Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Aug. 31, 2018 | Nov. 27, 2018 | Feb. 28, 2018 | |
Document And Entity Information | |||
Entity Registrant Name | SHIFTPIXY, INC. | ||
Entity Central Index Key | 1,675,634 | ||
Document Type | 10-K | ||
Document Period End Date | Aug. 31, 2018 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --08-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Public Float | $ 8,938,000 | ||
Entity Common Stock, Shares Outstanding | 29,371,327 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,018 | ||
Entity Emerging Growth Company | true | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Ex Transition Period | false |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Aug. 31, 2018 | Aug. 31, 2017 |
Current assets | ||
Cash | $ 1,649,783 | $ 5,896,705 |
Restricted cash - workers' compensation | 305,218 | |
Accounts receivable | 110,931 | 428,790 |
Unbilled accounts receivable | 6,192,631 | |
Deposit-workers' compensation | 1,366,879 | 2,335,000 |
Prepaid expenses | 563,002 | 352,188 |
Other current assets | 258,901 | 15,916 |
Total current assets | 10,447,345 | 9,028,599 |
Fixed assets, net | 3,032,325 | 288,065 |
Deposits- workers' compensation | 2,201,556 | |
Deposits and other assets | 120,606 | 126,480 |
Total Assets | 15,801,832 | 9,443,144 |
Current liabilities | ||
Accounts payable | 1,246,461 | 1,160,474 |
Payroll related liabilities | 9,476,641 | 2,388,454 |
Convertible Note, Net | 7,156,515 | |
Accrued workers' compensation costs | 305,217 | |
Other current liabilities | 5,455,921 | 278,982 |
Total current liabilities | 23,640,755 | 3,827,910 |
Noncurrent liabilities | ||
Accrued workers' compensation costs | 900,978 | |
Total liabilities | 24,541,733 | 3,827,910 |
Commitments and contingencies (Note 12) | ||
Stockholders' (deficit) equity | ||
Preferred stock, 50,000,000 authorized shares; $0.0001 par value; no shares issued and outstanding | ||
Common stock, 750,000,000 authorized shares; $0.0001 par value; 28,851,787 and 28,762,424 shares issued and outstanding as of August 31, 2018 and 2017, respectively | 2,886 | 2,877 |
Additional paid-in capital | 17,233,919 | 15,012,584 |
Accumulated deficit | (25,976,706) | (9,400,227) |
Total stockholders' (deficit) equity | (8,739,901) | 5,615,234 |
Total liabilities and stockholders' (deficit) equity | $ 15,801,832 | $ 9,443,144 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Aug. 31, 2018 | Aug. 31, 2017 |
Stockholders' (deficit) equity | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 50,000,000 | 50,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 750,000,000 | 750,000,000 |
Common stock, issued | 28,851,787 | 28,762,424 |
Common stock, outstanding | 28,851,787 | 28,762,424 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Consolidated Statements Of Operations | ||
Revenues (gross billings of $222.4 million and $126.4 million less worksite employee payroll cost of $187.5 million and $106.1 million, respectively) | $ 34,958,748 | $ 20,244,419 |
Cost of revenue | 29,458,395 | 16,552,197 |
Gross profit | 5,500,353 | 3,692,222 |
Operating expenses: | ||
Salaries, wages and payroll taxes | 5,382,720 | 4,268,851 |
Stock-based compensation - general and administrative | 200,332 | 43,415 |
Commissions | 1,593,692 | 845,920 |
Professional fees | 2,240,690 | 1,369,242 |
Software development | 3,827,618 | 2,683,334 |
Depreciation and amortization | 274,321 | 65,369 |
Registration rights penalties | 3,500,000 | |
General and administrative | 3,552,622 | 1,908,081 |
Total operating expenses | 20,571,995 | 11,184,212 |
Operating Loss | (15,071,642) | (7,491,990) |
Other Expense | ||
Interest expense | (1,504,837) | |
Net Loss | $ (16,576,479) | $ (7,491,990) |
Net loss per common share | ||
Basic and diluted | $ (0.58) | $ (0.28) |
Weighted average number of common shares | ||
Basic and diluted | 28,810,103 | 26,778,658 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning balance, Shares at Aug. 31, 2016 | 26,213,800 | |||
Beginning balance, Amount at Aug. 31, 2016 | $ 2,622 | $ 2,030,018 | $ (1,908,237) | $ 124,403 |
Common stock issued for cash, net of offering costs, Shares | 2,000,000 | |||
Common stock issued for cash, net of offering costs, Amount | $ 200 | 10,887,061 | 10,887,261 | |
Stock based compensation expense | 43,415 | 43,415 | ||
Warrants exercised for cash, Shares | 67,500 | |||
Warrants exercised for cash, Amount | $ 7 | 144,993 | 145,000 | |
Warrants issued with convertible debt | ||||
Intrinsic value due to beneficial conversion feature | ||||
Common stock issued for services, Shares | 86,749 | |||
Common stock issued for services, Amount | $ 9 | 329,636 | 329,645 | |
Net loss | (7,491,990) | (7,491,990) | ||
Ending balance, Shares at Aug. 31, 2017 | 28,762,424 | |||
Ending balance, Amount at Aug. 31, 2017 | $ 2,877 | 15,012,584 | (9,400,227) | 5,615,234 |
Stock based compensation expense | 200,332 | 200,332 | ||
Warrants exercised for cash, Shares | 37,500 | |||
Warrants exercised for cash, Amount | $ 4 | 74,996 | 75,000 | |
Warrants issued with convertible debt | 859,155 | 859,155 | ||
Intrinsic value due to beneficial conversion feature | 924,000 | 924,000 | ||
Common stock issued for services, Shares | 51,863 | |||
Common stock issued for services, Amount | $ 5 | 162,852 | 162,857 | |
Net loss | (16,576,479) | (16,576,479) | ||
Ending balance, Shares at Aug. 31, 2018 | 28,851,787 | |||
Ending balance, Amount at Aug. 31, 2018 | $ 2,886 | $ 17,233,919 | $ (25,976,706) | $ (8,739,901) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
OPERATING ACTIVITIES | ||
Net loss | $ (16,576,479) | $ (7,491,990) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 274,321 | 65,369 |
Amortization debt discount, debt issuance cost | 704,746 | |
Stock issued for services | 162,857 | 329,645 |
Stock based compensation | 200,332 | 43,415 |
Registration rights penalties | 3,500,000 | |
Changes in operating assets and liabilities | ||
Restricted cash- workers' compensation | (305,218) | |
Accounts receivable | 317,859 | (372,352) |
Unbilled accounts receivable | (6,192,631) | |
Prepaid expenses | (210,814) | (2,344,192) |
Other current assets | (242,985) | 57,566 |
Deposits - workers' compensation | (1,233,435) | |
Deposits and other assets | 5,874 | (21,867) |
Accounts payable | 85,987 | 334,027 |
Payroll related liabilities | 7,088,187 | 1,665,739 |
Accrued workers' compensation costs | 1,206,195 | |
Other current liabilities | 1,676,939 | 157,713 |
Net cash used in operating activities | (9,538,265) | (7,576,927) |
INVESTING ACTIVITIES | ||
Purchase of fixed assets | (3,018,580) | (4,661) |
Net cash used in investing activities | (3,018,580) | (4,661) |
FINANCING ACTIVITIES | ||
Proceeds from issuance of common stock | 12,000,000 | |
Issuance costs related to common stock issuance | (1,112,739) | |
Proceeds from issuance of common stock and warrants | 1,577,500 | |
Proceeds from issuance of convertible notes | 9,000,000 | |
Issuance costs related to convertible notes | (765,077) | |
Proceeds from exercise of warrants | 75,000 | 145,000 |
Net cash provided by financing activities | 8,309,923 | 12,609,761 |
Net (decrease) increase in cash and cash equivalents | (4,246,922) | 5,028,173 |
Cash - beginning of year | 5,896,705 | 868,532 |
Cash - end of year | 1,649,783 | 5,896,705 |
SUPPLEMENTAL INFORMATION: | ||
Cash paid during the year for: Interest | 133,333 | |
Cash paid during the year for: Income taxes | ||
Non-cash investing and financing activities: | ||
Debt discount due to the intrinsic value of beneficial conversion feature | 924,000 | |
Debt discount due to warrants included with convertible notes | $ 859,155 |
Nature of Operations
Nature of Operations | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
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 initial focus is on the restaurant industry in Southern California. Shift Human Capital Management Inc. (“SHCM”), a wholly-owned subsidiary of ShiftPixy, Inc., functions substantially as a professional employer organization (“PEO”), assuming significant attributes of employer status in relation to the subject employees and provides workers’ compensation coverage written in the names of the clients (as may be required by some states). SHCM also functions as an-administrative services only (“ASO”) provider, in response to client needs for only administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of workers’ compensation coverages and claims, under circumstances wherein the client remains as the sole employer of the subject employees. These services are also available to businesses in all industries, not limited to the restaurant and hospitality industries. The Company hopes that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients to whom we are providing these services recognize the value of the services provided by the parent Company. |
Summary of significant accounti
Summary of significant accounting policies | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
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 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 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; · Deferred income taxes and related valuation allowance; · Projected development of workers’ compensation claims. Revenue Recognition The Company provides an array of human resources and business solutions designed to help improve business performance. The Company’s revenues are primarily attributable to fees for providing staffing solutions and PEO/HCM (“Professional Employer Organization”/ “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. We account for our PEO revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations 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. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on our consolidated balance sheets. Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our worksite employees. Our cost of revenue associated with our revenue generating activities are 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. Segment Reporting We operate one reportable segment under ASC 280, Segment Reporting Cash and cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. At August 31, 2018 and 2017, the Company did not have any cash equivalents. Concentration of Credit Risk The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, we have 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. No one individual client represents more than 10% of our annualized revenues for either fiscal years 2018 or 2017. However, four clients represent 86% of total accounts receivable at August 31, 2018, compared to four clients representing approximately 58% of our total accounts receivable at August 31, 2017. 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 our proprietary professional employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally five years. 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. Impairment and Disposal of Long-Lived Assets We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation 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. During the year ended August 31, 2017, the Company funded an initial deposit of $2.3 million, which was included in Deposits – worker’ compensation (“deposits”) on the consolidated balance sheet. During the year ended August 31, 2018, the Company funded two months worth of policy premiums against this initial deposit for approximately $0.8 million. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash- workers’ compensation (“restricted cash”), a short-term asset, while the remainder of claims are included in deposits, a long-term asset in our consolidated balance sheets. As of August 31, 2018, the Company had restricted cash of $0.1 million and deposits of $1.4 million, both short term assets, for this retrospective rated policy The Company utilizes a third-party to estimate its loss development rate, which is primarily based 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 our workers’ compensation claims cost estimates. For the year ended August 31, 2018 and 2017 the Company accrued $0.6 million and $0 million, respectively, of estimated losses, which are recorded under Accrued workers’ compensation cost in our consolidated balance sheets. For the year ended August 31, 2018, the Company classified $0.1 million in short term accrued workers’ compensation and $0.5 million in long term accrued workers’ compensation in our consolidated balance sheets. Starting in July 2018, the Company’s workers’ compensation program for our 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 layer 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 restricted cash- workers’ compensation (“restricted cash”), a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation (“deposits”), a long-term asset in our consolidated balance sheets. During the year ended August 31, 2018, the Company funded an additional initial deposit for $1.4 million as well as an aggregate of $0.9 million in loss fund reserve. As of August 31, 2018, we had restricted cash- workers’ compensation of $0.2 million classified as a short-term asset and workers’ compensation - deposits of $2.2 million, classified as a long-term asset. Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our consolidated balance sheets. As of August 31, 2018, we had short term accrued workers’ compensation costs of $0.2 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 our 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 our 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. 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. 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, 2018, or 2017. The carrying value of accounts receivable, accounts payables, convertible notes, 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 $0.5 million and $0.3 million for the years ended August 31, 2018, and 2017, respectively. Stock-Based Compensation At August 31, 2018, 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 consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. 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, 2018 For the year ended August 31, 2017 Senior Secured Convertible Notes (Note 7) 4,016,064 - Options 1,348,745 790,000 Warrants 3,778,796 2,595,413 Total potentially dilutive shares 9,143,605 3,385,413 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 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. 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 July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 but the Company elected to early adopt for its fiscal year ended August 31, 2018. ASC 815-40 required that a freestanding equity-linked financial instrument to be indexed to the issuer’s own stock to be classified as equity. An equity-linked embedded feature that meets the definition of a derivative may avoid bifurcation and derivative accounting if it is indexed to the issuer’s own stock. Today, a freestanding financial instrument or embedded feature isn’t considered indexed to the issuer’s own stock if it has a down round provision. Consequently, the freestanding financial instrument is classified as a liability, and if it meets the definition of a derivative, it must be measured at fair value with changes in fair value recorded through earnings. Under this guidance, entities will no longer consider a down round feature when determining whether a freestanding financial instrument (i.e. a warrant) or an embedded feature (i.e. a conversion option) that contains a down round feature is considered indexed to the entity’s own stock under ASC 815-40. Under ASC 815-40-35, the Company has adopted a sequencing policy. In the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. 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. |
Going Concern
Going Concern | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 3: Going Concern | As of August 31, 2018, the Company had cash of $1.6 million and a working capital deficiency of $13.2 million. During the year ended August 31, 2018, the Company used approximately $9.5 million of cash in its operation, of which $6.6 million was attributed to the mobile development costs and $1.4 million was attributed to the workers’ compensation deposit. The Company has incurred recurring losses resulted in an accumulated deficit of $26.0 million as of August 31, 2018. These conditions raise substantial doubt as to our 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. 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) Exclusive of the developments costs and the initial deposits made to our workers’ compensation program, the Company is currently using $0.4 million each quarter from its operations a little over $0.1 million per month. The Company has already realized a significant reduction to its workers compensation expense resulting from changing certain providers and achieving some economies of scale. 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 operating cash burn. The key features of the Company’s mobile application have been fully developed, one of the key features has been released and two other key features are now ready to be released. The deployment of these features expected in the first calendar quarter of 2019, would further accelerate growth as the Company’s clients would be able to remediate their turnover issues. The Company also developed an additional driver management layer to its mobile platform and plan to begin using this “delivery feature” of its mobile platform during the first calendar quarter of 2019. The Company’s plans and expectations for the next 12 months include raising capital to help fund expansion of its operations, including the development and support of its IT and HR platform. 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. The Company believe 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. These consolidated financial statements do not include any adjustments from this uncertainty. |
Accounts Receivable
Accounts Receivable | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 4: Accounts Receivable | Accounts receivables, which represent outstanding gross billings to clients, are reported net of allowance for doubtful accounts. We establish 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, 2018 and 2017 was not material. The Company makes an accrual at the end of each accounting period for our obligations associated with the earned but unpaid wages of our worksite employees and for the accrued gross billings associated with such wages. These accruals are included in unbilled accounts receivable. We generally require clients to pay invoices for services fees no later than 1 day prior to the applicable payroll date. As such we generally do not require collateral. Unbilled accounts receivable consisted of the following: August 31, 2018 2017 (in thousands) Accrued worksite employee payroll cost $ 6,192 $ - Unbilled accounts receivable $ 6,192 $ - |
Fixed Assets
Fixed Assets | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 5: Fixed Assets | Fixed assets consisted of the following at August 31, 2018 and 2017: August 31, 2018 August 31, 2017 Equipment $ 227,687 $ 83,885 Furniture & fixtures 328,807 268,385 Software development costs 2,797,383 - Leasehold improvements 41,360 24,386 3,395,237 376,656 Accumulated depreciation & amortization (362,912 ) (88,591 ) Fixed assets, net $ 3,032,325 $ 288,065 Depreciation and amortization for the years ended August 31, 2018 and 2017, were $274,321 and $65,369, respectively. |
Software Development Costs
Software Development Costs | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 6: Software Development Costs | Certain development costs of our software solution are capitalized 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. Software development costs are reported under fixed assets, net in the consolidated balance sheet as of August 31, 2018. Information related to capitalized software costs is as follows: August 31, 2018 August 31, 2017 Software costs capitalized $ 2,797,383 $ - Software costs amortized 189,640 - Software costs, Net $ 2,607,743 $ - Amortization expense in fiscal 2018, and 2017 was $0.2 million and $0. The weighted average remaining life of amortizable intangible assets was 4.72 years as August 31, 2018. Amortization expense for all other intangibles is expected to approximate the following for each of the next five fiscal years and thereafter: Amount (in thousands) 2019 $ 559 2020 559 2021 559 2022 559 2023 370 2024 and beyond - |
Senior Secured Convertible Note
Senior Secured Convertible Note Payable | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 7: Senior Secured Convertible Note Payable | On June 4, 2018, the Company issued convertible notes in the principal amount of $10 million for a purchase price of $9 million to institutional investors, bearing interest at a rate of 8%, with maturity date of September 4, 2019, for cash proceeds of $8.4 million for mobile application development and support, IT and HR platform development and support and working capital. The Company incurred approximately $0.6 million of debt issuance costs that are incremental costs directly related to the issuance of the senior secured convertible notes payable. Concurrently with the sale of the notes, the Company also granted warrants to purchase 1,004,016 shares of common stock to its institutional investors and also granted warrants to purchase 216,867 shares of common stock to its investment banker as placement fees, at an exercise price of $2.49, subject to down round price protection adjustment, as defined in the agreements. The terms of convertible notes are summarized as follows: · Term: September 4, 2019; · Coupon: 8%; · Convertible at the option of the holder at any time; and · Conversion price is initially set at $2.49 but subject to down round price protection. After the 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; · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, or at 15% discount to the lowest volume weighted average price, at the option of the Company. The Company had the following principal balances under its convertible notes outstanding as of August 31, 2018 and 2017: August 31, August 31, 2018 2017 8% Senior Secured Convertible notes, Principal (in default) $ 10,000,000 $ - Less debt discount and debt issuance cost (2,843,485 ) - 7,156,515 - Less current portion of convertible notes payable (7,156,515 ) - Long-term convertible notes payable $ - $ - The Company recognized amortization expense related to the debt discount and debt issuance costs of $704,746 and $0 for the year ended August 31, 2018 and 2017, respectively, which is included in interest expense in the statements of operations. For the year ended August 31, 2018 and 2017, the interest expense on convertible notes was $191,111 and $0, respectively. As of August 31, 2018, and 2017, the accrued interest payable was $57,778 and $0, respectively. 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. The table below presents the changes of the debt issuance costs during the years ended August 31, 2018 and 2017: August 31, 2018 August 31, 2017 Debt issuance costs, August 31, 2017 $ - $ - Additions 765,077 - Amortization (147,915 ) - Debt issuance costs, August 31, 2018 $ 617,162 $ - Debt Discount During the year ended August 31, 2018, the Company recorded an aggregate debt discount of $2.8 million. The debt discount includes an initial $1 million resulting from the original issuance discount on the convertible notes and an initial $0.9 million resulting from the fair value of the warrants and $0.9 million resulting from the beneficial conversion feature on the non-detachable conversion option. The Company evaluated the warrants and determined that there was no embedded conversion feature as the warrants contained a set exercise price with an adjustment only based upon customary items including stock dividends and splits, subsequent rights offering and pro rata distributions. 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 $0.9 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 determined the fair value of the warrants using the Black-Scholes model and the variables used for the Black-Scholes model are as listed below: · Volatility: 29.17% · Risk free rate of return: 2.78% · Expected term: 5 years The debt discount is amortized straight-line over the stated life of the obligation, which approximates the effective interest method. As the Company allocated the proceeds based on the relative fair value, this reduced the proceeds allocated to the debt host instrument and as such, the effective conversion rate was lower than the stated conversion rate at commitment date, which triggered the recognition of a beneficial conversion option of approximately $0.9 million. As of August 31, 2018, the remaining unamortized balance was $2.2 million. The table below presents the changes of the debt discount during the years ended August 31, 2018 and 2017: August 31, 2018 August 31, 2017 Debt discount, August 31, 2017 $ - $ - Additions 2,783,154 - Amortization (556,831 ) - Debt discount, August 31, 2018 $ 2,226,323 $ - Event of default 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. Our 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 $3.9 million, which is reported under other current liabilities in its consolidated statement of operations. |
Stockholders' Equity
Stockholders' Equity | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 8: Stockholders Equity | Preferred Stock In September 2016, the Company issued options to purchase preferred stock at $0.0001 per share to our shareholders of record as of September 28, 2016. 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, or (b) the number of shares of common stock held by such Shareholder on date of the Shareholder’s exercise of the aforesaid Option. Preferred Stockholders can 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 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 Stock During the years ended August 31, 2018 and 2017, the Company has issued shares of common stock as follows: During the year ended August 31, 2018, the Company issued 37,500 shares of common stock following the exercise of warrants with an exercise price of $2.00 for $75,000. During the fiscal year ended August 31, 2017, the Company issued 67,500 shares of common stock following the exercise of warrants, of which 57,500 with an exercise price of $2.00 and 10,000 with an exercise price of $3.00 for $145,000. On September 28, 2017, the Company issued to two independent directors each 26,316 shares of common stock through the ShiftPixy, Inc., 2017 Stock Option/Stock Issuance Plan (“the Plan”), of which 50% vested on the date marking their six-month anniversary and the remaining 50% of the shares will vest ratably over the remaining service period through November 28, 2018. For the year ended August 31, 2018, the Company recognized $75,000 of compensation expense in its shareholders’ equity for the 50% that have fully vested on the six-month anniversary and $61,850 of compensation expense for the balance. On August 7, 2018, the Board of Directors awarded 24,592 shares of common stock having a value of $75,000 to Kenneth W. Weaver, of which 50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will vest ratably over the remaining service period through November 30, 2018. For the year ended August 31, 2018, the Company recognized $37,503 of compensation expense in its shareholders’ equity for the 50% that have fully vested and have accrued $18,751 of compensation expense for the balance. On March 16, 2017, the Company granted 50,000 common shares through the Plan to Kenneth W. Weaver, of which 25,000 common shares fully vested on December 5, 2017, as a consequence of Mr. Weaver continued service through that date. During the years ended August 31, 2018 and 2017, the Company recognized 13,251 and 36,749, respectively shares of common stock for services for total compensation expense of $50,354 and $139,646, respectively, recognized in its statement of operation. During the year ended August 31, 2017, the Company sold 2,000,000 shares of common stock for $10,887,261 in cash, net of offering costs paid of $1,112,739. During the year ended August 31, 2017, the Company sold 394,375 shares of common stock for $1,577,500 in cash. The Company also issued 635,313 warrants in connection with these stock sales during the year ended August 31, 2017. The warrants have exercise prices ranging from $4 to $6.90 per warrant. During the year ended August 31, 2017, the Company issued 86,749 shares of common stock for services. The Company expensed the fair value of the common stock issued of $329,645. Warrants The following tables summarize our warrants outstanding as of August 31, 2018 and 2017: Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2016 2,027,600 2.5 $ 2.50 Issued 635,313 1.5 $ 4.46 (Exercised) (67,500 ) - 2.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2017 2,595,413 1.5 $ 2.99 Issued 1,220,883 5.3 $ 2.49 (Exercised) (37,500 ) 1.2 2.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2018 3,778,796 2.13 $ 2.84 The following table summarizes information about warrants outstanding as of August 31, 2018: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years $ 2.00 918,800 0.5 $ 2.49 1,220,883 5.3 $ 3.00 1,003,800 0.5 $ 4.00 535,313 0.5 $ 6.90 100,000 3.8 3,778,796 2.4 The total aggregated intrinsic value of warrants as of August 31, 2018, and 2017 is $2,610,235, and $3,190,895, respectively. During the year ended August 31, 2018, the Company issued warrants to purchase 1,220,883 shares of common stock to investors in connection with the senior secured convertible notes, with exercise price of $2.49 per warrant with expiration date of 5 years. The Company valued the issued warrants using the Black-Scholes 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 29.17%. During the year ended August 31, 2017, the Company issued warrants to purchase 635,313 shares of common stock to investors in connection with the sales of common stock, with exercise prices ranging from $4.0 to $6.90 per warrant with expiration dates ranging from 6 months to 3.8 years. |
Stock based compensation
Stock based compensation | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 9: Stock 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, non-qualified stock options and stock. The Company has reserved a total of 10,000,000 shares of common stock for issuance under the Plan. Of these shares, as of August 31, 2018, approximately 1,868,745 options and 177,224 shares have been designated by the Board of Directors for issuance and approximately 520,000 of the options have been forfeited and returned to the option pool under the Plan as a consequence of employment terminations. Unless the Plan Administrator otherwise provides, each option is immediately exercisable, but the shares subject to such option will vest 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. As of the date of this filing, 296,250 options have vested. The issuance of shares under the Plan vest according to terms established for such issuance by the Plan Administrator. The Company granted options to purchase an aggregate total of 948,745 and 920,000 shares of Common Stock during the year ended August 31, 2018, and 2017, respectively. Stock compensation expense was $200,332 and $43,415, respectively for the year ended August 31, 2018, and 2017. A summary of option activity as of August 31, 2018 and 2017 is presented below: Number Outstanding Weighted-Average Exercise Price Per Share Outstanding at September 1, 2016 - $ - Granted 920,000 4.60 Exercised – – Canceled/forfeited/expired (130,000 ) 4.45 Outstanding at August 31, 2017 790,000 4.62 Granted 948,745 2.64 Exercised – – Canceled/forfeited/expired (390,000 ) 3.87 Outstanding at August 31, 2018 1,348,745 3.45 Options vested and exercisable at August 31, 2018 180,521 $ 4.56 At August 31, 2018 and 2017, the total compensation cost related to unvested share-based awards not yet recognized is $1.0 million and $1.1 million, respectively, which is expected to be recognized over approximately 3.15 and 3.6 years on a weighted-average basis, respectively. The weighted average estimated fair value per share of the stock options at grant date was $2.70 and $4.44 per share, respectively for the years ended August 31, 2018 and 2017. The total intrinsic value of options as of August 31, 2018, and 2017, is $575,395 and $77,550, respectively. Such fair values were estimated using the Black-Scholes stock option pricing model and the following weighted average assumptions. 2018 2017 Expected life 4.0 years 4.0 years Estimated volatility 27.45% - 48.59 % 37.03% - 44.74 % Risk-free interest rate 2.01% - 2.83 % 1.86% - 2.80 % Dividends - - |
Related Parties
Related Parties | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 10: Related Parties | Scott Absher, Chief Executive Officer and a Director, transitioned to being the Company’s employee on April 1, 2016. During the year ended August 31, 2018, and 2017, the Company recorded $750,000 and $500,000, respectively as compensation for his role as CEO in accordance with his employment agreement. On March 15, 2017, Scott Absher was granted 50,000 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 $4.00. J. Stephan Holmes is an advisor to and a significant shareholder of the Company. The Company incurred $700,000 and $360,000 in such professional fees to J. Stephen Holmes for management consulting services for the year ended August 31, 2018, and 2017, respectively. On March 15, 2017, Stephan Holmes was granted 50,000 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 $4.00. On February 1, 2018, Patrice H. Launay, Chief Financial Officer, was granted 50,000 options to purchase common stock, as part of the 2017 Plan, at an exercise price of $2.95 and exercisable in February 2018, with expiration date in January 2028. On May 10, 2018, he was also granted an additional 6,250 options to purchase common stock exercisable at an exercise price of $2.50 exercisable in May 2018 with expiration date in May 2028. During the year ended August 31, 2018 and 2017, the Company recorded $180,000 and $0, respectively as compensation for his role as Chief Financial Officer in accordance with his employment agreement dated January 24, 2018. On May 15, 2017, Mark Absher, Director and In-House Counsel and brother of Scott Absher, was granted 50,000 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 $4.00. On May 10, 2018, Mark Absher was also granted an additional 50,000 options to purchase common stock at an exercise price of $2.50 and exercisable in May 2018 with expiration date in May 2028. During the year ended August 31, 2018 and 2017, the Company recorded $300,000 and $200,000, respectively as compensation for his role as Registered In-House Counsel in accordance with his employment agreement. On September 28, 2017, Sean Higgins, one of the Company’s independent directors, was awarded 26,316 shares for services at an assumed fair value of $2.85. For the year ended August 31, 2018, the Company recognized $37,500 of compensation expense in its shareholders’ equity for the potion that fully vested at year end and have accrued $30,925 of compensation expense for the balance. The Company also recorded $79,000 as compensation for his role as independent director for the year ended August 31, 2018. On September 28, 2017, Whitney White, one of the Company’s independent directors, was awarded 26,316 shares for services at an assumed fair value of $2.85. For the year ended August 31, 2018, the Company recognized $37,500 of compensation expense in its shareholders’ equity for the potion that fully vested at year end and have accrued $30,925 of compensation expense for the balance. The Company also recorded $85,000 as compensation for his role as independent director for the year ended August 31, 2018 On August 7, 2018, the Board of Directors awarded 24,592 shares of common stock having a value of $75,000 to Kenneth W. Weaver, of which 50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will vest ratably over the remaining service period through November 30, 2018. For the year ended August 31, 2018, the Company recognized $37,503 of compensation expense in its shareholders’ equity for the 50% that have fully vested and have accrued $18,751 of compensation expense for the balance |
Income Taxes
Income Taxes | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 11: 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, 2018, and 2017, the Company had cumulative net operating loss carryforwards of approximately $26,673,000 and $9,936,000 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 2018 and 2017 was approximately $3,443,000 and $3,213,000, respectively. Significant components of the net deferred tax assets as reflected on the Consolidated Balance Sheets are as follows: August 31, 2018 2017 (in thousands) Deferred tax liabilities: Depreciation $ (21,000 ) $ - Software development costs (835,000 ) - Total deferred tax liabilities (856,000 ) - Deferred tax assets: Net operating loss carryforward 8,010,000 4,026,000 Workers’ compensation accruals 360,000 - Stock-based compensation 172,000 160,000 Deferred rent 16,000 23,000 Total deferred tax assets 8,558,000 4,209,000 Valuation allowance (7,702,000 ) (4,209,000 ) Total net deferred tax assets 856,000 - Net deferred tax assets $ - $ - The reconciliation of the statutory federal rate to the Company’s effective income tax rate is as follows: August 31, 2018 August 31, 2017 Benefit computed at statutory federal rate $ 4,145,000 $ 2,535,000 Non-deductible penalties and other permanent differences $ (177,000 ) $ (85,000 ) State taxes (8.84%) $ 1,466,000 $ 659,000 Redetermination of prior year taxes $ - $ 104,000 Enactment of the 2017 Tax Reform Act $ (1,941,000 ) Change in valuation allowance $ (3,493,000 ) $ (3,213,000 ) 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 current 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, 2018, and 2017, 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. 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 be utilized. The Company is subject to taxation in the U.S. Our tax years for 2015 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 | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 12: Commitments and Contingencies | 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. 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, 2018, are as follows: Years ended August 31, 2019 $ 337,000 2020 348,000 2021 275,000 2022 - 2023 - Total minimum payments $ 960,000 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 with no minimum service requirements. There were no employer contributions to the Plan for the years ended August 31, 2018, and 2017. Litigation During the ordinary course of business, the Company is subject to various claims and litigation. We are not aware of any threatened litigation or action that could affect our operations. Furthermore, as of the date of this Annual Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our Company or has a material interest adverse to us. 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 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. Maribel Ramirez Litigation On May 1, 2018, claimant, Maribel Ramirez, filed a class action lawsuit, naming our subsidiary, Shift Human Capital Management Inc., and its client as defendants, claiming that she was forced to work hours for which she was not paid and denied lunch breaks, and rest periods, etc., to which she was entitled, and also claiming in separate government complaints that she was discriminated against and wrongfully terminated. 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 obligated 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 | 12 Months Ended |
Aug. 31, 2018 | |
Notes to Financial Statements | |
Note 13: Subsequent Events | The Company issued 267,500 shares of common stock following the exercise of warrants with an exercise price of $2.00 and $3.00 and received gross proceeds of $660,000. On September 28, 2017, the Company issued to its two independent directors each 26,316 shares of common stock through the ShiftPixy, Inc., 2017 Stock Option/Stock Issuance plan, of which 50% vested on September 28, 2018, marking the first anniversary of service. The Company granted 235,000 incentive stock options to employees with a grant-date average fair value of $3.13, which vest over a service period of 48 months. The stock options were valued using the Black-Scholes option-pricing model. The Company issued 225,724 shares of common stock following the conversion notices received from our institutional investors related to the senior secured convertible notes. Management has evaluated subsequent events pursuant to the issuance of the consolidated financial statements and has determined that other than listed above, no other subsequent events exist through the date of this filing. |
Summary of significant accoun_2
Summary of significant accounting policies (Policies) | 12 Months Ended |
Aug. 31, 2018 | |
Summary Of Significant Accounting Policies 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 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 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; · Deferred income taxes and related valuation allowance; · Projected development of workers’ compensation claims. |
Revenue Recognition | The Company provides an array of human resources and business solutions designed to help improve business performance. The Company’s revenues are primarily attributable to fees for providing staffing solutions and PEO/HCM (“Professional Employer Organization”/ “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. We account for our PEO revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations 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. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on our consolidated balance sheets. Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our worksite employees. Our cost of revenue associated with our revenue generating activities are 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. |
Segment Reporting | We operate one reportable segment under ASC 280, Segment Reporting |
Cash and cash Equivalents | The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. At August 31, 2018 and 2017, the Company did not have any cash equivalents. |
Concentration of Credit Risk | The Company maintains cash with a commercial bank, which is insured by the Federal Insurance Corporation (“FDIC”). At various times, we have 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. No one individual client represents more than 10% of our annualized revenues for either fiscal years 2018 or 2017. However, four clients represent 86% of total accounts receivable at August 31, 2018, compared to four clients representing approximately 58% of our total accounts receivable at August 31, 2017. |
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 our proprietary professional employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally five years. 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. |
Impairment and Disposal of Long-Lived Assets | We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment |
Workers' compensation | 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. During the year ended August 31, 2017, the Company funded an initial deposit of $2.3 million, which was included in Deposits – worker’ compensation (“deposits”) on the consolidated balance sheet. During the year ended August 31, 2018, the Company funded two months worth of policy premiums against this initial deposit for approximately $0.8 million. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash- workers’ compensation (“restricted cash”), a short-term asset, while the remainder of claims are included in deposits, a long-term asset in our consolidated balance sheets. As of August 31, 2018, the Company had restricted cash of $0.1 million and deposits of $1.4 million, both short term assets, for this retrospective rated policy The Company utilizes a third-party to estimate its loss development rate, which is primarily based 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 our workers’ compensation claims cost estimates. For the year ended August 31, 2018 and 2017 the Company accrued $0.6 million and $0 million, respectively, of estimated losses, which are recorded under Accrued workers’ compensation cost in our consolidated balance sheets. For the year ended August 31, 2018, the Company classified $0.1 million in short term accrued workers’ compensation and $0.5 million in long term accrued workers’ compensation in our consolidated balance sheets. Starting in July 2018, the Company’s workers’ compensation program for our 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 layer 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 restricted cash- workers’ compensation (“restricted cash”), a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation (“deposits”), a long-term asset in our consolidated balance sheets. During the year ended August 31, 2018, the Company funded an additional initial deposit for $1.4 million as well as an aggregate of $0.9 million in loss fund reserve. As of August 31, 2018, we had restricted cash- workers’ compensation of $0.2 million classified as a short-term asset and workers’ compensation - deposits of $2.2 million, classified as a long-term asset. Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our consolidated balance sheets. As of August 31, 2018, we had short term accrued workers’ compensation costs of $0.2 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 our 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 our 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. |
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. |
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, 2018, or 2017. The carrying value of accounts receivable, accounts payables, convertible notes, 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 $0.5 million and $0.3 million for the years ended August 31, 2018, and 2017, respectively. |
Stock-Based Compensation | At August 31, 2018, 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 consolidated statements of operations on their fair values. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. 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, 2018 For the year ended August 31, 2017 Senior Secured Convertible Notes (Note 7) 4,016,064 - Options 1,348,745 790,000 Warrants 3,778,796 2,595,413 Total potentially dilutive shares 9,143,605 3,385,413 |
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 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. 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 July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 but the Company elected to early adopt for its fiscal year ended August 31, 2018. ASC 815-40 required that a freestanding equity-linked financial instrument to be indexed to the issuer’s own stock to be classified as equity. An equity-linked embedded feature that meets the definition of a derivative may avoid bifurcation and derivative accounting if it is indexed to the issuer’s own stock. Today, a freestanding financial instrument or embedded feature isn’t considered indexed to the issuer’s own stock if it has a down round provision. Consequently, the freestanding financial instrument is classified as a liability, and if it meets the definition of a derivative, it must be measured at fair value with changes in fair value recorded through earnings. Under this guidance, entities will no longer consider a down round feature when determining whether a freestanding financial instrument (i.e. a warrant) or an embedded feature (i.e. a conversion option) that contains a down round feature is considered indexed to the entity’s own stock under ASC 815-40. Under ASC 815-40-35, the Company has adopted a sequencing policy. In the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. 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) | 12 Months Ended |
Aug. 31, 2018 | |
Summary Of Significant Accounting Policies | |
Schedule of average dilutive common shares | For the year ended August 31, 2018 For the year ended August 31, 2017 Senior Secured Convertible Notes (Note 7) 4,016,064 - Options 1,348,745 790,000 Warrants 3,778,796 2,595,413 Total potentially dilutive shares 9,143,605 3,385,413 |
Accounts Receivable (Tables)
Accounts Receivable (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Accounts Receivable | |
Summary of Unbilled accounts receivable | August 31, 2018 2017 (in thousands) Accrued worksite employee payroll cost $ 6,192 $ - Unbilled accounts receivable $ 6,192 $ - |
Fixed Assets (Tables)
Fixed Assets (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Fixed Assets Tables | |
Summary of fixed assets consisted | August 31, 2018 August 31, 2017 Equipment $ 227,687 $ 83,885 Furniture & fixtures 328,807 268,385 Software development costs 2,797,383 - Leasehold improvements 41,360 24,386 3,395,237 376,656 Accumulated depreciation & amortization (362,912 ) (88,591 ) Fixed assets, net $ 3,032,325 $ 288,065 |
Software Development Costs (Tab
Software Development Costs (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Software Development Costs | |
Information of capitalized software costs | August 31, 2018 August 31, 2017 Software costs capitalized $ 2,797,383 $ - Software costs amortized 189,640 - Software costs, Net $ 2,607,743 $ - |
Amortization expense for other intangibles | Amount (in thousands) 2019 $ 559 2020 559 2021 559 2022 559 2023 370 2024 and beyond - |
Senior Secured Convertible No_2
Senior Secured Convertible Note Payable (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Senior Secured Convertible Note Payable | |
Principal balances under convertible notes | August 31, August 31, 2018 2017 8% Senior Secured Convertible notes, Principal (in default) $ 10,000,000 $ - Less debt discount and debt issuance cost (2,843,485 ) - 7,156,515 - Less current portion of convertible notes payable (7,156,515 ) - Long-term convertible notes payable $ - $ - |
Debt issuance costs for periods | August 31, 2018 August 31, 2017 Debt issuance costs, August 31, 2017 $ - $ - Additions 765,077 - Amortization (147,915 ) - Debt issuance costs, August 31, 2018 $ 617,162 $ - |
Debt discount during the period | August 31, 2018 August 31, 2017 Debt discount, August 31, 2017 $ - $ - Additions 2,783,154 - Amortization (556,831 ) - Debt discount, August 31, 2018 $ 2,226,323 $ - |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Stockholders Equity Tables | |
Summary of warrants outstanding | Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2016 2,027,600 2.5 $ 2.50 Issued 635,313 1.5 $ 4.46 (Exercised) (67,500 ) - 2.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2017 2,595,413 1.5 $ 2.99 Issued 1,220,883 5.3 $ 2.49 (Exercised) (37,500 ) 1.2 2.00 (Cancelled) - - - (Expired) - - - Warrants outstanding, August 31, 2018 3,778,796 2.13 $ 2.84 |
Summary of information about warrants outstanding | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years $ 2.00 918,800 0.5 $ 2.49 1,220,883 5.3 $ 3.00 1,003,800 0.5 $ 4.00 535,313 0.5 $ 6.90 100,000 3.8 3,778,796 2.4 |
Stock based compensation (Table
Stock based compensation (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Stock Based Compensation Tables | |
Summary of stock option activity | Number Outstanding Weighted-Average Exercise Price Per Share Outstanding at September 1, 2016 - $ - Granted 920,000 4.60 Exercised – – Canceled/forfeited/expired (130,000 ) 4.45 Outstanding at August 31, 2017 790,000 4.62 Granted 948,745 2.64 Exercised – – Canceled/forfeited/expired (390,000 ) 3.87 Outstanding at August 31, 2018 1,348,745 3.45 Options vested and exercisable at August 31, 2018 180,521 $ 4.56 |
Summary of weighted average assumptions | 2018 2017 Expected life 4.0 years 4.0 years Estimated volatility 27.45% - 48.59 % 37.03% - 44.74 % Risk-free interest rate 2.01% - 2.83 % 1.86% - 2.80 % Dividends - - |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Income Taxes Tables | |
Significant components of the net deferred tax assets | August 31, 2018 2017 (in thousands) Deferred tax liabilities: Depreciation $ (21,000 ) $ - Software development costs (835,000 ) - Total deferred tax liabilities (856,000 ) - Deferred tax assets: Net operating loss carryforward 8,010,000 4,026,000 Workers’ compensation accruals 360,000 - Stock-based compensation 172,000 160,000 Deferred rent 16,000 23,000 Total deferred tax assets 8,558,000 4,209,000 Valuation allowance (7,702,000 ) (4,209,000 ) Total net deferred tax assets 856,000 - Net deferred tax assets $ - $ - |
Summary of benefit for income taxes | August 31, 2018 August 31, 2017 Benefit computed at statutory federal rate $ 4,145,000 $ 2,535,000 Non-deductible penalties and other permanent differences $ (177,000 ) $ (85,000 ) State taxes (8.84%) $ 1,466,000 $ 659,000 Redetermination of prior year taxes $ - $ 104,000 Enactment of the 2017 Tax Reform Act $ (1,941,000 ) Change in valuation allowance $ (3,493,000 ) $ (3,213,000 ) Net income tax provision $ - $ - |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Aug. 31, 2018 | |
Commitments And Contingencies Tables | |
Summary of minimum lease payments | Years ended August 31, 2018 $ 314,000 2019 337,000 2020 347,000 2021 270,000 2022 - Total minimum payments $ 1,268,000 |
Nature of Operations (Details N
Nature of Operations (Details Narrative) | 12 Months Ended |
Aug. 31, 2018 | |
Nature Of Operations Details Narrative | |
Date of incorporation | Jun. 3, 2015 |
Summary of significant accoun_4
Summary of significant accounting policies (Details) - shares | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Potentially dilutive shares | 9,143,605 | 3,385,413 |
Warrant [Member] | ||
Potentially dilutive shares | 3,778,796 | 2,595,413 |
Senior Secured Convertible Notes [Member] | ||
Potentially dilutive shares | 4,016,064 | |
Stock Option [Member] | ||
Potentially dilutive shares | 1,348,745 | 790,000 |
Summary of significant accoun_5
Summary of significant accounting policies (Details Narrative) | 12 Months Ended | |
Aug. 31, 2018USD ($)Integer | Aug. 31, 2017USD ($)Integer | |
Advertising costs | $ 500,000 | $ 300,000 |
Accounts receivable, percent | 86.00% | 58.00% |
Accounts receivable, number of clients | Integer | 4 | 4 |
Restricted cash - workers' compensation | $ 305,218 | |
Deposit-workers' compensation | 1,366,879 | 2,335,000 |
Restricted cash- workersÂ’ compensation | (305,218) | |
Accrued workers' compensation costs | $ 305,217 | |
Furniture & fixtures [Member] | Minimum [Member] | ||
Fixed assets estimated useful lives | 5 years | |
Furniture & fixtures [Member] | Maximum [Member] | ||
Fixed assets estimated useful lives | 7 years | |
Equipment [Member] | ||
Fixed assets estimated useful lives | 5 years | |
July 2018 [Member] | ||
Restricted cash - workers' compensation | $ 200,000 | |
Deposit-workers' compensation | 1,400,000 | 2,300,000 |
Restricted cash- workersÂ’ compensation | 800,000 | |
United Wisconsin Insurance Company [Member] | ||
Settlement claims | 500,000 | |
Third-Party [Member] | ||
Accrued workers' compensation costs | 600,000 | $ 0 |
Short term accrued workersÂ’ compensation | 200,000 | |
Long term accrued workersÂ’ compensation | 500,000 | |
WorkersÂ’ Compensation [Member] | ||
Deposit-workers' compensation | 1,400,000 | |
Restricted cash- workersÂ’ compensation | 100,000 | |
Short term accrued workersÂ’ compensation | 100,000 | |
Long term accrued workersÂ’ compensation | 500,000 | |
Short-term asset and workersÂ’ compensation - deposits | 2,200,000 | |
Loss fund reserve | $ 900,000 |
Going Concern (Details Narrativ
Going Concern (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |||
Jun. 30, 2018 | Jun. 29, 2017 | Aug. 31, 2018 | Aug. 31, 2017 | Aug. 31, 2016 | |
Cash | $ 1,649,783 | $ 5,896,705 | $ 868,532 | ||
Working capital deficit | (13,200,000) | ||||
Accumulated deficit | (25,976,706) | (9,400,227) | |||
Proceeds from initial public offering, net of costs | 1,112,739 | ||||
Net cash used in operating activities | (9,538,265) | (7,576,927) | |||
Mobile application development costs | 6,600,000 | ||||
Workers' compensation deposit | 1,400,000 | ||||
Quarterly payment from operations | 400,000 | ||||
Monthly payment from operations | $ 100,000 | ||||
IPO [Member] | |||||
Proceeds from initial public offering | $ 12,000,000 | ||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | $ 1,112,739 | |||
Private Placement [Member] | 8% senior secured convertible notes [Member] | |||||
Proceeds from initial public offering | $ 9,000,000 | ||||
Proceeds from initial public offering, net of costs | $ 8,400,000 |
Accounts Receivable (Details)
Accounts Receivable (Details) - USD ($) | Aug. 31, 2018 | Aug. 31, 2017 |
Accounts Receivable Details Narrative Abstract | ||
Accrued worksite employee payroll cost | $ 6,192,631 | |
Unbilled accounts receivable | $ 6,192,631 |
Fixed Assets (Details)
Fixed Assets (Details) - USD ($) | Aug. 31, 2018 | Aug. 31, 2017 |
Fixed Assets | $ 3,395,237 | $ 376,656 |
Accumulated depreciation & amortization | (362,912) | (88,591) |
Fixed assets, net | 3,032,325 | 288,065 |
Equipment [Member] | ||
Fixed Assets | 227,687 | 83,885 |
Furniture & fixtures [Member] | ||
Fixed Assets | 328,807 | 268,385 |
Software development costs [Member] | ||
Fixed Assets | 2,797,383 | |
Leasehold Improvements [Member] | ||
Fixed Assets | $ 41,360 | $ 24,386 |
Fixed Assets (Details Narrative
Fixed Assets (Details Narrative) - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Fixed Assets Details Narrative | ||
Depreciation & amortization expense | $ 274,321 | $ 65,369 |
Software Development Costs (Det
Software Development Costs (Details) - USD ($) | Aug. 31, 2018 | Aug. 31, 2017 |
Software Development Costs Details Abstract | ||
Software costs capitalized | $ 2,797,383 | |
Software costs amortized | 189,640 | |
Software costs, Net | $ 2,607,743 |
Software Development Costs (D_2
Software Development Costs (Details 1) $ in Thousands | Aug. 31, 2018USD ($) |
Software Development Costs Details Abstract | |
2,019 | $ 559 |
2,020 | 559 |
2,021 | 559 |
2,022 | 559 |
2,023 | 370 |
2024 and beyond |
Software Development Costs (D_3
Software Development Costs (Details Narrative) | 12 Months Ended |
Aug. 31, 2018 | |
Software Development Costs Details Abstract | |
Weighted average remaining life of amortizable intangible assets | 4 years 8 months 20 days |
Senior Secured Convertible No_3
Senior Secured Convertible Note Payable (Details) - USD ($) | Aug. 31, 2018 | Aug. 31, 2017 |
Senior Secured Convertible Note Payable Details Abstract | ||
8% Senior Secured Convertible notes, Principal (in default) | $ 10,000,000 | |
Less debt discount and debt issuance cost | (2,843,485) | |
Convertible Note, Net | 7,156,515 | |
Less current portion of convertible notes payable | (7,156,515) | |
Long-term convertible notes payable |
Senior Secured Convertible No_4
Senior Secured Convertible Note Payable (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Senior Secured Convertible Note Payable Details Abstract | ||
Debt issuance costs, August 31, 2017 | ||
Additions | 765,077 | |
Amortization | (147,915) | |
Debt issuance costs, August 31, 2018 | $ 617,162 |
Senior Secured Convertible No_5
Senior Secured Convertible Note Payable (Details 2) - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Senior Secured Convertible Note Payable Details Abstract | ||
Debt discount, August 31, 2017 | ||
Additions | 2,783,154 | |
Amortization | (556,831) | |
Debt discount, August 31, 2018 | $ 2,226,323 |
Senior Secured Convertible No_6
Senior Secured Convertible Note Payable (Details Narrative) - USD ($) | Jun. 04, 2018 | Aug. 31, 2018 | Aug. 31, 2017 |
8% Senior Secured Convertible notes, Principal | $ 10,000,000 | ||
Warrants granted | 1,004,016 | 948,745 | 920,000 |
Warrants exercise price | $ 2.49 | ||
Amortization debt discount and debt issuance cost | $ 704,746 | ||
Interest expense | 191,111 | ||
Accrued interest payable | 57,778 | ||
Incremental debt issuance costs | 800,000 | ||
Debt discount | 2,800,000 | ||
Original issuance discount | 1,000,000 | ||
Fair value of the warrants | $ 900,000 | ||
Expected term | 4 years | 4 years | |
Stock Option [Member] | |||
Warrants granted | 948,745 | 920,000 | |
Unamortized Debt discount | $ 2,200,000 | ||
Beneficial conversion feature | 900,000 | ||
Warrant [Member] | |||
Debt discount | $ 900,000 | ||
Volatility rate | 29.17% | ||
Risk free interest rate | 2.78% | ||
Expected term | 5 years | ||
Institutional Investors [Member] | |||
8% Senior Secured Convertible notes, Principal | $ 10,000,000 | ||
Purchase price of notes | $ 9,000,000 | ||
Interest rate | 8.00% | ||
Maturity date | Sep. 4, 2019 | ||
Proceeds from issuance of notes | $ 8,400,000 | ||
Debt issuance costs | $ 600,000 | ||
Description for event of default | <font style="font: 10pt Times New Roman, Times, Serif">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. Our 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. </font></p>" id="sjs-C29"><p style="margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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. Our 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. </font></p> | ||
Debt default amount recorded as other current liabilities | $ 3,900,000 | ||
Investment Banker [Member] | |||
Warrants granted | 216,867 | ||
Warrants exercise price | $ 2.49 |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - $ / shares | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Ending balance | 3,778,796 | |
Weighted average remaining life Beginning | 2 years 4 months 24 days | |
Warrant [Member] | ||
Beginning balance | 2,595,413 | 2,027,600 |
Issued | 1,220,883 | 635,313 |
Exercised | (37,500) | (67,500) |
Cancelled | ||
Expired | ||
Ending balance | 3,778,796 | 2,595,413 |
Weighted average remaining life Beginning | 1 year 6 months | 2 years 6 months |
Issued | 5 years 3 months 19 days | 1 year 6 months |
Expired | 1 year 2 months 12 days | |
Weighted average remaining life Ending | 2 years 1 month 16 days | 1 year 6 months |
Weighted Average Exercise Price Beginning | $ 2.99 | $ 2.50 |
Issued | 2.49 | 4.46 |
Exercised | 2 | 2 |
Cancelled | ||
Expired | ||
Weighted Average Exercise Price Ending | $ 2.84 | $ 2.99 |
Stockholders' Equity (Details 1
Stockholders' Equity (Details 1) | 12 Months Ended |
Aug. 31, 2018shares | |
Warrants Outstanding | 3,778,796 |
Weighted average life of outstanding warrants in years | 2 years 4 months 24 days |
$2.00 Per Share [Member] | |
Warrants Outstanding | 918,800 |
Weighted average life of outstanding warrants in years | 6 months |
2.49 Per Share [Member] | |
Warrants Outstanding | 1,220,883 |
Weighted average life of outstanding warrants in years | 5 years 3 months 19 days |
$3.00 Per Share [Member] | |
Warrants Outstanding | 1,003,800 |
Weighted average life of outstanding warrants in years | 6 months |
$4.00 Per Share [Member] | |
Warrants Outstanding | 535,313 |
Weighted average life of outstanding warrants in years | 6 months |
$6.90 Per Share [Member] | |
Warrants Outstanding | 100,000 |
Weighted average life of outstanding warrants in years | 3 years 9 months 18 days |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - USD ($) | Aug. 07, 2018 | Jun. 04, 2018 | Sep. 28, 2017 | Jun. 29, 2017 | Mar. 16, 2017 | Sep. 28, 2016 | Aug. 31, 2018 | Aug. 31, 2017 |
Conversion description | <font style="font: 10pt Times New Roman, Times, Serif">Preferred Stockholders can 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 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.</font></p>" id="sjs-G2"><p style="margin: 0pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Preferred Stockholders can 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 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.</font></p> | |||||||
Class of warrant or right expiration date | Dec. 31, 2023 | |||||||
Warrants Issued | $ 859,155 | |||||||
Offering costs | 1,112,739 | |||||||
Proceeds from exercise of warrants | 75,000 | 145,000 | ||||||
Intrinsic value of warrants | 2,610,235 | 3,190,895 | ||||||
Shares issued, value | $ 2,886 | $ 2,877 | ||||||
Warrants granted | 1,004,016 | 948,745 | 920,000 | |||||
Expected life | 4 years | 4 years | ||||||
Dividends | 0.00% | 0.00% | ||||||
IPO One [Member] | ||||||||
Common stock shares sold | 394,375 | |||||||
Cash received from sale of common stock | $ 1,577,500 | |||||||
Warrants Issued | $ 635,313 | |||||||
IPO [Member] | ||||||||
Common stock shares sold | 2,000,000 | |||||||
Cash received from sale of common stock | $ 10,887,261 | |||||||
Offering costs | $ 10,900,000 | $ 1,112,739 | ||||||
Minimum [Member] | ||||||||
Estimated volatility | 27.45% | 37.03% | ||||||
Risk-free interest rate | 2.01% | 1.86% | ||||||
Maximum [Member] | ||||||||
Estimated volatility | 48.59% | 44.74% | ||||||
Risk-free interest rate | 2.83% | 2.80% | ||||||
Kenneth W. Weaver [Member] | 2017 Stock Option [Member] | ||||||||
Common stock issued for services | 13,251 | 36,749 | ||||||
Shares issued | 24,590 | |||||||
Shares issued, value | $ 75,000 | |||||||
Stock option vesting description | <font style="font: 10pt Times New Roman, Times, Serif">50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will deem to vest on November 30, 2018.</font></p>" id="sjs-B30"><p style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will deem to vest on November 30, 2018.</font></p> | <font style="font: 10pt Times New Roman, Times, Serif">25,000 common shares fully vested on December 5, 2017, as a consequence of Mr. Weaver continued service through that date.</font></p>" id="sjs-F30"><p style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">25,000 common shares fully vested on December 5, 2017, as a consequence of Mr. Weaver continued service through that date.</font></p> | ||||||
Warrants granted | 50,000 | |||||||
Director [Member] | 2017 Stock Option [Member] | ||||||||
Shares issued | 26,316 | |||||||
Stock option vesting description | <font style="font: 10pt Times New Roman, Times, Serif">50% vested on the date marking their six-month anniversary and the remaining 50% of the shares vesting on the first anniversary of service under the executed agreement.</font></p>" id="sjs-D34"><p style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">50% vested on the date marking their six-month anniversary and the remaining 50% of the shares vesting on the first anniversary of service under the executed agreement.</font></p> | |||||||
Director One [Member] | 2017 Stock Option [Member] | ||||||||
Shares issued | 26,316 | |||||||
Statement Of Operation [Member] | Kenneth W. Weaver [Member] | 2017 Stock Option [Member] | ||||||||
Compensation expense | $ 18,751 | |||||||
Statement Of Operation [Member] | Director [Member] | 2017 Stock Option [Member] | ||||||||
Compensation expense | 61,850 | |||||||
Statement Of Operation [Member] | Kenneth W. Weaver On [Member] | 2017 Stock Option One [Member] | ||||||||
Compensation expense | $ 50,354 | $ 139,646 | ||||||
Warrant [Member] | ||||||||
Common stock issued for services | 86,749 | |||||||
Common stock issued expense | $ 329,645 | |||||||
Weighted average exercise price | $ 2.49 | $ 4.46 | ||||||
Warrants exercised for cash, Shares | 37,500 | 67,500 | ||||||
Proceeds from exercise of warrants | $ 75,000 | $ 145,000 | ||||||
Exercise price of warrants | $ 2 | |||||||
Expected life | 5 years | |||||||
Estimated volatility | 29.17% | |||||||
Risk-free interest rate | 2.78% | |||||||
Warrant [Member] | Minimum [Member] | ||||||||
Weighted average exercise price | $ 4 | |||||||
Warrant [Member] | Maximum [Member] | ||||||||
Weighted average exercise price | $ 6.90 | |||||||
Warrant [Member] | Investor [Member] | ||||||||
Warrants Issued | $ 1,220,883 | $ 635,313 | ||||||
Exercise price of warrants | $ 2.4 | |||||||
Expected life | 5 years | |||||||
Estimated volatility | 29.17% | |||||||
Risk-free interest rate | 2.78% | |||||||
Dividends | 0.00% | |||||||
Warrant [Member] | Investor [Member] | Minimum [Member] | ||||||||
Exercise price of warrants | $ 4 | |||||||
Expected life | 6 years | |||||||
Warrant [Member] | Investor [Member] | Maximum [Member] | ||||||||
Exercise price of warrants | $ 6.90 | |||||||
Expected life | 3 years 9 months 18 days | |||||||
Shareholders Equity [Member] | Kenneth W. Weaver [Member] | 2017 Stock Option [Member] | ||||||||
Compensation expense | $ 37,503 | |||||||
Shareholders Equity [Member] | Director [Member] | 2017 Stock Option [Member] | ||||||||
Compensation expense | $ 75,000 | |||||||
Warrant Two [Member] | ||||||||
Warrants exercised for cash, Shares | 10,000 | |||||||
Exercise price of warrants | $ 3 | |||||||
Warrant One [Member] | ||||||||
Warrants exercised for cash, Shares | 57,500 | |||||||
Exercise price of warrants | $ 2 |
Stock based compensation (Detai
Stock based compensation (Details) - $ / shares | Jun. 04, 2018 | Aug. 31, 2018 | Aug. 31, 2017 |
Granted | 1,004,016 | 948,745 | 920,000 |
Ending balance | 3,778,796 | ||
Stock Option [Member] | |||
Beginning balance | 790,000 | ||
Granted | 948,745 | 920,000 | |
Exercised | |||
Canceled/forfeited/expired | (390,000) | (130,000) | |
Ending balance | 1,348,745 | 790,000 | |
Options vested and exercisable at August 31, 2018 | 180,521 | ||
Weighted Average Exercise Price Beginning | $ 4.62 | ||
Granted | 2.64 | 4.60 | |
Exercised | |||
Canceled/forfeited/expired | 3.87 | 4.45 | |
Weighted Average Exercise Price Ending | 3.45 | $ 4.62 | |
Options vested and exercisable at August 31, 2018 | $ 4.56 |
Stock based compensation (Det_2
Stock based compensation (Details 1) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Expected life | 4 years | 4 years |
Dividends | 0.00% | 0.00% |
Minimum [Member] | ||
Estimated volatility | 27.45% | 37.03% |
Risk-free interest rate | 2.01% | 1.86% |
Maximum [Member] | ||
Estimated volatility | 48.59% | 44.74% |
Risk-free interest rate | 2.83% | 2.80% |
Stock based compensation (Det_3
Stock based compensation (Details Narrative) - USD ($) | Jun. 04, 2018 | Aug. 31, 2018 | Aug. 31, 2017 |
Common stock option granted shares | 1,004,016 | 948,745 | 920,000 |
Number of options vested | 296,250 | ||
Stock based compensation expense | $ 200,332 | $ 43,415 | |
Unrecognized cost of unvested share-based compensation awards | $ 1,000,000 | $ 1,100,000 | |
Expected to recognized for equity-based compensation plans | 3 years 1 month 24 days | 3 years 7 months 6 days | |
Total intrinsic value of options | $ 575,395 | $ 77,550 | |
March 2017 [Member] | |||
Vesting period description | <font style="font: 9pt Times New Roman, Times, Serif">Unless the Plan Administrator otherwise provides, each option is immediately exercisable, but the shares subject to such option will vest 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</font></p>" id="sjs-C9"><p style="margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif">Unless the Plan Administrator otherwise provides, each option is immediately exercisable, but the shares subject to such option will vest 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</font></p> | ||
March 2017 [Member] | Board of Directors [Member] | |||
Common stock option granted shares | 1,868,745 | ||
Options designated shares | 177,224 | ||
Forfeited | 520,000 | ||
March 2017 [Member] | 2017 Stock Option Plan [Member] | Stock Issuance Plan [Member] | |||
Common shares reserved for future issuance | 10,000,000 | ||
Stock Option [Member] | |||
Common stock option granted shares | 948,745 | 920,000 | |
Weighted average grant date fair value | $ 2.70 | $ 4.44 |
Related Parties (Details Narrat
Related Parties (Details Narrative) - USD ($) | Aug. 07, 2018 | Jun. 04, 2018 | Mar. 15, 2017 | Sep. 28, 2017 | Aug. 31, 2018 | Aug. 31, 2017 |
Professional fees | $ 2,240,690 | $ 1,369,242 | ||||
Common stock option granted shares | 1,004,016 | 948,745 | 920,000 | |||
Chief Executive Officer [Member] | April 1, 2016 [Member] | Employment Agreement [Member] | ||||||
Officers compensation | $ 750,000 | $ 500,000 | ||||
Chief Financial Officer [Member] | January 24, 2018 [Member] | Employment Agreement [Member] | ||||||
Officers compensation | 180,000 | 0 | ||||
2017 Plan [Member] | Chief Executive Officer [Member] | April 1, 2016 [Member] | ||||||
Common stock option granted shares | 50,000 | |||||
Exercise price per share | $ 4 | |||||
Exercisable period of the option | Mar. 15, 2017 | |||||
Expiration date of the option | Mar. 14, 2027 | |||||
2017 Plan [Member] | Mark Absher One [Member] | ||||||
Officers compensation | $ 300,000 | 200,000 | ||||
2017 Plan [Member] | Mark Absher One [Member] | On May 10, 2018 [Member] | ||||||
Exercise price per share | $ 2.50 | |||||
Exercisable period of the option | May 31, 2018 | |||||
Expiration date of the option | May 31, 2028 | |||||
Additional shares of common stock | 50,000 | |||||
2017 Plan [Member] | Mark Absher [Member] | On May 15, 2017 [Member] | ||||||
Common stock option granted shares | 50,000 | |||||
Exercise price per share | $ 4 | |||||
Exercisable period of the option | Mar. 15, 2017 | |||||
Expiration date of the option | Mar. 14, 2027 | |||||
2017 Plan [Member] | Patrice H. Launay One [Member] | On May 10, 2018 [Member] | ||||||
Exercise price per share | $ 2.50 | |||||
Exercisable period of the option | May 31, 2018 | |||||
Expiration date of the option | May 31, 2028 | |||||
Additional shares of common stock | 6,250 | |||||
2017 Plan [Member] | Patrice H. Launay [Member] | On February 1, 2018 [Member] | ||||||
Common stock option granted shares | 50,000 | |||||
Exercise price per share | $ 2.95 | |||||
Exercisable period of the option | Feb. 28, 2018 | |||||
Expiration date of the option | Jan. 31, 2028 | |||||
Ken Weaver [Member] | ||||||
Common stock option granted shares | 24,592 | |||||
Officers compensation | $ 75,000 | |||||
Compensation expense | $ 37,503 | |||||
Accrued compensation expense | $ 18,751 | |||||
Vested description | <font style="font: 10pt Times New Roman, Times, Serif">Kenneth W. Weaver, of which 50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will vest ratably over the remaining service period through November 30, 2018.</font></p>" id="sjs-B40"><p style="margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Kenneth W. Weaver, of which 50% fully vested upon issuance considering Mr. Weaver completed services under his director agreement through May 31, 2018, and the remaining 50% will vest ratably over the remaining service period through November 30, 2018.</font></p> | |||||
Equity vested percentage | 50.00% | |||||
Whitney White [Member] | ||||||
Common stock option granted shares | 26,316 | |||||
Officers compensation | $ 85,000 | |||||
Fair value price per share | $ 2.85 | |||||
Compensation expense | $ 37,500 | |||||
Accrued compensation expense | 30,925 | |||||
Sean Higgins [Member] | ||||||
Common stock option granted shares | 26,316 | |||||
Officers compensation | $ 79,000 | |||||
Fair value price per share | $ 2.85 | |||||
Compensation expense | 37,500 | |||||
Accrued compensation expense | 30,925 | |||||
J. Stephan Holmes [Member] | ||||||
Professional fees | $ 700,000 | $ 360,000 | ||||
J. Stephan Holmes [Member] | 2017 Plan [Member] | ||||||
Common stock option granted shares | 50,000 | |||||
Exercise price per share | $ 4 | |||||
Exercisable period of the option | Mar. 15, 2017 | |||||
Expiration date of the option | Mar. 14, 2027 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | Aug. 31, 2018 | Aug. 31, 2017 |
Deferred tax liabilities: | ||
Depreciation | $ (21,000) | |
Software development costs | (835,000) | |
Total deferred tax liabilities | (856,000) | |
Deferred tax assets: | ||
Net operating loss carryforward | 8,010,000 | 4,026,000 |
WorkersÂ’ compensation accruals | 360,000 | |
Stock-based compensation | 172,000 | 160,000 |
Deferred rent | 16,000 | 23,000 |
Total deferred tax assets | 8,558,000 | 4,209,000 |
Valuation allowance | (7,702,000) | (4,209,000) |
Total net deferred tax assets | 856,000 | |
Net deferred tax assets |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Income Taxes Details 1Abstract | ||
Benefit computed at statutory federal rate of 34% | $ 4,145,000 | $ 2,535,000 |
Non-deductible penalties and other permanent differences | (177,000) | (85,000) |
State taxes (8.84%) | 1,466,000 | 659,000 |
Redetermination of prior year taxes | 104,000 | |
Enactment of the 2017 Tax Reform Act | (1,941,000) | |
Change in valuation allowance | (3,493,000) | (3,213,000) |
Net income tax provision |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
Aug. 31, 2018 | Aug. 31, 2017 | |
Income Taxes Details Narrative | ||
Net operating loss carryforwards | $ 26,673,000 | $ 9,936,000 |
Operating loss carryforwards, expiry year | 2,029 | |
Change in valuation allowance | $ (3,443,000) | $ (3,213,000) |
Gross deferred tax assets | $ 1,277,000 |
Commitments and Contingencies_2
Commitments and Contingencies (Details) | Aug. 31, 2018USD ($) |
Commitments And Contingencies Details | |
2,019 | $ 337,000 |
2,020 | 348,000 |
2,021 | 275,000 |
2,022 | |
2,023 | |
Total minimum payments | $ 960,000 |
Commitments and Contingencies_3
Commitments and Contingencies (Details Narrative) - shares | 1 Months Ended | |
Jun. 21, 2018 | Apr. 15, 2016 | |
Irvine facility [Member] | ||
Term of operating lease | 5 years | |
Lyons Capital, LLC [Member] | ||
Exchange shares of common stock | 210,000 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |
Sep. 28, 2017 | Aug. 31, 2018 | Aug. 31, 2017 | |
Proceeds from exercise of warrants | $ 75,000 | $ 145,000 | |
Warrant [Member] | |||
Proceeds from exercise of warrants | $ 75,000 | $ 145,000 | |
Exercise price per share | $ 2 | ||
Subsequent Event [Member] | Incentive stock options [Member] | |||
Stock options granted | 235,000 | ||
Fair value price per share | $ 3.13 | ||
Vesting period | 48 months | ||
Subsequent Event [Member] | Warrant [Member] | |||
Common stock issued for exercise of warrants | 267,500 | ||
Proceeds from exercise of warrants | $ 660,000 | ||
Subsequent Event [Member] | Warrant [Member] | Maximum [Member] | |||
Exercise price per share | $ 3 | ||
Subsequent Event [Member] | Warrant [Member] | Minimum [Member] | |||
Exercise price per share | $ 2 | ||
Subsequent Event [Member] | First Anniversary [Member] | |||
Vesting rights percentage | 50.00% | ||
Subsequent Event [Member] | Institutional Investors [Member] | |||
Common stock shares issued upon conversion of senior secured convertible debt | 225,724 | ||
Subsequent Event [Member] | Two independent directors [Member] | |||
Stock options granted | 26,316 |