Document and Entity Information
Document and Entity Information | 6 Months Ended |
Feb. 29, 2020 | |
Document And Entity Information | |
Entity Registrant Name | ShiftPixy, Inc. |
Entity Central Index Key | 0001675634 |
Document Type | S-1/A |
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 ($) | Feb. 29, 2020 | Nov. 30, 2019 | Aug. 31, 2019 | Feb. 28, 2019 | Nov. 30, 2018 | Aug. 31, 2018 | Aug. 31, 2017 |
Current assets | |||||||
Cash | $ 397,000 | $ 1,561,000 | $ 1,650,000 | ||||
Accounts receivable, net | 1,197,000 | 86,000 | 36,000 | ||||
Unbilled accounts receivable | 2,093,000 | 1,402,000 | 547,000 | ||||
Note receivable, net | 358,000 | ||||||
Deposit - workers' compensation | 262,000 | 235,000 | 83,000 | ||||
Prepaid expenses | 402,000 | 349,000 | 445,000 | ||||
Other current assets | 163,000 | 244,000 | 259,000 | ||||
Current assets of discontinued operations | 1,924,000 | 10,154,000 | 7,427,000 | ||||
Total current assets | 6,796,000 | 14,031,000 | 10,447,000 | ||||
Fixed assets, net | 2,923,000 | 3,320,000 | 2,990,000 | ||||
Note receivable, net | 5,372,000 | ||||||
Deposits - workers' compensation | 453,000 | 754,000 | 110,000 | ||||
Deposits and other assets | 104,000 | 124,000 | 121,000 | ||||
Non current assets of discontinued operations | 3,324,000 | 5,567,000 | 2,134,000 | ||||
Total assets | 18,972,000 | 23,796,000 | 15,802,000 | ||||
Current liabilities | |||||||
Accounts payable and other accrued liabilities | 2,673,000 | 4,455,000 | 3,185,000 | ||||
Payroll related liabilities | 5,801,000 | 2,559,000 | 976,000 | ||||
Convertible notes, net | 1,427,000 | 3,351,000 | 6,172,000 | ||||
Accrued workers' compensation costs | 262,000 | 235,000 | 15,000 | ||||
Default penalties accrual | 1,800,000 | 3,500,000 | |||||
Derivative liability | 294,000 | 3,756,000 | |||||
Current liabilities of discontinued operations | 1,924,000 | 16,032,000 | 8,808,000 | ||||
Total current liabilities | 12,381,000 | 32,188,000 | 22,656,000 | ||||
Non-current liabilities | |||||||
Convertible notes, net | 609,000 | ||||||
Accrued workers' compensation costs | 771,000 | 525,000 | 45,000 | ||||
Non-current liabilities of discontinued operations | 5,652,000 | 3,853,000 | 856,000 | ||||
Total liabilities | 19,413,000 | 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; 1,103,643 and 907,047 shares issued as of February 29, 2020 and August 31, 2019 | |||||||
Additional paid-in capital | 37,620,000 | 32,505,000 | 18,468,000 | ||||
Treasury stock, at cost-0 and 13,953 shares as of February 29, 2020 and August 31, 2019 | (325,000) | ||||||
Accumulated deficit | (38,061,000) | (44,950,000) | (26,223,000) | ||||
Total stockholders' deficit | (441,000) | $ (15,212,000) | (12,770,000) | $ (4,764,000) | $ (7,506,000) | (7,754,000) | $ 5,616,000 |
Total liabilities and stockholders' deficit | $ 18,972,000 | $ 23,796,000 | $ 15,802,000 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Feb. 29, 2020 | Jan. 31, 2020 | Dec. 31, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Stockholders' deficit | |||||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | ||
Preferred stock, shares par value | $ 0.0001 | $ 0.0001 | $ 40 | $ 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 | 1,103,643 | 907,047 | 721,295 | ||
Treasury stock, shares | 0 | 13,953 | 0 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Condensed Consolidated Statements of Operations | ||||||
Revenues (gross billings of $15.6m and $8.2m less worksite employee payroll cost of $13.5m and $7.0m, respectively for the three months ended; gross billings of $32.2m and $14.0m less worksite employee payroll cost of $27.9m and $12.0m, respectively for six months ended) | $ 2,583,000 | $ 1,186,000 | $ 4,761,000 | $ 2,020,000 | $ 5,423,000 | $ 1,819,000 |
Cost of revenue | 2,124,000 | 1,011,000 | 4,178,000 | 1,659,000 | 4,594,000 | 1,488,000 |
Gross profit | 459,000 | 175,000 | 583,000 | 361,000 | 829,000 | 331,000 |
Operating expenses: | ||||||
Salaries, wages and payroll taxes | 1,802,000 | 1,089,000 | 3,452,000 | 2,030,000 | 4,670,000 | 2,941,000 |
Stock-based compensation - general and administrative | 619,000 | 81,000 | 745,000 | 158,000 | ||
Commissions | 40,000 | 34,000 | 111,000 | 66,000 | 200,000 | 93,000 |
Professional fees | 997,000 | 895,000 | 1,837,000 | 1,519,000 | 3,918,000 | 2,078,000 |
Software development | 350,000 | 718,000 | 703,000 | 1,028,000 | 1,209,000 | 3,828,000 |
Depreciation and amortization | 239,000 | 191,000 | 480,000 | 379,000 | 837,000 | 272,000 |
General and administrative | 403,000 | 988,000 | 1,564,000 | 2,116,000 | 6,502,000 | 4,189,000 |
Total operating expenses | 4,450,000 | 3,996,000 | 8,892,000 | 7,296,000 | 16,499,000 | 13,129,000 |
Operating Loss | (3,991,000) | (3,821,000) | (8,309,000) | (6,935,000) | (15,670,000) | (12,798,000) |
Other (expense) income: | ||||||
Interest expense | (805,000) | (969,000) | (1,966,000) | (1,926,000) | (8,507,000) | (1,751,000) |
Expense related to modification of warrants | (22,000) | (22,000) | (2,271,000) | |||
Loss from debt conversion | (657,000) | (657,000) | ||||
Inducement loss | (567,000) | (1,555,000) | (567,000) | (1,555,000) | ||
Change in fair value derivative and warrant liability | 829,000 | 1,771,000 | 2,569,000 | |||
Gain on convertible note settlement | 2,611,000 | 2,611,000 | ||||
Gain on convertible note penalties accrual | 760,000 | 760,000 | 2,611,000 | |||
Total other (expense) income | (462,000) | 87,000 | (681,000) | (870,000) | (9,054,000) | (5,251,000) |
Loss from continuing operations | (4,453,000) | (3,734,000) | (8,990,000) | (7,805,000) | (24,724,000) | (18,049,000) |
Income (Loss) from discontinued operations | (1,784,000) | 1,594,000 | 197,000 | 3,418,000 | ||
Gain from asset sale | 15,682,000 | 15,682,000 | ||||
Total Income from discontinued operations, net of tax | 13,898,000 | 1,594,000 | 15,879,000 | 3,418,000 | 5,997,000 | 1,226,000 |
Net income (loss) | $ 9,445,000 | $ (2,140,000) | $ 6,889,000 | $ (4,387,000) | $ (18,727,000) | $ (16,823,000) |
Net Income (Loss) gain per share, Basic and diluted | ||||||
Continuing operations | $ (0.26) | $ (4.79) | $ (1.01) | $ (10.35) | $ (30.23) | $ (25.06) |
Discontinued operations | ||||||
Operating income (loss) | (0.10) | 2.04 | 0.02 | 4.53 | ||
Gain on sale of assets | 0.92 | 1.76 | ||||
Total discontinued operations | 0.82 | 2.04 | 1.78 | 4.53 | 7.33 | 1.70 |
Net income (loss) per common share - Basic and diluted | $ 0.56 | $ (2.74) | $ 0.77 | $ (5.82) | $ (22.90) | $ (23.36) |
Weighted average common shares outstanding - Basic and diluted | 16,971,339 | 779,634 | 8,932,217 | 753,808 | 817,720 | 720,253 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Condensed Consolidated Statements of Operations | ||||||
Gross billings | $ 16.1 | $ 8.2 | $ 32.6 | $ 14 | $ 39.3 | $ 12.1 |
Worksite employee payroll cost | $ 13.5 | $ 7 | $ 27.8 | $ 12 | $ 33.9 | $ 10.3 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total |
Balance, shares at Aug. 31, 2017 | 719,064 | ||||
Balance, amount at Aug. 31, 2017 | $ 15,016,000 | $ (9,400,000) | $ 5,616,000 | ||
Warrants exercised for cash, amount | 75,000 | 75,000 | |||
Warrants exercised for cash, shares | 938 | ||||
Common stock issued for services rendered, amount | 163,000 | 163,000 | |||
Common stock issued for services rendered, shares | 1,293 | ||||
Stock-based compensation expense | 200,000 | 200,000 | |||
Net Income (Loss) | (16,823,000) | (16,823,000) | |||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | 18,468,000 | (26,222,000) | (7,754,000) | ||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Common stock issued for services rendered, amount | 113,000 | 113,000 | |||
Common stock issued for services rendered, shares | 966 | ||||
Stock-based compensation expense | 158,000 | 158,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 4,891,000 | 4,891,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 49,469 | ||||
Inducement loss from debt conversion, amount | 1,555,000 | 1,555,000 | |||
Inducement loss from debt conversion, shares | 24,517 | ||||
Net Income (Loss) | (4,387,000) | (4,387,000) | |||
Balance, shares at Feb. 28, 2019 | 802,935 | ||||
Balance, amount at Feb. 28, 2019 | 25,845,000 | (30,609,000) | (4,764,000) | ||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | 18,468,000 | (26,222,000) | (7,754,000) | ||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Common stock issued for services rendered, amount | 263,000 | 263,000 | |||
Common stock issued for services rendered, shares | 4,985 | ||||
Stock-based compensation expense | 369,000 | 369,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 8,904,000 | 8,904,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 105,776 | ||||
Net Income (Loss) | (18,727,000) | (18,727,000) | |||
Balance, shares at Aug. 31, 2019 | 909,222 | ||||
Balance, amount at Aug. 31, 2019 | 32,505,000 | (44,950,000) | $ (325,000) | (12,770,000) | |
Balance, shares at Nov. 30, 2018 | 745,572 | ||||
Balance, amount at Nov. 30, 2018 | 20,963,000 | (28,469,000) | (7,506,000) | ||
Stock-based compensation expense | 81,000 | 81,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 3,246,000 | 3,246,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 32,846 | ||||
Inducement loss from debt conversion, amount | 1,555,000 | 1,555,000 | |||
Inducement loss from debt conversion, shares | 24,517 | ||||
Net Income (Loss) | (2,140,000) | (2,140,000) | |||
Balance, shares at Feb. 28, 2019 | 802,935 | ||||
Balance, amount at Feb. 28, 2019 | 25,845,000 | (30,609,000) | (4,764,000) | ||
Balance, shares at Aug. 31, 2019 | 909,222 | ||||
Balance, amount at Aug. 31, 2019 | 32,505,000 | (44,950,000) | (325,000) | (12,770,000) | |
Treasury Shares retired, amount | (325,000) | 325,000 | |||
Treasury Shares retired, shares | (13,953) | ||||
Common shares issued for note exchange | 200,000 | 200,000 | |||
Shares issued for debt conversion | 21,750 | ||||
Common stock issued for services rendered, amount | 75,000 | 75,000 | |||
Common stock issued for services rendered, shares | 856 | ||||
Stock-based compensation expense | 670,000 | 670,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 2,215,000 | 2,215,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 148,122 | ||||
Reclassification of derivative liabilities to paid in capital | 1,691,000 | 1,691,000 | |||
Inducement loss on note conversions, amount | 567,000 | 567,000 | |||
Inducement loss on note conversions, shares | 37,646 | ||||
Modification of warrants | 22,000 | 22,000 | |||
Net Income (Loss) | 6,889,000 | 6,889,000 | |||
Balance, shares at Feb. 29, 2020 | 1,103,643 | ||||
Balance, amount at Feb. 29, 2020 | 37,620,000 | (38,061,000) | (441,000) | ||
Balance, shares at Nov. 30, 2019 | 909,222 | ||||
Balance, amount at Nov. 30, 2019 | 32,619,000 | (47,506,000) | (325,000) | (15,212,000) | |
Treasury Shares retired, amount | (325,000) | $ 325,000 | |||
Treasury Shares retired, shares | (13,953) | ||||
Common shares issued for note exchange | 200,000 | 200,000 | |||
Shares issued for debt conversion | 21,750 | ||||
Common stock issued for services rendered, amount | 75,000 | 75,000 | |||
Common stock issued for services rendered, shares | 856 | ||||
Stock-based compensation expense | 556,000 | 556,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 2,215,000 | 2,215,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 148,122 | ||||
Reclassification of derivative liabilities to paid in capital | 1,691,000 | 1,691,000 | |||
Inducement loss on note conversions, amount | 567,000 | 567,000 | |||
Inducement loss on note conversions, shares | 37,646 | ||||
Modification of warrants | 22,000 | 22,000 | |||
Net Income (Loss) | 9,445,000 | 9,445,000 | |||
Balance, shares at Feb. 29, 2020 | 1,103,643 | ||||
Balance, amount at Feb. 29, 2020 | $ 37,620,000 | $ (38,061,000) | $ (441,000) |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Feb. 29, 2020 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
OPERATING ACTIVITIES | |||||
Net Income (Loss) | $ 6,889,000 | $ (4,387,000) | $ (18,727,000) | $ (16,823,000) | |
Income from discontinued operations | $ 13,898,000 | 15,879,000 | 3,418,000 | 5,997,000 | 1,226,000 |
Net loss from continuing operations | (4,453,000) | (8,990,000) | (7,805,000) | (24,724,000) | (18,049,000) |
Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities: | |||||
Depreciation and amortization | 239,000 | 480,000 | 379,000 | 837,000 | 272,000 |
Gain on convertible note settlement | (760,000) | (760,000) | (2,611,000) | ||
Gain on convertible note penalties accrual | (760,000) | ||||
Amortization debt discount and debt issuance cost | 2,313,000 | 1,895,000 | |||
Stock issued for services | 75,000 | 113,000 | 263,000 | 163,000 | |
Stock-based compensation - general and administrative | 670,000 | 158,000 | 369,000 | 200,000 | |
Expense related to warrant modification | 22,000 | 22,000 | 2,271,000 | ||
Inducement loss on note conversions | 567,000 | 567,000 | 1,555,000 | ||
Non-cash interest | 298,000 | ||||
Change in fair value of derivative and warrant liability | (829,000) | (1,771,000) | (2,569,000) | ||
Changes in operating assets and liabilities | |||||
Accounts receivable | (1,111,000) | (55,000) | (50,000) | 289,000 | |
Unbilled accounts receivable | (691,000) | (195,000) | (857,000) | (547,000) | |
Prepaid expenses | (53,000) | 268,000 | 97,000 | (93,000) | |
Other current assets | 81,000 | 39,000 | 15,000 | (243,000) | |
Deposits - workers' compensation | (273,000) | (542,000) | (794,000) | (124,000) | |
Deposits and other assets | 20,000 | 26,000 | (3,000) | 6,000 | |
Accounts payable | (901,000) | 458,000 | 1,372,000 | 76,000 | |
Payroll related liabilities | 3,242,000 | 985,000 | 1,584,000 | 590,000 | |
Accrued workers' compensation | (273,000) | 302,000 | 700,000 | 60,000 | |
Other current liabilities | (1,894,000) | (119,000) | (25,000) | 1,677,000 | |
Total Adjustments | (257,000) | 2,954,000 | |||
Net cash used in continuing operating activities | (9,247,000) | (4,851,000) | (12,063,000) | (11,352,000) | |
Net cash (used in) provided by discontinued operating activities | (1,348,000) | 4,837,000 | 9,978,000 | 1,815,000 | |
Net cash used in operating activities | (10,595,000) | (14,000) | (2,086,000) | (9,538,000) | |
INVESTING ACTIVITIES | |||||
Purchase of fixed assets | (77,000) | (497,000) | (1,167,000) | (3,019,000) | |
Disposal of fixed assets | 34,000 | ||||
Proceeds from working capital adjustment - sale of assets | 1,214,000 | ||||
Proceeds from sale of assets | 9,500,000 | ||||
Net cash provided by (used in) investing activities | 10,671,000 | (497,000) | (1,492,000) | (3,019,000) | |
FINANCING ACTIVITIES | |||||
Repayment of convertible notes | (436,000) | ||||
Proceeds from asset sale | (1,240,000) | ||||
Proceeds from exercise of warrants | 660,000 | 660,000 | 75,000 | ||
Net cash provided by financing activities | (1,240,000) | 660,000 | 3,489,000 | 8,310,000 | |
Net increase (decrease) in cash | (1,164,000) | 149,000 | (89,000) | (4,247,000) | |
Cash - Beginning of Period | 1,561,000 | 1,650,000 | 1,650,000 | 5,897,000 | |
Cash - End of Period | 397,000 | 397,000 | 1,799,000 | 1,561,000 | 1,650,000 |
Supplemental Disclosure of Cash Flows Information: | |||||
Cash paid for interest | 315,000 | 145,000 | 226,000 | 133,000 | |
Non-cash Investing and Financing Activities: | |||||
Conversion of debt and accrued interest into common stock | 2,215,000 | 4,891,000 | 8,904,000 | ||
Additional Principal to settle registration rights penalties | $ 889,000 | 889,000 | |||
Common shares issued for services | 75,000 | $ 263,000 | $ 163,000 | ||
Common shares issued for note exchange | $ 200,000 | 200,000 | |||
Additional principal issued for note exchange | 267,000 | ||||
Discount recorded for asset sale note receivable | 1,818,000 | ||||
Reclassification of derivative liabilities to paid in capital | 1,691,000 | ||||
Supplemental schedule of cash activities - Asset Sale | |||||
Cash received at January 3, 2020 closing | $ 9,500,000 |
Nature of Operations
Nature of Operations | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Nature of Operations | ||
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. The Company and its wholly-owned subsidiary Rethink, Inc. (“RT”) function as an employment administrative services (“EAS”) providers 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 Company’s closed proprietary operating and processing information system (the “ShiftPixy Ecosystem”) when eligible clients recognize the value of the services provided by the parent Company. This platform is expected to facilitate additional value added services in future reporting periods. In January 2020, the Company sold Shift Human Capital Management Inc. (“SHCM”), previously a wholly-owned subsidiary of the Company, and assigned the majority of the Company’s billable clients to a third party for cash as described below in Note 3 and formed RT. The Company is currently operating in one reportable segment. | 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. |
Summary of significant accounti
Summary of significant accounting policies | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
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, the Company does 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 and six months ended February 29, 2020, 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; · Valuation of long-lived assets including long-term notes receivable; 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’s revenues are primarily attributable to fees for providing staffing solutions and EAS/ 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 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. Payments for the Company's services are typically made in advance of, or at the time the services are provided. The Company accounts for its EAS revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 605-45, Revenue Recognition, Principal Agent Considerations . EAS solutions revenue is primarily derived from the Company's gross billings, which are based on (i) the payroll cost of the Company's worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 condensed consolidated balance sheets and were $280,000 and $170,000 as of February 29, 2020 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. 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 and six months ended February 29, 2020, and February 28, 2019, respectively. However, four clients represent 40% of total accounts receivable at February 29, 2020. 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. There were no impairments recognized for the periods ended February 29, 2020, and February 28, 2019. 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 February 29, 2020, the Company classified $0.1 million in long-term accrued workers’ compensation in the Company’s condensed 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 and administered by the Sunz Insurance Company. 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 workers’ 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 condensed consolidated balance sheets. As of February 29, 2020, the Company had $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.5 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 February 29, 2020, the Company had short term accrued workers’ compensation costs of $0.2 million and long-term accrued workers’ compensation costs of $0.7 million. The Company retained workers compensation asset reserves and workers compensation related liabilities for former worksite employees of clients transferred to Vensure. As of February 29, 2020, the retained workers compensation assets and liabilities are presented as a discontinued operations net asset or liability. As of February 29, 2020 the Company had $2.0 million in both short term assets and short term liabilities and had $3.3 million of long-term assets and $5.6 million of long-term liabilities. 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. We expect additional workers compensation claims to be made by furloughed worksite employees as a result of the employment downturn caused by the COVID-19 pandemic. On May 4, 2020 the State of California indicated that workers who became ill with COVID-19 would have a potential claim against workers compensation insurance for their illnesses. We expect additional workers compensation claims could be made by employees required to work by their employers during the COVID-19 pandemic and which could have a material impact to our workers compensation liability estimates. While we have not seen additional expenses as a result of any such potential claims, and which would be for reporting periods after February 29, 2020, we will continue to closely monitor all workers compensation claims made during the COVID-19 pandemic. 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 February 29, 2020 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable) 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; and 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 February 29, 2020 or August 31, 2019. The valuation of the Note Receivable (as defined below) from the Vensure Asset Sale described below and the derivative liabilities associated with its March 2019 Notes (as defined below) (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. Level 3 assets and liabilities: The Note Receivable, as described in Note 3 was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. We valued the Note Receivable on the January 1, 2020 transaction date using a 10% discount rate which contemplates the risk and probability assessments of the expected future cash flows. The fair value assumptions have not changed as of February 29, 2020 and any impact to the fair value was immaterial. The only impact recorded to the Note Receivable during the quarter related to working capital adjustments of $1.9 million. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. We believe there are risks associated with the value of the Note Receivable due to business impacts of the COVID-19 pandemic. The expected cash payments from the Note Receivable is based on gross profits generated by the clients transferred to Vensure. Those transferred clients may have their business impacted due to the pandemic which in turn would result in lower gross profits. While we believe the current valuation of the Note Receivable is properly recorded as of February 29, 2020, a material change in the business transferred may result in an impairment of this asset . The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer. 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 February 29, 2020: March 2019 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 As of February 29, 2020 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 February 29, 2020, using the $12.20 per share floor conversion price for the convertible notes and the exercise price of $40 per share for the warrants: March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 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 February 29, 2020 and February 28, 2019, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Research and Development During the three months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $0.8 million and $1.6 million, respectively. During the six months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $2.1 million and $2.5 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s Human Resources Information System (“HRIS”) platform and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three and six months ended February 29, 2020 and February 28, 2019, respectively. Advertising Costs The Company expenses all advertising as incurred. The Company recorded a net costs totaling $179,000 and $183,000 for the three and six months ended February 29, 2020, respectively, and expenses of $503,000 and $582,000 for the three and six months ended February 28, 2019, respectively. Convertible Debt The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features. Reverse Stock Split On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. Earnings (Loss) Per Share The Company utilizes FASB 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. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The number of shares used for the weighted average number of common shares outstanding for the earnings per share for the three and six months ended February 29, 2020 was increased by 24,634,560 shares effective as of January 1, 2020. This increase reflects the inclusion of common shares issuable upon full exercise of options to purchase a similar number of preferred shares and full conversion of those preferred shares to common shares. The preferred share option was deemed to be exercisable into preferred shares on the effective date of the Asset Sale transaction as described in Note 3. The one to one ratio of conversion of preferred shares to common shares was set on March 25, 2020 as described in Note 10. Securities used in, or that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 Stock-Based Compensation At February 29, 2020, 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 , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton 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. 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 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 of common stock provided are recorded at cost as treasury stock. The Company retired all of its 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. Recent Accounting Standards In May 2014, the FASB issued Accounting Standards Update (“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. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. 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 July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. In April 2020, the FASB voted to defer the effective date for private companies for one year. The updated effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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. | Note 2: Summary of significant accounting policies 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 . EAS solutions revenue is primarily derived from the Company’s gross billings, which are based on (i) the payroll cost of the Company’s worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 $1,137,000 and $310,000 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 and determined that no such costs should be capitalized. Costs relating to its customers are typically commissions paid as a percentage of some of the Company’s revenue components and are expensed as they are incurred because the terms of its contracts generally are cancellable by either party with a 30‑day notice. These costs are recorded in commissions in the Consolidated Statement of Operations. Segment Reporting The Company operates as one reportable segment under ASC 280, Segment Reporting . The Chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performances. The Company expects to operate in multiple segments in the future as its business evolves and will evaluate these changes prospectively. 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of its long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. 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 $0.1 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 $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.8 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 $0.1 million and long-term accrued workers’ compensation costs of $0.5 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: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 9), 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 Warrant Features 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: Loss from continuing operations $ (24,724,000) $ (18,049,000) Income from continuing operations 5,997,000 1,226,000 Net loss allocated to common shareholders $ (18,727,000) $ (16,823,000) Weighted average shares outstanding 817,720 720,253 Loss from continuing operations per common share $ (30.24) $ (25.06) Income from continuing operations per common share 7.34 1.70 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 For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 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 12: Related Parties. 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 imp |
Discontinued Operations
Discontinued Operations | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Discontinued Operations | ||
Discontinued Operations | Note 3 - Discontinued Operations On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019 and the transfer of $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement (the “Asset Sale”). Gross proceeds from the sale was $19.2 million of which $9.7 million was received at closing and $9.5 million will be paid out in equal monthly payments over the next four years (the “Note Receivable”), subject to adjustments for working capital and customer retention over the twelve month period following the Asset Sale. The following is a reconciliation of the gross proceeds to the net proceeds from the Asset Sale as presented in the statement of cash flows for the period ending February 29, 2020. Gross proceeds $ 19,166,000 Cash received at closing – asset sale (9,500,000) Cash received at closing – working capital (166,000) Discount recorded (1,818,000) Less: Transaction reconciliation – working capital adjustment (1,943,000) Adjusted Note Receivable 5,739,000 Short-term note receivable 358,000 Long-term note receivable $ 5,381,000 The Asset Sale generated a gain of $15.7 million for the three months ended February 29, 2020. The Company expects a minimal tax impact from the Asset Sale as it intends to utilize its net operating losses accumulated since inception to offset the gain resulting discontinued operations tax provision with a corresponding offset to the valuation allowance. The Asset Sale met the criteria of discontinued operations set forth in ASC 205 and as such the Company has reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations for all periods presented. The Company recorded the Note Receivable net of a discount using its estimated cost of capital as a discount rate of (10%). The Asset Sale calls for adjustments to the Note Receivable either for: (i) working capital adjustments or (ii) in the event that the gross profit of the business transferred is less than the required amount. Through February 29, 2020, the Company has identified $1,943,000 of working capital adjustments including $88,000 related to lower net assets transferred at closing, $201,000 of liabilities paid on behalf of the Company, and $1,664,000 of cash remitted to the Company's bank accounts by former clients. Under the terms of the Asset Sale, a reconciliation of the working capital was to have been completed by April 15, 2020. Due to operational difficulties and quarantined staff caused by the outbreak of coronavirus disease 2019 (“COVID-19”), the reconciliation remains unresolved. The working capital adjustment recorded as of February 29, 2020 represents the Company's estimate of the reconciliation. There is no assurance that the working capital change identified as of February 29, 2020 represents the final working capital adjustment. The carrying amounts of the classes of assets and liabilities from the Asset Sale included in discontinued operations were as follows: February 29, August 31, 2020 2019 Unaudited Unaudited Cash $ — $ — Accounts receivable and unbilled account receivable — 8,261,000 Prepaid expenses and other current assets — 171,000 Deposits – workers’ compensation 1,924,000 1,722,000 Total current assets 1,924,000 10,154,000 Fixed assets, net — 40,000 Deposits – workers’ compensation 3,324,000 5,527,000 Total assets $ 5,248,000 $ 15,721,000 Accounts payable and other current liabilities $ — $ 457,000 Payroll related liabilities — 13,583,000 Accrued workers’ compensation cost 1,924,000 1,722,000 Total current liabilities 1,924,000 16,032,000 Accrued workers’ compensation cost 5,652,000 3,853,000 Total liabilities 7,576,000 19,885,000 Net assets/(liability) $ (2,328,000) $ (4,164,000) Reported results for the discontinued operations by period were as follows: For the Three Months Ended For the Six Months Ended February 29, February 28, February 29, February 28, 2020 2019 2020 2019 Revenues (gross billings of $26.3 million and $74.4 million less worksite employee payroll cost of $22.8 million and $62.4 million, respectively for the three months ended; gross billings of $120.4 million and $139.4 million less worksite employee payroll cost of $103.3 million and $117.7 million, respectively for six months ended) $ 3,450,000 $ 12,002,000 $ 17,138,000 $ 21,688,000 Cost of revenue 5,038,000 8,956,000 15,535,000 15,442,000 Gross profit (loss) (1,587,000) 3,046,000 1,603,000 6,246,000 Operating expenses: Salaries, wages and payroll taxes 152,000 898,000 658,000 1,752,000 Commissions 45,000 554,000 748,000 1,076,000 Total operating expenses 197,000 1,452,000 1,406,000 2,828,000 (Loss) income from discontinued operations $ (1,784,000) $ 1,594,000 $ 197,000 $ 3,418,000 | Note 3 – Discontinued Operations On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019 and the transfer of $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement (the “Asset Sale”). The following discloses the amounts disclosed as discontinued operations in the recast financial statements In accordance with the provisions of ASC 205-20, Presentation of Financial Statements , we have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of August 31, 2019 and 2018 and consist of the following: August 31, 2019 August 31, 2018 Cash $ — $ — Accounts receivable and unbilled account receivable 8,261,000 5,721,000 Prepaid expenses and other current assets 171,000 118,000 Deposits – workers’ compensation 1,722,000 1,588,000 Total current assets 10,154,000 7,427,000 Fixed assets, net 40,000 42,000 Deposits – workers’ compensation 5,527,000 2,091,000 Total assets $ 15,721,000 $ 9,560,000 Accounts payable and other current liabilities $ 457,000 $ 18,000 Payroll related liabilities 13,853,000 8,501,000 Accrued workers’ compensation cost 1,722,000 290,000 Total current liabilities 16,032,000 8,808,000 Accrued workers’ compensation cost 3,853,000 856,000 Total liabilities 19,885,000 9,664,000 Net assets/(liability) $ (4,164,000) $ (104,000) In accordance with the provisions of ASC 205-20, we have separately reported the results of operations from in the results of continuing operations in the consolidated statements of operations. The results of operations from discontinued operations for the years ended August 31, 2019 and 2018, have been reflected as discontinued operations for the years ended December 31, 2019 and 2018, and consist of the following: For the Year Ended August 31, August 31, 2019 2018 Revenues (gross billings of $313.3 million and $210.3 million less worksite employee payroll cost of $265.3 million and $177.2 million, respectively for the year ended) $ 48,013,000 $ 33,139,000 Cost of revenue 36,452,000 27,970,000 Gross profit (loss) 11,561,000 5,169,000 Operating expenses: Salaries, wages and payroll taxes 3,032,000 2,442,000 Commissions 2,532,000 1,501,000 Total operating expenses 5,564,000 3,943,000 Operating income from discontinued operations 5,997,000 1,226,000 Provision for income tax expense from discontinued operations — — Net income from discontinued operations $ 5,997,000 $ 1,226,000 The Company utilized fully reserved net operating loss carryforwards of approximately $7,223,000 to offset income from discontinuing operations as follows: For the Year Ended August 31, August 31, 2019 2018 Provision of income tax expense: Federal tax expense $ 1,260,000 $ 265,000 State tax expense 540,000 92,000 Total tax expense 1,800,000 357,000 Tax benefit for utilization of tax loss carryforwards (1,800,000) (357,000) Provision for income tax expense from discontinued operations $ — $ — |
Going Concern
Going Concern | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Going Concern | ||
Going Concern | Note 4: Going Concern As of February 29, 2020, the Company had cash of $0.4 million and a working capital deficiency of $5.6 million. During the six months ended February 29, 2020, the Company used approximately $10.4 million of cash from its continuing operations and repaid $1.2 million of convertible notes, after receiving $9.5 million of cash from the Asset Sale described below. The Company has incurred recurring losses resulting in an accumulated deficit of $38.1 million as of February 29, 2020. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of the financial statements. 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 IPO on The Nasdaq Stock Market LLC (“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). Between September 1, 2019 and April 15, 2020 all litigation related to the convertible notes was resolved and all June 2018 Notes, all 8% Senior Secured Convertible Notes issued in December 2018 (the “December 2018 Notes”) and $4.0 million of the Convertible Notes issued in March 2019 (the “March 2019 Notes” and, together with the June 2018 Notes and the December 2018 Notes, the “Convertible Notes” or the “Senior Secured Convertible Notes Payable”) were repaid or converted into equity. The remaining $ 1.0 million of March 2019 Notes are due in September 2020 and were amended in March 2020 to a fixed conversion price of $9.20 per share. In January 2020, the Company assigned approximately 88% of its customer contracts in exchange for $9.7 million in cash at closing and received an additional $1.0 million of cash, net of $0.9 million of cash transferred and expects to receive an additional $7.5 million over the four years following the closing of the Asset Sale, subject to certain closing conditions. The Company transferred $1.6 million of working capital including $0.9 million of cash and the business transfer represented approximately $6 million of the Company’s annualized gross profit. The Company continues to experience significant growth in the number of worksite employees, which would generate additional administrative fees that would offset the current level of operational cash burn. The Company retained the high growth business which increased over 100% of billings and revenue growth. The Company also retained the rights to monetize the existing pool of worksite employees and has begun to roll out its delivery and scheduling applications to its customers. The Company has and will be impacted by the COVID-19 pandemic. The current business focus is on providing payroll services for the restaurant and hospitality industries which have seen a significant reduction in payroll and consequently a reduction in payroll processing fees. To date, some of our clients have received Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) benefits to offset this reduction but not at significant levels and our business has been impacted since the COVID-19 lockdown starting in March 2020. If the lockdown continues, our clients delay hiring or rehiring employees, or if our clients shut down operations, our ability to generate operational cash flows may be significantly impaired. The Company’s management believes, but cannot be certain, that the Company’s 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 additional 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. These condensed consolidated financial statements do not include any adjustments from this uncertainty. | Note 4: Going Concern 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, of which $9.5 million was used in continuing operations and $7.4 million was provided by discontinued operations. Cash used in continuing operations consisted of a net loss of $24.7 million, reduced by net non-cash charges of $10.6 million and working capital changes of $4.6 million. Cash provided by discontinued operations consisted of income of $6.0 million and $1.4 million in working capital changes. 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. Approximately 12% or of the recurring business gross profit represents continuing operations. On an annualized basis, a projected twelve-month gross profit based solely on the fourth quarter would be $14.4 million in total or approximately $1.7 million from continuing operations.. For the year ended August 31, 2019, the Company had $17.0 million of continuing operating expenses, of which $1.4 million was non-cash depreciation and share based compensation. Of the remaining $15.6 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable | ||
Senior Secured Convertible Notes Payable | Note 5: Senior Secured Convertible Notes Payable 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: February 29 August 31, 2020 2019 (unaudited) Senior Secured Convertible notes, Principal $ 3,647,000 $ 6,808,000 Less: debt discount and deferred financing costs (1,611,000) (3,457,000) Total outstanding convertible notes, net $ 2,036,000 $ 3,351,000 Less: current portion of convertible notes payable (1,427,000) (3,351,000) Long-term convertible notes payable $ 609,000 $ — The following table rolls forward the Convertible Notes Payable balances from August 31, 2019 to February 29, 2020: Deferred Gross Financing Note Principal Costs Discount Net Balance at August 31, 2019 $ 6,808,000 $ (344,000) $ (3,113,000) $ 3,351,000 Repayments in cash (1,240,000) — — (1,240,000) Conversions to common shares (2,188,000) — — (2,188,000) Notes issued for exchange 267,000 267,000 Additional note discount issued - exchange (467,000) (467,000) Acceleration of discount and deferred financing costs - — 62,000 595,000 657,000 Amortization of Interest Expense — 150,000 1,506,000 1,656,000 Balance at February 29, 2020 3,647,000 (132,000) (1,479,000) 2,036,000 Less Current Amount (2,327,000) 132,000 718,000 (1,427,000) Long Term Balance at February 29, 2020 $ 1,320,000 $ — $ (711,000) $ 609,000 The following table outlines the gross principal balance roll forward for each series from August 31, 2019 to February 29, 2020. Each series is described in further detail below. June 2018 December 2018 March 2019 December 2019 Notes Notes Notes Notes Total Gross Balance at August 31, 2019 $ 1,466,000 $ 867,000 $ 4,475,000 $ — $ 6,808,000 Exchanged for December 2019 Notes (222,000) (2,445,000) 2,934,000 267,000 Conversions to Common Shares (759,000) (422,000) (714,000) (293,000) (2,188,000) Repayments in cash (707,000) (223,000) (310,000) — (1,240,000) Gross Balance — — 1,006,000 2,641,000 3,647,000 Less: Discount and Debt Issuance Costs: — — (400,000) (1,211,000) (1,611,000) Carrying Balance at February 29, 2020 — — 606,000 1,430,000 2,036,000 Less: Current Amount — — (606,000) (821,000) (1,427,000) Long-term Balance at February 29, 2020 $ — $ — $ — $ 609,000 $ 609,000 During the three and six months ended February 29, 2020 the Company amortized $802,000 and $1,656,000, respectively, and for the three and six months ended February 28, 2019 the Company amortized $722,000 and $1,433,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 Notes, the March 2019 Notes, and the December 2019 Exchange Notes (as defined below). On June 3, 2019, an institutional investor 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 Convertible 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. During the three months ended February 29, 2020, the Company resolved all litigation related to its outstanding notes and the Convertible Notes are no longer in default. On December 6, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 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 of 12.5% of the principal balance as of January 31, 2020 payable in cash , and removed certain anti-dilution terms of the related warrants (the “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 $2,690,000 for a combined revised principal balance of $2,934,000. 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. The Company provided for up to 10% of the revised combined principal of $2,934,000 to be converted at a reduced price of $12.20 per share until January 31, 2020. In January 2020, the investor converted $293,000 into 24,049 shares of common stock. The Company evaluated the exchange under ASC 470 and determined that the exchange should be treated as a debt modification. The Company recorded an additional note discount of $467,000 representing the combined additional shares issued, valued at $200,000 and the additional $267,000 in notes issued in the exchange. See also the section entitled “December 2019 Exchange” below. One investor received a legal judgement for $500,000 plus default interest of $52,000. The judgement was paid in cash in January 2020 which included the repayment of $310,000 principal of the March 2019 Notes. Upon payment of the legal judgement, the litigation was resolved with this investor. The Company settled all legal claims with two investors by entering into settlement agreements and by payment of $2,047,000 in cash and the issuance of 103,593 shares of common stock. The settlements resulted in the elimination of combined default penalties, default interest, and $2,194,000 of principal of the June 2018 Notes, the December 2018 Notes, and the March 2019 Notes. The Company reduced the conversion price of the remaining the June 2018 Notes and the December 2018 Notes payable to $12.20 and $500,000 of the June 2018 Notes and the December 2018 Notes were converted into 41,004 shares of common stock. An additional 4,207 shares of common stock were issued in settlement of default interest of 51,000. One investor converted $130,000 of the March 2019 Note principal and $28,000 of accrued default interest at $12.20 per share into 12,915 shares of common stock. One investor converted $293,000 of the December 2019 Notes into 24,049 shares at a conversion price of $12.20 per share. As a result of these settlements and conversions, the Company recorded $567,000 of additional expense for debt conversion inducement representing the value of the shares issued at market and the $12.20 per share conversion price on the date of issuance. The Company had previously recorded $1,800,000 of accrued interest and penalties as of August 31, 2019. As a result of the settlements and resolution of litigation, the Company recorded a gain of $760,000 for the three months ended February 29, 2020. The Company retained $210,000 of accrued penalties for $210,000 of claims made by note holders which were settled in March 2020. December 2019 Exchange The terms of the December 2019 Exchange Notes are summarized as follows: · Term: April 1, 2022; · Coupon: 0%; · Default interest rate: 18%; · 10% of the revised note balance may be converted at $12.20 per share until January 31, 2020 · Remainder Convertible at the option of the holder at any time at a price of $40 per share but subject to down round price protection; · Amortization payment of 12.5% of January 31, 2020 principal balance payable in cash · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or default related to missed amortization payment, subject to a floor conversion price of $1.84 per share 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. In March 2020, the terms of the December 2019 Exchange Notes were modified to change the conversion price to a fixed conversion price of $9.20 per share. In April 2020, all remaining December 2019 Exchange Notes were converted at the revised conversion price. See also Subsequent Events Note 10. March 2019 Bridge Financing On March 12, 2019, the Company issued the March 2019 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 which 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 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 $12.20 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 December 2019, the holder of $2,445,000 of March 2019 Notes exchanged these notes for December 2019 Notes as described above. In March 2020, the terms of the March 2019 Notes were modified to change the conversion price to a fixed conversion price of $9.20 per share. See also Subsequent Events Note 10. | Note 9: 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: 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: Deferred Gross Financing Note Principal Costs 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 December 2018 March 2019 Notes Notes 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 $3.9 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 $3.9 million for the year ended August 31, 2019 recorded as loss on debt extinguishment in the statement of operations. 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 14 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 to accrued default liabilities as of August 31, 2019 and charged to a loss on note default on the statement of operations for the year ending 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 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. 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 of $2,611,000 to the statement of operations during the year ended August 31, 2019. Combined with the $1.8 million loss described above for the 2019 default loss estimate resulted in a net gain of $811,000 for 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 the warrants did not qualify for derivative accounting 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 March 2019 Conversion Warrant Feature 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 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 March 2019 Conversion Warrant Feature 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stockholders' Equity. | ||
Stockholders' Equity | Note 6: Stockholders’ Equity Preferred Stock As previously disclosed by the Company, in September 2016, the founding shareholders of the Company were granted options to acquire preferred stock of the Company. The number of options granted were based upon the number of shares held at that time. These options are nontransferable and forfeited upon the sale of the related founding shares of common stock. Upon the occurrence of certain specified events, such founding shareholders could exercise each option to purchase one share of preferred stock of the Company for $0.0001 per share. The preferred stock that is the subject of such options does not include any rights to dividends or preference upon liquidation of the Company and is convertible into shares of common stock on a one-for-one basis.The options became exercisable to purchase shares of preferred stock upon the Asset Sale in January 2020. As of the date of this filing, options exercisable for up to 24,634,560 shares of preferred stock convertible into 24,634,560 shares of common stock are outstanding. The right to exercise the options terminates on December 31, 2023. As stated above, the amount of such options, and the number of shares of preferred stock issuable upon exercise of such options, is based upon the number of shares of common stock held by such founding shareholders at the time such options were issued. Accordingly, in order to confirm the original intent of the granting of up to 50,000,000 of such options to two of our founding shareholders, Scott W. Absher and Stephen Holmes, at some point in the future the Company intends to adopt a second grant of options, exercisable upon the occurrence of certain specified events, granting an additional 12,500,000 options to each of Scott W. Absher and Stephen Holmes whereby each option permits the holder to acquire one share of preferred stock of the Company for $0.0001 per share. Each share of preferred stock will be convertible into common stock on a one-for-one basis. Common Stock and Warrants On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. During the three and six months ended February 29, 2029, the Company issued the following common shares · 185,768 shares of Common Stock were issued for the conversion of 2,187,000 of June 2018 Notes, December 2018 Notes, March 2019 Notes, and December 2019 Notes payable and $79,000 of related default interest payable. · 21,750 shares of Common Stock valued at $200,000 was issued as an inducement to exchange $2.7 million of March 2019 Notes for $2.9 million of December 2019 Exchange Notes. · 856 shares of Common Stock were issued to two directors for services valued at $7,000. During the three and six months ended February 29, 2019 The following tables summarize our warrants outstanding as of February 29, 2020: Weighted average Weighted Number remaining average of life exercise shares (years) price Warrants outstanding, August 31, 2019 107,409 4.3 $ 83.21 Issued 53,273 4.0 40.00 (Cancelled) (29,124) 3.8 $ 40.00 Warrants outstanding, February 28, 2019 131,558 3.8 $ 47.71 Warrants exercisable, February 28, 2019 131,558 3.8 $ 47.71 The following tables summarize our warrants outstanding as of February 29, 2020: Weighted average life of Warrants outstanding Exercise Outstanding warrants in years price March 2019 Warrants (1) 41,430 4.0 $ 40.00 Amended March 2019 Warrants (2) 66,288 4.0 40.00 March 2019 Services Warrants (3) 3,366 4.0 70.00 June 2018 Warrants (4) 12,552 3.8 40.00 June 2018 Services Warrants (5) 5,422 3.8 99.60 2017 PIPE Warrants 2,500 2.3 $ 276.00 131,558 3.8 $ 47.71 (1) Warrants have full-ratchet price reset provisions. Issuance of certain securities below the then exercise price will result in a reduction of the exercise price and an increase in the warrants outstanding and exercisable. In March 2020 these warrants were exchanged for common shares and are no longer outstanding as of the date of this report. (2) Warrants include 13,015 March 2019 warrants that were amended in December 2019 to modify the exercise price to a fixed exercise price of $40.00 per share from $70 per share and an additional 53,273 warrants issued during the December 2019 Note exchange. (3) Warrants were issued for services rendered in March 2019. (4) Warrants were issued in conjunction with the June 2018 Note series and have price reset protection. The price was reset to $40 per share in December 2019. The difference in fair value of the change in exercise price of the June 2018 Warrants was valued using the binomial method and recorded to other expenses. Issuance of certain securities below the then exercise price will result in a reduction of the exercise price to the price or value of the shares issued or deemed to be issued. (5) Warrants were issued as compensation for services rendered in June 2018. All warrants outstanding and exercise prices have been adjusted to reflect the 1:40 reverse split. | Note 10: Stockholders’ Equity 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 9, 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 12. 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 9 above. The following tables summarize the Company’s warrants outstanding as of August 31, 2019 and 2018: Weighted average Weighted Number of remaining average shares life (years) 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: Weighted average life of outstanding Exercise Warrants warrants in price Outstanding years March 2019 Notes Warrants $ 70.00 74,390 4.6 June 2018 Notes Warrants $ 70.00 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based Compensation
Share based Compensation | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Share based Compensation. | ||
Stock based Compensation | Note 7: Stock based Compensation The Company granted no options during the six months ended February 29, 2020. The Company recognized approximately $556,000 and $670,000 of compensation expense for the three and six months ended February 29, 2020, respectively. During the three months ended February 29, 2020, the Company fully vested all options granted to personnel who were terminated as a result of the Asset Sale which resulted in the acceleration of 9,737 options and $483,000 of stock based compensation. The Company recognized approximately $81,000 and $158,000 of stock-based compensation in the three and six months ended February 28, 2019, respectively. The total intrinsic value of options as of February 29, 2020, and February 28, 2019, was $0. At February 29, 2020, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 1.1 years for outstanding grants was $0.7 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 (7,343) 8.54 69.85 Balance at February 29, 2020 43,406 8.41 $ 99.55 Options outstanding as of February 29, 2020 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 13,199 8.53 108.89 Exercised — — — Forfeited (1,305) 5.15 140.09 Balance at November 30, 2019 22,185 8.05 $ 127.49 The following table summarizes information about stock options outstanding and vested at February 29, 2020: 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 5,375 9.27 $ 24.35 250 9.42 $ 20.00 $40.01–$80.00 13,729 9.09 51.21 4,896 9.09 51.23 $80.01–$120.00 10,553 8.22 102.93 6,394 8.22 102.46 $120.01–$160.00 12,625 7.55 155.28 9,521 7.49 155.12 $160.01‑$391.60 1,124 7.38 391.60 1,124 7.38 391.60 43,406 8.41 $ 99.55 22,185 8.05 $ 127.49 The number of options and exercise prices have been presented retroactively for the 1 for 40 December 17, 2019 reverse split. | Note 11: 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 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 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 Year ended August 31, August 31, 2019 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 (19,042) 8.06 $ 111.20 Balance at August 31, 2019 50,750 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 50,750 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Related Parties
Related Parties | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Related Parties. | ||
Related Parties | Note 8: Related Parties J. Stephen Holmes, our Sales Manager, is an advisor to and significant shareholder of the Company. The Company incurred $180,000 and $360,000 in professional fees for management consulting services in the three and six months ended February 28, 2019 in the three and six months ended February 29, 2020, respectively. 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. | Note 12: Related Parties 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 an expiration date of March 14, 2027, at an exercise price of $160.00. 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 $160.00. 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 $160.00. 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: Issue Price Date Issued Shares 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Contingencies. | ||
Contingencies | Note 9: 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 filed legal complaints. During the three months ended February 29, 2020 all Convertible Note related litigation was resolved as follows: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019, the Company 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 Notes, $0.2 million of the December 2018 Notes and $1.2 million of the March 2019 Notes. In January 2020, Alpha was awarded a judgement for $500,000 consisting of the $310,000 notes and $190,000 of damages and accrued interest of $51,000. On January 16, 2020 Alpha Capital converted all remaining June 2018 Note and December 2018 Note balances at $12.20 per share. On January 20, 2020 the Company paid the damages award including interest in cash and resolved the litigation. Dominion Capital LLC v. ShiftPixy, Inc. On July 18, 2019, the Company 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 Notes, the December 2018 Notes, and the 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. On January 22, 2020, the Company settled all claims and repaid all remaining notes and cancelled all related warrants by issuing 83,593 shares of common stock on the date of issuance and paid cash of $1,322,000. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019, MEF I, LP (“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 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 Notes and the 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 cancelled the June 2018 Warrants with the issuance of 20,000 shares of common stock and payment of $725,000 in cash. See also Note 5 above. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures (“Kadima”), over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima 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 Report, 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 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. . The parties have agreed to a stay on the proceedings until July 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. | Note 14: Commitments and Contingencies 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Subsequent Events | ||
Subsequent Events | Note 10: Subsequent Events In March 2020, our business was impacted by the COVID-19 global pandemic. A significant portion of our business includes restaurants, typically franchise food operators, which were required by the State of California to cease all in-store dining during the COVID-19 shutdown. This has impacted their revenue sources and has resulted in staff layoffs and lower payroll billings processed, beginning in the middle of March 2020, and continuing through the date of this report. In May 2020 the State of California announced that workers who were required to work outside their homes during the lockdown would be potentially eligible for workers compensation if they became ill for a 60 day period announced to be between March 19 until May 19. To date, we have not been notified of any such claims. In March 2020, three investors converted $1,047,000 of the Company’s Convertible Notes and $25,000 of accrued default interest into 135,507 shares of common stock at a conversion price of $9.20 per share. On March 23, 2020, the Company entered into the following Amendment and Exchange Agreements (the “Amendment and Exchange Agreements”) with certain institutional investors, pursuant to which the Company amended and restated certain existing notes (the “Amended and Restated Notes”) and issued (i) convertible notes in an aggregate principal amount of $167,000 convertible into shares of common stock at a conversion price of $9.20 per share of common stock (the “Exchange Notes”), (ii) warrants to purchase an aggregate of 162,950 shares of common stock at an exercise price of $10.17 per share of common stock (the “Exchange Warrants”) and (iii) an aggregate of 82,654 shares of common stock (collectively, the “Exchange Securities”): · On March 23, 2020, the Company entered into an Amendment and Exchange Agreement (the “Alpha Amendment and Exchange Agreement”) with Alpha Capital Anstalt (“Alpha”) pursuant to which the Company (a) issued to Alpha an Amended and Restated Note in an aggregate principal amount of $723,000, and (b) in exchange for outstanding warrants to purchase shares of common stock held by Alpha, issued to Alpha (i) 66,123 shares of common stock, (ii) an Exchange Warrant to purchase 130,360 shares of common stock and (iii) an Exchange Note in an aggregate principal amount of $145,000. · On March 23, 2020, the Company entered into an Amendment and Exchange Agreement (the “Osher Amendment and Exchange Agreement”) with Osher Capital Partners LLC (“Osher”) pursuant to which the Company (a) issued to Osher an Amended and Restated Note in an aggregate principal amount of $108,000, and (b) in exchange for outstanding warrants to purchase shares of common stock held by Osher, issued to Osher (i) 16,531 shares of common stock, (ii) an Exchange Warrant to purchase 32,590 shares of common stock and (iii) an Exchange Note in an aggregate principal amount of $22,000. On March 24, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with CVI Investments, Inc. (“CVI”) pursuant to which CVI exchanged its outstanding senior convertible note due 2022 for (i) a warrant (the “Exchange Warrant”) to purchase 260,719 shares of common stock and (b) a senior convertible note in an aggregate principal amount of $1,829,000 convertible into shares of common stock at a conversion price of $9.20 per share. On April 15, 2020, CVI converted $1,829,000 of its senior convertible notes into 198,756 shares of common stock. On March 25, 2020, the Company filed Amended and Restated Articles of Incorporation (the “Restated Articles of Incorporation”) with the Wyoming Secretary of State, which were approved by the Company’s board of directors and its shareholders representing a majority of its outstanding shares of capital stock. The Restated Articles of Incorporation, among other things, set conversion rights for the Company’s Class A Preferred Stock, par value $0.0001 per share, to convert into shares of common stock on a one-for-one basis. 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 Report. | Note 15: Subsequent Events 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 21,750 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Basis of Presentation | 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, the Company does 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 and six months ended February 29, 2020, 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. | 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 | 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. | 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 | 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; · Valuation of long-lived assets including long-term notes receivable; and · Projected development of workers’ compensation claims. | 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 | Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/ 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 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. Payments for the Company's services are typically made in advance of, or at the time the services are provided. The Company accounts for its EAS revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 605-45, Revenue Recognition, Principal Agent Considerations . EAS solutions revenue is primarily derived from the Company's gross billings, which are based on (i) the payroll cost of the Company's worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 condensed consolidated balance sheets and were $280,000 and $170,000 as of February 29, 2020 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. | 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 . EAS solutions revenue is primarily derived from the Company’s gross billings, which are based on (i) the payroll cost of the Company’s worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 $1,137,000 and $310,000 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 and determined that no such costs should be capitalized. Costs relating to its customers are typically commissions paid as a percentage of some of the Company’s revenue components and are expensed as they are incurred because the terms of its contracts generally are cancellable by either party with a 30‑day notice. These costs are recorded in commissions in the Consolidated Statement of Operations. |
Concentration of Credit Risk | 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 and six months ended February 29, 2020, and February 28, 2019, respectively. However, four clients represent 40% of total accounts receivable at February 29, 2020. | 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. |
Impairment and Disposal of Long-Lived Assets | 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. There were no impairments recognized for the periods ended February 29, 2020, and February 28, 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of its long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. |
Workers' compensation | 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 February 29, 2020, the Company classified $0.1 million in long-term accrued workers’ compensation in the Company’s condensed 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 and administered by the Sunz Insurance Company. 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 workers’ 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 condensed consolidated balance sheets. As of February 29, 2020, the Company had $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.5 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 February 29, 2020, the Company had short term accrued workers’ compensation costs of $0.2 million and long-term accrued workers’ compensation costs of $0.7 million. The Company retained workers compensation asset reserves and workers compensation related liabilities for former worksite employees of clients transferred to Vensure. As of February 29, 2020, the retained workers compensation assets and liabilities are presented as a discontinued operations net asset or liability. As of February 29, 2020 the Company had $2.0 million in both short term assets and short term liabilities and had $3.3 million of long-term assets and $5.6 million of long-term liabilities. 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. | 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 $0.1 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 $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.8 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 $0.1 million and long-term accrued workers’ compensation costs of $0.5 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 | 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 February 29, 2020 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable) 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; and 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 February 29, 2020 or August 31, 2019. The valuation of the Note Receivable (as defined below) from the Vensure Asset Sale described below and the derivative liabilities associated with its March 2019 Notes (as defined below) (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. Level 3 assets and liabilities: The Note Receivable, as described in Note 3 was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. We valued the Note Receivable on the January 1, 2020 transaction date using a 10% discount rate which contemplates the risk and probability assessments of the expected future cash flows. The fair value assumptions have not changed as of February 29, 2020 and any impact to the fair value was immaterial. The only impact recorded to the Note Receivable during the quarter related to working capital adjustments of $1.9 million. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. We believe there are risks associated with the value of the Note Receivable due to business impacts of the COVID-19 pandemic. The expected cash payments from the Note Receivable is based on gross profits generated by the clients transferred to Vensure. Those transferred clients may have their business impacted due to the pandemic which in turn would result in lower gross profits. While we believe the current valuation of the Note Receivable is properly recorded as of February 29, 2020, a material change in the business transferred may result in an impairment of this asset . The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer. 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 February 29, 2020: March 2019 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 As of February 29, 2020 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 February 29, 2020, using the $12.20 per share floor conversion price for the convertible notes and the exercise price of $40 per share for the warrants: March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 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 February 29, 2020 and February 28, 2019, there were no transfers of financial assets or financial liabilities between the hierarchy levels. | 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: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 9), 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 Warrant Features 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 | Research and Development During the three months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $0.8 million and $1.6 million, respectively. During the six months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $2.1 million and $2.5 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s Human Resources Information System (“HRIS”) platform and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three and six months ended February 29, 2020 and February 28, 2019, 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. |
Advertising Costs | Advertising Costs The Company expenses all advertising as incurred. The Company recorded a net costs totaling $179,000 and $183,000 for the three and six months ended February 29, 2020, respectively, and expenses of $503,000 and $582,000 for the three and six months ended February 28, 2019, respectively. | 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. |
Convertible Debt | Convertible Debt The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features. | 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. |
Reverse Stock Split | Reverse Stock Split On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. | |
Earnings (Loss) Per Share | Earnings (Loss) Per Share The Company utilizes FASB 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. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The number of shares used for the weighted average number of common shares outstanding for the earnings per share for the three and six months ended February 29, 2020 was increased by 24,634,560 shares effective as of January 1, 2020. This increase reflects the inclusion of common shares issuable upon full exercise of options to purchase a similar number of preferred shares and full conversion of those preferred shares to common shares. The preferred share option was deemed to be exercisable into preferred shares on the effective date of the Asset Sale transaction as described in Note 3. The one to one ratio of conversion of preferred shares to common shares was set on March 25, 2020 as described in Note 10. Securities used in, or that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 | 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: Loss from continuing operations $ (24,724,000) $ (18,049,000) Income from continuing operations 5,997,000 1,226,000 Net loss allocated to common shareholders $ (18,727,000) $ (16,823,000) Weighted average shares outstanding 817,720 720,253 Loss from continuing operations per common share $ (30.24) $ (25.06) Income from continuing operations per common share 7.34 1.70 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 For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Stock-Based Compensation | Stock-Based Compensation At February 29, 2020, 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 , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton 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. 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 award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. | 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. |
Treasury Stock | 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 of common stock provided are recorded at cost as treasury stock. The Company retired all of its 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. | Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 12: Related Parties. 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 | 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. | 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 | 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) | |
Recent Accounting Standards | Recent Accounting Standards In May 2014, the FASB issued Accounting Standards Update (“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. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. 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 July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. In April 2020, the FASB voted to defer the effective date for private companies for one year. The updated effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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. | 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 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Schedule of fair value of the Company's derivative liabilities | March 2019 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 102 % Dividend yield 0 % 0 % | Conversion Warrant Features 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 For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 | For the year For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Schedule of revision on line items in 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) |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Discontinued Operations | ||
Schedule of a reconciliation of the gross proceeds to the net proceeds from the Asset Sale as presented in the statement of cash flows | Gross proceeds $ 19,166,000 Cash received at closing – asset sale (9,500,000) Cash received at closing – working capital (166,000) Discount recorded (1,818,000) Less: Transaction reconciliation – working capital adjustment (1,943,000) Adjusted Note Receivable 5,739,000 Short-term note receivable 358,000 Long-term note receivable $ 5,381,000 | |
Schedule of carrying amounts of the classes of assets and liabilities from the Asset Sale included in discontinued operations | February 29, August 31, 2020 2019 Unaudited Unaudited Cash $ — $ — Accounts receivable and unbilled account receivable — 8,261,000 Prepaid expenses and other current assets — 171,000 Deposits – workers’ compensation 1,924,000 1,722,000 Total current assets 1,924,000 10,154,000 Fixed assets, net — 40,000 Deposits – workers’ compensation 3,324,000 5,527,000 Total assets $ 5,248,000 $ 15,721,000 Accounts payable and other current liabilities $ — $ 457,000 Payroll related liabilities — 13,583,000 Accrued workers’ compensation cost 1,924,000 1,722,000 Total current liabilities 1,924,000 16,032,000 Accrued workers’ compensation cost 5,652,000 3,853,000 Total liabilities 7,576,000 19,885,000 Net assets/(liability) $ (2,328,000) $ (4,164,000) | August 31, 2019 August 31, 2018 Cash $ — $ — Accounts receivable and unbilled account receivable 8,261,000 5,721,000 Prepaid expenses and other current assets 171,000 118,000 Deposits – workers’ compensation 1,722,000 1,588,000 Total current assets 10,154,000 7,427,000 Fixed assets, net 40,000 42,000 Deposits – workers’ compensation 5,527,000 2,091,000 Total assets $ 15,721,000 $ 9,560,000 Accounts payable and other current liabilities $ 457,000 $ 18,000 Payroll related liabilities 13,853,000 8,501,000 Accrued workers’ compensation cost 1,722,000 290,000 Total current liabilities 16,032,000 8,808,000 Accrued workers’ compensation cost 3,853,000 856,000 Total liabilities 19,885,000 9,664,000 Net assets/(liability) $ (4,164,000) $ (104,000) |
Schedule of reported results for the discontinued operations by period | For the Three Months Ended For the Six Months Ended February 29, February 28, February 29, February 28, 2020 2019 2020 2019 Revenues (gross billings of $26.3 million and $74.4 million less worksite employee payroll cost of $22.8 million and $62.4 million, respectively for the three months ended; gross billings of $120.4 million and $139.4 million less worksite employee payroll cost of $103.3 million and $117.7 million, respectively for six months ended) $ 3,450,000 $ 12,002,000 $ 17,138,000 $ 21,688,000 Cost of revenue 5,038,000 8,956,000 15,535,000 15,442,000 Gross profit (loss) (1,587,000) 3,046,000 1,603,000 6,246,000 Operating expenses: Salaries, wages and payroll taxes 152,000 898,000 658,000 1,752,000 Commissions 45,000 554,000 748,000 1,076,000 Total operating expenses 197,000 1,452,000 1,406,000 2,828,000 (Loss) income from discontinued operations $ (1,784,000) $ 1,594,000 $ 197,000 $ 3,418,000 | For the Year Ended August 31, August 31, 2019 2018 Revenues (gross billings of $313.3 million and $210.3 million less worksite employee payroll cost of $265.3 million and $177.2 million, respectively for the year ended) $ 48,013,000 $ 33,139,000 Cost of revenue 36,452,000 27,970,000 Gross profit (loss) 11,561,000 5,169,000 Operating expenses: Salaries, wages and payroll taxes 3,032,000 2,442,000 Commissions 2,532,000 1,501,000 Total operating expenses 5,564,000 3,943,000 Operating income from discontinued operations 5,997,000 1,226,000 Provision for income tax expense from discontinued operations — — Net income from discontinued operations $ 5,997,000 $ 1,226,000 |
Senior Secured Convertible No_2
Senior Secured Convertible Notes Payable (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable | ||
Schedule of senior secured convertible notes payable | February 29 August 31, 2020 2019 (unaudited) Senior Secured Convertible notes, Principal $ 3,647,000 $ 6,808,000 Less: debt discount and deferred financing costs (1,611,000) (3,457,000) Total outstanding convertible notes, net $ 2,036,000 $ 3,351,000 Less: current portion of convertible notes payable (1,427,000) (3,351,000) Long-term convertible notes payable $ 609,000 $ — | 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 | Deferred Gross Financing Note Principal Costs Discount Net Balance at August 31, 2019 $ 6,808,000 $ (344,000) $ (3,113,000) $ 3,351,000 Repayments in cash (1,240,000) — — (1,240,000) Conversions to common shares (2,188,000) — — (2,188,000) Notes issued for exchange 267,000 267,000 Additional note discount issued - exchange (467,000) (467,000) Acceleration of discount and deferred financing costs - — 62,000 595,000 657,000 Amortization of Interest Expense — 150,000 1,506,000 1,656,000 Balance at February 29, 2020 3,647,000 (132,000) (1,479,000) 2,036,000 Less Current Amount (2,327,000) 132,000 718,000 (1,427,000) Long Term Balance at February 29, 2020 $ 1,320,000 $ — $ (711,000) $ 609,000 | Deferred Gross Financing Note Principal Costs 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 $ — $ — $ — $ — |
Schedule of gross principal balance rollforward | June 2018 December 2018 March 2019 December 2019 Notes Notes Notes Notes Total Gross Balance at August 31, 2019 $ 1,466,000 $ 867,000 $ 4,475,000 $ — $ 6,808,000 Exchanged for December 2019 Notes (222,000) (2,445,000) 2,934,000 267,000 Conversions to Common Shares (759,000) (422,000) (714,000) (293,000) (2,188,000) Repayments in cash (707,000) (223,000) (310,000) — (1,240,000) Gross Balance — — 1,006,000 2,641,000 3,647,000 Less: Discount and Debt Issuance Costs: — — (400,000) (1,211,000) (1,611,000) Carrying Balance at February 29, 2020 — — 606,000 1,430,000 2,036,000 Less: Current Amount — — (606,000) (821,000) (1,427,000) Long-term Balance at February 29, 2020 $ — $ — $ — $ 609,000 $ 609,000 | June 2018 December 2018 March 2019 Notes Notes 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stockholders' Equity. | ||
Summary of warrants outstanding | Weighted average Weighted Number remaining average of life exercise shares (years) price Warrants outstanding, August 31, 2019 107,409 4.3 $ 83.21 Issued 53,273 4.0 40.00 (Cancelled) (29,124) 3.8 $ 40.00 Warrants outstanding, February 28, 2019 131,558 3.8 $ 47.71 Warrants exercisable, February 28, 2019 131,558 3.8 $ 47.71 | Weighted average Weighted Number of remaining average shares life (years) 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 | Weighted average life of Warrants outstanding Exercise Outstanding warrants in years price March 2019 Warrants (1) 41,430 4.0 $ 40.00 Amended March 2019 Warrants (2) 66,288 4.0 40.00 March 2019 Services Warrants (3) 3,366 4.0 70.00 June 2018 Warrants (4) 12,552 3.8 40.00 June 2018 Services Warrants (5) 5,422 3.8 99.60 2017 PIPE Warrants 2,500 2.3 $ 276.00 131,558 3.8 $ 47.71 | Weighted average life of outstanding Exercise Warrants warrants in price Outstanding years March 2019 Notes Warrants $ 70.00 74,390 4.6 June 2018 Notes Warrants $ 70.00 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Stock based Compensation (Table
Stock based Compensation (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stock 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 (7,343) 8.54 69.85 Balance at February 29, 2020 43,406 8.41 $ 99.55 | 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 (19,042) 8.06 $ 111.20 Balance at August 31, 2019 50,750 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 13,199 8.53 108.89 Exercised — — — Forfeited (1,305) 5.15 140.09 Balance at November 30, 2019 22,185 8.05 $ 127.49 | 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 |
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 5,375 9.27 $ 24.35 250 9.42 $ 20.00 $40.01–$80.00 13,729 9.09 51.21 4,896 9.09 51.23 $80.01–$120.00 10,553 8.22 102.93 6,394 8.22 102.46 $120.01–$160.00 12,625 7.55 155.28 9,521 7.49 155.12 $160.01‑$391.60 1,124 7.38 391.60 1,124 7.38 391.60 43,406 8.41 $ 99.55 22,185 8.05 $ 127.49 | 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 50,750 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Summary of significant accoun_4
Summary of significant accounting policies - changes in the fair value of the Company's derivative liabilities (Details ) - USD ($) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Beginning balance of Conversion features | ||
Change in fair value of conversion features | (444,000) | |
Ending balance of conversion features | 2,852,000 | |
Beginning Balance of warrant liability | ||
Change in fair value of warrant liabilty | 3,013,000 | |
Ending balance of warrant liability | 904,000 | |
Beginning balance | $ 3,756,000 | |
Reclassification to APIC due to note settlements, exchanges or conversions | (1,691,000) | |
Change in fair value | (1,771,000) | 2,569,000 |
Ending balance | 294,000 | 3,756,000 |
March 2019 Warrant Liability [Member] | ||
Beginning Balance of warrant liability | 904,000 | |
Change in fair value of warrant liabilty | (683,000) | (3,013,000) |
Ending balance of warrant liability | 182,000 | 904,000 |
Reclassification to APIC due to note settlements, exchanges or conversions | (39,000) | |
March 2019 Conversion Feature [Member] | ||
Beginning balance of Conversion features | 2,852,000 | 0 |
Change in fair value of conversion features | (1,088,000) | 444,000 |
Ending balance of conversion features | 112,000 | $ 2,852,000 |
Reclassification to APIC due to note settlements, exchanges or conversions | $ (1,652,000) |
Summary of significant accoun_5
Summary of significant accounting policies - assumptions to estimate fair value of the derivatives (Details) - $ / shares | 3 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Volatility | 119.00% | 121.00% | |
Dividend yield | 0.00% | 0.00% | |
Market price per share conversion feature | 12.20% | ||
Warrants exercise price | $ 40 | ||
March 2019 Warrant Liability [Member] | |||
Risk free rate | 0.89% | ||
Market price per share | $ 7.33 | $ 19.04 | |
Life of instrument in years | 4 years 11 days | 4 years 5 months 19 days | |
Volatility | 102.00% | 119.00% | |
Dividend yield | 0.00% | 0.00% | |
March 2019 Conversion Feature [Member] | |||
Risk free rate | 0.66% | ||
Market price per share | $ 7.33 | $ 19.04 | |
Life of instrument in years | 6 months 15 days | 1 year 15 days | |
Volatility | 83.00% | 100.00% | |
Dividend yield | 0.00% | 0.00% |
Summary of significant accoun_6
Summary of significant accounting policies - Securities that are excluded from the calculation of weighted average dilutive common shares (Details) - shares | Aug. 31, 2019 | Aug. 31, 2018 | Feb. 29, 2020 | Feb. 28, 2019 |
Total potentially dilutive shares | 650,027 | 228,466 | 473,918 | 243,174 |
Options [Member] | ||||
Total potentially dilutive shares | 50,749 | 33,594 | 43,406 | 36,896 |
Senior Secured Convertible Notes [Member] | ||||
Total potentially dilutive shares | 491,868 | 100,402 | 298,954 | 118,495 |
Warrant [Member] | ||||
Total potentially dilutive shares | 107,410 | 94,470 | 131,558 | 87,783 |
Summary of significant accoun_7
Summary of significant accounting policies - Additional information (Details) | Jan. 01, 2020shares | Dec. 17, 2019 | Jan. 31, 2020 | Feb. 29, 2020USD ($) | Feb. 28, 2019USD ($) | Feb. 29, 2020USD ($) | Feb. 28, 2019USD ($) | Aug. 31, 2019USD ($) | Aug. 31, 2018USD ($) | Nov. 30, 2019USD ($) |
Advertising cost, net | $ 179,000 | $ 183,000 | ||||||||
Advertising costs | $ 503,000 | $ 582,000 | $ 1,200,000 | $ 500,000 | ||||||
Weighted average number of common shares outstanding for the earnings per share increased | shares | 24,634,560 | |||||||||
Working capital changes | 1,900,000 | 4,600,000 | ||||||||
Shares conversion ratio | 0.025 | |||||||||
Unbilled accounts receivable | 2,093,000 | 2,093,000 | 1,402,000 | 547,000 | ||||||
Research and developments costs | 800,000 | 1,600,000 | 2,100,000 | 2,500,000 | 2,300,000 | 4,000,000 | ||||
Capitalized computer software cost | $ 0 | $ 400,000 | 0 | $ 400,000 | $ 900,000 | $ 2,800,000 | ||||
Concentration of credit risk percent | 40.00% | 92.00% | 86.00% | |||||||
Concentration of credit Risk description | No one individual client represents more than 10% of revenues for the three and six months ended February 29, 2020 | had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. | ||||||||
Short term accrued workers compensation | $ 200,000 | 200,000 | $ 100,000 | |||||||
Long term accrued workers compensation | 700,000 | 700,000 | 100,000 | $ 100,000 | ||||||
Short term assets | 2,000,000 | 2,000,000 | 200,000 | |||||||
Short term liabilities | 2,000,000 | 2,000,000 | ||||||||
Long term assets | 3,300,000 | 3,300,000 | 800,000 | |||||||
Long term liabilities | 5,600,000 | 5,600,000 | ||||||||
Short-term asset and workers compensation - deposits | 200,000 | 200,000 | 100,000 | |||||||
Long-term asset and workers compensation - deposits | 500,000 | $ 500,000 | $ 500,000 | |||||||
Settlement claims | $ 500,000 | |||||||||
Preferred Stock | ||||||||||
Shares conversion ratio | 1 | 1 |
Discontinued Operations - Trans
Discontinued Operations - Transaction (Details) - USD ($) | Jan. 03, 2020 | Feb. 29, 2020 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Net cash proceeds as presented in the statement of cash flows | $ 9,500,000 | |
Overall business | Disposal by sale | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Percentage of business sold | 88.00% | |
Working capital assets transferred | $ 1,500,000 | |
Gross proceeds to be received | 19,200,000 | 19,166,000 |
Net cash proceeds as presented in the statement of cash flows | 9,700,000 | 9,500,000 |
Gross proceeds to be received in equal monthly payments | $ 9,500,000 | $ 5,739,000 |
Period for payment of gross proceeds (in years) | 4 years | |
Customer retention period (in years) | 12 months | |
PEO business | Disposal by sale | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Percentage of business sold | 100.00% |
Discontinued Operations - Recon
Discontinued Operations - Reconciliation of gross proceeds to net proceeds from sale transaction (Details) - USD ($) | Jan. 03, 2020 | Feb. 29, 2020 | Feb. 29, 2020 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Cash received at closing - asset sale | $ (9,500,000) | ||
Gain from asset sale | $ 15,682,000 | 15,682,000 | |
Overall business | Disposal by sale | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Gross proceeds | $ 19,200,000 | 19,166,000 | 19,166,000 |
Cash received at closing - asset sale | (9,700,000) | (9,500,000) | |
Cash received at closing - working capital | (166,000) | ||
Discount recorded | 1,818,000 | 1,818,000 | |
Less: Transaction reconciliation - working capital adjustment | (1,943,000) | (1,943,000) | |
Adjusted Note Receivable | $ 9,500,000 | 5,739,000 | 5,739,000 |
Short-term note receivable | 358,000 | 358,000 | |
Long-term note receivable | $ 5,381,000 | 5,381,000 | |
Gain from asset sale | $ 15,700,000 |
Discontinued Operations - Notes
Discontinued Operations - Notes receivable (Details) - Overall business - USD ($) | Feb. 28, 2022 | Feb. 29, 2020 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Discount rate (as a percent) | (10.00%) | |
Disposal by sale | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Working capital adjustment | $ 1,943,000 | |
Lower net assets transferred at closing | 88,000 | |
Liabilities paid on behalf of the Company | 201,000 | |
Cash remitted to the Company's bank accounts by former clients | $ 1,664,000 |
Discontinued Operations - Carry
Discontinued Operations - Carrying amounts of the classes of assets and liabilities from the asset sale included in discontinued operations (Details) - USD ($) | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Total current assets | $ 1,924,000 | $ 10,154,000 | $ 7,427,000 |
Total current liabilities | 3,324,000 | 5,567,000 | 2,134,000 |
Disposal by sale | Overall business | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Accounts receivable and unbilled account receivable | 8,261,000 | 5,721,000 | |
Prepaid expenses and other current assets | 171,000 | 118,000 | |
Deposits - workers' compensation | 1,924,000 | 1,722,000 | 1,588,000 |
Total current assets | 1,924,000 | 10,154,000 | 7,427,000 |
Fixed assets, net | 40,000 | 42,000 | |
Deposits - workers' compensation | 3,324,000 | 5,527,000 | 2,091,000 |
Total assets | 5,248,000 | 15,721,000 | 9,560,000 |
Accounts payable and other current liabilities | 457,000 | 18,000 | |
Payroll related liabilities | 13,583,000 | 8,501,000 | |
Accrued workers' compensation cost | 1,924,000 | 1,722,000 | 290,000 |
Total current liabilities | 1,924,000 | 16,032,000 | |
Accrued workers' compensation cost | 5,652,000 | 3,853,000 | 856,000 |
Total liabilities | 7,576,000 | 19,885,000 | 9,664,000 |
Net assets/(liability) | $ (2,328,000) | $ (4,164,000) | $ (104,000) |
Discontinued Operations - Repor
Discontinued Operations - Reported results for the discontinued operations (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Operating expenses: | ||||||
Income (Loss) from discontinued operations | $ (1,784,000) | $ 1,594,000 | $ 197,000 | $ 3,418,000 | ||
Disposal by sale | Overall business | ||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
Revenues, Net | 3,450,000 | 12,002,000 | 17,138,000 | 21,688,000 | $ 48,013,000 | $ 33,139,000 |
Cost of revenue | 5,038,000 | 8,956,000 | 15,535,000 | 15,442,000 | 36,452,000 | 27,970,000 |
Gross profit (loss) | (1,587,000) | 3,046,000 | 1,603,000 | 6,246,000 | 11,561,000 | 5,169,000 |
Operating expenses: | ||||||
Salaries, wages and payroll taxes | 152,000 | 898,000 | 658,000 | 1,752,000 | 3,032,000 | 2,442,000 |
Commissions | 45,000 | 554,000 | 748,000 | 1,076,000 | 2,532,000 | 1,501,000 |
Total operating expenses | 197,000 | 1,452,000 | 1,406,000 | 2,828,000 | 5,564,000 | 3,943,000 |
Income (Loss) from discontinued operations | (1,784,000) | 1,594,000 | 197,000 | 3,418,000 | 5,997,000 | 1,226,000 |
Revenues, Gross | 26,300,000 | 74,400,000 | 120,400,000 | 139,400,000 | 313,300,000 | 210,300,000 |
Worksite employee payroll cost | $ 22,800,000 | $ 62,400,000 | $ 103,300,000 | $ 117,700,000 | $ 265,300,000 | $ 177,200,000 |
Going Concern (Details)
Going Concern (Details) - USD ($) | Sep. 01, 2019 | Jun. 29, 2017 | Jan. 31, 2020 | Mar. 31, 2019 | Jun. 30, 2018 | Feb. 29, 2020 | Aug. 31, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Mar. 31, 2020 | Mar. 12, 2019 |
Cash | $ 400,000 | $ 1,600,000 | $ 400,000 | $ 1,600,000 | |||||||||
Working capital deficit | 5,600,000 | 15,900,000 | 5,600,000 | 15,900,000 | |||||||||
Repayment of convertible notes | 436,000 | ||||||||||||
Cash received at closing - asset sale | 9,500,000 | ||||||||||||
Accumulated deficit | $ (38,061,000) | (44,950,000) | (38,061,000) | (44,950,000) | $ (26,223,000) | ||||||||
Net cash used in operating activities | $ 500,000 | (10,595,000) | $ (14,000) | $ (2,086,000) | $ (9,538,000) | ||||||||
Proceeds from initial public offering | $ 12,000,000 | ||||||||||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | ||||||||||||
Concentration risk, percentage | 40.00% | 92.00% | 86.00% | ||||||||||
Conversion price | $ 12.20 | ||||||||||||
Percentage of customer contracts considered for exchange | 88.00% | ||||||||||||
Customer contracts considered for exchange, amount | $ 9,700,000 | ||||||||||||
Additional cash received | 1,000,000 | ||||||||||||
Cash transferred | 900,000 | ||||||||||||
Expected additional cash to be received | $ 7,500,000 | ||||||||||||
Expected additional cash to be received, period | 4 years | ||||||||||||
Working captial transferred | $ 1,600,000 | ||||||||||||
Business transfer in annualized gross profit | $ 6,000,000 | ||||||||||||
Percentage of billings and revenue growth | 100.00% | ||||||||||||
Convertible Debt [Member] | |||||||||||||
Repayment of convertible notes | $ 1,200,000 | ||||||||||||
Proceeds from initial public offering | $ 3,750,000 | $ 9,000,000 | |||||||||||
Proceeds from initial public offering, net of costs | $ 3,300,000 | $ 8,400,000 | |||||||||||
Concentration risk, percentage | 8.00% | ||||||||||||
Subsequent Event [Member] | |||||||||||||
Conversion price | $ 9.20 | ||||||||||||
March 2019 [Member] | |||||||||||||
Amended convertible debt | $ 1,000,000 | ||||||||||||
Conversion price | $ 9.20 | $ 9.20 | $ 9.20 | $ 66.80 | |||||||||
March 2019 [Member] | Convertible Debt [Member] | |||||||||||||
Repaid or converted to equity | $ 4,000,000 |
Senior Secured Convertible No_3
Senior Secured Convertible Notes Payable - Senior secured convertible notes payable (Details) - USD ($) | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Senior Secured Convertible Notes Payable | |||
Senior Secured Convertible notes, Principal | $ 3,647,000 | $ 6,808,000 | $ 10,000,000 |
Less debt discount and deferred financing costs | (1,611,000) | (3,457,000) | (3,829,000) |
Total outstanding convertible notes, net | 2,036,000 | 3,351,000 | 6,171,000 |
Less current portion of convertible notes payable | (1,427,000) | (3,351,000) | (6,171,000) |
Long-term convertible notes payable | $ 609,000 |
Senior Secured Convertible No_4
Senior Secured Convertible Notes Payable - Rolls forward the convertible notes payable (Details) - USD ($) | 6 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Gross Principal | |||
Beginning Balance at August 31, 2019, Gross Principal | $ 6,808,000,000 | $ 10,000,000 | |
Repayments in cash, Gross Principal | $ (1,240,000,000) | (436,000) | |
Conversions to common shares, Gross Principal | (2,188,000,000) | (8,395,000) | |
Notes issued for exchange, Gross Principal | 267,000,000 | ||
Amortization of Interest Expense, Gross Principal | |||
Ending Balance at February 29, 2020, Gross Principal | 3,647,000,000 | 6,808,000 | |
Less Current Gross Principal Amount | (2,327,000,000) | (6,808,000) | |
Ending Long-term Balance at February 29, 2020, Gross Principal | 1,320,000,000 | ||
Deferred Financing Costs | |||
Beginning Balance at August 31, 2019, Deferred Financing Costs | (344,000,000) | (617,000) | |
Repayments in cash, Deferred Financing Costs | |||
Conversions to common shares, Deferred Financing Costs | |||
Acceleration of discount and deferred financing costs, Deferred Financing Costs | 62,000,000 | ||
Amortization of Interest Expense, Deferred Financing Costs | 150,000,000 | 758,000 | |
Ending Balance At February 29, 2020, Deferred Financing Costs | (132,000,000) | (344,000) | |
Less Current Amount, Deferred Financing Costs | 132,000,000 | 344,000 | |
Ending Long-term Balance at February 29, 2020, Deferred Financing Costs | |||
Note Discount | |||
Beginning Balance at August 31, 2019, Note Discount | (3,113,000,000) | (3,212,000) | |
Repayments in cash, Note Discount | |||
Conversions to common shares, Note Discount | |||
Additional note discount issued - exchange, Note Discount | (467,000,000) | ||
Acceleration of discount and deferred financing costs, Note Discount | 595,000,000 | ||
Amortization of Interest Expense, Note discount | 1,506,000,000 | 4,849,000 | |
Ending Balance at February 29, 2020, Note Discount | (1,479,000,000) | (3,113,000) | |
Less Current Amount, Note Discount | 718,000,000 | 3,113,000 | |
Long-term Balance at February 29, 2020, Note Discount | (711,000,000) | ||
Net | |||
Beginning Balance at August 31, 2019, Net | 3,351,000,000 | $ 6,171,000 | |
Repayments in cash, Net | (1,240,000,000) | (436,000) | |
Conversions to common shares, Net | (2,188,000,000) | (8,395,000) | |
Notes issued for exchange, Net | 267,000,000 | ||
Additional note discount issued - exchange, Net | (467,000,000) | ||
Acceleration of discount and deferred financing costs, Net | 657,000,000 | ||
Amortization of Interest Expense, Net | 1,656,000,000 | 5,607,000 | |
Ending Balance at February 29, 2020, Net | 2,036,000,000 | 3,351,000 | |
Less Curent Amount, Net | (1,427,000,000) | (3,351,000) | |
Ending Long Term Balance at February 29, 2020, net | $ 609,000,000 |
Senior Secured Convertible No_5
Senior Secured Convertible Notes Payable - Gross principal balances rollforward (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Gross Balance, Beginning | $ 6,808,000 | $ 10,000,000 |
Exchanged for December 2019 Notes | 267,000 | |
Conversions to Common Shares | (2,188,000) | (8,395,000) |
Repayments in Cash | (1,240,000) | (436,000) |
Gross Balance, Ending | 3,647,000 | 6,808,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (344,000) | |
Deferred Financing Costs | (3,113,000) | |
Less Discount and Debt Issuance Costs: | (1,611,000) | |
Carrying Balance at February 29, 2020 | 2,036,000 | 3,351,000 |
Less Current Amount | (1,427,000) | (3,351,000) |
Long Term Balance at February 29, 2020 | 609,000 | |
March 2019 [Member] | ||
Gross Balance, Beginning | 4,475,000 | |
Exchanged for December 2019 Notes | (2,445,000) | |
Conversions to Common Shares | (714,000) | (275,000) |
Repayments in Cash | (310,000) | |
Gross Balance, Ending | 1,006,000 | 4,475,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (317,000) | |
Deferred Financing Costs | (3,108,000) | |
Less Discount and Debt Issuance Costs: | (400,000) | |
Carrying Balance at February 29, 2020 | 606,000 | 1,050,000 |
Less Current Amount | (606,000) | (1,050,000) |
Long Term Balance at February 29, 2020 | ||
December 2019 [Member] | ||
Exchanged for December 2019 Notes | 2,934,000 | |
Conversions to Common Shares | (293,000) | |
Gross Balance, Ending | 2,641,000 | |
Less Discount and Debt Issuance Costs: | ||
Less Discount and Debt Issuance Costs: | (1,211,000) | |
Carrying Balance at February 29, 2020 | 1,430,000 | |
Less Current Amount | (821,000) | |
Long Term Balance at February 29, 2020 | 609,000 | |
June 2018 [Member] | ||
Gross Balance, Beginning | 1,466,000 | 10,000,000 |
Conversions to Common Shares | (759,000) | (8,098,000) |
Repayments in Cash | (707,000) | (436,000) |
Gross Balance, Ending | 1,466,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (27,000) | |
Deferred Financing Costs | (5,000) | |
Carrying Balance at February 29, 2020 | 1,434,000 | |
Less Current Amount | (1,434,000) | |
Long Term Balance at February 29, 2020 | ||
December 2018 Notes [Member] | ||
Gross Balance, Beginning | 867,000 | |
Exchanged for December 2019 Notes | (222,000) | |
Conversions to Common Shares | (422,000) | (22,000) |
Repayments in Cash | $ (223,000) | |
Gross Balance, Ending | 867,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | ||
Deferred Financing Costs | ||
Carrying Balance at February 29, 2020 | 867,000 | |
Less Current Amount | (867,000) | |
Long Term Balance at February 29, 2020 |
Senior Secured Convertible No_6
Senior Secured Convertible Notes Payable - Additional information (Details) - USD ($) | Dec. 06, 2019 | Jun. 03, 2019 | Mar. 12, 2019 | Mar. 12, 2019 | Mar. 10, 2019 | Dec. 20, 2018 | Jan. 31, 2020 | Dec. 31, 2018 | Dec. 20, 2018 | Jun. 30, 2018 | Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Mar. 31, 2020 | Dec. 31, 2019 | Sep. 04, 2019 | Jun. 10, 2019 |
Value for debt conversion | $ 200,000 | $ 200,000 | ||||||||||||||||||
Amount converted to shares | $ 172,500 | |||||||||||||||||||
Additional note discount | $ 567,000 | |||||||||||||||||||
Amount of legal judgement on debt instrument | 500,000 | |||||||||||||||||||
Amount of legal judgement on default intererst | 52,000 | |||||||||||||||||||
Repayment of legal judgement on debt instrument | 310,000 | |||||||||||||||||||
Debt amount converted to shares | 172,500 | |||||||||||||||||||
Recovery from debt litigation settlement | 760,000 | |||||||||||||||||||
Retained accrued penalties for potential claims | 210,000 | |||||||||||||||||||
Debt accrued interest and penalties | 1,800,000 | |||||||||||||||||||
Convertible notes, net | 609,000 | 609,000 | ||||||||||||||||||
Amortized Interest expense | $ 802,000 | $ 722,000 | 1,656,000 | $ 1,433,000 | 5,607,000 | $ 951,000 | ||||||||||||||
Interest expense | 509,000 | |||||||||||||||||||
Additional accrued liabilities | 1,800,000 | |||||||||||||||||||
Accrued interest payable | $ 300,000 | |||||||||||||||||||
Amortization debt discount and debt issuance cost | $ 2,313,000 | $ 1,895,000 | ||||||||||||||||||
Settlement amount | $ 210,000 | |||||||||||||||||||
Additional liquidating damages | $ 1,800,000 | |||||||||||||||||||
Interest rate | 18.00% | |||||||||||||||||||
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; | |||||||||||||||||||
Convertible notes, Principal | $ 8,395,000 | |||||||||||||||||||
Reduced accrued loss | $ 889,000 | |||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||
Common stock, shares issued | 1,103,643 | 1,103,643 | 907,047 | 721,295 | ||||||||||||||||
Warrants granted | 0 | 36,073 | 23,719 | |||||||||||||||||
Purchase price of notes | $ 900,000 | |||||||||||||||||||
Price per share | $ 99.60 | |||||||||||||||||||
Lowest volume weighted average price | 15.00% | |||||||||||||||||||
Original issue discount | $ 1,000,000 | |||||||||||||||||||
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. Included in the 172.500 shares issued for the 2019 conversions were approximately 67,500 shares valued at $3.9 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 $3.9 million for the year ended August 31, 2019 | |||||||||||||||||||
Warrants exercise price | $ 40 | $ 40 | ||||||||||||||||||
Expected volatility | 119.00% | 121.00% | ||||||||||||||||||
Warrant [Member] | ||||||||||||||||||||
Shares issued for debt conversion | 174,081 | |||||||||||||||||||
Warrants exercise price | $ 70 | |||||||||||||||||||
Risk-free interest rate | 2.41% | 2.78% | ||||||||||||||||||
Expected volatility | 122.00% | 120.00% | ||||||||||||||||||
Institutional Investors Filed [Member] | ||||||||||||||||||||
Shares issued for debt conversion | 1,000,000 | |||||||||||||||||||
Maximum [Member] | ||||||||||||||||||||
Risk-free interest rate | 2.90% | 2.83% | ||||||||||||||||||
Exercise Prices Four [Member] | Maximum [Member] | ||||||||||||||||||||
Convertible notes, Principal | $ 4,750,000 | $ 4,750,000 | ||||||||||||||||||
Conversion price | $ 66.80 | $ 66.80 | ||||||||||||||||||
Warrants exercise price | $70.00 | |||||||||||||||||||
Warrants granted | 74,390 | |||||||||||||||||||
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 Notes Payable | $ 3,300,000 | |||||||||||||||||||
Maturity date | Sep. 12, 2020 | |||||||||||||||||||
Purchase price of notes | $ 3,750,000 | $ 3,750,000 | ||||||||||||||||||
Original issue discount | 1,000,000 | |||||||||||||||||||
March 2019 [Member] | ||||||||||||||||||||
Principal Outstanding Combined Revised Balance | $ 4,750,000 | $ 4,750,000 | ||||||||||||||||||
Interest rate | 18.00% | 18.00% | ||||||||||||||||||
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 Company at 15% premium at any time after 45 days from March 12, 2019. | |||||||||||||||||||
Conversion price | $ 66.80 | $ 66.80 | $ 9.20 | $ 9.20 | $ 9.20 | |||||||||||||||
Conversion price description | Alternate conversion price at the greater of the floor price of $12.20 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 Notes Payable | $ 3,300,000 | |||||||||||||||||||
Coupon rate | 0.00% | 0.00% | ||||||||||||||||||
Original issue discount | $ 1,000,000 | |||||||||||||||||||
Purchase price | $ 3,750,000 | |||||||||||||||||||
December 2019 [Member] | ||||||||||||||||||||
Interest rate | 18.00% | |||||||||||||||||||
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 default related to missed amortization payment, subject to a floor conversion price of $0.00 per share 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. | |||||||||||||||||||
Conversion price | $ 9.20 | |||||||||||||||||||
Debt Instrument, Convertible, Floor Price | $ 40 | |||||||||||||||||||
Exchanged note amount | $ 2,445,000 | |||||||||||||||||||
Percentage of principal increased | 10.00% | |||||||||||||||||||
Coupon rate | 0.00% | |||||||||||||||||||
Conversion price | 12.20% | |||||||||||||||||||
Amortization of principal in cash premium | 12.50% | |||||||||||||||||||
Exchange Agreement [Member] | ||||||||||||||||||||
Shares issued for debt conversion | 24,049 | |||||||||||||||||||
Payment in cash for settlement with investors | $ 2,047,000 | |||||||||||||||||||
Shares issued for settlement with investors | 103,593 | |||||||||||||||||||
Elimination of combined default penalties and default interest | $ 2,194,000 | |||||||||||||||||||
Exchange Agreement [Member] | March 2019 [Member] | ||||||||||||||||||||
Principal outstanding, Revised | $ 2,690,000 | |||||||||||||||||||
Principal Outstanding Combined Revised Balance | 2,934,000 | |||||||||||||||||||
Shares issued for debt conversion | 12,915 | |||||||||||||||||||
Debt default interest | $ 28,000 | |||||||||||||||||||
Debt amount converted | $ 130,000 | |||||||||||||||||||
Principal outstanding | 2,445,000 | |||||||||||||||||||
Principal outstanding, Revised | $ 2,690,000 | |||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||
Exchange Agreement [Member] | March 2019 Convertible Notes [Member] | ||||||||||||||||||||
Percentage of principal balance payable in cash | 12.50% | |||||||||||||||||||
Conversion price | $ 40 | |||||||||||||||||||
Additional consideration | $ 200,000 | |||||||||||||||||||
Exchange Agreement [Member] | December 2019 [Member] | ||||||||||||||||||||
Principal Outstanding Combined Revised Balance | $ 2,934,000 | |||||||||||||||||||
Shares issued for debt conversion | 21,750 | 24,049 | ||||||||||||||||||
Value for debt conversion | $ 200,000 | |||||||||||||||||||
Maximum percentage for revised combined principal could be converted | 10 | |||||||||||||||||||
Amount converted to shares | 293,000 | |||||||||||||||||||
Combined additional shares issued | 467,000 | |||||||||||||||||||
Additional notes issued in exchange | 267,000 | |||||||||||||||||||
Debt amount converted to shares | $ 293,000 | |||||||||||||||||||
Debt amount converted | $ 293,000 | |||||||||||||||||||
Conversion price | $ 12.20 | $ 12.20 | ||||||||||||||||||
Additional consideration | $ 200,000 | |||||||||||||||||||
Exchange Agreement [Member] | June 2018 And December 2018 Notes | ||||||||||||||||||||
Shares issued for debt conversion | 41,004 | |||||||||||||||||||
Amount converted to shares | $ 500,000 | |||||||||||||||||||
Debt amount converted to shares | $ 500,000 | |||||||||||||||||||
Additional shares issued for settlement of default | 4,207 | |||||||||||||||||||
Debt default interest | $ 51,000 | |||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||
Exchange Agreement [Member] | December 2018 Notes [Member] | ||||||||||||||||||||
Principal outstanding, Revised | 244,000 | |||||||||||||||||||
Principal outstanding | 222,000 | |||||||||||||||||||
Principal outstanding, Revised | $ 244,000 | |||||||||||||||||||
Percentage of principal increased | 10.00% |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - $ / shares | 6 Months Ended | 12 Months Ended | ||
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Number of shares | ||||
Number of shares outstanding, beginning balance | 107,409 | 64,887 | ||
Issued | 53,273 | 74,390 | 30,526 | |
(Exercised) | (6,688) | (938) | ||
Cancelled | (29,124) | |||
(Expired) | (54,761) | |||
Number of shares outstanding, ending balance | 131,558 | 107,416 | 94,475 | |
Weighted remaining life (years) | ||||
Weighted remaining life (years), beginning | 4 years 3 months 18 days | 1 year 6 months | ||
Weighted remaining life (years), issued | 4 years | 5 years | 5 years 3 months 18 days | |
Weighted remaining life (years), exercised | 5 months 12 days | 1 year 2 months 12 days | ||
Weighted remaining life (years), cancelled | 3 years 9 months 18 days | |||
Weighted remaining life (years), ending | 3 years 9 months 18 days | 4 years 5 months 1 day | 2 years 1 month 17 days | |
Weighted average exercise prices | ||||
Weighted average exercise prices, beginning | $ 83.21 | $ 119.60 | ||
Weighted average exercise prices, issued | $ 40 | 70 | $ 99.60 | |
Weighted average exercise prices, exercised | 98.80 | 80 | ||
Weighted average exercise prices, cancelled | 40 | |||
Weighted average exercise prices, expired | 114.80 | |||
Weighted average exercise prices, ending | $ 47.71 | $ 74.80 | $ 113.60 |
Stockholders' Equity - Warrants
Stockholders' Equity - Warrants outstanding (Details) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | |
Dec. 31, 2019 | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Exercise price | $ 47.71 | $ 63.60 | $ 105.60 | |
Warrants outstanding | $ 131,558 | $ 107,416 | ||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | 4 years 4 months 24 days | ||
March 2019 Notes Warrants [Member] | ||||
Exercise price | $ 40 | $ 70 | ||
Warrants outstanding | $ 41,430 | $ 74,390 | ||
Weighted average life of outstanding warrants in years | 4 years | 4 years 7 months 6 days | ||
Amended March 2019 Notes Warrants [Member] | ||||
Exercise price | $ 40 | |||
Warrants outstanding | $ 13,015 | $ 66,288 | ||
Weighted average life of outstanding warrants in years | 4 years | |||
March 2019 Services Warrants [Member] | ||||
Exercise price | $ 70 | |||
Warrants outstanding | $ 3,366 | |||
Weighted average life of outstanding warrants in years | 4 years | |||
June 2018 Notes Warrants [Member] | ||||
Exercise price | $ 40 | $ 70 | ||
Warrants outstanding | $ 12,552 | $ 30,526 | ||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | 3 years 9 months 18 days | ||
June 2018 Services Warrants [Member] | ||||
Exercise price | $ 99.60 | |||
Warrants outstanding | $ 5,422 | |||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | |||
2017 PIPE Warrants [Member] | ||||
Exercise price | $ 276 | $ 276 | ||
Warrants outstanding | $ 2,500 | $ 2,500 | ||
Weighted average life of outstanding warrants in years | 2 years 3 months 18 days | 2 years 10 months 24 days |
Stockholders' Equity - Addition
Stockholders' Equity - Additional information (Details) | Dec. 17, 2019 | Dec. 06, 2019shares | Jan. 31, 2020$ / sharesshares | Dec. 31, 2019USD ($)$ / shares | Sep. 28, 2015 | Feb. 29, 2020USD ($)$ / sharesshares | Feb. 29, 2020USD ($)$ / sharesshares | Aug. 31, 2019USD ($)$ / sharesshares | Aug. 31, 2018USD ($)$ / sharesshares | Sep. 26, 2015shares |
Preferred stock, per share | $ / shares | $ 0.0001 | $ 40 | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||||
Number of shares of common stock held by shareholders | 25,600,000 | |||||||||
Shares conversion ratio | 0.025 | |||||||||
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. | |||||||||
Reverse split description | On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. | |||||||||
Reverse stock split | 0.025 | |||||||||
Debt amount qualified for conversion | $ | $ 1,000,000 | |||||||||
Common stock shares issued | 1,103,643 | 1,103,643 | 907,047 | 721,295 | ||||||
Shares issued for services rendered, value | $ | $ 75,000 | $ 263,000 | $ 163,000 | |||||||
Warrants exercise price | $ / shares | $ 40 | $ 40 | ||||||||
Issued | 53,273 | 74,390 | 30,526 | |||||||
Warrants outstanding | $ | $ 131,558 | $ 107,416 | ||||||||
Amended March 2019 Notes Warrants [Member] | ||||||||||
Preferred stock, per share | $ / shares | $ 70 | |||||||||
Warrants outstanding | $ | $ 13,015 | 66,288 | ||||||||
June 2018 Notes Warrants [Member] | ||||||||||
Preferred stock, per share | $ / shares | $ 40 | |||||||||
Warrants outstanding | $ | $ 12,552 | $ 30,526 | ||||||||
Director [Member] | ||||||||||
Shares issued for services rendered | 856 | 856 | ||||||||
Shares issued for services rendered, value | $ | $ 7,000 | $ 7,000 | ||||||||
Scott W Absher [Member] | ||||||||||
Number option additionally available for grant to founder shareholders | 12,500,000 | |||||||||
Stephen Holmes [Member] | ||||||||||
Number option additionally available for grant to founder shareholders | 12,500,000 | |||||||||
Exchange Agreement [Member] | ||||||||||
Shares issued in exchange of debt | 24,049 | |||||||||
Convertible Notes Payable [Member] | ||||||||||
Shares issued in exchange of debt | 185,768 | 185,768 | ||||||||
Debt amount qualified for conversion | $ | $ 2,187,000 | $ 2,187,000 | ||||||||
Debt default interest | $ | 79,000 | 79,000 | ||||||||
March 2019 Convertible Notes [Member] | ||||||||||
Amount of debt exchanged | $ | $ 2,700,000 | $ 2,700,000 | ||||||||
December 2019 [Member] | ||||||||||
Common stock shares issued | 21,750 | 21,750 | ||||||||
Value of shares issued | $ | $ 200,000 | $ 200,000 | ||||||||
Amount of debt exchanged | $ | $ 2,900,000 | $ 2,900,000 | ||||||||
Preferred Stock | ||||||||||
Shares conversion ratio | 1 | 1 | ||||||||
Reverse stock split | 1 | 1 | ||||||||
Stock Option | Scott W Absher and Stephen Holmes | ||||||||||
Number of options available for grant to founder shareholders | 50,000,000 | |||||||||
Stock Option | Preferred Stock | ||||||||||
Convertible preferred stock | 24,634,560 | |||||||||
Warrant [Member] | ||||||||||
Shares issued in exchange of debt | 174,081 | |||||||||
Warrants exercise price | $ / shares | $ 70 |
Stock based Compensation - Opti
Stock based Compensation - Option activity (Details) - $ / shares | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||
Aug. 31, 2019 | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Number of Options | |||||
Options outstanding, beginning balance | 50,749 | 19,750 | |||
Granted | 0 | 36,073 | 23,719 | ||
Exercised | |||||
Forfeited | (7,343) | 19,042 | 9,750 | ||
Options outstanding, ending balance | 50,750 | 43,406 | 50,750 | 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 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 6 months 15 days | 8 years 22 days | 8 years 5 months 27 days | ||
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 4 months 28 days | 8 years 11 months 12 days | 9 years 9 months 7 days | ||
Weighted Average Exercise Price | |||||
Weighted Average Exercise Price Beginning | $ 95.20 | $ 184.80 | |||
Granted | 47.71 | $ 63.60 | 105.60 | ||
Exercised | |||||
Forfeited | 69.85 | 111.20 | 154.80 | ||
Weighted Average Exercise Price Ending | $ 95.20 | $ 99.55 | $ 95.20 | $ 138 |
Stock based Compensation - Op_2
Stock based Compensation - Option vesting activity (Details) - $ / shares | 1 Months Ended | 3 Months Ended | 12 Months Ended | |
Aug. 31, 2019 | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Option | ||||
Options Vested, Beginning balance | 10,291 | |||
Vested | 13,199 | 7,410 | 5,364 | |
Exercised | ||||
Forfeited | (1,305) | 1,633 | 850 | |
Options Vested, Ending balance | 10,291 | 22,185 | 10,291 | 4,514 |
Weighted Average Remaining Contractual Life (In years) | ||||
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 15 days | |||
Weighted Average Remaining Contractual Life In Years, Vested | 8 years 6 months 11 days | 8 years 9 months 29 days | ||
Weighted Average Remaining Contractual Life In Years, Forfeited | 5 years 1 month 24 days | 8 years 1 month 6 days | 8 years 6 months 15 days | |
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 18 days | 8 years 15 days | 8 years 6 months 26 days | |
Weighted Average Exercise Price | ||||
Weighted Average Exercise Price Beginning | $ 152.80 | $ 0 | ||
Vested | 108.89 | $ 137.20 | 184.80 | |
Forfeited | 140.09 | 164.40 | 177.20 | |
Exercised | ||||
Weighted Average Exercise Price Ending | $ 152.80 | $ 127.49 | $ 152.80 | $ 182.40 |
Stock based Compensation - Stoc
Stock based Compensation - Stock options outstanding and vested (Details) - $ / shares | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Weighted Average Remaining Contractual Life In Years | 0 years | |
Exercise Prices One [Member] | Minimum [Member] | ||
Exercise Prices | $ 18.80 | $ 18.80 |
Exercise Prices One [Member] | Maximum [Member] | ||
Exercise Prices | 40 | 40 |
Exercise Prices Two [Member] | Minimum [Member] | ||
Exercise Prices | 40.01 | 40.01 |
Exercise Prices Two [Member] | Maximum [Member] | ||
Exercise Prices | 80 | 80 |
Exercise Prices Three [Member] | Minimum [Member] | ||
Exercise Prices | 80.01 | 80.01 |
Exercise Prices Three [Member] | Maximum [Member] | ||
Exercise Prices | 120 | 120 |
Exercise Prices Four [Member] | Minimum [Member] | ||
Exercise Prices | 120.01 | 120.01 |
Exercise Prices Four [Member] | Maximum [Member] | ||
Exercise Prices | 160 | 160 |
Exercise Prices Five [Member] | Minimum [Member] | ||
Exercise Prices | 160.01 | 160.01 |
Exercise Prices Five [Member] | Maximum [Member] | ||
Exercise Prices | $ 391.60 | $ 391.60 |
Options Vested One [Member] | ||
Number of options | 250 | |
Weighted Average Remaining Contractual Life In Years | 9 years 5 months 1 day | |
Weighted Average Exercise Price | $ 20 | |
Options Vested Two [Member] | ||
Number of options | 4,896 | |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | |
Weighted Average Exercise Price | $ 51.23 | |
Options Vested Three [Member] | ||
Number of options | 6,394 | 4,202 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | |
Weighted Average Exercise Price | $ 102.46 | $ 105.20 |
Weighted Average Remaining Contractual Life In Years | 8 years 7 months 17 days | |
Options Vested Four [Member] | ||
Number of options | 9,521 | 5,373 |
Weighted Average Remaining Contractual Life In Years | 7 years 5 months 27 days | |
Weighted Average Exercise Price | $ 155.12 | $ 158.40 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 6 days | |
Options Vested Five [Member] | ||
Number of options | 1,124 | 716 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 months 17 days | |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Weighted Average Remaining Contractual Life In Years | 7 years 10 months 17 days | |
Options Vested [Member] | ||
Number of options | 22,185 | 10,291 |
Weighted Average Remaining Contractual Life In Years | 8 years 18 days | |
Weighted Average Exercise Price | $ 127.49 | $ 152.80 |
Weighted Average Remaining Contractual Life In Years | 8 years 15 days | |
Options Outstanding and Exercisable One [Member] | ||
Number of options | 5,375 | 8,125 |
Weighted Average Remaining Contractual Life In Years | 9 years 3 months 7 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | $ 24.35 | $ 22.40 |
Options Outstanding and Exercisable Two [Member] | ||
Number of options | 13,729 | 15,761 |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | 9 years 7 months 2 days |
Weighted Average Exercise Price | $ 51.21 | $ 51.60 |
Options Outstanding and Exercisable Three [Member] | ||
Number of options | 10,553 | 12,864 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | 8 years 8 months 1 day |
Weighted Average Exercise Price | $ 102.93 | $ 104 |
Options Outstanding and Exercisable Four [Member] | ||
Number of options | 12,625 | 12,625 |
Weighted Average Remaining Contractual Life In Years | 7 years 6 months 18 days | 8 years 15 days |
Weighted Average Exercise Price | $ 155.28 | $ 155.20 |
Options Outstanding and Exercisable Five [Member] | ||
Number of options | 1,124 | 1,375 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Outstanding and Exercisable [Member] | ||
Number of options | 43,406 | 50,750 |
Weighted Average Remaining Contractual Life In Years | 8 years 4 months 28 days | 8 years 11 months 12 days |
Weighted Average Exercise Price | $ 99.55 | $ 95.20 |
Stock based Compensation (Detai
Stock based Compensation (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Granted options | 0 | 36,073 | 23,719 | |||
Accelerated options | 9,737 | |||||
Compensation expense | $ 619,000 | $ 81,000 | $ 745,000 | $ 158,000 | ||
Intrinsic value of options | 0 | 0 | 0 | 0 | ||
Compensation expense due to acceleration | $ 483,000 | |||||
Weighted average vesting period for unrecognized deferred share-based compensation (in years) | 1 year 1 month 6 days | |||||
Unrecognized deferred share-based compensation expense expected to be recognized | $ 700,000 | $ 700,000 | ||||
Share Based Compensation [Member] | ||||||
Option forfeited | 32,500 | |||||
Common share issuable | 195,000 | |||||
Common shares issueds | $ 167,500 | |||||
Common shares issued to grant | 195,000 | |||||
Aggregate intrinsic value | $ 0 | $ 575,000 | $ 1,000 | |||
Deferred share base compensation | $ 1,600,000 | |||||
Remaining weighted average vesting periods | 1 year 8 months 12 days | |||||
Compensation expense | $ 81,000 | $ 158,000 | ||||
Board of Directors [Member] | ||||||
Options shares | 82,500 | |||||
Designated shares | 7,500 |
Related Parties (Details)
Related Parties (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Dec. 23, 2019 | |
Professional fees | $ 997,000 | $ 895,000 | $ 1,837,000 | $ 1,519,000 | $ 3,918,000 | $ 2,078,000 | |
Common stock shares issued | 1,103,643 | 1,103,643 | 907,047 | 721,295 | |||
Common stock, shares value | |||||||
J. Steven Holmes [Member] | |||||||
Professional fees | $ 360,000 | $ 180,000 | $ 360,000 | $ 180,000 | $ 720,000 | $ 700,000 | |
Messrs. Higgins and White [Member] | |||||||
Common stock shares issued | 856 | ||||||
Common stock, shares value | $ 7,000 | ||||||
Messrs. Higgins [Member] | |||||||
Common stock shares issued | 428 |
Contingencies - Additional info
Contingencies - Additional information (Details) - USD ($) | Jan. 22, 2020 | Jan. 17, 2020 | Jan. 31, 2020 | Apr. 30, 2019 | May 31, 2016 | Feb. 29, 2020 | Jan. 16, 2020 | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 27, 2019 | Jun. 20, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Aug. 31, 2018 | Jun. 30, 2018 |
Common stock shares issued | 1,103,643 | 907,047 | 721,295 | ||||||||||||
Kadima Ventures [Member] | Software Development [Member] | |||||||||||||||
Software development cost | $ 8,500,000 | ||||||||||||||
Software modules cost | $ 11,000,000 | ||||||||||||||
Additional cost | $ 10,000,000 | ||||||||||||||
Alpha Capital v. ShiftPixy, Inc. [Member] | |||||||||||||||
Convertable notes | $ 310,000 | ||||||||||||||
Convertible notes outstanding | $ 1,700,000 | $ 1,200,000 | $ 200,000 | $ 300,000 | |||||||||||
Common stock shares issued | 25,000 | ||||||||||||||
Proceeds from issuance of notes | $ 310,000 | ||||||||||||||
Damages incurred | 190,000 | ||||||||||||||
Total award money received | 500,000 | ||||||||||||||
Accrued interest | $ 51,000 | ||||||||||||||
Convertible notes per share | $ 12.20 | ||||||||||||||
Dominion Capital LLC v. ShiftPixy [Member] | |||||||||||||||
Related warrants by issuing shares of common stock | 83,593 | ||||||||||||||
Cash paid | $ 1,322,000 | ||||||||||||||
MEF I, LP v. ShiftPixy, Inc. [Member] | |||||||||||||||
Convertable notes | $ 2,100,000 | ||||||||||||||
Convertible notes outstanding | $ 700,000 | $ 700,000 | $ 2,100,000 | $ 200,000 | $ 500,000 | ||||||||||
Accrued interest and accrued damages cash payment | $ 725,000 | ||||||||||||||
Accrued Interest and Accrued Damages Shares Issued | 20,000 |
Subsequent Events (Details)
Subsequent Events (Details) | Apr. 15, 2020USD ($)shares | Mar. 25, 2020$ / shares | Mar. 24, 2020USD ($)$ / sharesshares | Mar. 23, 2020USD ($)$ / sharesshares | Dec. 17, 2019 | Mar. 31, 2020USD ($)$ / sharesshares | Feb. 29, 2020USD ($)$ / shares | Feb. 29, 2020USD ($)$ / shares | Aug. 31, 2018USD ($)$ / shares | Jan. 31, 2020$ / shares | Dec. 31, 2019$ / shares | Aug. 31, 2019$ / shares |
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 1,000,000 | |||||||||||
Conversion price | $ / shares | $ 12.20 | |||||||||||
Value for debt conversion | $ 200,000 | $ 200,000 | ||||||||||
Warrants exercise price | $ / shares | $ 40 | $ 40 | ||||||||||
Preferred stock, shares par value | $ / shares | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 40 | $ 0.0001 | ||||||
Shares conversion ratio | 0.025 | |||||||||||
Subsequent Event [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 1,047,000 | |||||||||||
Accrued default interest | $ 25,000 | |||||||||||
Share issued due to conversion of debt | shares | 135,507 | |||||||||||
Conversion price | $ / shares | $ 9.20 | |||||||||||
Shares conversion ratio | 0.025 | |||||||||||
Subsequent Event [Member] | Series A Preferred Stock [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Preferred stock, shares par value | $ / shares | $ 0.0001 | |||||||||||
Shares conversion ratio | 1 | |||||||||||
Subsequent Event [Member] | Amendment And Exchange Agreement [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 167,000 | |||||||||||
Share issued due to conversion of debt | shares | 82,654 | |||||||||||
Conversion price | $ / shares | $ 9.20 | |||||||||||
Warrants issued due to conversion of debt | shares | 162,950 | |||||||||||
Warrants exercise price | $ / shares | $ 10.17 | |||||||||||
Subsequent Event [Member] | Alpha Amendment And Exchange Agreements [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 723,000 | |||||||||||
Share issued due to conversion of debt | shares | 66,123 | |||||||||||
Agreed additional notes | $ 145,000 | |||||||||||
Warrants issued due to conversion of debt | shares | 130,360 | |||||||||||
Subsequent Event [Member] | Osher Amendment And Exchange Agreements [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 108,000 | |||||||||||
Share issued due to conversion of debt | shares | 16,531 | |||||||||||
Agreed additional notes | $ 22,000 | |||||||||||
Warrants issued due to conversion of debt | shares | 32,590 | |||||||||||
Subsequent Event [Member] | Exchange Agreement Cvi Investment Inc [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Debt instrument, conversion original amount | $ 1,829,000 | |||||||||||
Share issued due to conversion of debt | shares | 260,719 | |||||||||||
Conversion price | $ / shares | $ 9.20 | |||||||||||
Value for debt conversion | $ 1,829,000 | |||||||||||
Shares issued in exchange of debt | shares | 198,756 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Feb. 29, 2020 | Nov. 30, 2019 | Aug. 31, 2019 | Feb. 28, 2019 | Nov. 30, 2018 | Aug. 31, 2018 | Aug. 31, 2017 |
Current assets | |||||||
Cash | $ 397,000 | $ 1,561,000 | $ 1,650,000 | ||||
Accounts receivable, net | 1,197,000 | 86,000 | 36,000 | ||||
Unbilled accounts receivable | 2,093,000 | 1,402,000 | 547,000 | ||||
Note receivable, net | 358,000 | ||||||
Deposit - workers' compensation | 262,000 | 235,000 | 83,000 | ||||
Prepaid expenses | 402,000 | 349,000 | 445,000 | ||||
Other current assets | 163,000 | 244,000 | 259,000 | ||||
Current assets of discontinued operations | 1,924,000 | 10,154,000 | 7,427,000 | ||||
Total current assets | 6,796,000 | 14,031,000 | 10,447,000 | ||||
Fixed assets, net | 2,923,000 | 3,320,000 | 2,990,000 | ||||
Note receivable, net | 5,372,000 | ||||||
Deposits - workers' compensation | 453,000 | 754,000 | 110,000 | ||||
Deposits and other assets | 104,000 | 124,000 | 121,000 | ||||
Non current assets of discontinued operations | 3,324,000 | 5,567,000 | 2,134,000 | ||||
Total assets | 18,972,000 | 23,796,000 | 15,802,000 | ||||
Current liabilities | |||||||
Accounts payable and other accrued liabilities | 2,673,000 | 4,455,000 | 3,185,000 | ||||
Payroll related liabilities | 5,801,000 | 2,559,000 | 976,000 | ||||
Convertible notes, net | 1,427,000 | 3,351,000 | 6,172,000 | ||||
Accrued workers' compensation costs | 262,000 | 235,000 | 15,000 | ||||
Default penalties accrual | 1,800,000 | 3,500,000 | |||||
Derivative liability | 294,000 | 3,756,000 | |||||
Current liabilities of discontinued operations | 1,924,000 | 16,032,000 | 8,808,000 | ||||
Total current liabilities | 12,381,000 | 32,188,000 | 22,656,000 | ||||
Non-current liabilities | |||||||
Convertible notes, net | 609,000 | ||||||
Accrued workers' compensation costs | 771,000 | 525,000 | 45,000 | ||||
Non-current liabilities of discontinued operations | 5,652,000 | 3,853,000 | 856,000 | ||||
Total liabilities | 19,413,000 | 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; 1,103,643 and 907,047 shares issued as of February 29, 2020 and August 31, 2019 | |||||||
Additional paid-in capital | 37,620,000 | 32,505,000 | 18,468,000 | ||||
Treasury stock, at cost- 13,953 shares and 0 shares as of August 31, 2019 and August 31, 2018 | (325,000) | ||||||
Accumulated deficit | (38,061,000) | (44,950,000) | (26,223,000) | ||||
Total stockholders' deficit | (441,000) | $ (15,212,000) | (12,770,000) | $ (4,764,000) | $ (7,506,000) | (7,754,000) | $ 5,616,000 |
Total liabilities and stockholders' deficit | $ 18,972,000 | $ 23,796,000 | $ 15,802,000 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Feb. 29, 2020 | Jan. 31, 2020 | Dec. 31, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Stockholders' deficit | |||||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | ||
Preferred stock, shares par value | $ 0.0001 | $ 0.0001 | $ 40 | $ 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 | 1,103,643 | 907,047 | 721,295 | ||
Treasury stock, shares | 0 | 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 | ||
Revenues (gross billings of $39.3 million and $12.1 million less worksite employee payroll cost of $33.9 million and $10.3 million, respectively for the year ended) | $ 5,423,000 | $ 1,819,000 |
Cost of revenue | 4,594,000 | 1,488,000 |
Gross profit | 829,000 | 331,000 |
Operating expenses: | ||
Salaries, wages and payroll taxes | 4,670,000 | 2,941,000 |
Commissions | 200,000 | 93,000 |
Professional fees | 3,918,000 | 2,078,000 |
Software development | 1,209,000 | 3,828,000 |
Depreciation and amortization | 837,000 | 272,000 |
General and administrative | 6,502,000 | 4,189,000 |
Total operating expenses | 16,499,000 | 13,129,000 |
Operating Loss | (15,670,000) | (12,798,000) |
Other (expense) income: | ||
Interest expense | (8,507,000) | (1,751,000) |
Loss on debt extinguishment | (3,927,000) | |
Change in fair value derivative and warrant liability | 2,569,000 | |
Gain (Loss) associated with note defaults, net | 811,000 | (3,500,000) |
Total other (expense) income | (9,054,000) | (5,251,000) |
Loss from continuing operations | (24,724,000) | (18,049,000) |
Total Income from discontinued operations, net of tax | 5,997,000 | 1,226,000 |
Net income (loss) | $ (18,727,000) | $ (16,823,000) |
Net Income (Loss) per share, Basic and diluted | ||
Continuing operations | $ (30.23) | $ (25.06) |
Discontinued operations | ||
Discontinued operations | 7.33 | 1.70 |
Net income (loss) per common share - Basic and diluted | $ (22.90) | $ (23.36) |
Weighted average common shares outstanding - Basic and diluted | 817,720 | 720,253 |
Consolidated Statements of Op_2
Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Condensed Consolidated Statements of Operations | ||||||
Gross billings | $ 16.1 | $ 8.2 | $ 32.6 | $ 14 | $ 39.3 | $ 12.1 |
Worksite employee payroll cost | $ 13.5 | $ 7 | $ 27.8 | $ 12 | $ 33.9 | $ 10.3 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total |
Balance, shares at Aug. 31, 2017 | 719,064 | ||||
Balance, amount at Aug. 31, 2017 | $ 15,016,000 | $ (9,400,000) | $ 5,616,000 | ||
Warrants exercised for cash, amount | 75,000 | 75,000 | |||
Warrants exercised for cash, shares | 938 | ||||
Warrants issued with convertible debt | 859,000 | 859,000 | |||
Intrinsic value due to beneficial conversion feature | 2,155,000 | 2,155,000 | |||
Stock-based compensation expense | 200,000 | 200,000 | |||
Common stock issued for services rendered, amount | 163,000 | 163,000 | |||
Common stock issued for services rendered, shares | 1,293 | ||||
Net Loss | (16,823,000) | (16,823,000) | |||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | 18,468,000 | (26,222,000) | (7,754,000) | ||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Stock-based compensation expense | 158,000 | 158,000 | |||
Common stock issued for services rendered, amount | 113,000 | 113,000 | |||
Common stock issued for services rendered, shares | 966 | ||||
Common shares issued upon conversion of convertible notes and interest, amount | 4,891,000 | 4,891,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 49,469 | ||||
Inducement loss from debt conversion, amount | 1,555,000 | 1,555,000 | |||
Inducement loss from debt conversion, shares | 24,517 | ||||
Net Loss | (4,387,000) | (4,387,000) | |||
Balance, shares at Feb. 28, 2019 | 802,935 | ||||
Balance, amount at Feb. 28, 2019 | 25,845,000 | (30,609,000) | (4,764,000) | ||
Balance, shares at Aug. 31, 2018 | 721,295 | ||||
Balance, amount at Aug. 31, 2018 | 18,468,000 | (26,222,000) | (7,754,000) | ||
Warrants exercised for cash, amount | 660,000 | 660,000 | |||
Warrants exercised for cash, shares | 6,688 | ||||
Stock-based compensation expense | 369,000 | 369,000 | |||
Common stock issued for services rendered, amount | 263,000 | 263,000 | |||
Common stock issued for services rendered, shares | 4,985 | ||||
Reclass of derivative liability upon conversion of related convertible notes | 12,000 | 12,000 | |||
Shares issued to induce debt conversion, amount | $ 68,304 | 3,829,000 | 3,829,000 | ||
Common shares issued upon conversion of convertible notes and interest, amount | 8,904,000 | 8,904,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 105,776 | ||||
Treasury stock received for settlement of note receivable, amount | $ (325,000) | (325,000) | |||
Net Loss | (18,727,000) | (18,727,000) | |||
Balance, shares at Aug. 31, 2019 | 909,222 | ||||
Balance, amount at Aug. 31, 2019 | 32,505,000 | (44,950,000) | (325,000) | (12,770,000) | |
Balance, shares at Nov. 30, 2018 | 745,572 | ||||
Balance, amount at Nov. 30, 2018 | 20,963,000 | (28,469,000) | (7,506,000) | ||
Stock-based compensation expense | 81,000 | 81,000 | |||
Common shares issued upon conversion of convertible notes and interest, amount | 3,246,000 | 3,246,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 32,846 | ||||
Inducement loss from debt conversion, amount | 1,555,000 | 1,555,000 | |||
Inducement loss from debt conversion, shares | 24,517 | ||||
Net Loss | (2,140,000) | (2,140,000) | |||
Balance, shares at Feb. 28, 2019 | 802,935 | ||||
Balance, amount at Feb. 28, 2019 | 25,845,000 | (30,609,000) | (4,764,000) | ||
Balance, shares at Aug. 31, 2019 | 909,222 | ||||
Balance, amount at Aug. 31, 2019 | 32,505,000 | (44,950,000) | (325,000) | (12,770,000) | |
Stock-based compensation expense | 670,000 | 670,000 | |||
Common stock issued for services rendered, amount | 75,000 | 75,000 | |||
Common stock issued for services rendered, shares | 856 | ||||
Treasury Shares retired, amount | (325,000) | 325,000 | |||
Treasury Shares retired, shares | (13,953) | ||||
Common shares issued for note exchange | 200,000 | 200,000 | |||
Shares issued for debt conversion | 21,750 | ||||
Common shares issued upon conversion of convertible notes and interest, amount | 2,215,000 | 2,215,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 148,122 | ||||
Reclassification of derivative liabilities to paid in capital | 1,691,000 | 1,691,000 | |||
Inducement loss on note conversions, amount | 567,000 | 567,000 | |||
Inducement loss on note conversions, shares | 37,646 | ||||
Modification of warrants | 22,000 | 22,000 | |||
Net Loss | 6,889,000 | 6,889,000 | |||
Balance, shares at Feb. 29, 2020 | 1,103,643 | ||||
Balance, amount at Feb. 29, 2020 | 37,620,000 | (38,061,000) | (441,000) | ||
Balance, shares at Nov. 30, 2019 | 909,222 | ||||
Balance, amount at Nov. 30, 2019 | 32,619,000 | (47,506,000) | (325,000) | (15,212,000) | |
Stock-based compensation expense | 556,000 | 556,000 | |||
Common stock issued for services rendered, amount | 75,000 | 75,000 | |||
Common stock issued for services rendered, shares | 856 | ||||
Treasury Shares retired, amount | (325,000) | $ 325,000 | |||
Treasury Shares retired, shares | (13,953) | ||||
Common shares issued for note exchange | 200,000 | 200,000 | |||
Shares issued for debt conversion | 21,750 | ||||
Common shares issued upon conversion of convertible notes and interest, amount | 2,215,000 | 2,215,000 | |||
Common shares issued upon conversion of convertible notes and interest, shares | 148,122 | ||||
Reclassification of derivative liabilities to paid in capital | 1,691,000 | 1,691,000 | |||
Inducement loss on note conversions, amount | 567,000 | 567,000 | |||
Inducement loss on note conversions, shares | 37,646 | ||||
Modification of warrants | 22,000 | 22,000 | |||
Net Loss | 9,445,000 | 9,445,000 | |||
Balance, shares at Feb. 29, 2020 | 1,103,643 | ||||
Balance, amount at Feb. 29, 2020 | $ 37,620,000 | $ (38,061,000) | $ (441,000) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
OPERATING ACTIVITIES | ||
Net loss | $ (18,727,000) | $ (16,823,000) |
Income from discontinued operations | 5,997,000 | 1,226,000 |
Net loss from continuing operations | (24,724,000) | (18,049,000) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 837,000 | 272,000 |
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 |
Stock-based compensation | 369,000 | 200,000 |
Loss (Gain) associated with note defaults, net | (811,000) | 3,500,000 |
Interest paid in common shares | 509,000 | |
Change in fair value of derivative and warrant liability | (2,569,000) | |
Changes in operating assets and liabilities | ||
Accounts receivable | (50,000) | 289,000 |
Unbilled accounts receivable | (857,000) | (547,000) |
Prepaid expenses | 97,000 | (93,000) |
Other current assets | 15,000 | (243,000) |
Deposits - workers' compensation | (794,000) | (124,000) |
Deposits and other assets | (3,000) | 6,000 |
Accounts payable | 1,372,000 | 76,000 |
Payroll related liabilities | 1,584,000 | 590,000 |
Accrued workers' compensation | 700,000 | 60,000 |
Other current liabilities | (25,000) | 1,677,000 |
Net cash used in continuing operating activities | (12,063,000) | (11,352,000) |
Net cash provided by (used in) discontinued operating activities | 9,978,000 | 1,815,000 |
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 provided by (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: | ||
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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Nature of Operations | ||
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. The Company and its wholly-owned subsidiary Rethink, Inc. (“RT”) function as an employment administrative services (“EAS”) providers 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 Company’s closed proprietary operating and processing information system (the “ShiftPixy Ecosystem”) when eligible clients recognize the value of the services provided by the parent Company. This platform is expected to facilitate additional value added services in future reporting periods. In January 2020, the Company sold Shift Human Capital Management Inc. (“SHCM”), previously a wholly-owned subsidiary of the Company, and assigned the majority of the Company’s billable clients to a third party for cash as described below in Note 3 and formed RT. The Company is currently operating in one reportable segment. | 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. |
Summary of significant accoun_8
Summary of significant accounting policies | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
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, the Company does 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 and six months ended February 29, 2020, 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; · Valuation of long-lived assets including long-term notes receivable; 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’s revenues are primarily attributable to fees for providing staffing solutions and EAS/ 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 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. Payments for the Company's services are typically made in advance of, or at the time the services are provided. The Company accounts for its EAS revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 605-45, Revenue Recognition, Principal Agent Considerations . EAS solutions revenue is primarily derived from the Company's gross billings, which are based on (i) the payroll cost of the Company's worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 condensed consolidated balance sheets and were $280,000 and $170,000 as of February 29, 2020 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. 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 and six months ended February 29, 2020, and February 28, 2019, respectively. However, four clients represent 40% of total accounts receivable at February 29, 2020. 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. There were no impairments recognized for the periods ended February 29, 2020, and February 28, 2019. 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 February 29, 2020, the Company classified $0.1 million in long-term accrued workers’ compensation in the Company’s condensed 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 and administered by the Sunz Insurance Company. 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 workers’ 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 condensed consolidated balance sheets. As of February 29, 2020, the Company had $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.5 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 February 29, 2020, the Company had short term accrued workers’ compensation costs of $0.2 million and long-term accrued workers’ compensation costs of $0.7 million. The Company retained workers compensation asset reserves and workers compensation related liabilities for former worksite employees of clients transferred to Vensure. As of February 29, 2020, the retained workers compensation assets and liabilities are presented as a discontinued operations net asset or liability. As of February 29, 2020 the Company had $2.0 million in both short term assets and short term liabilities and had $3.3 million of long-term assets and $5.6 million of long-term liabilities. 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. We expect additional workers compensation claims to be made by furloughed worksite employees as a result of the employment downturn caused by the COVID-19 pandemic. On May 4, 2020 the State of California indicated that workers who became ill with COVID-19 would have a potential claim against workers compensation insurance for their illnesses. We expect additional workers compensation claims could be made by employees required to work by their employers during the COVID-19 pandemic and which could have a material impact to our workers compensation liability estimates. While we have not seen additional expenses as a result of any such potential claims, and which would be for reporting periods after February 29, 2020, we will continue to closely monitor all workers compensation claims made during the COVID-19 pandemic. 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 February 29, 2020 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable) 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; and 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 February 29, 2020 or August 31, 2019. The valuation of the Note Receivable (as defined below) from the Vensure Asset Sale described below and the derivative liabilities associated with its March 2019 Notes (as defined below) (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. Level 3 assets and liabilities: The Note Receivable, as described in Note 3 was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. We valued the Note Receivable on the January 1, 2020 transaction date using a 10% discount rate which contemplates the risk and probability assessments of the expected future cash flows. The fair value assumptions have not changed as of February 29, 2020 and any impact to the fair value was immaterial. The only impact recorded to the Note Receivable during the quarter related to working capital adjustments of $1.9 million. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. We believe there are risks associated with the value of the Note Receivable due to business impacts of the COVID-19 pandemic. The expected cash payments from the Note Receivable is based on gross profits generated by the clients transferred to Vensure. Those transferred clients may have their business impacted due to the pandemic which in turn would result in lower gross profits. While we believe the current valuation of the Note Receivable is properly recorded as of February 29, 2020, a material change in the business transferred may result in an impairment of this asset . The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer. 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 February 29, 2020: March 2019 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 As of February 29, 2020 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 February 29, 2020, using the $12.20 per share floor conversion price for the convertible notes and the exercise price of $40 per share for the warrants: March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 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 February 29, 2020 and February 28, 2019, there were no transfers of financial assets or financial liabilities between the hierarchy levels. Research and Development During the three months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $0.8 million and $1.6 million, respectively. During the six months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $2.1 million and $2.5 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s Human Resources Information System (“HRIS”) platform and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three and six months ended February 29, 2020 and February 28, 2019, respectively. Advertising Costs The Company expenses all advertising as incurred. The Company recorded a net costs totaling $179,000 and $183,000 for the three and six months ended February 29, 2020, respectively, and expenses of $503,000 and $582,000 for the three and six months ended February 28, 2019, respectively. Convertible Debt The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features. Reverse Stock Split On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. Earnings (Loss) Per Share The Company utilizes FASB 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. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The number of shares used for the weighted average number of common shares outstanding for the earnings per share for the three and six months ended February 29, 2020 was increased by 24,634,560 shares effective as of January 1, 2020. This increase reflects the inclusion of common shares issuable upon full exercise of options to purchase a similar number of preferred shares and full conversion of those preferred shares to common shares. The preferred share option was deemed to be exercisable into preferred shares on the effective date of the Asset Sale transaction as described in Note 3. The one to one ratio of conversion of preferred shares to common shares was set on March 25, 2020 as described in Note 10. Securities used in, or that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 Stock-Based Compensation At February 29, 2020, 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 , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton 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. 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 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 of common stock provided are recorded at cost as treasury stock. The Company retired all of its 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. Recent Accounting Standards In May 2014, the FASB issued Accounting Standards Update (“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. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. 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 July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. In April 2020, the FASB voted to defer the effective date for private companies for one year. The updated effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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. | Note 2: Summary of significant accounting policies 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 . EAS solutions revenue is primarily derived from the Company’s gross billings, which are based on (i) the payroll cost of the Company’s worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 $1,137,000 and $310,000 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 and determined that no such costs should be capitalized. Costs relating to its customers are typically commissions paid as a percentage of some of the Company’s revenue components and are expensed as they are incurred because the terms of its contracts generally are cancellable by either party with a 30‑day notice. These costs are recorded in commissions in the Consolidated Statement of Operations. Segment Reporting The Company operates as one reportable segment under ASC 280, Segment Reporting . The Chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performances. The Company expects to operate in multiple segments in the future as its business evolves and will evaluate these changes prospectively. 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of its long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. 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 $0.1 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 $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.8 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 $0.1 million and long-term accrued workers’ compensation costs of $0.5 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: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 9), 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 Warrant Features 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: Loss from continuing operations $ (24,724,000) $ (18,049,000) Income from continuing operations 5,997,000 1,226,000 Net loss allocated to common shareholders $ (18,727,000) $ (16,823,000) Weighted average shares outstanding 817,720 720,253 Loss from continuing operations per common share $ (30.24) $ (25.06) Income from continuing operations per common share 7.34 1.70 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 For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 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 12: Related Parties. 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 imp |
Discontinued Operations_2
Discontinued Operations | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Discontinued Operations | ||
Discontinued Operations | Note 3 - Discontinued Operations On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019 and the transfer of $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement (the “Asset Sale”). Gross proceeds from the sale was $19.2 million of which $9.7 million was received at closing and $9.5 million will be paid out in equal monthly payments over the next four years (the “Note Receivable”), subject to adjustments for working capital and customer retention over the twelve month period following the Asset Sale. The following is a reconciliation of the gross proceeds to the net proceeds from the Asset Sale as presented in the statement of cash flows for the period ending February 29, 2020. Gross proceeds $ 19,166,000 Cash received at closing – asset sale (9,500,000) Cash received at closing – working capital (166,000) Discount recorded (1,818,000) Less: Transaction reconciliation – working capital adjustment (1,943,000) Adjusted Note Receivable 5,739,000 Short-term note receivable 358,000 Long-term note receivable $ 5,381,000 The Asset Sale generated a gain of $15.7 million for the three months ended February 29, 2020. The Company expects a minimal tax impact from the Asset Sale as it intends to utilize its net operating losses accumulated since inception to offset the gain resulting discontinued operations tax provision with a corresponding offset to the valuation allowance. The Asset Sale met the criteria of discontinued operations set forth in ASC 205 and as such the Company has reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations for all periods presented. The Company recorded the Note Receivable net of a discount using its estimated cost of capital as a discount rate of (10%). The Asset Sale calls for adjustments to the Note Receivable either for: (i) working capital adjustments or (ii) in the event that the gross profit of the business transferred is less than the required amount. Through February 29, 2020, the Company has identified $1,943,000 of working capital adjustments including $88,000 related to lower net assets transferred at closing, $201,000 of liabilities paid on behalf of the Company, and $1,664,000 of cash remitted to the Company's bank accounts by former clients. Under the terms of the Asset Sale, a reconciliation of the working capital was to have been completed by April 15, 2020. Due to operational difficulties and quarantined staff caused by the outbreak of coronavirus disease 2019 (“COVID-19”), the reconciliation remains unresolved. The working capital adjustment recorded as of February 29, 2020 represents the Company's estimate of the reconciliation. There is no assurance that the working capital change identified as of February 29, 2020 represents the final working capital adjustment. The carrying amounts of the classes of assets and liabilities from the Asset Sale included in discontinued operations were as follows: February 29, August 31, 2020 2019 Unaudited Unaudited Cash $ — $ — Accounts receivable and unbilled account receivable — 8,261,000 Prepaid expenses and other current assets — 171,000 Deposits – workers’ compensation 1,924,000 1,722,000 Total current assets 1,924,000 10,154,000 Fixed assets, net — 40,000 Deposits – workers’ compensation 3,324,000 5,527,000 Total assets $ 5,248,000 $ 15,721,000 Accounts payable and other current liabilities $ — $ 457,000 Payroll related liabilities — 13,583,000 Accrued workers’ compensation cost 1,924,000 1,722,000 Total current liabilities 1,924,000 16,032,000 Accrued workers’ compensation cost 5,652,000 3,853,000 Total liabilities 7,576,000 19,885,000 Net assets/(liability) $ (2,328,000) $ (4,164,000) Reported results for the discontinued operations by period were as follows: For the Three Months Ended For the Six Months Ended February 29, February 28, February 29, February 28, 2020 2019 2020 2019 Revenues (gross billings of $26.3 million and $74.4 million less worksite employee payroll cost of $22.8 million and $62.4 million, respectively for the three months ended; gross billings of $120.4 million and $139.4 million less worksite employee payroll cost of $103.3 million and $117.7 million, respectively for six months ended) $ 3,450,000 $ 12,002,000 $ 17,138,000 $ 21,688,000 Cost of revenue 5,038,000 8,956,000 15,535,000 15,442,000 Gross profit (loss) (1,587,000) 3,046,000 1,603,000 6,246,000 Operating expenses: Salaries, wages and payroll taxes 152,000 898,000 658,000 1,752,000 Commissions 45,000 554,000 748,000 1,076,000 Total operating expenses 197,000 1,452,000 1,406,000 2,828,000 (Loss) income from discontinued operations $ (1,784,000) $ 1,594,000 $ 197,000 $ 3,418,000 | Note 3 – Discontinued Operations On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019 and the transfer of $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement (the “Asset Sale”). The following discloses the amounts disclosed as discontinued operations in the recast financial statements In accordance with the provisions of ASC 205-20, Presentation of Financial Statements , we have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of August 31, 2019 and 2018 and consist of the following: August 31, 2019 August 31, 2018 Cash $ — $ — Accounts receivable and unbilled account receivable 8,261,000 5,721,000 Prepaid expenses and other current assets 171,000 118,000 Deposits – workers’ compensation 1,722,000 1,588,000 Total current assets 10,154,000 7,427,000 Fixed assets, net 40,000 42,000 Deposits – workers’ compensation 5,527,000 2,091,000 Total assets $ 15,721,000 $ 9,560,000 Accounts payable and other current liabilities $ 457,000 $ 18,000 Payroll related liabilities 13,853,000 8,501,000 Accrued workers’ compensation cost 1,722,000 290,000 Total current liabilities 16,032,000 8,808,000 Accrued workers’ compensation cost 3,853,000 856,000 Total liabilities 19,885,000 9,664,000 Net assets/(liability) $ (4,164,000) $ (104,000) In accordance with the provisions of ASC 205-20, we have separately reported the results of operations from in the results of continuing operations in the consolidated statements of operations. The results of operations from discontinued operations for the years ended August 31, 2019 and 2018, have been reflected as discontinued operations for the years ended December 31, 2019 and 2018, and consist of the following: For the Year Ended August 31, August 31, 2019 2018 Revenues (gross billings of $313.3 million and $210.3 million less worksite employee payroll cost of $265.3 million and $177.2 million, respectively for the year ended) $ 48,013,000 $ 33,139,000 Cost of revenue 36,452,000 27,970,000 Gross profit (loss) 11,561,000 5,169,000 Operating expenses: Salaries, wages and payroll taxes 3,032,000 2,442,000 Commissions 2,532,000 1,501,000 Total operating expenses 5,564,000 3,943,000 Operating income from discontinued operations 5,997,000 1,226,000 Provision for income tax expense from discontinued operations — — Net income from discontinued operations $ 5,997,000 $ 1,226,000 The Company utilized fully reserved net operating loss carryforwards of approximately $7,223,000 to offset income from discontinuing operations as follows: For the Year Ended August 31, August 31, 2019 2018 Provision of income tax expense: Federal tax expense $ 1,260,000 $ 265,000 State tax expense 540,000 92,000 Total tax expense 1,800,000 357,000 Tax benefit for utilization of tax loss carryforwards (1,800,000) (357,000) Provision for income tax expense from discontinued operations $ — $ — |
Going Concern_2
Going Concern | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Going Concern | ||
Going Concern | Note 4: Going Concern As of February 29, 2020, the Company had cash of $0.4 million and a working capital deficiency of $5.6 million. During the six months ended February 29, 2020, the Company used approximately $10.4 million of cash from its continuing operations and repaid $1.2 million of convertible notes, after receiving $9.5 million of cash from the Asset Sale described below. The Company has incurred recurring losses resulting in an accumulated deficit of $38.1 million as of February 29, 2020. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of the financial statements. 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 IPO on The Nasdaq Stock Market LLC (“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). Between September 1, 2019 and April 15, 2020 all litigation related to the convertible notes was resolved and all June 2018 Notes, all 8% Senior Secured Convertible Notes issued in December 2018 (the “December 2018 Notes”) and $4.0 million of the Convertible Notes issued in March 2019 (the “March 2019 Notes” and, together with the June 2018 Notes and the December 2018 Notes, the “Convertible Notes” or the “Senior Secured Convertible Notes Payable”) were repaid or converted into equity. The remaining $ 1.0 million of March 2019 Notes are due in September 2020 and were amended in March 2020 to a fixed conversion price of $9.20 per share. In January 2020, the Company assigned approximately 88% of its customer contracts in exchange for $9.7 million in cash at closing and received an additional $1.0 million of cash, net of $0.9 million of cash transferred and expects to receive an additional $7.5 million over the four years following the closing of the Asset Sale, subject to certain closing conditions. The Company transferred $1.6 million of working capital including $0.9 million of cash and the business transfer represented approximately $6 million of the Company’s annualized gross profit. The Company continues to experience significant growth in the number of worksite employees, which would generate additional administrative fees that would offset the current level of operational cash burn. The Company retained the high growth business which increased over 100% of billings and revenue growth. The Company also retained the rights to monetize the existing pool of worksite employees and has begun to roll out its delivery and scheduling applications to its customers. The Company has and will be impacted by the COVID-19 pandemic. The current business focus is on providing payroll services for the restaurant and hospitality industries which have seen a significant reduction in payroll and consequently a reduction in payroll processing fees. To date, some of our clients have received Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) benefits to offset this reduction but not at significant levels and our business has been impacted since the COVID-19 lockdown starting in March 2020. If the lockdown continues, our clients delay hiring or rehiring employees, or if our clients shut down operations, our ability to generate operational cash flows may be significantly impaired. The Company’s management believes, but cannot be certain, that the Company’s 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 additional 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. These condensed consolidated financial statements do not include any adjustments from this uncertainty. | Note 4: Going Concern 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, of which $9.5 million was used in continuing operations and $7.4 million was provided by discontinued operations. Cash used in continuing operations consisted of a net loss of $24.7 million, reduced by net non-cash charges of $10.6 million and working capital changes of $4.6 million. Cash provided by discontinued operations consisted of income of $6.0 million and $1.4 million in working capital changes. 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. Approximately 12% or of the recurring business gross profit represents continuing operations. On an annualized basis, a projected twelve-month gross profit based solely on the fourth quarter would be $14.4 million in total or approximately $1.7 million from continuing operations.. For the year ended August 31, 2019, the Company had $17.0 million of continuing operating expenses, of which $1.4 million was non-cash depreciation and share based compensation. Of the remaining $15.6 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 5: Accounts Receivable | Note 5: 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 6: Fixed Assets | Note 6: Fixed Assets Fixed assets consisted of the following at August 31, 2019 and 2018: August 31, August 31, 2019 2018 Equipment $ 282,000 $ 154,000 Furniture & fixtures 412,000 329,000 Software 3,737,000 2,797,000 Leasehold improvements 41,000 41,000 4,472,000 3,321,000 Accumulated depreciation & amortization (1,152,000) (331,000) Fixed assets, net $ 3,320,000 $ 2,990,000 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, August 31, 2019 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 | |
Workers Compensation | Note 7: 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 SUNZ Program 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 reconciles the workers comp deposits for continuing and discontinued operations as of August 31, 2018 and 2019: Everest SUNZ Program Program Total Workers’ comp deposit at August 31, 2018 $ 1,516,000 $ 2,358,000 $ 3,874,000 Workers’ comp deposit from discontinued operations (See Note 3) (1,441,000) (2,240,000) (3,681,000) Workers’ comp deposit from continuing operations 75,000 118,000 193,000 Less Current Amount (32,000) (51,000) (83,000) Long Term Balance at August 31, 2018 $ 43,000 $ 67,000 $ 110,000 Everest SUNZ Program Program Total Workers’ comp deposit at August 31, 2019 $ — $ 8,238,000 $ 8,238,000 Workers’ comp deposit from discontinued operations (See Note 3) — (7,249,000) (7,249,000) Workers’ comp deposit from continuing operations — 989,000 989,000 Less Current Amount — (235,000) (235,000) Long Term Balance at August 31, 2019 $ — $ 754,000 $ 754,000 The following table summarizes the accrued workers’ compensation liability for the years ended August 31, 2019 and 2018: Everest SUNZ Program 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 The following reconciles the workers comp liabilities for continuing and discontinued operations as of August 31, 2018 and 2019: Everest SUNZ Program Program Total Workers’ comp liability at August 31, 2018 $ 572,000 $ 634,000 $ 1,206,000 Workers’ comp liability from discontinued operations (See Note 3) (544,000) (602,000) (1,145,000) Workers’ comp liability from continuing operations 28,000 32,000 60,000 Less Current Amount (7,000) (8,000) (15,000) Long Term Balance at August 31, 2018 $ 21,000 24,000 $ 45,000 Everest SUNZ Program Program Total Workers’ comp liability at August 31, 2019 $ 423,000 $ 5,913,000 $ 6,336,000 Workers’ comp liability from discontinued operations (See Note 3) (372,000) (5,204,000) (5,576,000) Workers’ comp liability from continuing operations 51,000 709,000 760,000 Less Current Amount (16,000) (219,000) (235,000) Long Term Balance at August 31, 2019 $ 35,000 490,000 $ 525,000 |
Accrued Payroll and Related Lia
Accrued Payroll and Related Liabilities | 12 Months Ended |
Aug. 31, 2019 | |
Accrued Payroll and Related Liabilities | |
Accrued Payroll and Related Liabilities | Note 8: Accrued Payroll and Related Liabilities Accrued payroll liabilities consisted of the following at August 31, 2019 and 2018: August 31, August 31, 2019 2018 Accrued Payroll $ 899,000 $ 459,000 Accrued Payroll Taxes 1,297,000 230,000 Corporate employee accrued paid time off 363,000 287,000 Accrued Payroll and related liabilities $ 2,559,000 $ 976,000 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable | ||
Senior Secured Convertible Notes Payable (in default) | Note 5: Senior Secured Convertible Notes Payable 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: February 29 August 31, 2020 2019 (unaudited) Senior Secured Convertible notes, Principal $ 3,647,000 $ 6,808,000 Less: debt discount and deferred financing costs (1,611,000) (3,457,000) Total outstanding convertible notes, net $ 2,036,000 $ 3,351,000 Less: current portion of convertible notes payable (1,427,000) (3,351,000) Long-term convertible notes payable $ 609,000 $ — The following table rolls forward the Convertible Notes Payable balances from August 31, 2019 to February 29, 2020: Deferred Gross Financing Note Principal Costs Discount Net Balance at August 31, 2019 $ 6,808,000 $ (344,000) $ (3,113,000) $ 3,351,000 Repayments in cash (1,240,000) — — (1,240,000) Conversions to common shares (2,188,000) — — (2,188,000) Notes issued for exchange 267,000 267,000 Additional note discount issued - exchange (467,000) (467,000) Acceleration of discount and deferred financing costs - — 62,000 595,000 657,000 Amortization of Interest Expense — 150,000 1,506,000 1,656,000 Balance at February 29, 2020 3,647,000 (132,000) (1,479,000) 2,036,000 Less Current Amount (2,327,000) 132,000 718,000 (1,427,000) Long Term Balance at February 29, 2020 $ 1,320,000 $ — $ (711,000) $ 609,000 The following table outlines the gross principal balance roll forward for each series from August 31, 2019 to February 29, 2020. Each series is described in further detail below. June 2018 December 2018 March 2019 December 2019 Notes Notes Notes Notes Total Gross Balance at August 31, 2019 $ 1,466,000 $ 867,000 $ 4,475,000 $ — $ 6,808,000 Exchanged for December 2019 Notes (222,000) (2,445,000) 2,934,000 267,000 Conversions to Common Shares (759,000) (422,000) (714,000) (293,000) (2,188,000) Repayments in cash (707,000) (223,000) (310,000) — (1,240,000) Gross Balance — — 1,006,000 2,641,000 3,647,000 Less: Discount and Debt Issuance Costs: — — (400,000) (1,211,000) (1,611,000) Carrying Balance at February 29, 2020 — — 606,000 1,430,000 2,036,000 Less: Current Amount — — (606,000) (821,000) (1,427,000) Long-term Balance at February 29, 2020 $ — $ — $ — $ 609,000 $ 609,000 During the three and six months ended February 29, 2020 the Company amortized $802,000 and $1,656,000, respectively, and for the three and six months ended February 28, 2019 the Company amortized $722,000 and $1,433,000, respectively, to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the June 2018 Notes, the March 2019 Notes, and the December 2019 Exchange Notes (as defined below). On June 3, 2019, an institutional investor 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 Convertible 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. During the three months ended February 29, 2020, the Company resolved all litigation related to its outstanding notes and the Convertible Notes are no longer in default. On December 6, 2019, the Company entered into an exchange agreement with the holder of a majority of its March 2019 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 of 12.5% of the principal balance as of January 31, 2020 payable in cash , and removed certain anti-dilution terms of the related warrants (the “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 $2,690,000 for a combined revised principal balance of $2,934,000. 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. The Company provided for up to 10% of the revised combined principal of $2,934,000 to be converted at a reduced price of $12.20 per share until January 31, 2020. In January 2020, the investor converted $293,000 into 24,049 shares of common stock. The Company evaluated the exchange under ASC 470 and determined that the exchange should be treated as a debt modification. The Company recorded an additional note discount of $467,000 representing the combined additional shares issued, valued at $200,000 and the additional $267,000 in notes issued in the exchange. See also the section entitled “December 2019 Exchange” below. One investor received a legal judgement for $500,000 plus default interest of $52,000. The judgement was paid in cash in January 2020 which included the repayment of $310,000 principal of the March 2019 Notes. Upon payment of the legal judgement, the litigation was resolved with this investor. The Company settled all legal claims with two investors by entering into settlement agreements and by payment of $2,047,000 in cash and the issuance of 103,593 shares of common stock. The settlements resulted in the elimination of combined default penalties, default interest, and $2,194,000 of principal of the June 2018 Notes, the December 2018 Notes, and the March 2019 Notes. The Company reduced the conversion price of the remaining the June 2018 Notes and the December 2018 Notes payable to $12.20 and $500,000 of the June 2018 Notes and the December 2018 Notes were converted into 41,004 shares of common stock. An additional 4,207 shares of common stock were issued in settlement of default interest of 51,000. One investor converted $130,000 of the March 2019 Note principal and $28,000 of accrued default interest at $12.20 per share into 12,915 shares of common stock. One investor converted $293,000 of the December 2019 Notes into 24,049 shares at a conversion price of $12.20 per share. As a result of these settlements and conversions, the Company recorded $567,000 of additional expense for debt conversion inducement representing the value of the shares issued at market and the $12.20 per share conversion price on the date of issuance. The Company had previously recorded $1,800,000 of accrued interest and penalties as of August 31, 2019. As a result of the settlements and resolution of litigation, the Company recorded a gain of $760,000 for the three months ended February 29, 2020. The Company retained $210,000 of accrued penalties for $210,000 of claims made by note holders which were settled in March 2020. December 2019 Exchange The terms of the December 2019 Exchange Notes are summarized as follows: · Term: April 1, 2022; · Coupon: 0%; · Default interest rate: 18%; · 10% of the revised note balance may be converted at $12.20 per share until January 31, 2020 · Remainder Convertible at the option of the holder at any time at a price of $40 per share but subject to down round price protection; · Amortization payment of 12.5% of January 31, 2020 principal balance payable in cash · Alternate conversion percentage is 75% if the alternate conversion is an alternate conversion event of default as a result of bankruptcy or default related to missed amortization payment, subject to a floor conversion price of $1.84 per share 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. In March 2020, the terms of the December 2019 Exchange Notes were modified to change the conversion price to a fixed conversion price of $9.20 per share. In April 2020, all remaining December 2019 Exchange Notes were converted at the revised conversion price. See also Subsequent Events Note 10. March 2019 Bridge Financing On March 12, 2019, the Company issued the March 2019 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 which 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 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 $12.20 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 December 2019, the holder of $2,445,000 of March 2019 Notes exchanged these notes for December 2019 Notes as described above. In March 2020, the terms of the March 2019 Notes were modified to change the conversion price to a fixed conversion price of $9.20 per share. See also Subsequent Events Note 10. | Note 9: 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: 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: Deferred Gross Financing Note Principal Costs 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 December 2018 March 2019 Notes Notes 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 $3.9 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 $3.9 million for the year ended August 31, 2019 recorded as loss on debt extinguishment in the statement of operations. 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 14 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 to accrued default liabilities as of August 31, 2019 and charged to a loss on note default on the statement of operations for the year ending 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 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. 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 of $2,611,000 to the statement of operations during the year ended August 31, 2019. Combined with the $1.8 million loss described above for the 2019 default loss estimate resulted in a net gain of $811,000 for 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 the warrants did not qualify for derivative accounting 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 March 2019 Conversion Warrant Feature 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 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 March 2019 Conversion Warrant Feature 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stockholders' Equity. | ||
Stockholders' Equity | Note 6: Stockholders’ Equity Preferred Stock As previously disclosed by the Company, in September 2016, the founding shareholders of the Company were granted options to acquire preferred stock of the Company. The number of options granted were based upon the number of shares held at that time. These options are nontransferable and forfeited upon the sale of the related founding shares of common stock. Upon the occurrence of certain specified events, such founding shareholders could exercise each option to purchase one share of preferred stock of the Company for $0.0001 per share. The preferred stock that is the subject of such options does not include any rights to dividends or preference upon liquidation of the Company and is convertible into shares of common stock on a one-for-one basis.The options became exercisable to purchase shares of preferred stock upon the Asset Sale in January 2020. As of the date of this filing, options exercisable for up to 24,634,560 shares of preferred stock convertible into 24,634,560 shares of common stock are outstanding. The right to exercise the options terminates on December 31, 2023. As stated above, the amount of such options, and the number of shares of preferred stock issuable upon exercise of such options, is based upon the number of shares of common stock held by such founding shareholders at the time such options were issued. Accordingly, in order to confirm the original intent of the granting of up to 50,000,000 of such options to two of our founding shareholders, Scott W. Absher and Stephen Holmes, at some point in the future the Company intends to adopt a second grant of options, exercisable upon the occurrence of certain specified events, granting an additional 12,500,000 options to each of Scott W. Absher and Stephen Holmes whereby each option permits the holder to acquire one share of preferred stock of the Company for $0.0001 per share. Each share of preferred stock will be convertible into common stock on a one-for-one basis. Common Stock and Warrants On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. During the three and six months ended February 29, 2029, the Company issued the following common shares · 185,768 shares of Common Stock were issued for the conversion of 2,187,000 of June 2018 Notes, December 2018 Notes, March 2019 Notes, and December 2019 Notes payable and $79,000 of related default interest payable. · 21,750 shares of Common Stock valued at $200,000 was issued as an inducement to exchange $2.7 million of March 2019 Notes for $2.9 million of December 2019 Exchange Notes. · 856 shares of Common Stock were issued to two directors for services valued at $7,000. During the three and six months ended February 29, 2019 The following tables summarize our warrants outstanding as of February 29, 2020: Weighted average Weighted Number remaining average of life exercise shares (years) price Warrants outstanding, August 31, 2019 107,409 4.3 $ 83.21 Issued 53,273 4.0 40.00 (Cancelled) (29,124) 3.8 $ 40.00 Warrants outstanding, February 28, 2019 131,558 3.8 $ 47.71 Warrants exercisable, February 28, 2019 131,558 3.8 $ 47.71 The following tables summarize our warrants outstanding as of February 29, 2020: Weighted average life of Warrants outstanding Exercise Outstanding warrants in years price March 2019 Warrants (1) 41,430 4.0 $ 40.00 Amended March 2019 Warrants (2) 66,288 4.0 40.00 March 2019 Services Warrants (3) 3,366 4.0 70.00 June 2018 Warrants (4) 12,552 3.8 40.00 June 2018 Services Warrants (5) 5,422 3.8 99.60 2017 PIPE Warrants 2,500 2.3 $ 276.00 131,558 3.8 $ 47.71 (1) Warrants have full-ratchet price reset provisions. Issuance of certain securities below the then exercise price will result in a reduction of the exercise price and an increase in the warrants outstanding and exercisable. In March 2020 these warrants were exchanged for common shares and are no longer outstanding as of the date of this report. (2) Warrants include 13,015 March 2019 warrants that were amended in December 2019 to modify the exercise price to a fixed exercise price of $40.00 per share from $70 per share and an additional 53,273 warrants issued during the December 2019 Note exchange. (3) Warrants were issued for services rendered in March 2019. (4) Warrants were issued in conjunction with the June 2018 Note series and have price reset protection. The price was reset to $40 per share in December 2019. The difference in fair value of the change in exercise price of the June 2018 Warrants was valued using the binomial method and recorded to other expenses. Issuance of certain securities below the then exercise price will result in a reduction of the exercise price to the price or value of the shares issued or deemed to be issued. (5) Warrants were issued as compensation for services rendered in June 2018. All warrants outstanding and exercise prices have been adjusted to reflect the 1:40 reverse split. | Note 10: Stockholders’ Equity 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 9, 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 12. 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 9 above. The following tables summarize the Company’s warrants outstanding as of August 31, 2019 and 2018: Weighted average Weighted Number of remaining average shares life (years) 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: Weighted average life of outstanding Exercise Warrants warrants in price Outstanding years March 2019 Notes Warrants $ 70.00 74,390 4.6 June 2018 Notes Warrants $ 70.00 30,526 3.8 2017 PIPE Warrants $ 276.00 2,500 2.9 107,416 4.4 |
Share based Compensation_2
Share based Compensation | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Share based Compensation. | ||
Share based Compensation | Note 7: Stock based Compensation The Company granted no options during the six months ended February 29, 2020. The Company recognized approximately $556,000 and $670,000 of compensation expense for the three and six months ended February 29, 2020, respectively. During the three months ended February 29, 2020, the Company fully vested all options granted to personnel who were terminated as a result of the Asset Sale which resulted in the acceleration of 9,737 options and $483,000 of stock based compensation. The Company recognized approximately $81,000 and $158,000 of stock-based compensation in the three and six months ended February 28, 2019, respectively. The total intrinsic value of options as of February 29, 2020, and February 28, 2019, was $0. At February 29, 2020, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 1.1 years for outstanding grants was $0.7 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 (7,343) 8.54 69.85 Balance at February 29, 2020 43,406 8.41 $ 99.55 Options outstanding as of February 29, 2020 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 13,199 8.53 108.89 Exercised — — — Forfeited (1,305) 5.15 140.09 Balance at November 30, 2019 22,185 8.05 $ 127.49 The following table summarizes information about stock options outstanding and vested at February 29, 2020: 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 5,375 9.27 $ 24.35 250 9.42 $ 20.00 $40.01–$80.00 13,729 9.09 51.21 4,896 9.09 51.23 $80.01–$120.00 10,553 8.22 102.93 6,394 8.22 102.46 $120.01–$160.00 12,625 7.55 155.28 9,521 7.49 155.12 $160.01‑$391.60 1,124 7.38 391.60 1,124 7.38 391.60 43,406 8.41 $ 99.55 22,185 8.05 $ 127.49 The number of options and exercise prices have been presented retroactively for the 1 for 40 December 17, 2019 reverse split. | Note 11: 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 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 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 Year ended August 31, August 31, 2019 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 (19,042) 8.06 $ 111.20 Balance at August 31, 2019 50,750 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 50,750 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Related Parties_2
Related Parties | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Related Parties. | ||
Related Parties | Note 8: Related Parties J. Stephen Holmes, our Sales Manager, is an advisor to and significant shareholder of the Company. The Company incurred $180,000 and $360,000 in professional fees for management consulting services in the three and six months ended February 28, 2019 in the three and six months ended February 29, 2020, respectively. 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. | Note 12: Related Parties 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 an expiration date of March 14, 2027, at an exercise price of $160.00. 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 $160.00. 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 $160.00. 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: Issue Price Date Issued Shares 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 | |
Income taxes | Note 13: 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 $3,359,000 and $3,163,000, 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 7,000,000 7,653,000 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 11,671,000 8,201,000 Valuation allowance (10,704,000) (7,345,000) 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, 2019 2018 Current Federal $ — $ — State — — Total current — — Deferred Federal 3,162,000 2,729,000 State 197,000 407,000 Total deferred 3,359,000 3,136,000 Change in valuation allowance $ (3,359,000) $ (3,136,000) 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 $ 2,673,000 $ 3,880,000 Non-deductible penalties and other permanent differences (430,000) (177,000) State taxes (8.84%) 1,116,000 1,374,000 Redetermination of prior year taxes — — Enactment of the 2017 Tax Reform Act — (1,941,000) Change in valuation allowance (3,359,000) (3,136,000) 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. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Commitments and Contingencies | ||
Commitments and Contingencies | Note 9: 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 filed legal complaints. During the three months ended February 29, 2020 all Convertible Note related litigation was resolved as follows: Alpha Capital v. ShiftPixy, Inc. On July 3, 2019, the Company 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 Notes, $0.2 million of the December 2018 Notes and $1.2 million of the March 2019 Notes. In January 2020, Alpha was awarded a judgement for $500,000 consisting of the $310,000 notes and $190,000 of damages and accrued interest of $51,000. On January 16, 2020 Alpha Capital converted all remaining June 2018 Note and December 2018 Note balances at $12.20 per share. On January 20, 2020 the Company paid the damages award including interest in cash and resolved the litigation. Dominion Capital LLC v. ShiftPixy, Inc. On July 18, 2019, the Company 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 Notes, the December 2018 Notes, and the 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. On January 22, 2020, the Company settled all claims and repaid all remaining notes and cancelled all related warrants by issuing 83,593 shares of common stock on the date of issuance and paid cash of $1,322,000. MEF I, LP v. ShiftPixy, Inc.; On August 27, 2019, MEF I, LP (“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 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 Notes and the 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 cancelled the June 2018 Warrants with the issuance of 20,000 shares of common stock and payment of $725,000 in cash. See also Note 5 above. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures (“Kadima”), over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima 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 Report, 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 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. . The parties have agreed to a stay on the proceedings until July 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. | Note 14: Commitments and Contingencies 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 | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Subsequent Events | ||
Subsequent Events | Note 10: Subsequent Events In March 2020, our business was impacted by the COVID-19 global pandemic. A significant portion of our business includes restaurants, typically franchise food operators, which were required by the State of California to cease all in-store dining during the COVID-19 shutdown. This has impacted their revenue sources and has resulted in staff layoffs and lower payroll billings processed, beginning in the middle of March 2020, and continuing through the date of this report. In May 2020 the State of California announced that workers who were required to work outside their homes during the lockdown would be potentially eligible for workers compensation if they became ill for a 60 day period announced to be between March 19 until May 19. To date, we have not been notified of any such claims. In March 2020, three investors converted $1,047,000 of the Company’s Convertible Notes and $25,000 of accrued default interest into 135,507 shares of common stock at a conversion price of $9.20 per share. On March 23, 2020, the Company entered into the following Amendment and Exchange Agreements (the “Amendment and Exchange Agreements”) with certain institutional investors, pursuant to which the Company amended and restated certain existing notes (the “Amended and Restated Notes”) and issued (i) convertible notes in an aggregate principal amount of $167,000 convertible into shares of common stock at a conversion price of $9.20 per share of common stock (the “Exchange Notes”), (ii) warrants to purchase an aggregate of 162,950 shares of common stock at an exercise price of $10.17 per share of common stock (the “Exchange Warrants”) and (iii) an aggregate of 82,654 shares of common stock (collectively, the “Exchange Securities”): · On March 23, 2020, the Company entered into an Amendment and Exchange Agreement (the “Alpha Amendment and Exchange Agreement”) with Alpha Capital Anstalt (“Alpha”) pursuant to which the Company (a) issued to Alpha an Amended and Restated Note in an aggregate principal amount of $723,000, and (b) in exchange for outstanding warrants to purchase shares of common stock held by Alpha, issued to Alpha (i) 66,123 shares of common stock, (ii) an Exchange Warrant to purchase 130,360 shares of common stock and (iii) an Exchange Note in an aggregate principal amount of $145,000. · On March 23, 2020, the Company entered into an Amendment and Exchange Agreement (the “Osher Amendment and Exchange Agreement”) with Osher Capital Partners LLC (“Osher”) pursuant to which the Company (a) issued to Osher an Amended and Restated Note in an aggregate principal amount of $108,000, and (b) in exchange for outstanding warrants to purchase shares of common stock held by Osher, issued to Osher (i) 16,531 shares of common stock, (ii) an Exchange Warrant to purchase 32,590 shares of common stock and (iii) an Exchange Note in an aggregate principal amount of $22,000. On March 24, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with CVI Investments, Inc. (“CVI”) pursuant to which CVI exchanged its outstanding senior convertible note due 2022 for (i) a warrant (the “Exchange Warrant”) to purchase 260,719 shares of common stock and (b) a senior convertible note in an aggregate principal amount of $1,829,000 convertible into shares of common stock at a conversion price of $9.20 per share. On April 15, 2020, CVI converted $1,829,000 of its senior convertible notes into 198,756 shares of common stock. On March 25, 2020, the Company filed Amended and Restated Articles of Incorporation (the “Restated Articles of Incorporation”) with the Wyoming Secretary of State, which were approved by the Company’s board of directors and its shareholders representing a majority of its outstanding shares of capital stock. The Restated Articles of Incorporation, among other things, set conversion rights for the Company’s Class A Preferred Stock, par value $0.0001 per share, to convert into shares of common stock on a one-for-one basis. 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 Report. | Note 15: Subsequent Events 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 21,750 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 | 12 Months Ended |
Aug. 31, 2019 | |
Reverse Stock Split | |
Reverse Stock Split | Note 16: 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 accoun_9
Summary of significant accounting policies (Policies) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
Basis of Presentation | 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, the Company does 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 and six months ended February 29, 2020, 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. | 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 | 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. | 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 | 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; · Valuation of long-lived assets including long-term notes receivable; and · Projected development of workers’ compensation claims. | 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 | Revenue and Direct Cost Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company’s revenues are primarily attributable to fees for providing staffing solutions and EAS/ 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 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. Payments for the Company's services are typically made in advance of, or at the time the services are provided. The Company accounts for its EAS revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 605-45, Revenue Recognition, Principal Agent Considerations . EAS solutions revenue is primarily derived from the Company's gross billings, which are based on (i) the payroll cost of the Company's worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 condensed consolidated balance sheets and were $280,000 and $170,000 as of February 29, 2020 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. | 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 . EAS solutions revenue is primarily derived from the Company’s gross billings, which are based on (i) the payroll cost of the Company’s worksite employees and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers compensation premiums. 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 $1,137,000 and $310,000 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 and determined that no such costs should be capitalized. Costs relating to its customers are typically commissions paid as a percentage of some of the Company’s revenue components and are expensed as they are incurred because the terms of its contracts generally are cancellable by either party with a 30‑day notice. These costs are recorded in commissions in the Consolidated Statement of Operations. |
Segment Reporting | Segment Reporting The Company operates as one reportable segment under ASC 280, Segment Reporting . The Chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performances. The Company expects to operate in multiple segments in the future as its business evolves and will evaluate these changes prospectively. | |
Cash and Cash Equivalents | 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 | 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 and six months ended February 29, 2020, and February 28, 2019, respectively. However, four clients represent 40% of total accounts receivable at February 29, 2020. | 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 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 | 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 | 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. There were no impairments recognized for the periods ended February 29, 2020, and February 28, 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 . ASC 360‑10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of its long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. |
Workers' compensation | 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 February 29, 2020, the Company classified $0.1 million in long-term accrued workers’ compensation in the Company’s condensed 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 and administered by the Sunz Insurance Company. 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 workers’ 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 condensed consolidated balance sheets. As of February 29, 2020, the Company had $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.5 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 February 29, 2020, the Company had short term accrued workers’ compensation costs of $0.2 million and long-term accrued workers’ compensation costs of $0.7 million. The Company retained workers compensation asset reserves and workers compensation related liabilities for former worksite employees of clients transferred to Vensure. As of February 29, 2020, the retained workers compensation assets and liabilities are presented as a discontinued operations net asset or liability. As of February 29, 2020 the Company had $2.0 million in both short term assets and short term liabilities and had $3.3 million of long-term assets and $5.6 million of long-term liabilities. 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. | 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 $0.1 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 $0.2 million in deposit – workers’ compensation classified as a short-term asset and $0.8 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 $0.1 million and long-term accrued workers’ compensation costs of $0.5 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 | Convertible Debt The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features. | 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 | 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 | 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 | 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 February 29, 2020 and August 31, 2019, the carrying value of certain financial instruments (cash, accounts receivable and payable) 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; and 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 February 29, 2020 or August 31, 2019. The valuation of the Note Receivable (as defined below) from the Vensure Asset Sale described below and the derivative liabilities associated with its March 2019 Notes (as defined below) (see Note 4), consisted of conversion feature derivatives and warrants, are Level 3 fair value measurements. Level 3 assets and liabilities: The Note Receivable, as described in Note 3 was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. We valued the Note Receivable on the January 1, 2020 transaction date using a 10% discount rate which contemplates the risk and probability assessments of the expected future cash flows. The fair value assumptions have not changed as of February 29, 2020 and any impact to the fair value was immaterial. The only impact recorded to the Note Receivable during the quarter related to working capital adjustments of $1.9 million. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. We believe there are risks associated with the value of the Note Receivable due to business impacts of the COVID-19 pandemic. The expected cash payments from the Note Receivable is based on gross profits generated by the clients transferred to Vensure. Those transferred clients may have their business impacted due to the pandemic which in turn would result in lower gross profits. While we believe the current valuation of the Note Receivable is properly recorded as of February 29, 2020, a material change in the business transferred may result in an impairment of this asset . The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer. 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 February 29, 2020: March 2019 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 As of February 29, 2020 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 February 29, 2020, using the $12.20 per share floor conversion price for the convertible notes and the exercise price of $40 per share for the warrants: March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 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 February 29, 2020 and February 28, 2019, there were no transfers of financial assets or financial liabilities between the hierarchy levels. | 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: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 9), 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 Warrant Features 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 | Advertising Costs The Company expenses all advertising as incurred. The Company recorded a net costs totaling $179,000 and $183,000 for the three and six months ended February 29, 2020, respectively, and expenses of $503,000 and $582,000 for the three and six months ended February 28, 2019, respectively. | 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 | Research and Development During the three months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $0.8 million and $1.6 million, respectively. During the six months ended February 29, 2020 and February 28, 2019, the Company incurred research and development costs of approximately $2.1 million and $2.5 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s Human Resources Information System (“HRIS”) platform and related mobile application. In addition, $0 and $0.4 million of software costs were capitalized for the three and six months ended February 29, 2020 and February 28, 2019, 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 | 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. | |
Reverse Stock Split | Reverse Stock Split On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. | |
Stock-Based Compensation | Stock-Based Compensation At February 29, 2020, 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 , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton 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. 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 award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. | 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 | Earnings (Loss) Per Share The Company utilizes FASB 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. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The number of shares used for the weighted average number of common shares outstanding for the earnings per share for the three and six months ended February 29, 2020 was increased by 24,634,560 shares effective as of January 1, 2020. This increase reflects the inclusion of common shares issuable upon full exercise of options to purchase a similar number of preferred shares and full conversion of those preferred shares to common shares. The preferred share option was deemed to be exercisable into preferred shares on the effective date of the Asset Sale transaction as described in Note 3. The one to one ratio of conversion of preferred shares to common shares was set on March 25, 2020 as described in Note 10. Securities used in, or that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 | 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: Loss from continuing operations $ (24,724,000) $ (18,049,000) Income from continuing operations 5,997,000 1,226,000 Net loss allocated to common shareholders $ (18,727,000) $ (16,823,000) Weighted average shares outstanding 817,720 720,253 Loss from continuing operations per common share $ (30.24) $ (25.06) Income from continuing operations per common share 7.34 1.70 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 For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Treasury Stock | 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 of common stock provided are recorded at cost as treasury stock. The Company retired all of its 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. | Treasury Stock Treasury stock represents shares of common stock provided to the company in satisfaction of the related party advance, described in Note 12: Related Parties. 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 | 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 | 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. | 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 | Recent Accounting Standards In May 2014, the FASB issued Accounting Standards Update (“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. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. 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 July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. In April 2020, the FASB voted to defer the effective date for private companies for one year. The updated effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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. | 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 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_10
Summary of significant accounting policies (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Summary of significant accounting policies | ||
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 March 2019 Conversion Warrant Feature Liability Total Balance at August 31, 2019 $ 2,852,000 $ 904,000 $ 3,756,000 Reclassification to APIC due to note settlements, exchanges or conversions (1,652,000) (39,000) (1,691,000) Change in fair value (1,088,000) (683,000) (1,771,000) Balance at February 29, 2020 (unaudited) $ 112,000 $ 182,000 $ 294,000 March 2019 March 2019 Conversion Warrant Feature Liability (unaudited) (unaudited) Risk free rate 0.66 % 0.89 % Market price per share $ 7.33 $ 7.33 Life of instrument in years 0.54 4.03 Volatility 83 % 102 % Dividend yield 0 % 0 % | Conversion Warrant Features 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: Loss from continuing operations $ (24,724,000) $ (18,049,000) Income from continuing operations 5,997,000 1,226,000 Net loss allocated to common shareholders $ (18,727,000) $ (16,823,000) Weighted average shares outstanding 817,720 720,253 Loss from continuing operations per common share $ (30.24) $ (25.06) Income from continuing operations per common share 7.34 1.70 Basic and Fully Diluted net loss per common share $ (22.90) $ (23.36) | |
Schedule of weighted average dilutive common shares | For the Three For the Three Months Months Ended Ended February 29, February 28, 2020 2019 Options 43,406 36,896 Senior Secured Convertible Notes (Note 4) 298,954 118,495 Warrants 131,558 87,783 Total potentially dilutive shares 473,918 243,174 | For the year For the year ended ended August 31, August 31, 2019 2018 Options 50,749 33,594 Senior Secured Convertible Notes (Note 9) 491,868 100,402 Warrants 107,410 94,470 Total potentially dilutive shares 650,027 228,466 |
Schedule of revision on line items in 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) |
Discontinued Operations (Tabl_2
Discontinued Operations (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Discontinued Operations | ||
Schedule of a reconciliation of the gross proceeds to the net proceeds from the Asset Sale as presented in the statement of cash flows | Gross proceeds $ 19,166,000 Cash received at closing – asset sale (9,500,000) Cash received at closing – working capital (166,000) Discount recorded (1,818,000) Less: Transaction reconciliation – working capital adjustment (1,943,000) Adjusted Note Receivable 5,739,000 Short-term note receivable 358,000 Long-term note receivable $ 5,381,000 | |
Schedule of carrying amounts of the classes of assets and liabilities from the Asset Sale included in discontinued operations | February 29, August 31, 2020 2019 Unaudited Unaudited Cash $ — $ — Accounts receivable and unbilled account receivable — 8,261,000 Prepaid expenses and other current assets — 171,000 Deposits – workers’ compensation 1,924,000 1,722,000 Total current assets 1,924,000 10,154,000 Fixed assets, net — 40,000 Deposits – workers’ compensation 3,324,000 5,527,000 Total assets $ 5,248,000 $ 15,721,000 Accounts payable and other current liabilities $ — $ 457,000 Payroll related liabilities — 13,583,000 Accrued workers’ compensation cost 1,924,000 1,722,000 Total current liabilities 1,924,000 16,032,000 Accrued workers’ compensation cost 5,652,000 3,853,000 Total liabilities 7,576,000 19,885,000 Net assets/(liability) $ (2,328,000) $ (4,164,000) | August 31, 2019 August 31, 2018 Cash $ — $ — Accounts receivable and unbilled account receivable 8,261,000 5,721,000 Prepaid expenses and other current assets 171,000 118,000 Deposits – workers’ compensation 1,722,000 1,588,000 Total current assets 10,154,000 7,427,000 Fixed assets, net 40,000 42,000 Deposits – workers’ compensation 5,527,000 2,091,000 Total assets $ 15,721,000 $ 9,560,000 Accounts payable and other current liabilities $ 457,000 $ 18,000 Payroll related liabilities 13,853,000 8,501,000 Accrued workers’ compensation cost 1,722,000 290,000 Total current liabilities 16,032,000 8,808,000 Accrued workers’ compensation cost 3,853,000 856,000 Total liabilities 19,885,000 9,664,000 Net assets/(liability) $ (4,164,000) $ (104,000) |
Schedule of reported results for the discontinued operations by period | For the Three Months Ended For the Six Months Ended February 29, February 28, February 29, February 28, 2020 2019 2020 2019 Revenues (gross billings of $26.3 million and $74.4 million less worksite employee payroll cost of $22.8 million and $62.4 million, respectively for the three months ended; gross billings of $120.4 million and $139.4 million less worksite employee payroll cost of $103.3 million and $117.7 million, respectively for six months ended) $ 3,450,000 $ 12,002,000 $ 17,138,000 $ 21,688,000 Cost of revenue 5,038,000 8,956,000 15,535,000 15,442,000 Gross profit (loss) (1,587,000) 3,046,000 1,603,000 6,246,000 Operating expenses: Salaries, wages and payroll taxes 152,000 898,000 658,000 1,752,000 Commissions 45,000 554,000 748,000 1,076,000 Total operating expenses 197,000 1,452,000 1,406,000 2,828,000 (Loss) income from discontinued operations $ (1,784,000) $ 1,594,000 $ 197,000 $ 3,418,000 | For the Year Ended August 31, August 31, 2019 2018 Revenues (gross billings of $313.3 million and $210.3 million less worksite employee payroll cost of $265.3 million and $177.2 million, respectively for the year ended) $ 48,013,000 $ 33,139,000 Cost of revenue 36,452,000 27,970,000 Gross profit (loss) 11,561,000 5,169,000 Operating expenses: Salaries, wages and payroll taxes 3,032,000 2,442,000 Commissions 2,532,000 1,501,000 Total operating expenses 5,564,000 3,943,000 Operating income from discontinued operations 5,997,000 1,226,000 Provision for income tax expense from discontinued operations — — Net income from discontinued operations $ 5,997,000 $ 1,226,000 |
Summary of provision for income tax expense from discontinued operations | For the Year Ended August 31, August 31, 2019 2018 Provision of income tax expense: Federal tax expense $ 1,260,000 $ 265,000 State tax expense 540,000 92,000 Total tax expense 1,800,000 357,000 Tax benefit for utilization of tax loss carryforwards (1,800,000) (357,000) Provision for income tax expense from discontinued operations $ — $ — |
Fixed Assets (Tables)
Fixed Assets (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Fixed Assets (Tables) | |
Schedule of Fixed Assets | August 31, August 31, 2019 2018 Equipment $ 282,000 $ 154,000 Furniture & fixtures 412,000 329,000 Software 3,737,000 2,797,000 Leasehold improvements 41,000 41,000 4,472,000 3,321,000 Accumulated depreciation & amortization (1,152,000) (331,000) Fixed assets, net $ 3,320,000 $ 2,990,000 |
Schedule of capitalized software | August 31, August 31, 2019 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 | |
Summarizes of workers' compensation deposit | Everest SUNZ Program 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 |
Summary of reconciliation of the workers comp deposits for continuing and discontinued operations | Everest SUNZ Program Program Total Workers’ comp deposit at August 31, 2018 $ 1,516,000 $ 2,358,000 $ 3,874,000 Workers’ comp deposit from discontinued operations (See Note 3) (1,441,000) (2,240,000) (3,681,000) Workers’ comp deposit from continuing operations 75,000 118,000 193,000 Less Current Amount (32,000) (51,000) (83,000) Long Term Balance at August 31, 2018 $ 43,000 $ 67,000 $ 110,000 Everest SUNZ Program Program Total Workers’ comp deposit at August 31, 2019 $ — $ 8,238,000 $ 8,238,000 Workers’ comp deposit from discontinued operations (See Note 3) — (7,249,000) (7,249,000) Workers’ comp deposit from continuing operations — 989,000 989,000 Less Current Amount — (235,000) (235,000) Long Term Balance at August 31, 2019 $ — $ 754,000 $ 754,000 |
Summarizes the accrued workers' compensation liability | The following table summarizes the accrued workers’ compensation liability for the years ended August 31, 2019 and 2018: Everest SUNZ Program 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 |
Summary of reconciliation of the workers comp liabilities for continuing and discontinued operations | Everest SUNZ Program Program Total Workers’ comp liability at August 31, 2018 $ 572,000 $ 634,000 $ 1,206,000 Workers’ comp liability from discontinued operations (See Note 3) (544,000) (602,000) (1,145,000) Workers’ comp liability from continuing operations 28,000 32,000 60,000 Less Current Amount (7,000) (8,000) (15,000) Long Term Balance at August 31, 2018 $ 21,000 24,000 $ 45,000 Everest SUNZ Program Program Total Workers’ comp liability at August 31, 2019 $ 423,000 $ 5,913,000 $ 6,336,000 Workers’ comp liability from discontinued operations (See Note 3) (372,000) (5,204,000) (5,576,000) Workers’ comp liability from continuing operations 51,000 709,000 760,000 Less Current Amount (16,000) (219,000) (235,000) Long Term Balance at August 31, 2019 $ 35,000 490,000 $ 525,000 |
Accrued Payroll and Related L_2
Accrued Payroll and Related Liabilities (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Accrued Payroll and Related Liabilities | |
Schedule of Accrued Liabilities | August 31, August 31, 2019 2018 Accrued Payroll $ 899,000 $ 459,000 Accrued Payroll Taxes 1,297,000 230,000 Corporate employee accrued paid time off 363,000 287,000 Accrued Payroll and related liabilities $ 2,559,000 $ 976,000 |
Senior Secured Convertible No_8
Senior Secured Convertible Notes Payable (in default) (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Senior Secured Convertible Notes Payable | ||
Schedule of senior secured convertible notes payable | February 29 August 31, 2020 2019 (unaudited) Senior Secured Convertible notes, Principal $ 3,647,000 $ 6,808,000 Less: debt discount and deferred financing costs (1,611,000) (3,457,000) Total outstanding convertible notes, net $ 2,036,000 $ 3,351,000 Less: current portion of convertible notes payable (1,427,000) (3,351,000) Long-term convertible notes payable $ 609,000 $ — | 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 | Deferred Gross Financing Note Principal Costs Discount Net Balance at August 31, 2019 $ 6,808,000 $ (344,000) $ (3,113,000) $ 3,351,000 Repayments in cash (1,240,000) — — (1,240,000) Conversions to common shares (2,188,000) — — (2,188,000) Notes issued for exchange 267,000 267,000 Additional note discount issued - exchange (467,000) (467,000) Acceleration of discount and deferred financing costs - — 62,000 595,000 657,000 Amortization of Interest Expense — 150,000 1,506,000 1,656,000 Balance at February 29, 2020 3,647,000 (132,000) (1,479,000) 2,036,000 Less Current Amount (2,327,000) 132,000 718,000 (1,427,000) Long Term Balance at February 29, 2020 $ 1,320,000 $ — $ (711,000) $ 609,000 | Deferred Gross Financing Note Principal Costs 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 $ — $ — $ — $ — |
Schedule of gross principal balance rollforward | June 2018 December 2018 March 2019 December 2019 Notes Notes Notes Notes Total Gross Balance at August 31, 2019 $ 1,466,000 $ 867,000 $ 4,475,000 $ — $ 6,808,000 Exchanged for December 2019 Notes (222,000) (2,445,000) 2,934,000 267,000 Conversions to Common Shares (759,000) (422,000) (714,000) (293,000) (2,188,000) Repayments in cash (707,000) (223,000) (310,000) — (1,240,000) Gross Balance — — 1,006,000 2,641,000 3,647,000 Less: Discount and Debt Issuance Costs: — — (400,000) (1,211,000) (1,611,000) Carrying Balance at February 29, 2020 — — 606,000 1,430,000 2,036,000 Less: Current Amount — — (606,000) (821,000) (1,427,000) Long-term Balance at February 29, 2020 $ — $ — $ — $ 609,000 $ 609,000 | June 2018 December 2018 March 2019 Notes Notes 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 March 2019 Conversion Warrant Feature 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 assumptions to estimate fair value of the derivatives | March 2019 March 2019 Conversion Warrant Feature 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stockholders' Equity. | ||
Summary of warrants outstanding | Weighted average Weighted Number remaining average of life exercise shares (years) price Warrants outstanding, August 31, 2019 107,409 4.3 $ 83.21 Issued 53,273 4.0 40.00 (Cancelled) (29,124) 3.8 $ 40.00 Warrants outstanding, February 28, 2019 131,558 3.8 $ 47.71 Warrants exercisable, February 28, 2019 131,558 3.8 $ 47.71 | Weighted average Weighted Number of remaining average shares life (years) 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 | Weighted average life of Warrants outstanding Exercise Outstanding warrants in years price March 2019 Warrants (1) 41,430 4.0 $ 40.00 Amended March 2019 Warrants (2) 66,288 4.0 40.00 March 2019 Services Warrants (3) 3,366 4.0 70.00 June 2018 Warrants (4) 12,552 3.8 40.00 June 2018 Services Warrants (5) 5,422 3.8 99.60 2017 PIPE Warrants 2,500 2.3 $ 276.00 131,558 3.8 $ 47.71 | Weighted average life of outstanding Exercise Warrants warrants in price Outstanding years March 2019 Notes Warrants $ 70.00 74,390 4.6 June 2018 Notes Warrants $ 70.00 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) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Share based Compensation. | ||
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 Year ended August 31, August 31, 2019 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 (7,343) 8.54 69.85 Balance at February 29, 2020 43,406 8.41 $ 99.55 | 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 (19,042) 8.06 $ 111.20 Balance at August 31, 2019 50,750 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 13,199 8.53 108.89 Exercised — — — Forfeited (1,305) 5.15 140.09 Balance at November 30, 2019 22,185 8.05 $ 127.49 | 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 |
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 5,375 9.27 $ 24.35 250 9.42 $ 20.00 $40.01–$80.00 13,729 9.09 51.21 4,896 9.09 51.23 $80.01–$120.00 10,553 8.22 102.93 6,394 8.22 102.46 $120.01–$160.00 12,625 7.55 155.28 9,521 7.49 155.12 $160.01‑$391.60 1,124 7.38 391.60 1,124 7.38 391.60 43,406 8.41 $ 99.55 22,185 8.05 $ 127.49 | 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 50,750 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 | Issue Price Date Issued Shares 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 | |
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 7,000,000 7,653,000 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 11,671,000 8,201,000 Valuation allowance (10,704,000) (7,345,000) Total net deferred tax assets $ 967,000 $ 856,000 Net deferred tax assets $ — $ — |
Schedule of Income tax expense | For the Year Ended August 31, 2019 2018 Current Federal $ — $ — State — — Total current — — Deferred Federal 3,162,000 2,729,000 State 197,000 407,000 Total deferred 3,359,000 3,136,000 Change in valuation allowance $ (3,359,000) $ (3,136,000) Total Income Tax Expense (Benefit) $ — $ — |
Reconciliation of the statutory federal rate | August 31, August 31, 2019 2018 Pre-tax book loss $ 2,673,000 $ 3,880,000 Non-deductible penalties and other permanent differences (430,000) (177,000) State taxes (8.84%) 1,116,000 1,374,000 Redetermination of prior year taxes — — Enactment of the 2017 Tax Reform Act — (1,941,000) Change in valuation allowance (3,359,000) (3,136,000) Net income tax provision $ — $ — |
Commitments and Contigencies (T
Commitments and Contigencies (Tables) | 12 Months Ended |
Aug. 31, 2019 | |
Software License Arrangement [Member] | |
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block] | 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 |
Lease Agreements [Member] | |
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block] | 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 |
Stock based Compensation (Tab_2
Stock based Compensation (Tables) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Stock 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 (7,343) 8.54 69.85 Balance at February 29, 2020 43,406 8.41 $ 99.55 | 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 (19,042) 8.06 $ 111.20 Balance at August 31, 2019 50,750 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 13,199 8.53 108.89 Exercised — — — Forfeited (1,305) 5.15 140.09 Balance at November 30, 2019 22,185 8.05 $ 127.49 | 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 |
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 5,375 9.27 $ 24.35 250 9.42 $ 20.00 $40.01–$80.00 13,729 9.09 51.21 4,896 9.09 51.23 $80.01–$120.00 10,553 8.22 102.93 6,394 8.22 102.46 $120.01–$160.00 12,625 7.55 155.28 9,521 7.49 155.12 $160.01‑$391.60 1,124 7.38 391.60 1,124 7.38 391.60 43,406 8.41 $ 99.55 22,185 8.05 $ 127.49 | 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 50,750 8.95 $ 95.20 10,291 8.04 $ 152.80 |
Nature of Operations (Details N
Nature of Operations (Details Narrative) | 12 Months Ended |
Aug. 31, 2019 | |
Nature of Operations | |
Date of incorporation | Jun. 3, 2015 |
State of incorporation | Southern California |
Summary of significant accou_11
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_12
Summary of significant accounting policies (Details 1) - USD ($) | 6 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
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 | 1,771,000 | (2,569,000) | |
Ending balance | $ 294,000 | $ 3,756,000 |
Summary of significant accou_13
Summary of significant accounting policies (Details 2) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Losses per common share: | ||||||
Loss from continuing operations | $ (4,453,000) | $ (3,734,000) | $ (8,990,000) | $ (7,805,000) | $ (24,724,000) | $ (18,049,000) |
Income from continuing operations | 13,898,000 | 1,594,000 | 15,879,000 | 3,418,000 | 5,997,000 | 1,226,000 |
Net Income (Loss) | $ 9,445,000 | $ (2,140,000) | $ 6,889,000 | $ (4,387,000) | $ (18,727,000) | $ (16,823,000) |
Weighted average shares outstanding | 817,720 | 720,253 | ||||
Loss from continuing operations per common share | $ (0.26) | $ (4.79) | $ (1.01) | $ (10.35) | $ (30.23) | $ (25.06) |
Income from continuing operations per common share | 0.82 | 2.04 | 1.78 | 4.53 | 7.33 | 1.70 |
Net income (loss) per common share - Basic and diluted | $ 0.56 | $ (2.74) | $ 0.77 | $ (5.82) | $ (22.90) | $ (23.36) |
Summary of significant accou_14
Summary of significant accounting policies (Details 3) - shares | Aug. 31, 2019 | Aug. 31, 2018 | Feb. 29, 2020 | Feb. 28, 2019 |
Total potentially dilutive shares | 650,027 | 228,466 | 473,918 | 243,174 |
Options [Member] | ||||
Total potentially dilutive shares | 50,749 | 33,594 | 43,406 | 36,896 |
Senior Secured Convertible Notes [Member] | ||||
Total potentially dilutive shares | 491,868 | 100,402 | 298,954 | 118,495 |
Warrant [Member] | ||||
Total potentially dilutive shares | 107,410 | 94,470 | 131,558 | 87,783 |
Summary of significant accou_15
Summary of significant accounting policies (Details 4) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Operating Loss | $ (3,991,000) | $ (3,821,000) | $ (8,309,000) | $ (6,935,000) | $ (15,670,000) | $ (12,798,000) |
Additional paid-in capital | 37,620,000 | 37,620,000 | 32,505,000 | 18,468,000 | ||
Accumulated deficit | (38,061,000) | (38,061,000) | (44,950,000) | (26,223,000) | ||
Net Loss | $ 9,445,000 | $ (2,140,000) | $ 6,889,000 | $ (4,387,000) | $ (18,727,000) | $ (16,823,000) |
Net income (loss) per common share - Basic and diluted | $ 0.56 | $ (2.74) | $ 0.77 | $ (5.82) | $ (22.90) | $ (23.36) |
Other (expense) income: | ||||||
Interest expense | $ (805,000) | $ (969,000) | $ (1,966,000) | $ (1,926,000) | $ (8,507,000) | $ (1,751,000) |
Inducement loss on note conversions | 567,000 | 1,555,000 | 567,000 | 1,555,000 | ||
Settlement of registration rights penalties accrual | (760,000) | (760,000) | (2,611,000) | |||
Total other (expense) income | (462,000) | 87,000 | (681,000) | (870,000) | (9,054,000) | (5,251,000) |
Loss from continuing operations | (4,453,000) | (3,734,000) | (8,990,000) | (7,805,000) | (24,724,000) | (18,049,000) |
(Loss) income from discontinued operations | (1,784,000) | 1,594,000 | 197,000 | 3,418,000 | ||
Net Loss | $ 9,445,000 | $ (2,140,000) | $ 6,889,000 | $ (4,387,000) | $ (18,727,000) | $ (16,823,000) |
Earnings per share | ||||||
Loss from continuing operations per common share | $ (0.26) | $ (4.79) | $ (1.01) | $ (10.35) | $ (30.23) | $ (25.06) |
Discontinued operations | (0.10) | 2.04 | 0.02 | 4.53 | ||
Net income (loss) per common share, Basic and diluted | $ 0.56 | $ (2.74) | $ 0.77 | $ (5.82) | $ (22.90) | $ (23.36) |
Weighted average number of common shares Basic and diluted | 16,971,339 | 779,634 | 8,932,217 | 753,808 | 817,720 | 720,253 |
As Restated [Member] | ||||||
Convertible note, net | $ 6,171,000 | |||||
Additional paid-in capital | 18,465,000 | |||||
Accumulated deficit | (26,223,000) | |||||
Net Loss | $ (16,823,000) | |||||
Net income (loss) per common share - Basic and diluted | $ (23.36) | |||||
Other (expense) income: | ||||||
Net Loss | $ (16,823,000) | |||||
Earnings per share | ||||||
Net income (loss) per common share, Basic and diluted | $ (23.36) | |||||
Adjustments [Member] | ||||||
Convertible note, net | $ (985,000) | |||||
Additional paid-in capital | 1,231,000 | |||||
Accumulated deficit | (246,000) | |||||
Net Loss | (246,000) | |||||
Other (expense) income: | ||||||
Net Loss | (246,000) | |||||
As Previously Reported [Member] | ||||||
Convertible note, net | 7,156,000 | |||||
Additional paid-in capital | 17,234,000 | |||||
Accumulated deficit | (25,977,000) | |||||
Net Loss | $ (16,577,000) | |||||
Net income (loss) per common share - Basic and diluted | $ (23.02) | |||||
Other (expense) income: | ||||||
Net Loss | $ (16,577,000) | |||||
Earnings per share | ||||||
Net income (loss) per common share, Basic and diluted | $ (23.02) |
Summary of significant accou_16
Summary of significant accounting policies (Details Narrative) | Jan. 01, 2020shares | Dec. 17, 2019 | Aug. 31, 2019USD ($) | Jan. 31, 2020 | Feb. 29, 2020USD ($) | Feb. 28, 2019USD ($) | Feb. 29, 2020USD ($) | Feb. 28, 2019USD ($) | Aug. 31, 2019USD ($) | Aug. 31, 2018USD ($) | Nov. 30, 2019USD ($) |
Advertising cost, net | $ 179,000 | $ 183,000 | |||||||||
Advertising costs | $ 503,000 | $ 582,000 | $ 1,200,000 | $ 500,000 | |||||||
Weighted average number of common shares outstanding for the earnings per share increased | shares | 24,634,560 | ||||||||||
Working capital changes | 1,900,000 | 4,600,000 | |||||||||
Shares conversion ratio | 0.025 | ||||||||||
Unbilled accounts receivable | $ 1,402,000 | 2,093,000 | 2,093,000 | 1,402,000 | 547,000 | ||||||
Research and developments costs | 800,000 | 1,600,000 | 2,100,000 | 2,500,000 | 2,300,000 | 4,000,000 | |||||
Capitalized computer software cost | 900,000 | $ 0 | $ 400,000 | 0 | $ 400,000 | $ 900,000 | $ 2,800,000 | ||||
Concentration of credit risk percent | 40.00% | 92.00% | 86.00% | ||||||||
Concentration of credit Risk description | No one individual client represents more than 10% of revenues for the three and six months ended February 29, 2020 | had no individual client that represented more than 10% of its annual revenues for either fiscal years 2019 or 2018. | |||||||||
Short term accrued workers compensation | 100,000 | $ 200,000 | 200,000 | $ 100,000 | |||||||
Long term accrued workers compensation | 100,000 | 700,000 | 700,000 | 100,000 | $ 100,000 | ||||||
Short term assets | 200,000 | 2,000,000 | 2,000,000 | $ 200,000 | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 119.00% | 121.00% | |||||||||
Short term liabilities | 2,000,000 | 2,000,000 | |||||||||
Long term assets | 800,000 | 3,300,000 | 3,300,000 | $ 800,000 | |||||||
Long term liabilities | 5,600,000 | 5,600,000 | |||||||||
Short-term asset and workers compensation - deposits | 100,000 | 200,000 | 200,000 | 100,000 | |||||||
Long-term asset and workers compensation - deposits | 500,000 | 500,000 | $ 500,000 | 500,000 | |||||||
Settlement claims | $ 500,000 | ||||||||||
Cash in excess by FDIC | $ 2,354,000 | $ 2,354,000 | |||||||||
Accounts Receivable [Member] | |||||||||||
Risk-free interest rate | 1.76% | ||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 100.00% | ||||||||||
Preferred Stock | |||||||||||
Shares conversion ratio | 1 | 1 | |||||||||
Warrant [Member] | |||||||||||
Risk-free interest rate | 2.41% | 2.78% | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 122.00% | 120.00% | |||||||||
Everest Program [Member] | |||||||||||
Risk-free interest rate | 1.39% | ||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 119.00% |
Discontinued Operations (Detail
Discontinued Operations (Details) - USD ($) | Jan. 03, 2020 | Feb. 29, 2020 | Dec. 31, 2019 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Net cash proceeds as presented in the statement of cash flows | $ 9,500,000 | ||
Overall business | Disposal by sale | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Percentage of business sold | 88.00% | ||
Working capital assets transferred | $ 1,500,000 | ||
Gross proceeds to be received | 19,200,000 | 19,166,000 | |
Net cash proceeds as presented in the statement of cash flows | 9,700,000 | 9,500,000 | |
Gross proceeds to be received in equal monthly payments | $ 9,500,000 | $ 5,739,000 | |
Period for payment of gross proceeds (in years) | 4 years | ||
Customer retention period (in years) | 12 months | ||
Overall business | Disposal by sale | Subsequent Event [Member] | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Percentage of business sold | 88.00% | ||
Working capital assets transferred | $ 1,500,000 | ||
PEO business | Disposal by sale | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Percentage of business sold | 100.00% | ||
PEO business | Disposal by sale | Subsequent Event [Member] | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Percentage of business sold | 100.00% |
Discontinued Operations (Deta_2
Discontinued Operations (Details) - USD ($) | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Total current assets | $ 1,924,000 | $ 10,154,000 | $ 7,427,000 |
Total current liabilities | 1,924,000 | 16,032,000 | 8,808,000 |
Disposal by sale | Overall business | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Accounts receivable and unbilled account receivable | 8,261,000 | 5,721,000 | |
Prepaid expenses and other current assets | 171,000 | 118,000 | |
Deposits - workers' compensation | 1,924,000 | 1,722,000 | 1,588,000 |
Total current assets | 1,924,000 | 10,154,000 | 7,427,000 |
Fixed assets, net | 40,000 | 42,000 | |
Deposits - workers' compensation | 3,324,000 | 5,527,000 | 2,091,000 |
Total assets | 5,248,000 | 15,721,000 | 9,560,000 |
Accounts payable and other current liabilities | 457,000 | 18,000 | |
Payroll related liabilities | 13,583,000 | 8,501,000 | |
Accrued workers' compensation cost | 1,924,000 | 1,722,000 | 290,000 |
Total current liabilities | 16,032,000 | 8,808,000 | |
Accrued workers' compensation cost | 5,652,000 | 3,853,000 | 856,000 |
Total liabilities | 7,576,000 | 19,885,000 | 9,664,000 |
Net assets/(liability) | $ (2,328,000) | $ (4,164,000) | $ (104,000) |
Discontinued Operations (Deta_3
Discontinued Operations (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Operating expenses: | ||||||
(Loss) income from discontinued operations | $ (1,784,000) | $ 1,594,000 | $ 197,000 | $ 3,418,000 | ||
Disposal by sale | Overall business | ||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
Revenues, Net | 3,450,000 | 12,002,000 | 17,138,000 | 21,688,000 | $ 48,013,000 | $ 33,139,000 |
Cost of revenue | 5,038,000 | 8,956,000 | 15,535,000 | 15,442,000 | 36,452,000 | 27,970,000 |
Gross profit (loss) | (1,587,000) | 3,046,000 | 1,603,000 | 6,246,000 | 11,561,000 | 5,169,000 |
Operating expenses: | ||||||
Salaries, wages and payroll taxes | 152,000 | 898,000 | 658,000 | 1,752,000 | 3,032,000 | 2,442,000 |
Commissions | 45,000 | 554,000 | 748,000 | 1,076,000 | 2,532,000 | 1,501,000 |
Total operating expenses | 197,000 | 1,452,000 | 1,406,000 | 2,828,000 | 5,564,000 | 3,943,000 |
Operating income from discontinued operations | 5,997,000 | 1,226,000 | ||||
(Loss) income from discontinued operations | (1,784,000) | 1,594,000 | 197,000 | 3,418,000 | 5,997,000 | 1,226,000 |
Revenues, Gross | 26,300,000 | 74,400,000 | 120,400,000 | 139,400,000 | 313,300,000 | 210,300,000 |
Worksite employee payroll cost | $ 22,800,000 | $ 62,400,000 | $ 103,300,000 | $ 117,700,000 | $ 265,300,000 | $ 177,200,000 |
Discontinued Operations (Deta_4
Discontinued Operations (Details 2) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Discontinued Operations | ||
Reserved net operating loss carryforwards fully utilized to offset income from discontinuing operations | $ 7,223,000 | |
Provision of income tax expense: | ||
Federal tax expense | 1,260,000 | $ 265,000 |
State tax expense | 540,000 | 92,000 |
Total tax expense | 1,800,000 | 357,000 |
Tax benefit for utilization of tax loss carryforwards | $ (1,800,000) | $ (357,000) |
Going Concern (Details)_2
Going Concern (Details) - USD ($) | Sep. 01, 2019 | Jun. 29, 2017 | Jan. 31, 2020 | Mar. 31, 2019 | Jun. 30, 2018 | Feb. 29, 2020 | Aug. 31, 2019 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Mar. 31, 2020 | Mar. 12, 2019 |
Cash | $ 400,000 | $ 1,600,000 | $ 400,000 | $ 1,600,000 | ||||||||||
Working capital deficit | 5,600,000 | 15,900,000 | 5,600,000 | 15,900,000 | ||||||||||
Net Cash Provided by (Used in) Operating Activities, Continuing Operations | (9,247,000) | $ (4,851,000) | (12,063,000) | $ (11,352,000) | ||||||||||
Cash Provided by (Used in) Operating Activities, Discontinued Operations | (1,348,000) | 4,837,000 | 9,978,000 | 1,815,000 | ||||||||||
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent | (4,453,000) | $ (3,734,000) | (8,990,000) | (7,805,000) | (24,724,000) | (18,049,000) | ||||||||
Total other income (expense) | (462,000) | $ 87,000 | (681,000) | (870,000) | (9,054,000) | (5,251,000) | ||||||||
Working capital changes | 1,900,000 | 4,600,000 | ||||||||||||
Repayment of convertible notes | 436,000 | |||||||||||||
Cash received at closing - asset sale | 9,500,000 | |||||||||||||
Accumulated deficit | $ (38,061,000) | (44,950,000) | (38,061,000) | (44,950,000) | (26,223,000) | |||||||||
Net cash used in operating activities | $ 500,000 | (10,595,000) | $ (14,000) | $ (2,086,000) | $ (9,538,000) | |||||||||
Proceeds from initial public offering | $ 12,000,000 | |||||||||||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | |||||||||||||
Concentration risk, percentage | 40.00% | 92.00% | 86.00% | |||||||||||
Conversion price | $ 12.20 | |||||||||||||
Percentage of customer contracts considered for exchange | 88.00% | |||||||||||||
Customer contracts considered for exchange, amount | $ 9,700,000 | |||||||||||||
Additional cash received | 1,000,000 | |||||||||||||
Cash transferred | 900,000 | |||||||||||||
Expected additional cash to be received | $ 7,500,000 | |||||||||||||
Expected additional cash to be received, period | 4 years | |||||||||||||
Working captial transferred | $ 1,600,000 | |||||||||||||
Business transfer in annualized gross profit | $ 6,000,000 | |||||||||||||
Percentage of billings and revenue growth | 100.00% | |||||||||||||
Convertible Debt [Member] | ||||||||||||||
Repayment of convertible notes | $ 1,200,000 | |||||||||||||
Proceeds from initial public offering | $ 3,750,000 | $ 9,000,000 | ||||||||||||
Proceeds from initial public offering, net of costs | $ 3,300,000 | $ 8,400,000 | ||||||||||||
Concentration risk, percentage | 8.00% | |||||||||||||
Subsequent Event [Member] | ||||||||||||||
Conversion price | $ 9.20 | |||||||||||||
March 2019 [Member] | ||||||||||||||
Amended convertible debt | $ 1,000,000 | |||||||||||||
Conversion price | $ 9.20 | $ 9.20 | $ 9.20 | $ 66.80 | ||||||||||
March 2019 [Member] | Convertible Debt [Member] | ||||||||||||||
Repaid or converted to equity | $ 4,000,000 |
Fixed Assets (Details)
Fixed Assets (Details) - USD ($) $ in Thousands | Aug. 31, 2019 | Aug. 31, 2018 |
Fixed Assets | $ 4,472,000 | $ 3,321,000 |
Accumulated depreciation & amortization | (1,152,000) | (331,000) |
Fixed assets, net | 3,320,000 | 2,990,000 |
Equipment [Member] | ||
Fixed Assets | 282,000 | 154,000 |
Furniture and Fixtures [Member] | ||
Fixed Assets | 412,000 | 329,000 |
Software and Software Development Costs [Member] | Minimum [Member] | ||
Fixed Assets | 3,737,000 | 2,797,000 |
Lyons Capital Llc [Member] | Leasehold Improvements [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 | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Depreciation and amortization expense | $ 239,000 | $ 191,000 | $ 480,000 | $ 379,000 | $ 837,000 | $ 272,000 |
Furniture and Fixtures [Member] | ||||||
Depreciation and amortization expense | $ 714,000 | $ 190,000 | ||||
Weighted average remaining life of amortizable software | 3 years 6 months 22 days |
Workers Compensation (Details)
Workers Compensation (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Workers Comp Deposit Beginning Balance | $ 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 Currents Amount | (1,957,000) | |
Long Term Balance | 6,281,000 | |
Sunz Program One [Member] | ||
Paid in deposits | 7,730,000 | 2,386,000 |
Claim losses | (1,850,000) | (28,000) |
Workers' Comp Deposit Ending balance | 8,238,000 | 2,358,000 |
Less Currents Amount | (1,957,000) | |
Long Term Balance | 6,281,000 | |
Everest Program One [Member] | ||
Workers Comp Deposit Beginning Balance | 2,335,000 | |
Premiums paid | (144,000) | (819,000) |
Claim losses | (149,000) | |
Deposit refund | $ (1,223,000) | |
Workers' Comp Deposit Ending balance | $ 1,516,000 |
Workers Compensation (Details 1
Workers Compensation (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Workers' comp deposit | $ 8,238,000 | $ 3,874,000 |
Workers' comp deposit from discontinued operations | (7,249,000) | (3,681,000) |
Workers' comp deposit from continuing operations | 989,000 | 193,000 |
Less Current Amount | (235,000) | (83,000) |
Long Term Balance | 754,000 | 110,000 |
Everest Program One [Member] | ||
Workers' comp deposit | 1,516,000 | |
Workers' comp deposit from discontinued operations | (1,441,000) | |
Workers' comp deposit from continuing operations | 75,000 | |
Less Current Amount | (32,000) | |
Long Term Balance | 43,000 | |
Sunz Program One [Member] | ||
Workers' comp deposit | 8,238,000 | 2,358,000 |
Workers' comp deposit from discontinued operations | (7,249,000) | (2,240,000) |
Workers' comp deposit from continuing operations | 989,000 | 118,000 |
Less Current Amount | (235,000) | (51,000) |
Long Term Balance | $ 754,000 | $ 67,000 |
Workers Compensation (Details 2
Workers Compensation (Details 2) - USD ($) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Claim loss developement | $ 7,129,000 | $ 1,234,000 |
Paid in losses | (1,999,000) | (28,000) |
Workers' comp deposits | 6,336,000 | 1,206,000 |
Less Current Amount | (1,957,000) | |
Long Term Balance | 4,379,000 | |
Everest Program One [Member] | ||
Claim loss developement | 572,000 | |
Paid in losses | (149,000) | |
Workers' comp deposits | 423,000 | 572,000 |
Less Current Amount | (159,000) | |
Long Term Balance | 264,000 | |
Sunz Program One [Member] | ||
Claim loss developement | 7,129,000 | 662,000 |
Paid in losses | (1,850,000) | (28,000) |
Workers' comp deposits | 5,913,000 | $ 634,000 |
Less Current Amount | (1,798,000) | |
Long Term Balance | $ 4,115,000 |
Workers Compensation (Details 3
Workers Compensation (Details 3) - USD ($) | 12 Months Ended | ||
Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Workers' comp liability | $ 6,336,000 | $ 1,206,000,000 | |
Workers' comp liability from discontinued operations | $ (5,576,000) | (1,145,000,000) | |
Workers' comp liability from continuing operations | 760,000 | 60,000,000 | |
Less Current Amount | (235,000) | (15,000,000) | |
Long Term Balance | 525,000 | 45,000,000 | |
Everest Program One [Member] | |||
Workers' comp liability | 423,000 | 572,000,000 | |
Workers' comp liability from discontinued operations | (372,000) | (544,000,000) | |
Workers' comp liability from continuing operations | 51,000 | 28,000,000 | |
Less Current Amount | (16,000) | (7,000,000) | |
Long Term Balance | 35,000 | 21,000,000 | |
Sunz Program One [Member] | |||
Workers' comp liability | 5,913,000 | $ 634,000,000 | |
Workers' comp liability from discontinued operations | (5,204,000) | (602,000,000) | |
Workers' comp liability from continuing operations | 709,000 | 32,000,000 | |
Less Current Amount | (219,000) | (8,000,000) | |
Long Term Balance | $ 490,000 | $ 24,000,000 |
Accrued Payroll and Related L_3
Accrued Payroll and Related Liabilities (Details) - USD ($) | Aug. 31, 2019 | Aug. 31, 2018 |
Accrued Payroll and Related Liabilities | ||
Accrued Payroll | $ 899,000 | $ 459,000 |
Accrued Payroll Taxes | 1,297,000 | 230,000 |
Corporate employee accrued paid time off | 363,000 | 287,000 |
Accrued Payroll and related liabilities | $ 2,559,000 | $ 976,000 |
Senior Secured Convertible No_9
Senior Secured Convertible Notes Payable - Senior secured convertible notes payable (Details) - USD ($) | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Senior Secured Convertible Notes Payable | |||
Senior Secured Convertible notes, Principal | $ 3,647,000 | $ 6,808,000 | $ 10,000,000 |
Less debt discount and deferred financing costs | (1,611,000) | (3,457,000) | (3,829,000) |
Total outstanding convertible notes, net | 2,036,000 | 3,351,000 | 6,171,000 |
Less current portion of convertible notes payable | (1,427,000) | (3,351,000) | (6,171,000) |
Long-term convertible notes payable | $ 609,000 |
Senior Secured Convertible N_10
Senior Secured Convertible Notes Payable - Rolls forward the convertible notes payable (Details) - USD ($) | 6 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Gross Principal | |||
Beginning Balance at August 31, 2018, Gross Principal | $ 6,808,000,000 | $ 10,000,000 | |
Issuance of Notes Payable, Gross Principle | 5,639,000 | ||
Conversions to common shares, Gross Principal | $ (2,188,000,000) | (8,395,000) | |
Amortization of Interest Expense, Gross Principal | |||
Repayments in cash, Gross Principal | (1,240,000,000) | (436,000) | |
Notes issued for exchange, Gross Principal | 267,000,000 | ||
Ending Balance at August 31, 2019, Gross Principal | 3,647,000,000 | 6,808,000 | |
Less Current Gross Principal Amount | (2,327,000,000) | (6,808,000) | |
Ending Long-term Balance at August 31, 2019, Gross Principal | 1,320,000,000 | ||
Deferred Financing Costs | |||
Beginning Balance at August 31, 2018, Deferred Financing Costs | (344,000,000) | (617,000) | |
Issuance of Notes Payable, Deferred Financing Costs | (485,000) | ||
Conversions to common shares, Deferred Financing Costs | |||
Amortization of Interest Expense, Deferred Financing Costs | 150,000,000 | 758,000 | |
Repayments in cash, Deferred Financing Costs | |||
Acceleration of discount and deferred financing costs, Deferred Financing Costs | 62,000,000 | ||
Ending Balance At August 31, 2019, Deferred Financing Costs | (132,000,000) | (344,000) | |
Less Current Amount, Deferred Financing Costs | 132,000,000 | 344,000 | |
Ending Long-term Balance at August 31, 2019, Deferred Financing Costs | |||
Note Discount | |||
Beginning Balance at August 31, 2018, Note Discount | (3,113,000,000) | (3,212,000) | |
Issuance of Notes Payable | (4,750,000) | ||
Conversions to common shares, Note Discount | |||
Amortization of Interest Expense, Note discount | 1,506,000,000 | 4,849,000 | |
Repayments in cash, Note Discount | |||
Additional note discount issued - exchange, Note Discount | (467,000,000) | ||
Acceleration of discount and deferred financing costs, Note Discount | 595,000,000 | ||
Ending Balance at August 31, 2019, Note Discount | (1,479,000,000) | (3,113,000) | |
Less Current Amount, Note Discount | 718,000,000 | 3,113,000 | |
Long-term Balance at August 31, 2019, Note Discount | (711,000,000) | ||
Net | |||
Beginning Balance at August 31, 2018, Net | 3,351,000,000 | $ 6,171,000 | |
Issuance of Notes Payable, Net | 404,000 | ||
Conversions to common shares, Net | (2,188,000,000) | (8,395,000) | |
Amortization of Interest Expense, Net | 1,656,000,000 | 5,607,000 | |
Repayments in cash, Net | (1,240,000,000) | (436,000) | |
Notes issued for exchange, Net | 267,000,000 | ||
Additional note discount issued - exchange, Net | (467,000,000) | ||
Acceleration of discount and deferred financing costs, Net | 657,000,000 | ||
Ending Balance at August 31, 2019, Net | 2,036,000,000 | 3,351,000 | |
Less Curent Amount, Net | (1,427,000,000) | (3,351,000) | |
Ending Long Term Balance at August 31, 2019, net | $ 609,000,000 |
Senior Secured Convertible N_11
Senior Secured Convertible Notes Payable - Gross principal balances rollforward (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Gross Balance, Beginning | $ 6,808,000 | $ 10,000,000 |
Issuance of Notes Payable, Gross | 5,639,000 | |
Exchanged for December 2019 Notes | 267,000 | |
Repayments of Principal in cash | (1,240,000) | (436,000) |
Conversions to Principal into Equity | (2,188,000) | (8,395,000) |
Gross Balance, Ending | 3,647,000 | 6,808,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (344,000) | |
Deferred Financing Costs | (3,113,000) | |
Less Discount and Debt Issuance Costs: | (1,611,000) | |
Carrying Balance at August 31, 2019 | 2,036,000 | 3,351,000 |
Less Current Amount | (1,427,000) | (3,351,000) |
Long Term Balance | 609,000 | |
March 2019 [Member] | ||
Gross Balance, Beginning | 4,475,000 | |
Issuance of Notes Payable, Gross | 4,750,000 | |
Exchanged for December 2019 Notes | (2,445,000) | |
Repayments of Principal in cash | (310,000) | |
Conversions to Principal into Equity | (714,000) | (275,000) |
Gross Balance, Ending | 1,006,000 | 4,475,000 |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | (317,000) | |
Deferred Financing Costs | (3,108,000) | |
Less Discount and Debt Issuance Costs: | (400,000) | |
Carrying Balance at August 31, 2019 | 606,000 | 1,050,000 |
Less Current Amount | (606,000) | (1,050,000) |
Long Term Balance | ||
December 2019 [Member] | ||
Exchanged for December 2019 Notes | 2,934,000 | |
Conversions to Principal into Equity | (293,000) | |
Gross Balance, Ending | 2,641,000 | |
Less Discount and Debt Issuance Costs: | ||
Less Discount and Debt Issuance Costs: | (1,211,000) | |
Carrying Balance at August 31, 2019 | 1,430,000 | |
Less Current Amount | (821,000) | |
Long Term Balance | 609,000 | |
June 2018 [Member] | ||
Gross Balance, Beginning | 1,466,000 | 10,000,000 |
Issuance of Notes Payable, Gross | ||
Repayments of Principal in cash | (707,000) | (436,000) |
Conversions to Principal into Equity | (759,000) | (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 at August 31, 2019 | 1,434,000 | |
Less Current Amount | (1,434,000) | |
Long Term Balance | ||
December 2018 Notes [Member] | ||
Gross Balance, Beginning | 867,000 | |
Issuance of Notes Payable, Gross | 889,000 | |
Exchanged for December 2019 Notes | (222,000) | |
Repayments of Principal in cash | (223,000) | |
Conversions to Principal into Equity | $ (422,000) | (22,000) |
Gross Balance, Ending | 867,000 | |
Less Discount and Debt Issuance Costs: | ||
Debt Issuance Costs | ||
Deferred Financing Costs | ||
Carrying Balance at August 31, 2019 | 867,000 | |
Less Current Amount | (867,000) | |
Long Term Balance |
Senior Secured Convertible N_12
Senior Secured Convertible Notes Payable - Changes of the fair value of the Company's derivative liabilities (Details ) - USD ($) | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Beginning balance of Conversion features | ||
Initial recognition | 6,338,000 | |
Change in fair value of conversion features | (444,000) | |
Ending balance of conversion features | 2,852,000 | |
Beginning Balance of warrant liability | ||
Change in fair value of warrant liabilty | 3,013,000 | |
Ending balance of warrant liability | 904,000 | |
Beginning balance | $ 3,756,000 | |
Reclassification to APIC due to note settlements, exchanges or conversions | (1,691,000) | |
Change in fair value | 1,771,000 | (2,569,000) |
Ending balance | 294,000 | 3,756,000 |
March 2019 Warrant Liability [Member] | ||
Initial recognition | 3,917,000 | |
Reclassification to equity | 13,000 | |
Beginning Balance of warrant liability | 904,000 | |
Change in fair value of warrant liabilty | (683,000) | (3,013,000) |
Ending balance of warrant liability | 182,000 | 904,000 |
Reclassification to APIC due to note settlements, exchanges or conversions | (39,000) | |
March 2019 Conversion Feature [Member] | ||
Beginning balance of Conversion features | 2,852,000 | 0 |
Initial recognition | 2,421,000 | |
Reclassification to equity | 13,000 | |
Change in fair value of conversion features | (1,088,000) | 444,000 |
Ending balance of conversion features | 112,000 | $ 2,852,000 |
Reclassification to APIC due to note settlements, exchanges or conversions | $ (1,652,000) |
Senior Secured Convertible N_13
Senior Secured Convertible Notes Payable - assumptions to estimate fair value of the derivatives (Details) - $ / shares | 3 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Volatility | 119.00% | 121.00% | |
Dividend | 0.00% | 0.00% | |
Market price per share conversion feature | 12.20% | ||
Warrants exercise price | $ 40 | ||
March 2019 Warrant Liability [Member] | |||
Risk free rate | 0.89% | ||
Risk free rate | 1.39% | ||
Market price per share | $ 7.33 | $ 19.04 | |
Life of instrument in years | 4 years 11 days | 4 years 5 months 19 days | |
Volatility | 102.00% | 119.00% | |
Dividend | 0.00% | 0.00% | |
March 2019 Conversion Feature [Member] | |||
Risk free rate | 0.66% | ||
Risk free rate | 1.76% | ||
Market price per share | $ 7.33 | $ 19.04 | |
Life of instrument in years | 6 months 15 days | 1 year 15 days | |
Volatility | 83.00% | 100.00% | |
Dividend | 0.00% | 0.00% |
Senior Secured Convertible N_14
Senior Secured Convertible Notes Payable (in default) - Additional information (Details) - USD ($) | Dec. 06, 2019 | Mar. 12, 2019 | Mar. 12, 2019 | Mar. 10, 2019 | Dec. 20, 2018 | Jun. 04, 2018 | Jan. 31, 2020 | Aug. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 20, 2018 | Jun. 30, 2018 | Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | Mar. 31, 2020 | Dec. 31, 2019 | Sep. 04, 2019 | Jun. 10, 2019 |
Value for debt conversion | $ 200,000 | $ 200,000 | ||||||||||||||||||||
Amount converted to shares | $ 172,500 | $ 172,500 | ||||||||||||||||||||
Additional note discount | $ 567,000 | |||||||||||||||||||||
Common stock shares issued for conversion of debt, shares | 67,500 | |||||||||||||||||||||
Additional paid-in capital | $ 32,505,000 | 37,620,000 | 37,620,000 | 32,505,000 | $ 18,468,000 | |||||||||||||||||
Loss on debt extinguishment | 3,900,000 | $ 811,000 | (3,927,000) | |||||||||||||||||||
Common stock shares issued for conversion of debt, value | 3,900,000 | |||||||||||||||||||||
Amount of legal judgement on debt instrument | 500,000 | |||||||||||||||||||||
Amount of legal judgement on default intererst | 52,000 | |||||||||||||||||||||
Repayment of legal judgement on debt instrument | 310,000 | |||||||||||||||||||||
Debt amount converted to shares | 172,500 | 172,500 | ||||||||||||||||||||
Recovery from debt litigation settlement | 760,000 | |||||||||||||||||||||
Retained accrued penalties for potential claims | 210,000 | |||||||||||||||||||||
Debt accrued interest and penalties | 1,800,000 | |||||||||||||||||||||
Amortized Interest expense | $ 802,000 | $ 722,000 | 1,656,000 | $ 1,433,000 | 5,607,000 | $ 951,000 | ||||||||||||||||
Interest expense | 509,000 | |||||||||||||||||||||
Additional accrued liabilities | 1,800,000 | 1,800,000 | ||||||||||||||||||||
Accrued interest payable | $ 300,000 | |||||||||||||||||||||
Amortization debt discount and debt issuance cost | $ 2,313,000 | $ 1,895,000 | ||||||||||||||||||||
Settlement amount | $ 210,000 | |||||||||||||||||||||
Additional liquidating damages | $ 1,800,000 | |||||||||||||||||||||
Interest rate | 18.00% | |||||||||||||||||||||
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; | |||||||||||||||||||||
Convertible notes, Principal | $ 8,395,000 | $ 8,395,000 | ||||||||||||||||||||
Reduced accrued loss | $ 889,000 | |||||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||||
Common stock, shares issued | 907,047 | 1,103,643 | 1,103,643 | 907,047 | 721,295 | |||||||||||||||||
Warrants granted | 0 | 36,073 | 23,719 | |||||||||||||||||||
Purchase price of notes | $ 900,000 | |||||||||||||||||||||
Price per share | $ 99.60 | |||||||||||||||||||||
Lowest volume weighted average price | 15.00% | |||||||||||||||||||||
Original issue discount | 1,000,000 | |||||||||||||||||||||
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. Included in the 172.500 shares issued for the 2019 conversions were approximately 67,500 shares valued at $3.9 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 $3.9 million for the year ended August 31, 2019 | |||||||||||||||||||||
Warrants exercise price | $ 40 | $ 40 | ||||||||||||||||||||
Debt default amount recorded as other current liabilities | 3,500,000 | |||||||||||||||||||||
Deposit Liabilities, Accrued Interest | $ 600,000 | |||||||||||||||||||||
Expected volatility | 119.00% | 121.00% | ||||||||||||||||||||
Proceeds from Issuance of Debt | $ (4,750,000) | |||||||||||||||||||||
Warrant [Member] | ||||||||||||||||||||||
Warrants exercise price | $ 70 | $ 70 | ||||||||||||||||||||
Risk-free interest rate | 2.41% | 2.78% | ||||||||||||||||||||
Expected volatility | 122.00% | 120.00% | ||||||||||||||||||||
Institutional Investors [Member] | ||||||||||||||||||||||
Interest rate | 18.00% | |||||||||||||||||||||
Convertible notes, Principal | $ 10,000,000 | |||||||||||||||||||||
Reduced accrued loss | $ 889,000 | |||||||||||||||||||||
Warrants exercise price | $99.60 | |||||||||||||||||||||
Warrants purchase common stock, shares | 5,422 | |||||||||||||||||||||
Warrants granted | 25,100 | |||||||||||||||||||||
Debt issuance costs | $ 600,000 | |||||||||||||||||||||
Proceeds from Notes Payable | $ 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 | $ 1,000,000 | ||||||||||||||||||||
Gain recovery accrued loss | $ 2,611,000 | |||||||||||||||||||||
Gain on recovery of 2018 notes net of default loss estimate | $ 811,000 | |||||||||||||||||||||
Risk-free interest rate | 2.49% | |||||||||||||||||||||
Expected volatility | 122.00% | |||||||||||||||||||||
Fair value of the conversion feature derivative | $ 2,421,000 | |||||||||||||||||||||
Default loss estimate included in gain on recovery of december 2018 notes | 1,800,000 | |||||||||||||||||||||
Financing costs | $ 2,600,000 | |||||||||||||||||||||
Institutional Investors [Member] | Warrant [Member] | ||||||||||||||||||||||
Price per share | $ 63.60 | $ 63.60 | ||||||||||||||||||||
Risk-free interest rate | 2.49% | |||||||||||||||||||||
Expected volatility | 122.00% | |||||||||||||||||||||
Maturity term | 5 years | |||||||||||||||||||||
Fair value of common stovk | $ 3,917,000 | |||||||||||||||||||||
June 2018 Senior Convertible Note [Member] | ||||||||||||||||||||||
Warrant issued per share | $ 52.80 | |||||||||||||||||||||
Additional paid-in capital | $ 2,200,000 | |||||||||||||||||||||
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% | |||||||||||||||||||||
Proceeds from Issuance of Debt | $ 800,000 | |||||||||||||||||||||
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 | $ 4,750,000 | ||||||||||||||||||||
Conversion price | $ 66.80 | $ 66.80 | ||||||||||||||||||||
Warrants exercise price | $70.00 | |||||||||||||||||||||
Warrants granted | 74,390 | |||||||||||||||||||||
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 Notes Payable | $ 3,300,000 | |||||||||||||||||||||
Maturity date | Sep. 12, 2020 | |||||||||||||||||||||
Purchase price of notes | $ 3,750,000 | $ 3,750,000 | ||||||||||||||||||||
Original issue discount | 1,000,000 | |||||||||||||||||||||
March 2019 [Member] | ||||||||||||||||||||||
Principal Outstanding Combined Revised Balance | $ 4,750,000 | $ 4,750,000 | ||||||||||||||||||||
Interest rate | 18.00% | 18.00% | ||||||||||||||||||||
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 Company at 15% premium at any time after 45 days from March 12, 2019. | |||||||||||||||||||||
Conversion price | $ 66.80 | $ 66.80 | $ 9.20 | $ 9.20 | $ 9.20 | |||||||||||||||||
Conversion price description | Alternate conversion price at the greater of the floor price of $12.20 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 Notes Payable | $ 3,300,000 | |||||||||||||||||||||
Coupon rate | 0.00% | 0.00% | ||||||||||||||||||||
Original issue discount | $ 1,000,000 | |||||||||||||||||||||
Purchase price | $ 3,750,000 | |||||||||||||||||||||
December 2019 [Member] | ||||||||||||||||||||||
Interest rate | 18.00% | |||||||||||||||||||||
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 default related to missed amortization payment, subject to a floor conversion price of $0.00 per share 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. | |||||||||||||||||||||
Conversion price | $ 9.20 | |||||||||||||||||||||
Debt Instrument, Convertible, Floor Price | $ 40 | |||||||||||||||||||||
Exchanged note amount | $ 2,445,000 | |||||||||||||||||||||
Percentage of principal increased | 10.00% | |||||||||||||||||||||
Coupon rate | 0.00% | |||||||||||||||||||||
Conversion price | 12.20% | |||||||||||||||||||||
Amortization of principal in cash premium | 12.50% | |||||||||||||||||||||
Exchange Agreement [Member] | ||||||||||||||||||||||
Payment in cash for settlement with investors | $ 2,047,000 | |||||||||||||||||||||
Shares issued for settlement with investors | 103,593 | |||||||||||||||||||||
Elimination of combined default penalties and default interest | $ 2,194,000 | |||||||||||||||||||||
Exchange Agreement [Member] | March 2019 [Member] | ||||||||||||||||||||||
Principal outstanding, Revised | $ 2,690,000 | |||||||||||||||||||||
Principal Outstanding Combined Revised Balance | 2,934,000 | |||||||||||||||||||||
Debt default interest | 28,000 | |||||||||||||||||||||
Debt amount converted | $ 130,000 | |||||||||||||||||||||
Principal outstanding | 2,445,000 | |||||||||||||||||||||
Principal outstanding, Revised | $ 2,690,000 | |||||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||||
Exchange Agreement [Member] | March 2019 Convertible Notes [Member] | ||||||||||||||||||||||
Percentage of principal balance payable in cash | 12.50% | |||||||||||||||||||||
Conversion price | $ 40 | |||||||||||||||||||||
Additional consideration | $ 200,000 | |||||||||||||||||||||
Exchange Agreement [Member] | December 2019 [Member] | ||||||||||||||||||||||
Principal Outstanding Combined Revised Balance | 2,934,000 | |||||||||||||||||||||
Value for debt conversion | 200,000 | |||||||||||||||||||||
Maximum percentage for revised combined principal could be converted | 10 | |||||||||||||||||||||
Amount converted to shares | 293,000 | |||||||||||||||||||||
Combined additional shares issued | 467,000 | |||||||||||||||||||||
Additional notes issued in exchange | 267,000 | |||||||||||||||||||||
Debt amount converted to shares | $ 293,000 | |||||||||||||||||||||
Debt amount converted | $ 293,000 | |||||||||||||||||||||
Conversion price | $ 12.20 | $ 12.20 | ||||||||||||||||||||
Additional consideration | $ 200,000 | |||||||||||||||||||||
Exchange Agreement [Member] | June 2018 And December 2018 Notes | ||||||||||||||||||||||
Amount converted to shares | 500,000 | |||||||||||||||||||||
Debt amount converted to shares | $ 500,000 | |||||||||||||||||||||
Additional shares issued for settlement of default | 4,207 | |||||||||||||||||||||
Debt default interest | $ 51,000 | |||||||||||||||||||||
Conversion price | $ 12.20 | |||||||||||||||||||||
Exchange Agreement [Member] | December 2018 Notes [Member] | ||||||||||||||||||||||
Principal outstanding, Revised | 244,000 | |||||||||||||||||||||
Principal outstanding | 222,000 | |||||||||||||||||||||
Principal outstanding, Revised | $ 244,000 | |||||||||||||||||||||
Percentage of principal increased | 10.00% |
Stockholders' Equity - Summary
Stockholders' Equity - Summary of warrants outstanding (Details) - $ / shares | 6 Months Ended | 12 Months Ended | ||
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Number of shares | ||||
Number of shares outstanding, beginning balance | 107,409 | 64,887 | ||
Issued | 53,273 | 74,390 | 30,526 | |
(Exercised) | (6,688) | (938) | ||
Cancelled | (29,124) | |||
(Expired) | (54,761) | |||
Number of shares outstanding, ending balance | 131,558 | 107,416 | 94,475 | |
Weighted remaining life (years) | ||||
Weighted remaining life (years), beginning | 4 years 3 months 18 days | 1 year 6 months | ||
Weighted remaining life (years), issued | 4 years | 5 years | 5 years 3 months 18 days | |
Weighted remaining life (years), exercised | 5 months 12 days | 1 year 2 months 12 days | ||
Weighted remaining life (years), cancelled | 3 years 9 months 18 days | |||
Weighted remaining life (years), ending | 3 years 9 months 18 days | 4 years 5 months 1 day | 2 years 1 month 17 days | |
Weighted average exercise prices | ||||
Weighted average exercise prices, beginning | $ 83.21 | $ 119.60 | ||
Weighted average exercise prices, issued | 40 | $ 70 | 99.60 | |
Weighted average exercise prices, exercised | 98.80 | 80 | ||
Weighted average exercise prices, cancelled | 40 | |||
Weighted average exercise prices, expired | 114.80 | |||
Weighted average exercise prices, ending | $ 47.71 | $ 74.80 | $ 113.60 |
Stockholders' Equity - Summar_2
Stockholders' Equity - Summary of information about warrants outstanding (Details) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | |
Dec. 31, 2019 | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Exercise price | $ 47.71 | $ 63.60 | $ 105.60 | |
Warrants outstanding | $ 131,558 | $ 107,416 | ||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | 4 years 4 months 24 days | ||
March 2019 Notes Warrants [Member] | ||||
Exercise price | $ 40 | $ 70 | ||
Warrants outstanding | $ 41,430 | $ 74,390 | ||
Weighted average life of outstanding warrants in years | 4 years | 4 years 7 months 6 days | ||
Amended March 2019 Notes Warrants [Member] | ||||
Exercise price | $ 40 | |||
Warrants outstanding | $ 13,015 | $ 66,288 | ||
Weighted average life of outstanding warrants in years | 4 years | |||
March 2019 Services Warrants [Member] | ||||
Exercise price | $ 70 | |||
Warrants outstanding | $ 3,366 | |||
Weighted average life of outstanding warrants in years | 4 years | |||
June 2018 Notes Warrants [Member] | ||||
Exercise price | $ 40 | $ 70 | ||
Warrants outstanding | $ 12,552 | $ 30,526 | ||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | 3 years 9 months 18 days | ||
June 2018 Services Warrants [Member] | ||||
Exercise price | $ 99.60 | |||
Warrants outstanding | $ 5,422 | |||
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days | |||
2017 PIPE Warrants [Member] | ||||
Exercise price | $ 276 | $ 276 | ||
Warrants outstanding | $ 2,500 | $ 2,500 | ||
Weighted average life of outstanding warrants in years | 2 years 3 months 18 days | 2 years 10 months 24 days |
Stockholders' Equity - Additi_2
Stockholders' Equity - Additional information (Details) | Dec. 17, 2019 | Dec. 06, 2019shares | Jun. 04, 2018USD ($) | Sep. 28, 2017shares | Jan. 31, 2020$ / sharesshares | Dec. 31, 2019USD ($)$ / shares | Jul. 31, 2019$ / sharesshares | Jul. 31, 2019$ / sharesshares | Jun. 30, 2019USD ($) | Jun. 30, 2019USD ($) | Mar. 31, 2019USD ($) | Sep. 28, 2015 | Feb. 29, 2020USD ($)$ / sharesshares | Feb. 29, 2020USD ($)$ / sharesshares | Feb. 28, 2019USD ($) | Aug. 31, 2019USD ($)$ / sharesshares | Aug. 31, 2018USD ($)$ / sharesshares | Aug. 31, 2017shares | Sep. 26, 2015shares |
Preferred stock, per share | $ / shares | $ 0.0001 | $ 40 | $ 0.0001 | $ 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. | ||||||||||||||||||
Proceeds from exercise of warrants | (29,124) | ||||||||||||||||||
Proceeds from exercise of warrants | $ | $ 660,000 | $ 660,000 | $ 75,000 | ||||||||||||||||
Sale of Stock, Number of Shares Issued in Transaction | 658 | ||||||||||||||||||
Exercise price | $ / shares | $ 47.71 | $ 63.60 | $ 105.60 | ||||||||||||||||
Number of shares outstanding, Beginning balance | 50,749 | 19,750 | |||||||||||||||||
Dividend | 0.00% | 0.00% | |||||||||||||||||
Volatility | 119.00% | 121.00% | |||||||||||||||||
Number of shares of common stock held by shareholders | 25,600,000 | ||||||||||||||||||
Shares conversion ratio | 0.025 | ||||||||||||||||||
Reverse split description | On December 17, 2019, the Company effected a 1 for 40 reverse stock split. All common shares and common share equivalents are presented retroactively to reflect the reverse split. | ||||||||||||||||||
Reverse stock split | 0.025 | ||||||||||||||||||
Debt amount qualified for conversion | $ | $ 1,000,000 | ||||||||||||||||||
Common stock shares issued | 1,103,643 | 1,103,643 | 907,047 | 721,295 | |||||||||||||||
Shares issued for services rendered, value | $ | $ 75,000 | $ 263,000 | $ 163,000 | ||||||||||||||||
Warrants exercise price | $ / shares | $ 40 | $ 40 | |||||||||||||||||
Issued | 53,273 | 74,390 | 30,526 | ||||||||||||||||
Warrants outstanding | $ | $ 131,558 | $ 107,416 | |||||||||||||||||
Institutional Investors [Member] | |||||||||||||||||||
Dividend | 0.00% | ||||||||||||||||||
Expected maturity period | 5 years | ||||||||||||||||||
Risk-free interest rate | 2.49% | ||||||||||||||||||
Volatility | 122.00% | ||||||||||||||||||
Debt amount qualified for conversion | $ | $ 1,000,000 | $ 1,000,000 | |||||||||||||||||
J. Steven Holmes [Member] | |||||||||||||||||||
Proceeds from cash against future services | $ | $ 325,000 | $ 325,000 | |||||||||||||||||
Price per share | $ / shares | $ 23.28 | $ 23.28 | |||||||||||||||||
Sale of Stock, Number of Shares Issued in Transaction | 13,954 | 13,954 | |||||||||||||||||
Amended March 2019 Notes Warrants [Member] | |||||||||||||||||||
Preferred stock, per share | $ / shares | $ 70 | ||||||||||||||||||
Exercise price | $ / shares | $ 40 | ||||||||||||||||||
Warrants outstanding | $ | $ 13,015 | $ 66,288 | |||||||||||||||||
June 2018 Notes Warrants [Member] | |||||||||||||||||||
Preferred stock, per share | $ / shares | $ 40 | ||||||||||||||||||
Exercise price | $ / shares | $ 40 | $ 70 | |||||||||||||||||
Warrants outstanding | $ | $ 12,552 | $ 30,526 | |||||||||||||||||
Director Services [Member] | |||||||||||||||||||
Value | $ | $ 263,000 | ||||||||||||||||||
Shares | 4,985 | ||||||||||||||||||
Director [Member] | |||||||||||||||||||
Shares issued for services rendered | 856 | 856 | |||||||||||||||||
Shares issued for services rendered, value | $ | $ 7,000 | $ 7,000 | |||||||||||||||||
Scott W Absher [Member] | |||||||||||||||||||
Number option additionally available for grant to founder shareholders | 12,500,000 | ||||||||||||||||||
Stephen Holmes [Member] | |||||||||||||||||||
Number option additionally available for grant to founder shareholders | 12,500,000 | ||||||||||||||||||
Exchange Agreement [Member] | |||||||||||||||||||
Stock Issued During Period, Shares, Conversion of Convertible Securities | 24,049 | ||||||||||||||||||
Shares issued in exchange of debt | 24,049 | ||||||||||||||||||
Convertible Notes Payable [Member] | |||||||||||||||||||
Stock Issued During Period, Shares, Conversion of Convertible Securities | 185,768 | 185,768 | |||||||||||||||||
Shares issued in exchange of debt | 185,768 | 185,768 | |||||||||||||||||
Debt amount qualified for conversion | $ | $ 2,187,000 | $ 2,187,000 | |||||||||||||||||
Debt default interest | $ | 79,000 | 79,000 | |||||||||||||||||
March 2019 Convertible Notes [Member] | |||||||||||||||||||
Amount of debt exchanged | $ | $ 2,700,000 | $ 2,700,000 | |||||||||||||||||
December 2019 [Member] | |||||||||||||||||||
Common stock shares issued | 21,750 | 21,750 | |||||||||||||||||
Value of shares issued | $ | $ 200,000 | $ 200,000 | |||||||||||||||||
Amount of debt exchanged | $ | $ 2,900,000 | $ 2,900,000 | |||||||||||||||||
Preferred Stock | |||||||||||||||||||
Shares conversion ratio | 1 | 1 | |||||||||||||||||
Reverse stock split | 1 | 1 | |||||||||||||||||
Stock Option | Scott W Absher and Stephen Holmes | |||||||||||||||||||
Number of options available for grant to founder shareholders | 50,000,000 | ||||||||||||||||||
Stock Option | Preferred Stock | |||||||||||||||||||
Convertible preferred stock | 24,634,560 | ||||||||||||||||||
Warrant [Member] | |||||||||||||||||||
Shares issued upon exercise of warrants | 6,688 | 938 | |||||||||||||||||
Fair value exercise price per share | $ / shares | $ 80 | ||||||||||||||||||
Stock Issued During Period, Shares, Conversion of Convertible Securities | 174,081 | ||||||||||||||||||
Dividend | 0.00% | 0.00% | |||||||||||||||||
Expected maturity period | 4 years 2 months 12 days | 5 years | |||||||||||||||||
Risk-free interest rate | 2.41% | 2.78% | |||||||||||||||||
Volatility | 122.00% | 120.00% | |||||||||||||||||
Shares issued in exchange of debt | 174,081 | ||||||||||||||||||
Warrants exercise price | $ / shares | $ 70 | ||||||||||||||||||
Warrant [Member] | Institutional Investors [Member] | |||||||||||||||||||
Risk-free interest rate | 2.49% | ||||||||||||||||||
Volatility | 122.00% | ||||||||||||||||||
Warrant Three [Member] | |||||||||||||||||||
Exercise price | $ / shares | $ 70 | ||||||||||||||||||
Number of shares outstanding, Beginning balance | 74,390 | ||||||||||||||||||
Warrants exercise price | $ / shares | $ 52.80 | ||||||||||||||||||
Warrant One [Member] | |||||||||||||||||||
Weighted average life of outstanding warrants in years | 5 years | ||||||||||||||||||
Number of shares outstanding, Beginning balance | 30,523 | ||||||||||||||||||
Warrants exercise price | $ / shares | $ 99.60 |
Share based compensation (Detai
Share based compensation (Details) | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Expected life | 4 years | 4 years |
Volatility | 119.00% | 121.00% |
Dividend | 0.00% | 0.00% |
Maximum [Member] | ||
Risk-free interest rate | 2.90% | 2.83% |
Minimum [Member] | ||
Risk-free interest rate | 1.70% | 2.01% |
Share based compensation (Det_2
Share based compensation (Details 1) - USD ($) | 6 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Share based Compensation. | |||
Shares issued for services rendered, value | $ 75,000 | $ 263,000 | $ 163,000 |
Employee stock options | 369,000 | 200,000 | |
Balance at August 31, 2019 | $ 632,000 | $ 363,000 |
Share based compensation (Det_3
Share based compensation (Details 2) - $ / shares | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||
Aug. 31, 2019 | Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | Aug. 31, 2017 | |
Number of Options | |||||
Options outstanding, beginning balance | 50,749 | 19,750 | |||
Granted | 0 | 36,073 | 23,719 | ||
Exercised | |||||
Forfeited | 7,343 | (19,042) | (9,750) | ||
Options outstanding, ending balance | 50,750 | 43,406 | 50,750 | 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 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 6 months 15 days | 8 years 22 days | 8 years 5 months 27 days | ||
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 4 months 28 days | 8 years 11 months 12 days | 9 years 9 months 7 days | ||
Weighted Average Exercise Price | |||||
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 4 months 28 days | 8 years 11 months 12 days | 9 years 9 months 7 days | ||
Weighted Average Exercise Price Beginning | $ 95.20 | $ 95.20 | $ 184.80 | ||
Exercise price | $ 47.71 | 63.60 | $ 105.60 | ||
Exercised | |||||
Forfeited | 69.85 | 111.20 | 154.80 | ||
[Weighted Average Exercise Price Ending] | $ 95.20 | $ 99.55 | $ 95.20 | $ 138 |
Share based compensation (Det_4
Share based compensation (Details 3) - $ / shares | 1 Months Ended | 3 Months Ended | 12 Months Ended | |
Aug. 31, 2019 | Nov. 30, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Number of Option | ||||
Options Vested, Beginning balance | 10,291 | |||
Vested | 13,199 | 7,410 | 5,364 | |
Exercised | ||||
Forfeited | 1,305 | (1,633) | (850) | |
Options Vested, Ending balance | 10,291 | 22,185 | 10,291 | 4,514 |
Weighted Average Remaining Contractual Life (In years) | ||||
Weighted Average Remaining Contractual Life In Years, Ending balance | 8 years 18 days | 8 years 15 days | 8 years 6 months 26 days | |
Weighted Average Remaining Contractual Life In Years, Vested | 8 years 6 months 11 days | 8 years 9 months 29 days | ||
Weighted Average Remaining Contractual Life In Years, Forfeited | 5 years 1 month 24 days | 8 years 1 month 6 days | 8 years 6 months 15 days | |
Weighted Average Remaining Contractual Life In Years, beginning balance | 8 years 15 days | |||
Weighted Average Exercise Price | ||||
Weighted Average Exercise Price Beginning | $ 152.80 | $ 0 | ||
Vested | 108.89 | $ 137.20 | 184.80 | |
Forfeited | 140.09 | 164.40 | 177.20 | |
Exercised | ||||
Weighted Average Exercise Price Ending | $ 152.80 | $ 127.49 | $ 152.80 | $ 182.40 |
Share based compensation (Det_5
Share based compensation (Details 4) - $ / shares | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Weighted Average Remaining Contractual Life In Years | 0 years | |
Options Vested Five [Member] | ||
Number of options | 1,124 | 716 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 months 17 days | |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Weighted Average Remaining Contractual Life In Years | 7 years 10 months 17 days | |
Options Vested Four [Member] | ||
Number of options | 9,521 | 5,373 |
Weighted Average Remaining Contractual Life In Years | 7 years 5 months 27 days | |
Weighted Average Exercise Price | $ 155.12 | $ 158.40 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 6 days | |
Options Vested Three [Member] | ||
Number of options | 6,394 | 4,202 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | |
Weighted Average Exercise Price | $ 102.46 | $ 105.20 |
Weighted Average Remaining Contractual Life In Years | 8 years 7 months 17 days | |
Options Vested Two [Member] | ||
Number of options | 4,896 | |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | |
Weighted Average Exercise Price | $ 51.23 | |
Options Vested One [Member] | ||
Number of options | 250 | |
Weighted Average Remaining Contractual Life In Years | 9 years 5 months 1 day | |
Weighted Average Exercise Price | $ 20 | |
Options Vested [Member] | ||
Number of options | 22,185 | 10,291 |
Weighted Average Remaining Contractual Life In Years | 8 years 18 days | |
Weighted Average Exercise Price | $ 127.49 | $ 152.80 |
Weighted Average Remaining Contractual Life In Years | 8 years 15 days | |
Options Outstanding and Exercisable Five [Member] | ||
Number of options | 1,124 | 1,375 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 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 | 5,375 | 8,125 |
Weighted Average Remaining Contractual Life In Years | 9 years 3 months 7 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | $ 24.35 | $ 22.40 |
Options Outstanding and Exercisable Three [Member] | ||
Number of options | 10,553 | 12,864 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | 8 years 8 months 1 day |
Weighted Average Exercise Price | $ 102.93 | $ 104 |
Options Outstanding and Exercisable Four [Member] | ||
Number of options | 12,625 | 12,625 |
Weighted Average Remaining Contractual Life In Years | 7 years 6 months 18 days | 8 years 15 days |
Weighted Average Exercise Price | $ 155.28 | $ 155.20 |
Options Outstanding and Exercisable Two [Member] | ||
Number of options | 13,729 | 15,761 |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | 9 years 7 months 2 days |
Weighted Average Exercise Price | $ 51.21 | $ 51.60 |
Options Outstanding and Exercisable [Member] | ||
Number of options | 43,406 | 50,750 |
Weighted Average Remaining Contractual Life In Years | 8 years 4 months 28 days | 8 years 11 months 12 days |
Weighted Average Exercise Price | $ 99.55 | $ 95.20 |
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 |
Share based compensation (Det_6
Share based compensation (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended | |
Feb. 29, 2020 | Aug. 31, 2019 | Aug. 31, 2018 | |
Board of Directors [Member] | |||
Options shares | 82,500 | ||
Designated shares | 7,500 | ||
Share Based Compensation [Member] | |||
Common shares issued | 250,000 | ||
Option forfeited | 32,500 | ||
Common share issuable | 195,000 | ||
Common shares issueds | $ 167,500 | ||
Common shares issued to grant | 195,000 | ||
Aggregate intrinsic value | $ 0 | $ 575,000 | $ 1,000 |
Share based compensation | $ 1,600,000 | ||
Remaining weighted average vesting periods | 1 year 8 months 12 days |
Related Parties (Details)_2
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 |
Issue Price per Share | $ / shares | $ 114 |
Date Issued | September 2018 |
Ken Weaver [Member] | |
Shares | shares | 1,995 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 18.80 |
Date Issued | August 2019 |
Ken Weaver One [Member] | |
Shares | shares | 1,202 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 31.20 |
Date Issued | May 2019 |
Ken Weaver Two [Member] | |
Shares | shares | 308 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 122 |
Date Issued | November 2018 |
Sean Higgins [Member] | |
Shares | shares | 329 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 114 |
Date Issued | September 2018 |
Sean Higgins One [Member] | |
Shares | shares | 412 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 91.20 |
Date Issued | April 2019 |
Whitney White One [Member] | |
Shares | shares | 412 |
Value | $ | $ 37,500 |
Issue Price per Share | $ / shares | $ 91.20 |
Date Issued | April 2019 |
Related Parties (Details Narrat
Related Parties (Details Narrative) - USD ($) | May 10, 2018 | Sep. 28, 2017 | May 15, 2017 | Mar. 15, 2017 | Jul. 31, 2019 | Jul. 31, 2019 | Jun. 30, 2019 | Jun. 30, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Warrants exercise price | $ 40 | $ 40 | ||||||||||||
Professional fees | $ 997,000 | $ 895,000 | $ 1,837,000 | $ 1,519,000 | $ 3,918,000 | $ 2,078,000 | ||||||||
Returned shares of common stock | 658 | |||||||||||||
Granted options | 0 | 36,073 | 23,719 | |||||||||||
Chief Executive Officer [Member] | April One Two Thousand Sixteen[Member] | Employment Agreement [Member] | ||||||||||||||
Officers compensation | $ 750,000 | $ 750,000 | ||||||||||||
Chief Executive Officer [Member] | Two Thousand Seventeen Plan [Member] | April One Two Thousand Sixteen[Member] | ||||||||||||||
Warrants exercise price | $ 160 | |||||||||||||
Expiration date of the option | March 14, 2027 | |||||||||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||||||||
Granted options | 1,250 | |||||||||||||
J. Steven Holmes [Member] | ||||||||||||||
Professional fees | $ 360,000 | $ 180,000 | $ 360,000 | $ 180,000 | $ 720,000 | 700,000 | ||||||||
Price per share | $ 23.28 | $ 23.28 | ||||||||||||
Proceeds from cash against future services | $ 325,000 | $ 325,000 | ||||||||||||
Returned shares of common stock | 13,954 | 13,954 | ||||||||||||
J. Steven Holmes [Member] | Two Thousand Seventeen Plan [Member] | On May Fifteen Two Thousand Seventeen [Member] | ||||||||||||||
Warrants exercise price | $ 160 | |||||||||||||
Expiration date of the option | March 14, 2027 | |||||||||||||
Mark Absher [Member] | Two Thousand Seventeen Plan [Member] | On May Fifteen Two Thousand Seventeen [Member] | ||||||||||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||||||||
Granted options | 1,250 | |||||||||||||
J Stephan Holmes [Member] | Two Thousand Seventeen Plan [Member] | ||||||||||||||
Warrants exercise price | $ 160 | |||||||||||||
Expiration date of the option | March 14, 2027 | |||||||||||||
Exercisable period of the option | Mar. 15, 2017 | |||||||||||||
Granted options | 1,250 | |||||||||||||
Mark Absher One [Member] | Two Thousand Seventeen Plan [Member] | ||||||||||||||
Warrants exercise price | $ 100 | |||||||||||||
Expiration date of the option | May 2028 | |||||||||||||
Exercisable period of the option | May 1, 2018 | |||||||||||||
Officers compensation | $ 275,000 | $ 300,000 | ||||||||||||
Additional shares of common stock | 1,250 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 12 Months Ended | |
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 | 7,000,000 | 7,653,000 |
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 | 11,671,000 | 8,201,000 |
Valuation allowance | (10,704,000) | (7,345,000) |
Total net deferred tax assets | 967,000 | 856,000 |
Net deferred tax assets |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Current | ||
Federal | ||
State | ||
Total current | ||
Federal | 3,162,000 | 2,729,000 |
State | 197,000 | 407,000 |
Total deferred | 3,359,000 | 3,136,000 |
Change in valuation allowance | (3,359,000) | (3,136,000) |
Income Tax Expense (Benefit), Total |
Income Taxes (Details 2)
Income Taxes (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Aug. 31, 2019 | Aug. 31, 2018 | |
Income Taxes (Details 2) | ||
Pretax income | $ 2,673,000 | $ 3,880,000 |
Non-deductible penalties and other permanent differences | (430,000) | (177,000) |
State taxes (8.84%) | 1,116,000 | 1,374,000 |
Redetermination of prior year taxes | ||
Enactment of the 2017 Tax Reform Act | (1,941,000) | |
Change in valuation allowance | (3,359,000) | (3,136,000) |
Income Tax Expense (Benefit), Total |
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 |
ExpireYear | P2029Y | |
Change in valuation allowance | $ 3,163,000 | 3,359,000 |
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 -
Commitments and Contingencies - Future minimum license payments under the license agreement (Details) - Lease Agreements [Member] | Aug. 31, 2019USD ($) |
2020 | $ 922,000 |
2021 | 1,015,000 |
2022 | 817,000 |
Total minimum payments | $ 2,754,000 |
Commitments and Contingencies_2
Commitments and Contingencies - Future minimum lease payments under non-cancelable operating leases (Details) - Software License Arrangement [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 - Additional information (Details) - USD ($) | Jan. 22, 2020 | Jan. 17, 2020 | Jul. 31, 2019 | Apr. 30, 2020 | Jan. 31, 2020 | Aug. 27, 2019 | Jul. 31, 2019 | Jun. 21, 2019 | Apr. 30, 2019 | May 31, 2016 | Feb. 29, 2020 | Jan. 16, 2020 | Nov. 30, 2019 | Aug. 31, 2019 | Jul. 09, 2019 | Jun. 20, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Aug. 31, 2018 | Jun. 30, 2018 | Apr. 15, 2016 |
Common stock shares issued | 1,103,643 | 907,047 | 721,295 | ||||||||||||||||||
Lyons Capital Llc [Member] | |||||||||||||||||||||
Repurchase of Common Shares | 210,000 | ||||||||||||||||||||
Irvine Facility [Member] | |||||||||||||||||||||
Term of operating lease | 5 years | ||||||||||||||||||||
Repurchase of Common Shares | 250,000 | ||||||||||||||||||||
Kadima Ventures [Member] | |||||||||||||||||||||
Additional Funds | $ 10,000,000 | ||||||||||||||||||||
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 $11 million but has not received the majority of certain software modules | ||||||||||||||||||||
Additional Funds | $ 10,000,000 | ||||||||||||||||||||
Software development cost | $ 8,500,000 | ||||||||||||||||||||
Software modules cost | $ 11,000,000 | ||||||||||||||||||||
Additional cost | $ 10,000,000 | ||||||||||||||||||||
Alpha Capital v. ShiftPixy, Inc. [Member] | |||||||||||||||||||||
Convertable notes | $ 310,000 | ||||||||||||||||||||
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 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 | ||||||||||||||||||||
Convertible notes outstanding | $ 1,700,000 | $ 1,200,000 | $ 200,000 | $ 300,000 | |||||||||||||||||
Common stock shares issued | 25,000 | ||||||||||||||||||||
Proceeds from issuance of notes | $ 310,000 | ||||||||||||||||||||
Damages incurred | 190,000 | ||||||||||||||||||||
Total award money received | 500,000 | ||||||||||||||||||||
Accrued interest | $ 51,000 | ||||||||||||||||||||
Convertible notes per share | $ 12.20 | ||||||||||||||||||||
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 | ||||||||||||||||||||
Related warrants by issuing shares of common stock | 83,593 | ||||||||||||||||||||
Cash paid | $ 1,322,000 | ||||||||||||||||||||
MEF I, LP v. ShiftPixy, Inc. [Member] | |||||||||||||||||||||
Convertable notes | $ 2,100,000 | ||||||||||||||||||||
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 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 | ||||||||||||||||||||
Convertible notes outstanding | $ 2,100,000 | $ 700,000 | $ 700,000 | $ 200,000 | $ 500,000 | ||||||||||||||||
Accrued interest and accrued damages cash payment | $ 725,000 | ||||||||||||||||||||
Accrued interest and accrued damages shares issued | 20,000 |
Subsequent Events (Details)_2
Subsequent Events (Details) - USD ($) | Dec. 05, 2019 | Dec. 05, 2019 | Mar. 31, 2020 | Mar. 25, 2020 | Feb. 29, 2020 | Jan. 31, 2020 | Dec. 31, 2019 | Dec. 11, 2019 | Aug. 31, 2019 | Aug. 31, 2018 |
Subsequent Event [Line Items] | ||||||||||
Conversion price | $ 12.20 | |||||||||
Common Stock, Shares, Issued | 1,103,643 | 907,047 | 721,295 | |||||||
Common stock, shares value | ||||||||||
Preferred stock, shares par value | $ 0.0001 | $ 0.0001 | $ 40 | $ 0.0001 | $ 0.0001 | |||||
Subsequent Event [Member] | ||||||||||
Subsequent Event [Line Items] | ||||||||||
Conversion price | $ 9.20 | |||||||||
Subsequent Event [Member] | Series A Preferred Stock [Member] | ||||||||||
Subsequent Event [Line Items] | ||||||||||
Preferred stock, shares par value | $ 0.0001 | |||||||||
Subsequent Event [Member] | Holder [Member] | ||||||||||
Subsequent Event [Line Items] | ||||||||||
Consideration value | $ 200,000 | |||||||||
Common Stock, Shares, Issued | 21,750 | |||||||||
Common stock, shares value | $ 200,000 | |||||||||
Subsequent Event [Member] | March Two Thousand Nineteen Convertible Notes [Member] | Holder [Member] | ||||||||||
Subsequent Event [Line Items] | ||||||||||
Conversion price | $ 40 | $ 40 | ||||||||
Description for extended term | March 2019 notes to March 1, 2022 | |||||||||
Subsequent Event [Member] | December 2018 Notes [Member] | Holder [Member] | ||||||||||
Subsequent Event [Line Items] | ||||||||||
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) | Dec. 17, 2019 |
Reverse Stock Split Disclosure [Line Items] | |
Reverse stock split | The Company effected a 1 for 40 reverse stock split. |
Reverse stock split | 0.025 |
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 | 0.025 |
Stock based Compensation - St_2
Stock based Compensation - Stock options outstanding and vested (Details) - $ / shares | 6 Months Ended | 12 Months Ended |
Feb. 29, 2020 | Aug. 31, 2019 | |
Weighted Average Remaining Contractual Life In Years | 0 years | |
Exercise Prices One [Member] | Minimum [Member] | ||
Exercise Prices | $ 18.80 | $ 18.80 |
Exercise Prices One [Member] | Maximum [Member] | ||
Exercise Prices | 40 | 40 |
Exercise Prices Two [Member] | Minimum [Member] | ||
Exercise Prices | 40.01 | 40.01 |
Exercise Prices Two [Member] | Maximum [Member] | ||
Exercise Prices | 80 | 80 |
Exercise Prices Three [Member] | Minimum [Member] | ||
Exercise Prices | 80.01 | 80.01 |
Exercise Prices Three [Member] | Maximum [Member] | ||
Exercise Prices | 120 | 120 |
Exercise Prices Four [Member] | Minimum [Member] | ||
Exercise Prices | 120.01 | 120.01 |
Exercise Prices Four [Member] | Maximum [Member] | ||
Exercise Prices | 160 | 160 |
Exercise Prices Five [Member] | Minimum [Member] | ||
Exercise Prices | 160.01 | 160.01 |
Exercise Prices Five [Member] | Maximum [Member] | ||
Exercise Prices | $ 391.60 | $ 391.60 |
Options Vested One [Member] | ||
Number of options | 250 | |
Weighted Average Remaining Contractual Life In Years | 9 years 5 months 1 day | |
Weighted Average Exercise Price | $ 20 | |
Options Vested Two [Member] | ||
Number of options | 4,896 | |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | |
Weighted Average Exercise Price | $ 51.23 | |
Options Vested Three [Member] | ||
Number of options | 6,394 | 4,202 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | |
Weighted Average Exercise Price | $ 102.46 | $ 105.20 |
Weighted Average Remaining Contractual Life In Years | 8 years 7 months 17 days | |
Options Vested Four [Member] | ||
Number of options | 9,521 | 5,373 |
Weighted Average Remaining Contractual Life In Years | 7 years 5 months 27 days | |
Weighted Average Exercise Price | $ 155.12 | $ 158.40 |
Weighted Average Remaining Contractual Life In Years | 7 years 7 months 6 days | |
Options Vested Five [Member] | ||
Number of options | 1,124 | 716 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 months 17 days | |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Weighted Average Remaining Contractual Life In Years | 7 years 10 months 17 days | |
Options Vested [Member] | ||
Number of options | 22,185 | 10,291 |
Weighted Average Remaining Contractual Life In Years | 8 years 18 days | |
Weighted Average Exercise Price | $ 127.49 | $ 152.80 |
Weighted Average Remaining Contractual Life In Years | 8 years 15 days | |
Options Outstanding and Exercisable One [Member] | ||
Number of options | 5,375 | 8,125 |
Weighted Average Remaining Contractual Life In Years | 9 years 3 months 7 days | 9 years 9 months 7 days |
Weighted Average Exercise Price | $ 24.35 | $ 22.40 |
Options Outstanding and Exercisable Two [Member] | ||
Number of options | 13,729 | 15,761 |
Weighted Average Remaining Contractual Life In Years | 9 years 1 month 2 days | 9 years 7 months 2 days |
Weighted Average Exercise Price | $ 51.21 | $ 51.60 |
Options Outstanding and Exercisable Three [Member] | ||
Number of options | 10,553 | 12,864 |
Weighted Average Remaining Contractual Life In Years | 8 years 2 months 19 days | 8 years 8 months 1 day |
Weighted Average Exercise Price | $ 102.93 | $ 104 |
Options Outstanding and Exercisable Four [Member] | ||
Number of options | 12,625 | 12,625 |
Weighted Average Remaining Contractual Life In Years | 7 years 6 months 18 days | 8 years 15 days |
Weighted Average Exercise Price | $ 155.28 | $ 155.20 |
Options Outstanding and Exercisable Five [Member] | ||
Number of options | 1,124 | 1,375 |
Weighted Average Remaining Contractual Life In Years | 7 years 4 months 17 days | 7 years 10 months 17 days |
Weighted Average Exercise Price | $ 391.60 | $ 391.60 |
Options Outstanding and Exercisable [Member] | ||
Number of options | 43,406 | 50,750 |
Weighted Average Remaining Contractual Life In Years | 8 years 4 months 28 days | 8 years 11 months 12 days |
Weighted Average Exercise Price | $ 99.55 | $ 95.20 |
Stock based Compensation (Det_2
Stock based Compensation (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 29, 2020 | Feb. 28, 2019 | Feb. 29, 2020 | Feb. 28, 2019 | Aug. 31, 2019 | Aug. 31, 2018 | |
Granted options | 0 | 36,073 | 23,719 | |||
Accelerated options | 9,737 | |||||
Compensation expense | $ 619,000 | $ 81,000 | $ 745,000 | $ 158,000 | ||
Intrinsic value of options | 0 | 0 | 0 | 0 | ||
Compensation expense due to acceleration | $ 483,000 | |||||
Weighted average vesting period for unrecognized deferred share-based compensation (in years) | 1 year 1 month 6 days | |||||
Unrecognized deferred share-based compensation expense expected to be recognized | $ 700,000 | $ 700,000 | ||||
Share Based Compensation [Member] | ||||||
Option forfeited | 32,500 | |||||
Common share issuable | 195,000 | |||||
Common shares issueds | $ 167,500 | |||||
Common shares issued to grant | 195,000 | |||||
Aggregate intrinsic value | $ 0 | $ 575,000 | $ 1,000 | |||
Deferred share base compensation | $ 1,600,000 | |||||
Remaining weighted average vesting periods | 1 year 8 months 12 days | |||||
Compensation expense | $ 81,000 | $ 158,000 | ||||
Board of Directors [Member] | ||||||
Options shares | 82,500 | |||||
Designated shares | 7,500 |