UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to __________
Commission File Number—
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification Number) |
(Address of principal executive offices including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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OTC Markets Group Inc. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of December 14, 2021, the Registrant had
Simply, Inc.
FORM 10-Q
For the 13 weeks ended October 30, 2021
Table of Contents
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Simply, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands, except per share data)
(unaudited)
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13 Weeks Ended |
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39 Weeks Ended |
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October 30, 2021 |
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October 31, 2020 |
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October 30, 2021 |
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October 31, 2020 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Other income (expense): |
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Interest expense |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Decrease in fair value of derivative liability |
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— |
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— |
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— |
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Gain on extinguishment of debt |
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— |
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Other income, net |
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Income (loss) from continuing operations before provision for income taxes |
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( |
) |
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( |
) |
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( |
) |
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Provision for income taxes |
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— |
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Income (loss) from continuing operations |
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( |
) |
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( |
) |
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( |
) |
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Income (loss) from discontinued operations |
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— |
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— |
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( |
) |
Net income (loss) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Basic income (loss) per share: |
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Continuing operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Discontinued operations |
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— |
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|
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— |
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( |
) |
Total |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Diluted income (loss) per share: |
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Continuing operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Discontinued operations |
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— |
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|
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— |
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( |
) |
Total |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|
Weighted-average number of common shares outstanding: |
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Basic |
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Diluted |
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Comprehensive income (loss): |
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Net income (loss) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Foreign currency translation adjustments |
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( |
) |
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Comprehensive income (loss) |
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$ |
( |
) |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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|
Accompanying notes are an integral part of these condensed consolidated financial statements.
3
Simply, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
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October 30, 2021 |
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January 30, 2021 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Trade accounts receivable, net of allowance for doubtful accounts of $ |
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Other accounts receivable |
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Inventory |
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Prepaid assets |
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Current assets of discontinued operations |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangibles, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current portion of operating lease liabilities |
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Current portion of notes payable |
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Note payable - related parties |
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Current liabilities of discontinued operations |
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Total current liabilities |
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Long-term liabilities: |
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Notes payable |
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Operating lease liabilities |
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Total liabilities |
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Commitments and Contingencies |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital common stock |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
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Accumulated deficit |
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( |
) |
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( |
) |
|
Total stockholders’ deficit |
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( |
) |
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( |
) |
|
Total liabilities and stockholders’ deficit |
|
$ |
|
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$ |
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|
Accompanying notes are an integral part of these condensed consolidated financial statements.
4
Simply, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(Amounts in thousands)
(unaudited)
|
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Preferred Stock |
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Common Stock |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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|||||||||||||
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Total |
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||||||||
Balance, January 30, 2021 |
|
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|
$ |
— |
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|
|
|
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|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Stock-based compensation |
|
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— |
|
|
|
— |
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|
|
— |
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|
|
— |
|
|
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|
|
|
|
— |
|
|
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— |
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Issuance of shares in payment of accrued severance |
|
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— |
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|
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— |
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— |
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|
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— |
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— |
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Warrant exercises |
|
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— |
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— |
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|
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— |
|
|
|
— |
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Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance, May 1, 2021 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of shares in payment of accrued severance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
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|
Short-swing profit disgorgement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
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— |
|
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Issuance of warrants |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
( |
) |
|
|
( |
) |
Balance, July 31, 2021 |
|
|
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|
|
— |
|
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|
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|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
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|
— |
|
|
|
— |
|
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|
Issuance of shares in payment of accrued severance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
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|
|
— |
|
|
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— |
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|
Issuance of shares in payment of services |
|
|
— |
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|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Short-swing profit disgorgement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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Sale of stock |
|
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— |
|
|
|
— |
|
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|
|
|
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— |
|
|
|
|
|
|
|
— |
|
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— |
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Issuance of warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance, October 30, 2021 |
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
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|
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|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
|
|
|
|||||||||||||
|
|
Shares |
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|
Amount |
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|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
||||||||
Balance, February 1, 2020 |
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Debt exchange |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Elimination of other comprehensive loss from sale of foreign subsidiary |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Balance, May 2, 2020 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Debt exchange |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance, August 1, 2020 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of shares in lieu of accrued severance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of shares from reverse stock split in lieu of fractional shares |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repurchase and retirement of shares |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance, October 31, 2020 |
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accompanying notes are an integral part of these condensed consolidated financial statements.
5
Simply, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(unaudited)
|
|
39 Weeks Ended |
|
|||||
|
|
October 30, 2021 |
|
|
October 31, 2020 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Less: loss from discontinued operations |
|
|
— |
|
|
|
( |
) |
Income (loss) from continuing operations |
|
|
( |
) |
|
|
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
Accretion of debt discount |
|
|
|
|
|
|
|
|
Non-cash interest |
|
|
— |
|
|
|
|
|
Provision for bad debts |
|
|
— |
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
Gain on debt conversion/forgiveness |
|
|
( |
) |
|
|
( |
) |
Loss (gain) on disposal of fixed assets |
|
|
( |
) |
|
|
|
|
Provision for obsolete inventory |
|
|
|
|
|
|
|
|
Gain on derivative liability |
|
|
— |
|
|
|
( |
) |
Impairment of right of use assets |
|
|
— |
|
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
|
|
|
|
|
|
Other accounts receivable |
|
|
|
|
|
|
|
|
Inventory |
|
|
( |
) |
|
|
|
|
Prepaid assets |
|
|
( |
) |
|
|
|
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
( |
) |
Operating lease right of use assets and lease liabilities |
|
|
|
|
|
|
( |
) |
Net cash used in continuing operating activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in discontinued operating activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable |
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable to related party |
|
|
|
|
|
|
— |
|
Payment of notes payable |
|
|
— |
|
|
|
( |
) |
Payment of note payable to related party |
|
|
( |
) |
|
|
— |
|
Proceeds from sale of stock |
|
|
|
|
|
|
— |
|
Proceeds from warrant exercises |
|
|
|
|
|
|
— |
|
Short-swing profit disgorgement |
|
|
|
|
|
|
— |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Conversion of accounts payable and accrued liabilities to equity |
|
$ |
— |
|
|
$ |
|
|
Accounts receivable offset against conversion of accounts payable to equity |
|
$ |
— |
|
|
$ |
( |
) |
Record operating lease right-of-use assets and operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
Accompanying notes are an integral part of these condensed consolidated financial statements.
6
Simply, Inc.
Notes to Condensed Consolidated Financial Statements
October 30, 2021
(unaudited)
NOTE 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and these condensed notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from those estimates, but management does not believe such differences will materially affect the financial position or results of operations of Simply, Inc. (the “Company”), although they may. These unaudited consolidated financial statements and condensed notes should be read in conjunction with the financial statements and notes as of and for the 52 weeks ended January 30, 2021 included in the Company’s Annual Report on Form 10‑K for such year.
In early 2020, the Company sold both of its international subsidiaries in Latin America (see Note 17). On January 31, 2020, the Company sold all of its ownership interest in OneClick Argentino S.R.L., the Company’s subsidiary that operated
During March 2020, the Company restructured substantially all of its then outstanding debt of $
Effective October 14, 2020, the Company changed its legal name from “Cool Holdings, Inc.” to “Simply, Inc.” and effected a
The Company has determined that, under its current business structure, its management makes operating decisions and assesses performance of its business as a single segment. The Company previously operated its Cooltech Distribution unit during the 26 weeks ended August 1, 2020, but it was completely phased out by August 1, 2020 and its operating results during the period were immaterial.
The Company’s fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. The Company’s consolidated financial statements include assets, liabilities and operating results of its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly present the Company’s financial condition as of October 30, 2021, and the results of operations, financial position and cash flows for all periods presented. The results reported in these condensed consolidated financial statements for the 39 weeks ended October 30, 2021 are not necessarily indicative of the operating results, financial condition or cash flows that may be expected for the full year of Fiscal 2022 or for any future period.
7
NOTE 2. Going Concern Considerations
In accordance with the guidance issued by the Financial Accounting Standards Board (“FASB”) under ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, the Company is required to evaluate each reporting period whether there is substantial doubt about its ability to continue as a going concern. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern for 12 months following the date the Company’s financial statements are issued. Management considered the Company’s current financial condition and liquidity sources, including current funds and available working capital, forecasted future cash flows and the Company’s conditional and unconditional obligations due within one year from the date of issuance of the financial statements. Because the Company has sustained significant losses over the past two years, only recently completed the restructuring of its debt, and because of the uncertainty of the near term implications of the novel coronavirus (“COVID-19”) pandemic on its business, management has substantial doubt that the Company could remain independent and continue as a going concern for the required period of time if it were not able to raise additional capital to fund its working capital needs. These consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
NOTE 3. Discontinued Operations
During the fourth quarter of 2018, the Company completed the closure of its verykool business segment. Also, as discussed in Note 17, the Company sold OneClick Argentino, its business unit in Argentina, and Verablue Caribbean Group, its business unit in the Dominican Republic, which resulted in a loss on sale of $
The results of discontinued operations for the 13 weeks ended October 31, 2020 are as follows (in thousands):
|
Verykool |
|
|
TOTAL |
|
||
Net sales |
$ |
— |
|
|
$ |
— |
|
Cost of sales |
|
— |
|
|
|
— |
|
Gross profit |
|
— |
|
|
|
— |
|
Selling, general and administrative expenses |
|
— |
|
|
|
— |
|
Operating loss |
|
— |
|
|
|
— |
|
Other income, net |
|
|
|
|
|
|
|
Income from discontinued operations before income taxes |
|
|
|
|
|
|
|
Provision for income taxes |
|
— |
|
|
|
— |
|
Net income from discontinued operations |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
The results of discontinued operations for the 39 weeks ended October 31, 2020 are as follows (in thousands):
|
Verykool |
|
|
Verablue Caribbean |
|
|
TOTAL |
|
|||
Net sales |
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Cost of sales |
|
— |
|
|
|
|
|
|
|
|
|
Gross profit |
|
— |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expense), net |
|
|
|
|
|
( |
) |
|
|
( |
) |
Income (loss) from discontinued operations before income taxes |
|
|
|
|
|
( |
) |
|
|
( |
) |
Provision for income taxes |
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) from discontinued operations |
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE 4. Stock-Based Compensation
The Company’s 2015 Equity Incentive Plan (the “Plan”) was approved by stockholders in June 2015. The Plan is an omnibus plan that allows for grants of stock options, stock appreciation rights, stock awards, restricted stock, stock units and performance units. As of October 30, 2021, options to purchase
During the 39-week period ended October 31, 2020, the Company made grants of unregistered shares to advisors associated with the March 2020 debt restructuring in the aggregate amount of
Also during the 39-week period ended October 31, 2020, the Company granted stock options to purchase an aggregate of
Total stock-based compensation expense during the 39 weeks ended October 31, 2020 amounted to $
A summary of option activity under the 2015 Plan as of October 30, 2021 and changes during the 39 weeks then ended are presented in the table below (in thousands except per share and life amounts):
|
|
Shares |
|
|
Wtd. Avg. Exercise Price |
|
|
Wtd. Avg. Remaining Contractual Life in Years |
|
|
Aggregate Intrinsic Value (a) |
|
||||
Outstanding at January 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/Forfeited |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Vested and expected to vest |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercisable at October 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Non-vested at October 30, 2021 (b) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
(a) |
The aggregate intrinsic value is based on our closing stock price of $ |
|
(b) |
Weighted average grant-date fair value is $ |
NOTE 5. Earnings Per Share
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued as determined by using the treasury stock method. Common share equivalents are excluded from the computation if their effect is anti-dilutive. The Company’s common share equivalents consist of convertible notes, convertible preferred stock, stock options and warrants.
9
For the 39-week period ended October 31, 2020, the dilutive effect of in-the-money common share equivalents amounted to
NOTE 6. Income Taxes
The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with applicable standards of the FASB. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are
The Company is subject to U.S. federal income tax as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years
The Company recognizes the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or results of operations.
NOTE 7. Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists primarily of consumer electronics and accessories. The Company writes down its inventory to net realizable value when it is estimated to be slow-moving or obsolete. For both the 13 and 39 weeks ended October 30, 2021, inventory write-downs amounted to $
NOTE 8. Property and Equipment
Property and equipment, all located in the United States, consisted of the following as of the dates presented (in thousands):
|
|
October 30, 2021 |
|
|
January 30, 2021 |
|
||
|
|
(unaudited) |
|
|
|
|
|
|
Machinery and equipment |
|
$ |
|
|
|
$ |
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
Subtotal |
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of property and equipment for the 13 and 39 weeks ended October 30, 2021 was $
NOTE 9. Intangible Asset and Goodwill
The Company’s goodwill and definite-lived intangible asset arose primarily from the acquisition of Simply Mac on September 25, 2019. The intangible asset is comprised of the Simply Mac tradename, that is being amortized over
10
simplyinc.com and simplydeals.com domain names, that are being amortized over
|
|
October 30, 2021 |
|
|
January 30, 2021 |
|
||
|
|
(unaudited) |
|
|
|
|
|
|
Simply Mac Tradename |
|
$ |
|
|
|
$ |
|
|
SimplyInc Domain Name |
|
|
|
|
|
|
|
|
SimplyDeals Domain Name |
|
|
|
|
|
|
— |
|
Subtotal |
|
|
|
|
|
|
|
|
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the 13 and 39 weeks ended October 30, 2021 was $
The carrying amount of goodwill at January 30, 2021 and October 30, 2021 amounted to $
NOTE 10. Accrued Expenses
Accrued expenses consisted of the following as of the dates presented (in thousands):
|
|
October 30, 2021 (unaudited) |
|
|
January 30, 2021 |
|
||
Accrued compensation (wages, benefits, severance, vacation) |
|
$ |
|
|
|
$ |
|
|
Customer deposits and overpayments |
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
Accrued sales tax |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
|
|
|
|
|
|
Other accruals |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
NOTE 11. Notes Payable
Notes payable consisted of the following as of the dates presented (in thousands):
|
|
October 31, 2021 (unaudited) |
|
|
January 30, 2021 |
|
||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total face amount |
|
|
|
|
|
|
|
|
Amount classified as current |
|
|
|
|
|
|
|
|
Amount classified as long-term |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
On September 25, 2019, in connection with the acquisition of Simply Mac, the Company issued a $
11
GameStop entered into an agreement to amend and restate the promissory note. The amended promissory note reduced the principal balance of the note from $
On April 16, 2020, the Company secured a $
On March 10, 2021, the Company secured a second-draw, $
Interest expense for notes payable for the 13 and 39 weeks ended October 30, 2021 was $
Derivative Liability: As discussed in Note 13, during March 2020 the Company completed a debt restructuring that resulted in the conversion of then outstanding convertible notes and warrants into common stock. Because the conversion features and warrants did not have fixed conversion or exercise prices, they were recorded as derivative liabilities. The derivative liabilities were marked-to-market at March 31, 2020, the date the underlying notes were exchanged. The exchange resulted in a decrease in value of $
12
NOTE 12. Related Parties
Notes Payable to Related Parties: Notes payable to related parties consisted of the following as of the dates presented (in thousands):
|
|
October 31, 2021 (unaudited) |
|
|
January 30, 2021 |
|
||
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total face amount |
|
|
|
|
|
|
|
|
Unamortized discount |
|
|
( |
) |
|
|
— |
|
Total carrying value |
|
|
|
|
|
|
|
|
Amount classified as current |
|
|
|
|
|
|
|
|
Amount classified as long-term |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
On January 21, 2021, the Company’s Simply Mac subsidiary issued a $
On July 6, 2021, the Company issued a $
On August 5, 2021, the Company issued a $
On October 14, 2021, the Company issued a $
13
On October 21, 2021, the Company issued a $
Interest expense for related party notes payable for the 13 and 39 weeks ended October 30, 2021 was $
Other Related Party Transactions: In October 2021, the Company opened a store in Miami, Florida under the SimplyEV brand to sell scooters and other all-electric products and accessories. The Company licensed the Simply EV brand from its owner, EV Toys LLC (“EV Toys”), and purchases the products sold in the store from EV Toys. The store premises are leased from LIVWRK SOL Wynwood LLC (“LIVWRK”) under a
NOTE 13. Capital Stock
During March 2020, the Company completed the exchange of
Also during March 2020, the
On October 14, 2020, the Company executed a
During April 2021, holders of warrants exercisable for
During August and September 2021, the Company raised $
On September 15, 2021, the Company issued
14
NOTE 14. Recent Accounting Pronouncements
Recently Adopted:
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The purpose of this ASU is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard on
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. ASU 2018-13 removes the following disclosure requirements: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and (ii) the entity’s valuation processes for Level 3 fair value measurements. ASU 2018-13 adds the following disclosure requirements: (i) provide information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date rather than a point in the future, (ii) disclose changes in unrealized gains and losses related to Level 3 measurements for the period included in other comprehensive income, and (iii) disclose for Level 3 measurements the range and weighted average of the significant unobservable inputs and the way it is calculated. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard on
In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),” to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. Amongst other provisions, the amendments in this ASU significantly changed the guidance on the issuer’s accounting for convertible instruments and the guidance on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. However, early adoption is permitted as early as fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the new standard on
Other Accounting Standards Updates not effective until after October 30, 2021 are not expected to have a material effect on the Company’s financial position or results of operations.
15
NOTE 15. Commitments and Contingencies
Leases:
The Company leases its retail stores, distribution center and corporate and administrative office facilities under operating lease agreements which expire through
Supplemental lease information as of October 30, 2021 is as follows ($ in thousands):
Operating right of use assets |
|
$ |
|
|
Current operating lease liabilities |
|
$ |
|
|
Long-term operating lease liabilities |
|
$ |
|
|
Weighted-average remaining lease term in years |
|
|
|
|
Weighted-average discount rate |
|
|
|
% |
As of October 30, 2021, maturities of lease liabilities are as follows (in thousands):
Years Ending Fiscal January |
|
|
|
|
2022 (remaining three months) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: interest |
|
|
( |
) |
Total |
|
|
|
|
Less: current portion |
|
|
|
|
Long-term portion |
|
$ |
|
|
|
|
|
|
|
Security Agreement:
On October 2, 2020, the Company entered into a security agreement with its primary inventory supplier of Apple products that are sold in the Company’s Simply Mac retail electronics stores and on the Simply Mac eCommerce site. Under the agreement, the Company granted the supplier a security interest in collateral comprised of substantially all of the Company’s assets including inventory, accounts receivable, fixed assets and other items. In exchange for entering into the agreement, the supplier increased the Company’s line of credit from $
Litigation:
The Company has in the past and may in the future become involved in certain legal proceedings and claims which arise in the normal course of business. As of the filing date of this report, the Company did not have any significant litigation outstanding.
16
NOTE 16. Fair Value of Financial Instruments
The Company measures its financial instruments in its financial statements at fair value or amounts that approximate fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure.” ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are described below:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;
Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
The Company seeks to measure fair value based upon the lowest level of available input in the fair value hierarchy. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters. If market observable inputs for model-based valuation techniques are not available, the Company makes judgments about assumptions market participants would use in estimating the fair value of the financial instrument.
Carrying values of the Company’s short-term notes payable approximate their fair values due to the short-term nature and liquidity of these financial instruments. The Company estimates that the fair value of its notes payable approximates its carrying value based on significant level 2 observable inputs.
In connection with the issuance by the Company during 2019 of certain convertible notes and warrants, as well as the conversion of certain notes into common stock and warrants, the conversion features and warrants were deemed to qualify as derivatives to be separately accounted for in accordance with ASC 815.
|
|
Derivative Liability |
|
|
Balance, February 1, 2020 |
|
$ |
|
|
Change in fair value of derivative liability |
|
|
( |
) |
Extinguishment of derivative liability resulting from debt conversion |
|
|
( |
) |
Balance, August 1, 2020 |
|
$ |
— |
|
|
|
|
|
|
NOTE 17. Sale of Latin American Subsidiaries
On January 31, 2020, the Company entered into a definitive agreement with two employees of the Company to sell all of its ownership interest in OneClick Argentino S.R.L., the Company’s subsidiary that operated
On April 6, 2020, the Company entered into a definitive agreement with an employee of the Company to sell all of its ownership interest in Verablue Caribbean Group, S.R.L. (“Verablue”), the Company’s subsidiary that operated
NOTE 18. Subsequent Events
On November 5, 2021, the Company issued a $
17
On November 23, 2021, the Company entered into a $
18
Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements, Safe Harbor Statement and Other General Information
This discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and condensed notes thereto and other information included in this report and our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the SEC on April 30, 2021 (including our audited consolidated financial statements for the fiscal year ended January 30, 2021 and the transition period from January 1, 2020 to February 1, 2020, and related notes thereto and other information)(“2021 Annual Report”). Our discussion and analysis of financial condition and results of operations are based upon, among other things, our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to, among other things, make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent liabilities as of the date of our most recent balance sheet, and the reported amounts of revenues and expenses during the reporting periods. We review our estimates and assumptions on an ongoing basis. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from these estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations, although they may. Our critical accounting policies, which we believe are the most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined in “Critical Accounting Policies” in our 2021 Annual Report, as may be updated in our subsequent Quarterly Reports on Form 10-Q. All references to results of operations in this discussion generally are related to results from continuing operations, unless otherwise noted.
This report contains “forward-looking statements,” including, without limitation, statements about trading of our securities on the Over-the-Counter market, sales levels, cost reductions, operating efficiencies, currency-related matters, profitability and adequacy of working capital, which are based on, among other things, current management knowledge and expectations and involve certain risks and uncertainties. These risks and uncertainties, in whole or in part, could cause expectations to fail to be achieved and could have a material adverse effect on our business, financial condition and results of operations, and include, without limitation: (1) the potential impact on our store operations as a result of the COVID-19 pandemic including mandated store closings, limited customer traffic, etc.; (2) our ability to have access to adequate capital to fund both operations and our expansion plans and to service or refinance our remaining outstanding debt; (3) a deterioration in our relationship with Apple that could negatively affect both our supply of products and our ability to conduct business as a licensee; (4) an interruption or failure of our information systems or subversion of access or other system controls, including private information, may result in a significant loss of business, assets, or competitive information; (5) significant changes in supplier terms and relationships or shortages in product supply; (6) rapid product improvement and technological change resulting in inventory obsolescence; (7) the loss of a key executive officer or other key employees and the integration of new employees; (8) our failure to adequately adapt to industry changes and to manage potential growth and/or contractions; and (9) the resolution of any litigation for or against the Company. These forward-looking statements speak only as of the date of this report and we undertake no obligation to publicly update any forward-looking statements to reflect new or changing information, events or circumstances after the date of this release. We continue to institute changes to our strategies, operations and processes to address risks and uncertainties and to mitigate their impacts on our business, results of operations and financial condition. However, no assurances can be given that we will be successful in these efforts. For a further discussion of significant risk factors to consider, see “Risk Factors” below in this report and in “Item 1A. Risk Factors” in our 2021 Annual Report. In addition, other risks or uncertainties may be detailed from time to time in our future SEC filings.
Business Overview and Strategy
As of October 30, 2021, our business was comprised of 55 Simply Mac retail consumer electronics stores in 18 states across the U.S. authorized under the Apple® Premier Partner program. In our retail stores, we market and distribute a variety of mobility, computing, audio/video, and other technology products supplied primarily by Apple including laptops, tablets, cell phones, drones, smart watches, gaming consoles, accessories and audio devices. Simply Mac also sells products online through its eCommerce site, and in October 2021 opened a store under the SimplyEV brand to sell scooters and other all-electric products.
We work with Apple to develop our network of Simply Mac stores in locations and markets where Apple has limited or no presence. In our stores, we sell Apple and other third-party products and accessories. We also provide repair service for Apple products using our Apple-certified repair technicians. Retail customers may book a repair appointment at one of our Simply Mac stores either through our website or through the Apple website.
Our current strategy is to focus on refining and improving the profitability of our Simply Mac retail stores in North America and on expanding the number of stores. We expect this expansion will come primarily from organic growth through the opening of new stores, but may also include selected acquisitions. We currently rank as the largest Apple Premier Partner in North America.
19
Results of Operations
The first table below sets forth our condensed consolidated statements of operations for the 13 weeks ended October 30, 2021 and October 31, 2020, and the change between the periods ($ in thousands). The second table sets forth our condensed consolidated statements of operations for the 39 weeks ended October 30, 2021 and October 31, 2020, and the change between the periods.
|
|
13 Weeks Ended |
|
|
Change |
|
||||||||||
|
|
October 30, 2021 |
|
|
October 31, 2020 |
|
|
$ |
|
|
% |
|
||||
Net sales |
|
$ |
19,303 |
|
|
$ |
16,923 |
|
|
$ |
2,380 |
|
|
|
14.1 |
% |
Cost of sales |
|
|
15,197 |
|
|
|
12,078 |
|
|
|
3,119 |
|
|
|
25.8 |
% |
Gross profit |
|
|
4,106 |
|
|
|
4,845 |
|
|
|
(739 |
) |
|
|
-15.3 |
% |
Selling, general and administrative expenses |
|
|
7,334 |
|
|
|
6,473 |
|
|
|
861 |
|
|
|
13.3 |
% |
Operating loss |
|
|
(3,228 |
) |
|
|
(1,628 |
) |
|
|
(1,600 |
) |
|
|
98.3 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(821 |
) |
|
|
(35 |
) |
|
|
(786 |
) |
|
|
2245.7 |
% |
Decrease in fair value of derivative liability |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
Gain on extinguishment of debt |
|
|
3,139 |
|
|
|
— |
|
|
|
3,139 |
|
|
|
0.0 |
% |
Other income (expense), net |
|
|
19 |
|
|
|
175 |
|
|
|
(156 |
) |
|
|
-89.1 |
% |
Income (loss) from continuing operations before provision for income taxes |
|
|
(891 |
) |
|
|
(1,488 |
) |
|
|
597 |
|
|
|
-40.1 |
% |
Provision for income taxes |
|
|
— |
|
|
|
10 |
|
|
|
(10 |
) |
|
|
-100.0 |
% |
Income (loss) from continuing operations |
|
|
(891 |
) |
|
|
(1,498 |
) |
|
|
607 |
|
|
|
-40.5 |
% |
Loss from discontinued operations |
|
|
— |
|
|
|
51 |
|
|
|
(51 |
) |
|
|
-100.0 |
% |
Net income (loss) |
|
$ |
(891 |
) |
|
$ |
(1,447 |
) |
|
$ |
556 |
|
|
|
-38.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended |
|
|
Change |
|
||||||||||
|
|
October 30, 2021 |
|
|
October 31, 2020 |
|
|
$ |
|
|
% |
|
||||
Net sales |
|
$ |
56,626 |
|
|
$ |
48,516 |
|
|
$ |
8,110 |
|
|
|
16.7 |
% |
Cost of sales |
|
|
43,241 |
|
|
|
34,647 |
|
|
|
8,594 |
|
|
|
24.8 |
% |
Gross profit |
|
|
13,385 |
|
|
|
13,869 |
|
|
|
(484 |
) |
|
|
-3.5 |
% |
Selling, general and administrative expenses |
|
|
20,986 |
|
|
|
20,050 |
|
|
|
936 |
|
|
|
4.7 |
% |
Operating loss |
|
|
(7,601 |
) |
|
|
(6,181 |
) |
|
|
(1,420 |
) |
|
|
23.0 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,001 |
) |
|
|
(995 |
) |
|
|
(6 |
) |
|
|
0.6 |
% |
Decrease in fair value of derivative liability |
|
|
— |
|
|
|
543 |
|
|
|
(543 |
) |
|
|
-100.0 |
% |
Gain (loss) on extinguishment of debt |
|
|
3,139 |
|
|
|
13,642 |
|
|
|
(10,503 |
) |
|
|
-77.0 |
% |
Other income (expense), net |
|
|
843 |
|
|
|
117 |
|
|
|
726 |
|
|
|
620.5 |
% |
Income (loss) from continuing operations before provision for income taxes |
|
|
(4,620 |
) |
|
|
7,126 |
|
|
|
(11,746 |
) |
|
|
-164.8 |
% |
Provision for income taxes |
|
|
30 |
|
|
|
27 |
|
|
|
3 |
|
|
|
11.1 |
% |
Income (loss) from continuing operations |
|
|
(4,650 |
) |
|
|
7,099 |
|
|
|
(11,749 |
) |
|
|
-165.5 |
% |
Loss from discontinued operations |
|
|
— |
|
|
|
(185 |
) |
|
|
185 |
|
|
|
-100.0 |
% |
Net income (loss) |
|
$ |
(4,650 |
) |
|
$ |
6,914 |
|
|
$ |
(11,564 |
) |
|
|
-167.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the 13 and 39 weeks ended October 30, 2021 and October 31, 2020:
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
October 30, 2021 |
|
|
October 31, 2020 |
|
|
October 30, 2021 |
|
|
October 31, 2020 |
|
||||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
78.7 |
% |
|
|
71.4 |
% |
|
|
76.4 |
% |
|
|
71.4 |
% |
Gross profit |
|
|
21.3 |
% |
|
|
28.6 |
% |
|
|
23.6 |
% |
|
|
28.6 |
% |
Selling, general and administrative expenses |
|
|
38.0 |
% |
|
|
38.2 |
% |
|
|
37.1 |
% |
|
|
41.3 |
% |
Operating loss |
|
|
(16.7 |
%) |
|
|
(9.6 |
%) |
|
|
(13.4 |
%) |
|
|
(12.7 |
%) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4.3 |
%) |
|
|
(0.2 |
%) |
|
|
(1.8 |
%) |
|
|
(2.1 |
%) |
Decrease in fair value of derivative liability |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
1.1 |
% |
Gain on extinguishment of debt |
|
|
16.3 |
% |
|
|
0.0 |
% |
|
|
5.5 |
% |
|
|
28.1 |
% |
Other income (expense), net |
|
|
0.1 |
% |
|
|
1.0 |
% |
|
|
1.5 |
% |
|
|
0.2 |
% |
Income (loss) from continuing operations before provision for income taxes |
|
|
(4.6 |
%) |
|
|
(8.8 |
%) |
|
|
(8.2 |
%) |
|
|
14.7 |
% |
Provision for income taxes |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
Income (loss) from continuing operations |
|
|
(4.6 |
%) |
|
|
(8.9 |
%) |
|
|
(8.2 |
%) |
|
|
14.6 |
% |
Loss from discontinued operations |
|
|
0.0 |
% |
|
|
0.3 |
% |
|
|
0.0 |
% |
|
|
(0.4 |
%) |
Net income (loss) |
|
|
(4.6 |
%) |
|
|
(8.6 |
%) |
|
|
(8.2 |
%) |
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended October 30, 2021 compared to the 13 weeks ended October 31, 2020
Net Sales
For the 13 weeks ended October 30, 2021, our net sales amounted to $19,303,000, an increase of $2,380,000, or 14.1%, from $16,923,000 in the 13 weeks ended October 31, 2020. Approximately $1,945,000 of the sales increase came from higher eCommerce sales, which had been constrained during the prior year’s quarter by lack of product availability arising from supply chain issues. The remainder of the increase was attributable to a number of factors. As a result of our store expansion strategy, we had 12 more Simply Mac retail stores open by the end of the current year’s quarter compared to the prior year. However, sales in the current quarter of certified pre-owned products were constrained by lack of supply in the market compared to the prior year’s quarter. In addition, service revenues declined due to anomalies in the Apple online service appointment system which failed to direct consumers to our stores. We believe the COVID-19 pandemic affected both quarters.
Gross Profit and Gross Margin
For the 13 weeks ended October 30, 2021, our gross profit amounted to $4,106,000, down $739,000, or 15.3% compared to $4,845,000 in the 13 weeks ended October 31, 2020. Our gross profit margin for the 13 weeks ended October 30, 2021, fell to 21.3% compared to 28.6% in the 13 weeks ended October 31, 2020. The reduced gross margin percentage resulted primarily from the following: (1) a higher mix of eCommerce sales because gross margins on eCommerce sales are significantly lower than margins on in-store sales, (2) a lower mix of service and certified pre-owned sales, which typically have higher margins than sales of Apple Hero products, and (3) reduced sales pricing required to match the discounting being offered by competitors.
Operating Expenses
For the 13 weeks ended October 30, 2021, total operating expenses amounted to $7,334,000, an increase of $861,000, or 13.3%, from $6,473,000 in the 13 weeks ended October 31, 2020. Store operating expenses for the current quarter rose $876,000 over the prior year quarter, due primarily to higher payroll costs for increased staffing and to staff and outfit new stores.
Other Income (Expense)
Interest expense for the 13 weeks ended October 30, 2021 amounted to $821,000, a significant increase of $786,000 compared to $35,000 in the 13 weeks ended October 31, 2020. The increase is attributable to stated interest and discount accretion on the $4 million of convertible notes entered into during the current fiscal year. We also recorded a gain of $3,139,000 related to the forgiveness by the SBA on August 17, 2021 of principal and interest on our COVID-19 PPP loan dated April 16, 2020. Other income of $175,000 in the prior year quarter represents a discounted settlement with an inventory vendor of an outstanding payable balance generated in the prior year.
21
Provision for Income Taxes
The provision for income taxes for the 13 weeks ended October 30, 2021 and October 31, 2020 are nominal and represent minimum taxes assessed in states where the Simply Mac stores are located.
39 weeks ended October 30, 2021 compared to the 39 weeks ended October 31, 2020
Net Sales
For the 39 weeks ended October 30, 2021, our net sales amounted to $56,626,000, an increase of $8,110,000, or 16.7%, from $48,516,000 in the 39 weeks ended October 31, 2020. The principal reason for the increase was that sales in the first quarter of the prior year’s period were depressed as a result of the COVID-19 pandemic and recovered in the first quarter of the current year. In addition, eCommerce sales during the current year period grew 75% over the prior year and new stores opened during the current year contributed to the sales growth.
Gross Profit and Gross Margin
For the 39 weeks ended October 30, 2021, our gross profit amounted to $13,385,000, a decrease of $484,000, or 3.5%, from $13,869,000 in the 39 weeks ended October 31, 2020. Our gross profit margin for the 39 weeks ended October 30, 2021 was 23.6%, compared to 28.6% in the 39 weeks ended October 31, 2020. The reduced gross margin percentage resulted primarily from: (1) a higher mix of eCommerce sales because gross margins on eCommerce sales are significantly lower than margins on in-store sales, (2) a lower mix of service and certified pre-owned sales, which typically have higher margins than sales of Apple Hero products, (3) reduced sales pricing required to match the competition, and (4) a loss sustained on the bulk sale of discontinued and end-of-life inventory.
Operating Expenses
For the 39 weeks ended October 30, 2021, total operating expenses amounted to $20,986,000, an increase of $936,000, or 4.7%, from $20,050,000 in the 39 weeks ended October 31, 2020. An increase in store operating expenses due primarily to higher payroll costs for increased staffing and to staff and outfit new stores, was partially offset by a reduction in corporate expenses, primarily reductions in stock-based compensation and legal fees.
Other Income (Expense)
Interest expense for the 39 weeks ended October 30, 2021 amounted to $1,001,000, an increase of only $6,000 compared to $995,000 in the 39 weeks ended October 31, 2020. In the 39 weeks ended October 30, 2021, we recorded a gain of $3,139,000 related to the forgiveness by the SBA on August 17, 2021 of principal and interest on our COVID-19 PPP loan dated April 16, 2020. Other income of $843,000 during that period was comprised primarily of insurance recoveries. In the 39 weeks ended October 31, 2020, we recorded a $543,000 gain from the decrease in value of financial derivatives that arose in connection with the issuance of convertible debt and warrants, as well as a $13,642,000 gain on extinguishment of debt that resulted from the debt restructuring. Other income of $117,000 during that period consisting primarily of a $175,000 gain from a discounted settlement with an inventory vendor of an outstanding payable balance generated in the prior year, partially offset by a $51,000 impairment of right-of-use leased assets.
Provision for Income Taxes
The provision for income taxes of $30,000 recorded for the 39 weeks ended October 30, 2021, as well as the $27,000 provision for the 39 weeks ended October 31, 2020, represent minimum taxes assessed in states where the Simply Mac stores are located.
Liquidity and Capital Resources
Although we had hoped that the effects of the COVID-19 pandemic would be behind us, customer traffic in our stores during the 39 weeks ended October 30, 2021 was still significantly below pre-pandemic levels, supply chain constraints have inhibited product availability and we continue to sustain operating losses. We have received funding from PPP loans and sales of convertible notes and common stock, but we do not currently have a bank line of credit, and are reliant on our primary distribution partners to provide us with open credit lines. We expect that we will need to raise additional capital in the near future through the issuance of debt and/or equity securities. Our ability to execute our strategy depends upon our future operating performance and on the availability of vendor credit, equity and debt financing, all of which may be affected by prevailing economic conditions in our industry and financial, business and other factors, some of which are beyond our control. We cannot predict whether additional liquidity will be available on acceptable terms, or at all, in the foreseeable future.
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Operating Activities
Net cash used by continuing operating activities during the 39 weeks ended October 30, 2021 amounted to $4,899,000 compared to $1,929,000 for the 39 weeks ended October 31, 2020. The $2,970,000 increase in cash used was due to a $1,305,000 increase in operating losses and a $1,665,000 increase in working capital needed during the current period, primarily inventory for new stores and seasonal needs.
Investing Activities
During the 39 weeks ended October 30, 2021, net purchases of property and equipment amounted to $2,378,000, that related primarily to tenant improvements, fixtures and equipment needed to outfit newly opened stores during the period. Purchases of fixed assets during the 39 weeks ended October 31, 2020 amounted to $514,000.
Financing Activities
During the 39 weeks ended October 30, 2021, net cash provided by financing activities amounted to $7,477,000. We received proceeds of $2,000,000 from a second round COVID-19 PPP loan, $3,500,000 from issuance of a convertible notes and warrants, $2,000,000 from the sale of common stock, $123,000 from warrant exercises and $253,000 from disgorgements of short-swing profits from a shareholder. We used $400,000 in cash to pay down a promissory note payable to a related party. During the 39 weeks ended October 31, 2020, net cash provided by financing activities amounted to $2,773,000. We received proceeds of $3,098,000 from our first round COVID-19 PPP loan and used $325,000 in cash to pay down promissory notes.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates affecting the application of those accounting policies since our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.
Item 4. Controls and Procedures
Disclosure Controls
An evaluation was performed pursuant to Rule 13a-15(b) of Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. These disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our 39-week period ended October 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has in the past and may in the future become involved in certain legal proceedings and claims which arise in the normal course of business. As of the filing date of this report, the Company did not have any significant litigation outstanding.
Item 1A. Risk Factors
In addition to the risk factors included below and other information set forth in this report, you should carefully consider the factors discussed in “Part I. Item 1A. Risk Factors” in, as well as other sections of, our 2021 Annual Report, which factors and information could materially affect our business, financial condition or operating results. The risk factors and uncertainties described in our 2021 Annual Report on Form 10-K, and in this report are not the only risks and uncertainties facing our business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition or operating results. Except as set forth below, we do not believe there have been material changes to the risk factors included in our 2021 Annual Report.
Risks Related To Our Business
We sustained significant operating losses in the last two years. If we are unable to achieve sustained profitability, our business may not be financially viable.
For the fiscal years ended January 30, 2021 and December 31, 2019, we reported operating losses of $8.8 million and $13.2 million, respectively. As of October 30, 2021, our balance of cash and restricted cash was $3.0 million, but we had negative net working capital of $5.9 million. In addition, at October 30, 2021, our total liabilities exceeded our total assets and we had an accumulated stockholders’ deficit of $1.9 million. While we restructured most of our debt in March 2020, reported $4.3 million in net income in fiscal 2021, and have plans designed to attain and maintain profitability, if we do not succeed, our business might continue to experience losses and may not be sustainable in the future. Consequently, as discussed in Note 2 to our consolidated financial statements, we have substantial doubt that we could remain independent and continue as a going concern if we are not able to raise additional capital and achieve positive cash flows from operations.
The coronavirus outbreak has had, and may continue to have, a material adverse impact on our business, liquidity, financial condition and results of operations.
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic which spread throughout North America and worldwide. The health and safety of our customers and employees remain our top priority as we continue to make decisions during this rapidly evolving situation. We have taken decisive actions across our businesses to help protect employees, customers and others in the communities we serve. Beginning March 18, 2020, we were forced to close 12 of our 44 Simply Mac stores, primarily due to forced closures by mall operators where our stores were located. Although our remaining stores were allowed to stay open under local or state definitions of “essential businesses” providing products and repair services enabling remote workforces and student education, sales at those stores were significantly curtailed. We imposed store directives including cleanliness and mask requirements, as well as maximum customer limitations to facilitate social distancing. Store and eCommerce sales were also negatively impacted by intermittent shortages in the supply chain of Apple products from our primary distributor. As a consequence of all these conditions, we took immediate action to reduce our store operations from 7 days per week to 5 days and from 11 hours per day to 8 hours. In concert with this action, we were forced to reduce our store workforce by approximately 50%.
Starting in May 2020, we gradually began reopening stores, and by December 2020 all of our stores were open. Store hours were also gradually increased, but remain stunted compared to pre-COVID-19 operations. Customer traffic in our stores also remains depressed compared to 2019 levels. The COVID-19 outbreak and resulting store closures and limited operations had a material adverse impact on our business, liquidity, financial condition, and results of operations, and continue to negatively affect us through reduced customer traffic and supply chain constraints.
On April 16, 2020, we secured a $3.1 million, 2-year loan from a regional bank pursuant to the SBA PPP under the CARES Act. On October 19, 2020, we filed our application for forgiveness of this loan and certified that 100% of the loaned funds were used to pay for qualified payroll and related costs. The forgiveness application was approved by the lender and the SBA, and the loan was extinguished on August 17, 2021. On March 10, 2021, we secured an additional $2 million dollar loan pursuant to the PPP Second Draw Program, and on October 28, 2021, we filed our application for 100% forgiveness of this loan. We cannot foresee whether the outbreak of COVID‑19 will be effectively contained, nor can we predict the severity and duration of its impact on customer traffic and our supply chain. As such, the ultimate impact of the pandemic to our businesses remains highly uncertain and we continue to monitor its financial impact.
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Our business is highly dependent on a single supplier and a loss of that supplier or a deterioration of our relationship with them could significantly reduce our sales and profitability and jeopardize our business model.
Our business is highly dependent upon Apple as a supplier of Apple products that are sold in our Simply Mac stores. In addition, the growth of our business is highly dependent upon our relationship with Apple in providing us with the approvals necessary to open new stores in the future. Apple has very strict performance standards and guidelines that we must achieve and adhere to in order to be successful and continue to receive their support. Consequently, any deterioration of our performance or failure to adhere to their guidelines could jeopardize our strategy and adversely affect our financial performance.
We depend on the timely delivery of new and innovative products from our vendors.
We depend on manufacturers, primarily Apple, to deliver our products in quantities sufficient to meet customer demand. In addition, we depend on these manufacturers to introduce new and innovative products to drive industry sales. Any material delay in the introduction or delivery, or limited allocations, of our products could result in reduced sales.
If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.
The manufacturers of our products have typically provided retailers with significant marketing and merchandising support for their products. As part of this support, we receive cooperative advertising and market development payments from our vendors, which enables us to actively promote and merchandise the products we sell and drive sales at our stores and on our websites. We cannot assure you that vendors will continue to provide this support at historical levels. If they fail to do so, our business and results of operations may be negatively impacted.
We have made and may make investments and acquisitions which could negatively impact our business if we fail to successfully complete and integrate them, or if they fail to perform in accordance with our expectations.
To enhance our efforts to grow and compete, we have made and may again make acquisitions. Our plans to pursue future transactions are subject to our ability to identify potential candidates and negotiate favorable terms for these transactions. Accordingly, we cannot make assurances that future investments or acquisitions will be completed. In addition, to facilitate future transactions, we may take actions that could dilute the equity interests of our stockholders, increase our debt, or cause us to assume contingent liabilities, all of which may have a detrimental effect on the price of our common stock. Also, companies that we have acquired, and that we may acquire in the future, could have products that are in development, and there is no assurance that these products will be successfully developed. Finally, if any acquisitions are not successfully integrated with our business, or fail to perform in accordance with our expectations, our ongoing operations could be adversely affected.
Failure to effectively manage our new store openings could lower our sales and profitability.
Our sales and profitability depend in part upon opening new stores and operating them profitably. Our ability to open new stores and operate them profitably depends on a number of factors, some of which may be beyond our control. These factors include the ability to:
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identify new store locations, negotiate suitable leases, and build out the stores in a timely and cost-efficient manner; |
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integrate new stores into our existing operations; and |
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increase sales at new store locations. |
If we fail to manage new store openings in a timely and cost-efficient manner, our growth or profits may decrease.
If we are unable to renew or enter into new leases on favorable terms, our revenue may be adversely affected.
All of our retail stores are located on leased premises. If the cost of leasing existing stores increases, we cannot assure that we will be able to maintain our existing store locations as leases expire. In addition, we may not be able to enter into new leases on favorable terms or at all, or we may not be able to locate suitable alternative sites or additional sites for new store expansion in a timely manner. Our revenues and earnings may decline if we fail to maintain existing store locations, enter into new leases, locate alternative sites, or find additional sites for new store expansion.
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If our management information systems fail to perform or are inadequate, our ability to manage our business could be disrupted.
We rely on computerized inventory and management systems to coordinate and manage the activities in our distribution center, point-of-sales systems to manage retail operations in our stores, and accounting systems to manage our finance activities. We rely upon these systems to replenish our store inventories on a weekly basis to keep them stocked at optimum levels and to manage our business finances and timely report our financial results. Our systems are subject to damage or interruption from power outages, telecommunications failures, cyber-attacks, security breaches, and catastrophic events. If our inventory or management information systems fail to adequately perform their functions, our business could be adversely affected. In addition, if operations in any of our distribution centers were to shut down or be disrupted or if these centers were unable to accommodate stores in a particular region, our business and results of operations may be negatively impacted. With regard to our accounting systems, we intend to upgrade portions of our current system, and any failure in those systems could negatively impact our ability to timely report our financial results.
If we are unable to safeguard against security breaches with respect to our information technology systems, our business and our reputation may be adversely affected.
During the course of business, we receive, process, transmit and store confidential customer, employee, vendor and Company information through our information technology systems and those of our third-party payment processors. The protection of this information is critical, and the regulatory environment surrounding information security and privacy is demanding, with the frequent imposition of new and changing requirements. Although we have implemented systems and procedures (including credit card encryption between terminals and payment processors, Advance Malware Protection built into firewalls, POS stations on separate VLANS, and encrypted cloud hosted storage) that are designed to protect customer, employee, vendor and Company information, prevent data loss and other security breaches, and otherwise identify, assess, and analyze cybersecurity risks, these measures may not be effective. Cyber-security risks such as malicious software and attempts to gain unauthorized access to data are rapidly evolving and becoming increasingly more sophisticated. Techniques or software used to gain unauthorized access, and/or disable, degrade or harm our systems may be difficult to detect for prolonged periods of time, and we may be unable to anticipate these techniques or put in place protective or preventive measures. These attempts to gain unauthorized access could lead to disruptions in our systems, unauthorized release of confidential or otherwise protected information or corruption of data. If individuals are successful in infiltrating, breaking into, disrupting, damaging or otherwise stealing from the computer systems of the Company or its third-party providers, we may have to make a significant investment to fix or replace them, and may suffer interruptions in our operations in the interim, including interruptions in our ability to accept payment from customers. While, to the best of our knowledge, we have not experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a security breach or cyber-attack that could materially increase financial risk to the Company or our customers, such a security breach or cyber-attack could adversely affect our business and operations, including by damaging our reputation and our relationships with our customers, employees, suppliers and investors, exposing us to litigation, fines and penalties.
As a seller of certain consumer products, we are subject to various federal, state, local, and international laws and regulations relating to product safety and consumer protection.
While we take steps to comply with these laws, there can be no assurance that we will be in compliance, and failure to comply with these laws could result in litigation, regulatory action, and penalties which could have a negative impact on our business, financial condition, and results of operations. In addition, our suppliers might not adhere to product safety requirements and the Company and those suppliers may therefore be subject to involuntary or voluntary product recalls or product liability lawsuits. Direct costs, lost sales, and reputational damage associated with product recalls, government enforcement actions, or product liability lawsuits, individually or in the aggregate, could have a negative impact on future revenues and results of operations.
Risks Related To Our Common Stock
We may issue additional stock to raise capital to fund our expansion plans and/or restructure outstanding debt that would dilute substantially the voting power of our current stockholders.
In order to raise capital to fund the expansion of our Simply Mac stores, we may issue additional shares of the Company’s stock that would dilute the voting power of our current stockholders.
The market for our common stock is volatile and our stock price could decline.
The price of our common stock, as well as the stock market in general, has been highly volatile. The market price of our common stock during the period from January 31, 2020 through December 10, 2021 has fluctuated between $0.25 and $5.25. We expect that our stock price is likely to remain volatile. Investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects, resulting in a substantial (potentially total) loss on their investment. In addition, an active trading market for our common stock may not be sustained, which could affect the ability of our stockholders to sell their shares and could depress the market price of their shares.
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Our common stock was delisted from The Nasdaq Capital Market, which could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity and could limit our ability to raise additional capital.
Effective at the open of business on November 8, 2019, our common stock was suspended and effectively delisted from The Nasdaq Capital Market and began trading on the Over-the-Counter OTCQB Venture Market (the “OTCQB”). The delisting was the result of our non-compliance with Nasdaq Listing Rule 5550(b). Effective February 8, 2021, our OTC listing was upgraded to the OTCQX® Best Market (the “OTCQX”). Our delisting from The Nasdaq Capital Market could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without The Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock will likely be made more difficult and the trading volume and liquidity of our stock could decline. Our delisting from The Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely impact the acceptance of our common stock as currency or the value accorded by other parties. Further, following our delisting, we will also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.
If we fail to meet the eligibility requirements of OTCQX, we could be removed from the OTCQX which would limit the ability of broker-dealers to sell our securities in the secondary market.
The companies whose securities are quoted on the OTCQX must maintain certain eligibility criteria, including having a minimum bid price for of $0.25 per share and a market capitalization of at least $10 million to continue to be quoted on the OTCQX. There is no guarantee that we will continue to meet OTCQX criteria to continue to have our common stock quoted thereon. As a result, failure to be quoted on the OTCQX would cause the Company’s common stock to be quoted on the OTCQB or the Pink Open Market, which may severely adversely affect the market liquidity for our shares by limiting the ability of broker-dealers to sell such shares, and the ability of stockholders to sell their shares in the secondary market. In addition, if we are no longer quoted on the OTCQX, there can be no assurance that will meet the eligibility criteria and requalify for quotation on the OTCQX.
If we fail to file periodic reports with the United States Securities and Exchange Commission, our common stock will not be able to be quoted on the OTCQX
Although our common stock is quoted on the OTCQX, a regular trading market for our common stock may not be sustained in the future. OTC Markets limits quotation on the OTCQX to securities of issuers that are current in their reports filed with the United States Securities and Exchange Commission (the “SEC”). If we fail to remain current in the filing of our reports with the SEC, our common stock will not be able to be quoted on the OTCQX.
Broker-dealers may be discouraged from effecting transactions in our common stock because it is considered a penny stock and is subject to the penny stock rules.
Our common stock currently constitutes “penny stock.” Subject to certain exceptions, for the purposes relevant to us, “penny stock” includes any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” In particular, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor”, must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares of common stock, which could severely limit the market liquidity of our common stock and impede the sale of our common stock in the secondary market.
As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.
Although the federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, so long as our common stock constitutes a “penny stock”, we will not have the benefit of this particular safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.
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Item 6. Exhibits
Exhibit Number |
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Description of Exhibit |
3.1 |
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3.2 |
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3.3 |
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Amendment to Articles of Incorporation dated as of October 10, 2017 (3) |
3.4 |
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Amendment to Articles of Incorporation dated as of March 9, 2018 (4) |
3.5 |
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Amendment to Articles of Incorporation dated as of June 7, 2018 (5) |
3.6 |
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Amendment to Articles of Incorporation dated as of October 14, 2020 (6) |
4.1 |
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Unsecured Convertible Note dated July 6, 2021 between Simply, Inc. and SOL Global Investments Corp. (7) |
4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
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4.7 |
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4.8 |
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10.1 |
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10.2 |
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10.3 |
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Security Agreement between Simply, Inc. and Ingram Micro Inc. effective October 21, 2020 (13) |
10.4 |
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31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. (+) |
31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. (+) |
32.1 |
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Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (+) |
101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
______________
(1) |
Incorporated by reference to the Company’s Registration Statement on Form S-1, filed on January 30, 2004. |
(2) |
Incorporated by reference to the Company’s Current Report on Form 8-K/A, filed on December 13, 2019. |
(3) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 11, 2017. |
(4) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on March 12, 2018. |
(5) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on June 14, 2018. |
(6) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 15, 2020. |
(7) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on July 9, 2021. |
(8) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on August 11, 2021. |
(9) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 20, 2021. |
(10) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 22, 2021. |
(11) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on March 17, 2020. |
(12) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on April 22, 2020. |
(13) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 27, 2020. |
(14) |
Incorporated by reference to the Company’s Current Report on Form 8-K, filed on March 17, 2021. |
(*) |
Indicates a management contract or compensatory plan or arrangement. |
(+) |
Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Simply, Inc. |
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Date: December 14, 2021 |
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By: |
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/s/ Reinier Voigt |
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Reinier Voigt |
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Chief Executive Officer |
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Date: December 14, 2021 |
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By: |
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/s/ Vernon A. LoForti |
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Vernon A. LoForti |
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Chief Financial Officer |
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