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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 1, 2023

 

OR

 

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: 001-41032

 

 

Kidpik Corp.

(Exact name of Registrant as specified in its charter)

 

Delaware   81-3640708

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

200 Park Avenue South, 3rd Floor

New York, New York

  10003
(Address of principal executive offices)   (Zip Code)

 

(212) 399-2323

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001 per share   PIK   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

 

Large accelerated Filer   Accelerated Filer
Non-accelerated Filer   Smaller reporting company
    Emerging growth company

 

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 ☐ No

 

Number of shares of registrant’s common stock outstanding as of August 15, 2023: 7,808,366.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Cautionary Statement Regarding Forward-Looking Information 1
   
Summary Risk Factors 2
     
PART I FINANCIAL INFORMATION  
     
Item 1. FINANCIAL STATEMENTS F-1
     
  Condensed Interim Balance Sheets as of July 1, 2023 and December 31, 2022 F-1
     
  Condensed Interim Statements of Operations for the 13 and 26 weeks ended July 1, 2023 and July 2, 2022 F-2
     
  Condensed Interim Statements of Changes in Stockholders’ Equity for the 13 and 26 weeks ended July 1, 2023 and July 2, 2022 F-3
     
  Condensed Interim Statements of Cash Flows for the 26 weeks ended July 1, 2023 and July 2, 2022 F-4
     
  Notes to Condensed Interim Financial Statements F-5
     
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 4
     
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
     
Item 4. CONTROLS AND PROCEDURES 18
     
PART II OTHER INFORMATION 19
     
Item 1. LEGAL PROCEEDINGS 19
     
Item 1A. RISK FACTORS 19
     
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 19
     
Item 3. DEFAULTS UPON SENIOR SECURITIES 20
     
Item 4. MINE SAFETY DISCLOSURES 20
     
Item 5. OTHER INFORMATION 20
     
Item 6. EXHIBITS 20
     
SIGNATURES 21

 

 

 

Cautionary Statement Regarding Forward-Looking Information

 

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of Kidpik Corp. (the “Company”) that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under, or incorporated by reference into, “Risk Factors”, which factors include:

 

  our ability to obtain additional funding, the terms of such funding and potential dilution caused thereby;
     
  the continuing effect of rising interest rates and inflation on our operations, sales, and market for our products;
     
  deterioration of the global economic environment;
     
  our ability to build and maintain our brand;
     
  cybersecurity, information systems and fraud risks and problems with our websites;
     
  our ability to expand and grow our operations, and successfully market our products and services;
     
  changes in, and our compliance with, rules and regulations affecting our operations, sales, the internet in general and/or our products;
     
  shipping, production or manufacturing delays and/or tariffs on our products;
     
  our ability to increase members and sales;
     
  regulations we are required to comply with in connection with our operations, manufacturing, labeling and shipping;
     
  competition from existing competitors or new competitors or products that may emerge;
     
  rising interest rates and inflation and our ability to control our costs, including employee wages and benefits and other operating expenses;
     
  our dependency on third-party manufacturers to supply or manufacture our products;
     
  our business, including our costs and supply chain, which is subject to risks associated with rising inflation;
     
  our ability to establish or maintain vendor and supplier relations and/or relationships with third-parties;
     
  our ability and third parties’ abilities to protect intellectual property rights;
     
  our ability to attract and retain key personnel to manage our business effectively; and
     
  other risk factors included under “Risk Factors” below.

 

1
 

 

You should read the matters described in, and incorporated by reference in, “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. All forward-looking statements included herein speak only of the date of the filing of this Report. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

Summary Risk Factors

 

Our business is subject to varying degrees of risk and uncertainty. Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 31, 2023 (the “2022 Annual Report”). Investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q, including our financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission. Our business operations could also be affected by factors that we currently consider to be immaterial or that are unknown to us at the present time. If any of these risks occur, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our common stock could decline or our common stock could become worthless:

 

  Our history of losses, our ability to achieve profitability, our need for additional funding and the availability and terms of such funding, as well as potential dilution caused thereby;
     
  Our ability to execute our growth strategy and scale our operations and risks associated with such growth, our ability to maintain current members and customers and grow our members and customers;
     
  Risks associated with our supply chain and third-party service providers, interruptions in the supply of raw materials and merchandise, increased costs of raw materials, products and shipping costs due to inflation, disruptions at our warehouse facility and/or of our data or information services, issues affecting our shipping providers, and disruptions to the internet, any of which may have a material adverse effect on our operations;
     
  Risks of changes in consumer spending due to changes in interest rates, increased inflation, declines in economic activity or recessions;
     
  Risks that effect our ability to successfully market our products to key demographics;
     
  The effect of data security breaches, malicious code and/or hackers;
     
  Increased competition and our ability to maintain and strengthen our brand name;
     
  Changes in consumer tastes and preferences and changing fashion trends;
     
  Material changes and/or terminations of our relationships with key vendors;
     
  Significant product returns from customers, excess inventory and our ability to manage our inventory;
     
  The effect of trade restrictions and tariffs, increased costs associated therewith and/or decreased availability of products;
     
  Our ability to innovate, expand our offerings and compete against competitors which may have greater resources;

 

2
 

 

  Certain anti-dilutive, drag-along and tag-along rights which may be deemed to be held by a former minority stockholder;
     
  Our significant reliance on related party transactions and loans;
     
  The fact that our Chief Executive Officer, Ezra Dabah, has majority voting control over the Company;
     
  If the use of “cookie” tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of internet user information would decrease, which could harm our business and operating results;
     
  Our ability to comply with future loan covenants;
     
  Our ability to prevent credit card and payment fraud;
     
  The risk of unauthorized access to confidential information;

 

  System interruptions that impair client access to our website or other performance failures in our technology infrastructure could damage our business;
     
  Our ability to protect our intellectual property and trade secrets, claims from third-parties that we have violated their intellectual property or trade secrets and potential lawsuits in connection therewith;
     
  Our ability to comply with changing regulations and laws, penalties associated with any non-compliance (inadvertent or otherwise), the effect of new laws or regulations, our ability to comply with such new laws or regulations, and changes in tax rates;
     
  Our reliance on our current management, who are not party to any employment agreements with us;
     
  The outcome of future lawsuits, litigation, regulatory matters or claims;
     
  Certain terms and provisions of our governing documents which may prevent a change of control, and which provide for indemnification of officers and directors, limit the liability of officers or directors, and provide for the board of director’s ability to issue blank check preferred stock;
     
  The fact that we have a limited operating history; the effect of future acquisitions on our operations and expenses;
     
  Our significant indebtedness;
     
  The fact that we may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders;
     
  The anticipated volatile nature of the trading prices of our common stock and dilution which may be caused by future sales of securities; and
     
  Risks associated with our status as an “emerging growth company”.

 

Additional Information

 

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and “Kidpik” refer to Kidpik Corp. The Kidpik design logo, “kidpik,” and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Kidpik Corp. Other trade names, trademarks, and service marks used in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, we have omitted the ® and ™ designations, as applicable, for the trademarks we name in this Quarterly Report on Form 10-Q.

 

3
 

 

Part I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Kidpik Corp.

Condensed Interim Balance Sheets

 

   July 1, 2023   December 31, 2022 
   (Unaudited)   (Audited) 
Assets          
Current assets          
Cash  $158,141   $600,595 
Restricted cash   4,618    4,618 
Accounts receivable   156,396    336,468 
Inventory   9,755,705    12,625,948 
Prepaid expenses and other current assets   897,194    1,043,095 
Total current assets   10,972,054    14,610,724 
           
Leasehold improvements and equipment, net   120,965    67,957 
Operating lease right-of-use assets   1,201,105    1,469,665 
Total assets  $12,294,124   $16,148,346 
           
Liabilities and Stockholders’ Equity          
           
Current liabilities          
Accounts payable  $1,702,425   $2,153,389 
Accounts payable, related party   1,538,902    1,107,665 
Accrued expenses and other current liabilities   419,683    587,112 
Operating lease liabilities, current   329,654    438,957 
Short-term debt, related party   2,050,000    2,050,000 
Total current liabilities   6,040,664    6,337,123 
           
Operating lease liabilities, net of current portion   925,014    1,061,469 
           
Total liabilities   6,965,678    7,398,592 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity          
Preferred stock, par value $0.001, 25,000,000 shares authorized, of which no shares are issued and outstanding as of July 1, 2023 and December 31, 2022, respectively   -    - 
Common stock, par value $0.001, 75,000,000 shares authorized, of which 7,769,717 shares are issued and outstanding as of July 1, 2023 and 7,688,194 shares issued and outstanding on December 31, 2022   7,770    7,688 
Additional paid-in capital   50,834,858    50,276,511 
Accumulated deficit   (45,514,182)   (41,534,445)
Total stockholders’ equity   5,328,446    8,749,754 
Total liabilities and stockholders’ equity  $12,294,124   $16,148,346 

 

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

 

F-1
 

 

Kidpik Corp.

Condensed Interim Statements of Operations

(Unaudited)

 

  

July 1, 2023

  

July 2, 2022

  

July 1, 2023

  

July 2, 2022

 
   For the 13 weeks ended   For the 26 weeks ended 
  

July 1, 2023

  

July 2, 2022

  

July 1, 2023

  

July 2, 2022

 
Revenues, net  $3,448,919   $3,774,668   $7,478,397   $8,100,665 
                     
Cost of goods sold   1,372,563    1,473,380    2,991,789    3,207,294 
                     
Gross profit   2,076,356    2,301,288    4,486,608    4,893,371 
                     
Operating expenses                    
Shipping and handling   949,734    959,141    2,138,956    2,091,225 
Payroll and related costs   1,094,135    1,346,744    2,205,236    2,945,980 
General and administrative   2,024,871    1,552,890    4,049,435    3,483,783 
Depreciation and amortization   12,426    6,654    23,113    12,319 
Total operating expenses   4,081,166    3,865,429    8,416,740    8,533,307 
Operating loss   (2,004,810)   (1,564,141)   (3,930,132)   (3,639,936)
Other expenses (income)                    
Interest expense   24,415    7,925    49,605    29,600 
Total other expense (income)   -    -    -    (286,795)
Total non-operating expenses   24,415    7,925    49,605    (257,195)
                     
Net loss  $(2,029,225)  $(1,572,066)  $(3,979,737)  $(3,382,741)
                     
Net loss per share attributable to common stockholders:                    
Basic   (0.26)   (0.21)   (0.52)   (0.44)
Diluted   (0.26)   (0.21)   (0.52)   (0.44)
                     
Weighted average common shares outstanding:                    
Basic   7,731,195    7,636,493    7,709,695    7,655,359 
Diluted   7,731,195    7,636,493    7,709,695    7,655,359 

 

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

 

F-2
 

 

Kidpik Corp.

Condensed Interim Statements of Changes in Stockholders’ Equity

For the 13 and 26 Weeks Ended July 1, 2023 and July 2, 2022

(Unaudited)

 

   Shares   Amount   Shares   Amount   capital   deficit   Total 
           Additional         
   Common Stock   Preferred Stock   paid-in   Accumulated     
   Shares   Amount   Shares   Amount   capital   deficit   Total 
                             
Balance, January 1, 2022   7,617,834   $7,618    -   $-   $48,659,225   $(33,919,184)  $14,747,659 
                                    
Equity-based compensation   -    -    -    -    617,164    

-

    617,164 
Net loss   -    -    -    -    -    (1,810,675)   (1,810,675)
                                    
Balance, April 2, 2022   7,617,834   $7,618    -    -   $49,276,389   $(35,729,859)  $13,554,148 
                                    
Equity-based compensation   -    -    -    -    433,924    -    433,924 
Issuance of common stock   70,360    70    -    -    (70)   -    - 
Cash used to settle net share equity awards   -    -    -    -    (33,692)   -    (33,692)
Net loss   -    -    -           -    -    (1,572,066)   (1,572,066)
                                    
Balance, July 2, 2022   7,688,194   7,688    -   $-   $49,676,551   $(37,301,925)  $12,382,314 
                                    
Balance, December 31, 2022   7,688,194   $7,688    -   $-   $50,276,511   $(41,534,445)  $8,749,754 
                                    
Equity-based compensation   -    -    -    -    267,476    -    267,476 
Net loss   -    -    -    -    -    (1,950,512)   (1,950,512)
                                    
Balance, April 1, 2023   7,688,194   $7,688    -    -   $50,543,987   $(43,484,957)  $7,066,718 
                                    
Issuance of common stock   81,523    82    -    -    (82)   -    - 
Equity-based compensation   -    -    -    -    290,953    -    290,953 
Net loss   -    -    -    -    

-

    (2,029,225)   (2,029,225)
                                    
Balance, July 1, 2023   7,769,717   $7,770         -   $-   $50,834,858   $(45,514,182)  $5,328,446 

 

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

 

F-3
 

 

Kidpik Corp.

Condensed Interim Statements of Cash Flows

(Unaudited)

 

   July 1, 2023   July 2, 2022 
   26 Weeks Ended 
   July 1, 2023   July 2, 2022 
Cash flows from operating activities          
           
Net loss  $(3,979,737)  $(3,382,741)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   23,113    12,319 
Equity-based compensation   558,429    1,051,088 
Bad debt expense   151,362    241,057 
Changes in operating assets and liabilities:          
Accounts receivable   28,710    (69,959)
Inventory   2,870,243    (1,180,833)
Prepaid expenses and other current assets   145,901    57,175 
Operating lease right-of-use assets and liabilities   22,802    5,033 
Accounts payable   (450,965)   (1,061,068)
Accounts payable, related parties   431,238    (129,753)
Accrued expenses and other current liabilities   (167,429)   (345,378)
           
Net cash used in operating activities   (366,333)   (4,803,060)
           
Cash flows from investing activities          
Purchases of leasehold improvements and equipment   (76,121)   (31,317)
Net cash used in investing activities   (76,121)   (31,317)
Cash flows from financing activities          
Cash used to settle net share equity awards   -    (33,692)
Net proceeds from line of credit   -    - 
Net (repayments) from advance payable   -    (932,155)
Net (repayments) from loan payable   -    (150,000)
Net cash used in financing activities   -    (1,115,847)
Net decrease in cash and restricted cash   (442,454)   (5,950,224)
           
Cash and restricted cash, beginning of period   605,213    8,420,500 
Cash and restricted cash, end of period  $162,759   $2,470,276 
           
Reconciliation of cash and restricted cash:          
Cash  $158,141   $2,465,831 
Restricted cash   4,618    4,445 
Cash and restricted cash, end of period  $162,759   $2,470,276 
Supplemental disclosure of cash flow data:          
Interest paid  $-   $20,577 
Supplemental disclosure of non-cash flow data:          
Record right-of use asset and operating lease liabilities  $-    1,857,925 

 

The accompanying notes are an integral part to these condensed interim financial statements.

 

F-4
 

 

Kidpik Corp.

Notes to the Condensed Interim Financial Statements

(Unaudited)

 

NOTE 1: NATURE OF BUSINESS

 

Kidpik Corp. (the “Company”, “kidpik”, “we”, “our” or “us”) was incorporated on April 16, 2015 under the laws of Delaware. The Company is a subscription-based e-commerce business geared toward kid products for girls’ and boys’ apparel, footwear, and accessories. The Company serves its customers through the clothing subscription box business, its retail website, www.kidpik.com, and 3rd party websites. The Company commenced operations in March 2016 and its executive office is located in New York.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of accounting: The accompanying condensed interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC that apply to interim financial statements and with the instructions to Form 10-Q and of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31, 2023 (the “Form 10-K”).

 

The accompanying condensed interim financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed interim financial position and results of operations for the interim periods presented.

 

The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.

 

Fiscal year: The Company uses a 52-53-week fiscal year ending on the Saturday nearest to December 31 each year. The quarters ended July 1, 2023 and July 2, 2022 consist of 13 weeks. These quarters are referred to herein as the second quarter of “2023” and “2022”, respectively.

 

Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reporting values of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed interim financial statements, and the reported amounts of revenue and expenses during the reporting period. The more significant estimates and assumptions are those used in determining the recoverability of long-lived assets and inventory obsolescence. Accordingly, actual results could differ from those estimates.

 

Emerging growth company: The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards.

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial InstrumentsCredit Losses, which replaces the incurred loss impairment methodology for financial instruments in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB has issued ASU 2019-10, which has resulted in the postponement of the effective date of the new guidance for eligible smaller reporting companies to the fiscal year beginning January 1, 2023. The guidance must be adopted using a modified retrospective approach and a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations and related disclosures.

 

F-5
 

 

Concentration of credit risk: Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, restricted cash and accounts receivable. We maintain our cash and restricted cash with high-quality financial institutions with investment-grade ratings. Although the Company’s cash balance held with a U.S. bank may exceed the amount of federal insurance provided on such deposits, the Company has not experienced any losses in such accounts. The Company is exposed to credit risk in the event of a default by the financial institution holding its cash for the amount reflected on the balance sheets. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation (“FDIC”).

 

Net loss per common share: The Company complies with the accounting and disclosure requirements of FASB Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the impact of stock options and restricted stock units, if any, under the treasury stock method unless their impact is anti-dilutive.

 

Revenue recognition: The Company recognizes revenue from three sources; its subscription box sales, kidpik’s online website sales, and 3rd party website sales. Revenue is gross billings net of promotional discounts, actual customer credits and refunds, as well as customer credits and refunds expected to be issued, and sales tax. Customers are charged for subscription merchandise which is not returned, or which is accepted, and are charged for general merchandise (non-subscription) when they purchase such merchandise. Customers can receive a refund on returned merchandise for which return shipping is a cost to the Company.

 

Revenue for subscription box sales is recognized when control of the promised goods is transferred and accepted by the subscriber. Subscribers have a maximum of 10 days from the date the product is delivered to return any items in the pre-paid delivery bag. Control is transferred either when a subscriber checks out or automatically ten days after the goods are delivered, whichever occurs first. Upon checkout or the 10-day period, the amount of the order not returned is recognized as revenue. Payment is due upon checkout or the end of the 10-day period after the goods are delivered, whichever occurs first. Between August 24, 2021 and January 6, 2022, we charged new subscribers an upfront styling fee before the box was shipped that was credited toward items purchased. The styling fees were included in deferred revenue until the time of client checkout or when the option to purchase the item expires.

 

Revenue from online website sales, which includes sales from our and 3rd party websites (currently Amazon and Walmart), are recognized when control of the promised goods are transferred to the Company’s customers, in an amount that depicts the consideration the Company expects to be entitled to in exchange for those goods. Control is transferred at the time of shipment. Upon shipment, the total amount of the order is recognized as revenue. Payment for online website sales is due upon time of order.

 

The provision for anticipated sales returns consists of both contractual return rights and discretionary authorized returns.

 

Estimates of discretionary authorized returns for sales other than subscription sales, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) estimated returns, discounts and claims expected, but not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from estimates recorded. If actual or expected future returns, discounts or claims were significantly greater or lower than reserves established, a reduction or increase to net revenue would be recorded in the period in which such determination was made.

 

Shipping and handling costs associated with outbound freight fulfillment before control over a product has transferred to a customer are accounted for as a shipping and handling cost in the condensed interim statements of operations.

 

Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue producing transaction and are collected by the Company from a customer are excluded from revenue and cost of goods sold in the condensed interim statements of operations.

 

F-6
 

 

Restricted cash: Restricted cash balance consists of cash advances received by the Company from the cash advance agreement. The cash advances can only be used for purchases of products and marketing related services necessary to operate the Company, as defined by the agreement.

 

Inventory: Inventory, consisting primarily of finished goods, is valued at the lower of cost or net realizable value using the weighted average cost method. In addition, the Company capitalizes freight, duty and other supply chain costs in inventory. These costs are included in the cost of sales as inventory is sold.

 

Leasehold improvements and equipment: Leasehold improvements and equipment are recorded at cost. Depreciation for equipment is computed using the straight-line method over the estimated useful life of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the term of the lease or the life of the improvement on a straight-line method. Expenditures that extend the useful lives of the equipment are capitalized. Expenditure for the repairs and maintenance are charged to expense as incurred. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in operations.

 

Impairment of long-lived assets: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing a review for impairment, the Company compares the carrying value of the assets with their estimated future undiscounted pre-tax cash flows. If it is determined that impairment has occurred, the loss would be recognized during that period. The impairment loss is calculated as the difference between the assets’ carrying value and the present value of estimated net cash flows or comparable market values, giving consideration to recent operating performance and pricing trends. As a result of its review, the Company does not believe that any material impairment currently exists related to its long-lived assets.

 

Deferred financing costs: Deferred financing costs, net of accumulated amortization, are reported as a direct deduction from the face amount of the line of credit to which such costs relate. Amortization of debt issuance costs is reported as a component of interest expenses and is computed using the straight-line method over the term of the agreement, which approximates the effective interest method.

 

Income taxes: The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized with respect to the future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company applies U.S. GAAP accounting for uncertainty in income taxes. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming the tax position is examined by the appropriate taxing authority that has full knowledge of relevant information.

 

The Company has no unrecognized tax benefits at July 1, 2023 and December 31, 2022. The Company’s federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.

 

The Company recognizes interest and penalties associated with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed interim balance sheets.

 

Advertising costs: Direct advertising and promotion costs are expensed as incurred. Advertising and promotion expenses totaled $938,639 and $583,747 for the 13 weeks ended July 1, 2023, and July 2, 2022, respectively. Advertising and promotion expenses totaled $1,840,742 and $1,302,128 for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively. Advertising and promotion expenses are included in general and administrative expenses in the condensed interim statements of operations.

 

F-7
 

 

Bad debt expense: Bad debt expense is recognized when a receivable is no longer collectible after a customer is unable to fulfill their obligation to pay an outstanding balance.

 

Equity-based compensation: The Company measures equity-based compensation expense associated with the awards granted based on their estimated fair values at the grant date. For awards with service condition only, equity-based compensation expense is recognized over the requisite service period using the straight-line method. The grant-date fair value of stock options is estimated using the Black-Scholes option pricing model. Forfeitures are recorded as they occur. See Note 11, Equity-based compensation, for additional details.

 

Segment information: The Company has one operating segment and one reportable segment as its chief operating decision maker, who is its Chief Executive Officer, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. All long-lived assets are located in the United States.

 

NOTE 3: LIQUIDITY

 

The Company has sustained losses from operations since inception, negative operating cash flows and has an accumulated deficit of $45,514,182 as of July 1, 2023. The Company will continue to incur substantial operating expenses in the foreseeable future as the Company continues to invest in attracting new customers, expanding its product offerings and enhancing technology and infrastructure. These efforts may prove more expensive than the Company anticipates, and the Company may not succeed in increasing revenue and margins sufficiently to offset these expenses. Accordingly, the Company may not be able to achieve profitability, and the Company may incur significant losses for the foreseeable future.

 

To support the Company’s existing operations or any future expansion of business, including the ability to execute the Company’s growth strategy, the Company must have sufficient capital to continue to make investments and fund operations. Management has plans to pursue a growth strategy for the expansion of operations through increased marketing to attract new members and refine the marketing strategy to strategically prioritize customer acquisition channels that management believes will be more successful at attracting new customers and members.

 

The Company’s ability to continue its operations is dependent upon obtaining new financing for its ongoing operations and on the Company’s plans to reduce its inventory level. To manage operating cash flows in the near term, the Company plans to significantly reduce purchases of new inventory and if available, may enter into cash advance or other financing arrangements. Future financing options available to the Company may include equity financings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions to fund existing operations and execute management’s growth strategy. Equity financings may include sales of common stock. Such financing may not be available on terms favorable to the Company or at all. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders and may cause significant dilution to existing stockholders. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continued operations, if at all, which would have a material adverse effect on its business, financial condition and results of operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that the financial statements are issued. The accompanying financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

On March 22, 2023, the Company received written notice (the “Notification Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of the Company’s common stock for the thirty (30) consecutive business days from February 7, 2023 to March 21, 2023, the Company no longer meets the minimum bid price requirement.

 

F-8
 

 

The Notification Letter did not impact the Company’s listing of its common stock on the Nasdaq Capital Market at that time. The Notification Letter stated that the Company had 180 calendar days or until September 18, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance by September 18, 2023, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital Market initial listing criteria (except for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If the Company does not qualify for the second compliance period, fails to regain compliance during the second 180-day period, or if it appears to Nasdaq that the Company will not be able to cure the deficiency, the Company’s common stock will be subject to delisting, at which point the Company would have an opportunity to appeal the delisting determination to a Hearings Panel.

 

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. The Company also received stockholder approval at its 2023 Annual Meeting of Stockholders held on June 19, 2023, of an amendment to the Company’s Second Amended and Restated Certificate of Incorporation, to effect a reverse stock split of the Company’s issued and outstanding shares of common stock, by a ratio of between one-for-five to one-for-twenty, inclusive, with the exact ratio to be set at a whole number to be determined by the Company’s Board of Directors or a duly authorized committee thereof in its discretion, at any time prior to April 24, 2024.

 

NOTE 4: INVENTORY

 

Inventory consists of the following:

 

   July 1, 2023   December 31, 2022 
   (unaudited)     
Finished goods  $9,755,705   $12,625,948 
Total  $9,755,705   $12,625,948 

 

NOTE 5: LEASEHOLD IMPROVEMENTS AND EQUIPMENT

 

Leasehold improvements and equipment consist of the following:

 

   July 1, 2023   December 31, 2022 
   (unaudited)     
Computer equipment  $120,459   $117,841 
Furniture and fixtures   185,290    174,504 
Leasehold improvements   137,943    65,523 
Machinery and equipment   32,666    42,369 
Total cost   476,358    400,237 
Accumulated depreciation   (355,393)   (332,280)
Leasehold improvements and equipment, net  $120,965   $67,957 

 

Depreciation expense amounted to $12,426 and $6,654 for the 13 weeks ended July 1, 2023 and July 2, 2022, respectively.

 

Depreciation expense amounted to $23,113 and $12,319 for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively.

 

NOTE 6: LEASES

 

The Company adopted the ASC 842 guidance on January 2, 2022, using the modified retrospective transition effective date method. As part of that adoption, the Company has elected the package of three practical expedients, which includes the following: an entity may elect not to reassess whether expired or existing contracts contain a lease under the revised definition of a lease; an entity may elect not to reassess the lease classification for expired or existing leases; and an entity may elect not to reassess whether previously capitalized initial direct costs would qualify for capitalization. The Company has elected not to utilize the hindsight expedient in determining the lease term, and to not record leases with an initial term of 12 months or less on our condensed interim balance sheets. Additionally, the Company has elected to account for lease components and non-lease components as a single lease component for all asset classes. Lease expense is recognized over the expected term on a straight-line basis.

 

F-9
 

 

The Company entered into a sub-lease agreement for warehouse space from a related party on April 1, 2021. The Company pays 33.3% of the related party’s fixed monthly rent. The lease expires on September 30, 2023. As of July 1, 2023, the minimum lease payments amount to $63,702 for the year ending December 30, 2023.

 

As of July 1, 2023, the weighted average remaining lease term was 3.7 years and weighted average incremental borrowing rate was 6.95%.

 

The table below includes the balances of operating lease right-of-use assets and operating lease liabilities as of July 1, 2023:

 

   July 1, 2023 
Assets     
Operating lease right-of-use assets, net  $1,201,105 
      
Liabilities     
Operating lease liabilities – current  $329,654 
Operating lease liabilities – non-current   925,014 
Total Lease Liabilities  $1,254,668 

 

The maturities of our operating lease liabilities as of July 1, 2023, are as follows:

 

Maturity of Operating Lease Liabilities    
2023  $233,652 
2024   346,698 
2025   357,099 
2026   367,812 
2027   123,806 
Total lease payments   1,429,067 
Less: imputed interest   (174,399)
Present value of lease liabilities  $1,254,668 

 

NOTE 7: RELATED PARTY TRANSACTIONS

 

In the normal course of business, the Company made purchases from related parties for merchandise and shared services which amounted to $9,447 and $80,398 for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively.

 

A related party performs certain management services for the Company pursuant to a management services agreement. For these services, the Company pays a monthly management fee equal to 0.75% of the Company’s net sales collections.

 

Management fees amounted to $23,662 and $25,578 for the 13 weeks ended July 1, 2023 and July 2, 2022, respectively, and are included in general and administrative expenses in the condensed interim statements of operations.

 

Management fees amounted to $52,652 and $56,504 for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively, and are included in general and administrative expenses in the condensed interim statements of operations.

 

In addition, the Company is using a related party to run its Amazon Marketplace site.

 

F-10
 

 

The consulting fees for this service amounted to $18,438 and $31,030 for the 13 weeks ended July 1, 2023 and July 2, 2022, respectively. The consulting fees for this service amounted to $37,751 and $61,575 for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively, The consulting fees for this service are included in general and administrative expenses in the condensed interim statements of operations.

 

The Company entered into a new revocable monthly sub-lease agreement for office space from a related party on January 1, 2021. The Company will pay 50% of the related party’s fixed monthly rent, including contingent rental expenses. On June 27, 2022, the parties signed a new lease agreement with a third party.

 

For the 13 and 26 weeks ended July 1, 2023 and July 2, 2022, related party office rent amounted to zero and $82,500, for both periods, respectively, and is included in general and administrative expenses in the condensed interim statements of operations.

 

The Company entered into a new sub-lease agreement for warehouse space from a related party on April 1, 2021. The Company will pay 33.3% of the related party’s fixed monthly rent. The lease expires on September 30, 2023. The minimum lease payments amount to $191,106 for the year ending December 30, 2023.

 

As of July 1, 2023 and December 31, 2022, there was $1,538,902 and $1,107,665 due to related party, respectively.

 

See Note 8 for a description of short-term debt from affiliated entities under common control and from stockholders.

 

NOTE 8: SHORT-TERM DEBT

 

On August 13, 2021, the Company entered into two unsecured convertible promissory notes with stockholders in the aggregate amount of $200,000. Each of the convertible notes were payable on January 15, 2022 and were automatically convertible into shares of the Company’s common stock at a conversion price equal to the per share price of the next equity funding completed by the Company in an amount of at least $2,000,000 and requires the repayment of 110% of such convertible note amount upon a sale of the Company (including a change of 50% or more of the voting shares). On August 25, 2021, the parties agreed to amend the previously convertible notes to remove the conversion rights provided for therein and clarify that no interest accrues on the convertible notes. On March 31, 2022, and effective on January 15, 2022, the parties amended the notes to be payable on demand.

 

In September, October and November 2021, the Company borrowed $2,500,000 from a stockholder. The notes are unsecured, noninterest-bearing and the principal was due on January 15, 2022, or was due at the rate of 110% of such note amount, upon a sale of the Company (including a change of 50% or more of the voting shares). On December 27, 2021, the Company paid $500,000 of the outstanding loan amounts. On March 31, 2022, and effective on January 15, 2022, the parties amended the notes to be payable on demand. On July 2, 2022, the Company paid $150,000 of the outstanding loan amounts.

 

NOTE 9: NET LOSS PER COMMON SHARE

 

The computation of basic net loss per share is based on the weighted average number of common shares outstanding for the 13 weeks ended July 1, 2023 and July 2, 2022. Diluted net loss per share gives effect to stock options and restricted stock units using the treasury stock method, unless the impact is anti-dilutive. Diluted net loss per share for the 13 weeks ended July 1, 2023 does not include 250,000 stock options and 176,000 restricted stock units as their effect was anti-dilutive.

  

July 1, 2023

  

July 2, 2022

  

July 1, 2023

  

July 2, 2022

 
   For the 13 weeks ended   For the 26 weeks ended 
  

July 1, 2023

  

July 2, 2022

  

July 1, 2023

  

July 2, 2022

 
Net loss  $(2,029,225)  $(1,572,066)  $(3,979,737)  $(3,382,741)
Weighted Average Shares – Basic   7,731,195    7,636,493    7,709,695    7,655,359 
Dilutive effect of stock options and restricted stock units   -    -    -    - 
Weighted Average Shares – Diluted   7,731,195    7,636,493    7,709,695    7,655,359 
Basic net loss per share   (0.26)   (0.21)   (0.52)   (0.44)
Diluted net loss per share   (0.26)   (0.21)   (0.52)   (0.44)

 

F-11
 

 

NOTE 10: STOCKHOLDERS’ EQUITY

 

On May 10, 2021, the Company filed an amended and restated Certificate of Incorporation which authorized 75,000,000 shares of common stock having a par value of $0.001 per share and 25,000,000 shares of preferred stock having a par value of $0.001 per share. All shares of common stock shall be of the same class and have equal rights, powers and privileges. The preferred stock may be issued from time to time in one or more series and each issued series may have full or limited designations, preferences, participating, special rights and limitation as adopted by the Board of Directors. In conjunction with this amendment, the Company completed a forward split of existing common stock whereby each one share of common stock was automatically split up and converted into 671 shares of common stock. The condensed interim statements of changes in stockholders’ equity were restated to retroactively incorporate this stock split.

 

On May 12, 2021, the Company and each then stockholder of the Company, other than one minority stockholder holding 147,620 shares or 2.7% of the Company’s then outstanding common stock, entered into a Covenant Termination and Release Agreement, whereby each executing stockholder, in consideration for $10, agreed to terminate any and all preemptive rights, anti-dilutive rights, tag-along, drag-along or other special stockholder rights which they held as a result of the terms of any prior Investment Agreements or Conversion Agreements, and release the Company from any and all liability or obligations in connection with any such special stockholder rights.

 

NOTE 11: EQUITY-BASED COMPENSATION

 

On May 9, 2021, the Board of Directors and majority stockholders adopted an Equity Incentive Plan which provides an opportunity for any employee, officer, director or consultant of the Company to receive incentive stock options, nonqualified stock options, restricted stock, stock awards, shares in performance of services or any combination of the foregoing.

 

On September 30, 2021, the Board of Directors and majority stockholders of the Company amended and restated its 2021 Equity Incentive Plan (as amended and restated, the “2021 Plan”). The 2021 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, to our employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards (RSU awards), performance awards and other forms of awards to our employees, directors and consultants and any of our affiliates’ employees and consultants. A total of 2,600,000 shares of the Company’s common stock were initially reserved for issuance under the 2021 Plan.

 

On November 10, 2021, prior to the pricing of the Company’s initial public offering (the “IPO”), the Company granted (a) options to purchase an aggregate of 480,000 shares of our common stock at an exercise price of $8.50 per share, to certain employees and consultants of the Company in consideration for services rendered and to be rendered through May 2024; (b) 254,000 restricted stock units, to certain executive officers; and (c) 10,000 restricted stock units (“RSUs”) to a board of director member. Such options and restricted stock units vested (i) 1/3 on May 15, 2022; and (ii) 1/3 on May 15, 2023; and continue to vest (to the extent not forfeited) 1/3 on May 15, 2024. The options each have a term of five years. On May 15, 2022, 88,000 restricted stock units were vested of which 70,360 common stock shares were issued and 17,640 were forfeited and cancelled to settle tax liability on the vested shares. On May 15, 2023, 87,999 restricted stock units were vested of which 81,523 common stock shares were issued and 6,476 were forfeited and cancelled to settle tax liability on the vested shares.

 

In determining the fair value of the stock-based awards, we used the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment. Expected Term - The expected term represents the period that our stock options are expected to be outstanding and is determined using the simplified method (generally calculated as the mid-point between the vesting date and the end of the contractual term). Expected Volatility - The expected volatility was estimated based on the average volatility for publicly-traded companies that we considered comparable, over a period equal to the expected term of the stock option grants. Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury zero coupon notes in effect at the time of grant for periods corresponding with the expected term of the option. Expected Dividend - We have not paid dividends on our common stock and do not anticipate paying dividends on our common stock; therefore, we use an expected dividend yield of zero.

 

F-12
 

 

The fair value of each option we issued on November 10, 2021 was $3.16. The weighted average assumptions used included a risk-free interest rate of 0.88%, an expected stock price volatility factor of 52.4% and a dividend rate of 0%. The fair value of each restricted stock unit (“RSU”) we issued on November 10, 2021 was $8.50.

 

A summary of the Company’s time-based stock option activity under the 2021 Plan was as follows:

 

  

Number of

Options

  

Weighted Average

Exercise Price

 
Unvested options as of December 31, 2022   286,000   $8.50 
Granted   -    - 
Vested   -    - 
Forfeited/Repurchased   (36,000)   - 
Unvested options as of July 1, 2023   250,000   $8.50 

 

As of July 1, 2023, there was $1.0 million of total unrecognized compensation cost related to unvested options and RSUs granted under the 2021 Plan, which is expected to be recognized over a weighted average service period of 1.1 years. The Company records the impact of any forfeitures of options as they occur.

 

Amortization of this charge, which is included in non-cash compensation expense, for the 13 weeks and 26 weeks ended July 1, 2023, was $290,953 and $558,429, respectively, and it is included as part of payroll expense.

 

NOTE 12: RISK CONCENTRATION AND UNCERTAINTIES

 

The Company uses various vendors for purchases of inventory. For the 13 weeks ended July 1, 2023, one vendor accounted for 100% of inventory purchases. For the 13 weeks ended July 2, 2022, three vendors accounted for approximately 59.8% of inventory purchases. For the 26 weeks ended July 1, 2023, one vendor accounted for 100% of inventory purchases. For the 26 weeks ended July 2, 2022, two vendors accounted for approximately 51% of inventory purchases.

 

Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s customer base. In addition, the Company reviews receivables and recognizes bad debt on a monthly basis for accounts that are deemed uncollectible.

 

NOTE 13: REVENUE, NET

   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
   For the 13 weeks ended   For the 26 weeks ended 
   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
Subscription boxes  $2,607,543   $2,974,550   $5,579,110   $6,458,401 
3rd party websites   426,914    559,077    863,212    1,108,577 
Online website sales   414,462    241,041    1,036,075    533,687 
Total revenue  $3,448,919   $3,774,668   $7,478,397   $8,100,665 

  

 

F-13
 

 

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

 

General

 

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed interim financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the notes to those financial statements for the fiscal year ended December 31, 2022, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023 (the “2022 Annual Report”). The following discussion contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. See also “Cautionary Statement Regarding Forward-Looking Information”, above. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Quarterly Report and in other reports we file with the SEC. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason, except as otherwise provided by law.

 

The following discussion is based upon our financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to sales returns, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Kidpik Corp. (the “Company”) uses a 52–53-week fiscal year ending on the Saturday nearest to December 31 each year. The year ended December 30, 2023 is a 52-week year and referred to herein as fiscal “2023”. The years ended December 31, 2022 and January 1, 2022 were both 52-week years. These years are referred to herein as fiscal “2022” and “2021”, respectively. The Company’s fiscal quarters are generally 13 weeks in duration. When the Company’s fiscal year is 53 weeks long, the corresponding fourth quarter is 14 weeks in duration. References to the first quarter of fiscal 2023 and the first quarter of fiscal 2022, refer to the 13 weeks ended July 1, 2023 and July 2, 2022, respectively.

 

Certain capitalized terms used below but not otherwise defined, are defined in, and shall be read along with the meanings given to such terms in, the notes to the unaudited financial statements of the Company for the 13 weeks ended July 1, 2023 and July 2, 2022, above.

 

References to our websites and those of third parties below are for information purposes only and, unless expressly stated below, we do not desire to incorporate by reference into this Report information in such websites.

 

Unless the context otherwise requires, references in this Report to “we,” “us,” “our,” the “Registrant”, the “Company,” “kidpik” and “Kidpik Corp.” refer to Kidpik Corp.

 

4
 

 

In addition:

 

  “Active subscriptions” mean individuals who are scheduled to receive future boxes;
  “Boxes” mean the Company’s subscription clothing, shoe and accessories boxes;
  “Customers” means anyone who has received at least one shipment through subscription, direct or indirect sale from the Company;
  “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
  “Members” means customers who registered at least one subscription;
  “NASDAQ” means the NASDAQ Capital Market;
  “SEC” or the “Commission” refers to the United States Securities and Exchange Commission;
  “Securities Act” refers to the Securities Act of 1933, as amended; and
  “Subscriptions” mean orders for recurring box shipments.

 

Available Information

 

The Company makes available free of charge through its internet website, https://investor.kidpik.com/sec-filings, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov. Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this Report. Further, the Company’s references to website URLs are intended to be inactive textual references only.

 

Introduction

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

  Overview.
     
  Key Performance Indicators.
     
  Factors Affecting Our Future Performance.
     
  Components of Results of Operations.
     
  Results of Operations.
     
  Liquidity and Capital Resources.
     
  Critical Accounting Estimates.

 

Overview

 

We began operations in 2016 as a subscription-based e-commerce company on the proposition of making shopping easy, convenient, and accessible for parents by delivering fashionable and customized kids’ outfits in a box. Kidpik provides kids clothing subscription boxes for boys and girls (sizes 12M-16) that include mix-&-match, coordinated outfits that are personalized based on each member’s style preferences. We focus on providing entire outfits from head-to-toe (including shoes) by designing each seasonal collection in-house from concept to box.

 

Staying ahead in an emerging industry requires constant innovation in product and services. After launching with our girls’ subscription boxes for sizes 4-14 in 2016, we have continued to expand our product offering and marketing channels. We expanded into boys’ clothing, added larger sizes for boys and girls (up to 16 for apparel and 6 youth for shoes), in the Spring of 2022, added toddler sizes down to 2T & 3T for apparel and 7 & 8 toddler shoes. During the second quarter of 2022, we introduced sizes 12 months and 18 months apparel to our offerings. We have expanded our distribution by selling our branded products on 3rd party websites.

 

5
 

 

We also introduced an “add-on” option for all active members, whereby they can add additional items of their choosing to their next subscription box order. We plan to broaden the assortment of add-on items offered in an effort to increase the average box transaction size and gross margin. During the second quarter of 2022, we expanded our subscription box offerings, introducing a 12-piece box option in addition to our traditional 8-piece box, adding to the customer experience and providing an opportunity to drive additional revenue. We have also expanded our seasonal pre-styled fashion box and outfit assortment available on our e-commerce website, which provides an upsell opportunity for active members and additional variety for our e-commerce customers.

 

As of the date of this Report, we provide e-commerce services throughout the 48 contiguous U.S. states and Army Post Offices (APOs) and Fleet Post Offices (FPOs).

 

We have expanded our offerings with a limited style introduction of husky/plus and slim sizes to our assortment and launched a limited-edition NASA selection during the third quarter of 2022. We will continue to analyze the marketplace for interest in new products and may further invest in expanding our current lines.

 

We have added new channels to our paid advertising strategy along with new affiliate partnerships, with the goal of increasing new member growth. In addition, we have focused on other revenue share marketing opportunities, such as continuing to scale our influencer ambassador program, and launched a consumer-facing brand ambassador program. We are also pursuing new awareness strategies, such as cross-promotional opportunities with children’s companies with brand synergies.

 

Key Performance Indicators

 

Key performance indicators that we use to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions include gross margin, shipped items, and average shipment keep rate, each described in greater detail below.

 

We also use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and longer-term performance of our business.

 

Gross Margin

 

   For the 13 weeks ended   For the 26 weeks ended 
   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
                     
Gross margin   60.2%   61.0%   60.0%   60.4%

 

Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of the purchase price of merchandise sold to customers and includes import duties and other taxes, freight in, returns from customers, inventory write-offs, and other miscellaneous shrinkage.

 

Adjusted EBITDA

 

In addition to our results calculated under generally accepted accounting principles in the United States (“U.S. GAAP”), and to provide investors with additional information regarding our financial results, we have disclosed in the table below and elsewhere in this Report, Adjusted EBITDA, a non-U.S. GAAP financial measure that we calculate as net loss before other expense, net, interest, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and certain non-routine items, which was a settlement of an insurance claim. We have provided below a reconciliation of Adjusted EBITDA to net loss, the most directly comparable U.S. GAAP financial measure.

 

We have included Adjusted EBITDA in this report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

 

6
 

 

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital requirements;
     
  Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs;
     
  Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
     
  Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
     
  Adjusted EBITDA does not reflect certain non-routine items that may represent a reduction in cash available to us; and
     
  Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other U.S. GAAP results.

 

Our financial results include certain items that we consider non-routine and not reflective of the underlying trends in our core business operations.

 

A reconciliation of net loss to Adjusted EBITDA is as follows:

 

   For the 13 weeks ended   For the 26 weeks ended 
   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
Net loss  $(2,029,225)  $(1,572,066)  $(3,979,737)  $(3,382,741)
Add (deduct)                    
Interest expense   24,415    7,925    49,605    29600 
Other expense   -    -    -    (286,795)
Depreciation and amortization   12,426    6,654    23,113    12,319 
Equity-based compensation   290,953    433,924    558,429    1,051,088 
Adjusted EBITDA  $(1,701,431)  $(1,123,563)  $(3,348,590)  $(2,576,529)

 

Shipped Items

 

We define shipped items as the total number of items shipped in a given period to our customers through our active subscription, Amazon and online website sales.

 

   For the 13 weeks ended   For the 26 weeks ended 
   (in thousands)   (in thousands) 
   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
                   
Shipped Items   290    354    630    725 

 

7
 

 

We believe the decreases in shipped items for the second quarter of 2023 and first half of 2023 versus the same periods in 2022, as shown in the table above, were primarily driven by a decrease in subscription boxes sales as a result of a lower number of new customers being acquired during 2023, in comparison to 2022, due to declines in the overall U.S. economy.

 

Average Shipment Keep Rate

 

   For the 13 weeks ended   For the 26 weeks ended 
   July 1, 2023   July 2, 2022   July 1, 2023   July 2, 2022 
                   
Average Shipment Keep Rate   75.1%   69.2%   71.3%   69.8%

 

Average shipment keep rate is calculated as the total number of items kept by our customers divided by total number of shipped items in a given period.

 

Factors Affecting Our Future Performance

 

We believe that our performance and future success depend on several factors that present significant opportunities for us, but also pose risks and challenges, including those referenced in the section titled “Risk Factors.”

 

Overall Economic Trends

 

The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending on our sites, while economic weakness, which generally results in a reduction of customer spending, may have a more pronounced negative effect on spending on our sites. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, high inflation, as is being currently experienced, business conditions, changes in the housing market, the availability of credit, increases in interest rates, as is being currently experienced and increases in fuel costs, energy costs, raw material costs, and supply chain challenges. In addition, during periods of low unemployment, we generally experience higher labor costs. We are continuing to navigate the uncertainties presented by the current macroeconomic environment and remain focused on improving the conversion of new members and our overall client experience.

 

Growth in Brand Awareness and Site Visits

 

We intend to continue investing in our brand marketing efforts. Since 2016, we have made significant investments to strengthen the “kidpik” brand through expansion of our social media presence. If we fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability would be adversely affected.

 

Acquisition of New Subscriptions

 

Our ability to attract new subscriptions through marketing and the development of our brand is a key factor for our future growth. If we are unable to acquire sufficient new subscriptions in the future, our revenue might continue to decline. New subscriptions could be negatively impacted if our marketing efforts are less effective in the future. Increases in advertising rates could also negatively impact our ability to acquire new subscriptions cost effectively. Consumer tastes, preferences, and sentiment for our brand may also change and result in decreased demand for our products and services. Laws and regulations relating to privacy, data protection, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices and procedures.

 

8
 

 

Social networks are important as a source of new clients and as a means by which to connect with current clients, and their importance may be increasing. We may be unable to effectively maintain a presence within these networks, which could lead to lower than anticipated brand affinity and awareness, and in turn could adversely affect our operating results. Further, mobile operating system and web browser providers, such as Apple and Google, have implemented product changes to limit the ability of advertisers to collect and use data to target and measure advertising. For example, Apple made a change in iOS 14 that required apps to get a user’s opt-in permission before tracking or sharing the user’s data across apps or websites owned by companies other than the app’s owner. Google intends to further restrict the use of third-party cookies in its Chrome browser in 2024, consistent with similar actions taken by the owners of other browsers, such as Apple in its Safari browser, and Mozilla in its Firefox browser. These changes have reduced and will continue to reduce our ability to efficiently target and measure advertising, in particular through online social networks, making our advertising less cost effective and successful. We have been, and expect to continue to be, impacted by these changes.

 

Retention of Existing Subscribers

 

Our ability to retain subscribers is also a key factor in our ability to sustain revenues and generate revenue growth. Most of our current subscribers purchase products through subscription-based plans, where subscribers are billed and sent products on a recurring basis. The recurring nature of this revenue provides us with a certain amount of predictability for future revenue. If customer behavior changes, and customer retention decreases in the future, then future revenue will be negatively impacted.

 

Inventory Management

 

To ensure sufficient availability of merchandise, we generally enter into purchase orders well in advance and frequently before apparel trends are confirmed by client purchases. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. From time to time, we include inventory write-offs and changes in inventory reserves that impact our gross margins. Because our merchandise assortment directly correlates to client success, we may at time optimize our inventory to prioritize long-term client success over short-term gross margin impact. Moreover, over inventory investments will fluctuate with the needs of our business. For example, entering new categories or adding new fulfillment centers will require additional investments in inventory.

 

Investments in Growth

 

We expect to continue to focus on long-term growth through investments in product offerings and the kids and parent experience. We expect to make significant investments in marketing to acquire new subscribers and customers. Additionally, we intend to continue to invest in our fulfillment and operating capabilities. In the short term, we expect these investments to increase our operating expenses in the future and cannot be certain that these efforts will grow our customer base or be cost-effective; however, in the long term, we anticipate that these investments will positively impact our results of operations.

 

Components of Results of Operations

 

Note that our classification of the various items making up cost of goods sold, shipping and handling, payroll and related costs, equity-based compensation and general and administrative costs may vary from other companies in our industry, and as such, may not be comparable to a competitor’s.

 

Revenue

 

We generate revenue in two categories: 1) the sale items in our subscription boxes, and 2) the sale of one-time purchases via shop.kidpik.com, and 3rd party websites. We refer to these revenue classifications as “Subscription boxes” and “one-time purchases”, respectively. Net revenue is revenue less promotional discounts, actual customer credits and refunds as well as customer credits and refunds expected to be issued, and sales tax. When we use the term revenue in this Report, we are referring to net revenue, unless otherwise stated. We also recognize revenue resulting upon the use of gift cards. Customers who decide to return some or all of the merchandise they receive in each kidpik box, may return such items within 10 days of receipt of the box. Customers are charged for subscription merchandise which is not returned, or which is accepted and are charged for general merchandise (non-subscription) when they purchase such merchandise; however, they are able to receive a refund on returned merchandise.

 

9
 

 

Cost of Goods Sold

 

Cost of goods sold consists of the costs of manufacturing merchandise and the expenses of shipping and importing (duty payments) such merchandise to our warehouse for distribution, and inventory write-offs, offset by the recoverable cost of merchandise estimated to be returned.

 

Shipping and Handling

 

Shipping and handling includes the costs of shipping merchandise to our customers, and back to us, as well as the cost of fulfillment and return processing, and the materials used for packing.

 

Payroll and Related Expenses

 

Payroll and related expenses represent employee salaries, taxes, benefits, shared-based compensation, and fees to our payroll provider.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of marketing, professional fees, 3rd party seller fees, rent, bad debt expense and credit card fees, among others.

 

Depreciation and Amortization

 

Depreciation and amortization expenses consist of depreciation expense for leasehold improvements and equipment.

 

Interest Expense

 

Interest expense consists primarily of interest expense associated with our lines of credit, outstanding notes payable, and amortization of deferred expense related to our line of credit.

 

Other Non-Operating Income

 

Other non-operating income in the first quarter of 2022, mainly related to settlement of an insurance claim related to business interruption of damaged inventory.

 

Provision for Income Taxes

 

Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, and changes in the valuation allowance of our net federal and state deferred tax assets.

 

Results of Operations

 

Comparison of the thirteen weeks ended July 1, 2023 and July 2, 2022

 

Revenue

 

Our revenue for the 13 weeks ended July 1, 2023, decreased by 8.6% to $3,448,919, compared to $3,774,668 for the 13 weeks ended July 2, 2022, a decrease of $325,749 from the prior period. The revenue breakdown by sales channel for the 13 weeks ended July 1, 2023, and July 2, 2022, is summarized in the table below:

 

  

13 weeks ended

July 1, 2023

  

13 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Revenue by channel                    
Subscription boxes  $2,607,543   $2,974,550   $(367,007)   (12.3)%
3rd party websites   426,914    559,077    (132,163)   (23.6)%
Online website sales   414,462    241,041    173,421    71.9%
Total revenue  $3,448,919   $3,774,668   $(325,749)   (8.6)%

 

10
 

 

Our revenue for the 26 weeks ended July 1, 2023, decreased by 7.7% to $7,478,397, compared to $8,100,665 for the 26 weeks ended July 2, 2022, a decrease of $622,269 from the prior period. The revenue breakdown by sales channel for the 26 weeks ended July 1, 2023, and July 2, 2022, is summarized in the table below:

 

  

26 weeks ended

July 1, 2023

  

26 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Revenue by channel                    
Subscription boxes  $5,579,110   $6,458,401   $(879,291)   (13.6)%
3rd party websites   863,212    1,108,577    (245,365)   (22.1)%
Online website sales   1,036,075    533,687    502,388    94.1%
Total revenue  $7,478,397   $8,100,665   $(622,268)   (7.7)%

 

The revenue from subscription boxes for the 13 weeks ended July 1, 2023 and July 2, 2022, was generated from active subscriptions recurring boxes revenue and new subscriptions first box revenue, as summarized in the table below:

 

  

13 weeks ended

July 1, 2023

  

13 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Subscription boxes revenue from                    
Active subscriptions – recurring boxes  $2,177,298   $2,650,324   $(473,026)   (17.8)%
New subscriptions - first box   430,245    324,226    106,019    32.7%
Total subscription boxes revenue  $2,607,543   $2,974,550   $(367,007)   (12.3)%

 

The revenue from subscription boxes for the 26 weeks ended July 1, 2023 and July 2, 2022, was generated from active subscriptions recurring boxes revenue and new subscriptions first box revenue, as summarized in the table below:

 

  

26 weeks ended

July 1, 2023

  

26 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Subscription boxes revenue from                    
Active subscriptions – recurring boxes  $4,578,324   $5,786,892   $(1,208,568)   (20.9)%
New subscriptions - first box   1,000,786    671,509    329,277    49.0%
Total subscription boxes revenue  $5,579,110   $6,458,401   $(879,291)   (13.6)%

 

11
 

 

The decrease in revenue for the 13 weeks ended July 1, 2023 was primarily driven by a decrease in subscription boxes sales. The revenue breakdown by product line for the 13 weeks ended July 1, 2023 and July 2, 2022 is summarized in the table below:

 

  

13 weeks ended

July 1, 2023

  

13 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Revenue by product line                    
Girls’ apparel  $2,636,965   $2,762,669   $(125,704)   (4.6)%
Boys’ apparel   640,937    821,650    (180,713)   (22.0)%
Toddlers’ apparel   171,017    190,349    (19,332)   (10.5)%
Total revenue  $3,448,919   $3,774,668   $(326,349)   (8.6)%

 

The decrease in revenue for the 26 weeks ended July 2, 2022 was primarily driven by a decrease in subscription boxes sales, due to the difficult retail environment. The revenue breakdown by product line for the 26 weeks ended July , 2023 and July 2, 2022 is summarized in the tables below:

 

  

26 weeks ended

July 1, 2023

  

26 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Revenue by product line                    
Girls’ apparel  $5,684,721   $6,019,561   $(334,840)   (5.6)%
Boys’ apparel   1,428,096    1,689,445    (261,349)   (15.5)%
Toddlers’ apparel   365,580    391,659    (26,079)   (6.7)%
Total revenue  $7,478,397   $8,100,665   $(622,268)   (7.7)%

 

The number of items shipped to our customers decreased by 17.9%, from approximately 354,000 for the 13 weeks ended July 2, 2022, to approximately 290,000 for the 13 weeks ended July 1, 2023, due to challenging subscription environment. The average shipment keep rate increased to 75.1% in the 13 weeks ended July 1, 2023, compared to 69.2% in the 13 weeks ended July 2, 2022.

 

The number of items shipped to our customers decreased by 13.0%, from approximately 725,000 for the 26 weeks ended July 2, 2022, to approximately 630,000 for the 26 weeks ended July 1, 2023. The average shipment keep rate increased to 71.3% in the 26 weeks ended July 1, 2023, compared to 69.8% in the 26 weeks ended July 1, 2022.

 

Cost of Goods Sold

 

Our cost of goods sold decreased by 6.8% to $1,372,563 for the 13 weeks ended July 1, 2023, compared to $1,473,380 for the 13 weeks ended July 2, 2022, a decrease of $100,817.

 

Our cost of goods sold decreased by 6.7% to $2,991,789 for the 26 weeks ended July 1, 2023, compared to $3,207,294 for the 26 weeks ended July 2, 2022, a decrease of $215,505.

 

The decrease in cost of goods sold for the 13 and 26 weeks ended July 1, 2023, compared to the same periods in fiscal 2022, was primarily attributable to the decrease in our subscription box sales as discussed above.

 

Gross Profit and Gross Profit as a Percentage of Revenue

 

Our gross profit was $2,076,356 for the 13 weeks ended July 1, 2023, compared to gross profit of $2,301,288 for the 13 weeks ended July 2, 2022. The decrease in gross profit for the 13 weeks ended July 1, 2023, compared to the same period in fiscal 2022, was primarily attributable to the decrease in our subscription box sales, related to a challenging retail environment.

 

12
 

 

Gross profit as a percentage of revenue was 60.2% for the 13 weeks ended July 1, 2023, compared to 61.0% for the 13 weeks ended July 2, 2022.

 

Our gross profit was $4,486,608 for the 26 weeks ended July 1, 2023, compared to gross profit of $4,893,371 for the 26 weeks ended July 2, 2022. The decrease in gross profit for the 26 weeks ended July 1, 2023, compared to the same period in fiscal 2022, was primarily attributable to the decrease in our subscription box sales.

 

Gross profit as a percentage of revenue was 60.0% for the 26 weeks ended July 1, 2023, compared to 60.4% for the 26 weeks ended July 1, 2022.

 

Operating Expenses

 

Our operating expenses for the 13 weeks ended July 1, 2023 and July 2, 2022, are summarized in the table below:

 

  

13 weeks ended

July 1, 2023

  

13 weeks ended

July 2, 2022

  

Change

($)

  

Change

(%)

 
Expenses                    
Shipping and handling  $949,734   $959,141   $(9,407)   (1.0)%
Payroll, related costs and equity-based compensation   1,094,135    1,346,744    (252,609)   (18.8)%
General and administrative   2,024,871    1,552,890    471,981    30.4%
Depreciation and amortization   12,426    6,654    5,772    86.7%
Total expenses  $4,081,166   $3,865,429   $215,737    5.6%

 

Our operating expenses include general and administrative expenses, salaries and benefits, shipping and handling, and depreciation and amortization, as shown in the tables above. Our operating expenses for the 13 weeks ended July 1, 2023, increased by $215,737 or 5.6% to $4,081,166, compared to $3,865,429 for the 13 weeks ended July 1, 2022. This increase was mainly a result of (i) a $471,981 increase in general and administrative expenses, mainly due to an increase in marketing expenses and franchise tax fees, offset by a decrease in third party fees due to the decrease in sales, offset by (ii) a decrease in payroll and related costs of $252,609, mainly due to a decrease in non-cash, equity-based compensation and lower headcount related to cost reductions, recorded in the second quarter of 2023, compared to the same period in fiscal 2022.

 

Our operating expenses for the 26 weeks ended July 1, 2023 and July 2, 2022, are summarized in the table below:

 

   

26 weeks ended

July 1, 2023

   

26 weeks ended

July 2, 2022

   

Change

($)

   

Change

(%)

 
Expenses                                
Shipping and handling   $ 2,138,956     $ 2,091,225     $ 47,731       2.3 %
Payroll, related costs and equity-based compensation     2,205,236       2,945,980       (740,744 )     (25.1 )%
General and administrative     4,049,435       3,483,783       565,652       16.2 %
Depreciation and amortization     23,113       12,319       10,794       87.6 %
Total expenses   $ 8,416,740     $ 8,533,307     $ (116,567 )     (1.4 )%

 

Our operating expenses include general and administrative expenses, salaries and benefits, shipping and handling, and depreciation and amortization, as shown in the tables above. Our operating expenses for the 26 weeks ended July 1, 2023, decreased by $116,567 or 1.4% to $8,416,740, compared to $8,533,307 for the 26 weeks ended July 2, 2022. This decrease was mainly a result of (i) a decrease in payroll and related costs of $740,744, mainly due to a decrease in non-cash, equity-based compensation and lower headcount, recorded in the second quarter of 2023, compared to the same period in fiscal 2022, offset by (ii) a $565,652 increase in general and administrative expenses, mainly due to an increase in marketing expenses and franchise tax fees, offset by a decrease in third party fees due to the decrease in sales .

 

13
 

 

Loss from Operations

 

Loss from operations increased from $1,564,141 for the 13 weeks ended July 2, 2022, to $2,004,810 for the 13 weeks ended July 1, 2023. The increase in loss from operations was largely due to a decrease in sales, and an increase in general and administrative expenses, offset by a decrease in payroll as discussed above.

 

Loss from operations increased from $3,639,936 for the 26 weeks ended July 2, 2022, to $3,930,132 for the 26 weeks ended July 1, 2023. The increase in loss from operations was largely due to a decrease in sales and an increase in general and administrative expenses, offset by a decrease in payroll as discussed above.

 

Other Expenses (Income)

 

For the 13 weeks ended July 1, 2023 and July 2, 2022, total other expenses, consisting solely of interest expenses, were $24,415 and $7,925, respectively. The increase in interest expense is related to the Company’s operating leases, related to a change in accounting policy regarding operating leases.

 

Total other expenses (income) were $49,605 and ($257,195) for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively. The increase in interest expense from $29,600 for the 26 weeks ended July 2, 2022 to $49,605 for the 26 weeks ended July 1, 2023, is related to the Company’s operating leases and a decrease in other income for the 26 weeks ended July 1, 2023 from $286,795 for the 26 weeks ended July 2, 2022 to $0 for the 26 weeks ended July 1, 2023, was due to a settlement of insurance claim related to business interruption of damaged inventory.

 

Net Loss

 

We had a net loss of $2,029,225 for the 13 weeks ended July 1, 2023, compared to a net loss of $1,572,066 for the 13 weeks ended July 2, 2022, an increase in net loss of $457,159 or 29.1%. The increase in net loss was primarily due to an increase general and administrative expenses of $471,981 and the decrease in revenue of $325,749, offset by a decrease in payroll of $252,609, each as discussed in greater detail above.

 

We had a net loss of $3,979,737 for the 26 weeks ended July 1, 2023, compared to a net loss of $3,382,741 for the 26 weeks ended July 2, 2022, an increase in net loss of $596,996 or 15.0%. The increase in net loss was primarily due to an increase in general and administrative expenses of $565,652 and a decrease in revenue of $622,268, offset by a decrease in non-cash compensation of $458,967 and other income of $286,795, each as discussed in greater detail above.

 

Liquidity and Capital Resources

 

   July 1, 2023   December 31, 2022   Change ($)   Change (%) 
Cash and restricted cash  $162,759   $605,213   $(442,454)   (73.1)%
Working capital  $4,931,391   $8,273,601   $(3,342,210)   (40.4)%
Short-term debt, related party  $2,050,000   $2,050,000   $-    - 

 

On July 1, 2023, we had $162,759 of cash on hand (including restricted cash of $4,618), compared to $605,213 of cash on hand at December 31, 2022 (including restricted cash of $4,618).

 

As of July 1, 2023, the Company had total current liabilities of $6,040,664, consisting mainly of accounts payable of $1,702,425, accounts payable to related party of $1,538,902, accrued expenses of $419,683, operating lease liability of $329,654 and short-term debt from related party of $2,050,000 (discussed below).

 

As of July 1, 2023, we had $10,972,054 in total current assets, $6,040,664 in total current liabilities, working capital of $4,931,391 and a total accumulated deficit of $45,514,182.

 

From inception through November 10, 2021, we mainly relied on equity and loans from Ezra Dabah, our Chief Executive Officer and Chairman, and his family (which loans have all, other than $2,050,000, been converted into equity as of May 11, 2021), notes payable including from Nina Footwear Corp. which is 86.36% owned by Ezra Dabah and his family, including Moshe Dabah, our Vice President, Chief Operating Officer and Chief Technology Officer, for which entity Ezra Dabah serves as Chief Executive Officer and member of the Board of Directors of “Nina Footwear”, a related party, and a line of credit (repaid as of January 1, 2022), and cash advance agreements (which have since been terminated), as well as revenue generated through our operations, to support our operations since inception. We have primarily used our available cash to pay operating expenses (salaries and other expenses), and for merchandise inventory costs, shipping costs and marketing expenditures. We do not have any material commitments for capital expenditures. Following the closing of our initial public offering (“IPO”) in November 2021, we have also relied on the funds raised in the IPO to support our operations.

 

14
 

 

We have experienced recurring net losses since inception and negative operating cash flows. We believe that we will continue to incur substantial operating expenses in the foreseeable future as we continue to invest to attract new customers, expand the product offerings and enhance technology and infrastructure. These efforts may prove more expensive than we anticipate, and we may not succeed in increasing the net revenue and margins sufficiently to offset these expenses. Accordingly, we may not be able to achieve profitability, and we may incur significant losses for the foreseeable future.

 

To support our existing operations or any future expansion of business, including the ability to execute our growth strategy, we must have sufficient capital to continue to make investments and fund operations. We have plans to pursue a growth strategy for the expansion of operations through increased marketing to attract new members and refine the marketing strategy to strategically prioritize customer acquisition channels that we believe will be more successful at attracting new customers and members. We plan to launch new product lines to help attract new members and retain existing members.

 

We expect to continue to generate net losses for the foreseeable future as we make investments to grow our business. The Company’s ability to continue its operations is dependent upon obtaining new financing for its ongoing operations and on the Company’s plans to reduce the inventory level. To manage operating cash flows in the near term, the Company plans to significantly reduce purchases of new inventory and if available, may enter into cash advance or other financing arrangements. Future financing options which may be available to the Company include equity financings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions to fund existing operations and execute management’s growth strategy. Equity financings may include sales of common stock, warrants or convertible securities. Such financing may not be available on terms favorable to the Company or at all and may cause significant dilution to existing stockholders. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continued operations, if at all, which would have a material adverse effect on its business, financial condition and results of operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that the financial statements are issued. The accompanying financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

On March 22, 2023, we received written notice (the “Notification Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of the Company’s common stock for the thirty (30) consecutive business days from February 7, 2023 to March 21, 2023, the Company no longer meets the minimum bid price requirement.

 

The Notification Letter did not impact the Company’s listing of its common stock on the Nasdaq Capital Market. The Notification Letter stated that the Company has 180 calendar days or until September 18, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance by September 18, 2023, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital Market initial listing criteria (except for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If the Company does not qualify for the second compliance period, fails to regain compliance during the second 180-day period, or if it appears to Nasdaq that the Company will not be able to cure the deficiency, the Company’s common stock will be subject to delisting, at which point the Company would have an opportunity to appeal the delisting determination to a Hearings Panel.

 

15
 

 

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. The Company has received stockholder approval of an amendment to the Company’s Second Amended and Restated Certificate of Incorporation, to effect a reverse stock split of the Company’s issued and outstanding shares of our common stock, par value $0.001 per share, by a ratio of between one-for-five to one-for-twenty, inclusive, with the exact ratio to be set at a whole number to be determined by the Company’s Board of Directors or a duly authorized committee thereof in its discretion, at any time after approval of the amendment and prior to April 24, 2024. The Board of Directors may determine to affect a reverse stock split of the Company’s outstanding common stock in the future to attempt to cure the trading price deficiency raised by Nasdaq.

 

Cash Flows

 

  

26 weeks ended

July 1, 2023

  

26 weeks ended

July 2, 2022

 
Cash used in:          
Operating activities  $(366,333)  $(4,803,060)
Investing activities   (76,121)   (31,317)
Financing activities   -    (1,115,847)
Net decrease in cash  $(442,454)  $(5,950,224)

 

Net cash used in operating activities decreased to $366,333 for the 26 weeks ended July 1, 2023, compared to $4,803,060 for the 26 weeks ended July 2, 2022. The decrease in our cash used in operating activities of approximately $4.4 million was primarily due to changes in operating assets and liabilities in the amount of approximately $5.6 million, offset by adjustments for non-cash items totaling $0.57 million, and by an increase in net loss in the amount of approximately $0.60 million, as discussed in greater detail above.

 

Net cash used in investing activities during the 26 weeks ended July 1, 2023 and July 2, 2022 was $76,121 and $31,317, respectively, each of which was related solely to leasehold improvements.

 

Net cash used in financing activities was $1,115,847 for the 26 weeks ended July 2, 2022, related to repayment of advances payable and notes payable.

 

Related Party Convertible Notes and Loans

 

On August 13, 2021, the Company entered into two unsecured convertible promissory notes with stockholders in the aggregate amount of $200,000. Each of the convertible notes were payable on January 15, 2022 and were automatically convertible into shares of the Company’s common stock at a conversion price equal to the per share price of the next equity funding completed by the Company in an amount of at least $2,000,000 and requires the repayment of 110% of such convertible note amount upon a sale of the Company (including a change of 50% or more of the voting shares). On August 25, 2021, the parties agreed to amend the previously convertible notes to remove the conversion rights provided for therein and clarify that no interest accrues on the convertible notes. On March 31, 2022, and effective on January 15, 2022, the parties amended the notes to be payable on demand.

 

In September, October and November 2021, the Company borrowed an aggregate of $2,500,000 from Ezra Dabah, who is our Chief Executive Officer and Chairman. The notes are unsecured, noninterest-bearing and the principal is fully due on January 15, 2022, at the rate of 110% of such note amount upon a sale of the Company (including a change of 50% or more of the voting shares). On December 27, 2021, the Company paid $500,000 of the outstanding loan amounts. On March 31, 2022, and effective on January 15, 2022, the parties amended the notes to be payable on demand. On June 2, 2022, Company paid $150,000 of the outstanding loan amounts.

 

16
 

 

As of July 1, 2023 and December 31, 2022, there was $1,538,902 and $1,107,665 due to related party (Nina Footwear), respectively.

 

Need for Future Funding

 

The Company’s ability to continue its operations is dependent upon obtaining new financing for its ongoing operations and on the Company’s plans to reduce the inventory level. To manage operating cash flows in the near term, the Company plans to significantly reduce purchases of new inventory and may enter into cash advances or other financing arrangements. Future financing options which may be available to the Company include equity financings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions to fund existing operations and execute management’s growth strategy. Equity financings may include sales of common stock. Such financing may not be available on terms favorable to the Company or at all. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders and may cause significant dilution to existing stockholders. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continued operations, if at all, which would have a material adverse effect on its business, financial condition and results of operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that the condensed interim financial statements are issued. The accompanying condensed interim financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

Critical Accounting Estimates

 

Our condensed interim financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP. The preparation of condensed interim financial statements requires management to make estimates and assumptions that affect the reporting values of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed interim financial statements, and the reported amounts of revenue and expenses during the reporting period. The more significant estimates and assumptions are those used in determining the recoverability of long-lived assets and inventory obsolescence. Accordingly, actual results could differ from those estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

 

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the 2022 Annual Report and in “Note 2: Summary of Significant Accounting Policies” to the audited financial statements appearing in the 2022 Annual Report. During the 26 weeks ended July 1, 2023, there were no material changes to our critical accounting policies from those discussed in our 2022 Annual Report.

 

JOBS Act and Recent Accounting Pronouncements

 

The JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act.

 

17
 

 

We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

 

Recent Accounting Pronouncements

 

Refer to “Note 2: Summary of Significant Accounting Policies” to our unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements not yet adopted.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and our Chief Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of July 1, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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 information required to be disclosed by a company in the reports that it files or submits under the Exchange Act 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 such evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the 13 weeks ended July 1, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

18
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various legal proceedings that arise in the ordinary course of business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources. We are not party to any material legal proceedings at this time. We may become involved in material legal proceedings in the future.

 

Item 1A. Risk Factors

 

Reference is made to Part I, Item 1A, “Risk Factors” included in our 2022 Annual Report for information concerning risk factors, which should be read in conjunction with the factors set forth in “Cautionary Statement Regarding Forward-Looking Information” of this Report. There have been no material changes with respect to the risk factors disclosed in our 2022 Form 10-K, except as set forth below. You should carefully consider such factors in the 2022 Form 10-K, and below, which could materially affect our business, financial condition or future results. The risks described in the 2022 Form 10-K and below, are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

We have, and plan to continue to, reduce purchases of inventory to conserve cash.

 

Over the past several quarters, and moving forward for the near term, to manage operating cash flows, the Company plans to significantly reduce purchases of new inventory. Reductions in the purchase of inventory may also result in reduced revenue, as we can only sell merchandise that we have in inventory. Additionally, in the event the market for our products increases in the near term, we may not have available inventory of products which customers or members desire to purchase and/or enough of those products to keep up with demand. As a result, our revenues and margins may decrease, which could have a material adverse effect on our operating results and the value of our securities.

 

We may have difficulties finding suitable warehouse space and our move to a new warehouse space may be costly and/or result in an interruption of our operations.

 

The Company entered into a sub-lease agreement for warehouse space from a related party on April 1, 2021. The Company pays 33.3% of the related party’s fixed monthly rent. The lease expires on September 30, 2023. As of July 1, 2023, the minimum lease payments amount to $63,702 for the year ending December 30, 2023. We expect to find alternative warehouse space when our current sub-lease expires on September 30, 2023. We may not be able to find suitable warehouse space, such alternative warehouse space may not be as large, or allow us to operate at the same efficiency levels as our current space, and we expect to expend significant resources moving to such new warehouse space, outfitting such space for our operations, and purchasing new equipment in connection therewith. The move from our current warehouse to a new warehouse could result in a temporary or prolonged interruption in our business activities. The terms of such warehouse space rental may also not be as favorable to us as our current lease, may be significantly more expensive and/or may require us to expend additional amounts on expenses which are covered by our current agreement. Additionally, certain of our employees may decide to terminate their employment with us rather than relocate to a new location. Any of the above could result in an increase in our operating expenses, interruptions in our business activities, and decreased revenues, which could have a material adverse effect on the value of our securities.

 

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

 

Recent Sales of Unregistered Securities

 

None.

 

19
 

 

Use of Proceeds from Initial Public Offering

 

On November 15, 2021, we completed our IPO, in which we sold 2,117,647 shares of common stock at a price to the public of $8.50 per share. All the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-260101) filed by the Company with the SEC under the Securities Act on October 6, 2021, as amended and the Company’s registration statement on Form S-1MEF (File No. 333-260986) filed by the Company with the SEC under the Securities Act on November 10, 2021, each of which became effective on November 10, 2021. We received aggregate net proceeds of approximately $16.1 million, after deducting underwriting discounts and commissions, and offering costs. There has been no material change in the planned use of proceeds from the IPO from that described in the Final Prospectus.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

The following exhibits are filed herewith or incorporated by reference herein:

 

Exhibit       Incorporated by Reference  

Filed/

Furnished

Number   Exhibit Description   Form   File No.   Date   Exhibit   Herewith
31.1*   Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)                   X
31.2*   Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)                   X
32.1**   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350                   X
32.2**   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350                   X
101.INS   Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document                   X
101.SCH   Inline XBRL Taxonomy Extension Schema Document                   X
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                   X
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                   X
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document                   X
101.LAB   Inline XBRL Taxonomy Extension Presentation Linkbase Document                   X
104   Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set                   X

 

* Filed herewith.

 

**The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, are not deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

20
 

 

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.

 

  Kidpik Corp.
     
Date: August 15, 2023 By: /s/ Ezra Dabah
    Ezra Dabah
    President and Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 15, 2023 By: /s/ Jill Pasechnick
    Jill Pasechnick
    Chief Accounting Officer
    (Principal Financial and Accounting Officer)

 

21

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Exhibit 31.1

 

CERTIFICATION

 

I, Ezra Dabah, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Kidpik Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 15, 2023 By: /s/ Ezra Dabah
    Ezra Dabah
    President and Chief Executive Officer
    (Principal Executive Officer)

 

EX-31.2 4 ex31-2.htm

 

Exhibit 31.2

 

CERTIFICATION

 

I, Jill Pasechnick, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Kidpik Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 15, 2023 By: /s/ Jill Pasechnick
    Jill Pasechnick
    Chief Accounting Officer
    (Principal Financial and Accounting Officer)

 

EX-32.1 5 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Kidpik Corp. (the “Company”) for the period ended July 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ezra Dabah, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

/s/ Ezra Dabah  
Ezra Dabah  
President and Chief Executive Officer  
(Principal Executive Officer)  
   
Date: August 15, 2023  

 

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-32.2 6 ex32-2.htm

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Kidpik Corp. (the “Company”) for the period ended July 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jill Pasechnick, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

/s/ Jill Pasechnick  
Jill Pasechnick  
Chief Accounting Officer  
(Principal Financial and Accounting Officer)  
   
Date: August 15, 2023  

 

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

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