Simply, Inc. - Quarter Report: 2020 October (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 31, 2020

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

For the transition period from _______ to __________

Commission File Number—001-32217

Simply, Inc.

(Exact name of registrant as specified in its charter)

Maryland

33-0599368

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

2001 NW 84^th Avenue, Miami, FL 33122

(Address of principal executive offices including zip code)

(786) 254-6709

(Registrant’s telephone number, including area code)

Cool Holdings, Inc.

(Former Name, 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

Common Stock, par value $0.001 per share

SIMP

OTC Markets Group Inc.

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of December 14, 2020, the Registrant had 11,009,022 shares outstanding of its $0.001 par value common stock.

Simply, Inc.

FORM 10-Q

For the 13 weeks ended October 31, 2020

Table of Contents

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Deficit (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 4.	Controls and Procedures	27
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	33

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Simply, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Amounts in thousands, except per share data)

(unaudited)

	3rd Fiscal Quarter						Year-to-Date
	13 Weeks Ended October 31, 2020			Three Months Ended Sept. 30, 2019			39 Weeks Ended October 31, 2020			Nine Months Ended Sept. 30, 2019			Transition Period January 1 to February 1, 2020
Net sales	$	16,923		$	4,143		$	48,516		$	8,598		$	5,285
Cost of sales		12,078			3,066			34,647			6,881			3,777
Gross profit		4,845			1,077			13,869			1,717			1,508
Selling, general and administrative expenses		6,473			2,960			20,050			10,458			2,358
Operating loss		(1,628	)		(1,883	)		(6,181	)		(8,741	)		(850	)
Other income (expense):
Interest		(35	)		(1,335	)		(995	)		(2,965	)		(532	)
Decrease (increase) in fair value of derivative liability		—			277			543			277			(807	)
Gain (loss) on extinguishment of debt		—			—			13,642			(9	)		—
Other income, net		175			3			117			17			—
Income (loss) from continuing operations before provision for income taxes		(1,488	)		(2,938	)		7,126			(11,421	)		(2,189	)
Provision for income taxes		(10	)		—			(27	)		(1	)		—
Income (loss) from continuing operations		(1,498	)		(2,938	)		7,099			(11,422	)		(2,189	)
Income (loss) from discontinued operations		51			(386	)		(185	)		(1,175	)		66
Net income (loss)	$	(1,447	)	$	(3,324	)	$	6,914		$	(12,597	)	$	(2,123	)
Basic income (loss) per share:
Continuing operations	$	(0.14	)	$	(3.28	)	$	0.75		$	(13.43	)	$	(0.50	)
Discontinued operations	$	0.01		$	(0.43	)	$	(0.02	)	$	(1.38	)		0.02
Total	$	(0.13	)	$	(3.71	)	$	0.73		$	(14.81	)	$	(0.48	)
Diluted income (loss) per share:
Continuing operations	$	(0.14	)	$	(3.28	)	$	0.72		$	(13.43	)	$	(0.50	)
Discontinued operations		0.01			(0.43	)	$	(0.02	)		(1.38	)		0.02
Total	$	(0.13	)	$	(3.71	)	$	0.70		$	(14.81	)	$	(0.48	)
Weighted-average number of common shares outstanding:
Basic		11,013			895			9,497			851			4,378
Diluted		11,013			895			9,811			851			4,378
Comprehensive income (loss):
Net income (loss)	$	(1,447	)	$	(3,324	)	$	6,914		$	(12,597	)	$	(2,123	)
Foreign currency translation adjustments		(20	)		34			40			—			(85	)
Comprehensive income (loss)	$	(1,467	)	$	(3,290	)	$	6,954		$	(12,597	)	$	(2,208	)

Accompanying notes are an integral part of these condensed consolidated financial statements.

Simply, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share data)

	October 31, 2020			December 31, 2019			February 1, 2020
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,704		$	2,638		$	1,972
Restricted cash		1,255			1,196			1,197
Trade accounts receivable, net of allowance for doubtful accounts of $8, $39 and $17, respectively		180			1,151			706
Other accounts receivable		662			1,701			1,735
Inventory		6,015			7,396			7,652
Prepaid assets		835			846			877
Current assets of discontinued operations		9			1,560			713
Total current assets		10,660			16,488			14,852
Property and equipment, net		916			858			808
Operating lease right-of-use assets		9,149			7,504			8,760
Intangibles, net		1,949			2,055			2,044
Goodwill		699			699			699
Other assets		270			245			245
Total assets	$	23,643		$	27,849		$	27,408
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,673		$	6,040		$	6,080
Accrued expenses and other current liabilities		2,740			5,408			5,286
Current portion of operating lease liabilities		2,818			2,577			2,768
Notes payable		2,270			13,227			13,685
Derivative liability		—			1,721			2,527
Current liabilities of discontinued operations		953			3,792			2,225
Total current liabilities		15,454			32,765			32,571
Long-term liabilities:
Notes payable		2,578			85			—
Operating lease liabilities		6,643			5,023			6,109
Total liabilities		24,675			37,873			38,680
Commitments and Contingencies
Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000 shares authorized; 2 shares issued and outstanding as of all periods presented.		—			—			—
Common stock, $0.001 par value, 150,000 shares authorized; 11,009; 4,378 and 4,378 shares issued and outstanding as of October 31, 2020, December 31, 2019 and February 1, 2020, respectively.		110			44			44
Additional paid-in capital common stock		52,137			49,074			49,081
Accumulated other comprehensive income (loss)		3			(1,069	)		(201	)
Accumulated deficit		(53,282	)		(58,073	)		(60,196	)
Total stockholders’ deficit		(1,032	)		(10,024	)		(11,272	)
Total liabilities and stockholders’ deficit	$	23,643		$	27,849		$	27,408

Accompanying notes are an integral part of these condensed consolidated financial statements.

Simply, Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(Amounts in thousands)

(unaudited)

	Preferred Stock					Common Stock						Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares			Amount		Shares			Amount			Capital			Income (Loss)			Deficit			Total
Balance, December 31, 2019		2		$	—		4,378		$	44		$	49,074		$	(1,069	)	$	(58,073	)	$	(10,024	)
Stock-based compensation		—			—		—			—			7			—			—			7
Elimination of other comprehensive loss from sale of foreign subsidiary		—			—		—			—			—			953			—			953
Foreign currency translation		—			—		—			—			—			(85	)		—			(85	)
Net loss		—			—		—			—			—			—			(2,123	)		(2,123	)
Balance, February 1, 2020		2			—		4,378			44			49,081			(201	)		(60,196	)		(11,272	)
Stock-based compensation		—			—		300			3			148			—			—			151
Debt exchange		—			—		5,969			60			2,261			—			—			2,321
Elimination of other comprehensive loss from sale of foreign subsidiary		—			—		—			—			—			164			—			164
Foreign currency translation		—			—		—			—			—			128			—			128
Net income		—			—		—			—			—			—			10,338			10,338
Balance, May 2, 2020		2			—		10,647			107			51,490			91			(49,858	)		1,830
Stock-based compensation		—			—		299			3			495			—			—			498
Debt exchange		—			—		108			1			132			—			—			133
Foreign currency translation		—			—		—			—			—			(68	)		—			(68	)
Net loss		—			—		—			—			—			—			(1,977	)		(1,977	)
Balance, August 1, 2020		2			—		11,054			111			52,117			23			(51,835	)		416
Stock-based compensation		—			—		—			—			24			—			—			24
Issuance of shares in payment of accrued severance		—			—		23			—			23			—			—			23
Issuance of shares from reverse stock split in lieu of fractional shares		—			—		2			—			—			—			—			—
Repurchase and retirement of shares		—			—		(70	)		(1	)		(27	)		—			—			(28	)
Foreign currency translation		—			—		—			—			—			(20	)		—			(20	)
Net loss		—			—		—			—			—			—			(1,447	)		(1,447	)
Balance, October 31, 2020		2		$	—		11,009		$	110		$	52,137		$	3		$	(53,282	)	$	(1,032	)

	Preferred Stock					Common Stock						Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares			Amount		Shares			Amount			Capital			Loss			Deficit			Total
Balance, December 31, 2018		32		$	—		779		$	8		$	35,303		$	(1,011	)	$	(37,057	)	$	(2,757	)
Debt exchange		—			—		9			—			173			—			—			173
Warrant exercises		—			—		38			—			1,154			—			—			1,154
Foreign currency translation		—			—		—			—			—			(35	)		—			(35	)
Net loss		—			—		—			—			—			—			(3,659	)		(3,659	)
Balance, March 31, 2019		32			—		826			8			36,630			(1,046	)		(40,716	)		(5,124	)
Stock-based compensation		—			—		68			1			1,749			—			—			1,750
Issuance of warrants and beneficial conversion feature with convertible debt		—			—		—			—			750			—			—			750
Foreign currency translation		—			—		—			—			—			1			—			1
Net loss		—			—		—			—			—			—			(5,614	)		(5,614	)
Balance, June 30, 2019		32			—		894			9			39,129			(1,045	)		(46,330	)		(8,237	)
Stock-based compensation		—			—		—			—			24			—			—			24
Conversion of preferred stock to common stock		(30	)		—		30			—			—			—			—			—
Foreign currency translation		—			—		—			—			—			34			—			34
Net loss		—			—		—			—			—			—			(3,324	)		(3,324	)
Balance, September 30, 2019		2		$	—		924		$	9		$	39,153		$	(1,011	)	$	(49,654	)	$	(11,503	)

Accompanying notes are an integral part of these condensed consolidated financial statements.

Simply, Inc.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(unaudited)

	39 Weeks Ended October 31, 2020			Nine Months Ended September 30, 2019			Transition Period January 1 to February 1, 2020
Cash flows from operating activities:
Net income (loss)	$	6,914		$	(12,597	)	$	(2,123	)
Less: income (loss) from discontinued operations		(185	)		(1,175	)		66
Income (loss) from continuing operations		7,099			(11,422	)		(2,189	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		504			199			62
Accretion of debt discount		666			2,133			373
Non-cash interest		232			—			—
Provision for (recovery of) bad debts		91			26			(22	)
Stock-based compensation		673			1,774			8
Loss (gain) on debt conversion		(13,642	)		9			—
Loss on disposal of fixed assets		6			—			—
Provision for obsolete inventory		260			40			36
Loss (gain) on derivative liability		(543	)		(277	)		807
Impairment of right of use assets		51			—			—
Change in operating assets and liabilities:
Trade accounts receivable		535			188			467
Other accounts receivable		746			(198	)		(34	)
Inventory		1,377			1,088			(293	)
Prepaid assets		13			(322	)		(32	)
Other assets		(35	)		(1	)		—
Accounts payable		1,306			43			40
Accrued expenses		(664	)		2,219			(122	)
Operating lease right of use assets and lease liabilities		(604	)		61			20
Net cash used in continuing operating activities		(1,929	)		(4,440	)		(879	)
Net cash provided by (used in) discontinued operating activities		(580	)		45			299
Net cash used in operating activities		(2,509	)		(4,395	)		(580	)
Cash flows from investing activities:
Purchase of property and equipment		(514	)		(14	)		—
Sale of investment securities		—			23			—
Acquisition of Simply Mac, net of cash acquired		—			(4,694	)		—
Net cash used in investing activities		(514	)		(4,685	)		—
Cash flows from financing activities:
Proceeds from issuance of notes payable, net of debt issuance costs		3,098			7,860			—
Payment of notes payable		(325	)		(811	)		—
Proceeds from warrant exercises		—			1,154			—
Net cash provided by financing activities		2,773			8,203			—
Effect of exchange rate changes on cash		40			—			(85	)
Net decrease in cash and cash equivalents		(210	)		(877	)		(665	)
Cash, cash equivalents and restricted cash, beginning of period		3,169			3,159			3,834
Cash, cash equivalents and restricted cash, end of period	$	2,959		$	2,282		$	3,169
Cash paid for interest	$	67		$	341		$	—
Cash paid for income taxes	$	27		$	—		$	—

Non-cash financing activities:
Conversion of accounts payable and accrued liabilities to equity	$	823		$	164		$	—
Accounts receivable offset against conversion of accounts payable to equity	$	(227	)	$	—		$	—
Record operating lease right-of-use assets and operating lease liabilities	$	437		$	4,642		$	1,510

Accompanying notes are an integral part of these condensed consolidated financial statements.

Simply, Inc.

Notes to Condensed Consolidated Financial Statements

October 31, 2020

(unaudited)

NOTE 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and these condensed notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from those estimates, but management does not believe such differences will materially affect the financial position or results of operations of Simply, Inc. (the “Company”), although they may. These unaudited consolidated financial statements and condensed notes should be read in conjunction with the financial statements and notes as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10‑K for such year.

On September 25, 2019, the Company completed the acquisition of Simply Mac, Inc. (“Simply Mac”) in a stock transaction, after which Simply Mac became a wholly-owned subsidiary of the Company (see Note 17). Consequently, the results of Simply Mac are included in the Company’s consolidated financial statements for periods subsequent to the acquisition.

In early 2020, the Company sold both of its international subsidiaries in Latin America (see Note 18). On January 31, 2020, the Company sold all of its ownership interest in OneClick Argentino S.R.L., the Company’s subsidiary that operated 6 retail electronics stores in Argentina. On April 6, 2020, the Company sold all of its ownership interest in Verablue Caribbean Group, S.R.L. (“Verablue”), the Company’s subsidiary that operated 7 retail electronics stores in in the Dominican Republic. Both entities have been classified as discontinued operations in the Company’s consolidated financial statements for all periods presented.

During March 2020, the Company restructured substantially all of its remaining outstanding debt. At September 30, 2019, after the acquisition of Simply Mac, the principal amount of the Company’s outstanding debt amounted to $24.2 million. During October 2019, approximately $7.8 million of the debt was converted into common stock of the Company, leaving $16.4 million outstanding at December 31, 2019. After the March restructuring, the Company’s outstanding debt was reduced by $14.6 million through a combination of debt forgiveness and conversion into common stock, leaving $1.8 million outstanding with extended maturity dates.

Prior to its acquisition by the Company, Simply Mac operated on a 52-53 fiscal year ending on the Saturday closest to January 31^st. The Company subsequently decided to change its fiscal year to mirror the Simply Mac fiscal year effective beginning with the fiscal year ending January 30, 2021 (“Fiscal 2021”) in order to align the Company’s financial reporting periods to the operational periods of its Simply Mac stores and be more consistent with peer retail companies. The Company made the fiscal year change on a prospective basis and did not adjust operating results for prior periods. This Form 10-Q includes unaudited consolidated financial statements for the one-month transition period for the month of January 2020, the third fiscal quarter for the 13 weeks ended October 31, 2020 and the 39 weeks ended October 31, 2020. As permitted under the rules of the Securities and Exchange Commission (“SEC”), prior period financial statements have not been recast, as management believes (i) the three and nine months ended September 30, 2019 are comparable to the 13 and 39 weeks ended October 31, 2020, respectively, and (ii) recasting prior period results was not practicable nor cost justified.

Effective October 14, 2020, the Company changed its legal name from “Cool Holdings, Inc.” to “Simply, Inc.” and effected a one-for-ten reverse split of its issued and outstanding common stock. All share and per share numbers in this report have been retroactively restated to account for the reverse split. In addition, certain accounts in the Company’s consolidated balance sheet at December 31, 2019 were reclassified to conform to their presentation at February 1, 2020 and at October 31, 2020.

The Company’s consolidated financial statements include assets, liabilities and operating results of its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly present the Company’s financial condition as of October 31, 2020 and February 1, 2020, and the results of operations, financial position and cash flows for all periods presented. The results reported in these consolidated financial statements for the transition period from January 1, 2020 to February 1, 2020 and for the 39 weeks ended October 31, 2020 are not necessarily indicative of the operating results, financial condition or cash flows that may be expected for the full year of Fiscal 2021 or for any future period.

NOTE 2. Going Concern Considerations

In accordance with the guidance issued by the FASB under ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, the Company is required to evaluate each reporting period whether there is substantial doubt about its ability to continue as a going concern. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern for 12 months following the date the Company’s financial statements are issued. Management considered the Company’s current financial condition and liquidity sources, including current funds and available working capital, forecasted future cash flows and the Company’s conditional and unconditional obligations due within one year from the date of issuance of the financial statements. Because the Company has sustained significant losses over the past two years, only recently completed the restructuring of its debt, and because of the uncertainty of the near term implications of the novel coronavirus (“COVID-19”) pandemic on its business, management has substantial doubt that the Company could remain independent and continue as a going concern for the required period of time if it were not able to raise additional capital to fund its working capital needs. These consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

NOTE 3. Discontinued Operations

During the fourth quarter of 2018, the Company completed the closure of its verykool business segment. Also, as discussed in Note 18, the Company sold OneClick Argentino, its business unit in Argentina, and Verablue Caribbean Group, its business unit in the Dominican Republic, which resulted in losses on sale of $13,000 and $136,000 in the transition period from January 1, 2020 to February 1, 2020 and in the 39 weeks ended October 31, 2020, respectively. Consequently, these business units, plus OneClick International, the wholly owned parent of the two business units, are also reported as discontinued operations in our consolidated financial statements for all periods presented.

The results of discontinued operations for the three months ended September 30, 2019 are as follows (in thousands):

	Verykool			OneClick International			OneClick Argentino			Verablue Caribbean		TOTAL
Net sales	$	—		$	—		$	1,862		$	1,052	$	2,914
Cost of sales		—			—			1,228			793		2,021
Gross profit		—			—			634			259		893
Selling, general and administrative expenses		6			138			559			247		950
Operating income (loss)		(6	)		(138	)		75			12		(57	)
Other expense, net		(1	)		—			(328	)		—		(329	)
Income (loss) from discontinued operations before income taxes		(7	)		(138	)		(253	)		12		(386	)
Provision for income taxes		—			—			—			—		-
Net income (loss) from discontinued operations	$	(7	)	$	(138	)	$	(253	)	$	12	$	(386	)

The results of discontinued operations for the nine months ended September 30, 2019 are as follows (in thousands):

	Verykool			OneClick International			OneClick Argentino			Verablue Caribbean			TOTAL
Net sales	$	47		$	—		$	5,752		$	2,860		$	8,659
Cost of sales		47			12			3,774			2,027			5,860
Gross profit		-			(12	)		1,978			833			2,799
Selling, general and administrative expenses		33			392			2,153			858			3,436
Operating loss		(33	)		(404	)		(175	)		(25	)		(637	)
Other income (expense), net		25			(13	)		(548	)		—			(536	)
Loss from discontinued operations before income taxes		(8	)		(417	)		(723	)		(25	)		(1,173	)
Provision for income taxes		(2	)		—			—			—			(2	)
Net loss from discontinued operations	$	(10	)	$	(417	)	$	(723	)	$	(25	)	$	(1,175	)

The results of discontinued operations for the transition period from January 1, 2020 to February 1, 2020 are as follows (in thousands):

	Verykool			OneClick International			OneClick Argentino			Verablue Caribbean			TOTAL
Net sales	$	—		$	—		$	821		$	334		$	1,155
Cost of sales		8			—			544			223			775
Gross profit (loss)		(8	)		—			277			111			380
Selling, general and administrative expenses		2			1			203			81			287
Operating income (loss)		(10	)		(1	)		74			30			93
Other income (expense), net		—			—			(21	)		(6	)		(27	)
Income (loss) from discontinued operations before income taxes		(10	)		(1	)		53			24			66
Provision for income taxes		—			—			—			—			—
Net income (loss) from discontinued operations	$	(10	)	$	(1	)	$	53		$	24		$	66

The results of discontinued operations for the 13 weeks ended October 31, 2020 are as follows (in thousands):

	Verykool		TOTAL
Net sales	$	—	$	—
Cost of sales		—		—
Gross profit		—		—
Selling, general and administrative expenses		—		—
Operating loss		—		—
Other income, net		51		51
Income from discontinued operations before income taxes		51		51
Provision for income taxes		—		—
Net income from discontinued operations	$	51	$	51

The results of discontinued operations for the 39 weeks ended October 31, 2020 are as follows (in thousands):

	Verykool			Verablue Caribbean			TOTAL
Net sales	$	—		$	407		$	407
Cost of sales		—			319			319
Gross profit		—			88			88
Selling, general and administrative expenses		6			192			198
Operating loss		(6	)		(104	)		(110	)
Other income (expense), net		54			(129	)		(75	)
Income (loss) from discontinued operations before income taxes		48			(233	)		(185	)
Provision for income taxes		—			—			—
Net income (loss) from discontinued operations	$	48		$	(233	)	$	(185	)

NOTE 4. Stock-Based Compensation

The Company’s 2015 Equity Incentive Plan (the “Plan”) was approved by stockholders in June 2015. The Plan is an omnibus plan that allows for grants of stock options, stock appreciation rights, stock awards, restricted stock, stock units and performance units. As of October 31, 2020, options to purchase 180,000 shares and 3,000 unvested restricted shares were outstanding under the 2015 Plan and 263,000 shares were available for future grant.

During the nine months ended September 30, 2019, the Company made stock grants to directors and employees in an aggregate amount of 60,000 shares valued at $1,560,000. In addition, restricted stock grants on 10,000 shares valued at $260,000 were made to employees with annual vesting over 2 years from the date of grant. In June 2019, in connection with the Company’s termination of its then chief financial officer, the Company accelerated the vesting on 2,667 restricted shares valued at $69,000 and paid a portion of his severance using 5,357 shares valued at $108,000. Total stock-based compensation expense during the nine months ended September 30, 2019 amounted to $1,774,000.

No equity grants were made during the transition period from January 1, 2020 to February 1, 2020. However, stock-based compensation expense of $7,000 was recorded during the period relating to vesting of restricted shares issued to employees in June 2019.

During the 39-week period ended October 31, 2020, the Company made grants of unregistered shares to advisors associated with the March 2020 debt restructuring in the aggregate amount of 300,000 shares, and a corresponding reduction of warrants on 300,000 shares previously issued to the advisors. On a combined basis, the shares issued were valued at $216,000, and the warrant reductions were valued at $89,000, resulting in a net compensation expense of $127,000. Also during the period, the Company made stock grants under the Plan in an aggregate amount of 295,000 shares to its board of directors. The stock was valued at $390,000 based on the closing market price on the date of grant.

Additional expense for restricted shares vesting during the 39-week period ended October 31, 2020 amounted to $77,000.

Also during the 39-week period ended October 31, 2020, the Company granted stock options to purchase an aggregate of 180,000 shares to employees. The fair value of the option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: stated life of 5 years; risk-free interest rate of 0.2% to 0.3% based on the U.S. Treasury yields in effect at the time of grant; expected dividend yield of 0% as the Company has not, and does not intend to, declare dividends; and an expected life of 2.5 years for options having immediate vesting and 3.29 years for graded vested options. The expected annualized volatility of the Company’s common stock used in the calculation was 95%. Determination of the volatility rate began with the fully-observed historical volatility of the Company’s common stock dating back to March 2018, immediately following the announcement of completion of the Cooltech merger and related stock split. It was noted that the Company did not have any exchange-traded options since the Cooltech merger from which to obtain an implied volatility. Certain adjustments were then applied to the fully‑observed historical volatility through June 2020 by excluding the effects of the Company’s extraordinarily-significant announcements and events during the period. Stock option expense for the period amounted to $79,000.

A summary of option activity under the 2015 Plan as of October 31, 2020 and changes during the 39 weeks then ended is presented in the table below (shares in thousands):

	Shares		Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Life in Years
Outstanding at February 1, 2020		—	$	345.400		2.29
Granted		180	$	1.320		4.84
Exercised		—		—		—
Expired/Forfeited		—		—		—
Outstanding at October 31, 2020		180	$	1.690		4.58
Vested and expected to vest		180	$	1.690		4.58
Exercisable at October 31, 2020		108	$	1.937		4.58
Non-vested at October 31, 2020 (a)		72	$	1.320		4.58

(a) Weighted average grant-date fair value is $0.81 per share.

Total stock-based compensation expense during the 39 weeks ended October 31, 2020 amounted to $673,000.

NOTE 5. Earnings Per Share

Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued as determined by using the treasury stock method. Common share equivalents are excluded from the computation if their effect is anti-dilutive. The Company’s common share equivalents consist of convertible preferred stock, stock options and warrants.

Common shares from the potential exercise of certain options and warrants are excluded from the computation of diluted earnings (loss) per share if their exercise prices are greater than the Company’s average stock price for the period. For the transition period from January 1, 2020 to February 1, 2020, the number of such shares excluded was 2,128,000. For both the 13 and 39-week periods ended October 31, 2020, the number of such shares excluded was 2,293,000. For the three and nine-month periods ended September 30, 2019, the number of such shares excluded was 569,000 and 560,000, respectively. For the 39-week period ended October 31, 2020, the dilutive effect of in-the-money warrants amounted to 312,000 shares. For the transition period from January 1, 2020 to February 1, 2020, the number of in-the-money warrants and preferred shares excluded from the computation of net loss per share because their inclusion would have been anti-dilutive amounted to 1,003,000. For the 13-week period ended October 31, 2020, the number of in-the-money warrants and preferred shares excluded from the computation of net loss per share amounted to 702,000. For the three and nine‑month periods ended September 30, 2019, the number of in-the-money warrants and preferred shares excluded from the computation of net loss per share amounted to 3,000 and 12,000.

NOTE 6. Income Taxes

The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with applicable standards of the Financial Accounting Standards Board (“FASB”). In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions, and there has been no cumulative effect on retained deficit.

The Company is subject to U.S. federal income tax as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years 2014 through 2019 remain open to examination or re-examination. As of October 31, 2020, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.

The Company recognizes the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or results of operations.

NOTE 7. Inventory

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists primarily of consumer electronics and accessories. The Company writes down its inventory to net realizable value when it is estimated to be slow-moving or obsolete. For the 13 and 39 weeks ended October 31, 2020, inventory write-downs were $159,000 and $260,000, respectively. For the transition period from January 1, 2020 to February 1, 2020, inventory write-downs were $41,000. For the three and nine months ended September 30, 2019, inventory write-downs were $7,000 and $87,000, respectively.

NOTE 8. Property and Equipment

Property and equipment, all located in the United States, consisted of the following as of the dates presented (in thousands):

	October 31, 2020			December 31, 2019			February 1, 2020
	(unaudited)						(unaudited)
Machinery and equipment	$	193		$	224		$	225
Furniture and fixtures		510			371			371
Leasehold improvements		1,233			872			872
Subtotal		1,936			1,467			1,468
Less accumulated depreciation		(1,020	)		(609	)		(660	)
Total	$	916		$	858		$	808

Depreciation and amortization expense of property and equipment for the 13 and 39 weeks ended October 31, 2020 was $127,000 and $399,000, respectively. Depreciation and amortization expense for the transition period from January 1, 2020 to February 1, 2020 was $51,000. Depreciation and amortization expense for the three and nine months ended September 30, 2019 was $70,000 and $198,000, respectively.

NOTE 9. Intangible Asset and Goodwill

The Company’s goodwill and definite-lived intangible asset arose primarily from the acquisition of Simply Mac on September 25, 2019. The intangible asset is comprised of the Simply Mac tradename, that is being amortized over 15 years, and the simplyinc.com domain name, that is being amortized over 5 years. The carrying value of the intangible assets consisted of the following as of the dates presented (in thousands):

	October 31, 2020			Dec. 31, 2019			February 1, 2020
	(unaudited)						(unaudited)
Simply Mac Tradename	$	2,092		$	2,092		$	2,092
SimplyInc Domain Name		10			—			—
Subtotal		2,102			2,092			2,092
Less accumulated amortization		(153	)		(37	)		(48	)
Total	$	1,949		$	2,055		$	2,044

Amortization expense for the 13 and 39 weeks ended October 31, 2020 was $35,000 and $105,000, respectively. Amortization expense for the transition period from January 1, 2020 to February 1, 2020 was $11,000.

The carrying amount of goodwill at December 31, 2019, February 1, 2020 and October 31, 2020 amounted to $699,000. The Company performs an impairment test of goodwill on an annual basis during the fourth quarter, or when circumstances indicate that the carrying value of goodwill might be impaired.

Due to the various impacts of COVID-19 to the Company’s business during the 39 weeks ended October 31, 2020, including the temporary closure and limited operating hours of the Company’s stores beginning in late March 2020, the Company determined triggering events had occurred for certain of the Company’s long-lived asset groups that required an interim impairment assessment during the period. This analysis did not result in impairment charges related to long-lived assets and operating lease right of use assets.

NOTE 10. Accrued Expenses

Accrued expenses consisted of the following as of the dates presented (in thousands):

	October 31, 2020 (unaudited)		December 31, 2019		February 1, 2020 (unaudited)
Accrued compensation (wages, benefits, severance, vacation)	$	853	$	1,421	$	1,457
Customer deposits and overpayments		153		152		154
Accrued product costs		—		430		199
Accrued interest		83		798		1,315
Accrued sales tax		581		915		711
Accrued income taxes		220		220		220
Other accruals		850		1,472		1,230
Total	$	2,740	$	5,408	$	5,286

NOTE 11. Notes Payable

Notes payable consisted of the following as of the dates presented (in thousands):

	October 31, 2020 (unaudited)		December 31, 2019			February 1, 2020 (unaudited)
0% convertible note due January 2021	$	—	$	91		$	91
6% promissory note due December 2020		500		500			500
12% convertible notes due October 2019		—		1,775			1,775
12% convertible notes due November 2019		—		400			400
12% convertible notes due May 2020		—		1,500			1,500
12% convertible notes due July, August and September 2020		—		4,235			4,235
12% secured promissory note due September 2020		—		7,858			7,858
6% promissory note due February 2024		1,250		—			—
1% promissory note due April 2022		3,098		—			—
Total face amount		4,848		16,359			16,359
Unamortized discount		—		(3,047	)		(2,674	)
Total carrying value		4,848		13,312			13,685
Amount classified as current		2,270		13,227			13,685
Amount classified as long-term	$	2,578	$	85		$	—

In January 2018, the Company issued an aggregate of $1,000,000 of 3-year 0% convertible notes and warrants. The notes were convertible into an aggregate of 57,029 shares of common stock of the Company and the warrants are exercisable for 57,029 shares of common stock of the Company at an exercise price of $91.50 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 105% volatility rate of the Company’s common stock, a risk-free interest rate of 2.20% and a credit spread of 7.70%. The warrants were assigned a value of $127,000 and the conversion feature was assigned a value of $144,000. The remaining value of $729,000 was assigned to the debt. The aggregate discount of $271,000 is being amortized to interest expense over the 3-year life of the notes on a straight-line basis. In connection with a debt exchange on August 15, 2018, holders of an aggregate principal amount of $725,000 of the notes converted their notes to common stock, leaving a principal balance of $275,000 outstanding at December 31, 2018. In connection with another debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $184,000 of the notes converted their notes into common stock, leaving a principal balance of $91,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $15,000, which amount was included in the loss on debt extinguishment. In connection with a subsequent debt exchange in March 2020 (see Note 12), the holder of the final remaining $91,000 note converted its note into common stock. The unamortized discount related to the converted note of $5,000 was included in the gain on debt extinguishment. Accretion of the discount on these notes for the 39 weeks ended October 31, 2020 and the transition period from January 1, 2020 was $1,000 and nil, respectively. Accretion for the three and nine months ended September 30, 2019 was $6,000 and $18,000, respectively.

In April 2018, the Company issued a $1,000,000 installment note bearing interest at 4.02% per annum due April 30, 2021. The note specified varying monthly payments of principal and interest through 2021. By October 2019, the Company had paid down the principal balance to $704,000. In connection with the debt exchange in October 2019 (see Note 12), $204,000 of the note plus accrued interest was converted into common stock, leaving an outstanding balance of $500,000. In March 2020, the note was amended so that the outstanding balance plus accrued interest at 6% from March 24, 2020 are now due on December 31, 2020.

In September 2018, the Company entered into a Note Consolidation Agreement with a lender in which 12 promissory notes and associated accrued interest were consolidated into a single unsecured 8% promissory note in the principal amount of $2,107,000. The note was due in a lump sum on March 31, 2021 with interest compounding annually. Because the present value of the cash flows under the terms of the new debt instrument was less than 10% different from the present value of the aggregate remaining cash flows under the terms of the original instruments, the debt instruments were not considered to be substantially different and the transaction was not considered a debt extinguishment. In connection with the debt exchange in October 2019 (see Note 12), this note plus accrued interest was converted into common stock.

In October 2018, the Company issued an aggregate of $4,000,000 of 1-year 12% convertible notes and warrants. The notes were convertible at the option of the holder after six months from the date of issuance into an aggregate of 94,118 shares of common stock of the Company and the warrants were exercisable for 47,059 shares of common stock of the Company at an exercise price of $42.50 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing

model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 90% volatility rate of the Company’s common stock, a 25% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.47%. The warrants were assigned a value of $769,000 and the conversion feature was assigned a value of $1,173,000. The remaining value of $2,058,000 was assigned to the debt. The aggregate discount of $1,942,000 was amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $2,225,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $1,775,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $8,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), $1,700,000 of the remaining balance plus accrued interest was converted into common stock, and the remaining $75,000 note was amended so that the outstanding balance plus accrued interest at 6% from November 1, 2019 was due on June 30, 2020, which payment was timely made. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $485,000 and $1,456,000, respectively.

In November 2018, the Company issued an aggregate of $1,220,000 of 1-year 12% convertible notes and warrants. The notes were convertible at the option of the holder after six months from the date of issuance into an aggregate of 27,727 shares of common stock of the Company and the warrants are exercisable for 13,864 shares of common stock of the Company at an exercise price of $44.00 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants. The conversion feature was not assigned any value as the implied conversion price in the fair value of the debt was higher than the closing market price of the Company’s stock on the date of the transaction. The valuation assumed a 90% volatility rate of the Company’s common stock, a 25% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.52%. The warrants were assigned a value of $118,000 and the remaining value of $1,102,000 was assigned to the debt. The discount of $118,000 was amortized to interest expense over the 1‑year life of the notes on a straight-line basis. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $820,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $400,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $5,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $29,000 and $88,000, respectively.

In May 2019, the Company issued an aggregate of $3,500,000 of 1-year 12% convertible notes and warrants. The notes were convertible at the option of the holder after six months from the date of issuance into an aggregate of 125,900 shares of common stock of the Company and the warrants are exercisable for 62,950 shares of common stock of the Company at an exercise price of $27.20 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 105% volatility rate of the Company’s common stock, a 30% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.33%. The warrants were assigned a value of $507,000 and the conversion feature was assigned a value of $243,000. In addition, the Company incurred fundraising costs of $190,000, which were recorded as an additional discount. The remaining value of $2,750,000 was assigned to the debt. The aggregate discount of $940,000 was being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 11), holders of an aggregate principal amount of $2,000,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $1,500,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $304,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. The unamortized discount related to the converted notes amounted to $57,000, which amount was included in the gain on debt extinguishment. Accretion of the discount for the 39 weeks ended October 31, 2020 amounted to $60,000. Accretion of the discount for the three and nine months ended September 30, 2019 was $235,000 and $352,000, respectively.

In July, August and September 2019, the Company issued a number of tranches of 1-year 12% convertible notes and warrants with an aggregate principal amount of $4,551,000. The notes and warrants are convertible/exercisable at the option of the holders into the Company’s shares of common stock at any time during their respective exercisability period commencing on the date the Company obtains shareholder or other required regulatory approvals to permit the conversion of the notes (the “Approval Date”). The funds raised from the issuance of these notes were used to finance the acquisition of Simply Mac. At the time of issuance of the notes, both the note conversion prices and the warrant exercise prices were structured to be a discount to the current market price of the Company’s stock, certain notes at a 20% discount to the 5-day closing average price and others at a 30% discount to the 2-day volume weighted average price. However, in order to issue the convertible notes and warrants below market, shareholder approval was required according to Nasdaq rules to which the Company was subject at the time. Consequently, the trigger date for the conversion

and warrant pricing was set as the Approval Date. In accordance with ASC 815, the conversion options embedded in the respective notes meet the criteria of a derivative instrument liability and are bifurcated from the host debt contract. Similarly, the warrants meet the criteria of a freestanding derivative instrument liability. Accordingly, the notes and warrants are recorded at fair value as of the respective issuance dates and marked-to-market at subsequent reporting dates with the changes recorded as gains or losses. Based on facts and circumstances as of the respective measurement dates, a Monte-Carlo simulation, a continuous stochastic-process of randomly generating values for uncertain variables, was utilized in determining the fair value of the notes and warrants. This valuation methodology provides the ability and flexibility of capturing the variability and uncertainty underlying the instruments’ unique conditions, features, and terms. The valuations assumed a 70% expected annualized equity volatility rate of the Company’s common stock. Determination of this rate began with the full-observed historical volatility of the stock dating back to March 2018, immediately following the announcement of completion of the Cooltech merger and related stock split. It was noted that the Company did not have any exchange-traded options since the merger from which to obtain an implied volatility. Certain adjustments were then applied to the full-observed historical volatility in the form of excluding the effects of the Company’s extraordinarily-significant announcements and events during such period and capturing market participants’ views of pricing convertible notes (compared to own non-convertible debt with similar maturity or publicly-traded comparable debt issuances) and illiquid shares and warrants. Considering the utilization of unobservable inputs, as defined by ASC 820, the fair value of the notes and warrants as of the respective issuance dates and at September 30, 2019 are level 3 measurements. As a result of the valuation methodology, the conversion feature was assigned a value of $2,471,000 and the warrants were assigned a value of $1,897,000. The remaining value of $182,000 was assigned to the debt. The aggregate discount of $4,368,000 was being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $316,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $4,235,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $190,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. The unamortized discount related to the converted notes amounted to $1,946,000, which amount was included in the gain on debt extinguishment. Accretion of the discount for the 39 weeks ended October 31, 2020 and the transition period from January 1, 2020 to February 1, 2020 was $605,000 and $339,000, respectively.

On September 25, 2019, in connection with the acquisition of Simply Mac discussed in Note 17, the Company issued a $7,858,000 secured promissory note to GameStop. The note bore interest at a rate equal to 12% per annum and called for the Company to make four equal installment payments of $1,965,000, plus accrued interest, on each 3-month anniversary of the note. The note was secured by, among other things, the Simply Mac inventory and accounts receivable. The first installment payment was due on December 25, 2019, but the Company was unable to make the payment. Consequently, at December 31, 2019, the note was in default, and GameStop provided the Company with an official Notice of Default on January 15, 2020. On March 11, 2020, the Company and GameStop entered into an agreement to amend and restate the promissory note. The amended promissory note reduced the principal balance of the note from $7,858,000 to $1,250,000, reduced the interest rate to 6% per annum and extended the maturity date to February 17, 2024. Additionally, the amended note released all prior security and collateral under the original note and is unsecured. The parties also entered into a Termination Agreement, whereby the Company agreed to pay GameStop an aggregate amount of $335,152, payable in twelve equal monthly installments of $27,929 with the first installment due April 30, 2020, in satisfaction of certain post-closing amounts owed to GameStop under the Stock Purchase Agreement and certain agreements related thereto, less amounts owed to the Company from GameStop under the Stock Purchase Agreement relating to the post-closing working capital adjustment thereunder. The Company also made a onetime cash payment of $250,000 to GameStop and released to GameStop $345,000 of funds held in escrow in connection with the Simply Mac acquisition. As a result of these agreements, the Company recorded a gain of $6,961,000 on the extinguishment of debt.

On April 16, 2020, the Company secured a $3,098,000, 2-year loan from a regional bank (the “Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under Title I of the Coronavirus Aid, Relief, and Economic Security Act passed by Congress and signed into law on March 27, 2020 (“CARES Act”). The note bears interest at 1.0% per annum and no payments were due for the first six months. In accordance with the applicable provisions of the CARES Act, on October 19, 2020, the Company filed its forgiveness application (the “Application”) with the Lender. The Company certified in the Application that 100% of the loaned funds were utilized during the 24-week covered period commencing April 16, 2020 to pay for qualified payroll and payroll related costs, and as such, requested that the entire principal balance be forgiven. The Application is subject to a 90‑day review by both the Lender and the SBA, after which the Company will be notified as to whether the Application is approved. If the Application is denied or partially approved, any remaining balance due on the loan must be repaid in equal monthly installments by April 16, 2022.

Interest expense for notes payable for the 13 and 39 weeks ended October 31, 2020 was $34,000 and $325,000, respectively. Interest expense for the transition period from January 1, 2020 to February 1, 2020 was $158,000. Interest expense for the three and nine months ended September 30, 2019 was $1,331,000 and $2,960,000, respectively.

Derivative Liability: As noted above, the $4,368,000 discount applied against the July, August and September convertible notes to account for the convertibility feature and warrants was recorded as a derivative liability on the Company’s balance sheet. At

December 31, 2019, although the Company was no longer subject to Nasdaq requirements for shareholder approval, it was determined that the conversion features and warrants did not have fixed conversion or exercise prices. Accordingly, these instruments continued to be accounted for as derivative liabilities. The Company used the same methodology as described above to value the derivative liabilities at each subsequent measurement date. In connection with the debt exchange in October 2019 (see Note 12), the Company issued warrants valued at $3,586,000 that were also recorded as derivative liabilities. These warrants were valued at issuance date and at each subsequent measurement date utilizing the methodology described in Note 12, and are level 3 measurements. Total derivative liabilities of $7,954,000 were marked-to-market at December 31, 2019, February 1, 2020 and at March 31, 2020, the date the underlying notes were exchanged (see Note 12). The changes resulted in an increase in value of $806,000 at February 1, 2020 that was recorded as other expense in the Company’s statement of operations for the transition period from January 1 to February 1, 2020, and resulted in a decrease in value of $543,000 at March 31, 2020 that was recorded as other income for the 39 weeks ended October 31, 2020.

NOTE 12. Capital Stock

On January 9, 2019, the Company entered into a fee settlement agreement with a vendor to whom it owed $164,000. In the agreement, the parties agreed to satisfy this obligation by the Company issuing to the vendor 9,345 restricted common shares and warrants to purchase 9,345 common shares at $16.40 per share. The warrants were exercisable beginning July 9, 2019 and expire January 9, 2022. The fair value of the restricted stock on the date of issuance was estimated to be $114,000 using a 25% discount for trading restrictions computed using a risk-free interest rate of 2.52% for the 6-month hold period and an expected volatility of 90% based on the Company’s historical stock price fluctuation. The fair value of the warrants was estimated on the date of issuance at $59,000 using the Black-Scholes pricing model and assuming a 90% volatility rate and a risk-free interest rate of 2.54% based on the 3-year U.S. Treasury rate then in effect. The combined value of the stock and warrants was $173,000, and the Company recorded a loss on extinguishment of debt of $9,000.

During March 2019, holders of warrants on 38,217 shares of the Company’s common stock exercised the warrants at the strike price of $30.20 per share, which resulted in aggregate cash proceeds to the Company of $1,154,000.

On September 30, 2019, the holder of 29,700 shares of preferred stock converted the shares into an equal number of shares of common stock.

During October 2019, the Company entered into exchange agreements with the holders of certain then outstanding promissory and convertible notes in the principal amount of $7,852,000 and related accrued interest of $668,000. The carrying value of the debt at the time of extinguishment was $7,461,000. The aggregate amount owed of $8,520,000 was exchanged into 1,671,000 shares of common stock at $5.10 per share and 1,540,000 warrants to purchase common stock at $5.10 per share. The warrants, which have a cashless exercise feature, are exercisable beginning on the exchange date and expire in 3 years. The Exchange was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, provided by Section 3(a)(9) of the Act. All of the common stock issued in the transaction were “restricted securities,” as defined in Rule 144(a)(3), promulgated under the Act. The issued common stock was valued at the closing market price on the exchange date and had an aggregate value of $8,464,000. The fair value of the warrants was estimated at $3,713,000 using the Black-Scholes pricing model and assuming the closing market price of the underlying stock on the exchange date, a risk-free interest rate ranging from 1.5% to 1.7% based on the U.S. Treasury rate then in effect, a 3-year life and an expected volatility of 70%. The combined value of the stock and warrants issued in exchange for the outstanding principal amount was $12,177,000, and the Company recorded a loss on extinguishment of debt of $4,048,000.

During March 2020, the Company completed the exchange of two outstanding convertible notes with a principal amount of $434,000 and related accrued interest of $8,000 into 86,800 shares of common stock at $5.10 per share in accordance with exchange agreements entered into in October 2019. The value of the stock issued in the exchange was $35,000, and the Company recorded a gain on extinguishment of debt of $204,000.

Also during March 2020, the Company entered into an additional debt restructuring that resulted in the conversion of debt with an aggregate principal amount of $7,492,000 and accrued interest of $691,000 into common stock of the Company. The carrying value of the debt and related derivative liability at the time of extinguishment amounted to $8,341,000. The aggregate total of $8,183,000 was converted into 4,814,000 shares of common stock at $1.70 per share. The combined value of the stock issued in the conversion was $1,869,000, and the Company recorded a gain on extinguishment of debt of $6,472,000. The restructuring also included the settlement of other outstanding claims, that resulted in the issuance of an additional 1,068,000 common shares, of which 1,040,000 shares were attributable to a royalty claim in connection with the September 2019 acquisition of Simply Mac. The $415,000 value of the 1,040,000 shares was recorded in other expenses in the Company’s statement of operations for the year ended December 31, 2019 and as an accrued liability at December 31, 2019.

During June 2020, the Company issued 80,000 shares of common stock valued at $106,000 to its two outside directors in lieu of payment of accrued director fees, and 28,000 shares of common stock valued at $27,000 to three former executives in lieu of payment of accrued severance.

During August 2020, the Company repurchased and retired 70,000 shares of common stock, valued at $28,000, previously issued to one of its employees.

On October 14, 2020, the Company executed a 1-for-10 reverse stock split and issued 2,000 shares of common stock in lieu of fractional shares. All references to shares and per-share amounts have been restated to give effect to this reverse split.

NOTE 13. Recent Accounting Pronouncements

Recently Adopted:

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The purpose of this ASU is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard on January 1, 2020, which adoption did not have a material impact on the Company’s consolidated financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. ASU 2018-13 removes the following disclosure requirements: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and (ii) the entity’s valuation processes for Level 3 fair value measurements. ASU 2018-13 adds the following disclosure requirements: (i) provide information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date rather than a point in the future, (ii) disclose changes in unrealized gains and losses related to Level 3 measurements for the period included in other comprehensive income, and (iii) disclose for Level 3 measurements the range and weighted average of the significant unobservable inputs and the way it is calculated. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard on January 1, 2020, which adoption did not have a material impact on the Company’s consolidated financial condition or results of operations.

Other Accounting Standards Updates not effective until after October 31, 2020 are not expected to have a material effect on the Company’s financial position or results of operations.

NOTE 14. Segments

The tables below (in thousands) reflect the operating results of the Company’s segments for the reported periods, consistent with the management and measurement system utilized within the Company. The two segments include (1) the Company’s Simply Mac retail stores, and (2) its Cooltech Distribution business. Substantially all segment sales are generated in the United States. Performance measurement of each segment is based on sales, gross profit and operating income (loss). The segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Operating Decision Maker (“CODM”) in determining how to allocate Company resources and evaluate performance. The CODM is a group of Company executives who comprise the management committee, consisting of the Company’s Chief Executive Officer and its Chief Financial Officer.

	Retail Stores			Cooltech Distribution			Total Segments
13 weeks ended October 31, 2020:
Net sales	$	16,923		$	—		$	16,923
Gross profit	$	4,845		$	—		$	4,845
Operating loss	$	(880	)	$	(11	)	$	(891	)

Three months ended September 30, 2019:
Net sales	$	3,691		$	452		$	4,143
Gross profit	$	1,024		$	53		$	1,077
Operating loss	$	(500	)	$	(225	)	$	(725	)

39 weeks ended October 31, 2020:
Net sales	$	48,378		$	138		$	48,516
Gross profit	$	13,848		$	21		$	13,869
Operating loss	$	(2,008	)	$	(272	)	$	(2,280	)

Nine months ended September 30, 2019:
Net sales	$	6,691		$	1,907		$	8,598
Gross profit	$	1,670		$	47		$	1,717
Operating loss	$	(1,321	)	$	(922	)	$	(2,243	)

Transition Period January 1 to February 1, 2020:
Net sales	$	5,281		$	4		$	5,285
Gross profit	$	1,498		$	10		$	1,508
Operating loss	$	(615	)	$	(101	)	$	(716	)

Reconciliation of Operating Loss to Simply, Inc. as Reported:
	3rd Fiscal Quarter						Year-to-Date
	13 Weeks Ended October 31, 2020			Three Months Ended September 30, 2019			39 Weeks Ended October 31, 2020			Nine Months Ended September 30, 2019			Transition Period January 1 to February 1, 2020
Operating loss:
Total reportable segments	$	(891	)	$	(725	)	$	(2,280	)	$	(2,243	)	$	(716	)
Unallocated expenses		(737	)		(1,158	)		(3,901	)		(6,498	)		(134	)
Total consolidated operating loss	$	(1,628	)	$	(1,883	)	$	(6,181	)	$	(8,741	)	$	(850	)

NOTE 15. Commitments and Contingencies

Leases:

The Company leases its retail stores, distribution center and corporate and administrative office facilities under operating lease agreements which expire through June 2027. Stores range in size from small stores of only 1,000 sq.ft. to larger stores of up to 5,200 sq.ft. Store leases typically provide for an initial lease term of three to five years, while certain leases have terms of up to seven years. Certain leases have provisions calling for percentage rent, in addition to base rent, once sales exceed a minimum threshold. However, the Company believes that the minimum thresholds in such leases exceed the level of sales expected to be generated by the stores during the term of the lease. Certain leases also contain renewal options, but such options are not recognized by the Company as part of its right-of-use assets or lease liabilities because the Company does not believe it is reasonably certain it will exercise such options, due to the uncertainty of future store financial performance or the ability of the property to generate sufficient customer traffic. Operating lease expense for the 13 and 39 weeks ended October 31, 2020 was $1,169,000 and $3,608,000, respectively. Operating lease expense for the transition period from January 1, 2020 to February 1, 2020 was $418,000. Operating leases expense for the three and nine months ended September 30, 2019 was $349,000 and $942,000, respectively.

Supplemental lease information as of October 31, 2020 is as follows ($ in thousands):

Operating right of use assets	$	9,149
Current operating lease liabilities	$	2,818
Long-term operating lease liabilities	$	6,643
Weighted-average remaining lease term in years		3.90
Weighted-average discount rate		12	%

As of October 31, 2020, maturities of lease liabilities are as follows (in thousands):

Years Ending Fiscal January
2021 (remaining three months)	$	893
2022		3,723
2023		2,574
2024		1,992
2025		1,302
Thereafter		1,400
Total lease payments		11,884
Less: interest		(2,423	)
Total		9,461
Less: current portion		2,818
Long-term portion	$	6,643

Security Agreement:

On October 2, 2020, the Company entered into a security agreement with its primary inventory supplier of Apple products that are sold in the Company’s Simply Mac retail electronics stores and on the Simply Mac eCommerce site. Under the agreement, the Company granted the supplier a security interest in collateral comprised of substantially all of the Company’s assets including inventory, accounts receivable, fixed assets and other items. In exchange for entering into the agreement, the supplier increased the Company’s line of credit from $3 million to $6.6 million. At October 31, 2020, the Company’s outstanding payable with this vendor amounted to $2,453,000.

Litigation:

The Company has in the past and may in the future become involved in certain legal proceedings and claims which arise in the normal course of business. As of the filing date of this report, the Company did not have any significant litigation outstanding.

NOTE 16. Fair Value of Financial Instruments

The Company measures its financial instruments in its financial statements at fair value or amounts that approximate fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure.” ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are described below:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

The Company seeks to measure fair value based upon the lowest level of available input in the fair value hierarchy. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters. If market observable inputs for model-based valuation techniques are not available, the Company makes judgments about assumptions market participants would use in estimating the fair value of the financial instrument.

Carrying values of the Company’s short-term notes payable approximate their fair values due to the short-term nature and liquidity of these financial instruments. The Company estimates that the fair value of its notes payable approximates its carrying value based on significant level 2 observable inputs.

As discussed in Note 11, in connection with the issuance by the Company during 2019 of certain convertible notes and warrants, as well as the conversion of certain notes into common stock and warrants, the conversion features and warrants were deemed to qualify as derivatives to be separately accounted for in accordance with ASC 815. The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods presented (in thousands):

	Derivative Liability
Balance, December 31, 2018	$	—
Initial recognition of conversion features and warrants, October 2019		7,954
Change in fair value of derivative liability		(6,233	)
Balance, December 31, 2019		1,721
Change in fair value of derivative liability		806
Balance, February 1, 2020		2,527
Change in fair value of derivative liability		(543	)
Extinguishment of derivative liability resulting from debt conversion		(1,984	)
Balance, October 31, 2020	$	—

NOTE 17. Acquisition of Simply Mac

On May 9, 2019, the Company, Simply Mac and GameStop Corp. (“GameStop” or the “Seller”) entered into a stock purchase agreement, as amended on September 20, 2019 (the “Stock Purchase Agreement”), pursuant to which the Company would purchase from the Seller all of the issued and outstanding shares of capital stock of Simply Mac (the “Stock Purchase”).

On September 25, 2019, the Stock Purchase closed and Simply Mac became a wholly-owned subsidiary of the Company. Aggregate consideration for the Stock Purchase amounted to $12,554,000 which consisted of cash consideration of $4,696,000 (comprised of $5,157,000 paid in 2019 less a working capital true-up of $461,000 received subsequent to year-end) and a 12% secured promissory note of $7,858,000. The Company accounted for the Stock Purchase in accordance with the guidance of ASC 805 on business combinations using the acquisition method. In assessing the fair value, the Company did not assume any synergies from combining with Simply Mac, and used the relief-from-royalty method to determine the fair value of the Simply Mac trademark and tradename. Because the purchase of Simply Mac was a stock purchase, none of the implied goodwill of $411,000 is deductible for tax purposes. The purchase price was allocated to the net assets acquired in the transaction as follows (in thousands):

Cash	$	12
Accounts receivable		1,367
Inventory		9,145
Other current assets		288
Fixed assets		613
Right-of-use leased assets		3,414
Goodwill		699
Intangibles		2,092
Other assets		44
Accounts payable		(401	)
Lease liability		(3,430	)
Accrued liabilities		(1,289	)
Total	$	12,554

NOTE 18. Sale of Latin American Subsidiaries

On January 31, 2020, the Company entered into a definitive agreement with two employees of the Company to sell all of its ownership interest in OneClick Argentino S.R.L., the Company’s subsidiary that operated 6 retail electronics stores in Argentina. The purchase price to the buyers was the assumption of all liabilities of the Argentinian subsidiary, including $321,000 of debt owed to two major distribution suppliers. OneClick Argentino S.R.L. has been classified as a discontinued operation in the Company’s consolidated financial statements for all periods presented.

On April 6, 2020, the Company entered into a definitive agreement with an employee of the Company to sell all of its ownership interest in Verablue Caribbean Group, S.R.L. (“Verablue”), the Company’s subsidiary that operated 7 retail electronics stores in in the Dominican Republic. The buyers assumed all liabilities of Verablue, and agreed to pay the Company $100,000 in additional consideration, evidenced by a 6-month installment promissory note. Verablue has also been classified as a discontinued operation in the Company’s consolidated financial statements for all periods presented.

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

Forward-Looking Statements, Safe Harbor Statement and Other General Information

This discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and condensed notes thereto and other information included in this report and our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on May 29, 2020 (including our 2019 audited consolidated financial statements and related notes thereto and other information)(“2019 Annual Report”). Our discussion and analysis of financial condition and results of operations are based upon, among other things, our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to, among other things, make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent liabilities as of the date of our most recent balance sheet, and the reported amounts of revenues and expenses during the reporting periods. We review our estimates and assumptions on an ongoing basis. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from these estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations, although they may. Our critical accounting policies, which we believe are the most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined in “Critical Accounting Policies” in our 2019 Annual Report, as may be updated in our subsequent Quarterly Reports on Form 10-Q. All references to results of operations in this discussion generally are related to results from continuing operations, unless otherwise noted.

This report contains “forward-looking statements,” including, without limitation, statements about trading of our securities on the Over-the-Counter market, sales levels, cost reductions, operating efficiencies, currency-related matters, profitability and adequacy of working capital, which are based on, among other things, current management knowledge and expectations and involve certain risks and uncertainties. These risks and uncertainties, in whole or in part, could cause expectations to fail to be achieved and could have a material adverse effect on our business, financial condition and results of operations, and include, without limitation: (1) the potential impact on our store operations as a result of the COVID-19 pandemic including mandated store closings, limited customer traffic, etc.; (2) our ability to have access to adequate capital to fund both operations and our expansion plans and to service or refinance our remaining outstanding debt; (3) a deterioration in our relationship with Apple that could negatively affect both our supply of products and our ability to conduct business as a licensee; (4) an interruption or failure of our information systems or subversion of access or other system controls, including private information, may result in a significant loss of business, assets, or competitive information; (5) significant changes in supplier terms and relationships or shortages in product supply; (6) rapid product improvement and technological change resulting in inventory obsolescence; (7) the loss of a key executive officer or other key employees and the integration of new employees; (8) our failure to adequately adapt to industry changes and to manage potential growth and/or contractions; and (9) the resolution of any litigation for or against the Company. These forward-looking statements speak only as of the date of this report and we undertake no obligation to publicly update any forward-looking statements to reflect new or changing information, events or circumstances after the date of this release. We continue to institute changes to our strategies, operations and processes to address risks and uncertainties and to mitigate their impacts on our business, results of operations and financial condition. However, no assurances can be given that we will be successful in these efforts. For a further discussion of significant risk factors to consider, see “Risk Factors” below in this report and in “Item 1A. Risk Factors” of our most recent 2019 Annual Report. In addition, other risks or uncertainties may be detailed from time to time in our future SEC filings.

Business Overview and Strategy

Currently, our business is comprised of 43 Simply Mac retail consumer electronics stores in 18 states across the U.S. authorized under the Apple^® Premier Partner program. Our Cooltech Distribution unit, that formerly distributed various consumer electronics to resellers, retailers and small and medium-sized businesses, was wound down by August 1, 2020. In our retail stores, we market and distribute a variety of mobility, computing, audio/video, and other technology products supplied primarily by Apple including laptops, tablets, cell phones, drones, smart watches, gaming consoles, accessories and audio devices. Simply Mac also sells products online through its eCommerce site.

We work with Apple to develop our network of Simply Mac stores in locations and markets where Apple has limited or no presence. In our stores, we sell Apple and other third-party products and accessories. We also provide repair service for Apple products using our Apple-certified repair technicians. Retail customers may book a repair appointment at one of our Simply Mac stores directly through the Apple website.

Our current strategy is to focus on refining and improving the profitability of our Simply Mac retail stores in North America and on expanding the number of stores. We expect this expansion will come primarily from organic growth through the opening of new stores, but may also include selected acquisitions. We currently rank as the largest Apple Premier Partner in North America.

Change in Fiscal Year End

As a result of the change to our fiscal year from a fiscal year ending on December 31 of each calendar year to a fiscal year ending on the Saturday nearest to January 31 of each year, the period that began on January 1, 2020 and ended on February 1, 2020 was a transition period (the “Transition Period”). Fiscal 2021, our first full fiscal year subsequent to the change to our fiscal year, is a 52-week year that began on February 2, 2020 and will end on January 30, 2021. Our third quarter of Fiscal 2021 was the 13-week period that ended on October 31, 2020. As permitted under SEC rules, prior-period financial statements have not been recast as we believe (i) the three months ended September 30, 2019 are comparable to the 13 weeks ended October 31, 2020 and (ii) recasting prior-period results was not practicable nor cost justified. We have included certain unaudited condensed consolidated financial statements for the Transition Period in this Form 10-Q and will include audited financial statements for the Transition Period in our Form 10-K filed for the fiscal year ending January 30, 2021.

Results of Operations

The first table below sets forth our condensed consolidated statements of operations for the 13 weeks ended October 31, 2020 and the three months ended September 30, 2019, and the change between the periods ($ in thousands). The second table sets forth our condensed consolidated statements of operations for the 39 weeks ended October 31, 2020 and the nine months ended September 30, 2019, and the change between the periods.

	13 Weeks Ended October 31,			3 Months Ended September 30,			Change
	2020			2019			$			%
Net sales	$	16,923		$	4,143		$	12,780			308.5	%
Cost of sales		12,078			3,066			9,012			293.9	%
Gross profit		4,845			1,077			3,768			349.9	%
Selling, general and administrative expenses		6,473			2,960			3,513			118.7	%
Operating loss		(1,628	)		(1,883	)		255			-13.5	%
Other income (expense):
Interest		(35	)		(1,335	)		1,300			-97.4	%
Decrease in fair value of derivative liability		—			277			(277	)		-100.0	%
Other income (expense), net		175			3			172			5733.3	%
Loss from continuing operations before provision for income taxes		(1,488	)		(2,938	)		1,450			-49.4	%
Provision for income taxes		(10	)		—			(10	)	NM
Loss from continuing operations		(1,498	)		(2,938	)		1,440			-49.0	%
Loss from discontinued operations		51			(386	)		437			-113.2	%
Net loss	$	(1,447	)	$	(3,324	)	$	1,877			-56.5	%

	39 Weeks Ended October 31,			9 Months Ended September 30,			Change
	2020			2019			$			%
Net sales	$	48,516		$	8,598		$	39,918			464.3	%
Cost of sales		34,647			6,881			27,766			403.5	%
Gross profit		13,869			1,717			12,152			707.7	%
Selling, general and administrative expenses		20,050			10,458			9,592			91.7	%
Operating loss		(6,181	)		(8,741	)		2,560			-29.3	%
Other income (expense):
Interest expense		(995	)		(2,965	)		1,970			-66.4	%
Decrease in fair value of derivative liability		543			277			266			96.0	%
Gain (loss) on extinguishment of debt		13,642			(9	)		13,651			-151677.8	%
Other income (expense), net		117			17			100			588.2	%
Income (loss) from continuing operations before provision for income taxes		7,126			(11,421	)		18,547			-162.4	%
Provision for income taxes		(27	)		(1	)		(26	)		2600.0	%
Income (loss) from continuing operations		7,099			(11,422	)		18,521			-162.2	%
Loss from discontinued operations		(185	)		(1,175	)		990			-84.3	%
Net income (loss)	$	6,914		$	(12,597	)	$	19,511			-154.9	%

The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the 13 and 39 weeks ended October 31, 2020 and the three and nine months ended September 30, 2019:

	3rd Fiscal Quarter						Year-to-Date
	13 Weeks Ended October 31,			3 Months Ended September 30,			39 Weeks Ended October 31,			9 Months Ended September 30,
	2020			2019			2020			2019
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		71.4	%		74.0	%		71.4	%		80.0	%
Gross profit		28.6	%		26.0	%		28.6	%		20.0	%
Selling, general and administrative expenses		38.2	%		71.4	%		41.3	%		121.6	%
Operating loss		(9.6	%)		(45.5	%)		(12.7	%)		(101.7	%)
Other income (expense):
Interest		(0.2	%)		(32.2	%)		(2.1	%)		(34.5	%)
Decrease (increase) in fair value of derivative liability		0.0	%		6.7	%		1.1	%		3.2	%
Gain on extinguishment of debt		0.0	%		0.0	%		28.1	%		(0.1	%)
Other income (expense), net		1.0	%		0.1	%		0.2	%		0.2	%
Income (loss) from continuing operations before provision for income taxes		(8.8	%)		(70.9	%)		14.7	%		(132.8	%)
Provision for income taxes		(0.1	%)		0.0	%		(0.1	%)		(0.0	%)
Income (loss) from continuing operations		(8.9	%)		(70.9	%)		14.6	%		(132.8	%)
Income (loss) from discontinued operations		0.3	%		(9.3	%)		(0.4	%)		(13.7	%)
Net income (loss)		(8.6	%)		(80.2	%)		14.3	%		(146.5	%)

13 weeks ended October 31, 2020 compared to the three months ended September 30, 2019

Net Sales

For the 13 weeks ended October 31, 2020, our net sales amounted to $16,923,000, an increase of $12,780,000, or 308%, from $4,143,000 in the three months ended September 30, 2019. The significant increase in sales between the periods is the result of the acquisition of Simply Mac on September 25, 2019. Prior to the acquisition, our continuing operations were comprised of only our 3 OneClick retail stores in Florida and our Cooltech Distribution business.

During the entire 13 weeks ended October 31, 2020, our retail stores continued to be adversely affected by the COVID-19 pandemic. Hours of operation at all stores were curtailed by remaining closed on Sundays and most stores operated on shortened hours during the other days of the week. In addition, we believe COVID-19 adversely impacted our supply chain, resulting in severe shortages of Apple products that depressed sales both in our retail stores and on our eCommerce website.

We had completely phased down our Cooltech Distribution unit by August 1, 2020, so there were no sales from this unit during the 13 weeks ended October 31, 2020. Sales from the unit in the prior year for the three months ended September 30, 2019 amounted to $452,000. We phased down this distribution business because it generated very thin gross margins, and we wanted to focus solely on our retail business.

Gross Profit and Gross Margin

For the 13 weeks ended October 31, 2020, our gross profit amounted to $4,845,000, an increase of $3,768,000, or 350%, from $1,077,000 in the three months ended September 30, 2019. Our gross profit margin for the 13 weeks ended October 31, 2020 was 28.6%, compared to 26.0% in the three months ended September 30, 2019. The increase in the gross profit resulted from the addition of the Simply Mac stores beginning September 25, 2019. The gross margin improvement over the prior year quarter also reflects the fact that the acquired Simply Mac stores generate a higher proportion of sales related to service, and service generates higher gross margins compared to hardware sales.

Operating Expenses

For the 13 weeks ended October 31, 2020, total operating expenses amounted to $6,473,000, an increase of $3,513,000, or 119%, from $2,960,000 in the three months ended September 30, 2019. The increase in operating expenses relates primarily to the acquisition of Simply Mac. Operating expenses at the store level consist primarily of payroll, rent and other occupancy charges. We also have a small staff of regional sales managers assigned to specific geographic market regions where our stores are located, as well as operations personnel responsible for purchasing, training, loss prevention, marketing, leasing and new store openings. Our office in Salt Lake City houses our finance, accounting, IT, eCommerce and administrative functions, and our Miami corporate office is also the site of our distribution center.

Other Income (Expense)

Interest expense for the 13 weeks ended October 31, 2020 amounted to $35,000, a decrease of $1,300,000, or 97%, compared to $1.335,000 in the three months ended September 30, 2019. The decrease is attributable to the restructuring and elimination of a substantial portion of the Company’s outstanding debt during October 2019 and March 2020. Other income of $175,000 in the 13 weeks ended October 31, 2020 represents a discounted settlement with an inventory vendor of an outstanding payable balance generated in the prior year. In the three months ended September 30, 2019, we recorded a $277,000 gain from the decrease in value of financial derivatives that arose in connection with the issuance of convertible debt and warrants in September 2019.

Provision for Income Taxes

The provision for income taxes of $10,000 recorded for the 13 weeks ended October 31, 2020 consists primarily of minimum taxes assessed in states where the Simply Mac stores are located.

39 weeks ended October 31, 2020 compared to the nine months ended September 30, 2019

Net Sales

For the 39 weeks ended October 31, 2020, our net sales amounted to $48,516,000, an increase of $39,918,000, or 464%, from $8,598,000 in the nine months ended September 30, 2019. The significant increase in sales between the periods is the result of the acquisition of Simply Mac on September 25, 2019. Prior to the acquisition, our continuing operations were comprised of only our 3 OneClick retail stores in Florida and our Cooltech Distribution business.

At the outset of the 39 weeks ended October 31, 2020, all of our retail stores were open. However, in mid-March, the COVID‑19 pandemic resulted in the closure of 12 locations. In addition, at the remaining locations which stayed open, we cut back store hours from 7 days per week and up to 11 hours per day, to 5 days per week and only 8 hours per day so we could run the stores on a single shift. In many locations, our business was deemed to be “essential” as we provide products and repair services for adults working remotely and students attending school virtually. We were able to begin reopening stores and expanding hours beginning May 4, 2020 through June 22, 2020. By August 1, 2020, only 1 store remained closed, which was reopened soon thereafter. During the entire 13 weeks ended October 31, 2020, our retail stores continued to be adversely affected by COVID-19. Hours of operation at all stores were curtailed by remaining closed on Sundays and most stores operated on shortened hours during the other days of the week. In addition, we believe COVID-19 adversely impacted our supply chain, resulting in severe shortages of Apple products that depressed sales both in our retail stores and on our eCommerce website.

We had completely phased down our Cooltech Distribution unit by August 1, 2020. Sales at this unit for the 39 weeks ended October 31, 2020 amounted to $138,000, a decrease of $1,770,000, or 93%, from $1,908,000 in the nine months ended September 30, 2019. We phased down this distribution business because it generated very thin gross margins, and we wanted to focus solely on our retail business.

Gross Profit and Gross Margin

For the 39 weeks ended October 31, 2020, our gross profit amounted to $13,869,000, an increase of $12,152,000, or 708%, from $1,717,000 in the nine months ended September 30, 2019. Our gross profit margin for the 39 weeks ended October 31, 2020 was 28.6%, significantly higher than 20.0% in the nine months ended September 30, 2019. The increased gross profit resulted from the addition of the Simply Mac stores. The improvement in our gross margin percentage also reflects the addition of the acquired Simply Mac stores, that generate a higher proportion of sales related to service, and service generates higher gross margins compared to hardware sales.

Operating Expenses

For the 39 weeks ended October 31, 2020, total operating expenses amounted to $20,050,000, an increase of $9,592,000, or 92%, from $10,458,000 in the nine months ended September 30, 2019. The increase in operating expenses relates primarily to the acquisition of Simply Mac. However, stock-based compensation during the 39 weeks ended October 31, 2020 was $673,000, substantially lower than $1,774,000 in the nine months ended September 30, 2019. In addition, operating expenses in the nine months ended September 30, 2019 included $832,000 of severance and other expenses related to the termination of three of the Company’s executive officers.

Other Income (Expense)

Interest expense for the 39 weeks ended October 31, 2020 amounted to $995,000, a decrease of $1,970,000, or 66%, compared to $2,965,000 in the nine months ended September 30, 2019. The decrease is attributable to the restructuring and elimination of a substantial portion of the Company’s outstanding debt during October 2019 and March 2020. In the 39 weeks ended October 31, 2020, we also recorded a $543,000 gain from the decrease in value of financial derivatives that arose in connection with the issuance of convertible debt and warrants, compared to a similar gain of $277,000 in the nine months ended September 30, 2019. In the 39 weeks ended October 31, 2020, we recorded a $13,642,000 gain on extinguishment of debt that resulted from the debt restructuring in March 2020, and other income of $117,000 consisting primarily of a $175,000 gain from a discounted settlement with an inventory vendor of an outstanding payable balance generated in the prior year, partially offset by a $51,000 impairment of right-of-use leased assets.

Provision for Income Taxes

The provision for income taxes of $27,000 recorded for the 39 weeks ended October 31, 2020 consists primarily of minimum taxes assessed in states where the Simply Mac stores are located. The majority of the gain on extinguishment of debt was sheltered by the fact that the gain is not taxable to the extent of the Company’s insolvency at the time of the extinguishment. The remaining unsheltered balance was offset by our current operating losses and tax loss carryforwards.

Liquidity and Capital Resources

Our progress to date in calendar 2020 has been extremely significant in both shedding our international operations that had burdened us with financial and operational risks and restructuring our balance sheet. We sold both our Argentinian and Dominican Republic subsidiaries and, excluding the $3.1 million PPP loan we secured in April 2020, we reduced our outstanding debt from $16.4 million at December 31, 2019 to $1.75 million at October 31, 2020. Furthermore, at February 1, 2020 we had negative stockholders’ equity of $11.3 million, and after our debt restructuring, our stockholders’ deficit has been reduced to $673,000 as of October 31, 2020. We expect stockholders’ equity to benefit in the near future from the complete forgiveness of our $3.1 million PPP loan.

With this restructuring completed, we are now focused on our Simply Mac operations in the United States. We are working to improve efficiencies and increase profitability towards our goal of achieving bottom line profitability on a consolidated basis. We also believe that we can organically expand our store base with minimal capital expenditures. However, we will require additional working capital to do so. We do not currently have a bank line of credit, and are reliant on our primary distribution partners to provide us with open credit lines. During October 2020, in exchange for entering into a security agreement with our primary inventory supplier of Apple products that are sold in the Company’s Simply Mac retail electronics stores and on the Simply Mac eCommerce site, we were able to increase our line of credit with the supplier from $3 million to $6.6 million. We expect this line will provide us with sufficient credit to purchase the inventory needed for the seasonal fourth fiscal quarter. Our ability to execute our strategy depends upon our future operating performance and on the availability of vendor credit, equity and debt financing, which may be affected by prevailing economic conditions in our industry and financial, business and other factors, some of which are beyond our control. We cannot predict whether additional liquidity will be available on acceptable terms, or at all, in the foreseeable future.

Operating Activities

Net cash used by continuing operating activities during the 39 weeks ended October 31, 2020 amounted to $1,929,000 compared to $4,441,000 for the nine months ended September 30, 2019. The $2.5 million decrease in cash used was due primarily to a $2.9 million reduction of operating losses during the current period compared to the prior year period, partially offset by a reduction in working capital during the current period that was $0.4 million less than the prior year period.

Investing Activities

During the 39 weeks ended October 31, 2020, purchases of property and equipment amounted to $514,000, that related primarily to tenant improvements, fixtures and equipment needed to outfit newly opened stores during the period. During the nine months ended September 30, 2019, investing activities reflect our $4.7 million purchase of Simply Mac on September 25, 2019.

Financing Activities

During the 39 weeks ended October 31, 2020, net cash provided by financing activities amounted to $2.8 million. We used $325,000 in cash to pay down promissory notes, and received proceeds of $3.1 million from our PPP loan. During the nine months ended September 30, 2019, net cash provided by financing activities amounted to $8.2 million. We received $3.3 million from a convertible debt offering in May 2019, and $4.6 million from multiple debt offerings in July, August and September in order to raise funds needed for the Simply Mac acquisition. We also received $1.1 million from the sale of stock upon warrant exercises, and used $811,000 to pay down a promissory note.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates affecting the application of those accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures

Disclosure Controls

An evaluation was performed pursuant to Rule 13a-15(b) of Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. These disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our principal executive and principal

financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our 39-week period ended October 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the risk factors included below and other information set forth in this report, you should carefully consider the factors discussed in “Part I. Item 1A. Risk Factors” in, as well as other sections of, our 2019 Annual Report, which factors and information could materially affect our business, financial condition or operating results. The risk factors and uncertainties described in our 2019 Annual Report on Form 10-K, and in this report are not the only risks and uncertainties facing our business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition or operating results. Except as set forth below, we do not believe there have been material changes to the risk factors included in our 2019 Annual Report.

Risks Related To Our Business

We sustained significant losses in the last two years. If we are unable to achieve sustained profitability, our business may not be financially viable.

For the years ended December 31, 2019 and 2018, we reported net losses of $21.0 million and $27.3 million, respectively. While we restructured most of our debt in March 2020, reported $6.9 million in net income in the 39 weeks ended October 31, 2020, and have plans designed to attain and maintain profitability, if we do not succeed, our business might continue to experience losses and may not be sustainable in the future. Consequently, as discussed in Note 2 to our consolidated financial statements, we have substantial doubt that we could remain independent and continue as a going concern if we are not able to raise additional capital and achieve positive cash flows from operations.

The coronavirus outbreak has had, and may continue to have, a material adverse impact on our business, liquidity, financial condition and results of operations.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic which spread throughout North America and worldwide. The health and safety of our customers and employees remain our top priority as we continue to make decisions during this rapidly evolving situation. We have taken decisive actions across our businesses to help protect employees, customers and others in the communities we serve. Beginning March 18, 2020, we were forced to close 12 of our Simply Mac stores, primarily due to forced closures by mall operators where our stores were located. Although our remaining stores were allowed to stay open under local or state definitions of “essential businesses” providing products and repair services enabling remote workforces and student education, sales at those stores were significantly curtailed. We imposed store directives including cleanliness and mask requirements, as well as maximum customer limitations to facilitate social distancing. Store and eCommerce sales were also negatively impacted by continuing shortages in the supply chain of Apple products from our primary distributor. As a consequence of all these conditions, we took immediate action to reduce our store operations from 7 days per week to 5 days and from 11 hours per day to 8 hours. In concert with this action, we were forced to reduce our store workforce by approximately 50%. The COVID-19 outbreak and resulting store closures and limited operations has had a material adverse impact on our business, liquidity, financial condition, and results of operations.

While we cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact, based on the easing of governmental mandates beginning in early May 2020 and in concert with our efforts to maintain the health and safety of our customers and employees, all our stores have re-opened and we have rehired a significant number of our employees. However, traffic in our stores remains depressed and supply chain shortages continue to constrain sales. On April 16, 2020, we secured a $3.1 million, 2-year loan from a regional bank pursuant to the U.S. Small Business Administration Paycheck Protection Program under Title I of the CARES Act passed by Congress and signed into law on March 27, 2020. It is unclear whether this funding will be adequate to support our operations or if we will need to seek additional funding in the future. As such, the ultimate impact of COVID‑19 to our businesses remains highly uncertain and we continue to assess its financial impact.

Our business is highly dependent on a single supplier and a loss of that supplier or a deterioration of our relationship with them could significantly reduce our sales and profitability and jeopardize our business model.

Our business is highly dependent upon Apple as a supplier of Apple products and Apple-approved products that are sold in our Simply Mac stores. In addition, the growth of our business is highly dependent upon our relationship with Apple in providing us with the licenses and approvals necessary to open new stores in the future. Apple has very strict performance standards and guidelines that

we must achieve and adhere to in order to be successful and continue to receive their support. Consequently, any deterioration of our performance or failure to adhere to their guidelines could jeopardize our strategy and adversely affect our financial performance.

We depend on the timely delivery of new and innovative products from our vendors.

We depend on manufacturers, primarily Apple, to deliver our products in quantities sufficient to meet customer demand. In addition, we depend on these manufacturers to introduce new and innovative products to drive industry sales. Any material delay in the introduction or delivery, or limited allocations, of our products could result in reduced sales.

If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.

The manufacturers of our products have typically provided retailers with significant marketing and merchandising support for their products. As part of this support, we receive cooperative advertising and market development payments from our vendors, which enables us to actively promote and merchandise the products we sell and drive sales at our stores and on our websites. We cannot assure you that vendors will continue to provide this support at historical levels. If they fail to do so, our business and results of operations may be negatively impacted.

We have made and may make investments and acquisitions which could negatively impact our business if we fail to successfully complete and integrate them, or if they fail to perform in accordance with our expectations.

To enhance our efforts to grow and compete, we have made and may continue to make investments and acquisitions. Our plans to pursue future transactions are subject to our ability to identify potential candidates and negotiate favorable terms for these transactions. Accordingly, we cannot assure you that future investments or acquisitions will be completed. In addition, to facilitate future transactions, we may take actions that could dilute the equity interests of our stockholders, increase our debt, or cause us to assume contingent liabilities, all of which may have a detrimental effect on the price of our common stock. Also, companies that we have acquired, and that we may acquire in the future, could have products that are in development, and there is no assurance that these products will be successfully developed. Finally, if any acquisitions are not successfully integrated with our business, or fail to perform in accordance with our expectations, our ongoing operations could be adversely affected.

Failure to effectively manage our new store openings could lower our sales and profitability.

Our sales and profitability depend in part upon opening new stores and operating them profitably. Our ability to open new stores and operate them profitably depends on a number of factors, some of which may be beyond our control. These factors include the ability to:

•

identify new store locations, negotiate suitable leases, and build out the stores in a timely and cost-efficient manner;

•

integrate new stores into our existing operations; and

•

increase sales at new store locations.

If we fail to manage new store openings in a timely and cost-efficient manner, our growth or profits may decrease.

If we are unable to renew or enter into new leases on favorable terms, our revenue may be adversely affected.

All of our retail stores are located on leased premises. If the cost of leasing existing stores increases, we cannot assure that we will be able to maintain our existing store locations as leases expire. In addition, we may not be able to enter into new leases on favorable terms or at all, or we may not be able to locate suitable alternative sites or additional sites for new store expansion in a timely manner. Our revenues and earnings may decline if we fail to maintain existing store locations, enter into new leases, locate alternative sites, or find additional sites for new store expansion

If we are unable to safeguard against security breaches with respect to our information technology systems, our business and our reputation may be adversely affected.

During the course of business, we receive, process, transmit and store confidential customer, employee, vendor and Company information through our information technology systems and those of our third-party payment processors. The protection of this information is critical, and the regulatory environment surrounding information security and privacy is demanding, with the frequent imposition of new and changing requirements. Although we have implemented systems and procedures (including credit card encryption between terminals and payment processors, Advance Malware Protection built into firewalls, POS stations on separate VLANS, and encrypted could hosted storage) that are designed to protect customer, employee, vendor and Company information,

prevent data loss and other security breaches, and otherwise identify, assess, and analyze cybersecurity risks, these measures may not be effective. Cyber-security risks such as malicious software and attempts to gain unauthorized access to data are rapidly evolving and becoming increasingly more sophisticated. Techniques or software used to gain unauthorized access, and/or disable, degrade or harm our systems may be difficult to detect for prolonged periods of time, and we may be unable to anticipate these techniques or put in place protective or preventive measures. These attempts to gain unauthorized access could lead to disruptions in our systems, unauthorized release of confidential or otherwise protected information or corruption of data. If individuals are successful in infiltrating, breaking into, disrupting, damaging or otherwise stealing from the computer systems of the Company or its third-party providers, we may have to make a significant investment to fix or replace them, and may suffer interruptions in our operations in the interim, including interruptions in our ability to accept payment from customers. While, to the best of our knowledge, we have not experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a security breach or cyber-attack that could materially increase financial risk to the Company or our customers, such a security breach or cyber-attack could adversely affect our business and operations, including by damaging our reputation and our relationships with our customers, employees, suppliers and investors, exposing us to litigation, fines and penalties.

As a seller of certain consumer products, we are subject to various federal, state, local, and international laws and regulations relating to product safety and consumer protection.

While we take steps to comply with these laws, there can be no assurance that we will be in compliance, and failure to comply with these laws could result in litigation, regulatory action, and penalties which could have a negative impact on our business, financial condition, and results of operations. In addition, our suppliers might not adhere to product safety requirements and the Company and those suppliers may therefore be subject to involuntary or voluntary product recalls or product liability lawsuits. Direct costs, lost sales, and reputational damage associated with product recalls, government enforcement actions, or product liability lawsuits, individually or in the aggregate, could have a negative impact on future revenues and results of operations.

Risks Related To Our Common Stock

We may issue additional stock to raise capital to fund our expansion plans and/or restructure outstanding debt that would dilute substantially the voting power of our current stockholders.

In order to raise capital to meet our ongoing working capital needs or fund expansion of our Simply Mac stores and/or restructure outstanding debt, we may issue additional shares of the Company’s stock that would substantially dilute the voting power of our current stockholders. We may also refinance or issue new debt that is convertible into Company stock and may include the issuance of warrants.

The market for our common stock is volatile and our stock price could decline.

The price of our stock, as well as the stock market in general, has been highly volatile. The market price of our common stock over the first three quarters of Fiscal 2021 has fluctuated between $1.99 and $0.25. We expect that our stock price is likely to remain volatile. Investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects, resulting in a substantial (potentially total) loss on their investment. In addition, an active trading market for our common stock may not be sustained, which could affect the ability of our stockholders to sell their shares and could depress the market price of their shares.

Our common stock was delisted from The Nasdaq Capital Market, which could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity and could limit our ability to raise additional capital.

Effective at the open of business on November 8, 2019, our common stock was suspended and effectively delisted from The Nasdaq Capital Market and began trading on the Over-the-Counter OTCQB Venture Market (the “OTCQB”). The delisting was the result of our non-compliance with Nasdaq Listing Rule 5550(b). Our delisting from The Nasdaq Capital Market could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without The Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock will likely be made more difficult and the trading volume and liquidity of our stock could decline. Our delisting from The Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely impact the acceptance of our common stock as currency or the value accorded by other parties. Further, following our delisting, we will also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.

If we fail to meet the eligibility requirements of OTCQB, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities in the secondary market.

The companies whose securities are quoted on the OTCQB must maintain certain eligibility criteria, including having a minimum bid price for of $0.01 to continue to be quoted on the OTCQB. There is no guarantee that we will continue to meet OTCQB criteria to continue to have our common stock be quoted thereon. As a result, failure to be quoted on the OTCQB would cause the Company’s common stock to be quoted on the OTC Pink Open Market, which may severely adversely affect the market liquidity for our shares by limiting the ability of broker-dealers to sell such shares, and the ability of stockholders to sell their shares in the secondary market. In addition, if we are no longer quoted on the OTCQB, there can be no assurance that will meet the eligibility criteria and requalify for quotation on the OTCQB.

If we fail to file periodic reports with the United States Securities and Exchange Commission, our common stock will not be able to be quoted on the OTCQB

Although our common stock is quoted on the OTCQB, a regular trading market for our common stock may not be sustained in the future. OTC Markets limits quotation on the OTCQB to securities of issuers that are current in their reports filed with the SEC. If we fail to remain current in the filing of our reports with the SEC, our common stock will not be able to be quoted on the OTCQB.

Broker-dealers may be discouraged from effecting transactions in our common stock because it is considered a penny stock and is subject to the penny stock rules.

Our common stock currently constitutes “penny stock.” Subject to certain exceptions, for the purposes relevant to us, “penny stock” includes any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” In particular, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor”, must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares of common stock, which could severely limit the market liquidity of our common stock and impede the sale of our common stock in the secondary market.

As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

Although the federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, so long as our common stock constitutes a “penny stock”, we will not have the benefit of this particular safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.

Item 6. Exhibits


Exhibit Number		Description of Exhibit
3.1		Articles of Incorporation (1)
3.2		Amended and Restated Bylaws as of July 25, 2017 (2)
3.3		Amendment to Articles of Incorporation dated as of October 10, 2017 (3)
3.4		Amendment to Articles of Incorporation dated as of March 9, 2018 (4)
3.5		Amendment to Articles of Incorporation dated as of June 7, 2018 (5)
3.6		Amendment to Articles of Incorporation dated as of October 14, 2020 (12)
4.1		Form of Conversion Agreement to 0% Senior Convertible Note (8)
4.2		Form of Conversion Agreement to 12% Unsecured Convertible Note (8)
4.3		Form of Settlement Agreement and Release of Claims (8)
10.1		Form of Purchase Agreement for the Disposition of OneClick Argentino S.R.L. dated January 31, 2020 (6)
10.2		Termination and Release Agreement between Cool Holdings, Inc., Simply Mac, Inc. and GameStop Corp. dated March 11, 2020 (7)
10.3		Amended and Restated Promissory Note and Reimbursement and Indemnification Agreement between Cool Holdings, Inc. and GameStop Corp. dated March 11, 2020 (7)
10.4		Purchase Agreement for the Disposition of Verablue Caribbean Group SRL dated April 6, 2020 (9)
10.5		U.S. Small Business Administration Promissory Note pursuant to the Paycheck Protection Program between City National Bank of Florida and Cool Holdings, Inc. dated April 6, 2020 (10)
10.6		Employment Agreement effective June 8, 2020 between Cool Holdings, Inc. and Reinier Voigt (11)(*)
10.7		Security Agreement between Simply, Inc. and Ingram Micro Inc. (13)
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. (+)
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. (+)
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (+)
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

______________

(1)	Incorporated by reference to the Company’s Registration Statement on Form S-1, filed on January 30, 2004.

(2)	Incorporated by reference to the Company’s Current Report on Form 8-K/A, filed on December 13, 2019.

(3)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 11, 2017.

(4)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on March 12, 2018.

(5)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on June 14, 2018.

(6)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on February 6, 2020.

(7)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on March 17, 2020.

(8)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on April 1, 2020.

(9)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on April 9, 2020.

(10)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on April 22, 2020.

(11)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on June 9, 2020.

(12)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 15, 2020.

(13)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed on October 27, 2020.

(*)	Indicates a management contract or compensatory plan or arrangement.

(+)	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Simply, Inc.

Date: December 14, 2020	By:	/s/ Reinier Voigt
		Reinier Voigt
		Chief Executive Officer

Date: December 14, 2020	By:	/s/ Vernon A. LoForti
		Vernon A. LoForti
		Chief Financial Officer