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

For the quarterly period ended November 30, 2021

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

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 o

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 o

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 o

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

PART I — FINANCIAL INFORMATION
Item 1.			Condensed Consolidated Financial Statements (unaudited)			2
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3.			Quantitative and Qualitative Disclosure about Market Risk			41
Item 4.			Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1.			Legal Proceedings and Risk Factors			43
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3.			Defaults Upon Senior Securities			43
Item 4.			Mine Safety Disclosures			43
Item 5.			Other Information			43
Item 6.			Exhibits			43
Signatures						45

Condensed Consolidated Balance Sheets

			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
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

			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

			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

			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

			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					$	—

    

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

The condensed consolidated financial statements include the accounts of ShiftPixy Inc, and its wholly-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Industrial Human Capital, Inc. ("IHC"), which is a special purpose acquisition company, or "SPAC", for which we serve as the financial 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.

•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.

The Company records gross billings as revenues for its staffing solutions clients. The Company 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.

						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.

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

Prior to Fiscal 2021, the Company operated as one 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 2021, the Company entered into new business lines and geographic areas that, to date, are not material. However, with the migration to Staffing during the fiscal quarter ending May 31, 2021, the

Equipment:			5 years
Furnitures & Fixtures:			5 - 7 years
Leasehold improvements			Shorter of useful life or the remaining lease term, typically 5 years

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 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 November 30, 2021 or November 30, 2020.

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 merit, as discussed at Note 11, Contingencies, Everest Litigation, below.

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 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 merit, as discussed at Note 11, Contingencies, Sunz Litigation, below.

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, Discontinued Operations, below. As of November 30, 2021, the retained workers’ compensation assets and liabilities are presented as a discontinued operation net asset or liability. As of November 30, 2021, the Company had $0.2 million in short term assets and $1.4 million of short term liabilities, and had $0.6 million of long term assets and $3.6 million of long term liabilities.

ASC 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 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 November 30, 2021 and August 31, 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 is valued at estimated fair value as described below.

•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

◦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.

The Company did not have other Level 1 or Level 2 assets or liabilities at November 30, 2021 or August 31, 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 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 Vensure Asset Sale, appropriately discounted considering the

•Discount rate of 15%

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

For interim reporting periods after December 31, 2020, including as of November 30, 2021 and August 31, 2021, the Company valued the Note Receivable as discussed in Note 3, Discontinued Operations, below.

The Company utilizes ASC 260, Earnings per Share. Basic Net Income (Net Loss) per common share is computed by dividing Net Income (Net Loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the reporting period. Common stock outstanding for purposes of Net Income (Net Loss) per share calculations include unexercised Preferred Options and unexercised prefunded warrants, as described in Note 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:

						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

At November 30, 2021, the Company had one stock-based compensation plan under which the Company may issue awards, as described in Note 8, Stock Based Compensation, below. The Company accounts for 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.

During the three months ended November 30, 2021, our sponsored SPAC, IHC, completed its IPO, selling 11,500,000 units pursuant to a 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.

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.

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 ended November 30, 2021, the Company recorded the Note Receivable based on our estimate of expected collections which, in turn, was based on additional information obtained through

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 Vensure Asset 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 recorded $2.6 million of working capital adjustments, subject to final review and acceptance, and has provided for an additional reserve of $2.9 million for potential claims. By letter dated April 6, 2021, the Company disputed Vensure’s proposed adjustments.The disputes between the Company and Vensure regarding working capital adjustments under the Vensure Asset Sale agreement are currently the subject of litigation pending in the Delaware Chancery Court, as discussed at Note 11, Contingencies, Vensure Litigation, below.

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

(i) Working capital adjustments: Through November 30, 2021, the Company has identified $2.6 million of likely working capital adjustments, including $88,000 related to lower net assets transferred at closing, and $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 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 November 30, 2021 represents the final working capital adjustment.

(ii) Gross billings 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 2020 are less than 90% of those customers’ Calendar 2019 gross wages. The Company has prepared an estimate of the 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 relevant COVID-19 impacts on employment levels, and other information. Based on the information available, the Company estimated that it would receive additional consideration below the required threshold and reduced the

			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)

			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)

During Fiscal 2021, the Company incurred professional fees related to the filing of registration statements for the IPOs of four 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.

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.

The Company believes that IHC has the potential to generate revenues during Fiscal 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 the potential to 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, and other human capital services that the

Company provides. To the extent that this business model is successful and can be replicated in other locations, the Company believes that it has the 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 operates with its partners through ShiftPixy Labs. Such ownership interests will be held to the extent that it is consistent with the Company’s continued existence as an operating company, and to the extent that the Company believes 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 securities during Fiscal 2022, either through registered public offerings or private placements, the proceeds of which the Company intends to use to fund its operations and growth initiatives.

On October 22, 2021, the Company’s board of directors canceled 11,790,000 of these Preferred Options 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 unexercised.

The amount of 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 the option holders at the time the Preferred Options were issued in September 2016. Accordingly, in order to confirm the original intent of the granting of up to 25,000,000 Preferred Options to Mr. Absher, it has always been the Company’s intent to adopt a second grant of an additional 12,500,000 Preferred Options to Mr. Absher, whereby each option permits the holder to acquire one share of the Company’s preferred stock for $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 is convertible into Common Stock on a one-for-one basis. “Controlling Interest” means the ownership or control of outstanding voting shares of the Company sufficient to enable the acquiring person, directly or indirectly and individually or in concert with others, to exercise one-fifth or more of all the voting power of the Company in 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.

The following table summarizes the changes in the Company’s common stock and Prefunded  Warrants from August 31, 2021 to 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

			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.

			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 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

						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

 

On February 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 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, 2022.

On or about October 22, 2021, we severed all ties with Mr. Holmes, effective immediately, and cancelled Preferred Options that had previously been issued to 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.

Mark Absher, the brother of Scott Absher, was previously employed as our Registered In-House Counsel, Director and Secretary. Mr. Absher resigned from his positions with the Company on February 6, 2019 and received compensation of $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 $240,000. Based on his re-hire date, Mr. Absher did not receive any compensation from the Company in Fiscal 2021 or Fiscal 2020.

Jason Absher, a member of our business development team, is the nephew of Scott Absher and the son of Mark Absher. Mr. Absher 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.

Connie Absher, (the spouse of Scott Absher), Elizabeth Eastvold, (the daughter of Scott Absher 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.

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

On April 29, 2021, the Company announced its sponsorship, through a wholly-owned subsidiary, of four 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 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 one share of common stock and an accompanying warrant to purchase one 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

$4,639,102. The Company also anticipates purchasing private placement warrants in each of the three other SPACs it is sponsoring, at a price of $1.00 per warrant, for an aggregate of $17,531,408 (or up to $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 four SPAC IPOs are consummated and the pricing terms of each other SPAC IPO is identical to the pricing of the IHC IPO. Each private placement warrant is exercisable to purchase one 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 sponsor. As of 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 anticipates that each of the SPACs will repay these advanced expenses from the proceeds of their respective SPAC IPOs.

			•			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;

			•			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 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 for our clients. Our costs of revenues 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 provided a self-funded workers’ compensation policy up to $500,000 and purchased reinsurance for claims in excess of that limit up to February 28, 2021, after which we changed to a direct cost premium only workers’ compensation program.

•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.

•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.

The negative impact of these lockdowns on our business and operations continued through our third quarter of Fiscal 2021 in a see-saw pattern, with some improvement observed after the removal of many restrictions in California and elsewhere from March through June 2021, only to be followed by the 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 to our clients mitigated the negative impact on our business during the initial stages of the pandemic, we believe that the failure of the government to renew this program exacerbated the deleterious impact of subsequent restrictions and lockdowns on our financial results for Fiscal 2021. We have observed some degree of business recovery as these lockdowns have relaxed and vaccination efforts have accelerated, and we believe that, to the extent that COVID-19 infection rates continue to decrease, and vaccination rates increase, governmental authorities will continue to remove restrictions, which will fuel our clients’ business recoveries. Nevertheless, we remain concerned that the recent resurgence of the virus, in the form of the Omicron variant, could have a material negative impact on our business and results of operations, as could the emergence of additional variants of the virus in the future.

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.

•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 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 taxes.

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 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.

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 costs of $1.2 million, and costs classified in 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

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 mainly consists of recurrent interest expense for a capital lease copier, net of a small insurance claim received.

Loss from discontinued operations represents the reassessment of the workers' compensation claims reserve associated with our former clients that we transferred to Vensure as part of the 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.

						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)

			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		%

Net Revenue increased approximately 257.2% to $8.9 million, from $2.5 million for the same period in Fiscal 2021. The revenue increase was due to a 7.2% increase in gross billings to $21.2 million for the three months ended November 30, 2021, from $19.8 million for the 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 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.

Cost of Revenues includes our costs associated with employer taxes, workers’ compensation insurance premiums, and the gross wages paid by our staffing clients. Cost of revenues increased $6.3 million, or 314.3%, to $8.2 million for the three months ended November 30, 2021, from $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 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 three months ended 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 $1.8 million, or 25.6%, from $6.9 million for the three months ended November 30, 2020, to $8.7 million for the three months ended November 30, 2021. This increase in net loss was primarily due to our increase in operating costs

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 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, including payroll-related costs of $3.9 million, (which increased 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 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 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 and other elements of our workforce. Other contributors to the increase in general and administrative expenses include non-recurring costs to relocate certain employees, and marketing expenses related to our growth initiatives.

			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

Salaries, wages and payroll taxes increased by approximately $1.7 million, or 77.4%, 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. Of the $1.7 million increase, $0.8 million was for accrued management bonuses and $0.9 million was primarily attributable to hiring additional employees in the executive, operations, and software development ranks of our business to support our various growth initiatives, including our SPAC sponsorships and ShiftPixy Labs. Our corporate employee count increased from 56 employees as of November 30, 2020, to 85 employees as of November 30, 2021.

Share-Based compensation decreased by $0.1 million, or 17.7%, to $0.4 million for the three months ended November 30, 2021.

Commissions consist of commissions payments made to third party brokers and inside sales personnel and remained consistent year over year, with a slight decrease based on the reduction of our sales force.

Professional fees consists of legal fees, accounting and public company costs, board fees, and consulting fees. Professional fees for the three months ended November 30, 2021 increased by $1.0 million, or 145.7%, to $1.7 million, from $0.7 million for the

Software development 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 period to support our growth initiatives.

General and administrative expenses consist of office rent and related overhead, software licenses, insurance, penalties, business taxes, travel and entertainment, and other general business expenses. General and administrative expenses for the three months ended November 30, 2021 increased by $173,000, or 9.8%, to $1.9 million, from $1.8 million for the three months ended November 30, 2020. The increase was due primarily to approximately $0.2 million of general and administrative expenses incurred in connection with our sponsored SPACs during the quarter, whereas no such expenses were incurred during the same period of Fiscal 2021 since the SPACs had not yet been formed.

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

Loss from continuing operations increased by $2.9 million, or 52.2%, from 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 in connection with the Vensure Asset Sale. For the three months ended November 30, 2021, the loss from discontinued operations decreased $1.2 million or 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 a decreasing trend during the period.

For a discussion of our liquidity and capital resources, see Note 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.

Gross Billings to Net 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

			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

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

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

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.

(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 2021, as filed with the SEC on December 3, 2021, except as noted in Note 11 Contingencies to the accompanying financial statements.

(b) Risk Factors.

You should carefully review and consider the information regarding certain factors that could materially affect our business, 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 2021, as filed with the SEC on 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 6. Exhibits.

Exhibit No.						Document Description
4.1						Form of Warrant (incorporated by reference from Exhibit 4.1 to our Current Report on Form 8-K, filed with the SEC on September 2, 2021).
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.

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
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

			ShiftPixy, Inc., a Wyoming corporation
DATE: January 18, 2022			By:			/s/ Scott W. Absher
						Scott W. Absher
						Principal Executive Officer

SIGNATURE

NAME

TITLE

DATE

/s/ Scott W. Absher

Scott W. Absher

Principal Executive Officer and Director

January 18, 2022

/s/ Domonic J. Carney

Domonic J. Carney

Principal Financial Officer

January 18, 2022