An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

Preliminary Offering Circular March 31, 2017

SHIFTPIXY, INC.

2,000,000 SHARES OF COMMON STOCK

This is the initial public offering of securities of ShiftPixy, Inc., a Wyoming corporation. We are offering 2,000,000 shares of our common stock, par value $0.0001 (“Common Stock”). We expect that the initial public offering price will be between $6.00 to $8.00 per share (the “Offered Shares”).

The Offered Shares are being offered on an all or none basis. The offering will commence on the date of this Offering Circular and will terminate at closing of the offering. All investor funds received from the date of this Offering Circular to the closing date of this offering, which shall take place on _____, 2017, or earlier if all shares are sold and proceeds received and deposited, will be deposited into a separate bank account with Jumpstart Securities, LLC, serving as agent or trustee for the persons who have the beneficial interests therein, pursuant to Section 15c2-4 until closing.

Upon closing of the sale of the Offered Shares, the proceeds from the offering will be distributed to the Company and the associated Offered Shares will be issued to the investors who have purchased such Offered Shares. If the offering does not close for any reason, the proceeds for the offering will be promptly returned, without deduction and without interest.

The minimum purchase requirement per investor is 100 Offered Shares ($600.00 to $800.00, depending upon the final price of the Offered Shares); however, we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion.

We have engaged W.R. Hambrecht + Co., LLC (the “Representative Underwriter”), _____, and _____, as the underwriters (collectively, the “Underwriters”) to offer the Offered Shares to prospective investors on an all or nothing basis. Our Underwriters will have the right to engage such other broker-dealers or agents as it determines to assist in the offering. We expect to close the sale of the Offered Shares as of the date on which the offering statement of which this Offering Circular is a part (the “Offering Statement”) is qualified by the United States Securities and Exchange Commission (the “SEC”). Prior to this offering, there has been no public market for our Common Stock. We have applied to list our Common Stock on the NASDAQ Capital Market (“NASDAQ”) under the symbol “PIXY.” We expect our Common Stock to begin trading NASDAQ following the Termination Date.

Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 11 for a discussion of certain risks that you should consider in connection with an investment in our Common Stock.

The date of this Offering Circular is November 28, 2016, as amended on _____, 2017.

For general information on investing, we encourage you to refer to www.investor.gov.

This Offering Circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE STATE SECURITIES LAWS, AND THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION. HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION.

THIS OFFERING CIRCULAR CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING THIS OFFERING, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION NOT EXPRESSLY SET FORTH IN THIS OFFERING CIRCULAR.

1

We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery of this Offering Circular nor any sale or delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities laws.

Unless otherwise indicated, data contained in this Offering Circular concerning the business of the Company are based on information from various public sources. Although we believe that these data are generally reliable, such information is inherently imprecise, and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned not to give undue weight to such data, estimates or expectations.

In this Offering Circular, unless the context indicates otherwise, references to “ShiftPixy,” “we,” the “Company,” “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of ShiftPixy, Inc., and its wholly-owned subsidiary, Shift Human Capital Management Inc., d/b/a ShiftableHR (“ShiftableHR”).

2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Summary,” “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

3

Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as maybe be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.

SUMMARY

This summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not contain all the information that you should consider before deciding whether to invest in our Common Stock. You should carefully read the entire Offering Circular, including the risks associated with an investment in the company discussed in the “Risk Factors” section of this Offering Circular, before making an investment decision. Some of the statements in this Offering Circular are forward-looking statements. See the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”

Company Information

We were initially incorporated under the laws of the State of Wyoming on June 3, 2015. We formed Shift Human Capital Management Inc., d/b/a/ ShiftableHR, a wholly-owned subsidiary, in December 2015. Our principal executive office is located at 1 Venture, Suite 150, Irvine, CA 92618, and our telephone number is (888) 798-9100. Our website address is www.shiftpixy.com. We do not incorporate the information on or accessible through our website into this Offering Circular, and you should not consider any information on, or that can be accessed through, our website a part of this Offering Circular.

Our Business

The Company is a leading provider of employment law compliance solutions for businesses and workers in an environment in which shift or other part-time/temporary positions, commonly called “gigs,” are performed. In what is now being called the Gig Economy, businesses such as those in our current target market in the restaurant and hospitality industries contract with independent workers for less than full-time engagements primarily in the form of shift work. The trend toward a Gig Economy has begun, and we are endeavoring to participate through an employment related service offering. A study by Intuit predicted that by 2020, 40 percent of American workers would be less than full time independent contractors. Intuit, Inc. October 2010. “Intuit 2020 Report: Twenty Trends That Will Shape the Next Decade.”

A significant problem for employers in the Gig Economy involves compliance with regulations imposed by federal, state and local governments, including requirements associated with worker's compensation insurance, and other traditional employment compliance issues, including the employer mandate provisions of the ACA. The compliance challenges are often complicated by the actions of many employers in reducing workers’ hours as a means to avoid characterizing employees as “full-time.” Congress recently failed to repeal and replace ACA. We believe that no matter what ultimately happens with respect to the employer mandate provisions of the ACA, employers still face regulatory issues and overhead costs for which we believe our services are a cost-effective solution. Also, we believe that a possible benefit to the repeal of the ACA employer mandate provisions may be to reduce our costs and enable us to pass a portion of the savings on to our clients, because we would no longer be subject to the employer mandate costs applicable to the ShiftPixy employees secured from our clients (associated with the provision of health insurance coverage or payment of applicable penalties).

For Gig/Shift Workers, whom we also call “Shifters,” the significant problem is difficulty in finding other jobs/gigs to replace hours lost when their employers reduce their hours and make them less than full-time employees or otherwise to fill workweek employment voids.

 

4

We believe ShiftPixy has the ideal solution for both of these groups and each of their problems via a service offering that entails two principal elements (that we refer to collectively as our “Ecosystem”) as follows:

As part of our development strategy, in addition to our efforts to onboard clients as a staffing company, we are also onboarding clients via employment services offerings comparable in scope to professional employer organization and administrative services only solutions through our wholly-owned subsidiary ShiftableHR, and we intend to migrate these clients to the new nextGEN ShiftPixy Solution. In addition, we are joining the hot topic dialogue currently going on in the nextGEN Gig Economy about companies such as Uber and others who have been targeted by plaintiff's attorneys and government agencies for allegedly mischaracterizing employees as independent contractors. We believe that our ShiftPixy business model is a perfect solution for these companies, because we acquire employer status with regard to the workers, not classifying them as independent contractors, and accordingly embracing the compliance obligations associated with being an employer.

ShiftPixy’s headquarters is currently situated in Irvine, California, from which it can reach the Southern California market, and has a modest staff in Phoenix, but it plans to open the following additional physical offices upon completion of our offering, in the following order:

Through these office locations, we plan to engage more actively with clients through sales, marketing, employee onboarding, training and payroll processing, in each instance as necessary and appropriate to the applicable market.

These markets collectively account for or allow us to cover approximately 53% of our target market in the restaurant/hospitality sectors. (U.S. Department of Labor. Bureau of Labor Statistics. May 2015. Occupational Employment and Wages.)

 

5

ShiftPixy and its subsidiary collectively serve, as of February 28, 2017, an aggregate of approximately 100 clients and with an aggregate of approximately 2,581 active, paid worksite employees, as well as providing only payroll administration services to an additional 24 clients with 818 employees. None of these clients represents more than 10% of our annualized revenues for fiscal year 2016.

ShiftPixy's anticipated business and revenue growth in the nextGEN Gig Economy will result from the following factors:

 

6

The Challenges of Compliance: Employment law compliance requirements, including those related to the ACA, present a multi-obstacle ridden employment related compliance landscape, including the need to secure applicable workers’ compensation insurance coverage, to effect employment related tax withholdings and filings, and to navigate laws related to hiring and release of employees, including discrimination (race, color, national origin, sex, age, religion, disability, pregnancy and sexual orientation), sexual harassment, sick pay and time off, hours of work, minimum wage and overtime, gender pay differentials, immigration, safety, child labor, military leave, garnishment and other wage imposition processing, family and medical leave, COBRA, and unemployment claims. ACA compliance currently merely adds another significant burden to employers who will still face all of employment law compliance issues, including those listed above associated with the ACA.

A business can secure assistance in mitigating and even eliminating these challenges by retaining ShiftPixy.

The ShiftPixy Solution: ShiftPixy is developing an Ecosystem comprised of a closed proprietary operating and processing system that helps restaurant or hospitality businesses (and in the future, businesses in additional industries wherein we plan to market our services) as well as shift workers by matching available shifts with available shift workers. The ShiftPixy Ecosystem provides the following benefits:

ShiftPixy and its subsidiary collectively serve, as of February 28, 2017, an aggregate of approximately 100 clients and with an aggregate of approximately 2,581 active, paid worksite employees, as well as providing only payroll administration services to an additional 24 clients with 818 employees. None of these clients represents more than 10% of our annualized revenues for fiscal year 2016. A client is a business paying us to provide employees or employee related services. We are currently focused on clients in the restaurant and hospitality industries. All have written client service agreements. The basic client agreement is substantially similar for all clients, with minor modifications to fit each client's specific situation, and some differences to account for whether the engagement is with ShiftPixy or its wholly owned subsidiary, Shift Human Capital Management Inc. The current forms of Client Agreements are filed as exhibits to this Offering Circular.

ShiftPixy Human Capital Management Inc., d/b/a ShiftableHR

We formed this subsidiary in response to the need to have worker's compensation policies written in the names of the clients (as may be required by some states) and otherwise in response to client needs for only administrative and processing services rather than the assignment of temporary employees as offered by ShiftPixy. Under this subsidiary, under circumstances wherein the client remains as the sole employer of the subject employees, we act as a payroll processor, human resources consultant, and administrator of worker's compensation coverages and claims. For administrative reasons, we believe that providing these services through a separate legal entity seemed advisable and required, and thus we formed the subsidiary to provide these services. Our goal is to migrate these clients to ShiftPixy.

 

7

These services are also available to businesses in all industries, not just the restaurant and hospitality industries. We hope that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients to whom we are providing these services recognize the value of the services provided by ShiftPixy, the parent. As of February 28, 2017, ShiftableHR had 79 clients (included in our total aggregate of 100 clients) with 1,787 worksite employees and 818 employees for whom we provide only payroll administration services.

Potential New Marketing Opportunity

We have seen a potential new market based upon the issue of worker misclassification in the Gig Economy. Gig Economy companies such as Uber regularly classify the people working for them as “independent contractors” rather than “employees” for jobs (gigs). The companies can pay much less for services and in regulatory requirements if their workers are classified as independent contractors. Under state and federal employment laws, workers classified as employees are much more expensive for these companies. However, increasing litigation against Uber and others has increased awareness about this issue. ShiftPixy provides a solution by absorbing workers for these types of Gig Economy companies as employees of ShiftPixy, eliminating any risk of litigation, fines and other worker misclassification problems for these types of Gig Economy companies which become ShiftPixy clients.

 

8

(1) The number of shares of common stock outstanding excludes:

Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. See, “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Relaxed Ongoing Reporting Requirements.”

RISK FACTORS

An investment in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this Offering Circular, before purchasing our Common Stock. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Relating to Our Business

Although we have engaged in operational activities since inception, we have not yet generated significant operational revenues, meaning that we have an evolving and unpredictable business model, and we may never generate significant operating revenues.

Although we have engaged in operational activities and generated revenues since inception, our lack of long-term operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth due to future advances in technology, regulatory changes, methods or processes by our competitors. To address these risks, we must, among other things, continue to expand our customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our product offerings, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

9

We have limited operations history, which makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.

We generated only limited Gross Billings, or $77,661, from inception to August 31, 2015, and $50,672,129 in Gross Billings for the fiscal year ended August 31, 2016. Notwithstanding this increase, because we have been in business for only 21 months as of March 15, 2017, and have generated our first quarters of profitability only during the six-month period ended February 28, 2017, it is difficult, if not impossible, to forecast our future results based upon our limited but positive historical data. Because of the related uncertainties, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in sales, revenues or expenses. If we make poor budgetary decisions as a result of unreliable data, we may never become profitable or we may incur losses, which may result in a decline in our stock price once we start trading.

We are a development stage company and are in the process of developing our products and services. Consequently, we have generated only limited net revenue as of August 31, 2016. The Company's success and survival is contingent upon its ability to achieve and maintain profitable operations and the Company's ability to raise additional capital as required. During the period from inception (June 3, 2015) to August 31, 2015, the Company incurred net losses of $53,681, and utilized $51,350 in operating cash flows. Further, during the fiscal year ending August 31, 2016, the Company incurred net losses of $1,854,556 and utilized $740,763 in operating cash flows.

There is uncertainty regarding our ability to implement our business plan and to grow our business to a greater extent than we can with our existing financial resources without additional financing. Except from the proceeds of this offering, we have no binding agreements, commitments or understandings to secure additional financing at this time. We have no binding agreements, commitments or understandings to acquire any other businesses or assets. Our long-term future growth and success is dependent upon our ability to generate cash from operating activities and obtain additional financing, potentially beyond the proceeds of this offering. There is no assurance that we will be able to generate sufficient cash from operations, sell shares of common stock in addition to this Offering or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our ability to fully implement our business plan as described herein and grow our business, including our three-year target objectives, to a greater extent than we can with our existing financial resources.

Management currently believes these are reasonably achievable targets assuming the Company can fully implement its current business plan. A major assumption underlying management's belief is that this Offering is successful. However, there is a risk that this Offering, although on different terms, will not succeed just as our prior offering for up to $50,000,000 did not succeed, inasmuch as the $15,000,000 minimum in the prior offering was not achieved prior to the offering Termination Date, and all investor funds were returned. There is no assurance that this Offering will be successful or that the Company will be able to implement its current business plan and achieve profitable operations for the reasons set forth herein and elsewhere in “Risk Factors.”

We may be subject to penalties and interest payable on taxes as a result of software or manual error.

Our input of data in the software must be effected properly in order to process the data and payments correctly with regard to clients, employees and applicable tax agencies. If we input incorrect data or input accurate data incorrectly, we could inadvertently overbill or underbill our clients or overpay or underpay applicable taxes, resulting in the loss of net income and/or clients and/or the incurrence of tax penalties and interest. Despite our efforts to reconcile taxes on a monthly basis, we may incur additional taxes, penalties and interest which we may or may not bill the clients for.

10

Industry Risks

Providing specialized Gig Economy oriented staffing management products and services is an emerging yet competitive business, and many of our competitors have greater resources that may enable them to compete more effectively.

We will compete in the same markets with many companies that offer not only staffing management products and services focused on the Gig Economy but also more traditional staffing management products and services. There are limited barriers to entry. Price competition in the industry, particularly from larger, more traditional industry model competitors, is intense, and pricing pressures from competitors and clients are increasing. New competitors entering our markets may further increase pricing pressures.

Clients may competitively bid new contracts; a trend is expected to continue for the foreseeable future. Some of our competitors have greater resources than we do, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products and services that will directly compete with our product lines, and new, more efficient competitors may enter the market. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.

Our targeted customer base is diverse and we face a challenge in adequately meeting each group's needs.

Because we will serve both employers and employees, we must work constantly to understand the needs, standards and requirements of each group and must devote significant resources to developing products and services for their interests. If we do not accurately predict our customers' needs and expectations, we may expend valuable resources in developing products and services that do not achieve broad acceptance across the markets.

Our success depends on adoption of our products and services by our various types of customers, and if these potential customers do not accept and acquire our products and services then our revenue will be severely limited.

The major customer groups to whom we believe our products and services will appeal, both employers and employees, particularly related to shift work, may not embrace our products and services. Acceptance of our products and services will depend on several factors, including: cost, ease of use, familiarity of use, convenience, timeliness, strategic partnerships, and reliability. If we fail to adequately meet our customers' needs and expectations, our product offerings may not be competitive and our ability to commence or continue generating revenues could be reduced. We also cannot be sure that our business model will gain wide acceptance among all targeted customer groups. If the market fails to continue to develop, or develops more slowly than we expect, our ability to continue generating revenues could be reduced.

Competing forms of Gig Economy oriented staffing management products and services may be more desirable to consumers or may make our products and services obsolete.

There are currently several different competing Gig Economy oriented staffing management product and service technologies that are being marketed to our potential customers. Further development of any of these technologies may lead to advancements in technology that will make our products and services obsolete. Consumers may prefer alternative technologies and products and services. We cannot guarantee that users of Gig Economy oriented staffing management products and services who will be using our products and services will continue to grow within the industry as a whole. Any developments that contribute to the obsolescence of our products and services may substantially impact our business reducing our ability to sustain generating revenues.

Software products we use in our business may contain defects which will make it more difficult for us to establish and maintain customers.

We are currently using HRPyramid software for our payroll processing, and we are transitioning to PrismHR for such processing. We also use MasterTax to process our tax reports and filings. We also use a host of other software products in the course of conducting our business. Our payroll processing software and other software products we use in our business may contain undetected design faults and software errors, or “bugs” that are discovered only after they has been installed and used by a greater number of customers. Any such defect or error in new or existing software or applications could cause delays in delivering our technology or require design modifications. These could adversely affect our competitive position and cause us to lose potential customers or opportunities. Since our technologies are intended to be utilized to supply human resources related services, the effect of any such bugs or delays will likely have a detrimental impact on us. In addition, given that our specialized human resources software and services has yet to gain widespread acceptance in the market, any delays or other problems caused by software bugs would likely have a more detrimental impact on our business than if we were a more established company.

 

11

If a contract relating to our mission critical software that we use in our business is terminated or not renewed, our business could be seriously disrupted and our revenues significantly reduced.

If a contract relating to our mission-critical software services, such as that applicable to payroll and payroll tax processing, is terminated or non-renewed, and we do not have an effective replacement software, our business and revenues would suffer. Although there are other software vendors we can use, it may take time to negotiate an agreement and make operational this replacement software. Accordingly, if the software agreements that we use in our business are terminated or not renewed, our business could be seriously disrupted and our revenues significantly reduced until we locate and make operational replacement software.

Damage claims against us as a result of actions of our employees could reduce our sales and revenues.

If any one of our employees is found to cause injury or damage through one or more negligent or wrongful acts, including sexual harassment and other employment related offenses, the Company could suffer financial damages as a result of claims by the injured party. We have not had significant claims for damages or losses from actions of our employee workers to date. The Company carries a staffing liability program commercial insurance policy, but the policy provides coverage only with respect to: 1. “wrongful employment acts” committed against our “employees” pursuant to our agreement with that client; and 2. A “staffing services worker's” acts committed while in the service of our client that result in a “wrongful business environment.” The insurer may seek to disclaim liability as not covered or for other reasons or the amount of judgment against us may exceed the policy limits. Any claims for damages against us as a result of actions of our work employees could damage our reputation and reduce our revenues.

Lapses in our employee screening process may result in potential litigation, which may be costly and/or damage our reputation.

If we experience lapses in our employee screening process, we may face potential litigation from our clients or government regulators, which may be costly and/or damage our reputation.

If we are unable to protect our proprietary and technology rights our operations will be adversely affected.

Our success will depend in part on our ability to protect our proprietary rights and technologies, including those related to our products and services. Except as otherwise noted herein, we have not applied for any formal patent, trademark or similar protection. Our failure to adequately protect our proprietary rights may adversely affect our operations. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use trade secrets or other information that we regard as proprietary. Based on the nature of our business, we may or may not be able to adequately protect our rights through patent, copyright and trademark laws. Our means of protecting our proprietary rights in the United States or abroad may not be adequate, and competitors may independently develop similar technologies. In addition, litigation may be necessary in the future to:

Any such litigation could result in substantial costs if we are held to have willfully infringed or to expend significant resources to develop non-infringing technology and would divert the attention of management from the implementation of our business strategy. Furthermore, the outcome of litigation is inherently difficult to predict and we may not prevail in any litigation in which we become involved.

12

If we are unable to secure or pay for the insurance coverage required for our business operations, or if we lose any existing coverage, we may not be able to offer some of our services and our revenues could be reduced.

We are required to obtain and maintain various types of insurance coverage for our business, in particular health and worker's compensation insurance related to our employees. Although we have contracts with all types of providers currently necessary for our business, if in the future we are unable to secure the insurance coverage required for our business operations, or if we lose any existing coverage, we may not be able to offer some of our services and our revenues could be reduced. In addition, any increases in the cost of insurance coverage we are required to maintain could reduce any net profits we might have.

The Company assumes the obligation to make wage, tax, and regulatory payments for our shifter employees, and, as a result, are exposed to client credit risks.

The Company generally assumes responsibility for and manages the risks associated with shifter employees' payroll obligations, including liability for payment of salaries, wages, and certain taxes. These obligations are fixed, whether or not clients make payments as required by services contracts, which exposes the Company to credit risks of clients.

Workers' compensation costs for shifter employees may rise and reduce our margins and require more liquidity.

The Company is responsible for and pays workers' compensation costs for its shift workers. At times, these costs have risen substantially as a result of increased claims and claim trends, general economic conditions, changes in business mix, increases in healthcare costs, and government regulations. Although the Company carries insurance, unexpected changes in claim trends, including the severity and frequency of claims, actuarial estimates, and medical cost inflation could result in costs that are significantly different than initially reported. If future claims-related liabilities increase due to unforeseen circumstances, or if new laws, rules, or regulations are passed, costs could increase significantly. There can be no assurance that the Company will be able to increase the fees charged to clients in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.

Failure to comply with, or changes in, laws and regulations applicable to our business, particularly now unanticipated but potential changes to the ACA, could have a materially adverse effect on our marketing plan as well as our reputation, results of operations or financial condition, or have other adverse consequences.

Our business is subject to a wide range of complex laws and regulations. For example, many states regulate entities offering the employment related services such as those offered by us directly or through our subsidiary and require licenses as a prerequisite to operation of such enterprises in their respective jurisdictions. There can be no assurance that either ShiftPixy or its subsidiary, ShiftableHR, will be successful in either securing or maintaining a license or licenses in compliance with a particular state's laws and regulations. Further, many states require variously that worker's compensation policies offered by employment related firms such as ours to be managed according to strict rules and/or that unemployment insurance filings be administered according to strict rules.

Failure to comply with such laws and regulations could result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services, and the imposition of consent orders or civil and criminal penalties, including fines, that could damage our reputation and have a materially adverse effect on our results of operation or financial condition.

In addition, changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. For example, a change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would adversely impact interest income from investing client funds before such funds are remitted to the applicable taxing authorities. Changes in taxation regulations could adversely affect our effective tax rate and our net income. Changes in laws that govern the co-employment arrangement between a professional employer organization and its worksite employees may require us to change the manner in which we conduct some aspects of our business. Healthcare reform under the federal Patient Protection and Affordable Care Act, as amended, related state laws, and the regulations adopted or to be adopted thereunder, have the potential to impact substantially the way that employers provide health insurance to employees and the health insurance market for the small and mid-sized businesses that constitute our business's clients and prospects. As the ACA was not repealed and replaced, employer mandates and similar employer requirements currently imposed by the ACA, and other regulatory changes could in the future reduce our revenues. Amendments to money transmitter statutes have required us to obtain licenses in some jurisdictions. The adoption of new money transmitter statutes in other jurisdictions, changes in regulators' interpretation of existing state and federal money transmitter or money services business statutes or regulations, or disagreement by a regulatory authority with our interpretation of such existing statutes or regulations, could require additional registration or licensing, limit certain of our business activities until they are appropriately licensed, and expose us to financial penalties. These occurrences could also require changes to our compliance programs and to the manner in which we conduct some aspects of our money movement business or client funds investment strategy, which could adversely impact interest income from investing client funds before such funds are remitted.

13

We host, collect, use, transmit and store personal and business information, and a security or privacy breach may damage or disrupt our businesses, result in the disclosure of confidential information, damage our reputation, increase our costs and cause losses.

In connection with our business, we host, collect, use, transmit and store large amounts of personal and business information about our clients, employees of our clients, vendors and our employees, including payroll information, healthcare information, personal and business financial data, social security numbers, bank account numbers, tax information and other sensitive personal and business information.

We are focused on ensuring that our operating environments safeguard and protect personal and business information, and we will be required devote significant resources to maintain and regularly update our systems and processes. Nonetheless, globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication, and the Company may be targeted by unauthorized parties using malicious tactics, code and viruses.

We have third party contractors who monitor our activities in a manner designed to prevent, detect and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software, or applications we develop or procure from third-parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the confidentiality, integrity or availability of data or our systems. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third-parties with whom we do business, through fraud, trickery, or other methods of deceiving our employees, contractors, and temporary staff. As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities. In addition, while our operating environment is designed to safeguard and protect personal and business information, we do not have the ability to monitor the implementation of similar safeguards by our clients, vendors or their respective employees, and, in any event, third-parties may be able to circumvent those security measures.

Any cyber-attack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service, corruption of data, or theft of non-public or other sensitive information, similar act by a malevolent party, or inadvertent acts by our own employees, could result in the disclosure or misuse of confidential or proprietary information, and could have a materially adverse effect on our business operations, or that of our clients, create financial liability, regulatory sanction, or a loss of confidence in our ability to serve clients or cause current or potential clients to choose another service provider. Although we believe that through our third-party contractors we maintain a program of information security and controls and any threats that we might have encountered to date have not materially impacted us, the impact of a data security incident could have a materially adverse effect on our business, results of operations and financial condition. We have insurance coverage for risks for exchanging and maintaining data electronically that is designed to address certain aspects of cyber-risks, such insurance coverage may be denied or be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber-risk.

We are also subject to various federal and state laws, rules and regulations relating to the collection, use, transmission and security of personal and business information. In addition, the possession and use of personal information and data in conducting our business subjects us to laws that may require notification to regulators, clients or employees in the event of a privacy breach. These laws continue to develop, the number of jurisdictions adopting such laws continues to increase, and these laws may be inconsistent from jurisdiction to jurisdiction. The future enactment of more restrictive laws, rules or regulations could have a materially adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant legal liability. In addition, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase.

Our systems may be subject to disruptions that could have a materially adverse effect on our business and reputation.

Our business is and will continue to be highly dependent on our ability to process, on a daily basis, a large number of complicated transactions. We rely heavily on our payroll, financial, accounting, and other data processing systems. We may not be successful in preventing the loss of client data, service interruptions or disruptions to our operations from system failures. If any of these systems fails to operate properly or becomes disabled even for a brief period of time, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention, or damage to our reputation, any of which could have a materially adverse effect on our results of operation or financial condition.

14

Because we store data in the cloud with providers such as Microsoft and Amazon, any disruptions in our ability to access this data or any breach of security concerning this data in the cloud could have a materially adverse effect on our business and reputation.

Our business is and will continue to be highly dependent on data storage in the cloud with providers such as Microsoft and Amazon. These cloud storage systems may fail to operate properly or become disabled even for a brief period of time. There could also be security breaches of our data stored in the cloud. If there is loss of client data, service interruptions or disruptions to our operations related to our cloud data storage, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention, or damage to our reputation, any of which could have a materially adverse effect on our results of operation or financial condition.

Political and economic factors may adversely affect our business and financial results.

Monetary and fiscal policies and political and economic conditions may substantially change. When there is a slowdown in the economy, employment levels may decrease with a corresponding impact on our businesses. Clients may react to worsening conditions by reducing their spending on payroll and other outsourcing services or renegotiating their contracts with us.

We are dependent upon various large banks to execute Automated Clearing House and wire transfers as part of our client payroll and tax services. A systemic shutdown of the banking industry would impede our ability to process funds on behalf of our payroll and tax services clients and could have an adverse impact on our financial results and liquidity.

If we are unable to effectively manage growth and maintain low operating costs, our results of operations and financial condition may be adversely affected.

We have experienced rapid growth since our inception, and our plans contemplate significant expansion of our business. If we are unable to manage our growth effectively, including having geographically dispersed offices and employees or to anticipate and manage our future growth accurately, our business may be adversely affected. If we are unable to manage our expansion and growth effectively, we may be unable to keep our operating costs low or effectively meet the requirements of an ever-growing, geographically dispersed client base. Our business relies on data systems, billing systems and financial reporting and control systems, procedures and controls. Our success in managing our expansion and growth in a cost-effective manner will require us to upgrade and improve these systems, procedures and controls. If we are unable to adapt our systems and put adequate controls in place in a timely manner, our business may be adversely affected. In addition, our growth may place significant demands on our management, and our overall operational and financial resources. A failure on our part to meet any of the foregoing challenges inherent in our growth strategy may have an adverse effect on our results of operations and financial condition.

We operate in an immature and rapidly evolving industry and have a relatively new business model, which makes it difficult to evaluate our business and prospects.

The industry in which we operate is characterized by rapidly changing regulatory requirements, evolving industry standards and shifting user and client demands. Our business model is also evolving and is different from models used by other companies in our industry. As a result of these factors, the success and future revenue and income potential of our business is uncertain. Any evaluation of our business and our prospects must be considered in light of these risks and uncertainties, some of which relate to our ability to:

 

15

·

Expand operations and implement and improve our operational, financial and management controls;

If we are unable to successfully address the challenges posed by operating in an immature and rapidly evolving industry and having a relatively new business model, our business could suffer.

Our independent registered public accountants will not be required to provide an attestation report as to our internal control over financial reporting for the foreseeable future.

Our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting and will not, as a result of this offering, be required to assess the effectiveness of our internal control over financial reporting. As an issuer of securities under Regulation A, we do not expect to be required to assess the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, unless and until we become a reporting company under the Exchange Act and, thereafter, no longer qualify as an emerging growth company or are no longer a non-accelerated filer, as defined in Rule 12b-2 under the Exchange Act, whichever is later. Currently, we would expect to be an emerging growth company for up to five years after we become a reporting company under the Exchange Act. As a result of the foregoing, for the foreseeable future, you may not receive any attestation concerning our internal control over financial reporting from us or our independent registered public accountants.

Risks Related to Management and Personnel

We depend heavily on Mr. Scott W. Absher, CEO and Director. The loss of his services could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions Mr. Scott W. Absher, CEO and Director. If we lose his services or if he fails to perform in his current position, or if we are not able to attract and retain skilled employees in addition to Mr. Scott W. Absher, CEO and Director, this could adversely affect the development of our business plan and harm our business.

Mr. Absher has limited experience managing a public company, which may inhibit our ability to implement successfully our business plan.

We have never operated as a public company. Mr. Scott W. Absher, CEO and Director and the beneficial owner of 47.35% of our stock as of March 30, 2017, has limited experience managing a public company, which is required to establish and maintain disclosure controls and procedures and internal control over financial reporting. As a result, we may not be able to operate successfully as a public company, even if our operations are successful. We plan to comply with all of the various rules and regulations, which are required for a public company that is reporting company with the Securities and Exchange Commission. However, if we cannot operate successfully as a public company, your investment may be materially adversely affected.

16

Risks Related to this Offering

There has been no public market for our Common Stock prior to this offering, and an active market in which investors can resell their shares may not develop.

Prior to this offering, there has been no public market for our Common Stock. We cannot predict the extent to which an active market for our Common Stock will develop or be sustained after this offering, or how the development of such a market might affect the market price of our Common Stock. The initial offering price of our Common Stock in this offering will be agreed between us and the underwriters based on a number of factors, including market conditions in effect at the time of the offering, and it may not be in any way indicative of the price at which our shares will trade following the completion of this offering. Investors may not be able to resell their shares at or above the initial offering price.

Investors in this offering will experience immediate and substantial dilution.

If all of the shares offered hereby are sold at a price of $7 per share (the mid-point of our offering price range), investors in this offering will own approximately 7% of the then outstanding shares of common stock, but will have paid over 80.46% of the total consideration for our outstanding shares (after giving effect to underwriting discounts and commissions), and will experience net tangible book value dilution of $6.53 per share. See “Dilution.”

The market price of our Common Stock may fluctuate, and you could lose all or part of your investment.

The offering price for our Common Stock will be agreed between us and the underwriters based on a number of factors, and may not be indicative of prices that will prevail on NASDAQ or elsewhere following this offering. The price of our Common Stock may decline following this offering. The stock market in general, and the market price of our Common Stock will likely be subject to fluctuation, whether due to, or irrespective of, our operating results, financial condition and prospects.

Our financial performance, our industry's overall performance, changing consumer preferences, technologies and advertiser requirements, government regulatory action, tax laws and market conditions in general could have a significant impact on the future market price of our Common Stock. Some of the other factors that could negatively affect our share price or result in fluctuations in our share price include:

 

17

·

additions or departures of key personnel;

NASDAQ may delist our Common Stock from trading on its exchange, which could limit stockholders' ability to trade our Common Stock.

In the event we are able to list our Common Stock on the NASDAQ Capital Market, NASDAQ will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our Common Stock. If we fail to meet these continued listing requirements, our Common Stock may be subject to delisting. If our Common Stock is delisted and we are not able to list our Common Stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our shareholders could face significant material adverse consequences, including limited availability of market quotations for our Common Stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.

We do not expect to declare or pay dividends in the foreseeable future.

We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our Common Stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

Sales of our common stock under Rule 144 could reduce the price of our stock.

There are as of March 30, 2017, 1,404,425 shares of our common stock held by non-affiliates and 25,100,000 shares held by affiliates that Rule 144 of the Securities Act of 1933 defines as restricted securities that can only be resold if the conditions of Rule 144 are met. In general, persons holding restricted securities, including affiliates, must hold their shares for a period of at least six months, may not sell more than one percent of the total issued and outstanding shares in any 90-day period, and must resell the shares in an unsolicited brokerage transaction at the market price. The availability for sale of substantial amounts of common stock under Rule 144 could reduce prevailing market prices for our securities.

Because our audit committee is new and small, we are subject to increased risk related to financial statement disclosures.

Our Audit Committee currently consists of a single independent director. While we endeavor to keep the independent director informed regarding the state of the internal controls over financial reporting, the independent director relies upon the Company's financial personnel to advise the Audit Committee with regard to such matters. Accordingly, we are subject to increased risk related to financial statement disclosures.

 

18

Certain of our stockholders hold a significant percentage of our outstanding voting securities, which could reduce the ability of minority shareholders to effect certain corporate actions.

As of March 30, 2017, our majority shareholders are the beneficial owners of approximately 94.32% of our outstanding voting securities prior to the offering and 87.71% of our outstanding voting securities after the offering, assuming all 2,000,000 shares of common stock in this offering are sold. As a result of this ownership, they possess and can continue to possess significant influence and can elect and can continue to elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. In addition, upon the exercise of the options to purchase preferred stock, the holders of the preferred stock would be entitled to elect a majority of the board according to the terms of the preferred stock. Their ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

Despite our election to become a public reporting company under the Exchange Act, we will publicly report on an ongoing basis as an “emerging growth company” under the reporting rules set forth under the Exchange Act. If we terminate our election to operate as a publicly reporting company under the Exchange Act, we will nevertheless be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. In either case, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies”, and our stockholders could receive less information than they might expect to receive from more mature public companies.

Although we have elected to become a public reporting company under the Exchange Act, we will be required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an “emerging growth company”, we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies”, including but not limited to:

We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an “emerging growth company” for up to five years, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 31.

If we cease to become a public reporting company under the Exchange Act, we will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. The ongoing reporting requirements under Regulation A are more relaxed than for “emerging growth companies” under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semiannual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer's fiscal year, and semiannual reports are due within 90 calendar days after the end of the first six months of the issuer's fiscal year.

In either case, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our stockholders could receive less information than they might expect to receive from more mature public companies.

19

The preparation of our consolidated financial statements involves the use of estimates, judgments and assumptions, and our consolidated financial statements may be materially affected if such estimates, judgments or assumptions prove to be inaccurate.

Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) typically require the use of estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management's judgment include, but are not limited to, determining the fair value of assets and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes could harm our business, including our financial condition and results of operations and the price of our securities. See “Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our consolidated financial statements and our business.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Common Stock could be negatively affected.

Any trading market for our Common Stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our Common Stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the market price and market trading volume of our Common Stock could be negatively affected.

Future issuances of our Common Stock or securities convertible into our Common Stock or the expiration of lock-up agreements that restrict the issuance of new Common Stock or the trading of outstanding stock, could cause the market price of our Common Stock to decline and would result in the dilution of your shareholding.

Future issuances of our Common Stock or securities convertible into our Common Stock or the expiration of lock-up agreements that restrict the issuance of new Common Stock or the trading of outstanding stock, could cause the market price of our Common Stock to decline. We cannot predict the effect, if any, of future issuances of our Common Stock or securities convertible into our Common Stock, or the future expirations of lock-up agreements, on the price of our Common Stock. In all events, future issuances of our Common Stock would result in the dilution of your shareholding. In addition, the perception that new issuances of our Common Stock or other securities convertible into our Common Stock, could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our Common Stock.

In connection with this offering, the Company will enter into a lock-up agreement that prevents it, subject to certain exceptions, from offering additional shares of Common Stock for up to 180 days after the date of this Offering Circular, as further described in “Underwriting.” Further, our two principal stockholders have agreed, subject to certain exceptions, not to sell any shares of our Common Stock that they own for up to 180 days after the date of this Offering Circular, as further described in “Underwriting.” In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our Common Stock may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our Common Stock.

20

Future issuances of debt securities, which would rank senior to our Common Stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which would rank senior to our Common Stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Common Stock.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our Common Stock. Moreover, if we issue additional preferred stock, the holders of such preferred stock could be entitled to preferences over holders of Common Stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred securities in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our Common Stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return they may be able to achieve from an investment in our Common Stock.

If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on The NASDAQ Capital Market and if the price of our Common Stock is less than $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser's written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.

Our management has broad discretion as to the use of certain of the net proceeds from this offering.

We intend to use between approximately $1,145,000 and $3,505,000, depending on the pricing of the shares, of the net proceeds from this offering for working capital and other general corporate purposes. However, we cannot specify with certainty the particular uses of such proceeds. Our management will have broad discretion in the application of the net proceeds designated for use as working capital or for other general corporate purposes. Accordingly, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways that holders of our Common Stock may not desire or that may not yield a significant return or any return at all. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value. Please see “Use of Proceeds” below for more information.

21

DETERMINATION OF OFFERING PRICE

Prior to the offering, there has been no public market for the shares. The initial public offering price has been determined by negotiation between us and the Representative Underwriter. The principal factors considered in determining the initial public offering price included:

USE OF PROCEEDS

If we sell all of the shares being offered, our net proceeds (after underwriting discount and commissions of $840,000, assuming a price per share of $7.00, the mid-point of our offering price range, and excluding our estimated other offering expenses of approximately $60,000) will be between $11,280,000 and $15,040,000. We will use these net proceeds for:

 

22

	·	First, New York and then Orlando
	·	Next, after the offices in the above cities are open, and upon securing additional financing, if necessary, we intend to open offices in Dallas and then Chicago
	·	Finally, after offices in the above cities are open, and upon securing additional financing, if necessary, we intend to open offices in Las Vegas and then Atlanta

The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors.

The following table sets forth a breakdown of our estimated use of our net proceeds as we currently expect to use them, assuming the sale of the shares, respectively, at a price of $8.00, $7.00 and $6.00 per share in this offering.

23

If the price per share as sold in this offering falls within the range of $6.00 to $7.00, or the range of $7.00 to $8.00, we would expect to use the resulting net proceeds for the same purposes as we would use the net proceeds from a sale at the price per share as indicated in the table, with proportionate adjustments made to the Software Development and Support and the IT Infrastructure categories.

None of the proceeds from the offering will be used to compensate or otherwise make payments to our officers/directors, provided, however, our officers/directors will be paid in the ordinary course of business, in accordance with our agreements, consistent with industry standards, and consistent with such constraints as the Compensation Committee may impose.

The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

We may seek additional forms of financing to enable us to accomplish the business objectives associated with this offering. If we secure additional equity funding, investors in this offering would be diluted. No plans for additional financing are currently being contemplated by the Company, and in all events, there can be no assurance that additional financing would be available to us when wanted or needed and, if available, on terms acceptable to us.

DILUTION

Our historical net tangible book value as of August 31, 2016, was $124,403 or $0.0047 per share of our common stock. Historical net tangible book value per share represents our total tangible assets less total liabilities divided by the number of shares of our common stock outstanding. Pro forma as adjusted net tangible book value per share gives further effect to the issuance of 2,000,000 shares of our common stock at an assumed initial public offering price of $7.00 per share (the mid-point of our offering price range) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Our pro forma, as adjusted net tangible book value as of August 31, 2016, would have been $13,284,403.00 or $0.47 per share. This represents an immediate increase in pro forma net tangible book value of $0.47 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $6.53 per share to investors purchasing common stock in this offering. The following table also shows the resulting dilution, assuming an initial public offering price of $8.00 per share and $6.00 per share.

 

24

The following table summarizes on an as adjusted basis as of March 15, 2017, the difference between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors, assuming an initial public offering price of $7.00 per share (the mid-point of our offering price range) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

The number of shares of common stock outstanding excludes:

To the extent such stock options or warrants are hereafter exercised resulting in the issuance of additional shares of our Common Stock or shares convertible into Common Stock which are then converted, there will be further dilution to our investors.

SELLING SHAREHOLDERS

Not applicable

UNDERWRITING

We have engaged W.R. Hambrecht + Co., LLC (the “Representative Underwriter”), as underwriters (collectively, the “Underwriters”) with respect to the Offered Shares. We anticipate entering into an underwriting agreement with the Underwriters setting forth the definitive terms and conditions of the sale of the Offered Shares at or immediately prior to the time and date of pricing, which will immediately follow the time and date on which the SEC approves the post-qualification amendment to the Offering Statement (the “Qualification Date”), and we are informed by the Representative Underwriter that it intends to close the offering on a T+3 basis after pricing of the offering.

The Offered Shares are being offered on an all or none basis. The offering will not be completed unless we sell the number of shares specified on the cover page of this Offering Circular. We have established a separate bank account with JumpStart Securities, LLC (the “Agent”), serving as agent or trustee for the persons who have the beneficial interests therein (the “Separate Account”), pursuant to Rule 15c2-4 under the Exchange Act. Each investor will provide instructions to its broker to purchase Shares in accordance with FINRA regulations. For closing, funds received from any investor will be promptly transmitted to the Separate Account in compliance with Rule 15c2-4 of the Exchange Act. To the extent that the full amount necessary to purchase the shares is not received on the closing date, the underwriter may allocate to accounts of investors that had expressed interest above their allocations and that have accounts with funds on hand that can be debited. On the closing date, the escrow agent will notify the underwriter whether the full amount necessary to purchase the shares to be sold in this offering has been received.

25

Upon closing of the sale of the Offered Shares, the proceeds from the offering will be distributed to the Company and the associated Offered Shares will be issued to the investors in such Offered Shares. If the offering does not close for any reason, the proceeds for the offering will be promptly returned, without deduction and without interest.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriter.

Offered Shares sold to the public will initially be offered at the initial public offering price set forth on the cover of this Offering Circular. Selected dealers who participate in the offering will receive a selling concession from the Underwriters not to exceed $xxx per share. After the initial offering of the shares, the offering price and other selling terms may be subject to change. The offering of the shares is subject to receipt and acceptance and subject to the right of the Company to reject any subscription in whole or in part, for any reason or no reason.

Agent Services

We have engaged Jumpstart Securities, LLC, to serve as the Agent for the offering. Jumpstart Securities, LLC, is entitled to certain fees that the Representative Underwriter will pay as syndicate expenses. Jumpstart Securities, LLC, is not participating as an underwriter of the offering and will not solicit any investment in the Company, recommend the Company's securities or provide investment advice to any prospective investor, or distribute the offering circular or other offering materials to investors. All inquiries regarding this offering or the Separate Account should be made directly to the Company or the Underwriters.

Engagement Agreement with the Representative Underwriter

We are currently party to an engagement agreement with the Representative Underwriter. The term of the engagement agreement began on April 26, 2016 and will continue for one year, until April 26, 2017, unless one of the following events occurs prior to April 26, 2017, in which case the engagement agreement would be terminated early:

26

Offering Expenses. We are responsible for all offering fees and expenses, including the following: (i) fees and disbursements of our legal counsel, accountants, and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) all filing fees, including FINRA and blue sky filing fees; (iv) all of the legal fees related to the registration and qualification of the Offered Shares under state securities laws and FINRA clearance (not to exceed $30,000 in the aggregate); and (v) our transportation, accommodation, and other roadshow expenses. To the extent that any of our fees and expenses are paid by the Representative Underwriter with our approval, we will, upon request, reimburse the Representative Underwriter for such fees and expenses.

Reimbursable Expenses in the Event of Termination. In the event the offering does not close or the engagement agreement is terminated for any reason (other than for the Representative Underwriter's material failure to provide the services contemplated by the engagement agreement.), we have agreed to reimburse the Representative Underwriter for all unreimbursed, reasonable, documented, out-of-pocket fees, expenses, and disbursements, including the Representative Underwriter's legal fees (excluding any fees relating to FINRA clearance and registration and qualification under state securities laws), up to $100,000.

Termination Fee. If we terminate the engagement agreement and then consummate a public offering in which the Representative Underwriter does not serve as the Representative Underwriter or placement agent within six months of such termination, then we have agreed to pay the Representative Underwriter a termination fee equal to $100,000. However, the termination fee will be reduced by the amount of reimbursable expenses we have paid to the Representative Underwriter. See “Reimbursable Expenses in the Event of Termination” above. The termination fee is not payable in the event we terminate the engagement agreement due to the Representative Underwriter's material failure to provide the services contemplated by the engagement agreement.

Underwriting Commission. We have agreed that the definitive underwriting agreement will provide for us to pay a commission of 6.0% of the gross offering proceeds to the Underwriters as compensation immediately upon consummation of the offering.

Underwriter's Warrants

Upon each closing of this offering, we have agreed to issue Underwriter's Warrants to the Representative Underwriter to purchase a number of shares of the Common Stock equal to 5.0% of the total shares of the Common Stock sold in the final offering statement. The Underwriter's Warrants are exercisable commencing upon issuance, and will be exercisable up to five years from the date of qualification of the offering statement. The Underwriter's Warrants are not redeemable by us. The exercise price for the Underwriter's Warrants will be the amount that is 15% greater than the public offering price, or $9.20, if the shares in this offering are sold at $8.00/share, $8.05 if the shares in this offering are sold at $7.00/share, and $6.90 if the shares in this offering are sold at $6.00/share.

The Underwriter's Warrants and the Common Stock underlying the Underwriter's Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative Underwriter, or permitted assignees under such rule, may not exercise, sell, transfer, assign, pledge, or hypothecate the Underwriter's Warrants or the Common Stock underlying the Underwriter's Warrants, nor will the Representative Underwriter or permitted assignees engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Underwriter's Warrants or the underlying shares for a period of 180 days from the Qualification Date, except that they may be transferred, in whole or in part, by operation of law or by reason of our reorganization, or to any underwriter or selected dealer participating in the offering and their officers or partners if the Underwriter's Warrants or the underlying shares so transferred remain subject to the foregoing lock-up restrictions for the remainder of the time period. The Underwriter's Warrants will provide for adjustment in the number and price of the Underwriter's Warrants and the shares underlying such Underwriter's Warrants in the event of recapitalization, merger, stock split, or other structural transaction, or a future financing undertaken by us.

Advisory Services Agreement

We also previously executed an Advisory Letter Agreement with the Representative Underwriter with a three-month term pursuant to which the Representative Underwriter agreed to provide us with financial advice and assistance concerning our business. As compensation for these advisory services, we paid the Representative Underwriter $30,000. The Engagement Agreement signed on April 26, 2016 supersedes the Advisory Letter Agreement.

27

Lock Up Agreements

Our two current principal stockholders have agreed, or will agree, with the Representative Underwriter, subject to certain exceptions, that, without the prior written consent of the Representative Underwriter, we and they will not, directly or indirectly, during the period ending 180 days after the date of the Offering Circular:

This agreement does not apply, in our case, to securities issued pursuant to existing employee benefit plans or securities issued upon exercise of options, and other exceptions, and in the case of our officers, directors and other holders of our securities, exercise of stock options issued pursuant to a stock option or similar plans, and other exceptions.

Indemnification

We have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The Underwriters and their affiliates are engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Underwriters and their affiliates may in the future perform various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The Underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Exchange Listing

We have applied to the NASDAQ Capital Market (“NASDAQ”) to list shares of our common under the symbol “PIXY.” In order to meet one of the requirements for listing our common stock on NASDAQ, the Underwriters intend to sell lots of 100 or more shares to a minimum of 300 beneficial holders. We have applied to list our Common Stock on the NASDAQ Capital Market, and we expect trading to commence following the Qualification of this offering, assuming we have sold more than the minimum number of shares being offered and the SEC has declared effective our filing on Form 8-A in order to register our shares under the Exchange Act.

28

Other Selling Restrictions

Other than in the United States, no action has been taken by us or the Underwriters that would permit a public offering of our Common Stock in any jurisdiction where action for that purpose is required. Our Common Stock may not be offered or sold, directly or indirectly, nor may this Offering Circular or any other offering material or advertisements in connection with the offer and sale of shares of our Common Stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this Offering Circular comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this Offering Circular. This Offering Circular does not constitute an offer to sell or a solicitation of an offer to buy our Common Stock in any jurisdiction in which such an offer or solicitation would be unlawful.

Canada

The shares of our Common Stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31- 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares of our Common Stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this Offering Circular (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

LEGAL PROCEEDINGS

There are currently no pending or threatened lawsuits against us that are not covered by applicable insurance or that would, if decided against us, have a material, negative impact on us.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS

The board of directors elects our executive officer annually. A majority vote of the directors who are in office is required to fill vacancies. Each director shall be elected for the term of one year, and until his successor is elected and qualified, or until his earlier resignation or removal.

 

29

The table below sets forth our directors and executive officers of as of the date of this Annual Report.

Scott W. Absher joined ShiftPixy as CEO/Director upon formation in June 2015. Since February 2010 he has also been President of Struxurety, a business insurance advisory company. As a member of the board, Mr. Absher contributes significant industry-specific experience and expertise on our insurance products and services. He contributes his knowledge of the company and a deep understanding of all aspects of our business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.

Kenneth W. Weaver became ShiftPixy’s first independent director on December 5, 2016. Mr. Weaver currently serves as the chairman and only director of the Audit Committee, Compensation Committee and Nominations Committee. Since April 2012 to date, Mr. Weaver has been the sole proprietor of Ken Weaver Consulting, providing operations consulting for TVV Capital, a Nashville Private Equity firm. Before his service with TVV, Mr. Weaver spent over 30 years with Bridgestone Corporation, having served in various responsible leadership roles, including as President, Bridgestone North American Tire Commercial Sales, Chief Financial Officer, Bridgestone Americas and Chairman, CEO and President, Firestone Diversified Products. Mr. Weaver earned both his bachelor’s degree in business and his masters of business administration degree from Pennsylvania State University. Mr. Weaver’s substantial financial background qualifies him as an audit committee financial expert under applicable rules.

Stephen P. DeSantis joined ShiftPixy as CFO on March 1, 2017. Mr. DeSantis has over 30 years of financial management experience in both the private and public sectors. Mr. DeSantis co-founded Predixion Software, Inc., in December 2009 and served as its Chief Financial Officer; the company was sold in February 2017. Mr. DeSantis also served as the Chief Financial Officer of DATAllegro from February 2007 to December 2009, Inc. He was responsible for the finance, accounting, human resources, and IT departments. He also led business financial planning and analysis (FP&A) and securing financing for the company. DATAllegro was acquired by Microsoft in August 2008 for $280M. Mr. DeSantis remained with the company after the acquisition through December 2009. He also served as Executive Vice President of Operations, and Corporate Secretary of Nexiant, Inc. and served as its Chief Financial Officer from June 2005 through January 2007. In addition, Mr. DeSantis served as Chief Financial Officer and Corporate Secretary of TCI Solutions Inc. and was also served as an Executive Vice President from March 1994 to June 2005. In his role as TCI Solutions Inc., Mr. DeSantis was responsible for corporate governance issues, SEC compliance, Sarbanes-Oxley compliance, business planning, corporate strategic communications, securing financing and managing investor relations, finance, accounting, IT and human resource departments. Mr. DeSantis held the position of Corporate Controller at Cassette Productions Unlimited, Inc. from April 1989 to December 1993. He began his career in August 1985 with Coopers & Lybrand LLP, in Los Angeles. Mr. DeSantis is a certified public accountant and holds a bachelor’s degree in business in May 1985 and an MBA in May 1997 from the University of Southern California.

 

30

Family Relationships

There are no family relationships between any of our officers and directors.

Involvement in certain legal proceedings.

None of the following events have occurred during the past five years and which are material to an evaluation of the ability or integrity of any director or executive officer:

Administrative Order and Settlement with State Securities Commissions

On June 25, 2013, the Alabama Securities Commission issued a Cease and Desist Order (the “Order”) against Scott W. Absher and other named persons and entities, requiring that they cease and desist from further offers or sales of any security in the State of Alabama. The Order asserts, regarding Mr. Absher, that he was the president of a Company that issued unregistered securities to certain Alabama residents, that he was the owner of a company that was seeking investments, and that in March 2011 he spoke to an Alabama resident who was an investor in one of the named entities. The Order thereupon concludes that Mr. Absher and others caused the offer or sale of unregistered securities through unregistered agents. While Mr. Absher disputes many of the factual statements and specifically that he was an owner or officer of any of the entities involved in the sale of the unregistered securities to Alabama residents or that he authorized any person to solicit investments for his company, in the interest of allowing the matter to become resolved, he did not provide a response.

31

Legal Matters related to Co-Founder, Major Shareholder and Independent Contractor

J. Stephen Holmes is a co-founder and currently an independent contractor and major shareholder. As a condition of certifying ShiftPixy’s Common Stock for a NASDAQ listing, Mr. Holmes and ShiftPixy mutually agreed to the disclosure by ShiftPixy of his prior conviction for acts related to making false statements in relation to two quarterly IRS Form 941 Employer Federal Quarterly tax returns, one in 1996 and the second 1997, for a company for which he was at the time an officer. The former company and ShiftPixy are not affiliated or related in any way. As an independent contractor with ShiftPixy, Mr. Holmes is focusing upon building a sales network and providing consulting in relation to worker’s compensation programs as well as Affordable Care Act health insurance programs, and as such is not involved in any part of the accounting or tax paying and IRS return filing areas of ShiftPixy’s operations.

Board Composition

Our board of directors currently consists of two members. Each director of the Company serves until the next annual meeting of stockholders and until his successor is elected and duly qualified, or until his earlier death, resignation or removal. Our board is authorized to appoint persons to the offices of Chairman of the Board of Directors, President, Chief Executive Officer, one or more vice presidents, a Treasurer or Chief Financial Officer and a Secretary and such other offices as may be determined by the board.

We have no formal policy regarding board diversity. In selecting board candidates, we seek individuals who will further the interests of our stockholders through an established record of professional accomplishment, the ability to contribute positively to our collaborative culture, knowledge of our business and understanding of our prospective markets.

Director Independence

Rule 5605 of the NASDAQ Listing Rules requires a majority of a listed company's board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ Listing Rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.

In selecting our independent director, our board considered the relationships that each such person has with our Company and all the other facts and circumstances our board deemed relevant in determining independence, including the beneficial ownership of our capital stock by each such person. We intend to add additional independent directors and adopt the policies and procedures set forth below in order to meet listing requirements of a national securities exchange, in accordance with the phase-in provisions of NASDAQ Rule 5615(b).

Board Committees

Our board of directors has established three standing committees-audit, compensation and nominating-each of which operates under a charter that has been approved by our board. We have one independent director who serves as chairman of such committees. We intend to appoint persons to the Board of Directors and committees of the Board of Directors as required meeting the corporate governance requirements of a national securities exchange, in accordance with the phase-in provisions of NASDAQ Rule 5615(b). We intend to appoint directors in the future so that we have a majority of our directors who will be independent directors.

Audit Committee

Although we currently have only 1 independent director serving on the audit committee, prior to one year from the date of listing, we will have appointed three members of our Board of Directors to the audit committee. Our first member qualifies as an audit committee financial expert within the meaning of SEC regulations and the NASDAQ Listing Rules. In making a determination on which member will qualify as a financial expert, our board expects to consider the formal education and nature and scope of such members' previous experience. As described above, we expect to rely on the phase-in provisions of NASDAQ Rule 5615(b) such that at least one member of the audit committee will be independent upon listing, at least two members of the audit committee will be independent within 90 days after listing and the entire audit committee will be independent within one year following listing.

32

Our audit committee will assist our board of directors in its oversight of our accounting and financial reporting process and the audits of our consolidated financial statements. Our audit committee's responsibilities will include:

Compensation Committee

Although we currently have only 1 independent director serving on the compensation committee, prior to one year from the date of listing, we will have appointed at least two members of our Board of Directors to the compensation committee. Our compensation committee will assist our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers. The compensation committee's responsibilities will include:

 

33

·

review and assess the independence of compensation advisers;

Compensation Committee Interlocks and Insider Participation

When appointed as described above, it is anticipated that none of the members of our Compensation Committee, at any time, will have been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers on our Board of Directors or Compensation Committee.

For fiscal year ended August 31, 2015, there were two directors, Mr. Absher and Mr. Holmes (until his resignation on July 1, 2015) who were executive officers and shareholders with more than 5% of issued common stocks. For fiscal year ended August 31, 2016, other than Mr. Absher there were no other individuals who participated in deliberations of the registrant’s board of directors concerning executive officer compensation. On December 5, 2016, Mr. Weaver joined the board, and he has since that date served as the sole member of the Audit Committee, Compensation Committee and Nominations Committee.

Nominating Committee

Although we currently have only 1 independent director serving on the nominating committee, prior to one year from the date of listing, we will have appointed at least two additional members of our Board of Directors to the nominating committee. The nominating committee's responsibilities will include:

34

Board Leadership Structure and Risk Oversight

The board of directors oversees our business and considers the risks associated with our business strategy and decisions. The board currently implements its risk oversight function as a whole. Each of the board committees also provides risk oversight in respect of its areas of concentration and reports material risks to the board for further consideration.

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The code of conduct is posted on our website, and we will post all disclosures that are required by law or NASDAQ rules in regard to any amendments to, or waivers from, any provision of the code.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of March 15, 2017, for (i) all executive officers and directors as a group and (ii) each person, or group of affiliated persons, known by us to be the beneficial owner of more than ten percent (10%) of our capital stock. The percentage of beneficial ownership in the table below is based on 26,504,425 shares of common stock deemed to be outstanding as of March 15, 2017. In addition, shares of common stock that may be acquired by the stockholder within 60 days of March 15, 2017, pursuant to the exercise of stock options are deemed to be outstanding for the purpose of computing the percentage ownership of such shareholder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

35

DESCRIPTION OF SECURITIES

Securities Being Offered

The following is a summary of the rights of our capital stock as provided in our articles of incorporation and bylaws. For more detailed information, please see our articles of incorporation and bylaws, which have been filed as exhibits to the offering statement of which this offering circular is a part.

Authorized Capital

Our authorized capital stock consists of 750,000,000 shares of common stock, par value $0.0001 per share, of which approximately 26,504,425 shares are issued and outstanding as of March 15, 2017 (exclusive of unvested or unissued shares of our Common Stock issued under our 2017 Stock Option / Stock Issuance Plan). Our authorized capital stock also includes 50,000,000 shares of Preferred Stock, par value $0.0001, none of which are issued or outstanding. Under Wyoming law and generally under state corporation laws, the holders of our common and preferred stock will have limited liability pursuant to which their liability is limited to the amount of their investment in us.

Reverse Split

Effective October 12, 2016, we authorized a 1 for 2 Reverse Securities Split as follows: A two for one reverse split of Common Stock alone as well as a two for one reverse split for Units sold in private offering as described in this Offering Circular, thus reducing by half the number of shares of Common Stock underlying the Units as well as reducing by half the number of Warrants to acquire additional Common Stock that are part of the Units but not affecting the exercise prices of $2.00 and $3.00 per share as set forth in the Warrants.

We have adjusted share numbers in this Offering Circular for this split.

Common Stock

Voting Rights. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Wyoming law provides for cumulative voting for the election of directors. As a result, any shareholder may cumulate his or her votes by casting them all for any one director nominee or by distributing them among two or more nominees. This may make it easier for minority shareholders to elect a director.

Dividends. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefor as well as any distributions to the shareholders. The payment of dividends on the common stock will be a business decision to be made by our board of directors from time to time based upon results of our operations and our financial condition and any other factors that our board of directors considers relevant. Payment of dividends on the common stock may be restricted by loan agreements, indentures and other transactions entered into by us from time to time.

Liquidation Rights. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock.

 

36

Absence of Other Rights or Assessments. Holders of common stock have no preferential, preemptive, conversion or exchange rights. There are no redemption or sinking fund provisions applicable to the common stock. When issued in accordance with our articles of incorporation and law, shares of our common stock are fully paid and not liable to further calls or assessment by us.

Preferred Stock

Our board of directors is authorized by our articles of incorporation to establish classes or series of preferred stock and fix the designation, powers, preferences and rights of the shares of each such class or series and the qualifications, limitations or restrictions thereof without any further vote or action by our shareholders. Any shares of preferred stock so issued would have priority over our common stock with respect to dividend or liquidation rights. Any future issuance of preferred stock may have the effect of delaying, deferring or preventing a change in our control without further action by our shareholders and may adversely affect the voting and other rights of the holders of our common stock.

At present we have issued options to all shareholders of record on September 28, 2016 to acquire up to 26,213,800 authorized shares of Preferred Stock.

The 26,213,800 shares of Preferred Stock which would be acquired upon exercise of the option described above has the following general rights, preferences, privileges and restrictions, as further amended and restated:

37

Options and Warrants

At March 15, 2017, non-affiliate investors own a total of 2,318,225 warrants; 1,013,800 warrants entitle the holder to acquire one share of common stock at a price of $2.00 per share; 1,013,800 warrants entitle the holder to acquire one share of common stock at a price of $3.00 per share; 25,000 warrants entitle the holder to acquire one share of common stock at a price of $4.00 per share; and 265,625 warrants entitle the holder acquire 1.5 shares of common stock at a price of $4 per share. The exercise period for all warrants expires on March 1, 2019. As of March 15, 2017, none of these warrants has been exercised.

An option was given to each of the Shareholders of record as of September 28, 2016. The aforesaid Option is as follows: to purchase shares of Preferred Stock of the Corporation at $0.0001 per share par value (the “Preferred Stock”) in an amount equal to the lesser of (a) the number of shares of common stock held by such Shareholder on September 28, 2016, or (b) the number of shares of common stock held by such Shareholder on date of the Shareholder’s exercise of the aforesaid Option.

2017 Stock Option / Stock Issuance Plan

In addition, in March 2017, the Company adopted the 2017 Stock Option / Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options, non-qualified stock options and stock. The Company has reserved a total of 10,000,000 shares of common stock for issuance under the Plan. Of these shares, approximately 775,000 options and 50,000 shares have been designated by the Board of Directors for issuance in March 2017. Unless the Plan Administrator otherwise provides, each option is immediately exercisable, but the shares subject to such option will vest over a period of time as follows: 25% vest after a 12-month service period following the award, and the balance vest in equal monthly installments over the next 36 months of service. Accordingly, no persons awarded options has vested ownership of shares underlying the options for at least 60 days from the date of this Offering Circular. The issuance of shares under the Plan vest according to terms established for such issuance by the Plan Administrator.

38

Certain Anti-Takeover Effects

General. Certain provisions of Wyoming law may have an anti-takeover effect and may delay or prevent a tender offer or other acquisition transaction that a shareholder might consider to be in his or her best interest. The summary of the provisions of Wyoming law set forth below does not purport to be complete and is qualified in its entirety by reference to Wyoming law.

The issuance of shares of preferred stock, the issuance of rights to purchase such shares, and the imposition of certain other adverse effects on any party contemplating a takeover could be used to discourage an unsolicited acquisition proposal. For instance, the issuance of the Preferred Stock, if the option to acquire such shares is exercised, would impede a business combination by the voting rights that would enable a holder to block such a transaction. In addition, under certain circumstances, the issuance of other preferred stock could adversely affect the voting power of holders of our common stock.

Under Wyoming law, a director, in determining what he reasonably believes to be in or not opposed to the best interests of the corporation, does not need to consider only the interests of the corporation's shareholders in any takeover matter but may also, in his discretion, may consider any of the following:

The Options to acquire 26,213,800 shares of Preferred Stock as described above will, if exercised, deter a takeover.

Because our board of directors is not required to make any determination on matters affecting potential takeovers solely based on its judgment as to the best interests of our shareholders, our board could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of our shareholders might believe to be in their best interests or in which such shareholders might receive a premium for their stock over the then market price of such stock. Our board presently does not intend to seek shareholder approval prior to the issuance of currently authorized stock, unless otherwise required by law or applicable stock exchange rules.

INTEREST OF NAMED EXPERTS

The consolidated financial statements of the Company appearing elsewhere in this Offering Circular have been included herein in reliance upon the report, which includes an explanatory paragraph as to the Company's ability to continue as a going concern, of Squar Milner LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of that firm as experts in accounting and auditing.

Certain legal matters with respect to the shares of common stock offered hereby will be passed upon by Williams Securities Law Firm, P.A., Tampa FL. Michael T. Williams, Esq., principal of the firm, owns 100,000 shares of our Common Stock. Rimon, P.C. is representing the underwriter in this offering.

39

DISCLOSURE OF COMMISSION POSITION ONINDEMNIFICATIONFOR SECURITIES LIABILITIES

Our Articles and Bylaws, subject to the provisions of Wyoming Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

DESCRIPTION OF BUSINESS

We were initially incorporated under the laws of the State of Wyoming on June 3, 2015. We formed Shift Human Capital Management Inc., d/b/a/ ShiftableHR, a wholly-owned subsidiary, in December 2015. Our principal executive office is located at 1 Venture, Suite 150, Irvine, CA 92618.

The Company is a leading provider of employment law compliance solutions for employers of (“gig”) shift/gig workers and the shift/gig workers themselves in the nextGEN Gig Economy. For us, nextGEN Gig Economy means an environment in which shift or other part-time/temporary positions are common, and businesses, in our case currently restaurant and hospitality businesses, contract with independent workers for less than full-time engagements such as shift work. The trend toward a Gig Economy has begun, and we are endeavoring to participate through an employment related service offering. A study by Intuit predicted that by 2020, 40 percent of American workers would be less than full time independent contractors. Intuit, Inc. October 2010. “Intuit 2020 Report: Twenty Trends That Will Shape the Next Decade.”

A significant problem for employers in the Gig Economy involves compliance with regulations imposed by federal, state and local governments, including requirements associated with worker's compensation insurance, and other traditional employment compliance issues, including matters such as the employer mandate provisions of the ACA currently anticipated to remain in effect through at least the near future. The compliance challenges are often complicated by the actions of many employers in reducing workers’ hours as a means to avoid characterizing employees as “full-time.” The Company believes the ACA will continue to apply to employers in the foreseeable future.

For Gig/Shift Workers, whom we also call “Shifters,” the significant problem is difficulty in finding other jobs/gigs to replace hours lost when their employers reduce their hours and make them less than full-time employees or otherwise to fill workweek employment voids.

We believe ShiftPixy has the ideal solution for both of these groups and each of their problems via a service offering that entails two principal elements (that we refer to collectively as our “Ecosystem”) as follows:

 

40

As part of our development strategy, in addition to our efforts to onboard clients as a staffing company, we are also onboarding clients via professional employer organization and administrative services only solutions through our wholly-owned subsidiary ShiftableHR, and we intend to migrate these clients to the new nextGEN ShiftPixy Solution. In addition, we are joining the hot topic dialogue currently going on in the nextGEN Gig Economy about companies such as Uber and others who have been targeted by plaintiff's attorneys and government agencies for allegedly mischaracterizing employees as independent contractors. We believe that our ShiftPixy business model is a perfect solution for these companies, because we acquire employer status with regard to the workers, not classifying them as independent contractors, and accordingly embracing the compliance obligations associated with being an employer.

ShiftPixy’s headquarters is currently situated in Irvine, California, from which it can reach the Southern California market, and has a modest staff in Phoenix, but it plans to open the following additional physical offices upon completion of our offering, in the following order:

Through these office locations, we plan to engage more actively with clients through sales, marketing, employee onboarding, training and payroll processing, in each instance as necessary and appropriate to the applicable market.

These markets collectively account for or allow us to cover approximately 53% of our target market in the restaurant/hospitality sectors. (U.S. Department of Labor. Bureau of Labor Statistics. May 2015. Occupational Employment and Wages.)

ShiftPixy and its subsidiary collectively serve, as of February 28, 2017, an aggregate of approximately 100 clients and with an aggregate of approximately 2,581 active, paid worksite employees, as well as providing only payroll administration services to an additional 24 clients with 818 employees. None of these clients represents more than 10% of our annualized revenues for fiscal year 2016.

ShiftPixy's anticipated business and revenue growth will result from the following factors:

Large Potential Market

We believe there is a large potential market for ShiftPixy's services. Current statistics show that there are over 13 million employees working in our current target market-the restaurant and hospitality industries. (U.S. Department of Labor. Bureau of Labor Statistics. September 2016. Table B-1: Employees on nonfarm payrolls by industry sector and selected industry detail: Accommodation and Food Services Industry Subsector. Retrieved from http://www.bls.gov/news.release/empsit.t17.htm). Compared to the total workforce, workers in the restaurant industry have a notably higher percentage of part-time workers. (National Restaurant Association. “News & Research: Restaurant middle class job growth 4x stronger than overall economy.” 13 January 2016.) Of course, ShiftPixy plans to expand its service offering into other industries as well, particularly where part-time work is a significant component of the applicable labor force, including the retail and health care, especially home health care, sectors.

 

41

ShiftPixy's initial market focus includes the following metropolitan areas: Los Angeles/Southern California, San Francisco, and Phoenix, with plans to market in New York, Orlando, Dallas, Chicago, Las Vegas, and Atlanta. These markets collectively account for or allow us to cover approximately 53% of our target market in the restaurant/hospitality sectors. (U.S. Department of Labor. Bureau of Labor Statistics. May 2015. Occupational Employment and Wages.)

The Staffing Industry

The staffing industry is comprised of staffing providers, recruitment or placement providers and co-employment providers or PEOs, each with its own service model and emphasis. Temporary staffing providers typically serve customer demands for flexible, non-permanent workers for short or project work periods for midmarket and larger clients. Recruitment providers focus on locating, screening and presenting candidates for open positions for clients with open positions. Co-employers or PEOs provide a human resource management function for typically small employers with fewer than 50 employees.

ShiftPixy is trying to position itself in the market as a part-time/temporary staffing provider, delivering a flexible but regular staff solution to its clients. ShiftPixy generally engages clients with 50 to 500 employees where the engagement is at the ownership level of the business, unlike the typical part-time/temporary staffing industry engagement with businesses with over 500 employees and conducted at the human resource management level rather than the ownership level.

ShiftPixy is positioned as the employer rather than as a co-employer as is typical in the PEO engagement. The employer liabilities are shared or divided in a co-employer engagement. In contrast, in ShiftPixy's client engagement, the risks and liabilities are primarily with ShiftPixy. The co-employment or PEO provider typically targets businesses with 50 or fewer full-time employees, while ShiftPixy's target market are businesses with 50 to 500 employees with large part-time workforces.

In contrast to recruitment or placement firms, ShiftPixy, as the employer of shift work personnel provided to its clients, recruits for its own staffing demands and not as a recruiter for personnel who become employees of a client.

The Challenges of Compliance: Employment law compliance requirements including the ACA, present a multi-obstacle ridden employment related compliance landscape, including the need to secure applicable workers’ compensation insurance coverage, to effect employment related tax withholdings and filings, and to navigate laws related to hiring and release of employees, including discrimination (race, color, national origin, sex, age, religion, disability, pregnancy and sexual orientation), sexual harassment, sick pay and time off, hours of work, minimum wage and overtime, gender pay differentials, immigration, safety, child labor, military leave, garnishment and other wage imposition processing, family and medical leave, COBRA, and unemployment claims. ACA compliance under the employer mandate provisions adds another significant burden to employers.

A business can secure assistance in mitigating and even eliminating these challenges by retaining ShiftPixy.

The ShiftPixy Solution

The ShiftPixy approach to the staffing business is to offer a Gig Economy focused employment law and regulatory compliance solution with comprehensive human resources outsourcing capabilities through an active client engagement and supported by our technology platform. We call this enterprise our ShiftPixy Ecosystem. Within the ShiftPixy Ecosystem, we are the employer providing workers to a client, while the client continues to focus on its business, providing direction to our employees only regarding the day-to-day job-related duties as necessary for the client to operate its business. Our services also include key HR management and employee benefits functions, including HR administration, employee benefits, and employer liability management, into a single-source solution featuring the following benefits:

 

42

Access to Shift Workers. Through the ShiftPixy engagement, we provide job provider clients with access to:

Human Capital Management. We offer a variety of comprehensive HR administration services, such as:

Employer Liability Management. We help manage and limit employment related risks and related costs by providing:

43

Service Contracts

The Company enters into written service contracts with its customers. Among other things, these contracts provide that the Company will have various duties, including the following:

There are also obligations and requirements upon clients to ensure that the working relationship between the Company and its clients is smooth, efficient and successful.

Suppliers

As a staffing company, ShiftPixy is considered the employer of shift workers. As such, we have to develop and maintain relationships with various insurance providers to provide the required coverage for persons who are considered our employees. Currently we have insurance providers for the following types of insurance lines:

Our wholly owned subsidiary, Shift Human Capital Management Inc., as a separate entity, carries a separate Worker's Compensation policy thorough Technology Insurance Company. For CGL/Umbrella, it is covered until August 4, 2017, under the parent policies.

We also maintain property insurance coverage through American Zurich Insurance Company.

Pricing

Pricing for services is dependent on several variables ranging from credit, risk exposure, payment terms, payment methods, volume, the Client’s experience with regard to employment related claims, and potential for growth. Applicable pricing is specified in customer services agreements. The Company typically charges client by marking up the pay of employees or through other bill rates (i.e. the Company charges the client an hourly rate that includes a premium (mark-up) to the hourly wage that the Company pays to the employee).

44

The mark-up charged by the Company on employees provided varies for a number of reasons. For example, in some arrangements, the marked-up rate charged to the client includes compensation, all taxes, unemployment charges, workers' compensation costs and an administrative fee for the Company. Notably, unemployment and certain other charges vary by State, and these differences impact this mark-up. In addition, workers' compensation cost codes are assigned to employees based on the job description applicable to the assigned work, which is a significant variable in costs. The Company might charge a higher mark-up to compensate for situations with higher workers' compensation costs. Pricing and the rate of mark-up is also impacted by the relationship of the Company with the applicable customer. Clients that provide a large volume of business (typically over 75 employees) would generally receive discounted rates. On the other hand, clients at which employees have consistently incurred injuries or clients which have a history of injuries in their business will generally be charged an additional mark-up rate to counteract this expected cost and potential liability. Finally, the Company also offers clients discounts when clients refer new employees to the Company.

Marketing

Many times we are introduced to potential clients by our insurance providers and other insurance vendors. The worker's compensation component of our services has been the driver for the introductions from our property and casualty agent network. We have found that initially clients are drawn to our system in a desire to outsource worker's compensation coverage for their shift workers. Once we provide these services to our clients, we market the various other aspects of our system as described above.

Our marketing efforts are also responsive to recent new demands due to the Patient Protection and Affordable Care Act (ACA), which is forcing a new insurance compliance layer into the marketplace for our potential clients with 50 or more employees who are mandated by the ACA to provide health insurance coverage to any employee working over 30 hours per week. As we studied this issue, we observed that employee part-time shift work was increasing. Our shift employees working for our clients are offered health insurance coverage as mandated by the ADA.

Currently we market our services ourselves through our management and internal sales staff. As our business grows, we plan to hire agent relationship managers to expand and support our alliances with insurance agents and advisors. These managers will be independent contractors and paid on a commission basis.

Potential New Marketing Opportunity

We have seen a potential new market based upon the issue of worker misclassification in the Gig Economy. Gig Economy companies such as Uber regularly classify the people working for them as “independent contractors” rather than as “employees” for jobs (gigs). The companies can pay much less for services and in regulatory requirements if their workers are classified as independent contractors. Under state and federal employment laws, workers classified as employees are much more expensive for these companies. However, increasing litigation against Uber and others has increased awareness about this issue. ShiftPixy provides a solution by absorbing workers for these types of Gig Economy companies as employees of ShiftPixy, eliminating any risk of litigation, fines and other worker misclassification problems for these types of Gig Economy companies that become ShiftPixy clients.

ShiftPixy Mobile App

We have developed and launched on Labor Day of 2016 a prototype of the ShiftPixy Mobile App, functioning as a proprietary application layer, allowing Shifter users to access shift work opportunities that match their skill and interest levels. The Mobile App is designed to bring the user into the ShiftPixy system as an attractive way to balance their availability, need and lifestyle with available shift opportunities. The Mobile App is being designed to allow Shifters to “enhance” their personal skills profile to access a wider range of opportunity.

Initially, the only workers that would be able to access this system as currently being developed are Shifters who are employees providing services to our job provider clients. We are also working to enable this system to allow Shifters who are not currently providing services to our job provider clients to access this system as well, but we have not begun development of this aspect of this system and cannot predict when, if ever, we will be able to add this feature.

45

We estimate that a complete build out of the functionality of the mobile app will cost approximately $2,225,000. However, other than the proceeds of this offering, we have no agreement, commitment or understanding to secure the needed additional capital.

We have also considered the feasibility of generating revenue from the Mobile App as follows: Mobile app users could be charged between $4.99 to $9.99 per month to use the mobile app to access shift opportunities. The more shift opportunities accessed and worked by a user the lower their monthly fee. While we are considering the possibilities in this regard, we do not anticipate making this arrangement available in 2017.

ShiftPixy Human Capital Management Inc.

We formed this subsidiary in response to the need to have worker's compensation policies written in the names of the clients (as may be required by some states) and otherwise in response to client needs for only administrative and processing services rather than the assignment of temporary employees as offered by ShiftPixy. Under this subsidiary, under circumstances wherein the client remains as the sole employer of the subject employees, we act as a payroll processor, human resources consultant, and administrator of worker's compensation coverages and claims. For administrative reasons, we believe that providing these services through a separate legal entity seemed advisable and required, and thus we formed the subsidiary to provide these services. Our goal is to migrate these clients to ShiftPixy.

These services are also available to businesses in all industries, not just the restaurant and hospitality industries. We hope that this mechanism may become a way to onboard new clients into the ShiftPixy Ecosystem when eligible clients to whom we are providing these services recognize the value of the services provided by ShiftPixy, the parent. As of February 28, 2017, ShiftableHR had 79 clients (included in our total aggregate of 100 clients) with 1,787 worksite employees and 818 employees for whom we provide only payroll administration services.

Intellectual Property

We are currently processing our client and shift worker payroll and HR related data through HRPyramid software, provided by PrismHR (F.W. Davidson & Company, Inc. d/b/a PrismHR) under an Application Service Provider Agreement as assigned to us by XccelerateHR on April 1, 2016. Effective on February 18, 2017, we executed a “Master Services and Software as a Service Agreement” with PrismHR to upgrade our software services to the PrismHR offering. The agreement allows us to use this software so long as the agreement remains in effect. The agreement, provides for a one-year term, ending February 18, 2018, with one year renewals only upon further written agreement of the parties.

Our proprietary ShiftPixy software with related mobile application, which still has significant additional work to complete, is currently being developed and ultimately will be completed under agreement with seeking patent registration with regard to elements of our software, and we have filed a provisional patent application that we plan to supersede with a formal application in the near future. Our agreement with Kadima Ventures acknowledges that the software as well as the patent(s) being developed in connection therewith are works made for hire for ShiftPixy, Inc. The copyright in the software as well as the patent(s) belong to ShiftPixy. In addition, our principal shareholders, Scott Absher and Steve Holmes, have assigned to ShiftPixy all of their rights in anything developed and any and all other types of intellectual property related to the ShiftPixy mobile app.

We have registered the word and stylized trademarks, including the name ShiftPixy, with the United States Patent and Trademark Office and accordingly now enjoy the associated protections of our marks.

Competition

The market in which we compete is comprised of many business service and software service providers who deliver one or more of the aspects of our service platform. Insurance carriers provide similar coverages built into our program. In our markets there are as many as a one hundred insurance carriers providing the insurance coverage programs ShiftPixy provides.

 

46

Payroll and outsource service providers provide similar processing and support platforms. There are hundreds of platform service providers in the market some of the largest of which are ADP, Paychex, Insperity and TriNet.

There are staffing companies which provide flex staffing for industry, which deliver similar solutions to our market. There are hundreds of staffing service providers in the market some of the largest of which are Allegis Group, Adecco, Randstad Holding, Manpower Group and Kelly Services.

There are many software based solutions, delivering similar processes and SaaS solutions to the market. Some of the largest are SAP, Oracle, Zenefits, Kronos and Ceridian.

Because ShiftPixy is a startup, we are very small by comparison to many of the companies in the market delivering one or more of the services we provide. ShiftPixy competes by having a more focused market target, in contrast to competitors that tend to generalize or focus on very large clients or small business. ShiftPixy has also arranged its service deliverables to be very attractive and unique to our target market with our focus on shift service employees.

Industry Regulation

Our business is subject to a wide range of complex laws and regulations. In addition, many of our solutions are designed to assist clients with their compliance with certain laws and regulations that apply to them.

Many states regulate entities offering the employment related services such as those offered by us directly or through our subsidiary and require licenses as a prerequisite to operation of such enterprises in their respective jurisdictions. There can be no assurance that either ShiftPixy or its subsidiary, Shift Human Capital Management Inc., will be successful in either securing or maintaining a license or licenses in compliance with a particular state's laws and regulations. Further, many states require variously that worker's compensation policies offered by employment related firms such as ours to be managed according to strict rules and/or that unemployment insurance filings be administered according to strict rules. ShiftPixy and its subsidiary, Shift Human Capital Management Inc., endeavor to comply with all of the nuances of such laws and regulations, as in the event of a material noncompliance event, a state may decline or withdraw a license to either ShiftPixy or its subsidiary.

As a provider of business outsourcing solutions, our systems contain a significant amount of sensitive data related to clients, employees of our clients, vendors and our employees. We are, therefore, subject to compliance obligations under federal and state privacy and data security-related laws, including in the United States, the Health Insurance Portability and Accountability Act of 1996 with respect to our COBRA and insurance services. We are also subject to federal and state security breach notification laws with respect to both our own employee data and client employee data. Additionally, the changing nature of privacy laws in the United States could impact our processing of personal information of our employees and on behalf of our clients.

As part of our payroll and payroll tax management services, we move client funds to taxing authorities and our clients' employees via electronic transfer, direct deposit, and check. Certain elements of our U.S. money transmission activities, including our electronic payment and prepaid access (payroll pay card) offerings, are subject to certain licensing requirements. In addition, our U.S. prepaid access (payroll card) offering is subject to the anti-money laundering and reporting provisions of The Bank Secrecy Act of 1970. Our employee screening and selection services business offers background checking services that are subject to the Fair Credit Reporting Act. We are subject to various state licensing requirements due to the nature of employer status with some of clients' worksite employees, we may assume certain obligations and responsibilities of an employer under federal and state tax, insurance and employment laws.

 

47

In addition, we sometimes offer solutions that assist our clients in complying with certain laws and regulations that apply to them. Changes in such laws or regulations may affect our operations, products and services. For example, our solutions help clients manage their compliance with certain requirements of the Patient Protection and Affordable Care Act in the United States which is anticipated will apply to many employers for at least the near future. Our COBRA administration services and flexible spending account services in the United States are designed to comply with relevant federal guidelines relating to, respectively, employers' benefits continuation obligations and the requirements of Section 125 of the Internal Revenue Code.

The foregoing description does not include an exhaustive list of the laws and regulations governing and impacting our business. Changes in laws and regulations that may decrease our revenues and earnings.

Legal Proceedings

We may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to employee staffing business. These matters may include product liability, intellectual property, employment, personal injury caused by our employees, and other general claims. While we maintain various insurance coverages to protect against the claims that we believe are most likely to affect our business, there is no assurance that we will have adequate insurance to cover any particular risk. We accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Employees

We currently have the following employees in our business office (as of March 1, 2017):

Operational Staff:

Clerical/administrative -21

Executive Officer Management - 2

Non-Executive Officer Operational Management - 4

Sales - 7

We have one member of operational management who is not an executive officer in that he is neither president nor vice president in charge of a principal business unit, division or function (such as sales, administration or finance) and has no policy making functions for us. All executive officer duties are currently performed by Scott Absher as our CEO and Stephen DeSantis as our CFO.

ShiftPixy Employees that are working for our clients - approximately 2,581 of which approximately 45% are currently identified as working less than 30 hours per week.

 

48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and the notes thereto appearing elsewhere in this Offering Circular. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors”, “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this Offering Circular. Please see the notes to our Financial Statements for information about our Critical Accounting Policies and Recently Issued Accounting Pronouncements.

Overview

The Company is a leading provider of employment law compliance solutions for employers and workers in an environment in which shift or other part-time/temporary positions, commonly called “gigs,” are performed. In what is now being called the Gig Economy, businesses such as those in our current target market in the restaurant and hospitality industries contract with independent workers for less than full-time engagements primarily in the form of shift work. The trend toward a Gig Economy has begun, and we are endeavoring to participate through an employment related service offering. A study by Intuit predicted that by 2020, 40 percent of American workers would be less than full time independent contractors. Intuit, Inc. October 2010. “Intuit 2020 Report: Twenty Trends That Will Shape the Next Decade.”

A significant problem for employers in the Gig Economy involves compliance with regulations imposed by federal, state and local governments, including requirements associated with worker's compensation insurance, and other traditional employment compliance issues, including the employer mandate provisions of the ACA. The compliance challenges are often complicated by the actions of many employers in reducing workers’ hours as a means to avoid characterizing employees as “full-time.” As of the date of this Offering Circular, the ACA has not been formally amended or repealed. Employers still face regulatory issues and overhead costs, including those associated with the employer mandate provisions of the ACA for which we believe our services are a cost-effective solution.

For Gig/Shift Workers, whom we also call “Shifters,” the significant problem is difficulty in finding other jobs/gigs to replace hours lost when their employers reduce their hours and make them less than full-time employees or otherwise to fill workweek employment voids.

We believe ShiftPixy has the ideal solution for both of these groups and each of their problems via a service offering that entails two principal elements (that we refer to collectively as our “Ecosystem”) as follows:

49

ShiftPixy’s headquarters is currently situated in Irvine, California, from which it can reach the Southern California market, and has a modest staff in Phoenix, but it plans to open the following additional physical offices upon completion of our offering, in the following order:

Through these office locations, we plan to engage more actively with clients through sales, marketing, employee onboarding, training and payroll processing, in each instance as necessary and appropriate to the applicable market.

These markets collectively account for or allow us to cover approximately 53% of our target market in the restaurant/hospitality sectors. (U.S. Department of Labor. Bureau of Labor Statistics. May 2015. Occupational Employment and Wages.)

ShiftPixy and its subsidiary collectively serve, as of February 28, 2017, an aggregate of approximately 100 clients and with an aggregate of approximately 2,598 active, paid worksite employees, as well as providing only payroll administration services to an additional 24 clients with 818 employees. None of these clients represents more than 10% of our annualized revenues for fiscal year 2016.

ShiftPixy's anticipated business and revenue growth will result from the following factors:

The Problem: Employment law compliance requirements present a multi-obstacle ridden employment related compliance landscape for our target market of businesses that rely significantly on part-time and temporary workers. Challenges facing such businesses include the need to secure applicable workers’ compensation insurance coverage, to effect employment related tax withholdings and filings, and to navigate laws related to hiring and release of employees, including discrimination (race, color, national origin, sex, age, religion, disability, pregnancy and sexual orientation), sexual harassment, sick pay and time off, hours of work, minimum wage and overtime, gender pay differentials, immigration, safety, child labor, military leave, garnishment and other wage imposition processing, family and medical leave, COBRA, and unemployment claims. ACA compliance currently adds another significant burden to businesses with more than 50 full-time workers, as they try to manage the additional burdens associated with mandated health insurance benefits.

50

A business can secure assistance in mitigating and even eliminating these challenges by retaining ShiftPixy.

The ShiftPixy Solution: ShiftPixy is developing an Ecosystem comprised of a closed proprietary operating and processing system that helps restaurant or hospitality businesses (and in the future, businesses in additional industries wherein we plan to market our services) as well as shift workers by matching available shifts with available shift workers. The ShiftPixy Ecosystem provides the following benefits:

Shift Human Capital Management Inc.: We formed Shift Human Capital Management Inc., a wholly-owned subsidiary, in December 2015. We formed this subsidiary in response to the need to have worker's compensation policies written in the names of the clients (as may be required by some states) and otherwise in response to client needs for only administrative and processing services rather than the full-service, staffing program offered by ShiftPixy. As of February 28, 2017, ShiftableHR had 79 clients (included in our total aggregate of 100 clients) with 1,787 worksite employees and 818 employees for whom we provide only payroll administration services. Our goal is to migrate these clients to ShiftPixy.

Consolidated results of our operations for the years ended August 31, 2015 and August 31, 2016

The following table summarizes the consolidated results of our operations for the years ended August 31, 2015 and 2016.

* Denotes a loss of less than ($0.01) per share.

 

51

The accompanying notes are an integral part of these consolidated financial statements.

Any review by investors of non-GAAP financial measures that we present should only be made in conjunction with a review of the GAAP financial measures we also present. Non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for measures of operating and net results, cash flows and financial condition determined in accordance with GAAP, and should not be considered in isolation from or as a substitute for analysis of our results, cash flows and financial condition as reported under GAAP. Moreover, non-GAAP financial measures that we present may not be comparable to non-GAAP financial measures presented by other companies.

Fiscal year ended August 31, 2016

Gross Billings. ShiftPixy provides contingent staffing and workforce management solutions, principally to businesses that make significant use of part-time employees; we are currently focusing on the restaurant and hospitality industries. The company currently targets clients in Southern California but plan to expand our geographic coverage subsequent to the successful completion of our public equity offering. Our gross billings are primarily based on (i) the payroll cost of our worksite employees; (ii) the employer portion of payroll-related taxes; (iii) employee benefit programs; (iv) workers’ compensation insurance coverage and (v) admin fees and delivery fees, which are the fees charged to clients for providing payroll processing and temporary staffing services. Gross billings for the fiscal year ending August 31, 2016, were earned from billings to clients to whom we provide staff or workforce management support. Our mobile workforce management solution remains under continuing development. Gross billings for the second half of FYE August 31, 2016 versus the first half of 2016 totaled $46.9M compared to $3.7M. As a result, gross billings increased by $43.2M or 1,150%.

Net Revenues. Net revenues exclude the payroll cost component of gross billings. With respect to employer payroll taxes, employee benefit programs, workers’ compensation insurance, we believe that we are the primary obligor, have latitude in establishing price, selecting suppliers, and determining the service specifications and, as such, the gross billings for those components are included as net revenues. Net revenues are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Net revenue for the fiscal year ending August 31, 2016, were earned from gross billings to clients to whom we provide staff or workforce management support less pass-through costs related to payroll, taxes, and benefits. Our mobile workforce management solution remains under continuing development. Net revenue for the second half of FYE August 31, 2016 versus the first half of 2016 totaled $8.1M compared to $375K. As a result, net revenue increased by $7.7M or 2,057%.

Cost of Revenues. Our costs include the costs of employer side taxes, worker's compensation insurance coverage and the wages paid to our employees staffed with the client.

Gross Profit. Gross profit for the second half of FYE August 31, 2016 versus the first half of 2016 totaled $1.9M compared to a loss of $206K. As a result, gross profit increased by $1.9M or 937%.

Total Operating Expenses. Total operating expenses for the second half of FYE August 31, 2016 versus the first half of 2016 totaled $2.9M compared to $452K. As a result, total operating expenses increased by $2.4M or 545%.

Sales and marketing. Significant marketing expenses include advertising and promotion costs of $35,003 and commissions of $521,247. Payroll expenses related for sales and marketing totaled $373,378.

Product development. Product development expenses to build the app totaled $316,668.

Customer Support. Customer support costs totaled $556,765. They included payroll related expenses of $480,899 and $75,866 of software, training, and other related costs to supporting our clients.

 

52

General and administrative. Payroll related expenses totaled $357,927. Legal and professional expenses for the fiscal year ended August 31, 2016, were $742,127. These expenses were related to the cost of business and infrastructure development, accounting, and management consulting. Other general and administrative expenses include, rent expense of $144,719, payments for computer hardware, software licenses, and internet expenses of $65,119, insurance expense of $99,251, other G&A expenses of $15,857, utilities of $39,582, office supplies of $21,176, and depreciation and amortization of $24,922.

Net loss. For the foregoing reasons, our net loss was $1,854,556 for the fiscal year ended August 31, 2016.

Fiscal period ended August 31, 2015

Gross Billings. ShiftPixy provides contingent staffing and workforce management solutions, principally to businesses that make significant use of part-time employees; we are currently focusing on the restaurant and hospitality industries. The company currently targets clients in Southern California but plan to expand our geographic coverage subsequent to the successful completion of our public equity offering. Gross billings for the fiscal year ending August 31, 2015, were earned from billings to clients to whom we provide staff or workforce management support. Our mobile workforce management solution remains under continuing development.

Net Revenue. Net revenue for the fiscal year ending August 31, 2015, were earned from gross billings to clients to whom we provide staff or workforce management support less pass-through costs related to payroll, taxes, and benefits. Our mobile workforce management solution remains under continuing development.

Cost of Revenues. Our costs include the costs of employer side taxes, worker's compensation insurance coverage and the wages paid to our employees staffed with the client.

Sales and Marketing. Sales and Marketing expenses include advertising and promotion costs of $1,363.

General and administrative. Other general and administrative expenses include payments for general liability insurance, costs of incorporation, purchase of office equipment, travel and other office expenses. Legal and professional expenses in the period ended August 31, 2015, were $26,520. These expenses were related to the cost of establishing the company, initial business and infrastructure development, accounting and marketing.

Net loss. For the foregoing reasons, our net loss was $53,681 for the period ended August 31, 2015.

 

53