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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2017

¨

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to ____________

SEC File No. 024-10557

SHIFTPIXY, INC.

(Exact name of registrant as specified in its charter)

Wyoming

47-4211438

(State of incorporation or organization)

(I.R.S. Employer Identification No.)

1 Venture Suite 150, Irvine CA

92618

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number: (888) 798-9100

N/A

(Former name, former address and former three months, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller Reporting Company

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 31, 2017, there were 26,633,175 shares issued and outstanding of the registrant's common stock.

PART I — FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

3

Item 2.

Management's Discussion and Analysis or Plan of Operation.

11

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

18

Item 4.

Controls and Procedures.

18

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

19

Item 3.

Defaults Upon Senior Securities

20

Item 4.

Mine Safety Disclosures.

20

Item 5.

Other Information.

20

Item 6.

Exhibits.

21

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ShiftPixy Inc.

Consolidated Balance Sheets

May 31,

2017

August 31,

2016

(Unaudited)

ASSETS

Current Assets

Cash and equivalents

$ 511,267 $ 868,532

Accounts receivable

155,995 56,438

Prepaid expenses

404,820 342,996

Other current assets

17,470 73,482

Total Current Assets

1,089,552 1,341,448

Fixed Assets, net

304,413 348,773

Deposits and Other Assets

93,183 104,613

Total Assets

$ 1,487,148 $ 1,794,834

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current Liabilities

Accounts payable

$ 578,105 $ 826,447

Payroll related liabilities

1,178,545 722,715

Other current liabilities

370,228 121,269

Total Current Liabilities

2,126,878 1,670,431

Stockholders' (Deficit) Equity

Preferred stock, 50,000,000 authorized shares; $0.0001 par value; no shares issued and outstanding

- -

Common stock, 750,000,000 authorized shares; $0.0001 par value; 26,633,175 and 26,213,800 shares issued and outstanding, respectively

2,664 2,622

Additional paid-in capital

3,735,891 2,030,018

Accumulated deficit

(4,378,285 ) (1,908,237 )

Total Stockholders' (Deficit) Equity

(639,730 ) 124,403

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

$ 1,487,148 $ 1,794,834

See accompanying notes to the unaudited interim consolidated financial statements.

ShiftPixy Inc.

Consolidated Statements of Operations

(Unaudited)

For the Nine

Months Ended

For the Three

Months Ended

May 31,

2017

May 31,

2016

May 31,

2017

May 31,

2016

Gross Billings

$ 93,252,371 $ 15,605,125 $ 27,456,730 $ 13,324,855

Adjustments to Gross Billings

77,533,591 13,030,279 22,828,368 11,126,254

Net Revenue

15,718,780 2,574,846 4,628,362 2,198,601

Cost of Revenue

10,961,994 1,406,744 3,750,349 1,222,911

Gross Profit

4,756,786 1,168,102 878,013 975,690

Operating Expenses

7,226,834 1,318,757 3,587,685 925,934

Net (Loss) Income

$ (2,470,048 ) $ (150,655 ) $ (2,709,672 ) $ 49,756

Net (Loss) Available to Common Shareholders per Common Share:

Basic

$ (0.09 ) $ (0.01 ) $ (0.10 ) $ 0 *

Diluted

$ (0.09 ) $ (0.01 ) $ (0.10 ) $ 0 *

Weighted Average Number of Common Shares Used in Per Share Computations:

Basic

26,337,976 25,436,894 26,555,706 25,653,731

Diluted

26,337,976 25,436,894 26,555,706 25,653,731

* Denotes net income of less than $0.01 per share.

See accompanying notes to the unaudited interim consolidated financial statements.

ShiftPixy Inc.

Consolidated Statements of Cash Flows

(Unaudited)

For the Nine Months Ended

May 31,

2017

May 31,

2016

OPERATING ACTIVITIES

Net loss

$ (2,470,048 ) $ (150,655 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization

49,021 12,620

Stock based compensation

328,415 -

Changes in Operating Assets and Liabilities

Accounts receivable

(99,557 ) (93,477 )

Prepaid expenses

(61,824 ) (307,639 )

Other current assets

56,012 -

Other assets

11,430 (117,107 )

Accounts payable

(248,342 ) 360,863

Payroll related liabilities

455,830 549,305

Other current liabilities

248,959 -

Net cash (used in) provided by operating activities

(1,730,104 ) 253,910

INVESTING ACTIVITIES

Purchase of fixed assets

(4,661 ) (270,186 )

Net cash used in investing activities

(4,661 ) (270,186 )

FINANCING ACTIVITIES

Proceeds from issuance of common stock with warrants

1,377,500 1,767,641

Net cash provided by financing activities

1,377,500 1,767,641

Net (Decrease) Increase in Cash

(357,265 ) 1,751,365

Cash at Beginning of Period

868,532 103,650

Cash at End of Period

$ 511,267 $ 1,855,015

SUPPLEMENTAL SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Common stock issued in exchange for stock subscription receivable

$

-

$

104,960

See accompanying notes to the unaudited interim consolidated financial statements.

ShiftPixy. Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

May 31, 2017

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 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"), assuming significant attributes of employer status in relation to the subject employees, and provides worker’s compensation coverage written in the names of the clients (as may be required by some states). SHCM also functions as an administrative services only ("ASO") provider, in response to client needs for only administrative and processing services, performing functions in the nature of a payroll processor, human resources consultant, administrator of 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 we are providing these services recognize the value of the services provided by the parent Company.

Note 2: Summary of significant accounting policies

Basis of Presentation

The accompanying unaudited 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. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 1-A for the fiscal year ended August 31, 2016 filed with the SEC on March 31, 2017. In the opinion of management, the accompanying interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 1-A have been omitted. The accompanying balance sheet at May 31, 2017 has been derived from the audited balance sheet at August 31, 2016 contained in such Form 1-A.

Principles of Consolidation

The Company and its subsidiary have been consolidated in the accompanying consolidated financial statements. All intercompany balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenues are primarily attributable to fees for providing staffing solutions and PEO services. The Company recognizes revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Our gross billings are primarily based on (i) the payroll cost of our worksite employees; (ii) the employer portion of payroll-related taxes; (iii) employee benefit programs; (iv) workers’ compensation insurance coverage and (v) admin fees and delivery fees, which are the fees charged to clients for providing payroll processing and temporary staffing services. Net revenues exclude the payroll cost of our website employees component of gross billings. With respect to employer payroll taxes, employee benefit programs, workers’ compensation insurance, we believe that we are the primary obligor, have latitude in establishing price, selecting suppliers, and determining the service specifications and, as such, the gross billings for those components are included as net revenues. Net revenues are recognized ratably over the payroll period as worksite employees perform their service at the client worksite.

Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our worksite employees. Our cost of revenue is primarily comprised of all other costs related to our worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs.

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.

Significant Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the guidance is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 can be adopted by the Company either retrospectively or as a cumulative-effect adjustment as of the date of adoption. On April 1, 2015, the FASB decided to defer the effective date of the new revenue standard by one year. For public entities, the update is effective for financial statements issued for fiscal years beginning after December 15, 2018, and for private entities, the update is effective for financial statements issued after December 15, 2019. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements or decided upon the method of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires a lessee to recognize a liability to make lease payments and a right-of-use asset representing a right to use the underlying asset for the lease term on the balance sheet. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its financial statements.

Note 3: Liquidity

The Company has generated accumulated losses since inception of approximately $4.4 million through May 31, 2017. The Company has a history of negative cash flows from operations and has limited working capital.

Since inception, the Company’s principal source of financing has come through the sale of its common stock. The Company successfully completed an Initial Public Offering (IPO) on NASDAQ on June 29, 2017, raising a total of $12 million (exclusive of underwriter commissions and certain IPO-related expenses). As a result, the Company believes that, because of its operating results as well as cash received from the IPO, the Company will have sufficient cash to fund operations through at least the next twelve months.

Note 4: Stockholders’ Equity

Preferred Stock

In September of 2016, an “Option” was given to each of the Shareholders of record as of September 28, 2016. The aforesaid Option is as follows: to purchase shares of Preferred Stock of the Corporation at $0.0001 per share par value (the “Preferred Stock”) in an amount equal to the lesser of (a) the number of shares of common stock held by such Shareholder on September 28, 2016, or (b) the number of shares of common stock held by such Shareholder on date of the Shareholder’s exercise of the aforesaid Option. All prior options for preferred stock were rescinded. The Preferred Stock that is the subject of such 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 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 nine months ended May 31, 2017, the Company sold 344,375 shares of common stock for $1,377,500 in cash. Each share includes one warrant to purchase a share of common stock at an exercise price of $4 per share expiring on March 1, 2019. In February 2017, the Board of Directors extended the expiration of all such warrants to March 1, 2019.

During the three and nine months ended May 31, 2017, the Company issued 75,000 shares of common stock for services. The Company...


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