UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~

10-Q/A

Amendment No. 1

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

For the quarterly period ended ~~February 28,~~November 30, 2021

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

For the transition period from _______ to _______

SEC File No. 001-37954

	~~SHIFTPIXY, INC.~~
			SHIFTPIXY, INC.
			(Exact name of registrant as specified in its charter)

~~Wyoming~~	~~47-4211438~~
Wyoming		47-4211438
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

501 Brickell Key Drive, Suite 300, Miami, FL		33131
(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)

Securities registered under Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which
registered

Common Stock, par value $0.0001 per

PIXY

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨

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


Large accelerated filer	¨o	Accelerated filer	¨o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

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

The number of shares of the registrant’s only class of common stock issued and outstanding as of ~~April 13,~~January 18, 2022, was 28,713,099.

EXPLANATORY NOTE

ShiftPixy, Inc. (the “Company”, “we” and “us”) is filing this Amendment No. 1 (“Amendment No. 1”) to its Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 ~~was 20,914,646.~~

(the “Original Report”), as filed with the Securities and Exchange Commission on January 14, 2022 (the “Original Filing Date”), for the sole purpose of correcting a technical error with the software of the Company’s EDGAR service provider, which caused Exhibits 31.1, 31.2, 32.1 and 32.2, which were signed by the Registrant and filed on the Original Filing Date with the Original Report, to be inadvertently included in the body of the Form 10-Q instead of filed as exhibits. Such exhibits are included in this Amendment No. 1.

Except as described above, no changes have been made to the Original Report and this Amendment No. 1 does not modify, amend or update in any way any of the financial or other information contained in the Original Report. This Amendment No. 1 does not reflect events that may have occurred subsequent to the Original Filing Date.

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ShiftPixy, Inc.

Condensed Consolidated Balance Sheets

February 28,
2021 August 31,
2020
(Unaudited)
ASSETS
Current assets
Cash $ 3,479,000 $ 4,303,000
Accounts receivable 416,000 308,000
Unbilled accounts receivable 2,042,000 2,303,000
Deposit – workers’ compensation 250,000 293,000
Prepaid expenses and other current assets 959,000 796,000
Current assets of discontinued operations 821,000 1,030,000
Total current assets 7,967,000 9,033,000

Fixed assets, net 1,522,000 575,000
Note receivable, net 4,004,000 4,045,000
Deposits – workers’ compensation 629,000 736,000
Deposits and other assets 907,000 449,000
Non-current assets of discontinued operations 2,071,000 2,582,000

Total assets $ 17,100,000 $ 17,420,000

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and other accrued liabilities $ 4,252,000 $ 3,831,000
Payroll related liabilities 5,949,000 5,752,000
Accrued workers’ compensation costs 492,000 497,000
Current liabilities of discontinued operations 1,620,000 1,746,000
Total current liabilities 12,313,000 11,826,000
Non-current liabilities
Accrued workers’ compensation costs 1,241,000 1,247,000
Payroll related liabilities, long term 1,046,000 -
Non-current liabilities of discontinued operations 4,085,000 4,377,000
Total liabilities 18,685,000 17,450,000
Commitments and contingencies
Stockholders’ deficit
Preferred stock, 50,000,000 authorized shares; $0.0001 par value - -
Common stock, 750,000,000 authorized shares; $0.0001 par value; 20,914,646 and 16,902,146 shares issued as of February 28, 2021 and August 31, 2020 2,000 2,000
Additional paid-in capital 130,994,000 119,430,000
Accumulated deficit (132,581,000 ) (119,462,000 )
Total stockholders’ deficit (1,585,000 ) (30,000 )
Total liabilities and stockholders’ deficit $ 17,100,000 $ 17,420,000

November 30,
2021 August 31,
2021
(Unaudited)
ASSETS
Current assets
Cash $ 1,718,000 $ 1,199,000
Accounts receivable 400,000 498,000
Unbilled accounts receivable 2,700,000 2,741,000
Deposit – workers’ compensation 95,000 155,000
Prepaid expenses 971,000 605,000
Other current assets 199,000 126,000
Current assets of discontinued operations 243,000 356,000
Total current assets 6,326,000 5,680,000
Cash and marketable securities held in Trust Account (See Note 2 and 5) 116,725,000 —
Fixed assets, net 3,010,000 2,784,000
Note receivable, net 4,004,000 4,004,000
Deposits – workers’ compensation 246,000 386,000
Deposits and other assets 944,000 944,000
Deferred offering costs �� SPACs (See Note 5) 38,493,000 48,261,000
Non-current assets of discontinued operations 627,000 883,000
Total assets $ 170,375,000 $ 62,942,000
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities
Accounts payable and other accrued liabilities $ 7,669,000 $ 6,553,000
Payroll related liabilities 8,619,000 7,876,000
Accrued workers’ compensation costs 604,000 663,000
Current liabilities of discontinued operations 1,414,000 1,516,000
Total current liabilities 18,306,000 16,608,000
Non-current liabilities
Accrued workers’ compensation costs 1,321,000 1,646,000
Non-current liabilities of discontinued operations 3,631,000 3,765,000
Total liabilities 23,258,000 22,019,000
Commitments and contingencies 0 0
Class A common shares subject to possible redemption 11,500,000 and no shares at $10.00 per share redemption value as of November 30, 2021 and August 31, 2021 (See note 2 and 5) $116,725,000 —
Stockholders’ equity (deficit)
Preferred stock, 50,000,000 authorized shares; $0.0001 par value — —
Common stock, 750,000,000 authorized shares; $0.0001 par value; 28,713,099 and 25,863,099 shares issued as of November 30, 2021 and August 31, 2021
3,000 3,000
Additional paid-in capital 140,968,000 142,786,000
Accumulated deficit (158,051,000) (149,338,000)
Total ShiftPixy, Inc Stockholders' deficit (17,080,000) (6,549,000)
Non-controlling interest in consolidated subsidiaries (See note 5) $ 47,472,000 $ 47,472,000
Total Equity (Deficit) $ 30,392,000 $ 40,923,000
Total liabilities and equity deficit $ 170,375,000 $ 62,942,000

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Table of Contents

ShiftPixy Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

For the Three Months Ended For the Six Months Ended
February 28,
2021 February 29,
2020 February 28,
2021 February 29,
2020
Revenues (gross billings of $17.9 million and $14.5 million less worksite employee payroll cost of $15.5 million and $12.5 million, respectively for the three months ended; gross billings of $37.6 million and $32.4 million less worksite employee payroll cost of $32.7 million and $28.1 million, respectively for six months ended) $ 2,419,000 $ 2,007,000 $ 4,922,000 $ 4,267,000
Cost of revenue 2,056,000 1,933,000 4,046,000 3,951,000
Gross profit 363,000 74,000 876,000 316,000

Operating expenses:
Salaries, wages, and payroll taxes 2,592,000 1,802,000 4,785,000 3,557,000
Stock-based compensation – general and administrative 423,000 619,000 919,000 745,000
Commissions 49,000 46,000 87,000 118,000
Professional fees 1,006,000 997,000 1,713,000 1,837,000
Software development 786,000 350,000 1,663,000 703,000
Depreciation and amortization 86,000 77,000 148,000 156,000
General and administrative 1,380,000 403,000 3,139,000 1,564,000
Total operating expenses 6,322,000 4,294,000 12,454,000 8,680,000

Operating Loss (5,959,000 ) (4,220,000 ) (11,578,000 ) (8,364,000 )

Other (expense) income:
Interest expense (3,000 ) (806,000 ) (6,000 ) (1,967,000 )
Expense related to modification of warrants - (21,000 ) - (21,000 )
Loss from debt conversion - (657,000 ) - (657,000 )
Inducement loss - (567,000 ) - (567,000 )
Change in fair value derivative and warrant liability - 829,000 - 1,771,000
Gain on convertible note penalties accrual - 760,000 - 760,000
Total other expense (3,000 ) (462,000 ) (6,000 ) (681,000 )
Loss from continuing operations (5,962,000 ) (4,682,000 ) (11,584,000 ) (9,045,000 )
(Loss) income from discontinued operations
(Loss) income from discontinued operations (221,000 ) (1,393,000 ) (1,535,000 ) 576,000
Gain from asset sale - 15,682,000 - 15,682,000
Total (loss) income from discontinued operations, net of tax (221,000 ) 14,289,000 (1,535,000 ) 16,258,000

Net (loss) income $ (6,183,000 ) $ 9,607,000 $ (13,119,000 ) $ 7,213,000

Net (loss) income per share, Basic and diluted
Continuing operations $ (0.18 ) $ (0.27 ) $ (0.36 ) $ (1.01 )
Discontinued operations
     Operating (loss) income (0.01 ) (0.08 ) (0.05 ) 0.06
     Gain on sale of assets - 0.92 - 1.76
           Total discontinued operations (0.01 ) 0.84 (0.05 ) 1.82
Net (loss) income per common share – Basic and diluted $ (0.19 ) $ 0.57 $ (0.41 ) $ 0.81

Weighted average common shares outstanding – Basic and diluted 32,746,660 16,971,339 31,772,050 8,932,217


	For the Three Months Ended
	November 30, 2021		November 30, 2020
Revenues (gross billings of $21.2 million less worksite employee payroll cost of $12.3 million and gross billings of $19.8 million less worksite employees payroll cost of $17.3 million, for the three months ended November 30, 2021 and 2020, respectively)	$	8,940,000	$	2,503,000
Cost of revenue	8,245,000		1,990,000
Gross profit (loss)	695,000		513,000

Operating expenses:
Salaries, wages, and payroll taxes	3,890,000		2,193,000
Stock-based compensation – general and administrative	408,000		496,000
Commissions	27,000		38,000
Professional fees	1,737,000		707,000
Software development	1,161,000		877,000
Depreciation and amortization	123,000		62,000
General and administrative	1,932,000		1,759,000
Total operating expenses	9,278,000		6,132,000

Operating Loss	(8,583,000)		(5,619,000)

Other (expense) income:
Interest expense	(1,000)		(3,000)
Other income	5,000		—
Total other expense	4,000		(3,000)
Loss from continuing operations	(8,579,000)		(5,622,000)

Total (loss) income from discontinued operations, net of tax	(134,000)		(1,314,000)

Net loss	$	(8,713,000)	$	(6,936,000)

Net loss per share, Basic and diluted
Continuing operations	$	(0.24)	$	(0.18)
Discontinued operations	—		(0.04)
Net loss per common share – Basic and diluted	$	(0.24)	$	(0.22)

Weighted average common shares outstanding – Basic and diluted	35,945,160		30,808,150

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Table of Contents

ShiftPixy Inc.

Condensed Consolidated Statements of ~~Stockholders’ Deficit~~

Equity (Deficit)

For the ~~Six~~Three Months Ended ~~February 28,~~November 30, 2021 ~~(Unaudited~~)

Preferred Stock
Issued Common Stock
Issued Additional
Paid-In Accumulated Total
Stockholders’
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
Balance, September 1, 2020 - $ - 16,902,146 $ 2,000 $ 119,430,000 $ (119,462,000 ) $ (30,000 )
Common stock issued for underwritten public offering, net of offering costs - - 4,000,000 - 10,701,000 - 10,701,000
Stock-based compensation expense - - - - 863,000 - 863,000
Preferred stock issued for preferred option exercise 12,500 - - - - - -
Common stock issued for preferred stock exchange (12,500 ) - 12,500 - - - -
Net Loss - - - - - (13,119,000 ) (13,119,000 )
Balance, February 28, 2021 - $ - 20,914,646 $ 2,000 $ 130,994,000 $ (132,581,000 ) $ (1,585,000 )

(Unaudited)


	Preferred Stock Issued			Common Stock Issued			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Deficit ShiftPixy, Inc		Noncontrolling interest		Total Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, September 1, 2021	—	$	—	25,863,099	$	3,000	$	142,786,000	$	(149,338,000)	$	(6,549,000)	$	47,472,000	$	40,923,000
Common stock issued for private placement, net of offering cost	—	—		2,850,000	—		4,183,000		—		4,183,000		—		$	4,183,000
Prefunded warrants from private placement, net of offering costs	—	—		—	—		6,861,000		—		6,861,000		—		$	6,861,000
Stock-based compensation expense	—	—		—	—		408,000		—		408,000		—		$	408,000
Remeasurement of IHC temporary equity	—	—		—	—		(13,270,000)		—		(13,270,000)		—		$	(13,270,000)
Net Loss	—	—		—	—		—		(8,713,000)		(8,713,000)				$	(8,713,000)
Balance, November 30, 2021	—	$	—	28,713,099	$	3,000	$	140,968,000	$	(158,051,000)	$	(17,080,000)	$	47,472,000	$	30,392,000

ShiftPixy Inc.

Condensed Consolidated Statements of Equity (Deficit)

For the Three Months Ended November 30, 2020

(Unaudited)


	Preferred Stock Issued			Common Stock Issued			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, September 1, 2020	—	$	—	16,902,142	$	2,000	$	119,430,000	$	(119,462,000)	$	(30,000)
Common stock issued for private placement, net of offering costs	—	—		4,000,000	—		10,701,000		—		10,701,000
Stock-based compensation expense	—	—		—	—		421,000		—		421,000
Net Loss	—	—		—	—		—		(6,936,000)		(6,936,000)
Balance, November 30, 2020	—	$	—	20,902,142	$	2,000	$	130,552,000	$	(126,398,000)	$	4,156,000

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Table of Contents

ShiftPixy, Inc.

Condensed Consolidated Statements of ~~Stockholders’ Equity~~

~~For the Three Months Ended February 28, 2021~~ Cash Flows

(Unaudited)

Preferred Stock
Issued Common Stock
Issued Additional
Paid-In Accumulated Total
Stockholders’
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
Balance, December 1, 2020 - $ - 20,902,146 $ 2,000 $ 130,552,000 $ (126,398,000 ) $ 4,156,000
Stock-based compensation expense - - - - 442,000 - 442,000
Preferred stock issued for preferred option exercise 12,500 - - - - - -
Common stock issued for preferred stock exchange (12,500 ) - 12,500 - - - -
Net Loss - - - - - (6,183,000 ) (6,183,000 )
Balance, February 28, 2021 - $ - 20,914,646 $ 2,000 $ 130,994,000 $ (132,581,000 ) $ (1,585,000 )


	For the Three Months Ended
	November 30, 2021		November 30, 2020
OPERATING ACTIVITIES
Net loss	$	(8,713,000)	$	(6,936,000)
Loss from discontinued operations	(134,000)		(1,314,000)
Net loss from continuing operations	(8,579,000)		(5,622,000)
Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities:
Depreciation and amortization	123,000		62,000

Stock-based compensation	408,000		421,000
Changes in operating assets and liabilities
Accounts receivable	98,000		150,000
Unbilled accounts receivable	41,000		(157,000)
Prepaid expenses	(366,000)		138,000
Other current assets	(73,000)		(46,000)
Deposits – workers’ compensation	200,000		11,000
Deposits and other assets	—		(35,000)
Accounts payable and other accrued liabilities	1,116,000		(432,000)
Payroll related liabilities	743,000		1,012,000
Accrued workers’ compensation costs	(384,000)		127,000

Total Adjustments	1,906,000		1,251,000
Net cash used in continuing operating activities	(6,673,000)		(4,371,000)
Net cash used in discontinued operating activities	(1,000)		(981,000)
Net cash used in operating activities	(6,674,000)		(5,352,000)

INVESTING ACTIVITIES

Investment of IHC IPO proceeds into Trust Account	(116,725,000)		—
Purchase of fixed assets	(349,000)		(572,000)

Net cash (used in) provided by investing activities	(117,074,000)		(572,000)

FINANCING ACTIVITIES
SPAC related offering costs paid	(3,502,000)		—
Proceeds from initial public offering of IHC	116,725,000		—
Proceeds from underwritten public offering, net of offering costs	—		10,701,000
Proceeds from private placement, net of offering costs	4,183,000		—
Proceeds from private placement prefunded warrants, net of offering costs	6,861,000		—
Net cash provided by financing activities	124,267,000		10,701,000
Net increase in cash	519,000		4,777,000
Cash - Beginning of Period	1,199,000		4,303,000
Cash -End of Period	$	1,718,000	$	9,080,000
Supplemental Disclosure of Cash Flows Information:
Cash paid for interest	$	1,000	$	3,000
Cash paid for income taxes	—		—
Non-cash Investing and Financing Activities:
Deferred offering costs SPACs	$	9,464,000	$	—

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Table of Contents

ShiftPixy, Inc.

~~Condensed Consolidated Statements of Stockholders’ Deficit~~

~~For the Six Months Ended February 29, 2020 (Unaudited~~)

Common Stock
Issued

Additional
Paid-In
Treasury Accumulated
Total
Stockholders’

Shares Amount Capital Stock Deficit Deficit
Balance, September 1, 2019 909,222 $ - $ 32,505,000 $ (325,000 ) $ (45,900,000 ) $ (13,720,000 )
Treasury Shares retired (13,953 ) - (325,000 ) 325,000 - -
Common shares issued for note exchange 21,750 200,000 - 200,000
Common stock issued for services rendered 856 - 75,000 - - 75,000
Stock-based compensation expense - - 670,000 - - 670,000
Common shares issued upon conversion of convertible notes and interest 148,122 - 2,215,000 - - 2,215,000
Reclassification of derivative liabilities to paid in capital - - 1,691,000 - - 1,691,000
Inducement loss on note conversions 37,646 - 567,000 - - 567,000
Modification of warrants - - 22,000 - - 22,000
Net Income - - - - 7,213,000 7,213,000
Balance, February 29, 2020 1,103,643 $ - $ 37,620,000 $ - $ (38,687,000 ) $ (1,067,000 )

~~See accompanying notes to the unaudited interim condensed consolidated financial statements.~~

~~ShiftPixy Inc.~~

~~Condensed Consolidated Statements of Stockholders’ Deficit~~

~~For the Three Months Ended February 29, 2020 (Unaudited)~~

Common Stock
Issued

Additional
Paid-In
Treasury Accumulated
Total
Stockholders’

Shares Amount Capital Stock Deficit Deficit
Balance, December 1, 2019 909,222 $ - $ 32,619,000 $ (325,000 ) $ (48,294,000 ) $ (16,000,000 )
Treasury Shares retired (13,953 ) - (325,000 ) 325,000 - -
Common shares issued for note exchange 21,750 200,000 - 200,000
Common stock issued for services rendered 856 - 75,000 - - 75,000
Stock-based compensation expense - - 556,000 - - 556,000
Common shares issued upon conversion of convertible notes and interest 148,122 - 2,215,000 - - 2,215,000
Reclassification of derivative liabilities to paid in capital - - 1,691,000 - - 1,691,000
Inducement loss on note conversions 37646 - 567,000 - - 567,000
Modification of warrants - - 22,000 - - 22,000
Net Income - - - - 9,607,000 9,607,000
Balance, February 29, 2020 1,103,643 $ - $ 37,620,000 $ - $ (38,687,000 ) $ (1,067,000 )

~~See accompanying notes to the unaudited interim condensed consolidated financial statements.~~

~~ShiftPixy, Inc.~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(unaudited)~~

For the Six Months Ended
February 28,
2021 February 29,
2020
OPERATING ACTIVITIES
Net (loss) income $ (13,119,000 ) $ 7,213,000
(Loss) Income from discontinued operations (1,535,000 ) 16,258,000
Net loss from continuing operations (11,584,000 ) (9,045,000 )
Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities:
Depreciation and amortization 148,000 156,000
Gain on convertible note penalties accrual - (760,000 )
Amortization debt discount and debt issuance cost - 2,313,000
Stock issued for services - 75,000
Stock-based compensation- general and administrative 863,000 670,000
Expense related to warrant modification - 22,000
Inducement loss on note conversions - 567,000
Change in fair value of derivative and warrant liability - (1,771,000 )
Changes in operating assets and liabilities
Accounts receivable (108,000 ) (1,111,000 )
Unbilled accounts receivable 261,000 (956,000 )
Prepaid expenses and other current assets (163,000 ) 28,000
Deposits – workers’ compensation 150,000 2,276,000
Deposits and other assets (458,000 ) 20,000
Accounts payable 421,000 (901,000 )
Payroll related liabilities 1,243,000 (2,732,000 )
Accrued workers’ compensation (11,000 ) 2,273,000
Other current liabilities - (1,894,000 )
Total Adjustments 2,346,000 (1,725,000 )
Net cash used in continuing operating activities (9,238,000 ) (10,770,000 )
Net cash (used in) provided by discontinued operating activities (1,192,000 ) 175,000
Net cash used in operating activities (10,430,000 ) (10,595,000 )

INVESTING ACTIVITIES
Purchase of fixed assets (1,095,000 ) (77,000 )
Disposal of fixed assets - 34,000
Proceeds from working capital adjustment – sale of assets - 1,214,000
Proceeds from sale of assets - 9,500,000
Net cash (used in) provided by investing activities (1,095,000 ) 10,671,000

FINANCING ACTIVITIES
Repayment of convertible notes - (1,240,000 )
Proceeds from underwritten public offering, net of offering costs 10,701,000 -
Net cash provided by (used in) financing activities 10,701,000 (1,240,000 )
Net decrease in cash (824,000 ) (1,164,000 )
Cash - Beginning of Period 4,303,000 1,561,000
Cash -End of Period $ 3,479,000 $ 397,000
Supplemental Disclosure of Cash Flows Information:

Cash paid for interest $ 6,000 $ 315,000
Cash paid for income taxes - -

Non-cash Investing and Financing Activities:
Conversion of debt and accrued interest into common stock $ - $ 2,215,000

Common shares issued for services - 75,000
Common shares issued for note exchange - 200,000
Additional principal issued for note exchange - 267,000
Discount recorded for asset sale note receivable - 1,818,000
Reclassification of derivative liabilities to paid in capital - 1,691,000

~~See accompanying notes to the unaudited interim condensed consolidated financial statements.~~

~~ShiftPixy, Inc.~~

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1: Nature of Operations

ShiftPixy, Inc.~~, (“we,” “us,” “our,” the “Company” or “ShiftPixy”),~~ was incorporated on June 3, 2015, in the State of Wyoming. ~~We are currently operating as~~The Company is a ~~human capital outsourcing solutions~~specialized Human Capital service provider that ~~offers~~provides solutions for large contingent part-time workforce demands, primarily in the restaurant and hospitality service trades. ~~Our~~The Company’s historic focus has been on the quick service restaurant industry in Southern California, but ~~we have~~has begun to expand into other geographic areas and industries employing temporary or part-time labor ~~sources as well as additional services ancillary to those labor~~ sources.

The Company ~~offers a variety of human capital services to its clients, including staffing,~~functions as an employment administrative services (“EAS”) provider primarily through its wholly-owned subsidiary, ReThink Human Capital Management, Inc. (“HCM”), as well as a staffing provider through another of its wholly-owned subsidiaries, ShiftPixy Staffing, Inc (“Staffing”). These subsidiaries provide a variety of services to our clients, (as a co-employer through HCM and a direct employer through Staffing), including the following: administrative services, payroll processing, human resources consulting, and workers’ compensation administration and coverage ~~and administration related services, as~~(as permitted and/or required by applicable law. We offer these services through various wholly-owned subsidiaries, including the following: (i) ShiftPixy Staffing, Inc., which provides traditional staffing services; (ii) ReThink Administrative Services, Inc., which operates as an administrative services organization, or “ASO”, often in conjunction with ShiftPixy Staffing; and (iii) Rethink Human Capital Management, Inc., which offers a combination of services provided by ShiftPixy Staffing and ReThink Administrative Services, including EAS. We havestate law). The Company has built a human resources information systems (“HRIS”) platform to assist in customer acquisition that simplifies the onboarding of new clients into ~~our~~the Company’s closed proprietary operating and processing information system (the “ShiftPixy Ecosystem”). This HRIS platform is expected to facilitate additional value-added services in future reporting periods.

In January 2020, wethe Company sold the assets of Shift Human Capital Management Inc. (“SHCM”), a wholly-owned subsidiary of the Company, pursuant to which weit assigned the majority of ~~our~~the Company’s billable clients at the time of the sale to a third party for ~~cash as~~cash. The continuing impact of this transaction on the Company’s financial statements is described below in Note 3.

The Company also announced, in late 2020, its “ShiftPixy Labs” initiative, which includes the creation of incubator “ghost kitchens” to be operated under its wholly-owned subsidiary, ShiftPixy Ghost Kitchens, Inc. Through this initiative, the Company intends to provide resources and guidance to entrepreneurs seeking to bring their food delivery concepts to market, in return for the opportunity to combine with the ShiftPixy HRIS platform to create a co-branded, or “ghost” branded, food preparation and delivery solution. The initial phase of this initiative will be implemented in a dedicated showcase kitchen facility located in close proximity to our Miami headquarters, which is currently under renovation and which we expect to be operational no later than the beginning of the fourth quarter of our fiscal year ending August 31, 2021 (“Fiscal 2021”)3, Discontinued Operations. We intend to partner with various culinary training organizations and experts in testing these concepts, and to showcase these efforts through the distribution of video programming on social media produced and distributed by our wholly owned subsidiary, ShiftPixy Productions, Inc. If successful, we intend to replicate this initiative in similarly constructed facilities throughout the United States and in selected international locations. We also intend to provide similar services via mobile kitchen concepts, all of which will be heavily reliant on our HRIS platform and which we believe will capitalize on trends observed during the COVID-19 pandemic toward providing customers with a higher quality prepared food delivery product that is more responsive to their needs.

On March 25, 2020, the Company filed Amended and Restated Articles of Incorporation (the “Restated Articles of Incorporation”) with the Wyoming Secretary of State, which were approved by the Company’s board of directors (the “Board of Directors”) and its stockholders representing a majority of its outstanding shares of capital stock. The Restated Articles of Incorporation, among other things, set conversion rights for the Company’s Class A Preferred Stock, par value $0.0001 per share, to convert into shares of common stock on a one-for-one basis.

On March 31, 2021, ~~stockholders~~shareholders representing a majority of the Company’s outstanding shares of capital stock approved ~~a further~~an amendment to the Company’s Amended and Restated Articles of Incorporation (the ~~“Amended Restated Articles of Incorporation”~~“Amendment”)~~, which makes~~ making the federal district courts of the United States the exclusive forum for the resolution of any complaint asserting a cause of action against the Company arising under the Securities Act of 1933, as amended. ~~The~~On May 13, 2021, the Company ~~is in~~filed the ~~process of filing the Amended Restated Articles of Incorporation~~Amendment with the Wyoming Secretary of State.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with 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~~small 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,~~November 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending ~~Fiscal 2021.~~

August 31, 2022.

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 fiscal year ended August 31, ~~2020~~2021 (“Fiscal ~~2020”~~2021”), filed with the SEC on ~~November 30, 2020, as well as the amendment to Item 13 of our Annual Report on Form 10-K for Fiscal 2020 filed with the SEC on January 12,~~December 3, 2021.

Principles of Consolidation

The ~~Company~~condensed consolidated financial statements include the accounts of ShiftPixy Inc, and its wholly-owned ~~subsidiaries have been~~subsidiaries. The condensed consolidated infinancial statements also include the ~~accompanying~~accounts of (a) Industrial Human Capital, Inc. ("IHC"), which is a special purpose acquisition company, or "SPAC", for which we serve as the financial ~~statements.~~sponsor (as described below), and which is deemed to be controlled by us as a result of our 15% equity ownership stake, the overlap of three of our executive officers as executive officers of IHC, and significant influence that we currently exercise over the funding and acquisition of new operations for an initial business combination ("IBC"). (see Note 2, Variable Interest Entity). All intercompany balances have been eliminated in consolidation.

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

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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 embedded derivatives and freestanding equity-linked instruments classified as liabilities;~~

	·	~~Deferred income taxes and related valuation allowance;~~

	·	~~Valuation of long-lived assets~~ ~~including fair value and net realizable value of long term notes receivable; and~~

	·	~~Projected development of workers’ compensation claims.~~

•Liability for legal contingencies;

•Useful lives of property and equipment;

•Deferred income taxes and related valuation allowance;

•Valuation of illiquid noncontrolling interest in SPAC shares transferred;

•Valuation of long-lived assets including long term notes receivable prior to January 1, 2021; and

•Projected development of workers’ compensation claims.

Revenue and Direct Cost Recognition

~~The Company provides~~

For the year ended August 31, 2021 ("Fiscal 2021"), we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective approach. Under this method, the guidance is applied only to the most current period presented in the financial statements. ASU No. 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and superseded most of the previous revenue recognition guidance, including industry-specific guidance. Under ASU No. 2014-09, an ~~array~~entity recognizes revenue for the transfer of ~~human resources~~promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Our revenue recognition policies remained substantially unchanged as a result of the adoption of ASU No. 2014-09 and we did not have any significant changes in our business ~~solutions designed to help improve business performance.~~

processes or systems.

The Company’s revenues are primarily ~~attributable to~~disaggregated into fees for providing staffing solutions and EAS/~~human capital management~~HCM 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 enters into contracts with its clients for Staffing or EAS based on a stated rate and price in the contract. Contracts generally have a term of 12 months but are cancellable at any time by either party with 6030 days’ written notice. ~~Contract~~The performance obligations in the agreements are generally combined into one performance obligation, as they are considered a series of distinct services, and are satisfied over time because the client simultaneously receives and consumes the benefits provided as the Company performs the services. Payments for the Company’s services are ~~rendered, and~~typically made in advance of, or at the time ~~period between invoicing and when~~that the ~~performance obligations~~services are ~~satisfied is not significant.~~provided. The Company does not have significant financing components or significant payment terms for its customers and consequently has no material credit losses. ~~Payments for the Company’s services are typically made in advance of, or at the time that the services are provided.~~

The Company ~~accounts~~uses the output method based on a stated rate and price over the payroll processed to recognize revenue, as the value to the client of the goods or services transferred to date appropriately depicts our performance towards complete satisfaction of the performance obligation.

Staffing Solutions

The Company records gross billings as revenues for its staffing solutions clients. TheCompany is primarily responsible for fulfilling the staffing solutions services and has discretion in establishing price. The Company includes the payroll costs in revenues with a corresponding increase to cost of revenues for payroll costs associated with these services. As a result, we are the principal in this arrangement for revenue recognition purposes. For three months ended November 30, 2020, the Company recognized no revenues that should have been evaluated under a staffing solutions model.

EAS ~~revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45,~~ ~~Revenue Recognition, Principal Agent Considerations~~. Solutions

EAS solutions revenue is primarily derived from the Company’s gross billings, which are based on (i) the payroll cost of the Company’s worksite employees (“WSEs”) and (ii) a mark-up computed as a percentage of payroll costs for payroll taxes and workers’ compensation premiums.

Gross billings are invoiced to each EAS client concurrently with each periodic payroll of the Company’s WSEs, which coincides with the services provided and which is typically a fixed percentage of the payroll processed. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup, are recognized ratably over the payroll period as WSEs perform their services at the client worksite. Although the Company assumes responsibility for processing and remitting payroll and payroll related obligations, it does not assume employment-related responsibilities such as determining the amount of the payroll and related payroll obligations. As a result, the Company records revenue on a “net” basis in this arrangement for revenue recognition purposes. Revenues that have been recognized but not invoiced for EAS

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clients are included in unbilled accounts receivable on the Company’s consolidated balance sheets, and were ~~not material~~$2,700,000 and $2,741,000, as of ~~February 28,~~November 30, 2021 and August 31, ~~2020,~~2021, respectively.

Consistent with the Company’s revenue recognition policy for EAS clients, direct costs do not include the payroll cost of its WSEs. The cost of revenue associated with the Company’s revenue generating activities is primarily comprised of all other costs related to its WSEs, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs.

The fees collected from the worksite employers for benefits (i.e. zero-margin benefits pass-through), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses for EAS clients, as the Company does retain risk and acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has ~~evaluated its~~discretion in establishing price.

Disaggregation of Revenue

The Company’s primary revenue ~~recognition policies in conjunction with its future expected business~~streams include HCM and staffing services. The Company’s disaggregated revenues for the three months ended November 30, 2021 and November 30, 2020 were as ~~it migrates to a staffing business model. For Fiscal 2020~~follows:


	For the three months ended
Revenue (in millions):	November 30, 2021		November 30, 2020
HCM1	$	1.8	$	2.5
Staffing	7.1		—
	$	8.9	$	2.5

1 HCM revenue is presented net, $14.1 million gross less WSE payroll cost of $12.3 million for the three months ended November 30, 2021 and $19.8 million gross less WSE payroll cost of $17.3 million for the three months ended November 30, 2020.

During Fiscal 2021 ~~there were~~the Company announced the launch of ShiftPixy Labs and expects to generate revenue from this initiative in Fiscal 2022. We generated no ~~material revenues~~revenue from this initiative during the three months ended November 30, 2021.

For the three months ended November 30, 2021 and November 30, 2020, the following geographical regions represented more than 10% of total revenues:


Region:	November 30, 2021		November 30, 2020
California	53.7	%	78.2	%
Washington	13.3	%	11.6	%

Incremental Cost of Obtaining a Contract

Pursuant to ~~date that should have been evaluated~~the “practical expedients” provided under ~~a staffing business model. Such a staffing business model would have included~~ASU No 2014-09, the ~~payroll~~Company expenses sales commissions when incurred because the terms of its contracts are cancellable by either party upon 30 days' notice. These costs are recorded in ~~revenues with a corresponding increase to cost~~commissions in the Company’s Consolidated Statements of ~~revenues for payroll costs associated with staffing services.~~

Operations.

Segment Reporting

~~The~~

Prior to Fiscal 2021, the Company ~~currently principally operates~~operated as ~~one~~1 reportable segment under ASC 280, Segment Reporting. The chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performance. During Fiscal ~~2020,~~2021, the Company ~~began to enter~~entered into new business lines and geographic areas that, to date, are not material. ~~The~~ However, with the migration to Staffing during the fiscal quarter ending May 31, 2021, the

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Company ~~expects~~is beginning to ~~operate in multiple segments in~~manage the ~~future as its~~ business ~~evolves~~on a segmented basis and therefore intends to report such information once systems and processes are updated accordingly. Reporting and monitoring activities on a segment basis will allow the chief operating decision maker to evaluate ~~these changes prospectively.~~

operating performance more effectively. See also Disaggregation of Revenue, above.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. The Company had no such investments as of ~~February 28,~~November 30, 2021 or August 31, ~~2020.~~

2021.

Marketable Securities Held in Trust Account

At November 30, 2021, substantially all of the assets held in the Trust Account were invested in U.S. Treasury securities with maturities of 180 days or less. These funds are restricted for use and may only be used for purposes of completing an IBC or redemption of the public common shares of the SPACs.

Concentration of Credit Risk

The Company maintains cash with a commercial bank, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses related to these balances and believes its credit risk to be minimal. As of ~~February 28,~~November 30, 2021, there was ~~$3,238,000~~$1,266,000 of cash on deposit in excess of the amounts insured by the FDIC.

No individual ~~client~~clients represented more than 10% of revenues for the three months ~~and six months~~ ended ~~February 28, 2021 and February 29, 2020, respectively.~~November 30, 2021. However, ~~four~~three clients represented ~~94%~~98% of total accounts receivable ~~at February 28,~~as of November 30, 2021.

Fixed Assets

Fixed assets are recorded at cost, less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Leasehold improvements are amortized over the shorter of the useful life or the initial lease term.

Fixed assets are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives of property and equipment for purposes of computing depreciation are as follows:

The amortization of these assets is included in depreciation expense on the condensed consolidated statements of operations.

Internal Use Software

~~Computer Software Development~~

Software development costs relate primarily to software coding, systems interfaces and testing of the Company’s proprietary employer information systems and are accounted for in accordance with 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. The capitalized computer software development costs are reported under the section fixed assets, net in the condensed consolidated balance sheets.

The Company determined that there were no material capitalized internal software development costs for the three ~~and six~~ months ended ~~February 28,~~November 30, 2021 or ~~February 29, 2020.~~as of August 31, 2021. All capitalized software recorded was purchased from third party vendors. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service.

During the three months ended November 30, 2021 and November 30, 2020, the Company incurred research and development costs of approximately $2.2 million and $1.4 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS platform and related mobile application. In addition, no software costs were capitalized for the three months ended November 30, 2021 and November 30, 2020, respectively.

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Impairment and Disposal of Long-Lived Assets

The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment. ASC 360-10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed not to ~~not~~ be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeds the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. There were no indicators noted of impairments during the periods ended ~~February 28,~~November 30, 2021 or ~~February 29, 2020, respectively.~~

November 30, 2020.

Workers’ Compensation

Everest Program

Until 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 exceed the expected losses under that policy, then the Company could receive a demand for additional premium payments. The Company is currently engaged in litigation regarding such a demand for additional premium payments, which we believe to be without ~~legal basis,~~merit, as discussed at Note 9, 11, Contingencies, Everest Litigation, below.

Sunz Program

From July 2018 through February 28, 2021, the Company’s workers’ compensation program for its WSEs was provided primarily through an arrangement with United Wisconsin Insurance Company and administered by ~~the~~ Sunz Insurance Solutions, LLC (“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 is earmarked to pay claims and claims related expenses. The workers’ compensation insurance carrier establishes 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 WSE payroll levels and expected workers’ 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 Deposit- workers’ compensation, a long-term asset in its consolidated balance sheets. The Company is currently engaged in litigation regarding demands by Sunz for additional claims loss funds, which we believe to be without ~~legal basis,~~merit, as discussed at Note ~~10, Subsequent Events,~~ 11, Contingencies, Sunz Litigation, below.

Current Program

Effective March 1, 2021, the Company migrated its clients to a guaranteed cost program. Under this program, the Company’s financial responsibility is limited to the cost of the workers’ compensation premium.

The Company funds the workers’ compensation premium based on standard premium rates on a monthly basis and based on the gross payroll applicable to workers covered by the policy. Any final adjustments to the premiums are based on the final audited exposure multiplied by the applicable rates, classifications, experience modifications and any other associated rating criteria.

Under the Everest and Sunz programs, the Company ~~utilizes~~utilized a third party to estimate its loss development rate, which iswas based primarily upon the nature of WSEs’ job responsibilities, the location of WSEs, 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 its workers’ compensation claims cost estimates.

As of ~~February 28,~~November 30, 2021 and August 31, 2021, the Company had ~~$0.3 million~~$95,000 and $155,000, in Deposit – workers’ compensation classified as a short-term asset and ~~$0.6 million~~$246,000 and $386,000, classified as a long-term ~~asset.~~

asset, respectively.

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 balance sheets. As of ~~February 28,~~November 30, 2021 and August 31, 2021, the Company had short term accrued workers’ compensation

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costs of ~~$0.5~~$0.6 million and $663,000, and long term accrued workers’ compensation costs of ~~$1.2 million.~~

$1.3 million and $1,646,000, respectively.

The Company retained workers’ compensation asset reserves and workers’ compensation related liabilities for former WSEs of clients transferred to Shiftable HR Acquisition, LLC, a wholly-owned subsidiary of Vensure Employer Services, Inc. (“Vensure”), in connection with the Vensure Asset Sale described in Note 3.3, Discontinued Operations, below. As of ~~February 28,~~November 30, 2021, the retained workers’ compensation assets and liabilities are presented as a discontinued operation net asset or liability. As of ~~February 28,~~November 30, 2021, the Company had ~~$0.8~~$0.2 million in short term assets and ~~$1.6~~$1.4 million of short term liabilities, and had ~~$2.1~~$0.6 million of long term assets and ~~$4.1~~$3.6 million of long term liabilities.

Because the Company bears the financial responsibility for claims up to the level noted above, such claims, which are the primary component of its 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 take 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 that are primarily based upon the WSE’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 the Company’s 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.

The Company has had very limited and immaterial COVID-19 related claims between March 2020 through the date of this Quarterly Report, although there is a possibility of additional workers’ compensation claims being made by furloughed WSEs as a result of the employment downturn caused by the pandemic. On May 4, 2020, the State of California indicated that workers who become ill with COVID-19 would have a potential claim against workers’ compensation insurance for their illnesses. There is a possibility that additional workers’ compensation claims could be made by employees required to work by their employers during the COVID-19 pandemic, which could have a material impact on our workers’ compensation liability estimates. While the Company has not seen significant additional expenses as a result of any such potential claims to date, which would include claims for reporting periods after ~~February 28,~~November 30, 2021, we continue to monitor closely all workers’ compensation claims made as the COVID-19 pandemic continues.

Fair Value of Financial Instruments

ASC ~~825,~~ ~~Financial Instruments~~820, Fair Value Measurement, requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practical to estimate fair value. ASC ~~825~~820 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At ~~February 28,~~November 30, 2021 and August 31, ~~2020,~~2021, the carrying value of certain financial instruments (cash, accounts receivable and payable) approximated fair value due to the short-term nature of the instruments. Notes Receivable ~~was~~is valued at estimated fair value as described ~~below as of August 31, 2020 and through December 31, 2020 (end of the earnout period), and at estimated net realizable value as of February 28, 2021.~~

below.

The Company measures fair value under a framework that utilizes a ~~fair value~~ hierarchy ~~that prioritizes~~prioritizing the inputs to relevant valuation ~~techniques used to measure fair value.~~techniques. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs used in measuring fair value are:

	·	~~Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.~~

	·	~~Level 2: Inputs to the valuation methodology include:~~

	o	~~Quoted prices for similar assets or liabilities in active markets;~~

	o	~~Quoted prices for identical or similar assets or liabilities in inactive markets;~~

	o	~~Inputs other than quoted prices that are observable for the asset or liability;~~

	o	~~Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and~~

	o	~~If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.~~

~~Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~

•Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

•Level 2: Inputs to the valuation methodology include:

◦Quoted prices for similar assets or liabilities in active markets;

◦Quoted prices for identical or similar assets or liabilities in inactive markets;

◦Inputs other than quoted prices that are observable for the asset or liability;

◦Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

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◦If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Funds held in trust represent U.S. treasury bills that were purchased with funds raised through the initial public offering of IHC. The funds raised from SPACs are held in trust accounts that are restricted for use and may only be used for purposes of completing an IBC or redemption of the public shares of common stock of the SPACs as set forth in their respective trust agreements. The funds held in trust are included within Level 1 of the fair value hierarchy and included in Cash and marketable securities held in Trust Account in the accompanying condensed consolidated balance sheets.

The Company did not have ~~any~~other Level 1 or Level 2 assets or liabilities at ~~February 28,~~November 30, 2021 or August 31, ~~2020.~~ 2021. We recorded the fair value of the SPAC founder shares that the Company transferred to the underwriters using non-recurring Level 3 assumptions, including quoted asset prices for SPAC shares and warrants and estimates of the likelihood of the IPOs and IBCs of our sponsored SPACs being consummated. See also Note 5, Deferred Offering Costs – SPACS, below.

The valuation of the Note Receivable ~~(as defined below)~~ from the Vensure Asset Sale as(as defined ~~below,~~below), is a Level 3 fair value measurement as of August 31, 2020 and through December 31, 2020 (end of the ~~earnout period)~~earn-out period as defined under the terms of the Note Receivable).

The Note Receivable, as described in Note 3,Discontinued Operations, below, was estimated using a discounted cash flow technique based on expected contingent payments identified in the Vensure Asset Sale contract and with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The Company valued the Note Receivable on the January 1, 2020 transaction date using a 10% discount rate, and on August 31, 2020 and through December 31, 2020 using a 15% discount rate, which contemplates the risk and probability assessments of the expected future cash flows. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the ~~asset sale,~~Vensure Asset Sale, appropriately discounted considering the

uncertainties associated with the obligation, and as calculated in accordance with the terms of the Vensure Asset Sale agreement. ~~The Company believes there are risks associated with~~For Fiscal 2020, the ~~value of the Note Receivable due to business impacts of the COVID-19 pandemic. The~~ expected cash payments from the Note Receivable ~~are~~were based on estimated gross wages billed for the clients transferred to Vensure pursuant to the Vensure Asset Sale as of the measurement date. Those transferred clients may have had their business impacted due to the pandemic which, in turn, would have resulted in lower gross wage billings. While the Company believes the current valuation of the Note Receivable was fairly recorded as of August 31, 2020, a material change in the business transferred may result in a reduction of the estimate of the contingent payments expected to be received and therefore the value of this asset.

The Company used the following assumptions to value the Note Receivable as of August 31, 2020:

~~Discount rate of 15%~~

~~Actual monthly wages billed to the extent available to the Company~~

•Discount rate of 15%

•Actual monthly wages billed to the extent available to the Company

For ~~the period ended February 28,~~interim reporting periods after December 31, 2020, including as of November 30, 2021 and August 31, 2021, the Company ~~estimated the net realizable value based on the available information through the date of this report as described in Note 3.~~

In March 2021, the Company received an initial demand for approximately $10.7 million of working capital adjustments and no adjustments for the actual 2020 wages billed. The Company used those adjustments as a starting point and considered each potential adjustment based on items deemed to be more or less likely and the level of the dispute for any disputed items. The Company disputes a significant portion of the working capital adjustments, as described in Notes 3 and 10. We identified approximately $2.6 million of adjustments deemed to be likely and retained a $2.9 million additional reserve for a total reserve of $5.5 million. The $2.9 million general reserve was developed using a weighted probability approach of the known claims and demands and combined with an estimate of legal and collection costs. The total reserve of $5.5 million is approximately 50% of the difference between the Vensure demand and the gross carrying value of the $9.5 million Note Receivable. Based on this analysis, we made no material changes to the carrying value ofvalued the Note Receivable ~~between November 30, 2020, the last reporting date, or December 31, 2020, the last internal measurement date, to the current reporting date of February 28, 2021.~~

~~By the same token,~~ as discussed in Note 10, Subsequent Events, the Company believes that the actual amount that Vensure owes pursuant to the Note Receivable may be significantly higher than the current valuation, and we are actively seeking recovery of this higher amount from Vensure.

3, Discontinued Operations, below.

The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer.

~~Research and Development~~

~~During~~ There were no transfers out of Level 3 for the three months ended ~~February 28,~~November 30, 2021 and February 29, 2020, the Company incurred research and development costs of approximately $1.4 million and $0.8 million, respectively. During the six months ended February 28, 2021 and February 29, 2020, the Company incurred research and development costs of approximately $2.8 million and $2.1 million, respectively. All costs were related to internally developed or externally contracted software and related technology for the Company’s HRIS platform and related mobile application. No software costs were capitalized for the three months and six months ended February 28, 2021 and February 29, 2020, respectively.

November 30, 2020.

Advertising Costs

The Company expenses all advertising as incurred. The Company incurred advertising costs totaling ~~$719,000~~$401,000 and ~~$921,000~~$202,000 for the three months ended November 30, 2021 and ~~six months ended February 28, 2021, respectively,~~November 30, 2020, respectively.

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes. Under ASC 740, deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and ~~expenses~~operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of ~~$179,000~~assets and ~~$183,000~~liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the ~~three~~period, if any, and ~~six months ended February 29, 2020, respectively.~~

the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. ASC 740 also provides criteria for the recognition, measurement, presentation

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and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.

Earnings (Loss) Per Share

The Company utilizes ASC 260, Earnings per Share. Basic ~~earnings (loss)~~Net Income (Net Loss) per common share is computed by dividing ~~earnings (loss)~~Net Income (Net Loss) attributable to common stockholders by the weighted-average number of shares of common ~~shares~~stock outstanding during the reporting period. Common stock outstanding for purposes of ~~earnings (loss)~~Net Income (Net Loss) per share calculations include unexercised Preferred Options and unexercised prefunded warrants, as described in Note 5.7, Stockholders' Equity, below. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common stock equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common stock equivalents include the dilutive effect of in-the-money stock equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common stock equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common stock shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common stock, because their inclusion would have been antidilutive, are:

For the Three and Six
Months Ended
February 28,
2021 For the Three and Six
Months Ended
February 29,
2020
Options 1,822,173 43,406
Senior Secured Convertible Notes - 298,954
Warrants (Note 5) 4,396,209 131,558
Total potentially dilutive shares 6,218,382 473,918


	Three months ended November 30, 2021	Three Months Ended November 30, 2020
Options	402,258	1,517,189
Warrants (Note 7)	17,491,772	4,396,209
Total potentially dilutive shares	17,894,030	5,913,398

For the table above, “Options” represent all options granted under the Company’s 2017 Stock Option/Stock Issuance Plan (the "Plan"), as described in Note 6, below, including options granted contingent upon stockholder approval, which approval was obtained on March 31, 2021. “Senior Secured Convertible Notes” represent shares issuable upon conversion of convertible notes outstanding as of the period in question. All Senior Secured Convertible Notes were converted or repaid during Fiscal 2020.

8, below.

Stock-Based Compensation

At ~~February 28,~~November 30, 2021, the Company had ~~one~~1 stock-based compensation plan under which the Company may issue awards, as described in Note 6,8, Stock Based Compensation, below. The Company accounts for ~~this plan~~the Plan under the recognition and measurement principles of ASC 718, Compensation- Stock Compensation, which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations at their fair values.

The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense 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~~Company’s common stock since our initial public offering. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

The Company ~~elected~~elects to account for forfeitures as they occur. As such, compensation cost previously recognized for an unvested award that is forfeited because of the failure to satisfy a service condition is revised in the period of forfeiture.

~~Revisions~~

The methods and ~~Reclassifications of Financial Statements for~~assumptions used in the ~~Three and Six months ended February 29, 2020~~

~~Revision of Financial Statements~~

~~During the preparation~~determination of the ~~consolidated financial statements~~fair value of stock-based awards are consistent with those described in the Company's Annual Report on Form 10-K for Fiscal ~~2020,~~2021, filed with the ~~Company determined that it had improperly amortized capitalized software that had not been placed into service. The Company assessed the materiality~~SEC on December 3, 2021, which includes a detailed description 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 to the Company’s consolidated balance sheet, statement of operations, statement of cash flows, statement of stockholders’ equity (deficit) or net loss for the periods then ended.

~~Reclassification of Discontinued Operations~~

During the preparation of the consolidated financial statements for Fiscal 2020, the Company determined that it had included in continuing operations certain customer revenues, cost of revenues, and commission expenseCompany's stock-based compensation awards, including information related to ~~customers transferred to Vensure as part~~vesting terms, service and performance conditions, payout percentages, and process for estimating the fair value of the Vensure Asset Sale. For consistency of presentation, those customer activities were reclassified to discontinued operations for the three and six months ended February 29, 2020. Such reclassifications had no material impact on the Company’s financial condition, operating results, cash flows or stockholder’s equity. Reclassifications to discontinued operations and the impact on earnings (loss) per share have been represented in the table below.

The effect of the revisions and reclassifications on the line items within the Company’s condensed consolidated statement of operations for the three and six months ended February 29, 2020, was as follows :

For the three months ended February 29, 2020
(unaudited)

As Previously
Reported Revision
Adjustments As
Restated Discontinued
Operations
Reclassification As Restated and
Reclassified

Revenues $ 2,583,000 $ - $ 2,583,000 $ (576,000 ) $ 2,007,000
Cost of revenue 2,124,000 $ - 2,124,000 (191,000 ) 1,933,000
Gross profit $ 459,000 $ - $ 459,000 $ (385,000 ) $ 74,000

Operating Expenses
Depreciation and amortization 239,000 (162,000 ) 77,000 - 77,000
All other operating expenses $ 4,211,000 $ - $ 4,211,000 $ 6,000 $ 4,217,000
Operating loss $ (3,991,000 ) $ 162,000 $ (3,829,000 ) $ (391,000 ) $ (4,220,000 )
Net loss from continuing operations $ (4,453,000 ) $ 162,000 $ (4,291,000 ) $ (391,000 ) $ (4,682,000 )
Total income from discontinued operations $ 13,898,000 $ - $ 13,898,000 $ 391,000 $ 14,289,000
Net loss $ 9,445,000 $ 162,000 $ 9,607,000 $ - $ 9,607,000
Net loss per common share - continuing operations, Basic and diluted $ (0.26 ) $ 0.01 $ (0.25 ) $ (0.02 ) $ (0.27 )

Discontinued operations
Operating income (loss) per common share $ 0.82 $ - $ 0.82 $ 0.02 $ 0.84
Net income (loss) per common share, Basic and diluted $ 0.56 $ 0.01 $ 0.57 $ - $ 0.57

Weighted average number of common stock shares, Basic and diluted 16,971,339 16,971,339 16,971,339

For the six months ended February 29, 2020
(unaudited)
As Previously
Reported Revision
Adjustments As
Restated Discontinued
Operations
Reclassification As Restated and
Reclassified
Revenues $ 4,761,000 $ - $ 4,761,000 $ (494,000 ) $ 4,267,000
Cost of revenue 4,178,000 - 4,178,000 (227,000 ) 3,951,000
Gross profit $ 583,000 $ - $ 583,000 $ (267,000 ) $ 316,000

Operating Expenses
Depreciation and amortization 480,000 (324,000 ) 156,000 - 156,000
All other operating expenses $ 8,412,000 $ - $ 8,412,000 $ 112,000 $ 8,524,000
Operating loss $ (8,309,000 ) $ 324,000 $ (7,985,000 ) $ (379,000 ) $ (8,364,000 )
Net loss from continuing operations $ (8,990,000 ) $ 324,000 $ (8,666,000 ) $ (379,000 ) $ (9,045,000 )
Total income from discontinued operations $ 15,879,000 $ - $ 15,879,000 $ 379,000 $ 16,258,000
Net loss $ 6,889,000 $ 324,000 $ 7,213,000 $ - $ 7,213,000
Net loss per common share - continuing operations, Basic and diluted $ (1.01 ) $ 0.04 $ (0.97 ) $ (0.04 ) $ (1.01 )

Discontinued operations
Operating income (loss) per common share $ 1.78 $ - $ 1.78 $ 0.04 $ 1.82
Net income (loss) per common share, Basic and diluted $ 0.77 $ 0.04 $ 0.81 $ - $ 0.81

Weighted average number of common stock shares, Basic and diluted 8,932,217 8,932,217 8,932,217

stock options granted.

Recent Accounting Standards

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The standard provides enhancements to the quality and consistency of how revenue is reported by companies, while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or GAAP. The new standard also requires enhanced revenue disclosures, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. This accounting standard was initially scheduled to become effective for the Company for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, but has since been delayed. Early adoption was 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. The Company is continuing to evaluate the impact and believes that the adoption of Topic 606 will not have a material impact on its reported financial results.

~~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 identification of 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 consideration, contract modifications at transition, completed contracts at 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.~~

~~In June 2020, the FASB issued ASU 2020-05:~~ ~~Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842)~~. For entities that, as of June 2020, had not issued financial statements under Topic 606, the effective date was extended by one year to annual periods beginning after December 15, 2019 and interim periods within annual periods beginning after December 15, 2020. Entities that have not issued financial statements under Topic 842 are required to adopt this standard for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted.

The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of adoption. The Company expects to adopt the guidance using the modified retrospective method and does not expect the adoption to have a material impact on current or historical revenue recognition.

In February 2016, the FASB issued ASU ~~2016-02,~~ ~~Leases~~.2016-2, 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 of the lease as a finance or operating lease. The guidance

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also includes new disclosure requirements providing information on the amounts recorded in the financial statements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, ~~Leases~~.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. ~~In June 2020, the FASB voted to defer the effective date for private companies for one year.~~ The updated effective date will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption. The Company expects to adopt the guidance using the modified retrospective method.

In ~~August 2020,~~June 2016, the FASB issued ASU ~~2020-06,~~ ~~Debt – Debt with Conversion~~2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This standard requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, each reporting entity should estimate an allowance for expected credit losses, which is intended to result in more timely recognition of losses. This model replaces multiple existing impairment models in current U.S. GAAP, which generally requires a loss to be incurred before it is recognized. The new standard applies to trade receivables arising from revenue transactions such as contract assets and ~~Other Options~~accounts receivable. Under ASC 606, revenue is recognized when, among other criteria, it is probable that an entity will collect the consideration it is entitled to when goods or services are transferred to a customer. When trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. This guidance is effective for smaller reporting companies for annual periods beginning after December 15, 2022, including the interim periods in the year. Early adoption is permitted. The Company will adopt the guidance when it becomes effective.

On December 31, 2019, the FASB issued ASC 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” (“Topic 740”). The amendments in this update simplify the accounting for income taxes by removing certain exceptions. For public business entities, the amendments in this update are effective for fiscal years, and interim periods

within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company will adopt the guidance when it becomes effective.

In May 2021, the FASB issued ASU 2021-4 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic ~~470-20)~~470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and ~~Hedging –~~ Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for ~~Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number~~Certain Modifications or Exchanges of ~~accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The update also requires the application~~Freestanding Equity-Classified Written Call Options (a consensus of the ~~if-converted method to calculate the impact of convertible instruments on diluted earnings per share.~~FASB Emerging Issues Task Force). The ~~new guidance is~~amendments in this update are effective for ~~annual periods~~all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. ~~Early adoption~~The Company is ~~permitted, but no earlier than fiscal years beginning after December 15, 2020. This update can~~evaluating the effect of adopting this new accounting guidance and is currently finalizing its analysis of the financial impact of the adoption.

Variable Interest Entity

The Company is involved in the formation of various entities considered to be ~~adopted~~Variable Interest Entities (“VIEs”). The Company evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs. These VIEs are primarily formed to sponsor the related SPACs.

The Company’s determination of whether it is the primary beneficiary of VIE is based in part on ~~either~~an assessment of whether or not the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled to substantially all or portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities.

During the three months ended November 30, 2021, our sponsored SPAC, IHC, completed its IPO, selling 11,500,000 units pursuant to a ~~fully retrospective~~registration statement and prospectus, as described below. The IPO closed on October 22, 2021, raising gross proceeds of $115 million.These proceeds were deposited in a trust account established for the benefit of the IHC public shareholders and, along with an additional $1.675 million deposited in trust by the Company for interest payments for future possible redemptions by IHC stockholders, are included in Cash and marketable securities held in Trust Account in the accompanying condensed consolidated balance sheet at November 30, 2021. These proceeds are invested only in U.S. treasury securities in accordance with the governing documents of IHC.

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Each unit had an offering price of $10.00 and consisted of 1 share of IHC common stock and 1 redeemable warrant. Each warrant entitles the holder thereof to purchase 1 share of IHC common stock at a price of $11.50 per share. The IHC public stockholders have a right to redeem all or a ~~modified retrospective basis. The Company~~portion of their shares of IHC common stock upon the completion of its IBC, subject to certain limitations. Under the terms of the registration statement and prospectus, IHC is required to consummate its IBC within 12 months of the completion of the IPO. If IHC is unable to meet this deadline, and no extension is granted, then IHC will redeem 100% of the public shares of common stock outstanding for cash, subject to applicable law and certain conditions.

In connection with the IPO, we purchased, through investments, 4,639,102 private placement warrants ("Placement Warrants") at a price of $1.00 per warrant, for an aggregate purchase price of $4,639,102, and currently own 2,175,000 Founder Shares of IHC common stock, representing approximately 15% of the issued and outstanding common stock of IHC. Each Placement Warrant is identical to the warrants sold in the IPO, except as described in the IPO registration statement and prospectus. Following the completion of the IHC IPO, we determined that IHC is a Variable Interest Entity ("VIE") in which we have a variable interest because IHC does not ~~expect~~have enough equity at risk to finance its activities without additional subordinated financial support. We have also determined that IHC's public stockholders do not have substantive rights, and their equity interest constitutes temporary equity, outside of permanent equity, in accordance with ASC 480-10-S99-3A. As such, we have concluded that we are currently the ~~adoption~~primary beneficiary of ~~ASU 2020-06~~IHC as a VIE, as we have the right to receive benefits or the obligation to absorb losses of the entity, as well as the power to direct a majority of the activities that significantly impact IHC's economic performance and IHC does not have ~~any material impact on~~enough equity at risk to finance its activities without additional subordinated financial support. Since we are the primary beneficiary, IHC is consolidated into our condensed consolidated financial statements.

Shares Subject to Possible Redemption

The Company accounts for its stockholdings in its sponsored SPACs, (which are consolidated in our condensed consolidated financial statements), that are subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of common stock subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable shares of common stock (including shares of common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, shares of common stock are classified as shareholders’ equity. Each sponsored SPAC's shares of common stock feature certain redemption rights that are considered to be outside of the SPAC's control and subject to occurrence of uncertain future events. Accordingly, as of November 30, 2021, shares of common stock subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheets.

The Company recognizes changes in redemption value of these shares immediately as they occur and adjusts the carrying value of redeemable shares of common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of the redeemable common stock are affected by charges against additional paid in capital and accumulated deficit. As of November 30, 2021 the carrying amount of the sponsored SPAC shares of common stock subject to redemption was recorded at their redemption value of $116,725,000. The remeasurement of the redemption value of the redeemable shares of common stock is recorded in equity. The remeasurement in equity comprised of offering cost incurred in connection with the sale of public shares of the SPACs was $13 million, consisting of approximately $9.5 million of offering costs related to the founder shares transferred to the SPACs’ underwriter representative as described in Note 5, Deferred Offering Costs, and $3.5 million in other offering costs related to the IPO paid at closing in cash.

Note 3: Discontinued Operations

On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019, and ~~the transfer of~~transferring $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement, to a wholly owned subsidiary of Vensure (the “Vensure Asset Sale”). Gross proceeds from the Vensure Asset Sale were $19.2 million, of which $9.7 million was received at closing and $9.5 million was scheduled to be paid out in equal monthly payments over the ~~next~~ four years following the closing of the transaction (the “Note Receivable”), subject to adjustments for working capital and customer retention, (as measured by a gross wage guarantee included in the governing agreement), over the twelve month period following the Vensure Asset Sale. ~~During~~

For Fiscal 2020, the Company estimated the value of the Note Receivable at fair value as discussed in Note 2, Summary of Significant Accounting Policies, above. For the three months ~~and six months~~ ended ~~February 28,~~November 30, 2021, the Company ~~identified an additional $41,000 of net cash paid on behalf of the Company and adjusted~~recorded the Note Receivable ~~accordingly.~~

based on our estimate of expected collections which, in turn, was based on additional information obtained through

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discussions with Vensure and evaluation of our records. On March 12, 2021, the Company received correspondence from Vensure proposing approximately $10.7 million of working capital adjustments under the terms of the ~~Asset Purchase Agreement governing the~~ Vensure Asset ~~Sale.~~Sale agreement which, if accepted, would have had the impact of eliminating any sums owed to the Company under the Note Receivable. As indicated in the reconciliation table below, the Company has ~~initially~~ recorded $2.6 million of working capital adjustments, subject to final review and acceptance, and has provided for ~~a reserve for~~ an additional reserve of $2.9 million ~~of additional~~for potential ~~claims and reserves.~~claims. By letter dated April 6, 2021, the Company disputed Vensure’s proposed ~~adjustments, and maintains that the amount Vensure owes~~adjustments.The disputes between the Company ~~pursuant to the Note Receivable is as much as $9.5 million. As discussed in Note 10, below, any disputes~~and Vensure regarding working capital adjustments under the Vensure Asset ~~Purchase Agreement~~Sale agreement are currently the subject ~~to a resolution process that includes a 30-day negotiation period followed by binding arbitration. The parties are~~of litigation pending in the ~~negotiation period~~Delaware Chancery Court, as ~~of the date of this filing.~~

discussed at Note 11, Contingencies, Vensure Litigation, below.

The following is a reconciliation of the gross proceeds to the net proceeds from the Vensure Asset Sale as presented in the balance sheet for the period ended ~~February 28,~~November 30, 2021.

Gross proceeds $ 19,166,000
Cash received at closing – asset sale (9,500,000 )
Cash received at closing – working capital (166,000 )
Gross note receivable $ 9,500,000

Less: Transaction reconciliation – estimated working capital adjustments (2,604,000 )
Adjusted Note Receivable 6,896,000
Reserve for estimated potential claims (2,892,000 )
Long-term note receivable, estimated net realizable value $ 4,004,000


Gross proceeds	$	19,166,000
Cash received at closing – asset sale	(9,500,000)
Cash received at closing – working capital	(166,000)
Gross note receivable	$	9,500,000

Less: Transaction reconciliation – estimated working capital adjustments	(2,604,000)
Adjusted Note Receivable	6,896,000
Reserve for estimated potential claims	(2,892,000)
Long-term note receivable, estimated net realizable value	$	4,004,000

The entire Note Receivable is recorded as a long term note receivable as of November 30, 2021. Any adjustments to the Note Receivable are applied against payments in the order they are due to be paid. As such, the estimates of the working capital and reserves for estimated potential claims would not result in any cash payments due to the Company until later in Fiscal 2022.

The Vensure Asset Sale generated a gain of $15.6 million for Fiscal 2020. The Company expected a minimal tax impact from the Vensure Asset Sale as it utilized its net operating losses accumulated since inception to offset the gain resulting from discontinued operations tax provision with a corresponding offset to the valuation allowance.

The Vensure Asset Sale met the criteria of discontinued operations set forth in ASC ~~205. As~~205 and as such the Company has reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations for all periods presented.

~~Until December 31, 2020, the Company estimated the fair value~~

The terms of the adjustments to the Note Receivable using Level 3 inputs. For the period ended February 28, 2021, the Company estimated the net realizable value of the Note Receivable, which approximates the fair value as of December 31, 2020.

~~The~~ Vensure Asset Sale ~~calls~~call for adjustments to the Note Receivable either for: (i) working capital adjustments or (ii) in the event that the gross wages of the business transferred is less than the required ~~amount, as detailed below:~~

amount.

(i) Working capital ~~adjustments~~: adjustments: Through ~~February 28,~~November 30, 2021, the Company has identified ~~$2,604,000~~$2.6 million of likely working capital adjustments, including $88,000 related to lower net assets transferred at closing, and ~~$2,516,000~~$2.5 million of cash remitted to the Company’s bank accounts, net of cash remitted to Vensure’s bank accounts. Under the terms of the Vensure Asset Sale, a reconciliation of the working capital was to have been completed by April 15, 2020. Due to operational difficulties and quarantined staff caused by the outbreak of COVID-19, Vensure requested a postponement of the working capital reconciliation that was due in Fiscal 2020. Although Vensure provided the Company with its working capital reconciliation on March 12, 2021, it failed to provide adequate documentation to support its calculations. Accordingly, the working capital adjustment recorded as of ~~February 28,~~November 30, 2021, represents the Company’s estimate of the reconciliation adjustment by using Vensure’s claims and the limited supporting information Vensure provided as a starting point, and then making adjustments for amounts in dispute based upon our internal records and best estimates. There is no assurance that the working capital change identified as of ~~February 28,~~November 30, 2021 represents the final working capital adjustment.

(ii) Gross billings ~~adjustment~~:adjustment: Under the terms of the Vensure Asset Sale, the proceeds of the transaction are reduced if the actual gross wages of customers transferred for ~~calendar~~Calendar 2020 are less than 90% of those customers’ Calendar 2019 gross wages. ~~For~~The Company has prepared an estimate of the ~~year ended August 31,~~Calendar 2020 gross wages based on a combination of factors including reports of actual transferred client billings in early Calendar 2020, actual gross wages of continuing customers of the Company, publicly available unemployment reports for the Southern California markets and the ~~quarter ended November 30, 2020,~~relevant COVID-19 impacts on employment levels, and other information. Based on the information available, the Company ~~had recorded a reserve~~estimated that it would receive additional consideration below the required threshold and reduced the

Table of ~~for its estimate of a gross billings adjustment.~~Contents

contingent consideration by $1.4 million. Vensure ~~did~~has not ~~identify~~identified any such adjustments ~~in their March 2021 correspondence.~~to date. Based on the information available, the Company reclassified the previously recorded gross wages claim to a general potential claims reserve during Fiscal 2021. No additional adjustment was made during the ~~quarter~~three months ended ~~February 28,~~November 30, 2021.

The $2.9 million reserve for estimated potential claims is based on an evaluation of the disputed claims made by Vensure that are in excess of the $2.6 million of likely working capital claims previously identified.

The entire Note Receivable is recorded as a long term note receivable as of February 28, 2021. Any adjustments to the gross $9.5 million note receivable are to be applied against payments in the order they are due to be paid. Under the terms of the Vensure Asset Sale, the dispute is subject to a reconciliation and arbitration process. As such, although we are hopeful for a prompt resolution of our dispute, we do not currently anticipate any collections prior to February 28, 2022, and therefore have classified the note receivable as long-term.

The carrying amounts of the classes of assets and liabilities from the Vensure Asset Sale included in discontinued operations ~~were~~are as follows:

February 28,
2021 August 31,
2020
Cash $ - $ -
Accounts receivable and unbilled account receivable - -
Prepaid expenses and other current assets - -
Deposits – workers’ compensation 821,000 1,030,000
Total current assets 821,000 1,030,000
Fixed assets, net - -
Deposits – workers’ compensation 2,071,000 2,582,000
Total assets $ 2,892,000 $ 3,612,000

Accounts payable and other current liabilities $ - $ -
Payroll related liabilities - -
Accrued workers’ compensation cost 1,620,000 1,746,000
Total current liabilities 1,620,000 1,746,000
Accrued workers’ compensation cost 4,085,000 4,377,000
Total liabilities 5,705,000 6,123,000

Net liability $ (2,813,000 ) $ (2,511,000 )


	November 30, 2021		August 31, 2021
Cash	$	—	$	—
Accounts receivable and unbilled account receivable	—		—
Prepaid expenses and other current assets	—		—
Deposits – workers’ compensation	243,000		356,000
Total current assets	243,000		356,000
Fixed assets, net	—		—
Deposits – workers’ compensation	627,000		883,000
Total assets	$	870,000	$	1,239,000

Accounts payable and other current liabilities	$	—	$	—
Payroll related liabilities	—		—
Accrued workers’ compensation cost	1,414,000		1,516,000
Total current liabilities	1,414,000		1,516,000
Accrued workers’ compensation cost	3,631,000		3,765,000
Total liabilities	5,045,000		5,281,000

Net liability	$	(4,175,000)	$	(4,042,000)

Reported results for the discontinued operations by period were as follows:

For the Three Months Ended For the Six Months Ended
February 28,
2021 February 29,
2020 February 28,
2021 February 29,
2020
Revenues (gross billings of $0 and $27.8 million less worksite employee payroll cost of $0 million and $23.8 million, respectively for the three months ended; gross billings of $0 million and $120.6 million less worksite employee payroll cost of $0 million and $103.0 million, respectively for the six months ended) $ - $ 4,026,000 $ - $ 17,632,000
Cost of revenue 221,000 5,228,000 1,535,000 15,762,000
Gross profit (loss) (221,000 ) (1,202,000 ) (1,535,000 ) 1,870,000

Operating expenses:
Salaries, wages and payroll taxes - 153,000 - 553,000
Commissions - 38,000 - 741,000
Total operating expenses - 191,000 - 1,294,000

(Loss) income from discontinued operations $ (221,000 ) $ (1,393,000 ) $ (1,535,000 ) $ 576,000

~~The loss from discontinued~~


	For the Quarter Ended
	November 30, 2021		November 30, 2020
Revenues	$	—	$	—
Cost of revenue	133,000		1,314,000
Gross profit	(133,000)		(1,314,000)

Operating expenses:
Salaries, wages and payroll taxes	—		—
Commissions	—		—
Total operating expenses	—		—

(Loss) income from discontinued operations	$	(133,000)	$	(1,314,000)

Note 4: Special Purpose Acquisition Company ("SPAC") Sponsorship

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On April 29, 2021, we announced our sponsorship, through our wholly-owned subsidiary, ShiftPixy Investments, Inc. ("Investments"), of 4 SPACs. Each SPAC that has not yet commenced its IPO is currently seeking to raise approximately $150 million in capital investment, through an IPO, to acquire companies in the healthcare and technology segments of the staffing industry, as well as one or more insurance entities, while IHC has completed its IPO and is seeking to acquire companies in the light industrial segment of the staffing industry, as described below. We anticipate that, through our wholly-owned subsidiary, we will own approximately 15% of the issued and outstanding stock in each entity upon their IPOs being consummated, and that each will operate as a separately managed, publicly traded entity following the completion of their respective IBCs. We anticipate entering into service agreements with each of the staffing entities that will allow them to participate in our HRIS platform. We also expect to facilitate the procurement of workers’ compensation, personal liability, and other similar insurance products for these staffing entities through our anticipated relationship with the insurance SPAC after it completes its IBC. For the period ended November 30, 2021, the sponsorship operations for all of these entities, with the exception of IHC, are consolidated in the accompanying financial statements as they were being conducted under a wholly-owned subsidiary. The operations of IHC have been consolidated in the accompanying financial statements for the reasons set forth above.

The registration statement and prospectus covering the IPO of IHC was declared effective by the SEC on October 19, 2021, and IHC units (the “IHC Units”), consisting of 1 share of common stock and an accompanying warrant to purchase 1 share of IHC common stock, began trading on the New York Stock Exchange (“NYSE”) on October 20, 2021. The IHC IPO closed on October 22, 2021, raising gross proceeds for IHC of $115 million. In connection with the IHC IPO, we purchased, through our wholly-owned subsidiary, 4,639,102 placement warrants at a price of $1.00 per warrant, for an aggregate purchase price of $4,639,102.

Following the closing of the IPO, the sum of $116,725,000 was placed in a trust account (the “Trust Account”), and has been invested in U.S. government securities within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the "ICA"), with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 of the ICA, as determined by the Company, until the earlier of: (i) the completion of the IBC and (ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below. The $116,725,000 consisted of the $115,000,000 of gross proceeds from the sale of the Units in the IPO and $1,725,000 funded by the Company as Sponsor representing guaranteed interest for future redemptions and calculated as one year's interest at 1.5%. With the completion of the IPO, the Company recorded approximately $9.5 million of deferred costs into APIC as of November 30, 2021, and $274,000 of offering costs paid on behalf of IHC. During the quarter ended November 30, 2021 IHC incurred approximately $3.5 million in offering costs. No other offering costs has been incurred during the period for the other SPACs.

Note 5: Deferred Offering Costs - SPACs

During Fiscal 2021, the Company incurred professional fees related to the filing of registration statements for the IPOs of 4 SPACs.The Company also transferred certain Founder Shares of those SPACs to a third party which created a non-controlling interest in those entities. These Founder Shares of common stock were transferred to the SPACs’ underwriter representative (the “Representative”) at below fair market value, resulting in compensation and therefore deferred offering costs for the SPACs, and the creation of a minority interest. The non-controlling interest is recorded as a minority interest on the Balance Sheet and the Statement of Equity.There were no similar transactions for Fiscal 2020.

As of August 31, 2021, Deferred offering costs - SPACs totaled $48,261,000, consisting of $789,000 of legal and accounting fees related to the SPACs’ IPOs and $47,472,000 related to the non-controlling interest in consolidated subsidiaries.

The non-controlling interest – deferred offering costs represents the estimated value of the portion of our Founder Shares in each of the following SPACs that we received as a result of our sponsorship, and which we transferred to the Representative on April 22, 2021, at a price below the fair market value of the shares, as follows: (i) 2,000,000 shares of IHC common stock; (ii) 2,000,000 shares of TechStackery, Inc. ("TechStackery") common stock; (iii) 2,000,000 shares of Vital Human Capital, Inc. ("Vital") common stock; and (iv) 4,000,000 shares of Firemark Global Capital, Inc. ("Firemark") common stock. We estimate the total value of the 10,000,000 shares transferred, which represents deferred compensation to the Representative, to be $47,472,000, or $4.7472 per share. We arrived at this valuation by reference to similar SPAC IPO transactions, as set forth below:

1.Consistent with most SPAC IPOs, the market price of units (consisting of some combination of common stock and warrants) sold to the public in a SPAC IPO is $10 per unit.

2.We have valued the warrant portion of each Unit at $0.75. Deducting this value from the Unit yields a value of $9.25 per share of common stock at the time of the IPO, which we have applied to the value of each of the Founder Shares that we issued to the Representative.

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3.We have applied a further discount of 48.8%, which is a blended discount designed to reflect the following contingencies and uncertainties: (a) 20% probability that the SPAC IPOs are never consummated; (b) 20% probability that none of our sponsored SPACs successfully complete their IBC; and (c) 21% additional discounts to account for future sponsor and Representative concessions, as well as the possibility of decrease in the value of the common stock of each SPAC.

One of the Company's sponsored SPACs, IHC, completed its IPO on October 22, 2021, resulting in the recognition of approximately $13 million of offering costs including $9.8 million that had been deferred as of August 31, 2021. No offering costs were incurred for TechStackery, Vital, or Firemark during the quarter ended November 30, 2021. A reconciliation of the deferred offering costs recorded by the Company as of November 30, 2021 is set forth below:


SPAC	Shares	Value	Offering Cost as of August 31, 20211	Offering cost paid by sponsor	Total Offering costs as of August 31, 2021	Recorded to APIC	Balance as of November 30, 2021
IHC	2,000,000	4.7472	9,494,000	274,000	9,768,000	(9,768,000)	—
TechStackery	2,000,000	4.7472	9,494,000	147,000	9,641,000	—	9,641,000
Vital	2,000,000	4.7472	9,494,000	147,000	9,641,000	—	9,641,000
Firemark	4,000,000	4.7472	18,990,000	221,000	19,211,000	—	19,211,000
			$47,472,000	$789,000	$48,261,000	$(9,768,000)	$38,493,000

1 Offering Costs represent that portion of our Founder Shares in each of the following SPACs that we received as a result of our sponsorship, and which we transferred to the Representative during fiscal 2021.

Note 6: Going Concern

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. Historically, the Company has funded itself either through cash flow from operations or the raising of capital through equity sales. If the Company is unable to obtain additional capital, it may not be able to make payments in a timely manner or otherwise fund its operations. The COVID-19 pandemic continued to negatively impact worldwide economic activity through most of Fiscal 2021, including within the United States where our operations are based. While these negative impacts began to ameliorate during Fiscal 2021, prolonged workforce disruptions still negatively impacted sales for the majority of the three month period ended November 30, 2021, as well as the Company’s overall liquidity.

As of the end of the three months ended ~~February 28, 2021, represents the change in the estimated workers’ compensation accruals required for the residual workers’ compensation liabilities retained after the Vensure Asset Sale.~~

~~Note 4: Going Concern~~

~~As of February 28,~~November 30, 2021, the Company had cash of ~~$3.5~~$2.1 million and a working capital deficit of ~~$4.3~~$11.9 million. During ~~the six months ended February 28, 2021,~~this same period, the Company used approximately ~~$9.2~~$6.67 million of cash from its continuing ~~operations. The Company has~~operations and incurred recurring losses, ~~which has resulted~~resulting in an accumulated deficit of ~~$132.6~~$158.1 million as of ~~February 28,~~November 30, 2021.

The recurring losses, negative working capital and cash used in the Company’s operations ~~raise~~are indicators of substantial doubt as to ~~our~~the Company’s ability to continue as a going concern ~~within~~for at least one year from ~~the~~ issuance ~~date~~ of these financial statements.

Historically, the Company’s principal source of financing has come through the sale of its common stock and issuance of convertible notes. On May 26, 2020, the Company successfully completed an underwritten public offering, raising a total of $12 million ($10.3 million net of costs), and closed an additional $1.35 million ($1.24 million net of costs) between June 1, 2020 and July 7, 2020 pursuant to the underwriter’s overallotment. In October 2020, the Company closed an additional $12 million equity offering ($10.7 million net of costs). The Company’s plans ~~and expectations for the next 12 months~~to alleviate this substantial doubt are discussed below. These plans include raising additional capital to ~~help~~ fund expansion of its operations, including the continued development and support of its ITHRIS platform, its SPAC sponsorship activities, and ~~HRIS platform.~~

~~During~~its ShiftPixy Labs growth initiative.

The Company believes that IHC has the potential to generate revenues during Fiscal ~~2021,~~2022, provided that IHC successfully completes its IBC and the Company is able to enter into one or more client services agreements with IHC on favorable terms.Similarly, the Company believes that its future relationship with Vital and TechStackery will provide us with the potential to generate revenues, provided that each of these SPACs is able to launch its IPO and complete its IBC successfully, and the Company is able to enter into one or more client services agreements with each of these SPACs on favorable terms.The Company also believes that Firemark has ~~continued~~the potential to ~~invest in~~generate additional payroll billings through contractual arrangements by which the Company is able to provide low-cost insurance product offerings to its clients, provided that Firemark is able to launch its IPO and complete its IBC successfully, and the Company is able to enter into a contractual relationship with Firemark on favorable terms.

The Company also expects its ShiftPixy Labs growth initiative to generate cash flow once launched, by functioning as an incubator of food service and restaurant concepts through collaboration and partnerships with local innovative chefs.If successful, the Company believes that this initiative will produce sound businesses that provide recurring revenue through direct sales, as well as through utilization of the ShiftPixy Ecosystem, HRIS platform, ~~ShiftPixy Labs,~~ and other growth initiatives, all of which have required significant cash expenditures. The Company expects to deploy significant additional capital resources to continue with these growth initiatives, which include making ShiftPixy Labs and our ghost kitchens fully operational.

~~The Company has been and expects to continue to be impacted by the COVID-19 pandemic, from which it has experienced both positive and negative impacts. Its current business focus is providing~~ human capital services that the

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Company provides.To the extent that this business model is successful and ~~payroll services for the restaurant and hospitality industries, which have seen a reduction~~can be replicated in ~~payroll and consequently a reduction in payroll processing fees on a per WSE and per location basis. However,~~other locations, the Company believes that it ~~provides~~has the ~~means for current~~potential to contribute significant revenue to ShiftPixy in the future.The Company may also take equity stakes in various branded restaurants that it develops and ~~potential clients~~operates with its partners through ShiftPixy Labs. Such ownership interests will be held to ~~adapt to many of~~ the obstacles posed by COVID-19 by offering additional services such as delivery, which have facilitated an increase by the Company in its client and client location counts, resulting in recovery of billings lost during the first months of the pandemic. Beginning in June 2020,extent that it is consistent with the Company’s ~~billings per WSE~~continued existence as an operating company, and ~~per location improved as lockdowns in its primary Southern California market were lifted. Although~~to the ~~State of California re-implemented lockdowns in November 2020,~~extent that the Company believes ~~that many~~such ownership interests have the potential to create significant value for its shareholders.

Further, on March 27, 2020, Former President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carry-back periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.Pursuant to Section 2302 of the CARES Act, the Company is deferring payment of taxes totaling $318,000 until December 31, 2022.These deferrals will allow the Company to preserve capital for use in its growth initiatives which, in turn, are expected to generate substantial revenue and cash flow if successful.

Also, the Company closed a private placement transaction with a large institutional investor on September 3, 2021, (immediately following the close of Fiscal 2021), which yielded proceeds to the Company of approximately $11.9 million net of fees and expenses.The Company expects to engage in additional sales of its ~~clients have modified their businesses after~~securities during Fiscal 2022, either through registered public offerings or private placements, the ~~initial lockdowns to adapt somewhat to these adverse circumstances. Further, the recent acceleration in the roll-out~~proceeds of COVID-19 vaccines throughout California and the entire country has resulted in an easing of business operating restrictions. Nevertheless, if lockdowns resume, the Company’s clients delay hiring or rehiring employees, or if our clients shut down operations, our ability to generate operational cash flows may be significantly impaired.

~~In August 2020,~~which the Company signed an agreement with the Washington Hospitality Association Member Services Corporation (“Washington Hospitality”), a consortium representing approximately 200,000 potential WSEs in the food industry located in the State of Washington. This agreement expands the Company’s geographic reachintends to use to fund its operations and ~~is expected to drive revenue~~ growth ~~starting in calendar 2021.~~

The Company also signed a new client in July 2020 representing a significant revenue opportunity. This client provides outsourced nurses that are paid gross wages in an amount approximately three times what the Company’s typical food WSEs receive, with the Company receiving the same administrative fee rates per wage dollar paid. We believe that this client will generate new business for the Company, as the need for nurses increases to administer COVID-19 testing and vaccination services. We began to see an increase in these billed nurses in the quarter ending February 28, 2021.

initiatives.

The Company’s management believes that ~~the Company’s~~its current cash position, (including the proceeds of the September 2021 private placement), along with its anticipated revenue growth and proceeds from future sales of its securities, when combined with prudent expense management, will ~~not~~ be sufficient to alleviate substantial doubt about its ability to continue as a going concern and to fund ~~our~~its operations for at least aone year from the date these financials are ~~issued without additional capital funding. While~~available (especially when considering the ~~Company has successfully raised capital from~~absence of any funded debt ~~and equity investors in the past, if~~outstanding on its balance sheet). If these sources do not provide the capital necessary to fund the Company’s operations during the next twelve months, ~~following the issuance of this Quarterly Report, the Company~~it may need to curtail certain aspects of its operations or expansion activities, consider the sale of additional 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,~~terms, or that any such additional financing will be available. These ~~condensed~~ consolidated financial statements do not include any adjustments for this uncertainty.

Note 5:7: Stockholders’ Equity

Preferred Stock

As previously disclosed, in September 2016, the founding shareholders of the Company were granted options to acquire ~~ShiftPixy~~ preferred stock of the Company (the “Preferred Options”). The number of Preferred Options granted was based upon the number of shares held at ~~that time.~~the time of the grant. These Preferred Options are nontransferable and forfeited upon the sale of the related founding shares of common ~~stock.~~stock held by the option holder. Upon the occurrence of certain specified events, such founding shareholders ~~may~~can exercise each Preferred Option to purchase one share of preferred stock of the Company at an exercise price of $0.0001 per share. The preferred stock underlying the Preferred Options does not include any rights to dividends or preference upon liquidation of the Company and is convertible into shares of the Company’s common stock on a ~~one-for-one basis pursuant to~~1-for-one basis. Upon consummation of the ~~Amended Restated Articles~~Vensure Asset Sale in January 2020, a total of ~~Incorporation. The~~24,634,560 Preferred Options became exercisable ~~to purchase shares of preferred stock in January 2020~~ and ~~in March 2020 became~~ exchangeable into an equal number of shares of our common stock.

On June 4, 2020, Scott W. Absher, the Company’s Chief Executive Officer, exercised 12,500,000 Preferred Options to purchase ~~an equal number of~~12,500,000 shares of our preferred ~~stock.~~stock for an aggregate purchase price of $1,250. Immediately ~~thereafter,~~following the exercise of the Preferred Options described above, Mr. Absher ~~converted all~~elected to convert the 12,500,000 shares of preferred stock into 12,500,000 shares of common ~~stock. These shares of common~~ stock, which are subject to a ~~two-year lockup from the date of the conversion.~~24-month lock-up period during which such shares may not be traded. Between ~~June 4,~~July 20, 2020 and ~~August 31,~~November 30, 2020, an additional 294,490 Preferred Options were exercised and ~~exchanged for a like number~~converted into 294,490 shares of common stock, ~~shares. During~~which were subject to a six-month lock up period at the ~~fiscal quarter and six months ended February 28,~~time they were issued, during which such shares could not be traded on the open market. As of November 30, 2021, ~~an additional 12,500~~the restrictions on all of these shares have been lifted, rendering them freely tradeable.

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On October 22, 2021, the Company’s board of directors canceled 11,790,000 of these Preferred Options ~~were exercised and exchanged for a like number shares of common stock. As of the date of this Quarterly Report, 11,827,570~~previously issued to its co-founder, J. Stephen Holmes.Accordingly, these Preferred Options are no longer exercisable. A total of 37,570 Preferred Options issued pursuant to the September 2016 grant and triggered by the Vensure Asset Sale remain ~~outstanding and exercisable.~~ unexercised.

The ~~right to exercise the options terminates on December 31, 2023. As stated above, the~~ amount of ~~the~~ Preferred Options, and the number of shares of preferred stock issuable upon exercise of such options, is based upon the number of shares of common stock held by ~~such founding shareholders~~the option holders at the time ~~such options~~the Preferred Options were ~~issued.~~issued in September 2016. Accordingly, in order to confirm the original intent of the granting ~~options to purchase~~of up to ~~50,000,000 shares of preferred stock~~25,000,000 Preferred Options to ~~two of our founding shareholders,~~ Mr. Absher, ~~and J. Stephen Holmes, at some point in~~it has always been the ~~future the Company intends~~Company’s intent to adopt a second grant of ~~options, exercisable upon the occurrence of certain specified events, granting~~ an additional 12,500,000 ~~options~~Preferred Options to ~~each of Messrs.~~Mr. Absher, ~~and Holmes,~~ whereby each option permits the holder to acquire one share of the Company’s preferred stock offor $0.0001 per share.On August 13, 2021, consistent with this intent, the Company granted 12,500,000 Preferred Options to Mr. Absher to purchase shares of Preferred Stock, par value $0.0001 per share, for consideration of $0.0001 per share. Each Preferred Option is exercisable for a period of twenty-four months upon (i) the acquisition of a Controlling Interest (as defined below) in the Company by any single shareholder or group of shareholders acting in concert, (other than Mr. Absher), or (ii) the announcement of (x) any proposed merger, consolidation, or business combination in which the Company’s Common Stock is changed or exchanged, or (y) any sale or distribution of at least 50% of the Company’s assets or earning power, other than through a reincorporation. Each share of ~~preferred stock will be~~Preferred Stock is convertible into ~~common stock~~Common Stock on a ~~one-for-one~~1-for-one basis.

~~October 2020 Public Offering~~

~~On October 8, 2020,~~ “Controlling Interest” means the ownership or control of outstanding voting shares of the Company ~~entered into an underwriting agreement (the “October Underwriting Agreement”)~~sufficient to enable the acquiring person, directly or indirectly and individually or in concert with ~~A.G.P./Alliance Global Partners (“AGP”)~~others, to exercise one-fifth or more of all the voting power of the Company in ~~connection~~the election of directors or any other business matter on which shareholders have the right to vote under the Wyoming Business Corporation Act. As of November 30, 2021, no events have occurred that would trigger the exercise of the Preferred Options issued to Mr. Absher in August 2021.

Common Stock and Warrants

During the three months ended November 30, 2021, the Company closed a $12 million private placement transaction, inclusive of $0.9 million of placement agent fees and costs, with a ~~public offering (the “October 2020 Offering”) of~~large institutional investor pursuant to which the Company sold to the investor an aggregate of (i) ~~4,000,000~~2,850,000 shares of ~~our common stock~~Common Stock, together with warrants (the “September 2021 Common Warrants”) to purchase up to 2,850,000 shares of Common Stock, with each September 2021 Common Warrant exercisable for 1 share of Common Stock at a price per share of $1.595, and (ii) 4,673,511 prefunded warrants (the “September 2021 Prefunded Warrants”), together with the September 2021 Common Warrants to purchase ~~2,300,000~~up to 4,673,511 shares of ~~common stock (the “October 2020~~ Common ~~Warrants”), which included the partial exercise~~Stock, with each September 2021 Prefunded Warrant exercisable for 1 share of ~~AGP’s over-allotment option to purchase 300,000 additional October 2020~~ Common ~~Warrants.~~

Stock at a price per share of $0.0001. Each share of ~~common stock was~~Common Stock and accompanying September 2021 Common Warrant were sold together ~~with an October 2020~~at a combined offering price of $1.595 and each September 2021 Prefunded Warrant and accompanying September 2021 Common Warrant ~~as a fixed combination, with each share of common stock~~were sold ~~being accompanied by an October 2020 Common Warrant to purchase 0.5 shares of common stock. Each share of common stock and accompanying October 2020 Common Warrant was sold~~together at a combined offering price toof $1.5949.

The September 2021 Prefunded Warrants are immediately exercisable, at a nominal exercise price of $0.0001, and may be exercised at any time until all of the ~~public of $3.00.~~September 2021 Prefunded Warrants are exercised in full. The ~~October 2020~~September 2021 Common Warrants ~~were immediately exercisable, will expire on October 13, 2025, and~~ have an exercise price of ~~$3.30~~$1.595 per share, ~~subject to anti-dilution~~are immediately exercisable, and ~~other adjustments for certain stock splits, stock dividends, or recapitalizations.~~

will expire five years from the date that the registration statement covering the resale of the shares underlying the September 2021 Common Warrants is declared effective (which has not yet occurred). The ~~October 2020 Offering closed on October 14, 2020, for~~private placement generated gross proceeds of approximately $12.0 million, prior to deducting ~~$1.3~~$0.9 million of costs consisting of ~~underwriting discounts and~~Placement Agent commissions and offering expenses payable by the ~~Company, which includes a partial exercise~~Company. In addition to the seven percent (7%) of the ~~underwriter’s over-allotment option to purchase additional October 2020 Common Warrants. Pursuant~~aggregate gross proceeds cash fee, the Company issued to the ~~October Underwriting Agreement, the Company, upon closing of the October 2020 Offering, issued to AGP~~Placement Agent 376,176 warrants to purchase an aggregate of up to ~~200,000 shares of common stock (the “October Underwriter Warrants”~~five percent (5%)~~, which is equivalent to 5.0%~~ of the aggregate number of shares of ~~common stock~~Common Stock issuable upon exercise of the September 2021 Prefunded Warrants sold in the ~~October 2020 Offering.~~offering (the “September Placement Agent Warrants”). The ~~October Underwriter~~September Placement Agent Warrants are exercisable ~~at any time and from time to time, in whole or in part,~~for a period commencing ~~six~~on March 3, 2022 (six months after ~~the closing date~~issuance) and ~~ending five~~expire four years from the ~~closing~~effective date at(which has not yet occurred) of a registration statement for the resale of the underlying shares, and have an initial exercise price per share ~~equal to $3.30, which is equivalent to 110%~~ of ~~the public offering price per share.~~

~~Common Stock and Warrants~~

~~During the six months ended February 28, 2021, the Company issued 4,000,000 shares~~$1.7545. .

Table of ~~common stock pursuant to the October 2020 Offering at $3.00 per share, as described above.~~

Contents

The following table summarizes the changes in the Company’s common stock ~~warrants~~and Prefunded Warrants from August 31, ~~2020~~2021 to ~~February 28, 2021:~~

Number
of
shares Weighted
average
remaining
life
(years) Weighted
average
exercise
price
Warrants outstanding, August 31, 2020 1,896,209 4.7 $ 7.91
Issued 2,500,000 5.0 3.30
(Cancelled) - - -
(Exercised) - - -
Warrants outstanding, February 28, 2021 4,396,209 4.5 5.51
Warrants exercisable, February 28, 2021 4,396,209 4.5 $ 5.51

November 30, 2021.
Number
of
shares Weighted
average
remaining
life
(years) Weighted
average
exercise
price
Warrants outstanding, August 31, 2021 9,592,085 4.7 $ 3.87
Issued 7,899,687 4.7 1.60
(Cancelled) — — —
(Exercised) — — —
Warrants outstanding, November 30, 2021 17,491,772 4.7 2.83
Warrants exercisable, November 30, 2021 17,115,596 4.7 $ 2.85

The following table summarizes the Company’s warrants outstanding as of ~~February 28,~~November 30, 2021:

Warrants
Outstanding Weighted average
Life of
Outstanding
Warrants
in years Exercise
price
October 2020 Common Warrants 2,300,000 4.6 $ 3.30
October 2020 Underwriter Warrants 200,000 4.6 3.30
May 2020 Common Warrants 1,277,580 4.2 5.40
May 2020 Underwriter Warrants 111,108 4.2 5.40
March 2020 Exchange Warrants 423,669 4.6 10.17
Amended March 2019 Warrants 66,288 3.0 40.00
March 2019 Services Warrants 3,366 3.0 70.00
June 2018 Warrants 6,276 2.8 40.00
June 2018 Services Warrants 5,422 2.8 99.60
2017 PIPE Warrants 2,500 1.3 276.00
4,396,209 4.5 $ 5.51


	Warrants Outstanding	Weighted average Life of Outstanding Warrants in years	Exercise price
Sep 2021 Common Warrants	2,850,000	4.8	$	1.60
Sep 2021 Prefunded Warrants (1)	4,673,511	4.8	1.59
Sep 2021Underwriter Warrants (2)	376,176	4.8	1.75
May 2021 Common Warrants	4,948,453	4.5	2.43
May 2021Underwriter Warrants	247,423	4.5	2.43
October 2020 Common Warrants	2,300,000	3.8	3.30
October 2020 Underwriter Warrants	200,000	3.8	3.30
November 2020 Common Warrants	1,277,580	3.5	5.40
November 2020 Underwriter Warrants	111,108	3.5	5.40
March 2020 Exchange Warrants	423,669	3.8	10.17
Amended March 2019 Warrants	66,288	2.3	40.00
March 2019 Services Warrants	3,366	2.3	70.00
June 2018 Warrants	6,276	2.1	40.00
June 2018 Services Warrants	5,422	2.1	99.60
2017 PIPE Warrants	2,500	1.0	276.00
	17,491,772	4.4	$	2.83

(1)The September 2021 Prefunded Warrants were sold as part of a Prefunded Warrant Unit as described above at a nominal price of $0.0001 per share.

(2)The September 2021 Placement Agent Warrants become exercisable six months from issuance and expire four years from the effective date (which has not yet occurred) of the registration statement covering the resale of the underlying shares.

Note 6:8: Stock Based Compensation

Employee Stock Option Plan Increase

In March 2017, the Company adopted its 2017 Stock Option/Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), (each of which is exercisable into shares of common stock), (collectively, “Options”) or shares of common stock (“Share Grants”). ~~The Company had reserved a total~~

Table of ~~250,000~~Contents

On July 1, 2020, the Company's board of directors unanimously approved an increase in the number of shares of common stock issuable under the Plan from 250,000 to 3,000,000. On March 31, 2021, the Company’s shareholders approved the increase in the number of shares of common stock issuable under the Plan as well as any contingent grant awards under the Plan on or subsequent to July 1, 2020. On June 4, 2021, the Company registered an aggregate of 3,000,000 shares, par value $0.0001 per share, reserved for issuance under the Plan as of February 28, 2021, which was previously approved by the Company’s shareholders. Of these 250,000 approved shares, as of February 28, 2021, approximately 93,000 options and 7,000 shares had been designated by the Board of Directors for issuance and approximately 40,000 of the options had been forfeited and returned to the option pool under the Plan due to employment terminations. As of February 28, 2021, approximately 209,000 shares remained issuable, of which 167,000 were eligible to be issued as ISOs and 209,000 as either share grants or NQs. Under the Plan, as previously approved by the Company’s shareholders, a total of 40,818 options were outstanding as of February 28, 2021 and are reported as exercisable in the table below.

Plan.

For all options granted prior to July 1, 2020, each option ~~is immediately exercisable and~~ has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, with the balance vesting in equal monthly installments over the succeeding 36 months. ~~All options~~Options granted ~~to date have a ten-year term.~~

On July 1, 2020, our Board of Directors unanimously approved an increase in the number of shares of common stock issuable under the Plan from 250,000 to 3,000,000, subject to approval by a majority of the Company’s stockholders. As of February 28, 2021 the Company has granted 1,781,355 options under the Plan that are subject to stockholder approval and are reported as non-exercisable in the table below. The options granted sinceon or after July 1, 2020 typically vest over four years, with 25% of the grant vesting one year from the grant date, and the remainder in equal quarterly installments over the succeeding 12 quarters. ~~On March 31,~~All options granted to date have a stated ten-year term and, as of November 30, 2021, ~~the Company’s stockholders approved the increase in the number of shares of common stock issuable under the Plan from 250,000~~all options granted to ~~3,000,000 shares, as well as the various grant awards under the Plan since July 1, 2020.~~

date are exercisable.

Stock grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model.

Following ~~our~~its adoption of ASU ~~2016-09, we~~2016-9, the Company elected to account for forfeitures under the Plan as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture.

The Company recognized approximately ~~$441,000~~$408,000 and ~~$863,000~~$496,000 of compensation expense for the three ~~and six~~ months ended ~~February 28,~~November 30, 2021 and November 30, 2020, respectively.

The Company ~~recognized approximately $556,000~~compensates its board members through grants of common stock for services performed. These services have been accrued within the accounts payable and ~~$670,000 of compensation expense~~other accrued liabilities on the condensed consolidated balance sheet. The Company has incurred $56,000 and $75,000 for the three ~~and six~~ months ended ~~February 28,~~November 30, 2021 and November 30, 2020, respectively.

The following table summarizes option activity during the three months ended November 30, 2021:


	Options Outstanding and Exercisable
	Number of Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
		(In years)
Balance Outstanding, August 31, 2021	1,776,115	8.90	$	6.80
Granted	105,000	9.87	1.18
Exercised	—	—	—
Forfeited	(58,125)	3.19	3.89
Balance Outstanding at November 30, 2021	1,822,990	8.83	$	6.41

Balance Exercisable at November 30, 2021	1,822,990

Options outstanding as of November 30, 2021 had aggregate intrinsic value of $0.

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At ~~February 28,~~November 30, 2021, the total unrecognized deferred ~~stock-based~~share-based compensation expected to be recognized over the remaining weighted average vesting periods of ~~3.3~~2.77 years for outstanding grants was ~~$5.3 million.~~

~~The following table summarizes option activity during the six months ended February 28, 2021:~~

Options Outstanding and Exercisable
Weighted
Average Weighted
Number Remaining Average
of Contractual Exercise
Options Life Price
(In years)
Balance Outstanding, August 31, 2020 1,398,740 9.5 $ 8.18
Granted 550,000 10.0 3.21
Exercised - - -
Forfeited (126,567 ) 9.5 5.03
Balance Outstanding at February 28, 2021 1,822,173 9.4 $ 6.73
Balance not Exercisable at February 28, 2021 1,781,355
Balance Exercisable at February 28, 2021 40,818

~~Options outstanding as of February 28, 2021 had aggregate intrinsic value of $116,000.~~

$3,785,000. Option vesting activity ~~during the six months ended February 28,~~from August 31, 2021, through November 30, 2021 was as follows:

Weighted Weighted
Number Remaining Average
of Contractual Exercise
Options Vested Options Life Price
(In years)
Balance, August 31, 2020 28,410 7.2 $ 115.10
Vested 3,916 7.5 93.49
Exercised - - -
Forfeited (655 ) 7.2 50.33
Balance at February 28, 2021 31,671 7.2 $ 113.76


Options Vested	Number of Options	Weighted Remaining Contractual Life	Weighted Average Exercise Price
		(In years)
Balance, August 31, 2021	309,257	8.63	$	16.92
Vested	93,001	8.85	5.65
Exercised	—	—	—
Forfeited	—	—	—
Balance, November 30, 2021	402,258	8.70	$	14.31

The following table summarizes information about stock options outstanding and vested at November 30, 2021:


	Options Outstanding				Options Vested
Exercise Prices	Number of Options Exercisable	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
		(In Years)				(In Years)
$1.36 - 10.00	1,782,293	8.4	$	4.27	366,810	8.9	$	5.15
$10.01 - $40.00	3,500	7.5	21.69		2,289	7.5	21.69
$40.01 - $80.00	13,396	7.3	51.21		10,610	7.3	51.22
$80.01 - $120.00	10,302	6.5	102.90		9,432	6.5	102.89
$120.01 - $160.00	12,375	5.8	155.20		11,992	5.7	155.42
$160.01 - $391.60	1,125	5.6	391.60		1,125	5.6	391.60
	1,822,990	8.8	$	6.41	402,258	8.7	$	14.31

Note 9: Related Parties

Director Compensation

On December 23, 2019, pursuant to the terms of his director agreement, we issued to Whitney White 428 shares of our common stock, valued at $37,500 or $87.62 per share.

On February ~~28, 2021:~~

Options Outstanding Options Vested
Exercise Prices Number of
Options not
Exercisable Number of
Options
Exercisable Weighted
Average
Remaining
Contractual
Life Weighted
Average
Exercise
Price Number of
Options Weighted
Average
Remaining
Contractual
Life Weighted
Average
Exercise
Price
(In Years) (In Years)
$2.23-10.00 1,781,355 - 9.5 $ 4.70 - - $ -
$10.01-$40.00 - 3,500 8.3 21.69 1,680 8.3 21.65
$40.01–$80.00 - 13,396 8.1 51.21 8,986 8.1 51.22
$80.01–$120.00 - 10,303 7.2 102.90 8,096 7.3 102.74
$120.01–$160.00 - 12,495 6.5 155.24 11,784 6.5 155.64
$160.01-$391.60 - 1,125 6.4 391.60 1,125 6.4 391.60
1,781,355 40,818 9.4 $ 6.73 31,671 7.2 $ 113.76

~~The options not exercisable were conditionally granted by~~10, 2020, Amanda Murphy was appointed to our Board. Ms. Murphy was our Director of Operations at the time of her appointment. Ms. Murphy received approximately $264,000 and $240,000 in salaried compensation in Fiscal 2021 and Fiscal 2020, respectively. During Fiscal 2021, in connection with her relocation to Miami, Florida as part of the relocation of our principal executive offices, Ms. Murphy received a one-time incentive payment of approximately $80,000 in addition to reimbursement of her expenses associated with her relocation.On October 22, 2021, as noted above, our Board approved the promotion of ~~Directors between July~~Ms. Murphy to the position of Chief Operating Officer, as well as an increase in her annual salary to $500,000, all of which were effective January 1, ~~2020~~2022.

Scott W. Absher, our CEO and ~~February 28,~~Chair of our Board, received compensation in the form of salary of approximately $765,000 and $750,000 for Fiscal 2021 and ~~are not exercisable until stockholder approval is~~Fiscal 2020, respectively. In addition, Mr. Absher received ~~for~~ the ~~increase~~following additional payments during Fiscal 2021: (i) a one-time incentive payment of approximately $160,000 in connection with his relocation to Miami, Florida as part of the relocation of our principal executive offices, in addition to reimbursement of his expenses associated with his relocation; and (ii) a one-time bonus payment in the ~~option pool. As discussed above, stockholder~~ amount of $240,000 in recognition of his efforts on behalf of the Company. Subsequent to the end of Fiscal 2021, our Board approved raising Mr. Absher’s annual salary to $1 million, effective January 1, 2022, and also approved the payment of a $500,000 bonus to Mr. Absher, 50% of which was payable upon Board

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approval, and the remainder of which was ~~obtained~~payable on ~~March 31, 2021.~~

~~Note 7: Related Parties~~

January 1, 2022. These bonuses are recorded in our Accounts payable and other accrued liabilities in the condense consolidated balance sheets.

J. Stephen Holmes

J. Stephen Holmes ~~our~~formerly served as a non-employee sales manager ~~is an~~ advisor to and was a significant ~~stockholder~~shareholder of the Company. The Company incurred ~~$180,000 and $360,000~~$750,000 in professional fees for services provided by Mr. Holmes induring each of ~~the three and six month periods ended February 28,~~Fiscal 2021 and ~~February 29,~~ 2020, respectively.

~~During the three and six month periods ended February 28,~~ Further, on June 6, 2019, we advanced $325,000 in cash to Mr. Holmes, which he repaid on July 18, 2019 by returning 558,132 shares of common stock to us at a fair value of $0.58 per share. We classified these shares as treasury stock, which were retired during Fiscal 2020.

On or about October 22, 2021, we ~~made one-time payments~~severed all ties with Mr. Holmes, effective immediately, and cancelled Preferred Options that had previously been issued to ~~certain~~him but had not been exercised. As a result of these actions, the Company no longer has any financial obligation to Mr. Holmes, and believes that he is no longer a significant shareholder of the Company. See Note 7, Stockholders Equity.

Related Persons to Scott Absher

Mark Absher, the brother of Scott Absher, was previously employed as our ~~employees totaling approximately $53,000~~Registered In-House Counsel, Director and $600,000, respectively, in connection with their agreement to relocate from California to our new principal executive offices in Miami, Florida. Included among these were payments to the following related parties, in the amounts indicated: (i)Secretary. Mr. Absher ~~$160,000; (ii) Amanda Murphy, our Director~~resigned from his positions with the Company on February 6, 2019 and received compensation of ~~Operations and a member~~$276,951 in Fiscal 2019.On November 18, 2021, Mr. Absher rejoined the Company as Deputy General Counsel – Special Projects, for an annual salary of ~~our Board, $80,000; (iii)~~ $240,000.Based on his re-hire date, Mr. Absher did not receive any compensation from the Company in Fiscal 2021 or Fiscal 2020.

David May, a member of our business development team, ~~and~~is the son-in-law of Scott Absher. Mr. May received compensation of approximately $149,000 and $132,000 in Fiscal 2021 and Fiscal 2020, respectively. In addition, in connection with his relocation to Miami, Florida, as part of the relocation of our principal executive offices, Mr. May received a one-time incentive payment of approximately $80,000 during Fiscal 2021, in addition to reimbursement for expenses associated with his relocation.

Jason Absher, a member of our business development team, is the nephew of Scott Absher and the son of Mark Absher.Mr. Absher ~~$80,000; (iv)~~ was hired on February 22, 2021 at an annual salary of $75,000, which was subsequently raised to $120,000, effective August 1, 2021.Mr. Absher did not receive any compensation in Fiscal 2020, but received compensation of approximately $37,700 for Fiscal 2021.

Phil Eastvold, the Executive Producer of ShiftPixy ~~Productions, Inc., and~~Labs, is the son-in-law of Scott Absher. Mr. ~~Absher, $88,000;~~Eastvold was hired on September 1, 2020 and ~~(v) Hannah Absher, an employee~~therefore did not receive any compensation in Fiscal 2020. Mr. Eastvold received compensation for Fiscal 2021 of approximately $224,000. In addition, in connection with his relocation to Miami, Florida as part of the ~~Company and the~~relocation of our principal executive offices, Mr. Eastvold received a one-time incentive payment of approximately $88,000 during Fiscal 2021, in addition to reimbursement for expenses associated with his relocation.

Connie Absher, (the spouse of Scott Absher), Elizabeth Eastvold, (the daughter of Scott Absher ~~$18,000.~~

and spouse of Mr. Eastvold), and Hannah Absher, (the daughter of Scott Absher), are also employed by the Company. These individuals, as a group, received aggregate compensation of $240,000 and $220,000 in Fiscal 2021 and Fiscal 2020, respectively. In addition, in connection with her relocation to Miami, Florida as part of the relocation of our principal executive offices, Hannah Absher received a one-time incentive payment of approximately $18,000 during Fiscal 2021, in addition to reimbursement for expenses associated with her relocation.Connie Absher and Elizabeth Eastvold did not receive any such relocation bonus.

Note 8:10: Commitments

Operating Leases & License Agreements

Effective April 15, 2016, the Company entered into a non-cancelable five-year operating lease for its Irvine ~~California~~ facility. On July 25, 2017, the Company entered into a non-cancelable operating lease for expansion space at its Irvine offices with a termination date that coincides with the termination date of the prior lease and extended the terms of the original lease to extend until 2022. The leases for certain facilities contain escalation clauses relating to increases in real property taxes as well as certain maintenance costs.

Effective August 13, 2020, the Company entered into a non-cancelable seven-year ~~operating~~ lease for ~~its~~13,246 square feet of office space located in Miami, Florida ~~office facility~~to house its principal executive offices commencing October 2020, and continuing through

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September 2027. The lease contains escalation clauses relating to increases in real property taxes as well as certain maintenance costs.

Effective October 1, 2020, the Company entered into a non-cancelable 64-month lease for 23,500 square feet of primarily industrial space located in Miami, Florida, to house ghost kitchens, production facilities, and certain marketing and technical functions, including those associated with ShiftPixy Labs. The lease contains escalation clauses relating to increases in real property taxes as well as certain maintenance costs.

Effective June 7, 2021, the Company entered into a non-cancelable sublease agreement with Verifone, Inc. to sublease premises consisting of approximately 8,000 square feet of office space located in Miami, Florida, that the Company anticipates using for its sales and operations workforce. The lease has a term of three years expiring on May 31, 2024. The base rent is paid monthly and escalates annually pursuant to a schedule set forth in the sublease.

Effective June 21, 2021, the Company entered into a non-cancelable 77-month lease, with an anticipated possession date of March 1, 2022, for premises consisting of approximately 13,418 square feet of office space located in Sunrise, Florida, that the Company anticipates using primarily to house its operations personnel and other elements of its workforce. The base rent is paid monthly and escalates annually pursuant to a schedule set forth in the lease.

Future minimum lease and licensing payments under non-cancelable operating leases at ~~February 28,~~November 30, 2021, are as follows:

Years ended August 31,
2021 $ 697,000
2022 1,302,000
2023 1,014,000
2024 1,075,000
2025 1,108,000
Thereafter 1,652,000
Total minimum payments $ 6,848,000


Years ended November 30,
2022	$	945,000
2023	1,068,000
2024	1,131,000
2025	1,165,000
2026	897,000
Thereafter	838,000
Total minimum payments	$	6,044,000

ShiftPixy Labs Ghost Kitchens

On March 17, 2021, the Company entered into a master service agreement for the construction of 6 ghost kitchens to be placed in its ShiftPixy Labs facility in Miami for a total cost of $1,037,000. As of November 30, 2021, the Company has made payments totaling $885,000 pursuant to this agreement, which it has capitalized as construction in progress and included in Fixed Assets on the Condensed Consolidated Balance Sheet. The Company expects to incur additional costs totaling $152,000 under this contract, which it expects to pay by the end of the second quarter of Fiscal 2022.

Non-contributory 401(k) Plan

The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employees who are at least 21 years of age and have completed 3 months of service. There were no employer contributions to the 401(k) Plan for the three ~~or six~~ months ended ~~February 28,~~November 30, 2021 and ~~February~~November 30, 2020.

Special Purpose Acquisition Company Sponsorship

On April 29, ~~2020.~~

~~Stock Repurchase Plan~~

~~On July 9, 2019,~~2021, the ~~Board~~Company announced its sponsorship, through a wholly-owned subsidiary, of ~~Directors authorized~~4 SPAC IPOs.The Company purchased founder shares in each SPAC (the "Founder Shares"), through its wholly-owned subsidiary, for an aggregate purchase price of $25,000 per SPAC. The number of Founder Shares issued was determined based on the ~~repurchase~~expectation that such Founder Shares would represent 15% of the outstanding shares of each SPAC after its IPO (excluding the private placement warrants described below and their underlying securities).

The registration statement and prospectus covering the IPO of one of these SPACs, IHC, was declared effective by the SEC on October 19, 2021, and IHC units (the “IHC Units”), consisting of 1 share of common stock and an accompanying warrant to purchase 1 share of IHC common stock, began trading on the NYSE on October 20, 2021.The IHC IPO closed on October 22, 2021, raising gross proceeds for IHC of $115 million.In connection with the IHC IPO, the Company purchased, through its wholly-owned subsidiary, 4,639,102 placement warrants at a price of $1.00 per warrant, for an aggregate purchase price of

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$4,639,102. The Company also anticipates purchasing private placement warrants in each of the 3 other SPACs it is sponsoring, at a price of $1.00 per warrant, for an aggregate of $17,531,408 (or up to ~~10 million shares~~$18,656,408 if the over-allotment option of each SPAC is exercised in full), which includes the Company’s investment in Founder Shares and assumes that all 4 SPAC IPOs are consummated and the pricing terms of each other SPAC IPO is identical to the pricing of the ~~Company’s outstanding~~IHC IPO.Each private placement warrant is exercisable to purchase 1 whole share of common stock in each SPAC at $11.50 per share. The private placement warrants of each SPAC will be worthless to the extent that they do not complete an initial business combination.

The investment amounts set forth above do not include loans that the Company may extend to each SPAC in an amount not to exceed $500,000 individually (or $2 million in the aggregate), in its role as ~~market conditions warrant over a period~~sponsor.As of ~~18 months.~~ November 30, 2021, the Company had advanced, through its wholly owned subsidiary, an aggregate of approximately $820,000 to the SPACs for payment of various expenses in connection with the SPAC IPOs, principally consisting of SEC registration, legal and auditing fees.The Company ~~has not implemented~~anticipates that each of the ~~stock repurchase plan to date and has not repurchased any stock under this authorization, which has now expired.~~

SPACs will repay these advanced expenses from the proceeds of their respective SPAC IPOs.

Note 9:11: 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 after consulting legal counsel 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.

Kadima Litigation

The Company is in a dispute with its former software developer, Kadima Ventures (“Kadima”), over incomplete but paid for software development work. In May 2016, the Company entered into a contract with Kadima for the development and deployment of user features that were proposed by Kadima for an original build cost of $2.2 million to complete. This proposal was later revised upward to approximately $7.2 million to add certain features to the original proposal. As of the date of this Quarterly Report, the Company has paid approximately $11 million to Kadima, but has never been provided access to the majority of the promised software. Kadima has refused to continue development work, denied access to developed software, and ~~refuses~~refused to surrender to the Company any software that it has developed unless the Company pays an additional $12.0 million above the $11.0 million already paid. ~~In addition to the non-delivery of the paid for user features, Kadima asserts that it is owed additional funds to turn over the work completed.~~ In April 2019, Kadima filed a complaint against the Company in the Superior Court of the State of Arizona, Maricopa County, alleging claims for breach of contract, promissory estoppel and unjust enrichment, and seeking damages in excess of $11.0 million. The Company vigorously disputes and denies each of Kadima’s claims, including that it owes any sums to Kadima, and further believes that it is entitled, at a minimum, to a refund of a substantial portion of the sums that it has already paid, along with the release of the software modules currently being withheld. In June 2020, the Company engaged in a mediation with Kadima in an attempt to resolve the matter, which was unsuccessful. On July 14, 2020 the Company filed an answer to Kadima’s complaint, which denied Kadima’s claims and asserted counter-claims for breach of contract and fraud. Discovery is ~~underway,~~substantially complete, and a trial date has not been set.

Splond Litigation

On April 8, 2019, claimant, Corey Splond, filed a class action lawsuit, on behalf of himself and other similarly situated individuals in the Eighth Judicial District Court for the State of Nevada, Clark County, naming the Company and its client as defendants, and alleging violations of certain wage and hour laws. This lawsuit is in the initial stages, and the Company denies any liability. Even if the plaintiff ultimately prevails, the potential damages recoverable will depend substantially upon whether the Court determines in the future that this lawsuit may appropriately be maintained as a class action. Further, in the event that the Court ultimately enters a judgment in favor of plaintiff, the Company believes that it would be contractually entitled to be indemnified by its client against at least a portion of any damage award.

Radaro Litigation

On July 9, 2020, ~~we were~~the Company was served with a complaint filed by one of ~~our~~its former software vendors, Radaro Inc., in the United States District Court for the Central District of California, alleging damages arising from claims sounding in breach of

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contract and fraud. By Order filed October 21, 2020, the Court dismissed plaintiff’s claims for fraud and for punitive damages, with leave to replead. ~~On January 4, 2021, plaintiff filed its Second Amended Complaint, in which it abandoned its claims for fraud and punitive damages.~~ The Company denies plaintiff’s ~~remaining~~ claims and is defending the lawsuit vigorously. Discovery is underway, and the Court has set a trial date of ~~March 1,~~September 6, 2022.

~~Diamond Litigation~~

On September 8, 2020, a former financial advisor to the Company filed a Complaint in the United States District Court for the Southern District of New York naming the Company and one of its officers as defendants. The Complaint asserts multiple causes of action, all of which stem from plaintiff’s claim that he is entitled to compensation from the Company, in the form of warrants to purchase ShiftPixy common stock, based upon a prior agreement to provide financial advisory services to the Company in connection with a prior transaction. The Company and the named officer deny the plaintiff’s allegations, and have moved to dismiss plaintiff’s complaint in its entirety. The Court has stayed all discovery pending its ruling on our motion to dismiss, which remains under consideration.

Everest Litigation

On December 18, 2020, ~~we were~~the Company was served with a Complaint filed in the United States District Court for the Central District of California by ~~our~~its former workers’ compensation insurance carrier, Everest National Insurance Company. The Complaint asserts claims for breach of contract, alleging that the Company owes certain premium payments to plaintiff under a retrospective rated policy, and seeks damages of approximately $600,000. On February 5, 2021, wethe Company filed an Answer to Plaintiff’s Complaint denying its claims for relief, and also filed a cross-claim against the third party claims administrator, Gallagher Bassett Services, Inc., for claims sounding in breach of contract and negligence based upon its administration of claims arising under the policy. By order dated April 7, 2021, the Court dismissed the Company’s complaint against Gallagher Bassett without prejudice to re-filing in another forum. On May 17, 2021, the Company refiled its complaint against Gallagher Basset in the Circuit Court of Cook County, Illinois. Discovery is underway in ~~the case against Everest,~~both cases, and the California Court has set a trial date in the Everest case of February 22, ~~2022.~~

2022, while no trial date has been set in the Illinois case.

Sunz Litigation

On March 19, 2021, the Company was served with a Complaint filed in the Circuit Court for the 11th Judicial Circuit, Manatee County, Florida, by its former workers’ compensation insurance carrier, Sunz Insurance Solutions, LLC. The Complaint asserts claims for breach of contract, alleging that the Company owes payments for loss reserve funds totaling approximately $10 million. The Company denies plaintiff’s allegations and is defending the lawsuit vigorously. On May 12, 2021, the Company filed a motion to dismiss the complaint, and Sunz filed an amended complaint in response. Discovery is proceeding in the matter and no trial date has been set.

Vensure Litigation

On September 7, 2021, Shiftable HR Acquisition, LLC, a wholly-owned subsidiary of Vensure, filed a complaint against the Company in the Court of Chancery of the State of Delaware asserting claims arising from the Asset Purchase Agreement (the “APA”) governing the Vensure Asset Sale described above. The APA provided for Vensure to purchase, through its wholly-owned subsidiary, certain of the Company’s assets for total consideration of $19 million in cash, with $9.5 million to be paid at closing, and the remainder to be paid in 48 equal monthly installments (the “Installment Sum”). The Installment Sum was subject to certain adjustments to account for various post-closing payments made by the parties, and the APA provided for the following procedure to determine the final amount of the Installment Sum: (i) Within 90 days of the effective date, Vensure was required to provide the Company with a “Proposed Closing Statement”, which must detail any adjustments; (ii) Within 30 days of its receipt of Vensure’s Proposed Closing Statement, the Company had the right to challenge any of the proposed adjustments contained therein; and (iii) If the Company disputed Vensure’s Proposed Closing Statement, a 30-day period ensued for the parties to attempt to resolve the dispute, with the Company entitled to examine “such Books and Records of [Vensure] as relate to the specific items of dispute . . .”

Vensure resisted the Company’s repeated efforts to obtain the Proposed Closing Statement for over one year after the closing of the transaction. Finally, on March 12, 2021, under threat of legal action by the Company, Vensure provided its Proposed Closing Statement, in which it contended for the first time that it owes nothing to the Company, and that the Company actually owes Vensure the sum of $1,519,991. By letter dated April 6, 2021, the Company provided Vensure with its objections to the Proposed Closing Statement, which included Vensure’s gross overstatement of payments it purportedly made on the Company’s behalf, as well as its bad faith actions in obstructing the Company’s efforts to make these payments.

From April 2021 through August 2021, Vensure and the Company engaged in the “30-day negotiation period” referred to above, which was extended multiple times at Vensure’s request to provide Vensure an opportunity to provide evidence supporting its assertions. Over the course of these negotiations, Vensure withdrew its claim for approximately $1.5 million from the Company, and acknowledged that Vensure owed ShiftPixy some portion of the Installment Fund. Nevertheless, in early September 2021, without warning and contrary to the dispute resolution provisions of the APA, Vensure filed suit against the Company in Delaware Chancery Court for breach of contract and declaratory judgment, seeking unspecified damages. The Company vigorously disputes and denies each of Vensure’s claims. Accordingly, on November 4, 2021, the Company filed its Answer and Counterclaim to Vensure’s Complaint, in which it not only denied Vensure’s claims, but also asserted counterclaims for breach of contract and tortious interference with contract. The counterclaim seeks damages from Vensure

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totaling approximately $9.5 million – the full amount due under the APA - plus an award of attorneys’ fees and expenses. Discovery is expected to commence shortly.

Note ~~10:~~12: Subsequent Events

~~Benchmark Litigation~~

~~On March 8, 2021, we were served with a Complaint filed in~~

Management has evaluated subsequent events through the ~~United States District Court for~~date which the Southern District of New York by Benchmark Investments, Inc. d/b/a Kingswood Capital Markets, asserting a single claim for breach of contract arising from a non-binding engagement letter pursuant to which plaintiff offered to provide certain investment banking services to an affiliate of the Company. The Complaint seeks damages in an unspecified amount. On April 8, 2021, we filed an Answer to Plaintiff’s Complaint denying its claims for relief, and asserting various affirmative defenses.

~~Sunz Litigation~~

On March 19, 2021, we were served with a Complaint filed in the Circuit Court for the 11th Judicial Circuit, Manatee County, Florida, by our former workers’ compensation insurance carrier, Sunz Insurance Solutions, LLC. The Complaint asserts claims for breach of contract, alleging that the Company owes payments for loss reserve funds totaling approximately $10 million. The Company denies plaintiff’s allegations and intends to defend the lawsuit vigorously.

~~Vensure Note Receivable~~

Effective January 1, 2020, the Company entered into an Asset Purchase Agreement (the “APA”) with a wholly-owned subsidiary of Vensure, pursuant to which Vensure agreed to purchase certain of the Company’s assets for total consideration of $19 million in cash, with $9.5 millionfinancial statements are available to be ~~paid at closing,~~issued. All subsequent events requiring recognition as of November 30, 2021 have been incorporated into these financial statements and ~~the remainder to be paid~~there are no subsequent events that required disclose in 48 equal monthly installments (the “Installment Sum”). The Installment Sum is subject to certain adjustments to account for various post-closing payments made by the parties to the APA. The APA provides a framework for the resolution of any disputes concerning the calculation of the Installment Sum, which includes submission of the matter to binding arbitration in the event that the parties are unable to resolve their differences themselves. By letter dated March 12, 2021, Vensure notified the Company for the first time that it believes it owes nothing under the APA, and that the Company owes Vensure approximately $1.5 million. We responded to Vensure by letter dated April 6, 2021, stating our belief that Vensure’s calculations lack any basis, are unsupported by sufficient documentation, and are directly contradicted by the Company’s internal records. We further advised Vensure that, based on the information currently within the Company’s possession, we calculate the Installment Sum that Vensure owes to be within the range of approximately $7 million to $9.5 million, not including any recoveries to which the Company may be entitled based upon Vensure’s conduct in connectionaccordance with the APA. The Company has also requested that Vensure produce various financial records that would support its calculations, and which we are entitled to examine under the terms of the APA. Now that the parties have exchanged their respective calculations with respect to the Installment Sum, we are attempting to negotiate a resolution of this dispute with Vensure in good faith, as required by certain provisions of the APA. If these negotiations fail to yield an agreement, then we intend to pursue our claim for payment through the binding arbitration and other procedures outlined in the APA.

FASB ASC Topic 855, " Subsequent Events."

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Quarterly Report, as well as the information contained in our Annual Report on Form 10-K for Fiscal ~~2020,~~2021, filed with the SEC on ~~November 30, 2020, including the “Risk Factors” set forth in Part I, Item IA of the Form 10-K, as well as the amendment to our Annual Report on Form 10-K/A, filed with the SEC on January 12,~~December 3, 2021.

CAUTIONARY STATEMENT ~~PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995~~

REGARDING FORWARD LOOKING STATEMENTS AND INFORMATION

This Quarterly Report, the other reports, statements, and information that we have previously filed or that we may subsequently file with the SEC, and public announcements that we have previously made or may subsequently make, contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Unless the context is otherwise, the forward-looking statements included or incorporated by reference in this Quarterly Report and those reports, statements, information and announcements address activities, events or developments that we expect or anticipate will or may occur in the future. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

our future financial performance, including our revenue, costs of revenue and operating expenses;

our ability to achieve and grow profitability;

the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;

our predictions about industry and market trends;

our ability to expand successfully internationally;

our ability to manage effectively our growth and future expenses, including our growth and expenses associated with

our sponsorship of various special purpose acquisition companies;

our estimated total addressable market;

our ability to maintain, protect and enhance our intellectual property;

our ability to comply with modified or new laws and regulations applying to our business;

the attraction and retention of qualified employees and key personnel;

~~our future financial performance, including our revenue, costs of revenue and operating expenses;~~

· ��

~~our ability to achieve and grow profitability;~~

~~the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;~~

~~our predictions about industry and market trends;~~

~~our ability to expand successfully internationally;~~

~~our ability to manage effectively our growth and future expenses;~~

~~our estimated total addressable market;~~

~~our ability to maintain, protect and enhance our intellectual property;~~

~~our ability to comply with modified or new laws and regulations applying to our business;~~

~~the attraction and retention of qualified employees and key personnel;~~

the effect that the novel coronavirus disease (“COVID-19”) or other public health issues could have on our business and

financial condition and the economy in general; and

~~our ability to be successful in defending litigation brought against us.~~

our ability to be successful in defending litigation brought against us.

We caution you that the forward-looking statements highlighted above do not encompass all of the forward-looking statements made in this Quarterly Report.

We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for Fiscal ~~2020~~2021 filed with the SEC on ~~November 30, 2020,~~December 3, 2021, which is expressly incorporated herein by reference, and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained

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in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made ~~in this Quarterly Report~~herein to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, other strategic transactions or investments we may make or enter into.

The risks and uncertainties we currently face are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner.

The industry and market data contained in this Quarterly Report are based either on our management’s own estimates or, where indicated, independent industry publications, reports by governmental agencies or market research firms or other published independent sources and, in each case, are believed by our management to be reasonable estimates. However, industry and market data are subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. We have not independently verified market and industry data from third-party sources. In addition, consumption patterns and customer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be verifiable or reliable.

Overview

Our ~~Management’s Discussion & Analysis~~current business, and the primary source of ~~Financial Condition~~our revenues to date, has been under a human capital fee-based SAAS business model. We have developed a comprehensive HRIS platform designed to provide real-time, agile business intelligence information for our clients as well as an employment marketplace designed to match client opportunities with a large workforce under a digital umbrella. Our market focus is to use this traditional approach, coupled with developed technology, to address underserved markets containing predominately lower wage employees with high turnover, beginning with light industrial, services, and ~~Results of Operations (MD&A) includes references to our performance measures presented in accordance with GAAP~~food and other non-GAAP financial measures that we use to manage our business, make planning decisions and allocate resources. Refer to the Non-GAAP Financial Measures within our MD&A for definitions and reconciliations from GAAP measures.

~~Overview~~

hospitality markets. We provide human resources, employment compliance, ~~insurance,~~insurance-related, payroll, and operational employment services solutions for our ~~business~~ clients ~~(“clients” or “operators”)~~ and shift work or ~~“gig”~~gig opportunities for ~~worksite employees (“WSEs” or “shifters”)~~WSEs (or shifters). As consideration for providing these services, we receive administrative or processing fees, typically as a percentage of a client’s gross payroll, process and file payroll taxes and payroll tax returns, provide workers’ compensation insurance, and provide employee benefits. We have built a substantial business on a recurring revenue model since our inception in 2015. ~~Our market focus is~~For the first quarter of Fiscal 2022, we processed approximately $21.2 million of payroll billings, our primary operating metric, and incurred approximately $8.6 million in operating losses, which were driven primarily by substantial investments in our technology platform, our SPAC sponsorships and our ShiftPixy Labs growth initiative, as well as by necessary upgrades to ~~use~~our back-office operations to facilitate servicing a large WSE base under a traditional staffing ~~services business model, coupled with developed technology, to address underserved markets containing predominately lower wage employees with high turnover, including~~model.

For most of Fiscal 2021 and continuing into the ~~light industrial, services, and food and hospitality markets.~~

~~Although we have recently expanded into other industries, as noted below,~~first quarter of Fiscal 2022, our ~~current~~ primary focus ~~continues to be~~was on clients in the restaurant and hospitality industries, ~~traditionally market~~(market segments ~~with~~typically characterized by high employee turnover and low pay rates), and healthcare industries typically employing specialized personnel that command higher pay rates. We believe that these industries ~~will be~~are better served by our HRIS ~~technology~~ platform and related mobile application, which provide payroll and human resources tracking for our clients and which we believe ~~will~~ result in lower operating costs, improved customer experience and revenue growth acceleration. California continued to be our largest market during the first quarter of Fiscal 2022, accounting for approximately % of our gross billings. Washington and New Mexico represented our other significant markets during the first quarter of Fiscal 2022, representing approximately 20% of our total revenues. (Our other locations did not contribute revenue to a material degree.) All of our clients enter into ~~service~~client services agreements ("CSAs") with us or one of our ~~wholly-owned subsidiaries, as detailed in Note 1 to our financial statements, above.~~

wholly owned subsidiaries.

Our ~~revenues through~~business focus during Fiscal 2021 and continuing into the ~~second~~first quarter of Fiscal ~~2021 primarily~~2022 was to complete our HRIS platform and to expand that platform to position the Company for rapid billings growth as well as to expand our product offerings to increase our monetization of our payroll billings. To that end, we identified and began to execute on various growth strategies, including our sponsorship of various SPACs and our investment in our ShiftPixy Labs initiative. We expect that our execution

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of these strategies, if successful, will yield significant customer growth driven by widespread adoption of our technology offerings, which we believe represents a substantial value proposition to our clients as a valuable source of agile human capital business intelligence.

Our revenues for the first quarter of Fiscal 2022 consisted of:i) staffing solutions revenues equal to gross billings for staffing solutions clients; and ii) EAS solutions revenues which consist of administrative fees calculated as a percentage of gross payroll processed, payroll taxes due on WSEs billed to the client and remitted to the taxation authority, and workers’ compensation premiums billed to the client for which we facilitate ~~coverage.~~coverage for our clients. Our costs of revenues ~~primarily consisted~~for EAS solutions revenues consist of the accrued and paid payroll taxes and our costs to provide the workers’ compensation coverage and administration related services, including premiums and loss reserves.For staffing solutions revenues our cost of revenues also included the gross payroll paid to staffing solutions employees. A significant portion of our assets and liabilities is for our workers’ compensation reserves, carried as cash balances, and our estimates of projected workers’ compensation claims, carried as liabilities. We ~~provide~~provided a self-funded workers’ compensation policy up to $500,000 and ~~purchase~~purchased reinsurance for claims in excess of that ~~limit.~~

limit up to February 28, 2021, after which we changed to a direct cost premium only workers’ compensation program.

We believe that our customer value proposition is to provide a combination of overall net cost savings to our clients, for which they are willing to pay increased administrative fees, as follows:

	·	~~Payroll tax compliance and management services;~~
	·	~~Governmental HR compliance services, such as compliance with the Affordable Care Act (“ACA”);~~
	·	~~Reduced client workers’ compensation premiums or enhanced coverage; and~~
	·	~~Access to an employee pool of potential applicants to reduce turnover costs.~~

•Payroll tax compliance and management services;

•Governmental HR compliance services, such as compliance with the Affordable Care Act (“ACA”);

•Reduced client workers’ compensation premiums or enhanced coverage; and

•Access to an employee pool of potential applicants to reduce turnover costs.

We have invested heavily in a robust, cloud-based HRIS platform (the ShiftPixy “Ecosystem”) in order to:

	·	~~reduce WSE management costs;~~
	·	~~automate new WSE and client onboarding; and~~
	·	~~provide value-added services for our business clients resulting in additional revenue streams to the Company.~~

•reduce WSE management costs;

•automate new WSE and client onboarding; and

•provide value-added services for our business clients resulting in additional revenue streams to the Company.

Our cloud-based HRIS platform captures, holds, and processes HR and payroll information for clients and WSEs through an easy-to-use customized front-end interface coupled with a secure, remotely hosted database. The HRIS platform can be accessed by either a desktop computer or an easy to use smartphone application designed with legally binding HR workflows in mind. Once fully implemented, we expect to reduce the time, expense, and error rate for on-boarding WSEs into our ecosystem. This allows our HRIS platform to serve as a “gig” marketplace for WSEs and clients and for client businesses to better manage their human capital needs.

We see our technology platform as a key competitive advantage and differentiator to our market competitors and one that will allow us to expand our human capital business beyond our current focus of low-wage employees and healthcare workers. We believe that providing this baseline business, coupled with a technology solution to address additional concerns such as employee scheduling and turnover, will provide a unique, cost effective solution to the HR compliance, staffing, and scheduling problems that these businesses face. We are completing additional features ~~expected~~that we expect to generate additional revenue streams, ~~in calendar 2021, that will~~ enhance and expand our product offering, increase our client customer and WSE counts, and increase ~~the~~our revenues and profit per existing WSE.

COVID-19 Pandemic Impact

The COVID-19 pandemic continues to provide both business setbacks and business opportunities. Our growth trajectory has been muted by the economic impacts of the COVID-19 pandemic on our core business clients, primarily restaurants and nurse staffing organizations supplying health services not related to COVID-19.

The COVID-19 pandemic has ~~had a significant impact upon~~significantly impacted and delayed our expected growth, which we ~~observed~~saw initially through a decrease in our billed customers and WSEs beginning in mid-March 2020, when the State of California first implemented “lockdown” measures. Substantially all of our billed WSEs as of February 29, 2020 ~~billed WSEs~~ worked for clients located in Southern California, and were primarily in the ~~quick service restaurant industry, and many~~QSR industry. Many of these clients were required to furlough or lay off employees or, in some cases, completely shutter their operations. For our clients serviced ~~immediately~~ prior to the March 2020 pandemic lockdown, we experienced an approximate 30% reduction in business levels within 6six weeks after the ~~initial lockdown. The~~first lockdown commenced. Early in

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the pandemic, the combination of our sales efforts and the tools that our services provide to businesses impacted by the COVID-19 pandemic resulted in additional business opportunities for new client location additions, as did the fact that many of our clients received ~~Paycheck~~Payroll Protection ~~Program (“PPP”~~Plan loans ("PPP Loans") ~~loans~~ under the ~~Coronavirus Aid, Relief, and Economic Security (“CARES”)~~CARES Act, which supported their businesses and payroll payments during in-store lockdowns. Nevertheless, during the quarter ended May 31, 2020, our WSE billings per client location decreased as many of our clients were forced to cease operations or reduce staffing. On July 13, 2020, the Governor of the State of California re-implemented certain COVID-19 related lockdown restrictions in most of the counties in the state, including those located in Southern California where most of our clients ~~are~~were located. The ~~fluid~~mercurial nature of the pandemic ~~following those renewed~~led to recurring lockdowns ~~resulted in~~through the issuance of additional orders by state and county health authorities ~~yielding~~that yielded uneven patterns of business openings and closings throughout ~~the state and leading ultimately to~~our clients’ markets, which also experienced significant lockdowns beginning in late November 2020 and through the year-end holiday season as a spike in COVID-19 cases was observed.

The negative impact of these lockdowns on our business and operations continued through our ~~second~~third quarter of Fiscal 2021. Despite experiencing billings and revenue growth from our new nurse staffing customer during this time period, our gross billings decreased sequentially by approximately $1.9 million, or 10%, below first quarter levels, and our ending WSEs billed decreased by approximately 800 sequentially from quarter to quarter. We believe that this decrease was directly related to2021 in a see-saw pattern, with some improvement observed after the ~~renewed lockdowns~~removal of many restrictions in California ~~resulting~~and elsewhere from March through June 2021, only to be followed by the ~~COVID-19 spikes and discussed above.~~reimplementation of restrictions in the face of the pandemic resurgence fueled by the spread of the Delta variant of the virus. While the availability of PPP ~~loans~~Loans to our clients mitigated the negative impact on our business during the ~~early~~initial stages of the pandemic, we believe that the failure of the government to renew this program exacerbated the ~~negative~~deleterious impact of ~~the holiday~~subsequent restrictions and lockdowns on our financial results for ~~the second quarter of~~ Fiscal 2021. ~~Nevertheless, we~~We have observed some degree of business recovery ~~over the past month,~~ as these lockdowns have relaxed and vaccination efforts have accelerated. Southern California counties experiencing decreased infection rates have begun to reopen in-person dining, albeit at reduced levels of 25% maximum occupancy. Most recently, the State of California announced that all residents over the age of 50 are currently eligible for COVID-19 vaccinationaccelerated, and ~~that, by April 15, all residents over the age of 16 will be eligible based on expected increases in vaccine availability. We~~we believe that, to the extent that COVID-19 infection rates continue to decrease, and vaccination rates increase, governmental authorities will continue to remove ~~in-person dining~~ restrictions, which will fuel our clients’ business recoveries.

~~Despite~~Nevertheless, we remain concerned that the recent resurgence of the virus, in the form of the Omicron variant, could have a material negative ~~impacts to~~impact on our ~~quick service restaurant related~~ business ~~resulting from COVID-19 restrictions, we saw an increase~~and results of operations, as could the emergence of additional variants of the virus in the future.

We have also experienced increases in our admin fees revenue during the second quarter, which was driven by the increased billings and revenues for our new health related business that we launched during Fiscal 2021. We expect to see additional growth in this business line in future quarters,workers’ compensation reserve requirements, and we expect itadditional workers’ compensation claims to be made by furloughed employees. We also expect additional workers’ compensation claims to be made by WSEs required to work by their employers during the COVID-19 pandemic. On May 4, 2020, the State of California indicated that workers who became ill with COVID-19 would have a potential claim against workers’ compensation insurance for their illnesses. These additional claims, to the extent they materialize, could have a material impact on our workers’ compensation liability estimates.

Significant Developments in the Three Months Ended November 30, 2021.

Financing Activities

September 2021 Private Placement

On September 3, 2021, we closed a private placement with a large institutional investor pursuant to which we sold to the investor an aggregate of (i) 2,850,000 shares of our common stock, together with warrants (the “September 2021 Common Warrants”) to purchase up to 2,850,000 shares of our common stock, with each September 2021 Common Warrant exercisable for one share of our common stock at a price per share of $1.595, and (ii) 4,673,511 prefunded warrants (the “September 2021 Prefunded Warrants”), together with the September 2021 Common Warrants to purchase up to 4,673,511 shares of our common stock, with each September 2021 Prefunded Warrant exercisable for one share of our common stock at a price per share of $0.0001. Each share of our common stock and accompanying September 2021 Common Warrant were sold together at a combined offering price of $1.595 and each September 2021 Prefunded Warrant and accompanying September 2021 Common Warrant were sold together at a combined offering price of $1.5949.

The September 2021 Prefunded Warrants were immediately exercisable, at a nominal exercise price of $0.0001, and may be exercised at any time until all of the September 2021 Prefunded Warrants are exercised in full. The September 2021 Common Warrants have an exercise price of $1.595 per share, are immediately exercisable, and will expire five years from the date that the registration statement relating to the resale of the shares underlying the September 2021 Common Warrants is declared effective (which has not yet occurred). The private placement generated gross proceeds of approximately $12.0 million, prior to deducting $890,000 of costs consisting of placement agent commissions and offering expenses payable by us. In addition to the seven percent (7.0%) of the aggregate gross proceeds cash fee, we issued warrants to the placement agent to purchase an aggregate of up to five percent (5.0%) of the aggregate number of shares of our common stock issuable upon exercise of the September 2021 Prefunded Warrants sold in the offering (the “September Placement Agent Warrants”). The September Placement Agent Warrants are exercisable for a period commencing on March 3, 2022 (six months after issuance) and expire four years from the effective date (which has not yet occurred) of a registration statement for the resale of the underlying shares, and have an initial exercise price of $1.7545 per share.

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Growth Initiatives

During the three months ended November 30, 2021 we continued to execute on our two primary growth initiatives. Each growth initiative is designed to leverage our technology solution, knowledge, and expertise to provide for significant ~~contributor~~revenue growth for the human capital management services we provide to our clients.

Sponsorship of SPACs

On April 29, 2021, we announced our sponsorship of four SPAC IPOs. The Industrial Human Capital (“IHC”) IPO closed on October 22, 2021, raising gross ~~profit based~~proceeds for IHC of $115 million. IHC currently intends to use the proceeds of the IHC IPO to acquire companies in the light industrial segment of the staffing industry, and our goal is to enter into CSAs with IHC following its IBC. Immediately following the IHC IPO, IHC began to evaluate acquisition candidates. IHC’s goal is to complete its IBC within one year of consummation of the IHC IPO.

Although each of our remaining sponsored SPACs have filed registration statements and prospectuses contemplating that they will each seek to raise approximately $150 million, we currently anticipate that two of these SPACs, Vital and TechStackery, will seek to raise approximately $100 million each in capital investment to acquire companies in the healthcare and technology segments of the staffing industry, respectively. We also now expect that our other remaining sponsored SPAC, Firemark, will seek to raise approximately $100 million in capital investment to acquire one or more insurance entities to provide workers’ compensation and related insurance products. We currently own approximately 15% of the issued and outstanding stock of IHC, and we expect to own approximately 20% of each of the other SPACs upon their IPOs being declared effective and consummated, (which equity stake is likely to decrease). Assuming that the ~~higher wages typically paid~~IPOs of each of the remaining SPACs are consummated pursuant to ~~healthcare WSEs.~~

the same pricing terms of the IHC IPO, we expect to invest, through Investments, an aggregate amount of $17,531,408 in the SPACs (or up to $18,656,408 if the over-allotment option of each SPAC is exercised in full) through the purchase of placement warrants in addition to our initial $25,000 investment for the purchase of our Founder Shares in each SPAC. These investment amounts set forth above do not include loans that we may extend to each SPAC in an amount not to exceed $500,000 individually, (or $2 million in the aggregate), in our role as sponsor for the purpose of funding various organizational expenses of the SPACs.

~~Significant Second Quarter Developments~~

~~Quarterly Performance Highlights: Fiscal 2021 v. Fiscal 2020~~

	·	~~Served approximately 84 clients and an average of 3,000 WSEs.~~

	·	Processed approximately $17.9 million in gross billings, an increase of 17.9% over the same period in Fiscal 2020, but a sequential 10% decrease below the first quarter of Fiscal 2021 due to COVID-19 impacts on our quick service restaurant customer base and resets of payroll tax limits.

	·	~~Collected admin fees increased 10.9% from the second quarter of Fiscal 2020 to the same period of Fiscal 2021,~~and increased 11.9% sequentially from the first quarter of Fiscal 2021. This increase was driven primarily by healthcare related admin fees, which grew 46% sequentially from the first quarter of Fiscal 2021.

	·	Gross margins increased by $0.3 million, from $0.1 million, or 4.5% of revenues, to $0.4 million, or 15.0% of revenues, as a result of higher gross billings and the increase in healthcare related admin fees.

	·	Operating loss was $6.0 million, compared to $4.2 million for the comparable period of Fiscal 2020, primarily driven by a $2.0 million increase in operating expenses offset by higher gross billings and healthcare related admin fees.

~~Sales Efforts~~

We expect each SPAC to operate as a separately managed, publicly traded entity following the completion of their respective IBCs, or “De-SPAC”. We anticipate entering into CSAs with each of the staffing entities that will allow them to participate in our HRIS platform. We also expect to facilitate the procurement of workers’ compensation, personal liability, and ~~Growth Initiatives~~

other similar insurance products for these staffing entities through our anticipated relationship with Firemark, assuming that it is able to consummate its IPO and complete the De-SPAC process successfully.

We believe that our ~~HRIS platform is well suited~~sponsorship of the SPACs seeking to provide cross-functional services that will allow us to expand our reach into other human capital applications and expand our revenue base. Our strategy is to monetize this HRIS platform through multiple applicationscomplete IBCs with the initial application being our historical restaurant-focused human capital solutions. We have begun to expand our services into industries that utilize higher paid employees on a temporary or part-time basis, including the medical/nurse staffing industry. In July 2020, we signed our first healthcare client, representing a potential gain of 8,000 WSEs, and began to onboard these WSEs in late July and into August on a very limited basis. We onboarded more significant numbers of nurses through this client during the recently completed quarter, for which we have begun to commence billings and recognize revenue. We expect these new healthcare WSEs to earn an average of 2 to 3 times more than the average restaurant WSE we have typically onboardedentities in the ~~past, which should yield higher gross profits per healthcare WSE compared to a restaurant or other lower-wage worker.~~

~~In August 2020, we signed an agreement with Washington Hospitality, a consortium representing approximately 200,000 potential WSEs in the food~~staffing industry ~~located in the State of Washington. This agreement expands our geographic reach and is expected to drive revenue growth starting in calendar 2021.~~

Due to the COVID-19 pandemic, we have adjusted our sales efforts to reduce or eliminate in-person contact, primarily through the use of video conferencing and webinar tools. The webinars that we staged during the quarter were well-attended on both a live and recorded basis, which has ~~resulted in client acquisitions that we believe have~~ the potential to generate significant ~~positive results~~revenues and earnings for us, while also supporting a favorable business model for the ~~Company.~~

~~During the second quarter of Fiscal 2021,~~SPACs. Similarly, we ~~began to invest significantly in additional areas where we see~~believe that Firemark has the potential to benefit from a relationship with us through both business referrals and licensed access to our technology, which should provide the means to expand its business in a profitable manner if and when it becomes operational.

To date, we have incurred direct costs of $0.5 million to form the SPAC entities, primarily for ~~substantial revenue growth~~legal and ~~enhanced shareholder value. We believe~~professional services related fees, which are included as operating expenses for the combination of our human capital, scheduling, intermediation, and delivery services provides us with a unique opportunity for a vertically integrated restaurant and food fulfillment solution. To that end, in latethree months ended November 30, 2021.

ShiftPixy Labs

On July 29, 2020, we announced ~~our “ShiftPixy Labs” initiative,~~the launch of ShiftPixy Labs, which includes the ~~creation~~development of ~~incubator “ghost kitchens” to be operated under~~ghost kitchens in conjunction with our wholly-owned subsidiary, ShiftPixy Ghost Kitchens, Inc. Through this initiative, ~~the Company intends to provide resources and guidance to entrepreneurs seeking~~we intend to bring ~~their~~various food delivery concepts to market ~~in return for the opportunity to~~that will combine with ~~the ShiftPixy~~our HRIS platform to create ~~a co-branded, or “ghost” branded,~~an easily replicated, comprehensive food preparation and delivery solution. The initial phase of this initiative ~~will be~~is being implemented in aour dedicated ~~showcase~~ kitchen facility located in close proximity to our Miami headquarters, which ~~is current under renovation and which~~ we expect to be operational no later than the beginning of the fourth quarter of Fiscal 2021. We intend to partner with various culinary training organizations and experts in testing these concepts, and to showcase these effortsare already showcasing through the distribution of video programming on social media produced and distributed by our ~~wholly owned~~wholly-owned subsidiary, ShiftPixy Productions, Inc. If successful, we intend to replicate this initiative in similarly constructed facilities throughout the United States and in selected international locations. We also intend to provide similar services via mobile kitchen concepts, all of which will be heavily reliant on our HRIS platform and which we believe will capitalize on trends observed during the COVID-19 pandemic toward providing customers with a higher quality prepared food delivery product that is more responsive to their needs.

~~Software Development~~

~~We continued~~

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The idea of ShiftPixy Labs, (as described in more detail in Item 1 of our ~~software development internally~~Annual Report on Form 10-K for Fiscal 2021, filed with the SEC on December 3, 2021), originated from discussions with our restaurant clients, combined with our observations of industry trends that appear to have accelerated during the pandemic. Beginning in Calendar 2020, we recognized a significant uptick in the ~~second~~use of mobile applications to order take-out food either for individual pickup or third-party delivery, which grew even more dramatically as the pandemic took hold. Not surprisingly, the establishment of fulfillment kitchens for third party delivery also spread rapidly during this time period, initially among national fast food franchise chains but then among smaller QSRs.

We believe that the restaurant industry is in the midst of a food fulfillment paradigm shift that will ultimately result in the widespread use of “ghost kitchens” in a shared environment. Similar to shared office work locations, a shared kitchen can provide significant cost efficiencies and savings compared to the cost of operating multiple retail restaurant locations. Coupled with ShiftPixy’s technology stack, which includes order delivery and dispatch, we believe that the ghost kitchen solutions that emerge from ShiftPixy Labs will provide a robust and effective delivery order fulfillment option for our clients.

We have also observed the growing impact of social media platforms over the past five years, a trend which has accelerated through the pandemic. As this trend has gained steam, many social media influencers have successfully capitalized on their popularity by establishing new business concepts in a variety of industries, including within the QSR space. Some of these QSRs are identified as “virtual” restaurants with delivery-only service fulfilled by centralized ghost kitchens. We intend to capitalize on this trend by creating an extensive social media presence for ShiftPixy Labs.

Many restaurant entrepreneurs have also become successful during the pandemic by moving outside through the use of mobile food trucks, which can be used as a launching point for restaurants and ultimately expanded to traditional indoor dining locations. We have researched this phenomenon and, coupled with our experience in the restaurant industry, believe a significant business opportunity exists to assist with the fulfillment of new restaurant ideas and rapidly expand those ideas across a broad geographic footprint utilizing centralized ghost kitchen fulfillment centers. Again, we believe that ShiftPixy Labs will provide solutions that will facilitate the rapid growth of these new businesses, through a combination of centralized ghost kitchens and an available pool of human capital resources provided through our HRIS platform, as well as through other business assistance provided by our management team.

During Fiscal 2021, we established an industrial facility in Miami that we expect to be fully operational shortly. During the first quarter of Fiscal 2022, we installed ten standardized kitchen stations in both single and double kitchen configurations built within standard cargo container shells in this facility. We expect this facility, upon completion, to function as a state of the art ghost kitchen space that will be used to incubate restaurant ideas through collaboration and partnerships with local innovative chefs, resulting in sound businesses that provide recurring revenue to us in a variety of ways, both through direct sales and utilization of the ShiftPixy Ecosystem, our HRIS platform, and other human capital services that we provide. To the extent that this business model is successful and can be replicated in other locations, it has the potential to contribute significant revenue to us in the future.

We may also take equity stakes in various branded restaurants that we develop and operate with our partners through ShiftPixy Labs. Such ownership interests will be held to the extent that it is consistent with our continued existence as an operating company, and to the extent that we believe such ownership interests have the potential to create significant value for our shareholders.

Workers’ Compensation Insurance

During Fiscal 2021, the Company made a strategic decision to change its approach to securing workers’ compensation coverage for our clients. This was primarily due to rapidly increasing loss development factors stemming in part from the COVID-19 pandemic. The combination of increased claims from WSEs, the inability of WSEs to obtain employment quickly and return to work after injury claims, and increasing loss development factor rates from our insurance and reinsurance carriers resulted in significantly larger potential loss exposures, claims payments, and additional expense accruals. Starting on January 1, 2021, we began to migrate our clients to our new direct cost program, which we believe significantly limits our claims exposure. Effective March 1, 2021, all of our clients had migrated to the direct cost program.

For the first quarter of Fiscal 2022, included in cost of sales were approximately $134,000 of expense for claims estimate increases relating to loss reserves activity for calendar 2021 for the legacy Sunz and Everest programs. The claims estimates are the subject of ongoing litigation with our former workers’ compensation insurance providers, Sunz and Everest, as described in Note 11, above. We are currently re-evaluating the workers’ compensation liability estimates under our legacy Sunz and Everest programs.

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Vensure Asset Sale Note Receivable Reconciliation

On January 3, 2020, we entered into an asset purchase agreement with Shiftable HR Acquisition, LLC, a wholly-owned subsidiary of Vensure, pursuant to which we assigned client contracts representing approximately 88% of our quarterly revenue as of November 30, 2019, including 100% of our existing PEO business effective as of December 31, 2019, and we transferred $1.6 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement. Gross proceeds from the Asset Sale were $19.2 million, of which $9.7 million was received at closing and $9.5 million was embodied in the Note Receivable described above, to be paid out in equal monthly payments for the next four years after certain transaction conditions were met. As of November 30, 2021, Vensure and the Company were engaged in litigation regarding the amount owed to the Company pursuant to the Note Receivable, as described in Note 11, Contingencies, above.

Quarterly Performance Highlights: First Quarter Fiscal 2022 v. First Quarter Fiscal 2021

•Served approximately 72 clients and an average of 3,000 WSEs.

•Processed over $21 million in gross billings from continuing operations, representing an increase of 7.2% from the same period in Fiscal 2020 due to the easing of COVID-19 restrictions, which had a significant impact on our quick service restaurant ("QSR") customer base. Our continuing operations mix remained consistent for the three months ended November 30, 2021 with the same period in Fiscal 2021, primarily ~~focusing on feature enhancements such as delivery, scheduling,~~consisting of QSR WSEs. (For further information, please refer to the section entitled “Non-GAAP Financial Measures”, below.) Our revenues for the three months ended November 30, 2021 were 257% higher than the same period in Fiscal 2021, due primarily to the our migration to a staffing revenue recognition model during the latter part of Fiscal 2021. Gross margin for the three months ended November 30, 2021 improved over the same period in Fiscal 2021, due primarily to higher billings driving greater margins from additional administrative fees and ~~onboarding functionality improvement.~~ taxes.

Our ~~efforts also focused on better integration~~financial performance for the three months ended November 30, 2021, compared to the same period in Fiscal 2021, included the following significant items:

Revenues increased approximately 257.2%, to $8.9 million, from $2.5 million in the same period in Fiscal 2021.This revenue growth was due to the combination of an increase in gross billings of 7.2%, to $21.2 million, from $19.8 million in the same period in Fiscal 2021, and ~~more seamless process flow improvements to create an improved user experience while reducing internal staff time required for onboarding.~~

~~From inception~~the impact of the transition of some of our existing clients to a staffing revenue recognition model, which commenced in the later part of Fiscal 2021. Recurring WSE counts as of November 30, 2021 averaged approximately 3,000, which is consistent with a recovery to our pre-pandemic WSE levels.

Billings per WSE increased to $7,066 due primarily to business recoveries achieved by our QSR clients as the pandemic subsided, combined with an increase in the placement of nursing WSEs who earn higher wages and consequently generate higher billings.

Revenue associated with administrative fees increased by 0.5%, and tax revenues by 0.5%, both of which are consistent with our billed wages increase of 7.2% during the quarter. Revenue associated with workers’ compensation premiums decreased $37,000, or 0.5%, due to the migration of our WSEs to a guaranteed cost program during Fiscal 2021 and a change in our client mix that resulted in lower billed workers’ compensation rates per wage dollar.

Gross Profit increased approximately 35.7%, or $0.2 million, for the three months ended November 30, 2021, compared to the same period in Fiscal 2021, mainly driven by an increase of $119,000, or 0.5%, in administrative fees and $202,000, or 0.5%, in taxes, consistent with the 7.2% increase in our overall billings.

Operating expenses increased by 51.3% to $9.3 million for the three months ended November 30, 2021, from $6.1 million for the same period of Fiscal 2021. The increase in operating expenses reflects the effect of increased costs associated with our growth initiatives, (including payroll-related costs of $3.9 million, professional fees of $1.7 million, software development ~~efforts~~costs of $1.2 million, and costs classified in ~~2017 through February 28,~~our statement of operations as general and administrative expenses of $1.9 million). Payroll-related costs increased primarily due to hiring additional executive, operations, and software development personnel to support our growth initiatives. Professional fees increased due to litigation arising in the normal course of business and legal fees we paid on behalf of our sponsored SPACs. Software development costs were driven primarily by our continuing investment in our HRIS platform, while general and administrative expenses grew primarily due to rent cost increases from our entry into leases covering the following: (i) our principal executive offices in Miami, Florida; (ii) our ShiftPixy Labs facility in Miami, Florida; and (iii) our new office facility in Sunrise, Florida, which will house the majority of our operations personnel

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and other elements of our workforce.Other contributors to the increase in general and administrative expenses include marketing expenses related to our growth initiatives.

Operating loss increased by $2.9 million, or 52.7%, due to the net effect of a $0.2 million or 35.7% increase in gross margin, less a $3.1 million increase in operating expenses.

Other income (expense) for the three months ended November 30, 2021 ~~we spent approximately $26.3 million consisting~~mainly consists of ~~outsourced research and development, IT related expenses, development contractors and employee costs and marketing spending consisting~~recurrent interest expense for a capital lease copier, net of ~~advertising, trade shows, and marketing personnel costs.~~

~~The following table shows~~a small insurance claim received.

Loss from discontinued operations represents the ~~technology and marketing spending for each period reported:~~

Development spending (in $ millions) Six months
ending
February 28,
2021 Six months
ending
February 29,
2020
(Unaudited) (Unaudited)
Contract development and licenses $ 1.6 $ 0.6
Internal personnel costs 1.2 1.0
Total development spending $ 2.8 $ 1.6

Marketing spending
Advertising and outside marketing $ 0.9 $ 0.2
Internal personnel costs 0.2 0.2
Subtotal, Marketing costs $ 1.1 $ 0.4
Total, HRIS platform and mobile application spending $ 3.9 $ 2.0

Cumulative investment $ 26.3 18.8
Portion of investment capitalized as fixed assets - 3.7
Portion of investment expensed $ 26.3 15.1

~~For the quarters ended February 28, 2021 and February 29, 2020, we capitalized none~~reassessment of the ~~development spending set forth in~~workers' compensation claims reserve associated with our former clients that we transferred to Vensure as part of the ~~table, above, into fixed assets.~~

Vensure Asset Sale. Loss from discontinued operations was $134,000 for the three months ended November 30, 2021, reflecting a 90% reduction compared to the same period of Fiscal 2021.

Net Loss for the three months ended November 30, 2021 increased to $8.7 million, or ($0.24) per share, from $6.9 million, or ($0.22), per share for the same period of Fiscal 2021.

Results of Operations

The following table summarizes the unaudited condensed consolidated results of our operations for the three ~~and six~~ months ended ~~February 28,~~November 30, 2021, and ~~February 29, 2020 (unaudited~~ ).

For the Three Months Ended For the Six Months Ended
February 28,
2021 February 29,
2020 February 28,
2021 February 29,
2020
Revenues (gross billings of $17.9 million and $14.5 million less worksite employee payroll cost of $15.5 million and $12.5 million, respectively for the three months ended; gross billings of $37.6 million and $32.4 million less worksite employee payroll cost of $32.7 million and $28.1 million, respectively for six months ended $ 2,419,000 $ 2,007,000 $ 4,922,000 $ 4,267,000
Cost of revenue 2,056,000 1,933,000 4,046,000 3,951,000
Gross profit 363,000 74,000 876,000 316,000

Operating expenses:
Salaries, wages, and payroll taxes 2,592,000 1,802,000 4,785,000 3,557,000
Stock-based compensation – general and administrative 423,000 619,000 919,000 745,000
Commissions 49,000 46,000 87,000 118,000
Professional fees 1,006,000 997,000 1,713,000 1,837,000
Software development 786,000 350,000 1,663,000 703,000
Depreciation and amortization 86,000 77,000 148,000 156,000
General and administrative 1,380,000 403,000 3,139,000 1,564,000
Total operating expenses 6,322,000 4,294,000 12,454,000 8,680,000

Operating Loss (5,959,000 ) (4,220,000 ) (11,578,000 ) (8,364,000 )

Other (expense) income:
Interest expense (3,000 ) (806,000 ) (6,000 ) (1,967,000 )
Expense related to modification of warrants - (21,000 ) - (21,000 )
Loss from debt conversion - (657,000 ) - (657,000 )
Inducement loss - (567,000 ) - (567,000 )
Change in fair value derivative and warrant liability - 829,000 - 1,771,000
Gain on convertible note penalties accrual - 760,000 - 760,000
Total other (expense) income (3,000 ) (462,000 ) (6,000 ) (681,000 )
Loss from continuing operations (5,962,000 ) (4,682,000 ) (11,584,000 ) (9,045,000 )
(Loss) income from discontinued operations
(Loss) income from discontinued operations (221,000 ) (1,393,000 ) (1,535,000 ) 576,000
Gain from asset sale - 15,682,000 - 15,682,000
Total (loss) income from discontinued operations (221,000 ) 14,289,000 (1,535,000 ) 16,258,000

Net (loss) income $ (6,183,000 ) $ 9,607,000 $ (13,119,000 ) $ 7,213,000

November 30, 2020.


	For the Three Months Ended (Unaudited)
	November 30, 2021		November 30, 2020
Revenues (gross billings of $21.2 million less worksite employee payroll cost of $12.3 million and gross billings of $19.8 million less worksite employees payroll cost of $17.3 million, for the three months ended November 30, 2021 and 2020, respectively)	$	8,940,000	$	2,503,000
Cost of revenue	8,245,000		1,990,000
Gross profit (loss)	695,000		513,000
Operating expenses:
Salaries, wages, and payroll taxes	3,890,000		2,193,000
Stock-based compensation – general and administrative	408,000		496,000
Commissions	27,000		38,000
Professional fees	1,737,000		707,000
Software development	1,161,000		877,000
Depreciation and amortization	123,000		62,000
General and administrative	1,932,000		1,759,000
Total operating expenses	9,278,000		6,132,000

Operating Loss	(8,583,000)		(5,619,000)
Other (expense) income:
Interest expense	(1,000)		(3,000)






Other Income	5,000

Total other (expense) income	4,000		(3,000)
Loss from continuing operations	(8,579,000)		(5,622,000)
(Loss) income from discontinued operations:
(Loss) income from discontinued operations	(134,000)		(1,314,000)

Total (loss) income from discontinued operations	(134,000)		(1,314,000)
Net loss	$	(8,713,000)	$	(6,936,000)

~~Revenues~~ for the three months ended February 28, 2021, increased by $0.4 million, or 20.5%, to $2.4 million compared to $2.0 million for the three months ended February 29, 2020. Revenues for the six months ended February 29, 2021, increased by $0.7 million, or 15.4%, to $4.9 million compared to $4.3 million for the six months ended February 29, 2020. The quarterly revenue increase was driven by higher gross billings

Table of $0.2 million for our new nurse staffing client that was signed in August 2020 and higher gross billings from our quick service restaurants business of $0.2 million. The increase in revenue of $0.3 million for the six months ended February 28, 2021, compared to the same period in the prior year, was driven by our new nurse staffing client signed in August 2020 and by $0.4 million of higher gross billings from our quick service restaurant food business.

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We report our revenues as gross billings, net of related direct labor costs for our ~~EAS~~EAS/HCM clients and revenues without reduction of labor costs for staffing services clients. ~~For~~


	2021			2020
Net Revenues (in millions)	$	8.9		$	2.5
Increase (Decrease), Quarter over Quarter (in millions)	6.4			0.3
Percentage Increase (Decrease), Quarter over Quarter	257.2		%	15.4		%

Cost of Revenues (in millions)	$	8.2		$	2.0
Increase (Decrease), Quarter over Quarter (in millions)	6.3			0.04
Percentage Increase (Decrease), Quarter over Quarter	314.3		%	2.2		%

Gross Profit (in millions)	$	0.7		$	0.5
Increase (Decrease), Quarter over Quarter (in millions)	0.2			0.3
Percentage Increase (Decrease), Quarter over Quarter	35.5		%	132.1		%
Gross Profit Percentage of Revenues	7.8		%	20.5		%

Quarter ended November 30, 2021

Net revenue for our HCM services excludes the ~~three and six months ended February 28, 2021 and February 29, 2020, we had no revenues associated with~~payroll cost component of gross billings. With respect to staffing services, ~~or generated through our technology services.~~

~~Cost of revenue~~~~, which mainly includes the costs of employer-side~~employer payroll taxes, employee benefit programs, and workers’ compensation insurance, ~~coverage,~~we believe that we are the primary obligor, and we have latitude in establishing price, selecting suppliers, and determining the service specifications. As such, the billings for those components are included as revenue. Revenues are recognized ratably over the payroll period as WSEs perform their services at the client worksite.

Net Revenueincreased approximately 257.2% to $8.9 million, from $2.5 million for the same period in Fiscal 2021.The revenue increase was ~~$2.1~~due to a 7.2% increase in gross billings to $21.2 million for the three months ended ~~February 28,~~November 30, 2021, ~~compared to approximately $1.9~~from $19.8 million for the ~~comparable~~same period in Fiscal 2021, combined with the effect of the transition of some of our existing clients to a staffing revenue recognition model during the latter part of Fiscal ~~2020, an~~2021.Recurring WSE counts as of November 30, 2021 averaged approximately 3,000, which is consistent with recovery to our pre-pandemic WSE levels. Our gross billings from staffing and HCM services totaled approximately $7.1 million and $14.1 million, representing 33.6% and 66.4% of our gross revenue, respectively.

Revenue associated with administrative fees increased by 0.5%, which is consistent with our billed wages increase of ~~6.4% or $0.1 million. Our cost of~~7.2% as well as the 0.5% increase in our revenues ~~for~~associated with taxes during the ~~six~~three months ended February 28, 2021, increased by $0.1 million, or 2.4%, to $4.1 million compared to $4.0 million for the six months ended February 29, 2020. This marginal increase was due to offsetting increases in taxes and decreases in workers’ compensation expense and overall higher gross billings for the period. New business from healthcare staffing provided more favorable margins on profitability which caused our cost of revenue to grow at a smaller rate than total revenues.

~~Gross profit~~ increased by $0.3 million, or 390.5%, to $0.4 million, or 15.0% of revenues for the quarter ended February 28, 2021, from $0.1 million, or 3.7% of revenues, for the same quarter of Fiscal 2020. The gross profit increase was driven by our growing healthcare staffing business which generates more profitable margin on a per WSE basis. Gross profit increased 177.2% to $0.9 million for the six months ended February 28, 2021 from $0.3 million for the six months ended February 29, 2020. The gross profit, as a percentage of revenues, increased from 7.4% for the six months ended February 29, 2020 to 17.8% for the six months ended February 28, 2021. Increase in gross profit for the six months ended February 28,November 30, 2021, compared to the same period in Fiscal 2021. Revenue associated with workers’ compensation decreased by $37,000, or 0.4%, due to our migration to a guaranteed workers' compensation cost program during Fiscal 2021, combined with a change in our client mix yielding lower billed workers’ compensation rates per wage dollar.

Cost of Revenues includes our costs associated with employer taxes, workers’ compensation insurance premiums, and the ~~prior year, was driven~~gross wages paid by our ~~new nurse~~ staffing ~~client signed in August 2020, higher overall gross billings from our quick service restaurant business, along with a reduction in worker’s compensation loss accruals.~~

~~Operating expenses~~clients. Cost of revenues increased ~~by 47.4%~~$6.3 million, or 314.3%, ~~or $2.0 million,~~ to ~~$6.3~~$8.2 million for the ~~quarter~~three months ended ~~February 28,~~November 30, 2021, from ~~$4.3~~$2 million for the same period in Fiscal 2021. The change in cost of revenues was due primarily to the conversion of certain existing clients to a staffing revenue recognition model during the latter part of Fiscal ~~2020. Operating expenses~~2021. As discussed above, the staffing model includes the gross wages in the cost of sales as the Company is considered the employer.

Gross Profit increased approximately 35.7%, or $183,000, for the ~~six~~three months ended ~~February 28,~~November 30, 2021, compared to same period in Fiscal 2021, primarily driven by an increase in our administrative fees and taxes billed for the period. This increase is consistent with our overall increase of 7.2% in our gross billings for the three months ended November 30, 2021 compared to the same period in Fiscal 2021.

Net loss increased by ~~$3.8~~$1.8 million, or ~~43.5%~~25.6%, ~~to $12.5~~from $6.9 million ~~compared~~for the three months ended November 30, 2020, to $8.7 million for the ~~six~~three months ended ~~February 29,~~November 30, 2021.This increase in net loss was primarily due to our increase in operating costs

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associated with our growth initiatives, (including payroll-related costs of $3.9 million, professional fees of $1.7 million, software development costs of $1.2 million, and costs classified in our statement of operations as general and administrative expenses of $1.9 million).

Operating expenses increased by 51.3% to $9.3 million for the three months ended November 30, 2021, from $6.1 million for the three moths ended November 30, 2020. The increase ~~for both periods was driven by investments~~ in operating expenses reflects the net effect of a small reduction of $88,000 and $11,000, respectively, in stock based compensation and commission, and the increased costs associated with our growth initiatives, ~~consisting~~including payroll-related costs of $3.9 million, (which increased ~~headcount~~77.4% or $1.7 million compared with the same period of Fiscal 2021), professional fees of $1.7, (which increased 145.7% or $1 million), software development costs of $1.1 million, (which increased 32.4% or $284,000), and ~~outsourced~~costs classified in our statement of operations as general and administrative expenses of $1.9 million, (which increased 9.8% or $173,000). Payroll-related costs increased due primarily to hiring additional executive, operations, and software development personnel to support our growth initiatives and accrued executive bonuses. Professional fees increased due to litigation arising in the normal course of business and legal fees we paid on behalf of our sponsored SPACs. Software development costs were driven primarily by our continuing investment in our HRIS ~~spending, marketing spending~~platform, while general and administrative expenses grew primarily due to rent ~~for~~cost increases from our ~~new~~entry into leases covering the following: (i) our principal executive offices in Miami, ~~as well as~~Florida; (ii) our ShiftPixy Labs facility in Miami, Florida; and (iii) our new office facility in Sunrise, Florida, which will house the majority of our operations personnel and other elements of our workforce.Other contributors to the increase in general and administrative expenses include non-recurring ~~relocation~~ costs to ~~move California~~relocate certain employees, and marketing expenses related to our ~~new Miami facility and marketing related expenses.~~

growth initiatives.

The following table presents certain information related to our operating expenses ~~(unaudited~~)(unaudited):

For the Three Months Ended For the Six Months Ended
February 28,
2021 February 29,
2020 February 28,
2021 February 29,
2020
Operating expenses:
Salaries, wages, and payroll taxes $ 2,592,000 $ 1,802,000 $ 4,785,000 $ 3,557,000
Stock-based compensation – general and admin 423,000 619,000 919,000 745,000
Commissions 49,000 46,000 87,000 118,000
Professional fees 1,006,000 997,000 1,713,000 1,837,000
Software development 786,000 350,000 1,663,000 703,000
Depreciation and amortization 86,000 77,000 148,000 156,000
General and administrative 1,380,000 403,000 3,139,000 1,564,000
Total operating expenses $ 6,322,000 $ 4,294,000 $ 12,454,000 $ 8,680,000


	For the Three Months Ended (Unaudited)
	November 30, 2021		November 30, 2020
Operating expenses:
Salaries, wages, and payroll taxes	$	3,890,000	$	2,193,000
Stock-based compensation – general and admin	408,000		496,000
Commissions	27,000		38,000
Professional fees	1,737,000		707,000
Software development	1,161,000		877,000
Depreciation and amortization	123,000		62,000
General and administrative	1,932,000		1,759,000
Total operating expenses	$	9,278,000	$	6,132,000

Operating expenses increased $3.1 million, or 51.3%, to $9.2 million for the three months ended November 30, 2021 from $6.1 million in the same period of Fiscal 2021. The components of operating expenses changed ~~from the same period of Fiscal 2020~~ as follows:

Salaries, wages and payroll taxes increased by approximately $1.7 million, or 77.4%, ~~which consist~~for the three months ended November 30, 2021 in comparison to the three months ended November 30, 2020, from $2.2 million to $3.9 million. These costs consisted of gross salaries, benefits, and payroll taxes associated with our executive management team and corporate employees. ~~For~~Of the ~~three months ended February 28, 2021, salaries increased by~~$1.7 million increase, $0.8 million ~~or 43.8%, to $2.6~~was for accrued management bonuses and $0.9 million from $1.8 million for the comparable period of Fiscal 2020. For the six months ended February 28, 2021, salaries increased by $1.2 million, or 34.5%, to $4.8 million compared to $3.6 million for the six months ended February 29, 2020. The increase for both periods is duewas primarily attributable to hiring additional employees in ~~our new Miami principal~~the executive, ~~offices for our growth initiative efforts~~operations, and ~~for additions to our~~ software development ~~team located in~~ranks of our ~~Irvine, CA offices.~~

~~Stock-based compensation~~~~, which consists~~business to support our various growth initiatives, including our SPAC sponsorships and ShiftPixy Labs. Our corporate employee count increased from 56 employees as of ~~compensation expense related~~November 30, 2020, to ~~our employee stock option plan. Stock-based~~85 employees as of November 30, 2021.

Share-Based compensation decreased ~~$0.2~~by $0.1 million, or ~~31.7%~~17.7%, to $0.4 million ~~from $0.6 million~~ for the ~~quarter ended February 28, 2021. The decrease was driven by the one-time vesting of all options granted to employees transferred under the Vensure Asset Sale in the prior fiscal quarter. For the six~~three months ended February 28, 2021, stock-based compensation increased by $0.2 million, or 23.4%, to $0.9 million from $0.7 million compared to the six months ended February 29, 2020. The increase was due to the issuance of additional stock options granted since July 1, 2020, which are subject to shareholder approval, and which approval was obtained on March 31,November 30, 2021.

Commissions consist of ~~commission~~commissions payments made to third party brokers and inside sales ~~personnel. Commissions increased to $49,000 from $46,000 for~~personnel and remained consistent year over year, with a slight decrease based on the ~~comparable period~~reduction of ~~Fiscal 2020. Commissions are primarily associated with compensation to~~ our sales force for sales as well as to our property and casualty agents. Commission expenses increased due to the increase in gross billings during the quarter. For the six months ended February 28, 2021, commissions expense decreased by $31,000, or 26.3%, to $87,000 from $118,000 compared to the six months ended February 29, 2020. The decrease is due to a change in our sales compensation structure.

force.

Professional fees ~~consist~~ consists of legal fees, accounting and public company costs, board fees, and consulting fees. Professional fees for the ~~quarter ended February 28, 2021, remained consistent at $1.0 million for the comparable period of Fiscal 2020. Professional fees for the six~~three months ended ~~February 28,~~November 30, 2021 decreased by $0.1 million, or 6.8%, to $1.7 million, from $1.8 million for the six months ended February 29, 2020. Such decrease can be attributed to a decrease in legal fees paid for litigation related activities in the current period.

~~External software development~~ consists of payments to third party contractors for licenses, software development, IT related spending for the development of our HRIS platform and mobile application. External software development increased by $0.4 million, or 124.6%, to $0.8 million from $0.4 million. For the six months ended February 28, 2021, external software development increased by $1.0 million, or ~~136.6%~~145.7%, to $1.7 million, from $0.7 million for the ~~six~~

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three months ended ~~February 29,~~November 30, 2020. The increase ~~for both periods~~ is ~~due~~primarily attributable to an increase in ~~contract~~legal fees related to our current active litigation.

Software development ~~spending~~ consists of costs associated with research and development outsourced to third parties. Software development costs increased $0.3 million, or 32.4%, to $1.2 million for the three months ended November 30, 2021, from $0.9 million for the three months ended November 30 2020. The increased costs are due primarily to additional contracted developers to support our mobile application post development improvements.

Depreciation and amortization increased by $61,000, or 98.4%, for the three months ended November 30, 2021, as compared to the same period in Fiscal 2021, due to depreciation on asset purchases during the ~~current periods in~~period to support of our growth ~~initiatives within the Company, including efforts directed to ShiftPixy Labs.~~

initiatives.

General and ~~Administrative~~administrative expenses consist of office rent and related overhead, ~~marketing,~~software licenses, insurance, penalties, business taxes, travel and entertainment, ~~depreciation and amortization~~ and other general business expenses. General and administrative expenses for the ~~quarter~~three months ended ~~February 28,~~November 30, 2021 increased by ~~$1.0 million,~~$173,000, or ~~205.2%~~9.8%, to ~~$1.5~~$1.9 million, from ~~$0.5~~$1.8 million infor the ~~comparable period~~three months ended November 30, 2020. The increase was due primarily to approximately $0.2 million of ~~Fiscal 2020. General~~general and administrative expenses increased $1.6 million, or 91.1%, to $3.3 million for the six months ended February 28, 2021 from $1.7 million for the six months ended February 29, 2020. The increase for both periods was driven by increased rent forincurred in connection with our new principal executive offices in Miami, non-recurring relocation costs to move California employees to our new Miami facility, and marketing expenses related to our growth initiatives through ShiftPixy Labs.

~~Operating loss~~ ~~for~~sponsored SPACs during the quarter, ended February 28, 2021 increased $1.7 million, or 41.2%, to $6.0 million from $4.2 million in the comparable period of Fiscal 2020. Operating loss for the six months ended February 28, 2021 increased $3.2 million, or 38.4%, to $11.6 million compared to a loss of $8.4 million for the six months ended February 29, 2020. The operating loss for the three and six month periods ended February 28, 2021, was due to an increase in operatingwhereas no such expenses ~~of $2.0 million and $3.8 million, respectively.~~

~~Other income (expense~~) for the quarter and six months ended February 28, 2021, was negligible. This item consisted of interest expense primarily from amortization of convertible note discount, which was offset by a gain in convertible note related derivative liabilities. The Company eliminated all such convertible notes in Fiscal 2020.

~~Income/(loss) from discontinued operations~~ ~~was a $0.2 million loss for the quarter ended February 28, 2021, compared to a $1.4 million loss in~~were incurred during the same period of Fiscal ~~2020. The Fiscal~~2021 since the SPACs had not yet been formed.

Other income (expense) for the quarters ended November 30, 2021 and November 30, 2020 ~~period included~~was insignificant.

Loss from continuing operations increased by $2.9 million, or 52.2%, from ~~former~~a $5.6 million loss for the three months ended November 30, 2020, to $8.6 million loss for the three months ended November 30, 2021, due primarily to expenses associated with the Company's growth initiatives, as described above.

Gain/loss from discontinued operations. For the three months ended November 30, 2021 and the three months ended November 30, 2020, we recorded a loss primarily based upon our reassessment of our workers' compensation claims reserve associated with the clients that we transferred to Vensure ~~pursuant to~~in connection with the Vensure Asset Sale. ~~While these discontinued operations are not included in our Fiscal~~For the three months ended November 30, 2021, ~~results, we still recorded estimates of workers’ compensation liabilities during~~ the ~~quarter to cover WSEs who were transferred to Vensure, which contributed to the loss. Loss~~loss from discontinued operations ~~amounted to $1.5 million for the six months ended February 28, 2021, compared to $0.6 million in income for the six months ended February 29, 2020.~~

~~Net income (loss)~~ ~~for the quarter ended February 28, 2021, was a net loss of $6.2 million, compared to net income of $9.6 million for the comparable period of Fiscal 2020, representing a decrease of $15.8~~decreased $1.2 million or ~~164.3 %.~~89.9% in comparison with the same period in Fiscal 2021. The decrease is driven by the phase out of the claims liability reserved which has been in ~~net income was due to $2.1 million of additional operating losses,~~ a $0.4 million reduction in other expenses, and a net loss increase of $14.1 million resulting from the change in Gain/(Loss) from Discontinued Operations from a $13.9 million gain to a $0.2 million loss for the quarter ended February 29, 2020. Net income (loss) decreased to a net loss of $13.1 million from net income of $7.2 million for the six months ended February 28, 2021 and February 29, 2020, respectively. The change to net income is due to the one-time gain on asset sale of $15.7 milliondecreasing trend during the ~~six months ended February 29, 2020.~~

period.

Liquidity and Capital Resources

For a discussion of our liquidity and capital resources, see Note 4,6, Going Concern, to the Notes to the Condensed Consolidated Financial Statements in “Part I, Item 1. Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report.

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP measures that we use to manage our business, make planning decisions and allocate resources. These key financial measures provide an additional view of our operational performance over the long term and provide useful information that we use to maintain and grow our business. The presentation of these non-GAAP financial measures is used to enhance the understanding of certain aspects of our financial performance. They are not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures presented in accordance with GAAP.

Our revenue recognition policy differs for our EAS/HCM and staffing clients and is dependent on the respective CSA applicable to each client. During Fiscal 2021, some of our EAS clients migrated to a staffing CSA. Our policy is to report revenues as gross billings, net of related direct labor costs, for our EAS/HCM clients, and revenues without reduction for labor costs for staffing clients. For the three months ended November 30, 2021, our gross billings from HCM and staffing services totaled approximately $14.1 million and $7.1 million (total of $21.2 million), representing 66.4% and 33.6% of our gross revenue, respectively. For the three months ended November 30, 2020, our gross billings were approximately $19.8 million from our HCM services, and our gross billings generated from staffing were immaterial. (We had no revenues generated from technology services during the three months ended November 30, 2021 or 2020).

Gross billings ~~which~~ represent billings to our business clients and include WSE gross wages, employer payroll taxes, and workers’ compensation premiums as well as administrative fees for our value-added services and other charges for workforce management ~~support,~~support. Gross billings for our HCM services are a non-GAAP measurement that ~~represents~~we believe to represent a key revenue-based operating metric, ~~for management~~ along with number of WSEs and number of clients. Active WSEs are defined as employees on our HRIS platform that have provided services for at least one of our ~~client customers~~clients for any reported period. Our primary ~~non-GAAP~~ profitability metrics are gross profit, and our primary driver of gross profit ~~per WSE, and gross profit percentage~~is administrative fees.

Table of ~~gross billings, as gross billings and the number of active WSEs represent the primary drivers of our business operations.~~

Gross billings for the three months ended February 28, 2021, increased by $3.3 million, or 22.8%, to $17.9 million, (or $71.6 million on an annualized basis), compared to $14.6 million for the three months ended February 29, 2020, (or $58.2 million on an annualized basis). The gross payroll costs of our WSEs accounted for 86.5% and 86.2% of our gross billings for the three months ended February 28, 2021 and February 29, 2020, respectively. Gross billings for the six months ended February 28, 2021, increased by $5.2 million, or 16.3%, to $37.6 million, (or $75.3 million on an annualized basis), compared to $32.3 million for the six months ended February 29, 2020, (or $64.6 million on an annualized basis). The gross payroll costs of our WSEs accounted for 86.9% and 86.8% of our gross billings for the three months ended February 28, 2021 and February 29, 2020, respectively.

Contents

Reconciliation of GAAP to Non-GAAP ~~Measure:~~ Measure

Gross Billings to Net Revenues

Three Months Ended, Six Months Ended,
February 28,
2021 February 29,
2020 February 28,
2021 February 29,
2020
Gross Billings $ 17,868,000 $ 14,550,000 $ 37,634,000 $ 32,352,000
Less: Adjustment to gross billings 15,449,000 12,543,000 32,712,000 28,085,000
Revenues $ 2,419,000 $ 2,007,000 $ 4,922,000 $ 4,267,000

February 28,
2021
August 31,
2020
February 29,
2020
Active WSEs (unaudited) 3,000 3,200 3,100

The following table presents a reconciliation of our ~~financial reports~~Gross Billings (unaudited) to Revenues:


	For the three month period ended November 30,
	2021		2020
Gross Billings in millions	$	21.2	$	19.8
Less: Adjustment to Gross Billings	$	12.3	$	17.3
Revenues, in millions	$	8.9	$	2.5

The following table provides the key revenue and our primary gross profit driver used by management.


	For the three month period ended November 30,
	2021			2020




Administrative Fees (in millions)	$	0.47		$	0.35
Increase (Decrease), Quarter over Quarter (in millions)	0.12			0.1
Percentage Increase (Decrease), Quarter over Quarter	34.3		%	18.9		%
Administrative Fee % of Gross Billings	2.2		%	1.8		%

Average WSEs by Quarter (unaudited)	3,000			3,500
Average Gross Billings per Average WSE	$	7,066		$	5,647

Our billed WSEs as of the end of:


	November 30, 2021	August 31, 2021	November 30, 2020
Active WSEs (unaudited)	3,000	2,800	3,500

Average Active WSEs totaled approximately 3,000, which is consistent with continuous growth and recovery to our pre-pandemic levels. The increase in administrative fees was consistent with our billings growth over the same time period. The increase in average gross billings per WSE was due primarily to growth in the higher wages commanded by our healthcare WSEs, as well as an increase in billings to our restaurant clients as their operations recovered from the worst effects of the COVID-19 pandemic.

Material Commitments

The Company entered into a master service agreement for the ~~three months ended February 29, 2020, we classified as discontinued operations all billed wages, revenues, and~~construction of six ghost kitchens to be placed in its ShiftPixy Labs facility in Miami for a total cost of ~~revenues associated with those clients who terminated services with us prior~~$1,037,000. As of November 30, 2021, the Company has made payments totaling $885,000, which we have capitalized as construction in progress and included in Fixed Assets on the Condensed Consolidated Balance Sheet. We have recorded an additional cost to ~~January 1, 2020, and therefore did not generate recurring revenue after January 1, 2020, (including those clients transferred~~complete of $152,000 under this contract, which is expect to ~~Vensure as part~~pay by the end of the Vensure Asset Sale). In the financial reports included in this Quarterly Report, we have classified only those clients transferred to Vensure as part of the Vensure Asset Sale as discontinued operations, and have reclassified the remaining non-transferred, terminated clients to continuing operations.

Our gross billings and revenues are both derived from gross payroll wages paid to WSEs. Gross wages is a key underlying metric that management uses to analyze business activities, as it is an important component of net revenues and gross margins. The table and analysis that follows illustrates the impact of the reclassification described above on gross wages:

Quarter ended Quarter ended Quarter ended Quarter ended
Client Wages (billed in $ millions) November February May August
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Fiscal Year 2021
Billed Client Wages – All Operations $ 17.3 $ 15.5
Less Discontinued Operations Billings (1) - -
Billed Client Wages for Continuing Operations (2) 17.3 15.5
Less Terminated Client Wages (3) - -
Adjusted Billed Client Wages, Continuing Operations (4) $ 17.3 $ 15.5

Fiscal Year 2020
Billed Client Wages – All Operations $ 88.2 $ 36.3 $ 12.4 $ 16.4
Less Discontinued Operations Billings (1) (74.2 ) (23.8 ) - -
Billed Client Wages for Continuing Operations (2) 14.0 12.5 12.4 16.4
Less Terminated Client Wages (3) (1.4 ) - - -
Adjusted Billed Client Wages, Continuing Operations (4) $ 12.6 $ 12.5 $ 12.4 $ 16.4

Fiscal Year 2019
Billed Client Wages – All Operations $ 60.3 $ 67.6 $ 77.4 $ 87.1
Less Discontinued Operations Billings (1) (43.8 ) (51.2 ) (62.8 ) (72.8 )
Billed Client Wages for Continuing Operations (2) 16.5 16.4 14.6 14.3
Less Terminated Client Wages (3) (11.4 ) (9.3 ) (4.3 ) (2.8 )
Adjusted Billed Client Wages, Continuing Operations (4) $ 5.1 $ 7.1 $ 10.3 $ 11.5

~~(1)~~

~~Discontinued Operations Billings represents billings associated with the clients transferred to Vensure as part of the Vensure Asset Sale.~~

~~(2)~~

Billed Client Wages for Continuing Operations represents the billed client wages associated with the Fiscal 2019 and Fiscal 2020 revenues reported in the financial statements included in our Form 10-K for Fiscal 2020, filed with the SEC on November 30, 2020. Billed Client Wages represents substantially all of the “Adjustment to Gross Billings” in the billings reconciliation table above that reconciles gross billings to net revenues.

~~(3)~~

Terminated Client Wages represents the billed wages associated with clients that terminated services with the Company on or prior to January 1, 2020, but were not transferred to Vensure as part of the Vensure Asset Sale. This group primarily consists of clients we identified during calendar 2018 and 2019 as generating low profit margins, having relatively high workers’ compensation exposure, and/or not being well-suited to take advantage of our HRIS platform. Billings from these terminated clients were formerly classified under discontinued operations billings.

~~(4)~~

Adjusted Billed Client Wages from Continuing Operations represents client billings for customers who were either active clients as of January 1, 2020, or were added as clients after January 1, 2020. We believe that this metric provides a useful indication of the volume, progression, and growth in billings generated by our target client base during Fiscal 2019 and 2020, as well as the impact of the pandemic on our business. Our $2.2 million decrease in billings between February 29, 2020, and May 31, 2020, resulted from (i) a $3.9 million, or 27.3% decrease in billings to existing customers during the quarter ended May 31, 2020, (including $0.6 million, or 4.2% of quarterly billings, from customers who discontinued operations due to the pandemic), offset by (ii) an increase of $1.7 million, or 11.9% of billings during the quarter related to new customer signings. Our $3.9 million increase in billings between May 31, 2020, and August 31, 2020, resulted primarily from $1.8 million in increased billings from existing customers, combined with $2.1 million generated by new customer signings during the quarter ended August 31, 2020.

~~Material Commitments~~

In March 2021, we entered into an agreement to purchase four customized mobile kitchen units to support our ShiftPixy Labs growth initiative and made an initial deposit of $0.3 million. We expect delivery of these mobile kitchens during the early fourthsecond quarter of Fiscal ~~2021.~~

~~We do not have any~~2022. No additional contractual obligations for ongoing capital expenditures exist at this time. We do, however, purchase equipment and software necessary to conduct our operations on an as needed basis.

Contingencies

For a discussion of contingencies, see Note 9, 11, Contingencies, to the Notes to the Condensed Consolidated Financial Statements in “Part I, Item 1. Condensed Consolidated Financial Statements (Unaudited)” of ~~the~~this Quarterly Report.

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New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, to the Notes to the Condensed Consolidated Financial Statements in “Part I, Item 1. Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

~~The Company has established~~

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in ~~this Quarterly Report was properly~~the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and ~~forms. The Company’s controls~~forms, and ~~procedures are designed to ensure~~ that such information required to be disclosed in the reports that we file or submit under the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act), or as otherwise required by law, is accumulated and communicated to ~~the Company’s~~ management, including ~~its principal executive~~the Chief Executive Officer (Principal Executive Officer) and ~~principal financial officers,~~the Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure.

We In designing and evaluating disclosure controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of ~~the design and operation of our~~its disclosure controls and procedures ~~(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))~~ at August 31, ~~2020, based on the evaluation of these controls and procedures required by paragraph (b) of~~2021, as defined in Rule ~~13a-15~~13a -15(e) and Rule ~~15d-15~~15d -15(e) under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at ~~August 31, 2020,~~November 30, 2021, our disclosure controls and procedures were not effective. A discussion of these findings is contained in our Annual Report on Form 10-K for Fiscal ~~2020,~~2021, filed with the SEC on ~~November 30, 2020, which is expressly incorporated herein by reference.~~

December 3, 2021.

Management’s Updated Report on Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an updated evaluation as of ~~February 28,~~November 30, 2021 of the ~~evaluation of~~ effectiveness of our internal control over financial reporting ~~as of August 31, 2020,~~ based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with GAAP. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to a change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its updated evaluation, our management concluded that our internal controls over financial reporting were not effective as of ~~February 28,~~November 30, 2021. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses detected at ~~February 28,~~November 30, 2021, relate to the following:

Lack of Adequate Finance and Accounting Personnel

The Company’s current accounting staff is small, and ~~during the quarter ended February 28, 2021,~~ we did not have the required infrastructure or accounting staff expertise to adequately prepare financial statements in accordance with GAAP or meet the higher demands of being a U.S. public company. We also lack adequate written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements. ~~The lack of sufficient personnel~~Our relatively small staff creates inadequate segregation of duties, which makes the reporting process susceptible to errors, omissions, and inadequate review procedures. During Fiscal 2021, the ~~quarter, we continued~~Company began to implement a plan to develop ~~our~~its accounting and finance staff to meet the needs of ~~our~~its growing business, including but not limited to the hiring of new staff, departmental training and the development of entity level controls and mitigating activity level controls to reduce the risk of management

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override resulting from inadequate segregation of duties. ~~We are~~That plan was not fully implemented during Fiscal 2021 and it will continue into Fiscal 2022. The Company is in the process of finalizing written policies and procedures to formalize the requirements of GAAP and ~~the SEC.~~

SEC disclosure requirements.

The Company did not perform an effective risk assessment or monitor internal controls over financial reporting including completing the documentation and procedures surrounding its IT environment, controls over cut-off procedures, accounting for capitalized software, discontinued operations, segregation of duties, and corporate oversight functions. The Company will continue its assessment on a quarterly basis.

During the ~~reporting~~period, the Company engaged outside experts to perform non-routine analyses for valuation of ~~our financial results for Fiscal 2020, we discovered errors surrounding~~options and other derivative related expenses as well as to prepare the ~~accounting for our~~Company’s income tax provisions and to review the discontinued operations ~~in particular the classification of client billings, revenues,~~accounting and ~~cost of revenues between continued~~disclosures. The Company plans to continue hiring additional personnel and ~~discontinued operations, which required a reclassification of revenues and cost of revenues from continuing operations~~external resources to ~~discontinued operations for the nine months ended May 31, 2020, and for each reported quarter therein, and evaluation of impairment for long term assets. There was no~~further mitigate these material impact to the Company’s balance sheet or income statement other than reclassifications between continuing and discontinued operations. We have reviewed and are in the process of addressing the control inadequacies by hiring outside consultants to supplement our staff in analyzing and reviewing the transaction in question that created the need to classify historical income statement activity as discontinued operations. weaknesses.

Once the remediation plan for each material weakness is fully implemented, the identified material weaknesses in internal control over financial reporting will be considered fully addressed when the relevant internal controls have been in operation for a sufficient period of time for management to conclude that the material weaknesses have been fully remediated and the internal controls over financial reporting are effective. The Company will work to design, implement and rigorously test these new controls in order to make these final determinations.

This Quarterly Report on Form 10-Q does not include an attestation report of the Company’s independent registered public accounting firm regarding internal controls over financial reporting because this is not required of the Company pursuant to Regulation S-K Item 308(b).

Changes in Internal Control Over Financial Reporting

~~During~~

Other than the ~~quarter ended February 28, 2021, except as described~~changes to the internal controls over financial reporting discussed above, there ~~have been~~were no changes that have occurred during the three months ended November 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial ~~reporting.~~

reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings and Risk Factors.

(a) Legal Proceedings.

The Company is a party to various legal actions arising in the ordinary course of business which, in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be immaterial or substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these actions, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position or cash flows of the Company. There have been no material developments to the litigation disclosed in our Annual Report on Form 10-K for Fiscal ~~2020,~~2021, as filed with the SEC on ~~November 30, 2020,~~December 3, 2021, except as noted in Note ~~9 and Note 10~~11 Contingencies to the accompanying financial statements.

(b) Risk Factors.

~~Not required. For a summary of risk~~

You should carefully review and consider the information regarding certain factors ~~relevant to~~that could materially affect our business, ~~and operations, please refer to~~financial condition or future results set forth under Part I, Item 1A, Risk Factors, contained in our Annual Report on Form 10-K for Fiscal ~~2020,~~2021, as filed with the SEC on ~~November 30, 2020,~~December 3, 2021, which is expressly incorporated herein by reference.

Except as set forth below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for Fiscal 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

(a) Exhibits.

~~Exhibit No.~~	~~Document Description~~
~~10.1~~Exhibit No.		Document Description

4.1		~~ShiftPixy, Inc. 2017 Stock Option/Stock Issuance Plan~~Form of Warrant (incorporated by reference from Exhibit 4.1 to ~~Appendix A of~~ our ~~Definitive Proxy Statement~~Current Report on ~~Schedule 14A,~~Form 8-K, filed with the ~~Securities and Exchange Commission~~SEC on ~~February 9,~~September 2, 2021).

~~31.1~~4.2		Form of Prefunded Warrant (incorporated by reference from Exhibit 4.2 to our Current Report on Form 8-K, filed with the SEC on September 2, 2021).

10.1		Form of Securities Purchase Agreement (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on September 2, 2021).

10.2		Placement Agent Agreement, dated August 31, 2021, by and between ShiftPixy, Inc. and A.G.P./Alliance Global Partners (incorporated by reference from Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on September 2, 2021).

31.1		CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

31.2		CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

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32.1*						CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002.

32.2*						CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002.

Exhibit 101						Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.**

101.INS						XBRL Instance Document**Document

101.SCH						XBRL Taxonomy Extension Schema Document**Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document**Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document**Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document**Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document**Document

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part

Table of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Contents

SIGNATURES

~~SIGNATURES~~

In accordance with the requirements of the Exchange Act, the registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ShiftPixy, Inc., a Wyoming corporation

DATE: ~~April 14, 2021~~January 18, 2022	By:	/s/ Scott W. Absher
		Scott W. Absher
		Principal Executive Officer

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

~~SIGNATURE~~

~~NAME~~

~~TITLE~~

~~DATE~~

SIGNATURE

NAME

TITLE

DATE

/s/ Scott W. Absher

Scott W. Absher

Principal Executive Officer and Director

~~April 14, 2021~~January 18, 2022

/s/ Domonic J. Carney

Domonic J. Carney

Principal Financial Officer

~~April 14, 2021~~January 18, 2022


PART I — FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	32
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3029
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	4041
Item 4.	Controls and Procedures	4041
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings and Risk Factors	4243
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4243
Item 3.	Defaults Upon Senior Securities	4243
Item 4.	Mine Safety Disclosures	4243
Item 5.	Other Information	4243
Item 6.	Exhibits	43

Signatures			4445

	February 28, 2021			August 31, 2020
	(Unaudited)
ASSETS
Current assets
Cash	$	3,479,000		$	4,303,000
Accounts receivable		416,000			308,000
Unbilled accounts receivable		2,042,000			2,303,000
Deposit – workers’ compensation		250,000			293,000
Prepaid expenses and other current assets		959,000			796,000
Current assets of discontinued operations		821,000			1,030,000
Total current assets		7,967,000			9,033,000

Fixed assets, net		1,522,000			575,000
Note receivable, net		4,004,000			4,045,000
Deposits – workers’ compensation		629,000			736,000
Deposits and other assets		907,000			449,000
Non-current assets of discontinued operations		2,071,000			2,582,000

Total assets	$	17,100,000		$	17,420,000

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and other accrued liabilities	$	4,252,000		$	3,831,000
Payroll related liabilities		5,949,000			5,752,000
Accrued workers’ compensation costs		492,000			497,000
Current liabilities of discontinued operations		1,620,000			1,746,000
Total current liabilities		12,313,000			11,826,000
Non-current liabilities
Accrued workers’ compensation costs		1,241,000			1,247,000
Payroll related liabilities, long term		1,046,000			-
Non-current liabilities of discontinued operations		4,085,000			4,377,000
Total liabilities		18,685,000			17,450,000
Commitments and contingencies
Stockholders’ deficit
Preferred stock, 50,000,000 authorized shares; $0.0001 par value		-			-
Common stock, 750,000,000 authorized shares; $0.0001 par value; 20,914,646 and 16,902,146 shares issued as of February 28, 2021 and August 31, 2020		2,000			2,000
Additional paid-in capital		130,994,000			119,430,000
Accumulated deficit		(132,581,000	)		(119,462,000	)
Total stockholders’ deficit		(1,585,000	)		(30,000	)
Total liabilities and stockholders’ deficit	$	17,100,000		$	17,420,000

	For the Three Months Ended						For the Six Months Ended
	February 28, 2021			February 29, 2020			February 28, 2021			February 29, 2020
Revenues (gross billings of $17.9 million and $14.5 million less worksite employee payroll cost of $15.5 million and $12.5 million, respectively for the three months ended; gross billings of $37.6 million and $32.4 million less worksite employee payroll cost of $32.7 million and $28.1 million, respectively for six months ended)	$	2,419,000		$	2,007,000		$	4,922,000		$	4,267,000
Cost of revenue		2,056,000			1,933,000			4,046,000			3,951,000
Gross profit		363,000			74,000			876,000			316,000

Operating expenses:
Salaries, wages, and payroll taxes		2,592,000			1,802,000			4,785,000			3,557,000
Stock-based compensation – general and administrative		423,000			619,000			919,000			745,000
Commissions		49,000			46,000			87,000			118,000
Professional fees		1,006,000			997,000			1,713,000			1,837,000
Software development		786,000			350,000			1,663,000			703,000
Depreciation and amortization		86,000			77,000			148,000			156,000
General and administrative		1,380,000			403,000			3,139,000			1,564,000
Total operating expenses		6,322,000			4,294,000			12,454,000			8,680,000

Operating Loss		(5,959,000	)		(4,220,000	)		(11,578,000	)		(8,364,000	)

Other (expense) income:
Interest expense		(3,000	)		(806,000	)		(6,000	)		(1,967,000	)
Expense related to modification of warrants		-			(21,000	)		-			(21,000	)
Loss from debt conversion		-			(657,000	)		-			(657,000	)
Inducement loss		-			(567,000	)		-			(567,000	)
Change in fair value derivative and warrant liability		-			829,000			-			1,771,000
Gain on convertible note penalties accrual		-			760,000			-			760,000
Total other expense		(3,000	)		(462,000	)		(6,000	)		(681,000	)
Loss from continuing operations		(5,962,000	)		(4,682,000	)		(11,584,000	)		(9,045,000	)
(Loss) income from discontinued operations
(Loss) income from discontinued operations		(221,000	)		(1,393,000	)		(1,535,000	)		576,000
Gain from asset sale		-			15,682,000			-			15,682,000
Total (loss) income from discontinued operations, net of tax		(221,000	)		14,289,000			(1,535,000	)		16,258,000

Net (loss) income	$	(6,183,000	)	$	9,607,000		$	(13,119,000	)	$	7,213,000

Net (loss) income per share, Basic and diluted
Continuing operations	$	(0.18	)	$	(0.27	)	$	(0.36	)	$	(1.01	)
Discontinued operations
Operating (loss) income		(0.01	)		(0.08	)		(0.05	)		0.06
Gain on sale of assets		-			0.92			-			1.76
Total discontinued operations		(0.01	)		0.84			(0.05	)		1.82
Net (loss) income per common share – Basic and diluted	$	(0.19	)	$	0.57		$	(0.41	)	$	0.81

Weighted average common shares outstanding – Basic and diluted		32,746,660			16,971,339			31,772,050			8,932,217

	Preferred Stock Issued					Common Stock Issued				Additional Paid-In		Accumulated			Total Stockholders’
	Shares			Amount		Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance, September 1, 2020		-		$	-		16,902,146	$	2,000	$	119,430,000	$	(119,462,000	)	$	(30,000	)
Common stock issued for underwritten public offering, net of offering costs		-			-		4,000,000		-		10,701,000		-			10,701,000
Stock-based compensation expense		-			-		-		-		863,000		-			863,000
Preferred stock issued for preferred option exercise		12,500			-		-		-		-		-			-
Common stock issued for preferred stock exchange		(12,500	)		-		12,500		-		-		-			-
Net Loss		-			-		-		-		-		(13,119,000	)		(13,119,000	)
Balance, February 28, 2021		-		$	-		20,914,646	$	2,000	$	130,994,000	$	(132,581,000	)	$	(1,585,000	)

	Common Stock Issued					Additional Paid-In			Treasury			Accumulated			Total Stockholders’
	Shares			Amount		Capital			Stock			Deficit			Deficit
Balance, September 1, 2019		909,222		$	-	$	32,505,000		$	(325,000	)	$	(45,900,000	)	$	(13,720,000	)
Treasury Shares retired		(13,953	)		-		(325,000	)		325,000			-			-
Common shares issued for note exchange		21,750					200,000			-						200,000
Common stock issued for services rendered		856			-		75,000			-			-			75,000
Stock-based compensation expense		-			-		670,000			-			-			670,000
Common shares issued upon conversion of convertible notes and interest		148,122			-		2,215,000			-			-			2,215,000
Reclassification of derivative liabilities to paid in capital		-			-		1,691,000			-			-			1,691,000
Inducement loss on note conversions		37,646			-		567,000			-			-			567,000
Modification of warrants		-			-		22,000			-			-			22,000
Net Income		-			-		-			-			7,213,000			7,213,000
Balance, February 29, 2020		1,103,643		$	-	$	37,620,000		$	-		$	(38,687,000	)	$	(1,067,000	)

	For the three months ended February 29, 2020 (unaudited)
	As Previously Reported			Revision Adjustments			As Restated			Discontinued Operations Reclassification			As Restated and Reclassified

Revenues	$	2,583,000		$	-		$	2,583,000		$	(576,000	)	$	2,007,000
Cost of revenue		2,124,000		$	-			2,124,000			(191,000	)		1,933,000
Gross profit	$	459,000		$	-		$	459,000		$	(385,000	)	$	74,000

Operating Expenses
Depreciation and amortization		239,000			(162,000	)		77,000			-			77,000
All other operating expenses	$	4,211,000		$	-		$	4,211,000		$	6,000		$	4,217,000
Operating loss	$	(3,991,000	)	$	162,000		$	(3,829,000	)	$	(391,000	)	$	(4,220,000	)
Net loss from continuing operations	$	(4,453,000	)	$	162,000		$	(4,291,000	)	$	(391,000	)	$	(4,682,000	)
Total income from discontinued operations	$	13,898,000		$	-		$	13,898,000		$	391,000		$	14,289,000
Net loss	$	9,445,000		$	162,000		$	9,607,000		$	-		$	9,607,000
Net loss per common share - continuing operations, Basic and diluted	$	(0.26	)	$	0.01		$	(0.25	)	$	(0.02	)	$	(0.27	)

Discontinued operations
Operating income (loss) per common share	$	0.82		$	-		$	0.82		$	0.02		$	0.84
Net income (loss) per common share, Basic and diluted	$	0.56		$	0.01		$	0.57		$	-		$	0.57

Weighted average number of common stock shares, Basic and diluted		16,971,339						16,971,339						16,971,339

	For the Three Months Ended						For the Six Months Ended
	February 28, 2021			February 29, 2020			February 28, 2021			February 29, 2020
Revenues (gross billings of $0 and $27.8 million less worksite employee payroll cost of $0 million and $23.8 million, respectively for the three months ended; gross billings of $0 million and $120.6 million less worksite employee payroll cost of $0 million and $103.0 million, respectively for the six months ended)	$	-		$	4,026,000		$	-		$	17,632,000
Cost of revenue		221,000			5,228,000			1,535,000			15,762,000
Gross profit (loss)		(221,000	)		(1,202,000	)		(1,535,000	)		1,870,000

Operating expenses:
Salaries, wages and payroll taxes		-			153,000			-			553,000
Commissions		-			38,000			-			741,000
Total operating expenses		-			191,000			-			1,294,000

(Loss) income from discontinued operations	$	(221,000	)	$	(1,393,000	)	$	(1,535,000	)	$	576,000

	Number of shares		Weighted average remaining life (years)		Weighted average exercise price
Warrants outstanding, August 31, 2020		1,896,209		4.7	$	7.91
Issued		2,500,000		5.0		3.30
(Cancelled)		-		-		-
(Exercised)		-		-		-
Warrants outstanding, February 28, 2021		4,396,209		4.5		5.51
Warrants exercisable, February 28, 2021		4,396,209		4.5	$	5.51

	Options Outstanding and Exercisable
				Weighted
				Average		Weighted
	Number			Remaining		Average
	of			Contractual		Exercise
	Options			Life		Price
				(In years)
Balance Outstanding, August 31, 2020		1,398,740			9.5	$	8.18
Granted		550,000			10.0		3.21
Exercised		-			-		-
Forfeited		(126,567	)		9.5		5.03
Balance Outstanding at February 28, 2021		1,822,173			9.4	$	6.73
Balance not Exercisable at February 28, 2021		1,781,355
Balance Exercisable at February 28, 2021		40,818

Years ended August 31,
2021	$	697,000
2022		1,302,000
2023		1,014,000
2024		1,075,000
2025		1,108,000
Thereafter		1,652,000
Total minimum payments	$	6,848,000

Development spending (in $ millions)	Six months ending February 28, 2021		Six months ending February 29, 2020
	(Unaudited)		(Unaudited)
Contract development and licenses	$	1.6	$	0.6
Internal personnel costs		1.2		1.0
Total development spending	$	2.8	$	1.6

Marketing spending
Advertising and outside marketing	$	0.9	$	0.2
Internal personnel costs		0.2		0.2
Subtotal, Marketing costs	$	1.1	$	0.4
Total, HRIS platform and mobile application spending	$	3.9	$	2.0

Cumulative investment	$	26.3		18.8
Portion of investment capitalized as fixed assets		-		3.7
Portion of investment expensed	$	26.3		15.1

	Three Months Ended,				Six Months Ended,
	February 28, 2021		February 29, 2020		February 28, 2021		February 29, 2020
Gross Billings	$	17,868,000	$	14,550,000	$	37,634,000	$	32,352,000
Less: Adjustment to gross billings		15,449,000		12,543,000		32,712,000		28,085,000
Revenues	$	2,419,000	$	2,007,000	$	4,922,000	$	4,267,000

	Quarter ended			Quarter ended			Quarter ended			Quarter ended
Client Wages (billed in $ millions)	November			February			May			August
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Fiscal Year 2021
Billed Client Wages – All Operations	$	17.3		$	15.5
Less Discontinued Operations Billings (1)		-			-
Billed Client Wages for Continuing Operations (2)		17.3			15.5
Less Terminated Client Wages (3)		-			-
Adjusted Billed Client Wages, Continuing Operations (4)	$	17.3		$	15.5

Fiscal Year 2020
Billed Client Wages – All Operations	$	88.2		$	36.3		$	12.4		$	16.4
Less Discontinued Operations Billings (1)		(74.2	)		(23.8	)		-			-
Billed Client Wages for Continuing Operations (2)		14.0			12.5			12.4			16.4
Less Terminated Client Wages (3)		(1.4	)		-			-			-
Adjusted Billed Client Wages, Continuing Operations (4)	$	12.6		$	12.5		$	12.4		$	16.4

Fiscal Year 2019
Billed Client Wages – All Operations	$	60.3		$	67.6		$	77.4		$	87.1
Less Discontinued Operations Billings (1)		(43.8	)		(51.2	)		(62.8	)		(72.8	)
Billed Client Wages for Continuing Operations (2)		16.5			16.4			14.6			14.3
Less Terminated Client Wages (3)		(11.4	)		(9.3	)		(4.3	)		(2.8	)
Adjusted Billed Client Wages, Continuing Operations (4)	$	5.1		$	7.1		$	10.3		$	11.5

~~Equipment:~~

~~5 years~~

Equipment:

Furnitures & Fixtures:

Leasehold improvements

Shorter of useful life or the remaining lease term, typically 5 years