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:
Schedule of Subsidiary
| Company Name | |
Incorporation Date | |
State of Incorporation |
| OpenLocker Holdings, Inc. * | |
1996 | |
Delaware |
| Descrypto, Inc. ** | |
2017 | |
Delaware |
| Descrypto Studio, LLC | |
2022 | |
Wyoming |
| Open Locker, Inc. (“OL”) *** | |
2021 | |
Delaware |
| * | | Formerly known
as Descrypto Holdings, Inc., entity changed name on December 5, 2022. |
| ** | | Entity was acquired
in a reverse merger on July 29, 2021. |
| *** | | See Note 6 regarding
the acquisition of Open Locker, Inc. on May 31, 2022. |
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 $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. |
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 $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 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.
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.
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 $250,000. At April 30, 2023 and July 31, 2022, the Company did not experience
any losses on cash balances in excess of FDIC insured limits.
Investment
The
Company owns 150,000 shares of iGrow Systems Inc. The shares were valued at cost $15,000 ($0.10/share). The investment was recorded on
the Company’s balance sheet using the cost method of accounting.
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 $15,000 in the accompanying consolidated statements of operations.
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.
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.
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 5% commission fee collected on secondary marketplace sales transacted on the OpenLocker
Trading Portal site, operated by Mint Blockchain Solutions, which is deposited into a blocto wallet. The platform uses FUSD (1:1 USD-backed
stablecoin) as the fungible token on the Flow network. Conversion from FUSD to USD and transfers to the Company’s bank account
will be made on a monthly basis.
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 $ of sponsorship revenues from one customer (100% of sponsorship
revenues).
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:
Schedule
of Disaggregation of Revenue
| | |
Nine Months Ended April 30, | |
| | |
2023 | | |
2022 | |
| Revenues | |
Revenue | | |
% of Revenues | | |
Revenue | | |
% of Revenues | |
| NFT’s and Commissions | |
$ | 42,100 | | |
| 68 | % | |
$ | - | | |
| 0 | % |
| Sponsorship | |
| | |
| % | |
| | |
| % |
| Total Revenues | |
$ | 62,100 | | |
| 100 | % | |
$ | - | | |
| 0 | % |
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 three to five years).
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 $124,893 and $0, respectively, in software development costs.
For
the nine months ended April 30, 2023 and 2022, the Company expensed $255,017 and $0, respectively, in software development costs.
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.
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 $54,344 and $0, respectively, in marketing and advertising costs.
For
the nine months ended April 30, 2023 and 2022, the Company expensed $107,538 and $0, respectively, in marketing and advertising costs.
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.
OPENLOCKER
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2023
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).
For
the nine months ended April 30, 2023 and 2022, the Company had the following potentially dilutive equity securities:
Schedule of Potentially Dilutive Equity Securities
| | |
April 30, 2023 | | |
April 30, 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.
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.
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:
Schedule
of Company’s Website
| | |
|
| | |
|
| | |
|
| | |
| | |
| | |
Estimated Useful |
| | |
April 30, 2023 | | |
July 31, 2022 | | |
Lives (Years) |
| | |
| | |
| | |
|
| Website | |
$ | 10,836 | | |
$ | 10,836 | | |
3 |
| Accumulated amortization | |
| 7,143 | | |
| 4,767 | | |
|
| Website - net | |
$ | 3,693 | | |
$ | 6,069 | | |
|
Amortization
expense for the three months ended April 30, 2023 and 2022 was $792 and $792, respectively.
Amortization
expense for the nine months ended April 30, 2023 and 2022 was $2,376 and $2,584, respectively.
These
amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
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:
Schedule
of Notes Payable Related Parties
| |
|
Note Payable |
|
|
|
Note Payable |
|
|
|
Note Payable |
|
|
|
|
| Terms |
|
Related Parties |
|
|
|
Related Party |
|
|
|
Related Party |
|
|
|
|
| Issuance date of notes |
|
Prior to 2018 |
|
|
|
June 29, 2021 |
|
|
|
July 9, 2021 |
|
|
|
|
| Maturity date |
|
Due on demand |
|
|
|
June 28, 2022 |
|
A |
|
June 28, 2022 |
|
A |
|
|
| Interest rate |
|
12% |
|
|
|
12% |
|
|
|
12% |
|
|
|
|
| Collateral |
|
Unsecured |
|
|
|
Unsecured |
|
|
|
Unsecured |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - July 31, 2021 |
|
$ |
112,167 |
|
|
|
$ |
25,000 |
|
|
|
$ |
25,000 |
|
|
$ |
162,167 |
|
| Forgiveness of note payable |
|
|
(112,167 |
) |
B |
|
|
- |
|
|
|
|
- |
|
|
|
(112,167 |
) |
| Stock issued in conversion of note payable |
|
|
- |
|
|
|
|
(25,000 |
) |
C |
|
|
(25,000 |
) |
C |
|
(50,000 |
) |
| Balance - July 31, 2022 |
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
| A | | Due on the earlier
of June 28, 2022, or the date which the Company raises at least $200,000 from investors. |
| B | | These notes were
forgiven by the debt holders in February 2022. Total principal and accrued interest totaled $155,743. Since these transactions occurred
with related parties, gain on debt forgiveness was recorded as an increase to additional paid-in capital. See Note 5. |
| C | | The Company issued
135,450 shares of common stock, having a fair value of $106,274, to settle the outstanding principal and related accrued interest of
$54,180 on these notes payable - related parties, resulting in a loss on debt extinguishment of $52,094. See Note 5. |
Note
5 – Stockholders’ Equity
The
Company has two (2) classes of stock:
Class
A Common Stock
| |
- |
10,000,000,000
shares authorized |
| |
- |
Par
value - $0.0001 |
| |
- |
Voting
at 1 vote per share |
Series
A Preferred Stock
| |
- |
200,000
shares authorized |
| |
- |
44,520
issued and outstanding |
| |
- |
Par
value - $0.0001 |
| |
- |
Conversion
ratio – 1 share of Series A converts into 1,000 shares of common stock (44,520,000 shares) |
| |
- |
Voting
on an if converted basis of 1,000 votes per share |
| |
- |
Eligible
for dividends/distributions if declared by the Board of Directors |
| |
- |
Liquidation
preference - none |
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 9,000 shares of preferred stock to certain officers and directors for $6,000 ($0.6666/share).
Stock
Issued for Cash
The
Company issued 1,462,500 shares of common stock for $335,000 ($0.20 - $0.40/share).
Also
see Note 9 for warrants issued in connection with the sale of common stock.
Stock
Issued for Services
The
Company issued 580,000 shares of common stock for services rendered for $276,100 ($0.40 - $0.498/share), based upon the quoted closing
trading price or recent cash offerings to third parties.
Contributed
Capital – Related Parties
Certain
officers and directors contributed $2,116 on behalf of the Company for operating expenses.
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 142,080 shares at $0.0001/share for a net amount
of $3. 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 240,814,962 shares ranging from $0.00001 -
$0.000001/share for a net amount of $935. 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 135,450 shares of common stock, having a fair value of $106,274 ($0.70 - $0.87/share), based upon the quoted closing trading
price, in connection with the conversion of notes payable and related accrued interest totaling $54,180, resulting in a loss on debt
extinguishment of 52,094. See Note 4.
Stock
Issued for Cash
The
Company issued 182,978,736 shares of common stock for $828,096 ($0.0001 – $0.40/share).
Forgiveness
of Notes Payable and Accrued Interest – Related Parties
Certain
debt holders forgave notes payable and related accrued interest totaling $155,743 (principal of $112,167 and accrued interest of $43,576).
The Company recorded an increase to additional paid in capital related to the debt forgiveness.
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 88,800 shares of Series A preferred stock to American Capital Ventures, Inc. (“ACV”) in
exchange for 88,800,191 shares of common stock, having a fair value of $8,880 ($0.0001/share). Howard Gostfrand is ACV’s President,
and has voting and dispositive power over the shares held by ACV. Mr. Gostfrand is the Company’s Chief Executive Officer, Principal
Financial Officer and Director, and is a significant stockholder of the Company.
In
January 2022, the Company issued 88,800 shares of Series A preferred stock to Leone Capital Group LLC (“Leone”) in exchange
for 88,800,191 shares of common stock, having a fair value of $8,880 ($0.0001/share). Laura Anthony is the Managing Member of Leone and
has voting and dispositive power over the shares held by Leone. Ms. Anthony is the Company’s President, Secretary and Chairperson
of the Board, and is a significant stockholder of the Company.
Stock
Issued for Services
On
July 30, 2021, the Company entered into an employment agreement with an officer of the Company to grant 0.5% of the outstanding common
stock on that date (1,296,883 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 1,645,042 shares of common stock for services rendered in settling the above stock grants to the former officers having
a fair value of $1,525,637 based upon the quoted closing trading price on the modified grant dates.
In
order to reflect the proper compensation related to these arrangements, the Company adjusted general and administrative expense by $1,545,936
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 12,500,002 shares of common stock, having a fair
value of $5,142,001 ($0.41/share), based upon recent cash offering prices in third party sales, to purchase 100% 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.
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.
Schedule
of Assets and Liabilities Effective on Acquisition
| Consideration | |
| | |
| Common stock (12,500,002 shares of common stock
($0.41/share)) (1) | |
$ | 5,142,001 | |
| | |
| | |
| Fair value of consideration transferred | |
| 5,142,001 | |
| | |
| | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |
| | |
| | |
| | |
| Cash | |
| 13,328 | |
| Total assets acquired | |
| 13,328 | |
| | |
| | |
| Accounts payable and accrued expenses | |
| 114,725 | |
| Total liabilities assumed | |
| 114,725 | |
| | |
| | |
| Total identifiable net liabilities | |
| (101,397 | ) |
| | |
| | |
| Amount to allocate to intangible asset and goodwill | |
| 5,243,398 | |
| | |
| | |
| Less: allocation for identifiable intangible asset (intellectual property) | |
| 2,299,524 | |
| | |
| | |
| Less: allocation for goodwill | |
| 2,943,874 | |
| | |
| | |
| | |
$ | - | |
| (1) | | Fair value of common
stock issued was determined based upon recent cash offerings with third parties. In connection with the purchase of OL, there were no
additional transaction costs incurred. |
The
goodwill of $2,943,874 is primarily related to factors such as synergies and market share.
Goodwill
is not deductible for tax purposes.
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:
Schedule
of Intangible Assets
| | |
|
| |
| |
|
| | |
|
| | |
| | |
| | |
Estimated Useful |
| | |
April 30, 2023 | | |
July 31, 2022 | | |
Life (Years) |
| | |
| | |
| | |
|
| Gross carrying amount | |
$ | 2,299,524 | | |
$ | - | | |
7 |
| Accumulated amortization | |
| 301,131 | | |
| - | | |
|
| Net carrying amount | |
$ | 1,998,395 | | |
$ | - | | |
|
Amortization
expense for the three months ended April 30, 2023 and 2022 was $82,126 and $0, respectively.
Amortization
expense for the nine months ended April 30, 2023 and 2022 was $246,378 and $0, respectively.
Estimated
amortization expense for each of the five (5) succeeding years and thereafter is as follows:
Schedule
of Intangible Asset, Estimated Amortization Expense
| For the Year Ending July 31, | |
| |
| | |
| |
| 2023 (3 months) | |
$ | 82,126 | |
| 2024 | |
| 328,503 | |
| 2025 | |
| 328,503 | |
| 2026 | |
| 328,503 | |
| 2027 | |
| 328,503 | |
| Thereafter | |
| 602,257 | |
| Total | |
$ | 1,998,395 | |
OPENLOCKER
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2023