| 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 United
States Generally Accepted Accounting Principles (GAAP) and the rules of the Securities and Exchange Commission (SEC)
applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been
included. Operating results for the three months period ended November 30, 2017, are not necessarily indicative of the results
that may be expected for the year end August 31, 2018. The
condensed consolidated balance sheet as of August 31, 2017, has been derived from the audited consolidated financial statements
at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete
financial information. For
further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual
report on Form 10-K for the year ended August 31, 2017, filed with the SEC on December 14, 2017. 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. Use
of Estimates The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires us 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 equity instruments issued for service, and
· Deferred
income taxes and related valuation allowance. Computer
Software Development Software
development costs relate primarily to software coding, systems interfaces and testing of our proprietary professional 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. Capitalized software development costs are amortized using the straight-line method over the estimated useful life
of the software, which ranges from 3 to 10 years. Revenue
Recognition The
Companys revenues are primarily attributable to fees for providing staffing solutions and PEO/ASO 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. We
account for our PEO revenues in accordance with Accounting Standards Codification (ASC) 605-45, Revenue Recognition,
Principal Agent Considerations. Our PEO solutions revenue is primarily derived from our gross billings, which are based on (i)
the payroll cost of its worksite employees and (ii) a mark-up computed as a percentage of payroll costs. The
gross billings are invoiced concurrently with each periodic payroll of its worksite employees. 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. Consistent
with our revenue recognition policy, our direct costs do not include the payroll cost of our worksite employees. Our cost of revenue
is primarily comprised of all other costs related to our worksite employees, such as the employer portion of payroll-related taxes,
employee benefit plan premiums and workers compensation insurance costs. Cash
and Cash Equivalents and 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 deposits are
made with a reputable financial institution, and the Company does not anticipate realizing any losses from these deposits. The
Company did not have any cash equivalents at November 30, 2017, and August 31, 2017. None of the Companys clients represents
more than 10% of our annualized revenues for fiscal years 2018 or 2017. However, three clients represent approximately 54% of
total accounts receivable at November 30, 2017, compared to three clients representing approximately 48% of our total accounts
receivable at August 31, 2017. Workers
Compensation A
portion of the Companys workers compensation risk is covered by a retrospective rated policy, which calculates the
final policy premium based on our 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 Companys losses under
that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments.
The Company funded an initial deposit of $2.3 million, which is included in prepaid expenses on the condensed consolidated balance
sheet. As of November 30, 2017, the Company has not been notified of any adverse loss ratio as compared to the standard premium. Fair
Value Measurements The
fair value accounting guidance defines the fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The definition is based on an exit
price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. This guidance establishes
a fair value hierarchy to prioritize inputs used in measuring fair value as follows: Level
1: Observable inputs such as quoted prices in active markets; Level
2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level
3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The
carrying value of accounts receivable, and accounts payable approximates the fair value due to their short-term maturities. Earnings
(Loss) Per Share The
Company utilizes Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
260, Earnings per Share. Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to
common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings
(loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional
common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common
share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share
price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. The
reconciliation of basic and diluted earnings per share on common stock in the three months ended November 30, 2017, and 2016 follows:
For
the three Months
Ended
November
30, 2017 November
30, 2016
Net
(loss) earnings available to common shareholders $ (3,341,217 ) $ 378,099
Average
shares outstanding:
Basic 28,767,850 26,213,800
Dilutive
share awards - 760,350
Diluted
28,767,850 26,974,150
Basic
(loss) earnings per share $ (0.12 ) $ 0.01
Diluted
(loss) earnings per share $ (0.12 ) $ 0.01 Securities
that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive,
are stock options and warrants for the three months ended November 30, 2017, and 2016. In the three months ended November 30,
2017, the number of warrants that were excluded from the diluted (loss) earnings per share amounted to 108,671 shares. Stock
options were excluded from the computation of diluted earnings per share due to their anti-dilutive effect in the three months
ended November 30, 2017, and 2016. Recent
Accounting Standards In
May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued
as a new Topic, ASC Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions
to determine when and how revenue is recognized. The premise of the guidance is that a Company should recognize 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. ASU 2014-09 can be adopted by the Company either retrospectively or as
a cumulative-effect adjustment as of the date of adoption. On
April 1, 2015, the FASB decided to defer the effective date of the new revenue standard by one year. The update is effective for
financial statements issued for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting
periods beginning after December 15, 2019. We
are currently developing an adoption plan of how we currently recognize revenue compared to the accounting treatment required
under the new guidance. This plan includes a review of client contracts and revenue transactions to determine the impact of the
accounting treatment under the new guidance, evaluation of the adoption method and completing a rollout plan for the new guidance.
Additionally, we are in the process of assessing the impact of the new standard on our disclosures and internal controls. 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.
The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after
December 15, 2020.The Company is currently evaluating the impact that this standard will have on its consolidated financial statement. In
March 2016, the FASB issued ASU 2016-09 amending several aspects of share-based payment accounting. This guidance requires all
excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled, with prospective
application required. The guidance also changes the classification of such tax benefits or tax deficiencies on the statement of
cash flows from a financing activity to an operating activity, with retrospective or prospective application allowed. Additionally,
the guidance required the classification of employee taxes paid when an employer withholds shares for tax-withholding purposes
as a financing activity on the statement of cash flows, with retrospective application required. This ASU is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2017, and interim periods within annual
periods beginning after December 15, 2018. Early adoption is permitted. Adoption of this guidance had no impact on our Consolidated
Financial Statements. In
November 2016, the FASB issued ASU 2016-18 amending the presentation of restricted cash within the statement of cash flows. The
new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash flows. The ASU
is effective retrospectively for reporting periods beginning after December 15, 2018, and interim periods within fiscal years
beginning after December 15, 2019, with early adoption permitted. In
May 2017, FASB issued ASU 2017-09 clarifying when changes to the terms and conditions of a share-based payment award must be accounted
for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award
being accounted for as modifications. It does not change the accounting for modifications. The ASU is effective prospectively
for reporting periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period
for which financial statements have not yet been issued. Adoption of this guidance had no impact on our Consolidated Financial
Statements. |
