| 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 (“GAAP”) and the rules 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. Use
of Estimates The
preparation of financial statements in conformity with 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 property and equipment,
• Assumptions
made in valuing equity instruments, and
• Deferred
income taxes and related valuation allowance. Revenue
Recognition The
Company’s 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 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. The
gross billings are invoiced concurrently with each periodic payroll of the Company’s 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 exceeds 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 August 31, 2017, and 2016. No
one individual client represents more than 10% of our annualized revenues for either fiscal years 2017 or 2016. However, four
clients represent 58% of total accounts receivable at August 31, 2017, compared to four clients representing approximately 100%
of our total accounts receivable at August 31, 2016. 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 remaining lease term. Fixed
assets are depreciated using the straight-line method over the estimated useful lives of the assets 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 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. Impairment
and Disposal of Long-Lived Assets The
Company evaluates the carrying value of its long-lived assets when indicators of impairment are present. Impairment is assessed
when the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount.
If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value,
less cost to sell. There were no impairments recognized for the years ended August 31, 2017, and 2016. Workers’
compensation A
portion of the Company’s workers’ compensation risk is 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. During the year ended August 31, 2017, the Company funded an initial deposit of $2.3 million,
which is included in prepaid expenses on the consolidated balance sheet. As of September 28, 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 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 also 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
Company did not fair value any of its operating assets or liabilities as of August 31, 2017, or 2016. The carrying value of accounts
receivable, accounts payables, and other financial instruments approximates the fair value due to their short-term maturities. 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. Advertising
Costs The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to approximately $273,800 and $35,000 for
the years ended August 31, 2017, and 2016, respectively. Stock-Based
Compensation The
Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation
expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial
statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the
Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense
over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting
period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including
the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of comparable
companies. 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, as such,
compensation cost previously recognized for an 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. Securities
that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive
are:
For
the year ended August 31, 2017 For
the year ended August 31, 2016
Options 790,000 -
Warrants 2,595,413 2,027,600
Total
potentially dilutive shares 3,385,413 2,027,600 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 August 31, 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. The
Company is currently developing an adoption plan of how it currently recognizes 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, the Company is in the process of assessing the impact of the new standard on its 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
the first quarter of 2018, the Company adopted 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 standard also provides an accounting policy election to account for forfeitures as they occur, allows
us to withhold more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting,
and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented
as a financing activity on our cash flow statement. 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.
For the nine months ended May 31, 2018, the impact of adopting this new guidance was immaterial. In
the first quarter of 2018, the Company adopted 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. For the nine months ended May 31, 2018, the impact
of adopting this new guidance was immaterial. 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. |
