UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ |
| ☒ | 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 ☐
As of June 9, 2023, there were shares of common stock, par value $0.0001, issued and outstanding.
Table of Contents
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. When used in this quarterly report, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “might,” “will,” “should,” “goal,” “target” or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this Quarterly Report.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks and uncertainties are discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended July 31, 2022, filed with the Securities and Exchange Commission on October 31, 2022, as the same may be updated from time to time.
All forward-looking statements attributable to us in this Quarterly Report apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.
| 3 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| 4 |
OpenLocker Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
| April 30, 2023 | July 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total Current Assets | ||||||||
| Website - net | ||||||||
| Other Assets | ||||||||
| Operating lease - right-of-use asset - related party | ||||||||
| Investment | ||||||||
| Intangible asset - net | ||||||||
| Goodwill | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liability - related party | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability - related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Series A, convertible preferred stock - $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Common stock - $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
OpenLocker Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended April 30, | For the Nine Months Ended April 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| NFTs and Commissions | $ | $ | $ | $ | ||||||||||||
| Sponsorship | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative expenses | ( | ) | ||||||||||||||
| Total operating expenses | ( | ) | ||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ||||||||||||||||
| Impairment expense | ( | ) | ( | ) | ||||||||||||
| Loss on debt extinguishment - related parties | ( | ) | ( | ) | ||||||||||||
| Interest expense - related party | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) - net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Income (loss) per share - basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding - basic | ||||||||||||||||
| Income (loss) per share - diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding - diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
OpenLocker Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
| Series A, Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| July 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock issued for cash - preferred stock - related parties | - | |||||||||||||||||||||||||||
| Stock issued for cash - common stock | - | |||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||
| Recognition of stock-based compensation | - | - | ||||||||||||||||||||||||||
| Contributed capital - related parties | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| October 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Stock issued for cash - common stock | - | |||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||
| Recognition of stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| January 31, 2023 | ( | ) | ||||||||||||||||||||||||||
| Stock issued for cash - common stock | - | |||||||||||||||||||||||||||
| Recognition of stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| April 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 7 |
| Preferred Stock | Common Stock | Additional Paid-in | Subscription | Common Stock | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Deficit | ||||||||||||||||||||||||||||
| July 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Recognition of stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| October 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Share redemption | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Shares issued for financing | - | ( | ) | |||||||||||||||||||||||||||||||||
| Share exchange | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Recognition of stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| January 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - | ||||||||||||||||||||||||||||||||||
| Share redemptions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock issued for cash | - | |||||||||||||||||||||||||||||||||||
| Stock issued for subscription receivable | - | ( | ) | |||||||||||||||||||||||||||||||||
| Stock issued for services and true up of previously recognized compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Stock issued in conversion of notes payable and accrued interest - related parties | - | |||||||||||||||||||||||||||||||||||
| Forgiveness of notes payable and accrued interest - related parties | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| April 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
OpenLocker Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Amortization - intangible asset (intellectual property) | ||||||||
| Amortization - website | ||||||||
| Amortization of operating lease right-of-use asset - related party | ||||||||
| Impairment of investment | ||||||||
| Recognition of stock-based compensation | ||||||||
| Stock issued for services | ||||||||
| Loss on debt extinguishment - related parties | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Increase (decrease) in | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - related parties | ( | ) | ||||||
| Operating lease liability - related party | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Stock issued for cash - preferred stock - related parties | ||||||||
| Collection of stock subscription receivable | ||||||||
| Stock issued for cash - common stock | ||||||||
| Contributed capital | ||||||||
| Cash paid for share common stock and preferred stock redemptions | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Forgiveness of notes payable and accrued interest - related parties | $ | $ | ||||||
| Stock issued in conversion of notes payable and accrued interest - related parties | $ | $ | ||||||
| Issuance of common stock for a subscription receivable | $ | $ | ||||||
| Share exchange | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 9 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Note 1 – Organization, Nature of Operations and Going Concern
Organization and Nature of Operations
OpenLocker Holdings, Inc. and its subsidiaries OpenLocker, Inc. (collectively “OpenLocker”, “we,” “us,” “our” or the “Company”) operates a technology platform for athletes and brands to redefine and unlock consumer and fan value. OpenLocker builds highly engaged fan communities on the Blockchain primarily for colleges and universities using student-athletes Name, Image and Likeness (NIL), opening the door to countless revenue opportunities that previously did not exist. OpenLocker increases engagement among fans, athletes and brands through digital and physical collectibles and provides unique user utility, perks and experiences. OpenLocker is delivering digital loyalty and spearheading the future of marketing.
OpenLocker is a registered trademark, and LOCKERMANIA, BONE YARD HUSKYZ CLUB, ROWDY REDZ, PROWLERZ CLUB, GATORVERSE, LIONZ CLUB, OPENSTABLE and MADDY BADDYZ are trademarks of, OpenLocker Holdings, Inc.
The parent (OpenLocker Holdings, Inc.) and its subsidiaries are organized as follows:
| Company Name | Incorporation Date | State of Incorporation | ||
| OpenLocker Holdings, Inc. * | ||||
| Descrypto, Inc. ** | ||||
| Descrypto Studio, LLC | ||||
| Open Locker, Inc. (“OL”) *** |
| * |
| ** |
| *** |
Going Concern and Management’s Plans
These unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying unaudited consolidated financial statements, for the nine months ended April 30, 2023, the Company had:
| ● | Net
loss of $ |
| ● | Net
cash used in operations of $ |
Additionally, at April 30, 2023, the Company had:
| ● | Accumulated
deficit of $ |
| ● | Stockholders’
equity of $ |
| ● | Working
capital of $ |
| 10 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
We
manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had cash on hand
of $
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended April 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.
The Company has satisfied its obligations from the issuance of common stock; however, there is no assurance that such successful efforts will continue during the twelve months subsequent to the date these consolidated financial statements are issued.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these unaudited consolidated financial statements are issued. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities; |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; |
| ● | Identifying strategic acquisitions; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of April 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended April 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
| 11 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the period ended July 31, 2022 filed with the SEC on October 31, 2022.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
Principles of Consolidation
These unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Business Combinations
The Company accounts for business combinations using the acquisition method in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations which requires recognition of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date of acquisition.
Business Segments and Concentrations
The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as a single operating segment.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Fair Value of Financial Instruments
The Company accounts for financial instruments under ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
| 12 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
The three tiers are defined as follows:
| ● | Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| ● | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| ● | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
The Company’s financial instruments, including cash, and accounts payable and accrued expenses, are carried at historical cost. At April 30, 2023 and July 31, 2022, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.
At April 30, 2023 and July 31, 2022, respectively, the Company did not have any cash equivalents.
The
Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent
account balances exceed the amount insured by the FDIC, which is $
Investment
The
Company owns shares of iGrow Systems Inc. The shares were valued at cost $
During
the nine months ended April 30, 2023, the Company determined that the value of the investment was non-recoverable and has recorded an
impairment loss of $
| 13 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Goodwill and Impairment
In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level.
The Company uses qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. During the three and nine months ended April 30, 2023 and 2022, the Company determined there were no impairments of goodwill.
Intangible Assets and Impairment
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Indefinite-lived intangible assets are reviewed for impairment annually. The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
There were no impairment losses for the three and nine months ended April 30, 2023 and 2022, respectively.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.”
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
There were no impairment losses for the three and nine months ended April 30, 2023 and 2022, respectively.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.
Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
There were no impairment losses for the three and nine months ended April 30, 2023 and 2022, respectively.
| 14 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Operating Lease
From time to time, we may enter into operating lease or sub-lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842: Leases, which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.
We may have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.
We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
Our leases, where we are the lessee, do not include an option to extend the lease term. Our lease does not include an option to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.
Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.
See Note 10.
Revenue Recognition
OpenLocker generates revenue from three main sources: primary sales of non-fungible tokens (“NFTs”) on its online store, commissions collected from sales on the secondary marketplace and sponsorship revenues.
| 15 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Revenue is recognized in accordance with ASC No. 606, “Revenue from Contracts with Customers”. The Company recognizes revenue when its performance obligations are complete, which occurs at a point in time related to the transfer of an NFT to its customer. Currently, all sales contain a single performance obligation.
NFTs and Commissions
All payments are received from third-party payment processing providers. The Company receives payments from sales on its primary marketplace (Shopify site) as well as two other sources. Each of these sources of payment relates to the completion of a single performance obligation completed at a point in time, which occurs upon the transfer of an NFT and where no further performance obligations are required:
| ● | Shopify payouts from credit/debit cards transactions typically occur 2-3 days after date of sale; | |
| ● | PayPal payments are received same day; and | |
| ● | Cryptocurrency payments are deposited immediately into OpenLocker’s Coin Payments account. |
The
Company also recognizes revenues generated from the
Shipping fees collected from customers for physical collectibles are included with revenues received from Shopify payouts. The majority of those collectibles have not yet been shipped due to a delay in receiving the goods from our vendor. Prior to the product shipping, any amounts received in advance are accounted for as contract liabilities (deferred revenue).
Sponsorships
The Company generates revenues from sponsorship arrangements, in which the customer sponsors an athlete, event or sports team. In exchange for the sponsorship, the customer receives specified brand recognition and other benefits over a set period of time and will recognize revenue on a straight-line basis over the time period specified in the contract. Related performance obligations for sponsorship arrangements are recognized ratably over this period of time.
The excess of amounts contractually due over the amounts of sponsorship revenue recognized are included on the consolidated balance sheets as contract liabilities (deferred revenues). Contractually due, but unpaid sponsorship revenue is included in accounts receivable on the consolidated balance sheets.
At April 30, 2023 and July 31, 2022, the Company had no contract liabilities.
For
the three and nine months ended April 30, 2023, the Company recognized $
| 16 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
The following represents the Company’s disaggregation of revenues for the nine months ended April 30, 2023 and 2022:
| Nine Months Ended April 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Revenues | Revenue | % of Revenues | Revenue | % of Revenues | ||||||||||||
| NFT’s and Commissions | $ | % | $ | % | ||||||||||||
| Sponsorship | % | | % | |||||||||||||
| Total Revenues | $ | % | $ | % | ||||||||||||
Software Development Costs
Internal-use software development costs are accounted for in accordance with ASC 350-40, “Internal-Use Software”. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred.
Once
an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized
and amortized on a straight-line basis over the estimated useful life of the software (typically to
Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software.
The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs will be included in cost of goods sold in the statements of operations.
For
the three months ended April 30, 2023 and 2022, the Company expensed $
For
the nine months ended April 30, 2023 and 2022, the Company expensed $
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of April 30, 2023 and July 31, 2022, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
| 17 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the nine months ended April 30, 2023 and 2022, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.
For
the three months ended April 30, 2023 and 2022, the Company expensed $
For
the nine months ended April 30, 2023 and 2022, the Company expensed $
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
When determining fair value of stock options, the Company considers the following assumptions in the Black-Scholes model:
| ● | Exercise price; |
| ● | Expected dividends; |
| ● | Expected volatility; |
| ● | Risk-free interest rate; and |
| ● | Expected life of option. |
Stock Warrants
In connection with certain financing (debt or equity), consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of warrants issued for compensation using the Black-Scholes option pricing model as of the measurement date. However, for warrants issued that meet the definition of a derivative liability, fair value is determined based upon the use of a binomial pricing model.
Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants (for services) are recorded at fair value and expensed over the requisite service period or at the date of issuance if there is not a service period.
| 18 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
The Company effected a reverse merger and recapitalization on July 29, 2021. As a result, all share and per share amounts have been retroactively restated to the earliest period presented (for the period ended July 31, 2021).
| April 30, 2023 | April 30, 2022 | |||||||
| Series A, convertible preferred stock ( to into common stock) | ||||||||
| Stock options (exercise prices $ - $/share) | ||||||||
| Warrants (exercise price $/share) | ||||||||
| Total common stock equivalents | ||||||||
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASUs”) to the ASC. We consider the applicability and impact of all ASUs on our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements issued through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 was effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
| 19 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
This guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material effect on the consolidated results of operations, stockholders’ equity, or cash flows.
Note 3 – Website
The Company’s website consisted of the following:
| Estimated Useful | ||||||||||
| April 30, 2023 | July 31, 2022 | Lives (Years) | ||||||||
| Website | $ | $ | ||||||||
| Accumulated amortization | ||||||||||
| Website - net | $ | $ | ||||||||
Amortization
expense for the three months ended April 30, 2023 and 2022 was $
Amortization
expense for the nine months ended April 30, 2023 and 2022 was $
These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
| 20 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Note 4 – Notes Payable – Related Parties and Debt Forgiveness
The following represents a summary of the Company’s notes payable – related parties, key terms, and outstanding balances at July 31, 2022:
| Note Payable | Note Payable | Note Payable | ||||||||||||||||
| Terms | Related Parties | Related Party | Related Party | |||||||||||||||
| Issuance date of notes | ||||||||||||||||||
| Maturity date | A | A | ||||||||||||||||
| Interest rate | ||||||||||||||||||
| Collateral | ||||||||||||||||||
| Total | ||||||||||||||||||
| Balance - July 31, 2021 | $ | $ | $ | $ | ||||||||||||||
| Forgiveness of note payable | ( |
) | B | ( |
) | |||||||||||||
| Stock issued in conversion of note payable | ( |
) | C | ( |
) | C | ( |
) | ||||||||||
| Balance - July 31, 2022 | ||||||||||||||||||
| A |
| B |
| C |
Note 5 – Stockholders’ Equity
The Company has two (2) classes of stock:
Class A Common Stock
| - | shares authorized | |
| - | Par value - $ | |
| - |
Series A Preferred Stock
| - | shares authorized | |
| - | issued and outstanding | |
| - | Par value - $ | |
| - | Conversion ratio – share of Series A converts into shares of common stock ( shares) | |
| - | ||
| - | Eligible for dividends/distributions if declared by the Board of Directors | |
| - | Liquidation
preference - |
| 21 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Equity Transactions for the Nine Months Ended April 30, 2023
Stock Issued for Cash – Related Parties
The
Company issued shares of preferred stock to certain officers and directors for $
Stock Issued for Cash
The
Company issued shares of common stock for $
Also see Note 9 for warrants issued in connection with the sale of common stock.
Stock Issued for Services
The
Company issued shares of common stock for services rendered for $
Contributed Capital – Related Parties
Certain
officers and directors contributed $
Equity Transactions for the Year Ended July 31, 2022
Preferred Stock Share Redemptions
The Company agreed to repurchase common stock from certain shareholders. The Company redeemed shares at $/share for a net amount of $. The shares were cancelled and are available for future issuances.
Common Stock Share Redemptions
The Company agreed to repurchase common stock from certain shareholders. The Company redeemed shares ranging from $ - $/share for a net amount of $. The shares were cancelled and are available for future issuances.
Stock Issued in Conversion of Notes Payable and Accrued Interest – Related Parties
The
Company issued shares of common stock, having a fair value of $
Stock Issued for Cash
The
Company issued shares of common stock for $
Forgiveness of Notes Payable and Accrued Interest – Related Parties
Certain
debt holders forgave notes payable and related accrued interest totaling $
| 22 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Share Exchange Agreement – Related Parties
In
January 2022, the Company issued shares of Series A preferred stock to American Capital Ventures, Inc. (“ACV”) in
exchange for shares of common stock, having a fair value of $
In
January 2022, the Company issued shares of Series A preferred stock to Leone Capital Group LLC (“Leone”) in exchange
for shares of common stock, having a fair value of $
Stock Issued for Services
On July 30, 2021, the Company entered into an employment agreement with an officer of the Company to grant % of the outstanding common stock on that date ( shares) to be earned over the following nine-month period beginning on August 1, 2021. These shares were fully earned in 2022.
The
Company issued shares of common stock for services rendered in settling the above stock grants to the former officers having
a fair value of $
In order to reflect the proper compensation related to these arrangements, the Company adjusted general and administrative expense by $ to reflect the total fair value of the shares issued.
Note 6 – Acquisition and Pro Forma Financial Information for Open Locker, Inc.
OpenLocker, Inc. (“OL”)
On May 31, 2022, the Company entered into a share exchange agreement with OL and issued shares of common stock, having a fair value of $ ($/share), based upon recent cash offering prices in third party sales, to purchase % of OL’s, outstanding stock in a transaction treated as a business combination.
The cash price paid by third parties was the best evidence of fair value given the Company is thinly traded on OTC markets and had more sales of stock sold for cash than stock traded on the open market at the time of the transaction.
We made an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of assets acquired and liabilities assumed. The allocation of the purchase price consideration was finalized as of July 31, 2022, with the excess purchase price allocated to an intangible asset, which consisted of intellectual property and goodwill.
The acquisition of OL was reflected in the consolidated financial statements at July 31, 2022
See the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2022 for a complete discussion of the transaction.
| 23 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
The table below summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date during the year ended July 31, 2022.
| Consideration | ||||
| Common stock ( shares of common stock ($/share)) (1) | $ | |||
| Fair value of consideration transferred | ||||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Cash | ||||
| Total assets acquired | ||||
| Accounts payable and accrued expenses | ||||
| Total liabilities assumed | ||||
| Total identifiable net liabilities | ( | ) | ||
| Amount to allocate to intangible asset and goodwill | ||||
| Less: allocation for identifiable intangible asset (intellectual property) | ||||
| Less: allocation for goodwill | ||||
| $ |
| (1) |
The
goodwill of $
Goodwill is not deductible for tax purposes.
| 24 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Note 7 – Intangible Asset
In connection with the acquisition of OL, the Company recognized an intangible asset related to intellectual property. The Company believes the intellectual property is critical to the success of the business going forward and believes that the fair value ascribed is fully recoverable.
The Company’s intangible asset is as follows:
| Estimated Useful | |||||||||||
| April 30, 2023 | July 31, 2022 | Life (Years) | |||||||||
| Gross carrying amount | $ | $ | |||||||||
| Accumulated amortization | |||||||||||
| Net carrying amount | $ | $ | |||||||||
Amortization
expense for the three months ended April 30, 2023 and 2022 was $
Amortization
expense for the nine months ended April 30, 2023 and 2022 was $
Estimated amortization expense for each of the five (5) succeeding years and thereafter is as follows:
| For the Year Ending July 31, | ||||
| 2023 (3 months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
| 25 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
| Stock Options | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | Weighted Average Grant Date Fair Value | |||||||||||||||
| Outstanding - July 31, 2021 | $ | - | $ | $ | ||||||||||||||||
| Exercisable - July 31, 2021 | $ | - | $ | $ | ||||||||||||||||
| Granted | $ | - | $ | |||||||||||||||||
| Exercised | $ | - | $ | |||||||||||||||||
| Cancelled/Forfeited | $ | - | $ | |||||||||||||||||
| Outstanding - July 31, 2022 | $ | $ | $ | |||||||||||||||||
| Exercisable - July 31, 2022 | $ | $ | $ | |||||||||||||||||
| Granted | $ | - | $ | |||||||||||||||||
| Exercised | $ | - | $ | |||||||||||||||||
| Cancelled/Forfeited | $ | - | $ | |||||||||||||||||
| Outstanding - April 30, 2023 | $ | $ | $ | |||||||||||||||||
| Exercisable - April 30, 2023 | $ | $ | $ | |||||||||||||||||
| Unvested - April 30, 2023 | $ | $ | $ | |||||||||||||||||
Nine Months Ended April 30, 2023
In September 2022, the Company granted , ten-year (10) options to an employee for services to be rendered during the period September 2022 - August 2023. These options vest ratably over a twelve-month (12) period. These options had an exercise price of $/share.
Using the Black-Scholes option pricing model, the Company determined that the fair value of these options granted was $.
| Expected term (years) | ||||
| Expected volatility | % - | % | ||
| Expected dividends | % | |||
| Risk free interest rate | % - | % |
Compensation expense recorded for stock-based compensation for the nine months ended April 30, 2023 and 2022 was $ and $, respectively.
At April 30, 2023, the Company had unvested compensation expense of $, which will vest over a weighted average of years.
| 26 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Year Ended July 31, 2022
During the year ended July 31, 2022, the Company granted , ten-year (10) options to various employees. These options were fully vested upon issuance. These options had exercise prices ranging from $ to $/share.
Using the Black-Scholes option pricing model, the Company determined that the fair value of these options granted was $.
For the year ended July 31, 2022, fair value was based upon the following management estimates:
| Expected term (years) | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
| Risk free interest rate | % |
Note 9 – Warrants
Warrant activity for the nine months ended April 30, 2023 and the year ended July 31, 2022 are summarized as follows:
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | Aggregate | ||||||||||||||
| Number of | Average | Contractual | Intrinsic | |||||||||||||
| Warrants | Warrants | Exercise Price | Term (Years) | Value | ||||||||||||
| Outstanding - July 31, 2022 | $ | - | $ | |||||||||||||
| Exercisable - July 31, 2022 | $ | - | $ | |||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | $ | - | - | |||||||||||||
| Cancelled/Forfeited | $ | - | - | |||||||||||||
| Outstanding - April 30, 2023 | $ | $ | ||||||||||||||
| Exercisable - April 30, 2023 | $ | $ | ||||||||||||||
| Unvested - April 30, 2023 | $ | - | $ | |||||||||||||
Warrant Transactions for the Nine Months Ended April 30, 2023
Warrants Issued with Common Stock
During
2023, the Company sold shares of common stock for $
In connection with the sale of these shares of common stock, the investors also received , five () year warrants, exercisable at $/share. All warrants were fully vested on the issuance date.
| 27 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Note 10 – Commitments and Contingencies
Right-of-Use Operating Lease – Related Party
In
connection with the acquisition of OL on May 31, 2022, the Company acquired an existing right-of-use operating lease for office space.
The lease has an initial term of two (
During
the period September 1, 2021 through May 31, 2022, no rent was due. The Company is required to pay a total of $
The Company is leasing the office space from a family member of OL’s Chief Executive Officer.
At April 30, 2023 and July 31, 2022, the Company had no financing leases as defined in ASC 842, “Leases.”
The tables below present information regarding the Company’s operating lease assets and liabilities at April 30, 2023 and July 31, 2022:
| April 30, 2023 | July 31, 2022 | |||||||
| Assets | ||||||||
| Operating lease - right-of-use asset - non-current | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liability | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
| The components of lease expense were as follows: | ||||||||
| Operating lease costs | ||||||||
| Amortization of right-of-use operating lease asset | $ | $ | ||||||
| Lease liability expense in connection with obligation repayment | ||||||||
| Total operating lease costs | $ | $ | ||||||
| Supplemental cash flow information related to operating leases was as follows: | ||||||||
| Operating cash outflows from operating lease (obligation payment) | $ | $ | ||||||
| Right-of-use asset obtained in exchange for new operating lease liability | $ | $ | ||||||
| 28 |
OPENLOCKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at April 30, 2023 were as follows:
| 2023 (3 Months) | $ | |||
| 2024 | ||||
| Total undiscounted cash flows | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of operating lease liability | ||||
| Less: current portion of operating lease liability | ( | ) | ||
| Long-term operating lease liability | $ |
Student Athlete Licensing Agreements
The Company has entered into several agreements with student athletes related to the sale of NFTs and related collectibles.
There may be initial sales as well as resales of these products. The Company and the student athlete have agreed to split the revenue from the initial sale. Additionally, the Company will pay the student athlete a commission for any resales.
At April 30, 2023 and July 31, 2022, the Company owed a nominal amount to various student athletes, which has been included as a component of accounts payable and accrued expenses in the consolidated balance sheets.
Note 11 – Subsequent Events
Subsequent to April 30, 2023, the Company reflects the following:
Stock Issued for Cash
The
Company sold shares of common stock for $
In connection with the sale of these shares of common stock, the investor also received five () year warrants, exercisable at $/share. All warrants were fully vested on the issuance date.
| 29 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of OpenLocker Holdings, Inc. and its subsidiaries (together, the “Company” or “OpenLocker”) should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors section of our Annual Report on Form 10-K for the year ended July 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on October 31, 2022, as the same may be updated from time to time. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
Established on August 25, 2021, is a technology platform for athletes and brands to redefine and unlock consumer and fan value. OpenLocker builds engaged fan communities on the blockchain, primarily for colleges and universities using athletes’ Name, Image and Likeness (“NIL”). OpenLocker increases engagement among fans, athletes and brands through digital and physical collectibles and provides unique user utility, perks and experiences. Utilizing Flow, a fast, scalable and reliable blockchain, we are able to reduce energy consumption which is better for the environment.
The OpenLocker mission is to empower athletes to monetize their fan engagement with innovative physical and digital collectibles and to create meaningful experiences by using our technology to build communities and deliver benefits. OpenLocker offers physical collectibles including autographed collectibles and personalized experiences (meet-and-greet or customized activity) with the athlete, arranged by OpenLocker with the athlete’s input and approval. OpenLocker also offers digital collectibles including one-of-one digital images with the athlete’s NIL. Each digital collectible is authenticated on the blockchain with a unique serial number which is assigned to the fan upon completing a transaction on the OpenLocker platform. OpenLocker connects the digital and physical worlds by creating unique wallet sized physical collectibles with the digital art printed on one side with a “QR” (quick response) code that directs to the fan community website. Each of these platinum card collectibles is laser-engraved with a unique serial number and hand-signed by the athlete.
OpenLocker launched its initial fan community at the University of Connecticut in February 2022, during the first season following the National Collegiate Athletic Association (NCAA) policy change allowing student-athletes to receive compensation for their NIL. The Company deliberately included all 14 eligible members of the men’s basketball team to galvanize the fan base and named the fan community the Bone Yard Huskyz Club (“BYHC”). The OpenLocker design team created the BYHC logo and Huskyz avatar to play off of the university’s Huskies mascot with an edgy feel. A Huskyz avatar was created in the likeness of each of the athletes and selected super fans for branding and awareness campaigns. A website with a project roadmap outlining the perks and rewards of club membership was activated two weeks prior to the release date, which was strategically timed around the basketball team’s season schedule. A comprehensive marketing campaign included digital programmatic advertising, organic and paid social media strategy (including pre- and post-drop Twitter spaces conversations with fans, blockchain experts, athletes and parents of athletes), podcasts, email blasts and gorilla marketing at several home basketball games. The OpenLocker athlete liaison also provided the athletes with graphics and talking points they could use to leverage their social media followings and promote sales of their collectibles by word-of-mouth.
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A majority of the revenue from the BYHC project was generated on the first day of sales of the digital collectibles. The first two hours were the busiest as fans were incentivized by the autographed “Platinum card” that was included with purchase for the first 25 digital collectibles sold per athlete. This unique collectible is a metal, wallet-sized card hand-signed by the athlete with the digital art printed on the front and a QR code that directs to boneyardhuskyzclub.com. Customer behavior and feedback confirmed that the physical collectible was very well received by the majority of fans, especially those who had little to no experience with blockchain technology. Sales were also directly impacted by the team’s postseason tournament performance in March 2022, as would be expected for all categories of sport collectibles and memorabilia.
As of March 2023, the Company has activated communities at University of Connecticut (BYHC), Pennsylvania State University (Lionz Club), University of Florida (Gatorverse), Radford University (Rowdy Redz), Florida Atlantic University (Prowlerz Club), University of Wisconsin (Maddy Baddyz), University of Kentucky (the 15 Blue Club) and Coastal Carolina University (Peoplez Club). The Company anticipates expanding the existing clubs to include more men’s and women’s sports at the respective schools with additional athlete signings, merchant partnerships and exclusive content. In addition, the Company is evaluating opportunities to grow at other highly regarded schools.
OpenLocker entered into a Strategic Partnership Agreement with Student Athlete NIL, LLC in September 2022 which operates the Success With Honor (“SWH”) Collective at Penn State University. Collaboration with SWH, whose primary aim is to help maximize student-athletes’ NIL opportunities, has enabled OpenLocker to sign NIL contracts with several of the top collegiate athletes in the country, including nationally ranked and NCAA championship wrestlers. The Company also has access to the SWH’s large database of fans with a track record of giving to the university and making direct contributions to its student-athletes.
OpenLocker launched the Brave Heartz Lacrosse Club (BHLC) in September 2022 featuring two of the top lacrosse players in the Premier Lacrosse League which offers unparalleled access to training, mentoring and opportunities for fans to attend a game and meet the athletes in person. OpenLocker has been in discussions with professional athletes in a variety of sports including golf, race car driving, e-sports, and beyond.
OpenLocker aims to pay athletes a majority of the revenue generated from sales of their collectibles and compensate them for fan engagement; therefore, it does not currently have licensing agreements with any universities, conferences, leagues or other entities. OpenLocker believes that licensing the NIL directly with each athlete allows OpenLocker to retain more revenue, while giving the athlete a larger percentage of such revenue, which is an important differentiating factor for OpenLocker in the sports collectibles and NIL space.
OpenLocker launched the OpenStable marketplace in April 2022 to engage the next generation of thoroughbred racing enthusiasts. Through its relationships with owners, trainers and influencers in the racing industry, OpenStable gives fans access to exclusive information, real life experiences, and memorabilia so that they may engage in a truly immersive journey covering a racehorse’s career.
The launch strategy for the OpenStable marketplace involved reaching the largest audience of racing fans (both casual and committed) by creating a collection of collectibles featuring the leading contenders in the Kentucky Derby and Kentucky Oaks, scheduling their release on the weekend prior to each of those two prominent races. Per a Memorandum of Understanding (the “MOU”) dated April 15, 2022, OpenLocker and Horse Races Now established terms for a marketing collaboration, whereby Horse Races Now agreed to drive traffic from its app and e-mail marketing campaigns targeted at its existing user base of racing fans, in exchange for OpenLocker paying Horse Races Now 12.5% of its retained revenues (after transaction fees) generated from sales of all collections on OpenStable.
The MOU has provided OpenLocker with access to the Horse Races Now’s database of 600,000 users and placement in their app. OpenLocker executed a weeklong digital promotion in the Daily Racing Form and conducted media interviews, as well as social media campaigns. While the racing season was at its height, OpenLocker benefited from significant traffic to its website and generated some sales of gear, including apparel, hats, pins, and other items featuring each racehorse’s unique brand (also featuring the OpenStable logo).
OpenLocker has also entered into a partnership agreement with In the Money Media to produce podcasts featuring interviews with owners, trainers and jockeys with a connection to the horses in the OpenStable family. An episode included a conversation with an OpenStable fan who won exclusive access to the paddock and winner’s circle at the 2022 Travers Stakes at the Saratoga Race Course in August 2022 allowing him to see Epicenter before and after the race. OpenLocker also has an agreement with horse racing analyst and Fox Sports announcer, Jonathon Kinchen, to provide promotional support and strategic planning for additional projects in the collegiate sports and horse racing industries. The Company collaborated with Old Smoke Clothing Company to create a one-of-a-kind Winchell/Epicenter button-up shirt for racing fans. A limited edition shirt featuring a gold OpenStable tag on the sleeve is available exclusively on the OpenStable platform for Epicenter digital collectibles holders only and may be purchased as a bundle with Epicenter collectibles.
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The user-friendly interface that OpenLocker created for college sports fans and emphasis on fan community building is an important differentiator for OpenStable as it seeks to position itself as the next-generation marketing solution within the thoroughbred racing space. Offering ownership of digital tokens along with rewards and experiences, both in the virtual and physical realms, makes OpenStable products attractive to a younger audience with a goal to develop a next generation younger fan engagement around the thoroughbred racing sport.
OpenLocker’s current revenue model includes (i) profit sharing of primary sales on the OpenLocker platform with partners and athletes, (ii) collecting transaction fees from transactions on OpenLocker’s trading portal, (iii) sponsorship and advertising, and (iv) fees for additional creative design work, development and product fulfillment services.
The Company has been in discussions with retailers and brands who are interested in applying the fan engagement model to build customer loyalty and drive foot traffic to their brick-and-mortar locations. We expect to provide strategic guidance through a network of experienced executives with operational and industry expertise, as well as financing support and other resources necessary to drive value.
OpenLocker believes that it has found a unique and attractive market for the application of blockchain technology by focusing on the college athlete market. In September 2022, OpenLocker rolled out an enhanced Web3 environment that allows fans to access their digital collectibles with a Dapper wallet. Fans that currently held assets purchased on the OpenLocker platform prior to the rollout were given instructions on how to transition to the new environment in a few simple steps. The Dapper wallet, developed by Dapper Labs, has become a trusted partner in blockchain development with millions of users benefiting from its integration with some of the largest sports NFT ventures including NBA Top Shot, NFL All Day and other large-scale consumer offerings.
OpenLocker expects to announce additional enhancements and smartphone integrations to create even more seamless delivery of physical rewards and experiences in early 2023.
Recent Developments
Following the Company’s uplisting to the OTCQB Venture Market in October 2022, the Company filed an application with the Financial Industry Regulatory Associate (“FINRA”) to change its name to “OpenLocker Holdings, Inc.” and to change its ticker symbol. In connection therewith, on December 5, 2022, the Company filed with the Delaware Secretary of State a certificate of amendment to certificate of incorporation in order to change its corporate name from OpenLocker Holdings, Inc. to OpenLocker Holdings, Inc. Effective December 9, 2022 for trading purposes, the Company’s corporate name was changed from “Descrypto Holdings, Inc.” to “OpenLocker Holdings, Inc.” Also effective December 9, 2022, the trading symbol for the Company’s common stock will change from “DSRO” to “OLKR”.
Plan of Operations
Over the next 12 months, we expect to require approximately $1,000,000 in operating funds to carry out our intended plan of operations.
We are planning to obtain the funds necessary to execute our plan of operations from various capital raises, including potentially through private placements or our common stock or the issuance and sales of convertible notes, as well as potentially through a registration statement or an offering statement filed with the SEC.
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There can be no assurance that we will be able to obtain the necessary funds for our foregoing operations on terms that are acceptable to us or at all, and there can be no assurance that our plan of operations can be executed as planned, or at all.
In addition, as we grow, we seek to acquire companies with:
| ● | defensible barriers to entry, | |
| ● | proven value propositions, | |
| ● | identifiable growth opportunities or operational improvements, and | |
| ● | paths to sustainable competitive advantages. |
RESULTS OF OPERATIONS
Revenue
During the three months ended April 30, 2023 and 2022, we generated revenue of $51,011 and $0, respectively. The increase in revenue was due to OpenLocker’s physical and digital collectible related sales. The Company’s prior year operations did not include OpenLocker, Inc., which was acquired on May 31, 2022.
During the nine months ended April 30, 2023 and 2022, we generated revenue of $62,100 and $0, respectively. The increase in revenue was due to OpenLocker’s physical and digital collectible related sales. The Company’s prior year operations did not include OpenLocker, Inc., which was acquired on May 31, 2022.
Operating Expenses (Income)
Operating expenses (income) during the three months ended April 30, 2023 and 2022 were $687,859 and $(1,525,627), respectively. The increase in operating expense was primarily due to an adjustment to stock-based compensation in the prior period of $1,525,627 for the three months ended April 30, 2023.
Operating expenses during the nine months ended April 30, 2023 and 2022 were $2,025,751 and $1,610,975, respectively. The increase in operating expenses was primarily due to expenses related to research and development totaling $255,017 in the nine months ended April 30, 2023. The Company did not have any of these expenses in the comparative prior period.
Net Loss (Income)
For the three months ended April 30, 2023 and 2022, we had a net (loss) income of $(651,848) and $1,472,853, respectively. The increase in net loss was primarily due to an adjustment to stock-based compensation in the prior period of $1,525,627.
For the nine months ended April 30, 2023 and 2022, we had a net loss of $1,978,651 and $1,673,472, respectively. The increase in net loss was primarily due to an adjustment to stock-based compensation in the prior period of $1,525,627.
Other Expense—Net
Other expense—net for the three months ended April 30, 2023 and 2022 was $15,000 and $52,774, respectively. For the three months ended April 30, 2022, other expense—net included interest expense—related party of $680 and loss on debt extinguishment – related parties of $52,094.
Other expense—net for the nine months ended April 30, 2023 and 2022 was $15,000 and $62,497, respectively. For the nine months ended April 30, 2022, other expense—net included interest expense—related party of $52,094 and loss on debt extinguishment – related parties of $52,094.
There is significant uncertainty projecting future profitability or revenues due to our history of losses and early stage of our business operations.
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LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2023, we had $201,479 in cash and did not have any other cash equivalents. The following table provides detailed information about our net cash flow for all financial statement periods presented in this Quarterly Report on Form 10-Q. To date, we have financed our operations primarily through the issuance of debt and equity sourced capital.
The following table sets forth a summary of our cash flows for the nine months ended April 30, 2023 and 2022:
Nine Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | 748,772 | $ | 83,292 | ||||
| Net cash provided by financing activities | 343,116 | 637,259 | ||||||
| Net (decrease) increase in cash | 405,656 | 553,967 | ||||||
| Cash, beginning of period | 607,135 | 53,178 | ||||||
| Cash, end of period | $ | 201,479 | $ | 607,145 | ||||
Since inception, we have financed our cash flow requirements primarily through issuance of common stock and debt financing. As we expand our activities, we may continue to experience net negative cash flows from operations. We anticipate obtaining additional financing to fund operations through additional common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.
We anticipate that we will incur operating losses in the next 12 months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business sector and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our website, provide national and regional industry participants with an effective, efficient and accessible infrastructure on which to promote their products and services through the Internet and blockchain technology, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect.
Effects of Coronavirus on the Company
If the current recurring outbreak of the coronavirus continues and its variations, the effects of such a widespread infectious disease and epidemic may inhibit our ability to conduct our business and operations and could materially harm our Company. The coronavirus may cause us to have to reduce operations as a result of various lock-down procedures enacted by the local, state or federal governments. The continued coronavirus outbreak may also restrict our ability to raise funding when needed and may cause an overall decline in the economy as a whole. The specific and actual effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond the control and knowledge of the Company. However, the spread of the coronavirus, if it continues, may cause an overall decline in the economy as a whole and as such may materially harm our Company.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of our unaudited consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
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Going Concern and Management’s Plans
The unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying unaudited consolidated financial statements, for the nine months ended April 30, 2023, the Company had:
| ● | Net loss of $1,978,651; and |
| ● | Net cash used in operations of $748,772. |
Additionally, at April 30, 2023, the Company had:
| ● | Accumulated deficit of $4,686,806; |
| ● | Stockholders’ equity of $5,028,341; and |
| ● | Working capital of $81,263. |
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had cash on hand of $201,479 at April 30, 2023. Although the Company intends to raise additional debt or equity capital, the Company expects to continue to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could be significant as operations ramp up along with continuing expenses related to compensation, professional fees, and regulatory are incurred.
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ending April 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.
The Company has satisfied its obligations from the issuance of common stock; however, there is no assurance that such successful efforts will continue during the twelve months subsequent to the date these unaudited consolidated financial statements are issued.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities, |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; |
| ● | Identifying strategic acquisitions; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
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During the nine months ended April 30, 2023, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by the COVID-19 pandemic depends on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities.
These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of April 30, 2023 and July 31, 2022, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the nine months ended April 30, 2023 and 2022, respectively.
Basic and Diluted Earnings (Loss) per Share
Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
The Company effected a reverse merger and recapitalization on July 29, 2021, as a result, all share and per share amounts have been retroactively restated to the earliest period presented (for the period ended July 31, 2021).
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For the nine months ended April 30, 2023 and 2022, the Company had the following potentially dilutive equity securities:
| April 30, | ||||||||
| 2023 | 2022 | |||||||
| Series A, convertible preferred stock (1 to 1,000 into common stock) | 44,520,000 | 35,520,000 | ||||||
| Stock options (exercise prices $0.12 - $0.70/share) | 1,849,855 | - | ||||||
| Warrants (exercise price $1/share) | 1,250,000 | - | ||||||
| Total common stock equivalents | 47,619,855 | 35,520,000 | ||||||
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (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 in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2023. Based upon their evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of April 30, 2023, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
During the three months ended April 30, 2023, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in ordinary routine litigation typical for companies engaged in our line of business. As of the date of this Quarterly Report on Form 10-Q, we are not involved in any pending legal proceedings that we believe would be likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended July 31, 2022, as filed with the SEC on October 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended April 30, 2023, the Company issued unregistered equity securities as follows:
| ● | The Company issued 9,000 shares of Series A preferred stock to certain officers and directors of the Company for an aggregate purchase price of $6,000 (equal to a per share purchase price of $0.6666). | |
| ● | The Company issued 1,462,500 shares of common stock to third parties for an aggregate purchase price of $335,000 (equal to a per share purchase price of $0.20 to $0.40). | |
| ● | The Company issued 580,000 shares of common stock to third parties for services rendered with a value of $276,100. |
The above securities issuances were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Regulation D and Section 4(a)(2), as applicable under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K promulgated under the Exchange Act.
ITEM 6. EXHIBITS
| Exhibit No. | Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification by the Chief Executive Officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Document. | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| OPENLOCKER HOLDINGS, INC. | ||
| Date: June 9, 2023 | By: | /s/ Howard Gostfrand |
| Howard Gostfrand | ||
| Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer) | ||
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