | ||
Ending Balance at August 31, 2019, Gross Principal | 6,808,000 | ||
Less Current Gross Principal Amount | (5,141,000) | (6,808,000) | |
Ending Balance Long Term Gross Principal balance at August 31, 2019 | |||
Deferred Financing Costs | |||
Beginning Balance at August 31, 2018, Deferred Financing Costs | (617,000) | ||
Issuance of Notes Payable, Deferred Financing Costs | (485,000) | ||
Conversion of Principal into Equity, Deferred Financing Costs | |||
Amortization of Interest Expense, Deferred Financing Costs | 80,000 | 758,000 | |
Repayment of Principal in cash, Deferred Financing Costs | |||
Ending Balance at August 31, 2019, Deferred Financing Costs | (344,000) | ||
Less Current Amount, Deferred Financing Costs | 174,000 | 344,000 | |
Ending Long-term Balance at August 31, 2019, Deferred Financing Costs | |||
Note Discount | |||
Beginning Balance at August 31, 2018, Note Discount | (3,212,000) | ||
Issuance of Notes Payable, Note Discount | (4,750,000) | ||
Amortization of Interest Expense, Note discount | 773,000 | ||
Original issue discount | 4,849,000 | ||
Repayment of Principal in cash, Note Discount | |||
Ending Balance at November 30, 2019, Note Discount | (2,340,000) | (3,113,000) | |
Less Current Amount, Note Discount | 1,541,000 | 3,113,000 | |
Long-term Balance at November 30, 2019, Note Discount | (799,000) | ||
Net | |||
Beginning Balance at August 31, 2018, Net | 6,171,000 | ||
Issuance of Notes Payable, Net | 404,000 | ||
Conversion of Principal into Equity, Net | (8,395,000) | ||
Amortization of Interest Expense, Net | 853,000 | 5,607,000 | |
Repayment of Principal in cash, Net | (436,000) | ||
Ending Balance at August 31, 2019, Net | 3,351,000 | ||
Less Curent Amount, Net | $ (3,426,000) | (3,351,000) | |
Ending Long Term Balance at August 31, 2019, net |
Senior Secured Convertible N_11
Senior Secured Convertible Notes Payable (in default) (Details 2) - USD ($) | 3 Months Ended | 12 Months Ended |
Nov. 30, 2019 | Aug. 31, 2019 | |
Gross Balance, Beginning | $ 6,808,000 | $ 10,000,000 |
Issuance of Notes Payable, Gross | 5,639,000 | |
Repayment of Principal in cash, Gross | (436,000) | |
Conversion of Principal into Equity, Gross | (8,395,000) | |
Gross Balance, ending | 6,808,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (264,000) | (344,000) |
Deferred Financing Costs | (2,340,000) | (3,113,000) |
Carrying Balance | 4,204,000 | 3,351,000 |
Less Current Amount, debt issuance costs | (3,426,000) | (3,351,000) |
Long Term Balance | 778,000 | |
December 2018 Notes [Member] | ||
Less Discount and Debt Issuance Costs: | ||
Long Term Balance | 139,000 | |
Less Discount and Debt Issuance Costs: | ||
Less Current Amount | (728,000) | (867,000) |
Gross Balance, Beginning | 867,000 | |
Issuance of Notes Payable, Gross | 889,000 | |
Repayment of Principal in cash, Gross | ||
Conversion of Principal into Equity, Gross | (22,000) | |
Gross Balance, ending | 867,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | ||
Deferred Financing Costs | ||
Carrying Balance | 867,000 | 867,000 |
March 2019 Notes [Member] | ||
Less Discount and Debt Issuance Costs: | ||
Long Term Balance | 639,000 | |
Less Discount and Debt Issuance Costs: | ||
Less Current Amount | (1,232,000) | (1,050,000) |
Less Discount and Debt Issuance Costs: | ||
Gross Balance, Beginning | 4,475,000 | |
Issuance of Notes Payable, Gross | 4,750,000 | |
Repayment of Principal in cash, Gross | ||
Conversion of Principal into Equity, Gross | (275,000) | |
Gross Balance, ending | 4,475,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (264,000) | (317,000) |
Deferred Financing Costs | (2,340,000) | (3,108,000) |
Carrying Balance | 1,871,000 | 1,050,000 |
June 2018 [Member] | ||
Gross Balance, Beginning | 1,466,000 | 10,000,000 |
Issuance of Notes Payable, Gross | ||
Repayment of Principal in cash, Gross | (436,000) | |
Conversion of Principal into Equity, Gross | (8,098,000) | |
Gross Balance, ending | 1,466,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (27,000) | |
Deferred Financing Costs | (5,000) | |
Carrying Balance | 1,466,000 | (1,434,000) |
Less Current Amount | (1,466,000) | (1,434,000) |
Long Term Balance |
Senior Secured Convertible N_12
Senior Secured Convertible Notes Payable (in default) (Details 3) | 12 Months Ended |
Aug. 31, 2019USD ($) | |
Balance at August 31, 2018, Beginning | |
Initial recognition | 6,338,000 |
Reclassification to equity | (13,000) |
Change in fair value | (3,069,000) |
Balance at August 31, 2019, Ending | 3,256,000 |
March 2019 Warrant Liability [Member] | |
Balance at August 31, 2018, Beginning | |
Initial recognition | 3,917,000 |
Reclassification to equity | |
Change in fair value | (3,013,000) |
Balance at August 31, 2019, Ending | 904,000 |
March 2019 Conversion Feature. [Member] | |
Balance at August 31, 2018, Beginning | |
Initial recognition | 2,421,000 |
Reclassification to equity | (13,000) |
Change in fair value | 444,000 |
Balance at August 31, 2019, Ending | $ 2,852,000 |
Senior Secured Convertible N_13
Senior Secured Convertible Notes Payable (in default) (Details 4) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Volatility | 119.00% | 121.00% | |
Dividend yield | 0.00% | 0.00% | |
March 2019 Warrant Liability [Member] | |||
Risk free rate | 1.39% | ||
Market price per share | $ 19.04 | ||
Life of instrument in years | 4 years 5 months 20 days | ||
Volatility | 102.00% | 119.00% | |
Dividend yield | 0.00% | 0.00% | |
March 2019 Conversion Feature. [Member] | |||
Risk free rate | 1.76% | ||
Market price per share | $ 19.04 | ||
Life of instrument in years | 1 year 15 days | ||
Volatility | 100.00% | ||
Dividend yield | 0.00% |
Senior Secured Convertible N_14
Senior Secured Convertible Notes Payable (in default) (Details Narrative) - USD ($) | Mar. 12, 2019 | Jun. 04, 2018 | Aug. 31, 2019 | Dec. 31, 2018 | Dec. 20, 2018 | Jun. 30, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | Jun. 10, 2019 |
Convertible notes, Principal | $ 8,395,000 | $ 8,395,000 | |||||||||
Common stock shares issued for conversion of debt, shares | 67,500 | ||||||||||
Common stock shares issued for conversion of debt, value | $ 3,900,000 | ||||||||||
Loss on debt extinguishment | $ 3,900,000 | $ 811,000 | (3,927,000) | ||||||||
Amortized Interest expense | $ 853,000 | 5,607,000 | $ 798,000 | ||||||||
Interest expense | 300,000 | $ 509,000 | |||||||||
Common stock shares issued | 172,500 | 172,500 | |||||||||
Additional accrued liabilities | $ 1,800,000 | 1,800,000 | $ 1,800,000 | ||||||||
Accrued interest payable | 600,000 | ||||||||||
Conversion price description | The Company has been converting the convertible notes in its shares of common stock at a fifteen percent (15%) discount to the lowest volume weighted average price (“VWAP”) whereas the terms of the agreement state that such discount to the original conversion price of $99.60 should have been initiated on or after the maturity date of the convertible notes or September 4, 2019. The accounting standards require the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $3.8 million for the year ended August 31, 2019. | ||||||||||
Amortization debt discount, debt issuance cost | 854,000 | $ 1,044,000 | |||||||||
Convertible debt principal amount | 889,000 | ||||||||||
Debt default amount recorded as other current liabilities | 3,500,000 | ||||||||||
Settlement amount | |||||||||||
Additional liquidating damages | $ 1,800,000 | ||||||||||
Debt instrument converted amount, interest | |||||||||||
Debt instrument converted amount shares issued | |||||||||||
Accrued interest | $ 600,000 | ||||||||||
Amortized in cash amount | |||||||||||
Interest rate | 18.00% | 8.00% | |||||||||
Original issue discount | $ 1,000,000 | ||||||||||
Description for event of default | Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or 80% for all alternate event of default conversion or 85% is such alternate conversion is an alternate optional conversion; Redemption at the option of the holder at 25% premium upon an event of default; Redemption at the option of the Company at 15% premium at any time after 45 days from March 12, 2019. | ||||||||||
Warrants granted | 36,073 | 23,719 | |||||||||
Issuance of senior secured convertible notes | $ (4,750,000) | ||||||||||
Additional paid in capital | 32,505,000 | $ 32,619,000 | $ 32,505,000 | $ 18,468,000 | |||||||
Volatility | 119.00% | 121.00% | |||||||||
Warrant [Member] | |||||||||||
Risk free rate | 2.41% | 2.78% | |||||||||
Volatility | 122.00% | 120.00% | |||||||||
June 2018 Senior Convertible Note [Member] | |||||||||||
Maturity date | Sep. 4, 2019 | ||||||||||
Coupon rate | 8.00% | ||||||||||
Price per share | $ 99.60 | ||||||||||
Conversion price | 85.00% | ||||||||||
Amortization of principal in cash premium | 10.00% | ||||||||||
Lowest volume weighted average price | 15.00% | ||||||||||
Issuance of senior secured convertible notes | $ 800,000 | ||||||||||
Additional paid in capital | $ 2,200,000 | ||||||||||
Warrant issued per share | $ 52.80 | ||||||||||
Life of instrument in years | 5 years | ||||||||||
Risk free rate | 2.78% | ||||||||||
Volatility | 122.00% | ||||||||||
Institutional Investors [Member] | |||||||||||
Convertible notes, Principal | $ 10,000,000 | ||||||||||
Original issue discount | $ 1,000,000 | ||||||||||
Warrants exercise price | 99.60 | ||||||||||
Warrants purchase common stock, shares | 5,422 | ||||||||||
Warrants granted | 25,100 | ||||||||||
Debt issuance costs | $ 600,000 | ||||||||||
Proceeds from issuance of notes | $ 8,400,000 | ||||||||||
Conversion price | |||||||||||
Maturity date | Sep. 4, 2019 | ||||||||||
Purchase price of notes | $ 9,000,000 | ||||||||||
Price per share | $ 86.80 | $ 63.60 | |||||||||
Risk free rate | 2.49% | 2.49% | |||||||||
Volatility | 122.00% | 122.00% | |||||||||
Conversion price description | |||||||||||
Reduced accrued loss | $ 889,000 | ||||||||||
Gain recovery accrued loss | 2,611,000 | ||||||||||
Fair value of the conversion feature derivative | 2,421,000 | 2,421,000 | |||||||||
Financing costs | $ 2,600,000 | 2,600,000 | |||||||||
Default loss estimate included in gain on recovery of december 2018 notes | 1,800,000 | ||||||||||
Gain on recovery of 2018 notes net of default loss estimate | $ 811,000 | ||||||||||
Institutional Investors [Member] | Warrant [Member] | |||||||||||
Warrants exercise price | 70 | 70.00 | |||||||||
Warrants granted | 74,387 | 2,840,909 | |||||||||
Price per share | $ 63.60 | $ 63.60 | |||||||||
Life of instrument in years | 5 years | 5 years | |||||||||
Risk free rate | 2.49% | 2.49% | |||||||||
Volatility | 122.00% | 122.00% | |||||||||
Fair value of common stovk | $ 3,917,000 | $ 3,917,000 | |||||||||
Maximum [Member] | |||||||||||
Risk free rate | 2.90% | 2.83% | |||||||||
Exercise Prices Four [Member] | Maximum [Member] | |||||||||||
Convertible notes, Principal | $ 4,750,000 | ||||||||||
Warrants exercise price | 70.00 | ||||||||||
Warrants purchase common stock, shares | |||||||||||
Warrants granted | 74,387 | ||||||||||
Conversion price description | Alternate conversion price at the greater of the floor price of $12.40 and the lower of the conversion price in effect and alternate conversion percentage of the lowest VWAP of the common share during the 10 consecutive trading day prior to the applicable conversion date; | ||||||||||
Debt issuance costs | $ 500,000 | ||||||||||
Proceeds from issuance of notes | $ 3,300,000 | ||||||||||
Conversion price | $ 66.80 | ||||||||||
Maturity date | Sep. 12, 2020 | ||||||||||
Purchase price of notes | $ 3,750,000 |
Stockholders' Equity (Details_2
Stockholders' Equity (Details) - $ / shares | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Number of shares | ||
Number of shares outstanding, beginning balance | 94,475 | 64,887 |
Issued | 74,390 | 30,526 |
(Exercised) | (6,688) | (938) |
(Cancelled) | ||
(Expired) | (54,761) | |
Number of shares outstanding, ending balance | 107,416 | 94,475 |
Weighted remaining life (years) | ||
Weighted remaining life (years), beginning | 2 years 1 month 16 days | 1 year 6 months |
Weighted remaining life (years), issued | 5 years | 5 years 3 months 19 days |
Weighted remaining life (years), exercised | 5 months 12 days | 1 year 2 months 12 days |
Weighted remaining life (years), cancelled | ||
Weighted remaining life (years), expired | ||
Weighted remaining life (years), ending | 4 years 5 months 1 day | 2 years 1 month 16 days |
Weighted average exercise prices | ||
Weighted average exercise prices, beginning | $ 113.60 | $ 119.60 |
Weighted average exercise prices, issued | 70 | 99.60 |
Weighted average exercise prices, exercised | 98.80 | 80 |
Weighted average exercise prices, cancelled | ||
Weighted average exercise prices, expired | 114.80 | |
Weighted average exercise prices, ending | $ 74.80 | $ 113.60 |
Stockholders' Equity (Details 1
Stockholders' Equity (Details 1) - $ / shares | Mar. 12, 2019 | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 |
[Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number] | 50,749 | 1,348,745 | 19,750 | ||
Weighted average life of outstanding warrants in years | 4 years 4 months 24 days | ||||
Exercise price | $ 63.60 | $ 105.60 | |||
2017 PIPE Warrants [Member] | |||||
[Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number] | 2,500 | ||||
Weighted average life of outstanding warrants in years | 2 years 10 months 25 days | ||||
Exercise price | $ 276 | $ 276 | |||
Warrant One [Member] | |||||
[Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number] | 74,390 | ||||
Weighted average life of outstanding warrants in years | 4 years 7 months 6 days | ||||
Exercise price | $ 70 | ||||
Warrant Three [Member] | |||||
[Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number] | 30,523 | ||||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | ||||
Exercise price | $ 70 |
Stockholders' Equity (Details_3
Stockholders' Equity (Details Narrative) - USD ($) | Mar. 12, 2019 | Jul. 31, 2019 | Jun. 30, 2019 | Sep. 28, 2016 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | May 10, 2018 | Aug. 31, 2017 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||||
Common stock shares held by shareholders | 25,600,000 | |||||||||
Conversion description | The preferred stock that is the subject of such contingent option provides a right to elect a majority of the directors on the Board of Directors of the Corporation and does not include any rights to dividends, conversion to shares of common stock, or preference upon liquidation of the Corporation. The contingent option is exercisable only upon the acquisition of a 20% or greater voting interest in the Corporation by a party other than the founding shareholders, or prior to any proposed merger, consolidation (in which the Corporation’s common stock is changed or exchanged) or sale of at least 50% of the Corporation’s assets or earning power (other than a reincorporation). The right to exercise the option terminates on December 31, 2023. | |||||||||
Class of warrant or right expiration date | ||||||||||
Proceeds from exercise of warrants | $ 660,000 | $ 660,000 | $ 75,000 | |||||||
Exercise price | $ 63.60 | $ 105.60 | ||||||||
Weighted average life of outstanding warrants in years | 4 years 4 months 24 days | |||||||||
Number of shares outstanding, Beginning balance | 50,749 | 1,348,745 | 19,750 | |||||||
Dividend yield | 0.00% | 0.00% | ||||||||
Volatility | 119.00% | 121.00% | ||||||||
Director Services [Member] | ||||||||||
Value | $ 263,000 | |||||||||
Shares | 4,985 | |||||||||
Institutional Investors [Member] | ||||||||||
Risk free rate | 2.49% | 2.49% | ||||||||
Volatility | 122.00% | 122.00% | ||||||||
J. Steven Holmes [Member] | ||||||||||
Proceeds from cash against future services | $ 325,000 | |||||||||
Price per share | $ 23.28 | |||||||||
Returned shares of common stock | 13,954 | |||||||||
Warrant [Member] | ||||||||||
Shares issued upon exercise of warrants | 6,688 | 37,500 | ||||||||
Fair value exercise price per share | $ 80 | |||||||||
Dividend yield | 0.00% | 0.00% | ||||||||
Expected maturity period | 4 years 2 months 12 days | 5 years | ||||||||
Risk free rate | 2.41% | 2.78% | ||||||||
Volatility | 122.00% | 120.00% | ||||||||
Warrant [Member] | Institutional Investors [Member] | ||||||||||
Risk free rate | 2.49% | 2.49% | ||||||||
Volatility | 122.00% | 122.00% | ||||||||
Common stock shares issued upon conversion of convertible debt | 174,081 | |||||||||
Warrant One [Member] | ||||||||||
Exercise price | $ 70 | |||||||||
Weighted average life of outstanding warrants in years | 4 years 7 months 6 days | |||||||||
Number of shares outstanding, Beginning balance | 74,390 | |||||||||
Warrant Three [Member] | ||||||||||
Exercise price | $ 70 | |||||||||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | |||||||||
Number of shares outstanding, Beginning balance | 30,523 |
Share based compensation (Det_5
Share based compensation (Details) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Expected life | 4 years | 4 years |
Volatility | 119.00% | 121.00% |
Dividends | 0.00% | 0.00% |
Maximum [Member] | ||
Risk free rate | 2.90% | 2.83% |
Minimum [Member] | ||
Risk free rate | 1.70% | 2.01% |
Share based compensation (Det_6
Share based compensation (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Share based compensation. (Details) | ||
Shares issued for services | $ 263,000 | $ 163,000 |
Employee stock options | 369,000 | 200,000 |
Balance at August 31, 2019 | $ 632,000 | $ 363,000 |
Share based compensation (Det_7
Share based compensation (Details 2) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Options | |||
Options outstanding, beginning balance | 50,749 | 1,348,745 | 19,750 |
Granted | 36,073 | 23,719 | |
Exercised | |||
Forfeited | (5,286) | (19,043) | (9,750) |
Options outstanding, ending balance | 45,463 | 50,749 | 33,719 |
Weighted Average Remaining Contractual Life (In years) | |||
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 11 months 12 days | 9 years 9 months 7 days | 9 years 6 months 29 days |
Weighted Average Remaining Contractual Life In Years, Granted | 10 years | 10 years | |
Weighted Average Remaining Contractual Life In Years, Forfeited | 8 years 5 months 9 days | 8 years 22 days | 8 years 5 months 27 days |
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 8 months 2 days | 8 years 11 months 12 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | |||
Weighted Average Exercise Price Beginning | $ 95.20 | $ 138 | $ 184.80 |
Exercise price | 63.60 | 105.60 | |
Exercised | |||
Forfeited | 69.01 | 111.20 | 154.80 |
Weighted Average Exercise Price Ending | $ 98.30 | $ 95.20 | $ 138 |
Share based compensation (Det_8
Share based compensation (Details 3) - $ / shares | 3 Months Ended | 12 Months Ended | |
Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Option | |||
Options Vested, Beginning balance | 10,291 | 4,514 | |
Vested | 2,232 | 7,410 | 5,364 |
Exercised | |||
Forfeited | (488) | (1,633) | (850) |
Options Vested, Ending balance | 12,035 | 10,291 | 4,514 |
Weighted Average Remaining Contractual Life (In years) | |||
Weighted Average Remaining Contractual Life In Years, Ending balance | 7 years 10 months 14 days | 8 years 6 months 25 days | |
Weighted Average Remaining Contractual Life In Years, Vested | 8 years 5 months 9 days | 8 years 9 months 29 days | |
Weighted Average Remaining Contractual Life In Years, Forfeited | 29 days | 8 years 1 month 6 days | 8 years 6 months 14 days |
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 15 days | 8 years 15 days | 8 years 6 months 25 days |
Weighted Average Exercise Price | |||
Weighted Average Exercise Price Beginning | $ 152.80 | $ 182.40 | |
Vested | 146.82 | 137.20 | 184.80 |
Forfeited | 164.40 | 177.20 | |
Exercised | 116.32 | ||
Weighted Average Exercise Price Ending | $ 153.19 | $ 152.80 | $ 182.40 |
Share based compensation (Det_9
Share based compensation (Details 4) - $ / shares | 3 Months Ended | 12 Months Ended |
Nov. 30, 2018 | Aug. 31, 2019 | |
Exercise Prices Four [Member] | Maximum [Member] | ||
Exercise Prices | $ 160 | $ 160 |
Exercise Prices Four [Member] | Minimum [Member] | ||
Exercise Prices | 120.01 | 120.01 |
Exercise Prices Three [Member] | Maximum [Member] | ||
Exercise Prices | 120 | 120 |
Exercise Prices Three [Member] | Minimum [Member] | ||
Exercise Prices | 80.01 | 80.01 |
Exercise Prices Two [Member] | Maximum [Member] | ||
Exercise Prices | 80 | 80 |
Exercise Prices Two [Member] | Minimum [Member] | ||
Exercise Prices | 40.01 | 40.01 |
Exercise Prices One [Member] | Maximum [Member] | ||
Exercise Prices | 40 | 40 |
Exercise Prices One [Member] | Minimum [Member] | ||
Exercise Prices | 18.80 | 18.80 |
Exercise Prices Five [Member] | Maximum [Member] | ||
Exercise Prices | 391.60 | 391.60 |
Exercise Prices Five [Member] | Minimum [Member] | ||
Exercise Prices | $ 160.01 | $ 160.01 |
Options Vested Five [Member] | ||
Number of options | 791 | 716 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Vested Four [Member] | ||
Number of options | 6,890 | 5,373 |
Weighted Average Remaining Contractual Life In Years | 7 years 6 months 21 days | 7 years 7 months 6 days |
Weighted Average Exercise Price | $ 157.41 | $ 158.40 |
Options Vested Three [Member] | ||
Number of options | 4,384 | 4,202 |
Weighted Average Remaining Contractual Life In Years | 8 years 4 months 28 days | 8 years 7 months 17 days |
Weighted Average Exercise Price | $ 103.53 | $ 105.20 |
Options Vested Two [Member] | ||
Number of options | ||
Weighted Average Remaining Contractual Life In Years | ||
Weighted Average Exercise Price | ||
Options Vested One [Member] | ||
Number of options | ||
Weighted Average Remaining Contractual Life In Years | ||
Weighted Average Exercise Price | ||
Options Vested [Member] | ||
Number of options | 12,035 | 10,291 |
Weighted Average Remaining Contractual Life In Years | 7 years 10 months 14 days | 8 years 15 days |
Weighted Average Exercise Price | $ 153.19 | $ 152.80 |
Options Outstanding and Exercisable Five [Member] | ||
Number of options | 1,260 | 1,375 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Outstanding and Exercisable One [Member] | ||
Number of options | 6,625 | 8,125 |
Weighted Average Remaining Contractual Life In Years | 9 years 6 months 7 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | $ 23.31 | $ 22.40 |
Options Outstanding and Exercisable Three [Member] | ||
Number of options | 11,224 | 12,864 |
Weighted Average Remaining Contractual Life In Years | 8 years 5 months 12 days | 8 years 8 months 2 days |
Weighted Average Exercise Price | $ 103.15 | $ 104 |
Options Outstanding and Exercisable Four [Member] | ||
Number of options | 12,625 | 12,625 |
Weighted Average Remaining Contractual Life In Years | 7 years 9 months 14 days | 8 years 15 days |
Weighted Average Exercise Price | $ 157.71 | $ 155.20 |
Options Outstanding and Exercisable Two [Member] | ||
Number of options | 13,729 | 15,761 |
Weighted Average Remaining Contractual Life In Years | 9 years 4 months 2 days | 9 years 7 months 2 days |
Weighted Average Exercise Price | $ 51.21 | $ 51.60 |
Options Outstanding and Exercisable [Member] | ||
Number of options | 45,463 | 50,749 |
Weighted Average Remaining Contractual Life In Years | 8 years 8 months 2 days | 8 years 11 months 12 days |
Weighted Average Exercise Price | $ 98.30 | $ 95.20 |
Share based compensation (De_10
Share based compensation (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |||
Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Common shares issued | |||||
Deferred share base compensation | $ 114,000 | $ 190,000 | $ 369,000 | $ 200,000 | |
Share Based Compensation [Member] | |||||
Common shares issued | 250,000 | 250,000 | |||
Option forfeited | 38,000 | 32,500 | |||
Option returned | 38,000 | 1,300,000 | |||
Common share issuable | 200,000 | 195,000 | |||
Common shares issueds | $ 167,000 | $ 167,500 | |||
Common shares issued to grant | 200,000 | 195,000 | |||
Aggregate intrinsic value | $ 0 | $ 1,000 | |||
Deferred share base compensation | $ 1,400,000 | $ 1,600,000 | |||
Remaining weighted average vesting periods | 2 years 1 month 6 days | 1 year 8 months 12 days | |||
Board of Directors [Member] | |||||
Options shares | 83,000 | ||||
Designated shares | 7,000 | 7,500 |
Related Parties (Details)
Related Parties (Details) | 12 Months Ended |
Aug. 31, 2019USD ($)$ / sharesshares | |
Directors [Member] | |
Shares | shares | 4,987 |
Value | $ | $ 262,500 |
Whitney White [Member] | |
Shares | shares | 329 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 114 |
Date Issued | September 2018 |
Ken Weaver [Member] | |
Shares | shares | 1,995 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 18.80 |
Date Issued | August 2019 |
Ken Weaver One [Member] | |
Shares | shares | 1,202 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 31.20 |
Date Issued | May 2019 |
Ken Weaver Two [Member] | |
Shares | shares | 308 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 122 |
Date Issued | November 2018 |
Sean Higgins [Member] | |
Shares | shares | 329 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 114 |
Date Issued | September 2018 |
Sean Higgins One [Member] | |
Shares | shares | 412 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 91.20 |
Date Issued | April 2019 |
Whitney White One [Member] | |
Shares | shares | 412 |
Value | $ | $ 37,500 |
[Shares Issued, Price Per Share] | $ / shares | $ 91.20 |
Date Issued | April 2019 |
Related Parties (Details Narr_2
Related Parties (Details Narrative) - USD ($) | Mar. 15, 2017 | Jul. 31, 2019 | Jun. 30, 2019 | May 10, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | Aug. 31, 2019 | Aug. 31, 2018 |
Professional fees | $ 840,000 | $ 624,000 | $ 3,918,000 | $ 2,078,000 | ||||
Common stock option granted shares | 36,073 | 23,719 | ||||||
Chief Executive Officer [Member] | April 1, 2016 [Member] | Employment Agreement [Member] | ||||||||
Officers compensation | $ 750,000 | $ 750,000 | ||||||
Chief Executive Officer [Member] | 2017 Plan [Member] | April 1, 2016 [Member] | ||||||||
[Class of Warrant or Right, Exercise Price of Warrants or Rights] | $ 4,160 | |||||||
Expiration date of the option | Mar. 14, 2027 | |||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||
Common stock option granted shares | 50,000 | |||||||
J. Steven Holmes [Member] | ||||||||
Professional fees | $ 180,000 | $ 180,000 | $ 720,000 | 700,000 | ||||
Price per share | $ 23.28 | |||||||
Proceeds from cash against future services | $ 325,000 | |||||||
Returned shares of common stock | 13,954 | |||||||
Mark Absher [Member] | 2017 Plan [Member] | On May 15, 2017 [Member] | ||||||||
[Class of Warrant or Right, Exercise Price of Warrants or Rights] | $ 4,160 | |||||||
Expiration date of the option | Mar. 14, 2027 | |||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||
Common stock option granted shares | 50,000 | |||||||
J. Stephan Holmes [Member] | 2017 Plan [Member] | ||||||||
[Class of Warrant or Right, Exercise Price of Warrants or Rights] | $ 4,160 | |||||||
Expiration date of the option | Mar. 14, 2027 | |||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||
Common stock option granted shares | 50,000 | |||||||
Mark Absher One [Member] | 2017 Plan [Member] | ||||||||
[Class of Warrant or Right, Exercise Price of Warrants or Rights] | $ 100 | |||||||
Expiration date of the option | May 31, 2028 | Mar. 14, 2027 | ||||||
Exercisable period of the option | May 31, 2018 | |||||||
Officers compensation | $ 275,000 | $ 300,000 | ||||||
Additional shares of common stock | 50,000 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Deferred tax liabilities: | ||
Depreciation | $ (122,000) | $ (21,000) |
Software development costs | (845,000) | (835,000) |
Total deferred tax liabilities | (967,000) | (856,000) |
Deferred tax assets: | ||
Net operating loss carryforward | 9,157,000 | 8,010,000 |
Business interest | 2,539,000 | |
Workers' compensation accruals | 1,763,000 | 360,000 |
Stock-based compensation | 354,000 | 172,000 |
Deferred rent | 15,000 | 16,000 |
Total deferred tax assets | 13,828,000 | 8,558,000 |
Valuation allowance | (12,861,000) | (7,702,000) |
Total net deferred tax assets | 967,000 | 856,000 |
Net deferred tax assets |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Current | ||
Federal | ||
State | ||
Total current | ||
Deferred | ||
Federal | 4,422,000 | 2,994,000 |
State | 737,000 | 499,000 |
Total deferred | 5,159,000 | 3,493,000 |
Change in valuation allowance | (5,159,000) | (3,493,000) |
Total Income Tax Expense (Benefit) |
Income Taxes (Details 2)
Income Taxes (Details 2) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Income Taxes (Details 2) | ||
Pretax income | $ 3,933,000 | $ 4,145,000 |
Non-deductible penalties and other permanent differences | (430,000) | (177,000) |
State taxes (8.84%) | 1,656,000 | 1,466,000 |
Redetermination of prior year taxes | ||
Enactment of the 2017 Tax Reform Act | (1,941,000) | |
Change in valuation allowance | (5,159,000) | (3,493,000) |
Net income tax provision |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Income Taxes (Details Narrative) | ||
Net operating loss carryforwards | $ 30,686,000 | $ 26,673,000 |
Operating loss carryforwards, expiry year | 2029 | |
Change in valuation allowance | $ (5,159,000) | $ (3,493,000) |
Gross deferred tax assets | 1,277,000 | |
Net operating losses | $ 3,843,000 | |
Net operating loss carryforwards, limitations on use | This NOL has an indefinite life but are limited to 80%. |
Commitments and Contingencies_2
Commitments and Contingencies (Details 1) - Operating Lease [Member] | Aug. 31, 2019USD ($) |
2020 | $ 382,000 |
2021 | 382,000 |
2022 | 319,000 |
Total minimum payments | $ 1,083,000 |
Commitments and Contingencies_3
Commitments and Contingencies (Details) | Aug. 31, 2019USD ($) |
Software License [Member] | |
2020 | $ 922,000 |
Commitment and contingencies (D
Commitment and contingencies (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | ||||||
Aug. 27, 2019 | Jul. 10, 2019 | Jun. 21, 2018 | May 31, 2016 | Aug. 31, 2019 | Aug. 31, 2018 | Jul. 09, 2019 | Apr. 15, 2016 | |
Software development cost | $ 1,209,000 | $ 3,828,000 | ||||||
Change in fair value | (3,069,000) | |||||||
March 2019 Warrant Liability [Member] | ||||||||
Change in fair value | $ (3,013,000) | |||||||
Dominion Capital LLC v. ShiftPixy [Member] | ||||||||
Description for the convertible note related litigation | ShiftPixy was served with a complaint filing by Dominion Capital LLC in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes. Dominion sought injunctive relief, injunction to prohibit buyback, breach of contract on the June 2018, December 2018, and March 2019 notes, and declaratory judgment. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with Dominion for approximately $1.5 million consisting of $0.7 million of the June 2018 series, $0.2 million of the December 2018 series and $0.6 million of the March 2019 series. | |||||||
Alpha Capital v. ShiftPixy, Inc. [Member] | ||||||||
Description for the convertible note related litigation | ShiftPixy was served with a complaint filing by Alpha Capital Anstalt (ACA) in the United States District Court, Southern District of New York alleging breach of contract in refusing to honor the conversion of certain convertible notes, specifically one for $310,000 submitted on June 20, 2019. ACA sought an injunction requiring the Company to issue 25,000 common shares, damages for the claimed breaches, and attorneys fees. In August 2019, the court denied the motion for a preliminary injunction but granted accelerated discovery which was completed in September 2019. As of August 31, 2019, the Company had convertible notes outstanding with ACA for approximately $1.7 million consisting of $0.3 million of the June 2018 series, $0.2 million of the December 2018 series and $1.2 million of the March 2019 series. | |||||||
MEF I, LP v. ShiftPixy, Inc. [Member] | ||||||||
Description for the convertible note related litigation | MEF filed a complaint in the United States District Court, Southern District of New York based upon the Company’s refusal to convert June 2018 notes. MEF seeks monetary relief of $2.1 million and seeks to appoint themselves as receiver of the Company. As of August 31, 2019 the Company had convertible notes outstanding to MEF at approximately $0.7 million face value consisting of approximately $0.5 million and $0.2 million for the June 2018 and December 2018 notes respectively. In November 2019 the Company filed a motion in response to the receiver request. A hearing on the receiver matter is scheduled for November 20, 2019. | |||||||
Lyons Capital LLc [Member] | ||||||||
Common stock shares issuable for services | 210,000 | |||||||
Irvine Facility [Member] | ||||||||
Term of operating lease | 5 years | |||||||
Repurchase of Common Shares | 250,000 | |||||||
Kadima Ventures [Member] | Software Development [Member] | ||||||||
Software development cost | $ 8,500,000 | |||||||
Description for the dispute with software developer | the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11million but has not received the majority of certain modules. | |||||||
Additional funds demand | $ 10,000,000 |
Subsequent Events (Details Na_2
Subsequent Events (Details Narrative) - USD ($) | Jan. 31, 2020 | Dec. 05, 2019 | Nov. 30, 2019 | Jan. 16, 2020 | Dec. 23, 2019 | Dec. 11, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Common stock, shares issued | 907,047 | 907,047 | 721,295 | |||||
Common stock, shares value | $ 0 | |||||||
White [Member] | ||||||||
Common stock, shares issued | 428 | |||||||
Messrs. Higgins and White [Member] | ||||||||
Common stock, shares issued | 856 | |||||||
Common stock, shares value | $ 7,000 | |||||||
Messrs. Higgins [Member] | ||||||||
Common stock, shares issued | 428 | |||||||
On January 6, 2020 [Member] | Asset Purchase Agreement [Member] | ||||||||
Disposal of business, consideration received or receivable | 19,200,000 | |||||||
Disposal of business, consideration received | $ 9,700,000 | |||||||
Frequency of consideration receivables | Per year | |||||||
Percentage of recurring business sold | 60.00% | |||||||
Disposal of business, consideration receivables periodicaly | $ 2,400,000 | |||||||
Subsequent Event [Member] | Alpha Capital v. ShiftPixy, Inc. [Member] | ||||||||
Total award money received | $ 500,000 | |||||||
Proceeds from issuance of notes | 310,000 | |||||||
Damages incurred | $ 190,000 | |||||||
Convertible notes per share | $ 12.20 | |||||||
Subsequent Event [Member] | Holder [Member] | ||||||||
Consideration value | $ 200,000 | |||||||
Common stock, shares issued | 21,750 | |||||||
Common stock, shares value | $ 200,000 | |||||||
Subsequent Event [Member] | Holder [Member] | [March 2019 Convertible Notes [Member]] | ||||||||
Conversion price | $ 40 | |||||||
Description for extended term | March 2019 notes to March 1, 2022 | |||||||
Subsequent Event [Member] | Holder [Member] | December 2018 Notes [Member] | ||||||||
Description for consideration exchange | consideration for this exchange and agreed to increase the principal outstanding on the notes exchanged by 10% from $222,000 for the December 2018 notes to $244,000 and from $2,445,000 for the March 2019 notes to $2,890,000. |
Reverse Stock Split (Details)
Reverse Stock Split (Details) | 1 Months Ended |
Dec. 17, 2019 | |
Reverse Stock Split Disclosure [Line Items] | |
Reverse stock split | The Company effected a 1 for 40 reverse stock split. |
Subsequent Event [Member] | |
Reverse Stock Split Disclosure [Line Items] | |
Reverse stock split | The Company effected a 1 for 40 reverse stock split. |
Reverse stock split, conversion ratio | 0.025 |