Note 8: Commitments

Operating Leases & License Agreements

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

Effective August 13, 2020, the Company entered into a non-cancelable seven-year operating lease for its Miami, Florida office facility commencing October 2020 through September 2027. The lease contains escalation clauses relating to increases in real property taxes as well as certain maintenance costs.

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

Future minimum lease and licensing payments under non-cancelable operating leases at May 31, 2021, are as follows:

 

 

ShiftPixy Labs Ghost Kitchens

On March 17, 2021, the Company entered into a master service agreement for the construction of six ghost kitchens to be placed in its ShiftPixy Labs facility in Miami for a total cost of $962,000. As of May 31, 2021, the Company has made payments totaling $577,000 of service was provided and capitalized as construction in progress and included in Fixed Assets on the Condense Consolidated Balance Sheet and has an additional cost to complete of $385,000 under this contract, which is expected to be completed by the end of the current fiscal year.

Non-contributory 401(k) Plan

The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employees who are at least 21 years of age and have completed 3 months of service. There were no employer contributions to the 401(k) Plan for the three or nine months ended May 31, 2021 and May 31, 2020.

Stock Repurchase Plan

On July 9, 2019, the Board of Directors authorized the repurchase of up to 10 million shares of the Company’s outstanding common stock as market conditions warrant over a period of 18 months. The Company has not implemented the stock repurchase plan to date and has not repurchased any stock under this authorization, which has now expired.

 

Special Purpose Acquisition Company (“SPAC”) Sponsorship

On April 29, 2021, ShiftPixy Investments, Inc. (the “Sponsor”), a wholly owned subsidiary of the Company, announced the filing of registration statements relating to initial public offerings (“IPOs”) of the following four SPACs: (i) Industrial Human Capital Inc., which proposes to raise $250 million to acquire one or more light industrial staffing companies; (ii) Vital Human Capital, Inc., which proposes to raise $250 million to acquire one or more healthcare staffing companies; (iii) TechStackery, Inc., which proposes to raise $250 million to acquire one or more technology staffing companies; and (iv) Firemark Global Capital, Inc., (formerly known as Insurity Capital, Inc.), which proposes to raise $500 million to acquire one or more commercial insurance company “shells” licensed to conduct business throughout the United States. It is anticipated that the Board of Directors of each of these entities will be comprised of the same individuals (none of whom will be directors of the Company aside from our Chairman and Chief Executive Officer, Scott W. Absher) and that Mr. Absher, Domonic J. Carney (our Chief Financial Officer), and Robert S. Gans (our General Counsel) will serve as the Chief Executive Officer, Chief Financial Officer, and General Counsel of each entity, respectively. Details of the Sponsor’s financial commitment to each SPAC is set forth below. The Company has advanced approximately $.5 million in connection with its sponsorship of the SPACs as of the three and nine months ended May 31, 2021.

Industrial Human Capital, Inc (“IHC”)

The Sponsor has agreed to purchase an aggregate of 4,279,000 warrants (the “IHC Placement Warrants”) (or 4,654,000 IHC Placement Warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,279,000  ($4,654,000 if the over-allotment option is exercised in full). Each IHC Placement Warrant will be identical to warrants sold in the IPO, subject to certain exceptions. The IHC Placement Warrants will be sold in a private placement that will close simultaneously with the closing of the IPO.

The Sponsor currently owns 5,187,500 shares of IHC common stock, prior to the exercise of any of the IHC Placement Warrants.

Vital Human Capital, Inc. (“VHC”)

The Sponsor has agreed to purchase an aggregate of 4,279,000 warrants (the “VHC Placement Warrants”) (or 4,654,000 VHC Placement Warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,279,000  ($4,654,000 if the over-allotment option is exercised in full). Each VHC Placement Warrant will be identical to warrants sold in the IPO, subject to certain exceptions. The VHC Placement Warrants will be sold in a private placement that will close simultaneously with the closing of the IPO.

The Sponsor currently owns 5,187,500 shares of VHC common stock, prior to the exercise of any of the VHC Placement Warrants.

TechStackery, Inc. (“TSI”)

The Sponsor has agreed to purchase an aggregate of 4,279,000 warrants (the “TSI Placement Warrants”) (or 4,654,000 TSI Placement Warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,279,000  ($4,654,000 if the over-allotment option is exercised in full). Each TSI Placement Warrant will be identical to the warrants sold in the IPO, subject to certain exceptions. The TSI Placement Warrants will be sold in a private placement that will close simultaneously with the closing of the IPO.

The Sponsor currently owns 5,187,500 shares of TSI common stock, prior to the exercise of any of the TSI Placement Warrants.

Firemark Global Capital, Inc. (“FGC”)

The Sponsor has agreed to purchase an aggregate of 7,447,000 warrants (the “FGC Placement Warrants”) (or 8,197,000 FGC Placement Warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $7,447,000  ($8,197,000 if the over-allotment option is exercised in full). Each FGC Placement Warrant will be identical to the warrants sold in the IPO, subject to certain exceptions. The FGC Placement Warrants will be sold in a private placement that will close simultaneously with the closing of the IPO.

The Sponsor currently owns 10,375,000 shares of FGC common stock, prior to the exercise of any of the FGC Placement Warrants.

The Sponsor has agreed to loan up to $500,000 to each of the sponsored SPACs to be used for a portion of their IPO expenses. The source of repayment of these loans will be from the IPO proceeds and the sale of the Placement Warrants described above, as permitted and described in the respective registration statements for each SPAC.