Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Feb. 28, 2019 | Apr. 10, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | SHIFTPIXY, INC. | |
Entity Central Index Key | 0001675634 | |
Document Type | 10-Q/A | |
Document Period End Date | Feb. 28, 2019 | |
Amendment Flag | true | |
Amemdment Description | This Form 10-Q/A (Amendment No. 1) (the "Amended Filing") is being filed to amend and restate in its entirety the following item of our Quarterly Report on Form 10-Q for the quarter ended February 28, 2019, as originally filed with the Securities and Exchange Commission on April 15, 2019 (the "Original Filing"): (i) Item 1 of Part I “Financial Information,” (ii) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”. This Form 10-Q/A includes Exhibits 31.1, 31.2, 32.1 and 32.2, new certifications by the Company’s principal executive officer and principal financial officer as required by Rule 12b-15. On June 4, 2018, the Company entered into securities purchase agreement (the “Purchase Agreement) with certain institutional investors (the “investors”) for the sale by the Company of $10,000,000 of 8% senior secured convertible notes due September 4, 2019 (the “Notes”). The notes are amortized over a 15 month period commencing on first day of the month after the date that is the earlier of the date that a registration statement covering the shares underlying the notes has been declared effective by the Securities and Exchange Commission or 180 days after the original issue date. At any time after the original issuance date, the notes should be convertible into shares of common stock, at the option of the holder. The conversion price in effect on any conversion date shall be equal to $2.49, subject to adjustment, mainly related to standard anti-dilution adjustments and subsequent issuances of equity securities at effective prices that are lower than the initial conversion price (“down round”). The notes state that “from and after the maturity date, the conversion price should be equal to the lesser of (i) the then conversion price and (ii) 85% of the volume weighted average price (“VWAP”) immediately prior to the applicable conversion date”. Since the shares underlying the notes were declared effective by the Securities and Exchange Commission on October 29, 2018, the Company has converted conversion requests from its investors at a fifteen percent discount to the lowest VWAP in excess of the securities issuable pursuant to the original conversion terms, creating an induced conversion. U.S. GAAP require that such conversion be treated as induced conversion with an expense recognized equal to the fair value of the shares of common stock transferred in the transaction in excess of the fair value of the securities issuable pursuant to the original conversion terms, with such fair value being measured as of the date of the inducement offer is accepted by the convertible debt holder. Accordingly, the Company recognized a non-cash debt conversion expense of $1.6 million for the three and six months ended February 28, 2019. | |
Current Fiscal Year End Date | --08-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 34,688,506 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2019 | |
Entity Emerging Growth Company | true | |
Entity Small Business | true | |
Entity Ex Transition Period | false | |
Entity Shell Company | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 |
Current assets | ||
Cash | $ 1,798,867 | $ 1,649,783 |
Accounts receivable | 743,580 | 110,931 |
Unbilled accounts receivable | 5,170,887 | 6,192,631 |
Deposit – workers’ compensation | 2,164,847 | 1,672,097 |
Prepaid expenses | 314,187 | 563,002 |
Other current assets | 219,590 | 258,901 |
Total current assets | 10,411,958 | 10,447,345 |
Fixed assets, net | 3,150,767 | 3,032,325 |
Deposits – workers’ compensation | 3,968,435 | 2,201,556 |
Deposits and other assets | 94,375 | 120,606 |
Total assets | 17,625,535 | 15,801,832 |
Current liabilities | ||
Accounts payable | 1,690,384 | 1,246,461 |
Payroll related liabilities | 11,476,809 | 9,476,641 |
Convertible note, net | 4,362,333 | 6,171,315 |
Accrued workers compensation costs | 1,012,676 | 305,217 |
Registration rights penalties accrual (Note 4) | 3,500,000 | |
Other current liabilities | 1,837,493 | 1,955,921 |
Total current liabilities | 20,379,695 | 22,655,555 |
Non-current liabilities | ||
Accrued workers’ compensation costs | 2,009,869 | 900,978 |
Total liabilities | 22,389,564 | 23,556,533 |
Stockholders' deficit | ||
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; 32,117,326 and 28,851,787 shares issued and outstanding, respectively | 3,212 | 2,886 |
Additional paid-in capital | 25,842,632 | 18,465,419 |
Accumulated deficit | (30,609,873) | (26,223,006) |
Total stockholders’ deficit | (4,764,029) | (7,754,701) |
Total liabilities and stockholders’ deficit | $ 17,625,535 | $ 15,801,832 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Feb. 28, 2019 | Aug. 31, 2018 |
Stockholders' deficit | ||
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 | 32,117,326 | 28,851,787 |
Common stock, outstanding | 32,117,326 | 28,851,787 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | |
Condensed Consolidated Statements Of Operations | ||||
Revenues (gross billings of $82.5m and $48.6m less worksite employee payroll cost of $69.4m and $40.8m, respectively for the three months ended; gross billings of $153.4m and $88.8m less worksite employee payroll cost of $129.7m and $74.4m, respectively for six months ended) | $ 13,188,263 | $ 7,886,459 | $ 23,708,253 | $ 14,398,378 |
Cost of revenue | 9,967,236 | 7,007,315 | 17,101,404 | 12,273,718 |
Gross profit | 3,221,027 | 879,144 | 6,606,849 | 2,124,660 |
Operating expenses: | ||||
Salaries, wages and payroll taxes | 1,986,744 | 1,345,606 | 3,781,709 | 2,526,094 |
Stock-based compensation - general and administrative | 81,092 | 26,797 | 158,314 | 97,094 |
Commissions | 588,975 | 338,434 | 1,142,191 | 610,065 |
Professional fees | 895,083 | 508,787 | 1,519,128 | 1,001,242 |
Software development | 717,566 | 486,354 | 1,027,566 | 2,386,354 |
Depreciation and amortization | 191,114 | 57,949 | 378,837 | 75,643 |
General and administrative | 987,622 | 834,100 | 2,115,537 | 1,488,268 |
Total operating expenses | 5,448,196 | 3,598,027 | 10,123,282 | 8,184,760 |
Operating Loss | (2,227,169) | (2,718,883) | (3,516,433) | (6,060,100) |
Other (expense) income: | ||||
Interest expense | (968,774) | (1,925,996) | ||
Inducement loss from debt conversion | (1,555,550) | (1,555,550) | ||
Settlement of registration rights penalties accrual | 2,611,112 | 2,611,112 | ||
Total other income (expense) | 86,788 | (870,434) | ||
Net Loss | $ (2,140,381) | $ (2,718,883) | $ (4,386,867) | $ (6,060,100) |
Net loss per common share, Basic and diluted | $ (0.07) | $ (0.09) | $ (0.15) | $ (0.21) |
Weighted average number of common shares Basic and diluted | 31,185,358 | 28,800,630 | 30,152,305 | 28,792,333 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
OPERATING ACTIVITIES | ||
Net Loss | $ (4,386,867) | $ (6,060,100) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Inducement loss | 1,555,550 | |
Depreciation and amortization | 378,837 | 75,643 |
Settlement of registration rights penalties accrual | (2,611,112) | |
Amortization debt discount, debt issuance cost | 1,895,424 | |
Stock issued for services | 112,503 | 50,354 |
Stock-based compensation- general and administrative | 158,314 | 97,094 |
Non-cash interest | 297,878 | |
Changes in operating assets and liabilities | ||
Accounts receivable | (632,649) | 236,880 |
Unbilled accounts receivable | 1,021,744 | |
Prepaid expenses | 248,815 | (92,971) |
Other current assets | 39,311 | (17,363) |
Deposits – workers’ compensation | (2,259,629) | |
Deposits and other assets | 26,231 | (31,935) |
Accounts payable | 443,923 | 199,453 |
Payroll related liabilities | 2,000,168 | 940,809 |
Accrued workers’ compensation | 1,816,350 | |
Other current liabilities | (118,428) | 409,329 |
Net cash used in operating activities | (13,637) | (4,192,804) |
INVESTING ACTIVITIES | ||
Purchase of fixed assets | (497,279) | (849,480) |
Net cash used in investing activities | (497,279) | (849,480) |
FINANCING ACTIVITIES | ||
Proceeds from exercise of warrants | 660,000 | 50,000 |
Net cash provided by financing activities | 660,000 | 50,000 |
Net increase (decrease) in cash | 149,084 | (4,992,284) |
Cash - Beginning of Period | 1,649,783 | 5,896,705 |
Cash - End of Period | 1,798,867 | 904,421 |
Supplemental Disclosure of Cash Flows Information: | ||
Cash paid for interest | 144,889 | |
Non-cash Investing and Financing Activities: | ||
Conversion of debt and accrued interest into common stock | 4,891,173 | |
Additional Principal to settle registration rights penalties | $ 888,889 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders Deficit (Unaudited) - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Shares at Aug. 31, 2017 | 28,762,424 | |||
Beginning Balance, Amount at Aug. 31, 2017 | $ 2,877 | $ 15,012,584 | $ (9,400,227) | $ 5,615,234 |
Warrants exercised for cash, Shares | 25,000 | |||
Warrants exercised for cash, Amount | $ 2 | 49,998 | 50,000 | |
Common stock issued for services rendered, Shares | 13,252 | |||
Common stock issued for services rendered, Amount | $ 2 | 50,353 | 50,355 | |
Stock-based compensation expense | 97,095 | 97,095 | ||
Inducement loss from debt conversion, Amount | ||||
Net loss | (6,060,100) | (6,060,100) | ||
Ending Balance, Shares at Feb. 28, 2018 | 28,800,676 | |||
Ending Balance, Amount at Feb. 28, 2018 | $ 2,881 | 15,210,030 | (15,460,327) | (247,416) |
Beginning Balance, Shares at Oct. 31, 2017 | 28,799,856 | |||
Beginning Balance, Amount at Oct. 31, 2017 | $ 2,880 | 15,180,117 | (12,741,444) | 2,441,553 |
Common stock issued for services rendered, Shares | 820 | |||
Common stock issued for services rendered, Amount | $ 1 | 3,115 | 3,116 | |
Stock-based compensation expense | 26,798 | 26,798 | ||
Net loss | (2,718,883) | (2,718,883) | ||
Ending Balance, Shares at May. 31, 2018 | 28,800,676 | |||
Ending Balance, Amount at May. 31, 2018 | $ 2,881 | 15,210,030 | (15,460,327) | (247,416) |
Beginning Balance, Shares at Aug. 31, 2018 | 28,851,787 | |||
Beginning Balance, Amount at Aug. 31, 2018 | $ 2,886 | 18,465,419 | (26,223,006) | (7,754,701) |
Warrants exercised for cash, Shares | 267,500 | |||
Warrants exercised for cash, Amount | $ 27 | 659,973 | 660,000 | |
Common stock issued for services rendered, Shares | 38,612 | |||
Common stock issued for services rendered, Amount | $ 3 | 112,499 | 112,502 | |
Stock-based compensation expense | 158,314 | 158,314 | ||
Inducement loss from debt conversion, Shares | 980,669 | |||
Inducement loss from debt conversion, Amount | $ 98 | 1,555,452 | 1,555,550 | |
Common shares issued upon conversion of convertible notes and interest, Shares | 1,978,758 | |||
Common shares issued upon conversion of convertible notes and interest, Amount | $ 198 | 4,890,975 | 4,891,173 | |
Net loss | (4,386,867) | (4,386,867) | ||
Ending Balance, Shares at Feb. 28, 2019 | 32,117,326 | |||
Ending Balance, Amount at Feb. 28, 2019 | $ 3,212 | 25,842,632 | (30,609,873) | (4,764,029) |
Beginning Balance, Shares at Nov. 30, 2018 | 29,822,822 | |||
Beginning Balance, Amount at Nov. 30, 2018 | $ 2,983 | 20,960,157 | (28,469,492) | (7,506,352) |
Stock-based compensation expense | 81,092 | 81,092 | ||
Inducement loss from debt conversion, Shares | 980,669 | |||
Inducement loss from debt conversion, Amount | $ 98 | 1,555,452 | 1,555,550 | |
Common shares issued upon conversion of convertible notes and interest, Shares | 1,313,835 | |||
Common shares issued upon conversion of convertible notes and interest, Amount | $ 131 | 3,245,931 | 3,246,062 | |
Net loss | (2,140,381) | (2,140,381) | ||
Ending Balance, Shares at Feb. 28, 2019 | 32,117,326 | |||
Ending Balance, Amount at Feb. 28, 2019 | $ 3,212 | $ 25,842,632 | $ (30,609,873) | $ (4,764,029) |
Nature of Operations
Nature of Operations | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 1: Nature of Operations | ShiftPixy, Inc. (the “Company”) was incorporated in the State of Wyoming on June 3, 2015. The Company is a specialized staffing and human capital management 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., is incorporated in the State of Wyoming. SHCM functions substantially as a professional employer organization (“PEO”) and provides comprehensive human resources solutions under its co-employment model. SHCM assumes certain of the responsibilities of being an employer and helps its clients mitigate employer-related risks and manage many of the complex and burdensome administrative and compliance responsibilities associated with employment. 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 worker’s 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 the Company is providing these services recognize the value of the services provided by the parent Company. The Company is currently operating in one reportable segment. Note 1a: Amendment to previously reported quarterly financial statements The Company’s previously issued condensed consolidated financial statements for the three and six months ended February 28, 2019, have been restated since the Company has converted principal of the June 2018 convertible notes into shares of common stock at a fifteen percent discount to the lowest volume weighted average price in excess of the securities issuable pursuant to the original conversion terms, creating an induced conversion. Management reviewed ASC 470-20 Debt with Conversion and Other Options to arrive at this conclusion that the additional shares issued in the conversions should be treated as an inducement with an expense recognized equal to the fair value of the additional shares of common stock transferred in the transaction, with such fair value being measured as of the date of the inducement offer is accepted by the convertible debt holder. The Company has restated its accounting for these induced conversions and recorded a non-cash inducement loss from debt conversion on its condensed consolidated statements of operations and a corresponding impact to additional paid-in capital. As a result of these adjustments, net loss for the three and six months ended February 28, 2019, was increased by $1,555,550. The following table summarizes the effect of the restatement on the condensed consolidated financial statements for the effect of the aforementioned inducement expense along with the other adjustments described in note 2. SHIFTPIXY INC. CONDENSED CONSOLIDATED BALANCE SHEET February 28, 2019 (Unaudited) As Previously Reported Adjustment As ASSETS Total Assets $ 17,625,535 - $ 17,625,535 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current Liabilities Accounts payable 1,690,384 - 1,690,384 Payroll related liabilities 11,476,809 - 11,476,809 Convertible note, net 4,854,933 (492,600 ) 4,362,333 Accrued workers’ compensation costs 1,012,676 - 1,012,676 Other current liabilities 1,837,493 - 1,837,493 Total current liabilities 20,872,295 (492,600 ) 20,379,695 Non-current liabilities Accrued workers’ compensation costs 2,009,869 - 2,009,869 Total liabilities 22,882,164 (492,600 ) 22,389,564 COMMITMENTS AND CONTINGENCIES Stockholders’ Deficit 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; 32,117,326 and 28,851,787 shares issued and outstanding, respectively 3,212 3,212 Additional paid-in capital 23,055,582 2,787,050 25,842,632 Accumulated deficit (28,315,423 ) (2,294,450 ) (30,609,873 ) Total stockholder’s deficit (5,256,629 ) (492,600 ) (4,764,029 ) Total liabilities and stockholder’s deficit $ 17,625,535 $ — $ 17,625,535 SHIFTPIXY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended February 28, 2019, As Restated As Previously Reported Adjustments As Restated Operating Loss $ (2,227,169 ) - $ (2,227,169 ) Other (expense) income: Interest expense (722,474 ) (246,300 ) (968,774 ) Inducement loss from debt conversion - (1,555,550 ) (1,555,550 ) Settlement of registration rights penalties accrual 2,611,112 - 2,611,112 Total other Income (expense) 1,888,638 (1,801,850 ) 86,788 Net Loss $ (338,531 ) $ (1,801,850 ) $ (2,140,381 ) Net loss per common share, Basic and diluted $ (0.01 ) $ (0.06 ) $ (0.07 ) Weighted average number of common shares Basic and diluted 31,185,358 31,185,358 For the Six Months Ended February 28, 2019, As Restated As Previously Reported Adjustments As Restated Operating Loss $ (3,516,433 ) $ - $ (3,516,433 ) Other (expense) income: Interest expense (1,433,396 ) (492,600 ) (1,925,996 ) Inducement loss from debt conversion - (1,555,550 ) (1,555,550 ) Settlement of registration rights penalties accrual 2,611,112 - 2,611,112 Total other Income (expense) 1,177,716 (2,048,150 ) (870,434 ) Net Loss $ (2,338,717 ) (2,048,150 ) $ (4,386,867 ) Net loss per common share, Basic and diluted $ (0.08 ) (0,07 ) $ (0.15 ) Weighted average number of common shares Basic and diluted 30,152,305 - 30,152,305 |
Summary of significant accounti
Summary of significant accounting policies | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 2: Summary of significant accounting policies | Revision of Financial Statements During the preparation of the restated condensed consolidated financial statements for the three and six months ended February 28, 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s condensed consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s condensed financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,515 (985,200 ) $ 6,171,315 Additional Paid-In Capital 17,233,919 1,231,500 18,465,419 Accumulated deficit (25,976,706 ) (246,300 ) (26,223,006 ) Net Loss (16,576,479 ) (246,300 ) (16,822,779 ) Net loss per share – Basic and diluted (0.58 ) - (0.58 ) The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,104 (738,900 ) $ 5,570,204 Additional Paid-In Capital 19,728,657 1,231,500 20,960,157 Accumulated deficit (27,976,892 ) (492,600 ) (28,469,492 ) Net Loss (2,000,186 (246,300 ) (2,246,486 ) Net loss per share – Basic and diluted (0.07 ) (0.01 ) (0.08 ) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three and six months ended February 28, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2019. The condensed consolidated balance sheet as of August 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial information. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2018, filed with the SEC on November 29, 2018. Principles of Consolidation The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: · Liability for legal contingencies; · Useful lives of property and equipment; · Assumptions made in valuing equity instruments; · Deferred income taxes and related valuation allowance; and · Projected development of workers’ compensation claims. Computer Software Development Software development costs relate primarily to software coding, systems interfaces and testing of our proprietary professional employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation and software maintenance costs are expensed as incurred. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software. Revenue Recognition 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. The Company accounts for its PEO revenues in accordance with 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 condensed consolidated balance sheets. Consistent with its revenue recognition policy, its direct costs do not include the payroll cost of its worksite employees. The Company’s cost of revenue associated with its revenue generating activities are primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. Concentration of Credit Risk The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The deposits are made with a reputable financial institution, and the Company had not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three and six months ended February 28, 2019, or 2018. However, four clients represent 40% of total accounts receivable at February 28, 2019, compared to four clients representing approximately 86% of our total accounts receivable at August 31, 2018. Impairment and Disposal of Long-Lived Assets The Company periodically evaluate its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment Workers’ compensation Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. 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 condensed consolidated balance sheet. During the year ended August 31, 2018, the Company funded two-month worth of policy premiums against this initial deposit for approximately $0.8 million. As of February 28, 2019, the Company had “deposit-workers’ compensation” of $1.5 million for this retrospective rated policy. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. As of February 28, 2019, the Company classified $0.3 million in short term accrued workers’ compensation and $0.1 million in long term accrued workers’ compensation in our condensed consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as “Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in our consolidated balance sheets. As of February 28, 2019, the Company had $0.6 million in “deposit – workers’ compensation”, classified as a short-term asset and $4.0 million, classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated condensed balance sheets. As of February 28, 2019, the Company had short term accrued workers’ compensation costs of $0.6 million and long term accrued workers’ compensation costs of $1.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of 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. Advertising Costs The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $203,341 and $582,390 for the three and six months ended February 28, 2019, respectively and $68,087 and $180,250 for the three and six months ended February 28, 2018, respectively. Earnings (Loss) Per Share The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended February 28, 2019 For the Three Months Ended February 28, 2018 Options 1,475,829 820,000 Senior Secured Convertible Notes (Note 4) 4,739,813 - Warrants 3,511,296 2,570,413 Total potentially dilutive shares 9,726,938 3,390,413 Stock-Based Compensation At February 28, 2019, the Company has one stock-based compensation plan under which the Company may issue awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. The Company elected to account for forfeitures as they occur, as such, compensation cost previously recognized for an award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. Reclassifications Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Recent Accounting Standards In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. ASU 2018-10 will be effective for use for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact this guidance will have on the consolidated financial statements, if any. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. The Company is currently developing an adoption plan of how it currently recognizes revenue compared to the accounting treatment required under the new guidance. This plan includes a review of client contracts and revenue transactions to determine the impact of the accounting treatment under the new guidance, evaluation of the adoption method and completing a rollout plan for the new guidance. Additionally, the Company is in the process of assessing the impact of the new standard on its disclosures and internal controls. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact that this standard will have on its consolidated financial statement. In 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. |
Going Concern
Going Concern | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 3: Going Concern | As of February 28, 2019, the Company had cash of $1.8 million and a working capital deficiency of $10.5 million. During the six months ended February 28, 2019, the Company used approximately $14k of cash in its operations, of which $0.7 million was attributed to the mobile application development costs. The Company has incurred recurring losses resulting in an accumulated deficit of $29.9 million as of February 28, 2019. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of the financial statements. The ability of the Company to continue as a going concern is dependent upon generating profitable operations in the future and/or 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 or$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 or$8.4 million net of costs. Exclusive of the development costs, the Company is currently using $1.6 million each quarter from its operations or approximately $0.5 million per month. The Company continues to experience significant growth in the number of worksite employees, which would generate additional administrative fees that would offset the current level of operational cash burn. Indeed, since February 28, 2019, the Company has added, through executed service agreements, approximately 19 new clients, servicing approximately 1,400 worksite employees with approximately $28 million in additional payroll cost per year, which would generate an additional of $0.2 million in quarterly administrative fees. The Company began building its internal software development team and transitioned away from its current software development vendor to expedite the Company’s technology deployment. Such transition would further increase the Company’s quarterly cash burn by approximately $0.2 million. The tardy delivery of the user features from the Company’s previous software development vendor and related on-going litigation slowed down the pace of the Company’s growth. The completion of our technology and the deployment of these features would further accelerate the growth of the Company. Under licensing agreement, the Company will be launching version 2.0 of its app and enhanced user features during the Company’s third fiscal quarter with all user features as well as the driver management, which will allow its clients to self- deliver. In March 2019, the Company completed a private placement of senior secured convertible notes to certain of its existing institutional investors raising an additional $3.7 million of gross proceeds or $3.3 million net of closing costs (See Note 9). The Company’s existing institutional investors from our June 2018 senior secured convertibles have converted their principal into shares of the Company’s common stock, which allowed the Company to retain cash to fund its operations and finalize the completion and deployment of the technology platform. The Company anticipates continuing leveraging its payables until it reaches breakeven at about 20,000 worksite employees. The Company’s management believes that the Company’s current cash position, along with its revenue growth and the financing from potential institutional investors will be sufficient to fund its operations for at least a year from the date these financials are available. If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months from the date of this report, the Company may need to curtail certain aspects of its operations or expansion activities, consider the sale of 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 condensed consolidated financial statements do not include any adjustments from this uncertainty. |
Senior Secured Convertible Note
Senior Secured Convertible Note Payable | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 4: 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; · 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; and · Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. The Company had the following principal balances under its convertible notes outstanding as of February 28, 2019, and August 31, 2018: February 28, August 31, 2019 - Restated 2018 - Restated 8% Senior Secured Convertible notes, Principal $ 10,000,000 $ 10,000,000 Less debt discount costs (820,202 ) (1,602,362 ) Less debt issuance costs (1,113,059 ) (2,226,323 ) Less Principal converted to common stock (4,593,295 ) - Plus Additional Principal from settlement agreements 888,889 - Total outstanding convertible notes, net 4,362,333 6,171,315 Less current portion of convertible notes payable (4,362,333 ) (6,171,315 ) Long-term convertible notes payable $ - $ - The Company recognized amortization expense related to the debt discount and debt issuance costs of $957,222 and $1,914,444 for the three and six months ended February 28, 2019, respectively, and $0 for the three and six months ended February 28, 2018, respectively, which is included in interest expense in the condensed statements of operations. For the three and six months ended February 28, 2019, the interest expense on convertible notes was $11,556, respectively, and $0 for the three and six months ended February 28, 2018. The Company applied the interest paid in cash and interest paid in equity against the make whole provision, which represents guaranteed twelve months of coupon payments since the Company was in default from its registration rights agreements. As of February 28, 2019, and August 31, 2018, the balance in the make whole accrual amounted to $235,456 and $608,889, respectively, and such amount were accrued as of February 28, 2019, and August 31, 2018. During the six months ended February 28, 2019, the Company converted $4,593,295 of principal and $297,878 interest into shares of commons to its institutional investors and issued 2,959,427 shares of common stock. The Company converted the convertible notes in its shares of common stock at a fifteen percent (15%) discount to the lowest volume weighted average price (“VWAP”) whereas the terms of the agreement states that such discount to the original conversion price of $2.49% should have been initiated on or after the maturity date of the convertible notes or September 4, 2019. The accounting standards require the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $1.6 million for the three and six months ended February 28, 2019. 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. The Company’s registration statement was filed on October 1, 2018 and it was declared effective by the SEC on October 29, 2018; thus, both the filing and effectiveness deadlines were missed. The Company recorded in its condensed consolidated financial statements the mandatory default amount as stipulated in the convertible note agreements. As of August 31, 2018, the Company recorded approximately $3.5 million, which is reported under current liabilities in its condensed consolidated statement of operations. On December 20, 2018, the Company entered into settlement agreements with its institutional investors, which resolves all disputes relating to technical defaults by the Company in failing to meet deadlines for filing a registration statement and for having a registration statement effective by the SEC. As a result of such settlement, the Company increased the principal amount of the convertible notes by $888,889 in full settlement of the previously accrued $3.5 million default amount thereby decreasing the total liabilities reported on the Company’s August 31, 2018, balance sheet by $2.6 million, and recognized a gain of approximately $2.6 million during the three and six months ended February 28, 2019. |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 5: Stockholders' Equity | Preferred Stock In September of 2016, the Company issued options to purchase preferred stock at $0.0001 per share. This issuance was approved by our shareholders. The number of options is equal to the lesser of (a) the number of shares of common stock held by such shareholder on September 28, 2016, which accounts for approximately 25.6 million shares, or (b) the number of shares of common stock held by such shareholder on date of the shareholder’s exercise of the aforesaid option. The preferred stock that is the subject of such contingent option provides a right to elect a majority of the directors on the Board of Directors of the Corporation and does not include any rights to dividends, conversion to shares of common stock, or preference upon liquidation of the Corporation. The contingent option is exercisable only upon the acquisition of a 20% or greater voting interest in the Corporation by a party other than the founding shareholders, or prior to any proposed merger, consolidation (in which the Corporation’s common stock is changed or exchanged) or sale of at least 50% of the Corporation’s assets or earning power (other than a reincorporation). The right to exercise the option terminates on December 31, 2023. Common Stock and Warrants During the six months ended February 28, 2019, the Company issued 267,500 shares of common stock following the exercise of warrants and received gross proceeds of $660,000. As described more fully in note 4, the Company issued 2,959,427 shares of common stock in satisfaction of principal and accrued interest following conversion of convertible notes into shares of common stock. On September 28, 2017, the Company granted each 26,316 common shares, through the ShiftPixy, Inc., Plan to two of its independent directors, Whitney White and Sean Higgins at a fair value of $2.85 per share, of which 50% will vest on the date marking the six-month anniversary and the remaining 50% of the shares vesting on the first anniversary (September 28, 2018) of service under the executed agreement. For the three and six months ended February 28, 2019, the Company recognized $0 and $75,000 of compensation expense in its shareholders’ equity. There was no common stock issued for services during the three and six months ended February 28, 2018. On December 11, 2018, the Company granted each 32,895 common shares, through the ShiftPixy, Inc., Plan to Whitney White and Sean Higgins at a fair value of $2.28 per share, of which 50% will vest on the date marking the six-month anniversary (March 28, 2019) and the remaining 50% of the shares vesting on the second anniversary (September 27, 2019) of service under the executed agreements. For the three and six months ended February 28, 2019, the Company recognized $55,376 of compensation expense in our condensed consolidated statement of operation. On November 30, 2018, the Company granted 12,296 common shares, through the ShiftPixy, Inc., Plan to Ken Weaver, Chairman of its Audit Committee, at a fair value of $3.05 per share. For the three and six months ended February 28, 2019, the Company recognized $0 and $37,500 of compensation expense in its shareholders’ equity. For the six months ended February 28, 2018, the Company recognized 13,252 shares of common stock to Ken Weaver for services that vested during the six months ended February 28, 2018, at a fair value of $50,354. The following tables summarize our warrants outstanding as of February 28, 2019: Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2018 3,778,796 2.13 $ 2.84 Issued - - - (Exercised) (267,500 ) 0.45 $ 2.47 (Cancelled) - - - (Expired) - - - Warrants outstanding, February 28, 2019 3,511,296 1.75 $ 2.87 Warrants exercisable, February 28, 2019 3,511,296 1.75 $ 2.87 The following table summarizes information about warrants outstanding as of February 28, 2019: Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years $ 2.00 776,300 - $ 2.49 1,220,883 4.8 $ 3.00 878,800 - $ 4.00 535,313 - $ 6.90 100,000 3.3 3,511,296 1.75 |
Stock based Compensation
Stock based Compensation | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 6: Stock based Compensation | The Company granted options to purchase an aggregate total of 295,000 shares of common stock during the six months ended February 28, 2019. The Company recognized approximately $81,000 and $158,300 in the three and six months ended February 28, 2019, respectively. The Company recognized approximately $26,800 and $97,100 of compensation expense in the three and six months ended February 28, 2018. The weighted average remaining contract life of the options is 8.90 and 9.22 years, respectively. The total intrinsic value of options as of February 28, 2019, and 2018, is $0 respectively. Stock option activity during the six months ended February 28, 2019, is summarized as follows: Options Outstanding Weighted Average Exercise Price Options outstanding at August 31, 2018 1,348,745 $ 3.45 Exercised - $ - Granted 295,000 3.56 Forfeited (167,916 ) $ 3.13 Expired - Options outstanding at February 28, 2019 1,475,829 $ 3.51 |
Related Parties
Related Parties | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 7: Related Parties | J. Stephen Holmes, our Sales Manager is an advisor to and significant shareholder of the Company. The Company incurred $180,000 and $360,000 in professional fees for management consulting services in the three and six months ended February 28, 2019, and $180,000 and $350,000 in the three and six months ended February 28, 2018, respectively. On September 28, 2017, Sean Higgins, one of the Company’s independent directors, was awarded 13,158 shares for services at an assumed fair value of $2.85. For the three and six months ended February 28, 2019, the Company recognized $0 and $37,500 of compensation expense in its shareholders’ equity for the portion that fully vested. On December 11, 2018, the Company awarded Sean Higgins 32,895 shares for services for his director agreement second anniversary, at an assumed fair value of $2.28. For the three and six months ended February 28, 2019, the Company recognized $27,688, respectively, of compensation expenses in its condensed consolidated statement of operation. The Company also recorded $42,000 and $35,500 as compensation for his role as independent director for the six months ended February 28, 2019, and 2018, respectively. On September 28, 2017, Whitney White, one of the Company’s independent directors, was awarded 13,158 shares for services at an assumed fair value of $2.85. For the three and six months ended February 28, 2019, the Company recognized $0 and $37,500 of compensation expense in its shareholders’ equity for the portion that fully vested. On December 11, 2018, the Company granted Whitney White 32,895 common shares, through the ShiftPixy, Inc., Plan to Whitney White at an assumed fair value of $2.28 per shares, of which 50% will vest on the date marking the six-month anniversary (March 28, 2019) and the remaining 50% of the shares vesting on the second anniversary (September 27, 2019) of service under the executed agreement. For the three and six months ended February 28, 2019, the Company recognized 27,688, respectively, of compensation expense in its condensed consolidated statement of operation. The Company also recorded $45,000 and $38,500 as compensation for his role as independent director for the six months ended February 28, 2019, and 2018, respectively. On November 30, 2018, the Board of Directors awarded 12,296 shares of common stock at an assumed fair value of $3.05 to Kenneth W. Weaver. For the three and six ended February 28, 2019, the Company recognized $0 and $37,500 of compensation expense in its shareholders’ equity. For the six months ended February 28, 2019, and 2018, the Company recorded $45,000 and $46,500, respectively, as compensation for his role as independent director. |
Contingencies
Contingencies | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 8: Contingencies | Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will be resolved only when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. During the ordinary course of business, the Company is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s financial position, results of operations or cash flow. 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 matter settled subsequent to our quarter end and Shift Human Capital Management liability was determined at $20,000, which is included in the condensed consolidated balance sheet. Kadima Ventures The Company is in dispute with its software developer, Kadima Ventures, over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11million but has not received the majority of certain modules. In addition to the non-delivery of the paid for user features, Kadima Ventures asserts that it is owed additional funds to turn over the work completed. The Company is initiating litigation to force the delivery of the paid for software and exit the development engagement. Kadima made a demand for an additional $10 million or they would not turn over the remaining features. The Company has accelerated its internal development team to expedite the user features delivery for summer of 2019. Under licensing agreement, the Company will be launching version 2.0 of its app and enhanced user features during the Company’s third fiscal quarter with all user features as well as the driver management, which will allow its clients to self- deliver. The Company hopes to recover some of the funds spent with Kadima Ventures for their failure to deliver. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Feb. 28, 2019 | |
Notes to Financial Statements | |
Note 9: Subsequent Events | The Company granted 836,234 incentive stock options to employees with a weighted average grant-date exercise price of $1.30, which vest over a service period of 48 months. The stock options were valued using the Black-Scholes option-pricing model. The Company issued 2,571,180 shares of common stock as repayment of $2,716,707 in principal and $189,245 in accrued interest of convertible notes. On March 11, 2019, the Company entered into a securities purchase Agreement with certain institutional investors for the sale by the Company of $4,750,000 of senior convertibles notes due September 12, 2020. Concurrently with the sale of the notes, pursuant to the purchase agreement, the Company also sold warrants to purchase 2,840,909 shares of common stock. The Company sold the notes and the warrants for $3,750,000. The net proceeds from the transaction was approximately $3.4 million after deducting certain fees due to the placement agents and legal fees and other estimated transaction expenses. The net proceeds received by the Company from the transaction will be used to finalize the key features of our mobile application, working capital and for general corporate purposes. On March 1, 2019, a total of 2,190,413 warrants with an average exercise price of 2.89 expired unexercised. Management has evaluated subsequent events pursuant to the issuance of the interim unaudited consolidated financial statements and has determined that other than listed above, no other subsequent events exist through the date of this filing. |
Summary of significant accoun_2
Summary of significant accounting policies (Policies) | 6 Months Ended |
Feb. 28, 2019 | |
Summary Of Significant Accounting Policies Policies | |
Revision of Financial Statements | During the preparation of the restated condensed consolidated financial statements for the three and six months ended February 28, 2019, the Company determined that it had improperly calculated the volatility of the Company’s common stock, which had been used to calculate the relative fair value of the warrants issued in connection with the June 2018 convertible notes. This resulted in an overstatement of the net carrying amount of the convertible note by the understatement of the corresponding debt discount with the offset to additional paid-in capital as of February 28, 2019. The Company assessed the materiality of the misstatements in accordance with Staff Accounting Bulletin No.99, “Materiality” and No. 108, “Quantifying Misstatements”, and concluded that this error was not qualitatively material on the Company’s condensed consolidated balance sheet, statements of operations, statements of cash flows, statement of stockholders’ deficit and net loss for the periods then ended. The effect of this revision on the line items within the Company’s condensed financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,515 (985,200 ) $ 6,171,315 Additional Paid-In Capital 17,233,919 1,231,500 18,465,419 Accumulated deficit (25,976,706 ) (246,300 ) (26,223,006 ) Net Loss (16,576,479 ) (246,300 ) (16,822,779 ) Net loss per share – Basic and diluted (0.58 ) - (0.58 ) The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,104 (738,900 ) $ 5,570,204 Additional Paid-In Capital 19,728,657 1,231,500 20,960,157 Accumulated deficit (27,976,892 ) (492,600 ) (28,469,492 ) Net Loss (2,000,186 (246,300 ) (2,246,486 ) Net loss per share – Basic and diluted (0.07 ) (0.01 ) (0.08 ) |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The results of operations for the three and six months ended February 28, 2019, are not necessarily indicative of the results that may be expected for the year ending August 31, 2019. The condensed consolidated balance sheet as of August 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial information. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2018, filed with the SEC on November 29, 2018. |
Principles of Consolidation | The Company and its wholly-owned subsidiary have been consolidated in the accompanying unaudited condensed consolidated financial statements. All intercompany balances have been eliminated. |
Use of Estimates | The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: Liability for legal contingencies; Useful lives of property and equipment; Assumptions made in valuing equity instruments; Deferred income taxes and related valuation allowance; and Projected development of workers’ compensation claims. |
Computer Software Development | Software development costs relate primarily to software coding, systems interfaces and testing of our proprietary professional employer information systems and are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation and software maintenance costs are expensed as incurred. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software. |
Revenue Recognition | 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. The Company accounts for its PEO revenues in accordance with 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 condensed consolidated balance sheets. Consistent with its revenue recognition policy, its direct costs do not include the payroll cost of its worksite employees. The Company’s cost of revenue associated with its revenue generating activities are primarily comprised of all other costs related to its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. |
Concentration of Credit Risk | The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash with a commercial bank and from time to time exceed the federally insured limits. The deposits are made with a reputable financial institution, and the Company had not experienced losses from these deposits. No one individual client represents more than 10% of revenues for the three and six months ended February 28, 2019, or 2018. However, four clients represent 40% of total accounts receivable at February 28, 2019, compared to four clients representing approximately 86% of our total accounts receivable at August 31, 2018. |
Impairment and Disposal of Long-Lived Assets | The Company periodically evaluate its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment |
Workers' compensation | Everest Program Up to July 2018, a portion of the Company’s workers’ compensation risk was covered by a retrospective rated policy, which calculates the final policy premium based on the Company’s loss experience during the term of the policy and the stipulated formula set forth in the policy. The Company funds the policy premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. During the policy term and thereafter, periodic adjustments may involve either a return of previously paid premiums or a payment of additional premiums by the Company or a combination of both. If the Company’s losses under that policy exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. 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 condensed consolidated balance sheet. During the year ended August 31, 2018, the Company funded two-month worth of policy premiums against this initial deposit for approximately $0.8 million. As of February 28, 2019, the Company had “deposit-workers’ compensation” of $1.5 million for this retrospective rated policy. The Company utilizes a third-party to estimate its loss development rate, which is based primarily upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. As of February 28, 2019, the Company classified $0.3 million in short term accrued workers’ compensation and $0.1 million in long term accrued workers’ compensation in our condensed consolidated balance sheets. Sunz Program Starting in July 2018, the Company’s workers’ compensation program for its worksite employees has been provided through an arrangement with United Wisconsin Insurance Company (“UWIC”) and administered by Sunz. Under this program, the Company has financial responsibility for the first $0.5 million of claims per occurrence. The Company provides and maintains a loss fund that will be used to pay claims and claim related expenses. The workers’ compensation insurance carrier established monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim loss funds”). The level of claim loss funds is primarily based upon anticipated worksite employee payroll levels and expected worker’s compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as “Deposit - workers’ compensation, a short-term asset, while the remainder of claim funds are included in deposits- workers’ compensation, a long-term asset in our consolidated balance sheets. As of February 28, 2019, the Company had $0.6 million in “deposit – workers’ compensation”, classified as a short-term asset and $4.0 million, classified as a long-term asset. The Company’s estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while its estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on its consolidated condensed balance sheets. As of February 28, 2019, the Company had short term accrued workers’ compensation costs of $0.6 million and long term accrued workers’ compensation costs of $1.9 million. Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of 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. |
Advertising Costs | The Company expenses all advertising as incurred. The Company incurred advertising costs totaling $203,341 and $582,390 for the three and six months ended February 28, 2019, respectively and $68,087 and $180,250 for the three and six months ended February 28, 2018, respectively. |
Earnings (Loss) Per Share | The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation Securities that are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive are: For the Three Months Ended February 28, 2019 For the Three Months Ended February 28, 2018 Options 1,475,829 820,000 Senior Secured Convertible Notes (Note 4) 4,739,813 - Warrants 3,511,296 2,570,413 Total potentially dilutive shares 9,726,938 3,390,413 |
Stock-Based Compensation | At February 28, 2019, the Company has one stock-based compensation plan under which the Company may issue awards. The Company accounts for this plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. The expected volatility is based on the historical volatility of the Company since our Initial Public Offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. The Company elected to account for forfeitures as they occur, as such, compensation cost previously recognized for an award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture. |
Reclassifications | Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. |
Recent Accounting Standards | In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential impact this guidance will have on the condensed consolidated financial statements, if any. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. ASU 2018-10 will be effective for use for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact this guidance will have on the consolidated financial statements, if any. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The new standard also will require enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of this standard is to clarify the implementation of guidance on principal versus agent considerations related to ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides clarity related to ASU 2014-09 regarding identifying performance obligations and licensing implementation. The standard has the same effective date as ASU 2014-09 described above. In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides narrow scope improvements and practical expedients related to ASU 2014-09. The purpose of this standard is to clarify certain narrow aspects of ASU 2014-09, such as assessing the collectability criterion, presentation of sales taxes, and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts are transition, and technical correction. The standard has the same effective date as ASU 2014-09 described above. In December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this standard affect narrow aspects of guidance issued in ASU 2014-09. The standard has the same effective date as ASU 2014-09 described above. The Company is currently developing an adoption plan of how it currently recognizes revenue compared to the accounting treatment required under the new guidance. This plan includes a review of client contracts and revenue transactions to determine the impact of the accounting treatment under the new guidance, evaluation of the adoption method and completing a rollout plan for the new guidance. Additionally, the Company is in the process of assessing the impact of the new standard on its disclosures and internal controls. In February 2016, the FASB issued new accounting guidance on leases ASU 2016-02, Leases. The new standard requires that a lessee recognize assets and liabilities on the balance sheet for leases with terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows by a lessee will depend on its classification as a finance or operating lease. The guidance also includes new disclosure requirements providing information on the amounts recorded in the financial statements. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact that this standard will have on its consolidated financial statement. In 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. |
Summary of significant accoun_3
Summary of significant accounting policies (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Summary Of Significant Accounting Policies | |
Schedule of revision of financial statements | The effect of this revision on the line items within the Company’s condensed financial statements as of August 31, 2018, was as follows: August 31, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 7,156,515 (985,200 ) $ 6,171,315 Additional Paid-In Capital 17,233,919 1,231,500 18,465,419 Accumulated deficit (25,976,706 ) (246,300 ) (26,223,006 ) Net Loss (16,576,479 ) (246,300 ) (16,822,779 ) Net loss per share – Basic and diluted (0.58 ) - (0.58 ) The effect of this revision on the line items within the Company’s condensed financial statements as of and for the three months ended November 30, 2018, was as follows: November 30, 2018 As Previously Reported Adjustments As Restated Convertible note, net $ 6,309,104 (738,900 ) $ 5,570,204 Additional Paid-In Capital 19,728,657 1,231,500 20,960,157 Accumulated deficit (27,976,892 ) (492,600 ) (28,469,492 ) Net Loss (2,000,186 (246,300 ) (2,246,486 ) Net loss per share – Basic and diluted (0.07 ) (0.01 ) (0.08 ) |
Schedule of weighted average dilutive common shares | For the Three Months Ended February 28, 2019 For the Three Months Ended February 28, 2018 Options 1,475,829 820,000 Senior Secured Convertible Notes (Note 4) 4,739,813 - Warrants 3,511,296 2,570,413 Total potentially dilutive shares 9,726,938 3,390,413 |
Senior Secured Convertible No_2
Senior Secured Convertible Note Payable (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Senior Secured Convertible Note Payable | |
Schedule of principal balances under convertible notes | February 28, August 31, 2019 - Restated 2018 - Restated 8% Senior Secured Convertible notes, Principal $ 10,000,000 $ 10,000,000 Less debt discount costs (820,202 ) (1,602,362 ) Less debt issuance costs (1,113,059 ) (2,226,323 ) Less Principal converted to common stock (4,593,295 ) - Plus Additional Principal from settlement agreements 888,889 - Total outstanding convertible notes, net 4,362,333 6,171,315 Less current portion of convertible notes payable (4,362,333 ) (6,171,315 ) Long-term convertible notes payable $ - $ - |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Stockholders Equity Tables | |
Summary of warrants outstanding | Number of shares Weighted average remaining life (years) Weighted average exercise price Warrants outstanding, August 31, 2018 3,778,796 2.13 $ 2.84 Issued - - - (Exercised) (267,500 ) 0.45 $ 2.47 (Cancelled) - - - (Expired) - - - Warrants outstanding, February 28, 2019 3,511,296 1.75 $ 2.87 Warrants exercisable, February 28, 2019 3,511,296 1.75 $ 2.87 |
Summary of information about warrants outstanding | Exercise price Warrants Outstanding Weighted average life of outstanding warrants in years $ 2.00 776,300 - $ 2.49 1,220,883 4.8 $ 3.00 878,800 - $ 4.00 535,313 - $ 6.90 100,000 3.3 3,511,296 1.75 |
Stock based compensation (Table
Stock based compensation (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Stock Based Compensation Tables | |
Schedule of stock option activity | Options Outstanding Weighted Average Exercise Price Options outstanding at August 31, 2018 1,348,745 $ 3.45 Exercised - $ - Granted 295,000 3.56 Forfeited (167,916 ) $ 3.13 Expired - Options outstanding at February 28, 2019 1,475,829 $ 3.51 |
Nature of Operations (Details N
Nature of Operations (Details Narrative) | 6 Months Ended |
Feb. 28, 2019 | |
Nature Of Operations Details Narrative | |
Date of incorporation | Jun. 3, 2015 |
State of incorporation | Wyoming |
Summary of significant accoun_4
Summary of significant accounting policies (Details) - shares | 3 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Total potentially dilutive shares | 9,726,938 | 3,390,413 |
Warrant [Member] | ||
Total potentially dilutive shares | 3,511,296 | 2,570,413 |
Stock Option [Member] | ||
Total potentially dilutive shares | 1,475,829 | 820,000 |
Senior Secured Convertible Notes [Member] | ||
Total potentially dilutive shares | 4,739,813 |
Summary of significant accoun_5
Summary of significant accounting policies (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 | Aug. 31, 2017 | |
Advertising costs | $ 203,341 | $ 68,087 | $ 582,390 | $ 180,250 | ||
Deposit-workers' compensation | $ 2,164,847 | $ 2,164,847 | $ 1,672,097 | |||
Revenue [Member] | ||||||
Concentration of credit risk, description | No one individual client represents more than 10% of revenues for the three and six months ended February 28, 2019, or 2018. | No one individual client represents more than 10% of revenues for the three and six months ended February 28, 2019, or 2018. | ||||
Four clients [Member] | Accounts Receivable [Member] | ||||||
Concentration of credit risk percent | 40.00% | 86.00% | ||||
Third-Party [Member] | ||||||
Short term accrued workers compensation | $ 300,000 | $ 300,000 | ||||
Long term accrued workers compensation | 100,000 | 100,000 | ||||
July 2018 [Member] | Sunz Program [Member] | ||||||
Short term accrued workers compensation | 600,000 | 600,000 | ||||
Long term accrued workers compensation | 1,900,000 | 1,900,000 | ||||
Short-term asset and workers compensation - deposits | 600,000 | 600,000 | ||||
Long-term asset and workers compensation - deposits | 4,000,000 | 4,000,000 | ||||
July 2018 [Member] | Sunz Program [Member] | United Wisconsin Insurance Company [Member] | ||||||
Settlement claims | 500,000 | |||||
July 2018 [Member] | Everest Program [Member] | ||||||
Deposit-workers' compensation | $ 1,500,000 | $ 1,500,000 | $ 800,000 | $ 2,300,000 |
Going Concern (Details Narrativ
Going Concern (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | |||||
Mar. 31, 2019 | Jun. 30, 2018 | Jun. 29, 2017 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 | Aug. 31, 2017 | |
Cash | $ 1,798,867 | $ 904,421 | $ 1,649,783 | $ 5,896,705 | |||
Working capital deficit | 10,500,000 | ||||||
Accumulated deficit | (30,609,873) | $ (26,223,006) | |||||
Proceeds from initial public offering, net of costs | |||||||
Net cash used in operating activities | (13,637) | $ (4,192,804) | |||||
Mobile application development costs | 700,000 | ||||||
Quarterly payment from operations | 1,600,000 | ||||||
Monthly payment from operations | $ 500,000 | ||||||
Service agreement description | the Company has added, through executed service agreements, approximately 19 new clients, servicing approximately 1,400 worksite employees with approximately $28 million in additional payroll cost per year, which would generate an additional of $0.2 million in quarterly administrative fees. | ||||||
Additional payroll cost | $ 28,000,000 | ||||||
Administrative fees (quarterly) | 200,000 | ||||||
Costs incurred due to transition of current software developer | $ 200,000 | ||||||
IPO [Member] | |||||||
Proceeds from initial public offering | $ 12,000,000 | ||||||
Proceeds from initial public offering, net of costs | $ 10,900,000 | ||||||
Private Placement [Member] | Senior Secured Convertible Notes [Member] | |||||||
Proceeds from initial public offering | $ 3,700,000 | $ 9,000,000 | |||||
Proceeds from initial public offering, net of costs | $ 3,300,000 | $ 8,400,000 |
Senior Secured Convertible No_3
Senior Secured Convertible Note Payable (Details) - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 |
Senior Secured Convertible Note Payable Details Abstract | ||
8% Senior Secured Convertible notes, Principal | $ 10,000,000 | $ 10,000,000 |
Less debt discount costs | (327,602) | (617,162) |
Less debt issuance costs | (1,113,059) | (2,226,323) |
Less Principal converted to common stock | (4,593,295) | |
Plus Additional Principal from settlement agreements | 888,889 | |
Total outstanding convertible notes, net | 4,362,333 | 6,171,315 |
Less current portion of convertible notes payable | (4,854,933) | (7,156,515) |
Long-term convertible notes payable |
Senior Secured Convertible No_4
Senior Secured Convertible Note Payable (Details Narrative) - USD ($) | Jun. 04, 2018 | Dec. 20, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 |
8% Senior Secured Convertible notes, Principal | $ 10,000,000 | $ 10,000,000 | $ 10,000,000 | ||||
Warrants granted | 1,004,016 | ||||||
Warrants exercise price | $ 2.49 | ||||||
Conversion price description | 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; and Monthly amortization of principal either in cash at a 10% premium or in stock, subject to equity conditions, at a 15% discount to the lowest volume weighted average price, at the option of the Company. | ||||||
Amortization debt discount and debt issuance cost | 710,922 | $ 0 | $ 1,421,844 | $ 0 | |||
Interest expense | 11,556 | $ 0 | 11,556 | $ 0 | |||
Accrued interest payable | 235,456 | 235,456 | 608,889 | ||||
Convertible debt principal amount | 3,246,062 | 4,891,173 | |||||
Debt default amount recorded as other current liabilities | 3,500,000 | ||||||
Settlement amount | $ 2,600,000 | ||||||
Gain (loss) on settlement of convertible notes | $ 2,600,000 | $ 2,600,000 | |||||
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 | ||||||
Conversion price description | The Company has been converting the convertible notes in its shares of common stock at a fifteen percent (15%) discount to the lowest volume weighted average price (“VWAP”) whereas the terms of the agreement states that such discount to the original conversion price of $2.49% should have been initiated on or after the maturity date of the convertible notes or September 4, 2019. | ||||||
Non-cash charge | $ 1,600,000 | ||||||
Description for 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. The Companys 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. | ||||||
Common stock shares issued upon conversion of senior secured convertible debt | 2,959,427 | ||||||
Convertible debt principal amount | $ 888,889 | ||||||
Debt conversion converted amount, principal | $ 4,593,295 | ||||||
Debt conversion converted amount, interest | $ 297,878 | ||||||
Debt default amount | $ 3,500,000 | ||||||
Investment Banker [Member] | |||||||
Warrants granted | 216,867 | ||||||
Warrants exercise price | $ 2.49 |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - $ / shares | 3 Months Ended | 6 Months Ended |
Feb. 28, 2019 | Feb. 28, 2019 | |
Number of shares outstanding, Ending balance | 3,511,296 | 3,511,296 |
Weighted average remaining life Beginning | 1 year 9 months | |
Warrant [Member] | ||
Number of shares outstanding, Beginning balance | 3,778,796 | |
Issued | ||
Exercised | (267,500) | |
Cancelled | ||
Expired | ||
Number of shares outstanding, Ending balance | 3,511,296 | 3,511,296 |
Number of shares exercisable | 3,511,296 | 3,511,296 |
Weighted average remaining life Beginning | 2 years 1 month 16 days | |
Issued | 0 years | |
Exercised | 5 months 12 days | |
Cancelled | 0 years | |
Expired | 0 years | |
Weighted average remaining life Ending | 1 year 9 months | |
Weighted average remaining life of warrants exercisable | 1 year 9 months | |
Weighted Average Exercise Price Beginning | $ 2.84 | |
Issued | ||
Exercised | 2.47 | |
Cancelled | ||
Expired | ||
Weighted Average Exercise Price Ending | 2.87 | $ 2.87 |
Weighted average Exercise Price of warrants exercisable | $ 2.87 | $ 2.87 |
Stockholders' Equity (Details 1
Stockholders' Equity (Details 1) | 6 Months Ended |
Feb. 28, 2019shares | |
Warrants Outstanding | 3,511,296 |
Weighted average life of outstanding warrants in years | 1 year 9 months |
$2.00 Per Share [Member] | |
Warrants Outstanding | 776,300 |
Weighted average life of outstanding warrants in years | 0 years |
2.49 Per Share [Member] | |
Warrants Outstanding | 1,220,883 |
Weighted average life of outstanding warrants in years | 4 years 9 months 18 days |
$3.00 Per Share [Member] | |
Warrants Outstanding | 878,800 |
Weighted average life of outstanding warrants in years | 0 years |
$4.00 Per Share [Member] | |
Warrants Outstanding | 535,313 |
Weighted average life of outstanding warrants in years | 0 years |
$6.90 Per Share [Member] | |
Warrants Outstanding | 100,000 |
Weighted average life of outstanding warrants in years | 3 years 3 months 19 days |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - USD ($) | Dec. 11, 2018 | Jun. 04, 2018 | Nov. 30, 2018 | Sep. 28, 2017 | Sep. 28, 2016 | Feb. 28, 2019 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||
Common stock shares held by shareholders | 25,600,000 | ||||||||
Conversion description | The preferred stock that is the subject of such contingent option provides a right to elect a majority of the directors on the Board of Directors of the Corporation and does not include any rights to dividends, conversion to shares of common stock, or preference upon liquidation of the Corporation. The contingent option is exercisable only upon the acquisition of a 20% or greater voting interest in the Corporation by a party other than the founding shareholders, or prior to any proposed merger, consolidation (in which the Corporation’s common stock is changed or exchanged) or sale of at least 50% of the Corporation’s assets or earning power (other than a reincorporation). The right to exercise the option terminates on December 31, 2023. | ||||||||
Class of warrant or right expiration date | Dec. 31, 2023 | ||||||||
Proceeds from exercise of warrants | $ 660,000 | $ 50,000 | |||||||
Warrants granted | 1,004,016 | ||||||||
Common stock issued for services, value | $ 112,503 | $ 50,354 | |||||||
Ken Weaver [Member] | |||||||||
Warrants granted | 12,296 | 12,296 | |||||||
Fair value exercise price per share | $ 3.05 | $ 3.05 | $ 3.05 | ||||||
Compensation expense | $ 0 | $ 37,500 | |||||||
Common stock issued for services, shares | 13,252 | ||||||||
Common stock issued for services, value | $ 50,354 | ||||||||
Whitney White and Sean Higgins One [Member] | |||||||||
Warrants granted | 32,895 | ||||||||
Fair value exercise price per share | $ 2.28 | ||||||||
Stock option vesting description | Whitney White and Sean Higgins at a fair value of $2.28 per share, of which 50% will vest on the date marking the six-month anniversary (March 28, 2019) and the remaining 50% of the shares vesting on the second anniversary (September 27, 2019) of service under the executed agreements. | ||||||||
Compensation expense | 55,376 | 55,376 | |||||||
Whitney White and Sean Higgins [Member] | |||||||||
Warrants granted | 26,316 | ||||||||
Fair value exercise price per share | $ 2.85 | ||||||||
Stock option vesting description | Whitney White and Sean Higgins at a fair value of $2.95 per share, of which 50% will vest on the date marking the six-month anniversary and the remaining 50% of the shares vesting on the first anniversary (September 28, 2018) of service under the executed agreement. | ||||||||
Compensation expense | $ 0 | $ 75,000 | |||||||
Warrant [Member] | |||||||||
Shares issued upon exercise of warrants | 267,500 | ||||||||
Proceeds from exercise of warrants | $ 660,000 | ||||||||
Common stock shares issued upon conversion of convertible debt | 2,959,427 |
Stock based compensation (Detai
Stock based compensation (Details) - $ / shares | Jun. 04, 2018 | Feb. 28, 2019 |
Granted | 1,004,016 | |
Number of shares outstanding, Ending balance | 3,511,296 | |
Stock Option [Member] | ||
Number of shares outstanding, Beginning balance | 1,348,745 | |
Exercised | ||
Granted | 295,000 | |
Forfeited | (167,916) | |
Expired | ||
Number of shares outstanding, Ending balance | 1,475,829 | |
Weighted Average Exercise Price Beginning | $ 3.45 | |
Exercised | ||
Granted | 3.56 | |
Forfeited | 3.13 | |
Expired | ||
Weighted Average Exercise Price Ending | $ 3.51 |
Stock based compensation (Det_2
Stock based compensation (Details Narrative) - USD ($) | Jun. 04, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 |
Common stock option granted shares | 1,004,016 | ||||
Stock based compensation expense | $ 81,092 | $ 26,797 | $ 158,314 | $ 97,094 | |
Total intrinsic value of options | $ 0 | $ 0 | $ 0 | $ 0 | |
Stock Option [Member] | |||||
Common stock option granted shares | 295,000 | ||||
Weighted average remaining contract life | 8 years 10 months 25 days | 9 years 2 months 19 days |
Related Parties (Details Narrat
Related Parties (Details Narrative) - USD ($) | Dec. 11, 2018 | Jun. 04, 2018 | Nov. 30, 2018 | Sep. 28, 2017 | Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 |
Professional fees for management consulting services | $ 895,083 | $ 508,787 | $ 1,519,128 | $ 1,001,242 | ||||
Common stock option granted shares | 1,004,016 | |||||||
Ken Weaver [Member] | ||||||||
Common stock option granted shares | 12,296 | 12,296 | ||||||
Fair value exercise price per share | $ 3.05 | $ 3.05 | $ 3.05 | |||||
Compensation expense | $ 0 | $ 37,500 | ||||||
Ken Weaver [Member] | Independent Director [Member] | ||||||||
Compensation expense | 45,000 | 46,500 | ||||||
Whitney White One [Member] | ||||||||
Common stock option granted shares | 32,895 | |||||||
Fair value exercise price per share | $ 2.28 | |||||||
Compensation expense | 27,688 | $ 27,688 | ||||||
Stock option vesting description | Whitney White at an assumed fair value of $2.28 per shares, of which 50% will vest on the date marking the six-month anniversary (March 28, 2019) and the remaining 50% of the shares vesting on the second anniversary (September 27, 2019) of service under the executed agreement. | |||||||
Whitney White One [Member] | Independent Director [Member] | ||||||||
Compensation expense | $ 45,000 | 38,500 | ||||||
Whitney White [Member] | ||||||||
Common stock option granted shares | 13,158 | |||||||
Fair value exercise price per share | $ 2.85 | |||||||
Compensation expense | 0 | 37,500 | ||||||
Sean Higgins One [Member] | ||||||||
Common stock option granted shares | 32,895 | |||||||
Fair value exercise price per share | $ 2.28 | |||||||
Compensation expense | 27,688 | 27,688 | ||||||
Sean Higgins One [Member] | Independent Director [Member] | ||||||||
Compensation expense | 42,000 | 35,500 | ||||||
Sean Higgins [Member] | ||||||||
Common stock option granted shares | 13,158 | |||||||
Fair value exercise price per share | $ 2.85 | |||||||
Compensation expense | 0 | 37,500 | ||||||
J. Stephan Holmes [Member] | ||||||||
Professional fees for management consulting services | $ 180,000 | $ 180,000 | $ 360,000 | $ 350,000 |
Contingencies (Details Narrativ
Contingencies (Details Narrative) - USD ($) | 1 Months Ended | ||
Jun. 21, 2018 | May 31, 2016 | May 01, 2018 | |
Lyons Capital, LLC [Member] | |||
Common stock shares issuable for services | 210,000 | ||
Kadima Ventures [Member] | Software Development [Member] | |||
Software development cost | $ 8,500,000 | ||
Description for the dispute with software developer | the Company entered into a contract with Kadima Ventures for the development and deployment of user features that were proposed by Kadima for an original build cost of $8.5 million to complete. As of the date of this filing, the Company has spent approximately $11million but has not received the majority of certain modules. | ||
Additional funds demand | $ 10,000,000 | ||
Shift Human Capital Management Inc [Member] | |||
Litigation liability | $ 20,000 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Mar. 11, 2019 | Feb. 28, 2019 | Mar. 01, 2019 | Aug. 31, 2018 |
Senior convertible notes | $ 10,000,000 | $ 10,000,000 | ||
Subsequent Event [Member] | ||||
Common stock shares issued upon conversion of convertible debt | 2,571,180 | |||
Debt conversion converted amount, principal | $ 2,716,707 | |||
Debt conversion converted amount, accrued interest | $ 189,245 | |||
Warrant forfeited/expired, shares | 2,190,413 | |||
Warrant forfeited/expired, exercise price | $ 2.89 | |||
Subsequent Event [Member] | Incentive stock options [Member] | ||||
Stock options granted | 836,234 | |||
Fair value price per share | $ 1.30 | |||
Vesting period | 48 months | |||
Subsequent Event [Member] | Securities Purchase Agreement [Member] | ||||
Senior convertible notes | $ 4,750,000 | |||
Maturity date | Sep. 12, 2020 | |||
Common stock shares issuable upon exercise of warrants | 2,840,909 | |||
Proceeds from issuance of notes and warrants, gross | $ 3,750,000 | |||
Proceeds from issuance of notes and warrants, net of fees | $ 3,400,000 |