EDGAR 10-K Filing

Company CIK: 1708410
Filing Year: 2022
Filename: 1708410_10-K_2022_0001493152-22-026844.json

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ITEM 1. BUSINESS
Item 1. Business
Unless the context otherwise requires, “we,” “us,” or “the Company” refers to Simplicity Esports and Gaming Company and its consolidated subsidiaries. “Simplicity Esports LLC” means our wholly owned subsidiary, Simplicity Esports, LLC, a Florida limited liability company, and its consolidated subsidiaries. “Simplicity One” means our 76% owned subsidiary, Simplicity One Brasil Ltda, a Brazilian limited liability company, and its consolidated subsidiaries. “Smaaash Private” means Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries. Unless otherwise noted, the share and per share information herein reflects a reverse stock split of the outstanding common stock of the Company at a 1-for-8 ratio, which was effected on November 20, 2020.
Industry Overview
Esports is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter, and multiplayer online battle arena games. Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions on the Sony PlayStation®, Microsoft Xbox® and WII Nintendo® systems.
Although official competitions have long been a part of video game culture, participation and spectatorship of such events have seen a global surge in popularity over the last few years with the rapid growth of online streaming. The advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums, and by online viewers, which regularly exceed 1,000,000 viewers for major tournaments. According to the Sports Business Journal, the 2022 League of Legends® World Championships had peak concurrent viewership of more than 73 million online. Much like how there is a worldwide gaming market for the sports industry, there has now developed a worldwide gaming market for the esports industry. The impact has been so significant that many video game developers are now building features into their games designed to facilitate competition.
Business Overview
We are a global esports organization, that is capitalizing on the growth in esports through two business units: Simplicity Esports, LLC (“Simplicity Esports LLC”) and PLAYlive Nation, Inc. (“PLAYlive”). During the fiscal year ended May 31, 2022, we also had a third business unit: Simplicity One Brasil Ltda (“Simplicity One”). During the first quarter of the fiscal year ending May 31, 2023, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments.
Our Esports Teams
We own and manage multiple professional esports teams. Revenue is generated from prize winnings, corporate sponsorships, advertising, league subsidy payments and potential league revenue sharing payments from the publishers of video games.
Through our wholly owned subsidiary, Simplicity Esports LLC, we own and manage multiple professional esports teams competing in games such as Heroes of the Storm. We are committed to growing and enhancing the esports industry, fostering the development of amateurs to compete professionally and signing established professional gamers to support their paths to greater success.
In addition, from January 2020 to July 2022, we managed Flamengo eSports, one of the leading Brazilian League of Legends® teams competing in the top tier league CBLoL, through our 76% owned subsidiary, Simplicity One. In July 2022, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments.
Online Tournaments
In response to demand from customers for online esports tournaments which was likely triggered by the social distancing protocols attendant to the COVID-19 pandemic, we introduced in March 2020 an initiative of online esports tournaments. Since March 2020, through our wholly owned subsidiary, Simplicity Esports LLC, we had been holding online esports tournaments in the United States. As of August 2022, we have temporarily ceased organizing online tournaments while focusing on expense reduction and operational efficiency.
Our Gaming Centers
As of May 31, 2022, we had 29 operational locations (17 corporate locations and 12 franchise locations), through our subsidiaries throughout the U.S., giving casual gamers the opportunity to play in a social setting with other members of the gaming community. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months.
In addition, aspiring and established professional gamers have an opportunity to compete in local and national esports tournaments held in our gaming centers for prizes, notoriety, and potential contracts to play for one of our professional esports teams. In this business unit, revenue is generated from franchise royalties, the sale of game time, memberships, tournament entry fees, birthday party events, corporate party events, concessions and gaming-related merchandise.
Our business plan encompasses a brick-and-click physical and digital approach to further recognize revenue from all verticals, which we believe to be unique in the industry. The physical centers, together with our esports teams, lifestyle brand and marketing campaigns offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360-degree approach driving traffic to both our digital platform, tournaments (online and in-person), and physical real estate to maximize the monetization opportunities with these relationships. In addition, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
Optimally, the esports gaming centers of Simplicity Esports LLC (“Simplicity Esports Gaming Centers”) measure between 2,000 and 4,000 square feet, with dozens of gaming stations. The Simplicity Esports Gaming Centers feature cutting edge technology, futuristic aesthetic décor and dynamic high-speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing monetization opportunity for sponsors and advertisers. As of September 26, 2022, our corporate owned stores operate in approximately 40,000 square feet of retail space in desirable, high traffic locations.
Creating content that engages fans, sponsors and developers, while promoting our brand is one of our primary goals. In August 2021, we announced a partnership with Television Korea 24 (“ESTV”) to provide esports and gaming content for their 24-7 live linear channel around the world. ESTV can be viewed in over 45 countries, including the U.S. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We believe we possess a deep perception of our markets and understand the new age of branding while maintaining authenticity to the gaming community that comprises our fanbase.
As a result of COVID-19 (discussed below), all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. See “Risk Factors-Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.”
Corporate Gaming Centers
As of May 31, 2022, we operated 17 corporate-owned retail Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months.
Franchised Gaming Centers
Due to interest from potential franchisees, in 2019 we launched a franchising program to accelerate the expansion of our planned nationwide footprint. We sell specific franchise territories, through our wholly owned subsidiary PLAYlive, and assist with the establishment and buildout of esports gaming centers to potential business owners that desire to use our branding, infrastructure and process to open and operate gaming centers. We currently operate 12 fully constructed franchise esports gaming centers. Franchise revenue is generated from the sale of franchise territories, supplying furniture, equipment and merchandise to the franchisees for buildout of their centers, a gross sales royalty fee and a national marketing fee. We license the use of our branding, assist in identifying and negotiating commercial locations, assist in overseeing the buildout and development, provide access to proprietary software for point of sale, inventory management, employee training and other HR functions. Franchisees also have an opportunity to participate in our national esports tournament events. Once an esports gaming center is opened, we provide operational guidance, support and use of branding elements in exchange for a monthly royalty fee calculated as 6% of gross sales. Prior to selling a franchise, among other things, the Company is required to provide a potential franchisee with a franchise disclosure document. We do not currently have an active franchise disclosure document for 2022.
The combination of the esports gaming centers, owned or franchised by our wholly owned subsidiaries Simplicity Esports LLC or PLAYlive, provides us with what we believe is one of the largest esports gaming center footprints in North America.
Franchise Roll Up Strategy
We began implementing a franchise roll-up strategy in July 2020 because of the disruption caused by COVID-19 related stay-at-home orders, and the disruption it caused to the commercial real estate market. The reduction in revenues for some franchisees because of stay-at-home orders, and government mandates to remain closed created significant accrued rent payments due to landlords. We have been able to come to terms with many franchisees to acquire the assets of their gaming centers and make them corporate owned. We have simultaneously negotiated new leases with some of the largest national mall chains, including Simon Property Group and Brookfield Asset Management, and are in the process of negotiating additional locations with other landlords. The new leases involve significant reductions in or elimination of fixed rent and the addition of percentage of revenues rent terms.
Our Stream Team
The Simplicity Esports LLC stream team encompasses commentators (commonly known as “casters”), influencers and personalities who connect to a dedicated fan base. Our electric group of live personalities represent our organization to the fullest with their own unique style. We are proud to support and present a diverse group of gamers as we engage fans across a multitude of esports genres. Our Twitch affiliation has enabled our stream team to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis. Through Simplicity Esports LLC, we have begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry.
COVID-19
As a result of COVID-19, all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Gaming Centers, the majority of which are operating at restricted capacity based on local COVID-19 regulations. Subsequent to May 31, 2022, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Although our franchise agreements with franchisees of Simplicity Esports Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Esports Gaming Centers are operating, a limited number of the franchisees of Simplicity Esports Gaming Centers have defaulted on their obligations to pay their minimum monthly royalty payment to us. This has resulted in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. As of May 31, 2022, we have recorded an allowance for doubtful accounts of approximately $39,000 and have written off $4,000, partly in conjunction with taking back certain franchises and converting them to Company owned stores. Notwithstanding our efforts to support franchisees and still collect on receivables, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. We have waived the minimum monthly royalty payment obligations from July 2020 through present day and are instead billing the franchisees a true-up of 6% of gross sales without a minimum. We continue to assess possible similar accommodations to the franchisees in light of the impact of COVID-19. Additionally, the disruptions in commercial real estate caused by COVID-19 lockdowns have allowed the Company to strengthen its existing relationships with national landlords by signing new locations with percentage rent leases.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.
The measures taken to date adversely impacted the Company’s business during the year ended May 31, 2022 and will potentially continue to impact the Company’s business. Management observes that all business segments continue to be impacted by reduced foot traffic that began as a result of COVID-19 lockdowns and has continued as consumer habits have changed.
Corporate History
Formation
We were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital Acquisition Company. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Although we were not limited to a particular industry or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
Smaaash Entertainment Private Limited
Business Combination
On November 20, 2018, the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India (“Smaaash Private”), consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”), representing less than 1% of Smaaash Private at such time.
At the time of the Closing, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed to transfer all of their ownership interest in Smaaash Private (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our common stock (the “Transferred Company Shares”).
In furtherance of the foregoing, at the Closing, the Company issued an aggregate of 250,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares. Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. changed its stock symbols for its common stock, public rights and public warrants to “IAM,” “IAMXR,” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. After the Closing, the Company’s primary assets consisted of shares in Smaaash Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Business of Smaaash Private
At the time of closing of the Smaaash transaction, Smaaash Private operated 40 games and entertainment centers (“Smaaash Centers”), including 39 Smaaash Centers in India and one international Smaaash Center in the U.S., in addition to carrying out product sales of its games and equipment that Smaaash has developed in-house, supported by its sponsorship and other revenues.
Smaaash Private’s core concept was to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending Augmented Reality (“AR”) and Virtual Reality (“VR”) and other games, indoor entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash Private’s game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Master Franchise Agreement
Under the Master Franchise Agreement, Smaaash Private granted to the Company an exclusive right to establish and operate Smaaash Centers (as defined under the Master Franchise Agreement) and to sublicense the right to establish and operate Smaaash Centers to third party franchisees, and a license to use the products and other services developed by Smaaash Private with respect to the Smaaash Centers, in the United States (“Territory”). Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (as set out in the Master Franchise Agreement) for the purposes of establishing and operating the Smaaash Centers in the Territory. The Master Franchise Agreement was executed on an arms’ length basis between Smaaash Private and the Company.
Master License and Distribution Agreement
Under the Master Distribution Agreement, Smaaash Private granted to the Company an exclusive right to purchase from Smaaash Private specialized video game equipment and products related to sports and recreational activities (“Products”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Shift of Business Focus to Esports Gaming
Following the January 2019 acquisition of Simplicity Esports LLC described below, we determined to shift our primary business focus to esports gaming. Accordingly, we did not generate any revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities.
Polar and K2
On November 2, 2018, the Company entered into a stock purchase agreement with each of Polar Asset Management Partners Inc. (“Polar”) and K2 Principal Fund L.P. (“K2”), pursuant to which Polar and K2 agreed to sell up to 61,250 and 27,500 shares, respectively, of the Company’s common stock to the Company 30 days after the consummation of the transactions at a price of $89.84 contemplated by the share subscription agreement with Smaaash Private.
On December 20, 2018, the Company, Polar, K2 and the escrow agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the stock sales from $89.84 per share to (1) first $48.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $40.00 per remaining share up to 20% of the original number of Shares, (3) then $32.00 per remaining share up to 20% of the original number of Shares, (4) then $24.00 per remaining Share up to 20% of the original number of Shares, and (5) then $16.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the stock sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the escrow account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the stock sales.
The Amendment also included provisions regarding the reduction of the exercise price and amendment of redemption provisions of the Company’s public warrants and private placement warrants. On August 18, 2019, the Company held a special meeting of its public warrant holders to approve the foregoing. However, these proposals were not approved by the requisite votes.
Registration Rights
Pursuant to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private Units (and constituent securities) at the closing of the Initial Public Offering, the Company is required to register certain securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to three demands that the Company register certain of its securities held by them for sale under the Securities Act of 1933, as amended (the “Securities Act”) and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by the Company. The Company will bear the costs and expenses of filing any such registration statements.
Unit Purchase Option
The Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50 per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date (i.e. November 20, 2023). The Units issuable upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the warrants underlying the Units sold to the underwriters is $13.00 per share.
Acquisition of Simplicity Esports, LLC
In connection with the Company’s January 2019 acquisition of Simplicity Esports, LLC, the sellers received an aggregate of 37,500 shares of common stock at the closing on January 4, 2019, an additional aggregate of 87,500 shares of common stock on January 7, 2019 and the remaining 250,000 shares in March 2019.
In connection with the acquisition of Simplicity Esports, LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company.” In addition, the Company changed the ticker symbols of its common stock and public warrants to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019.
During the year ended May 31, 2021, the Company applied for and received two loans payable under the Payroll Protection Plan (“PPP”). The first loan was for $83,000 and the second loan was for $41,000. During the fiscal year ended May 31, 2022, the Company applied for and was granted loan forgiveness for the first of the PPP loans. As of May 31, 2022, the Company has one outstanding PPP loan in the amount of $41,000. The Company has applied for permanent relief for the second loan payable under the PPP federal guidelines.
Debt Obligations
The table below presents the Company’s outstanding debt balances as of the fiscal years ended May 31, 2022, and May 31, 2021:
Convertible
Promissory
Notes Secured
Promissory
Notes Related
Party Debt Short Term
Note Payable
Principal Balance as of May 31, $ 3,260,000 $ - $ - $ 82,235
Carrying Value as of May 31, 2021 2,211,097 - - 82,235
Principal
Borrowings 4,273,889 420,000 247,818 -
Repayments (1,984,409 ) (213,228 ) - (40,500 )
Conversions (188,133 ) - - -
Totals 5,361,347 206,772 247,818 41,735
Unamortized Debt Issuance Costs, Beneficial Conversion Feature, and Warrant Discount
Beginning Balance (1,048,903 ) - - -
Additions (4,100,371 ) (155,246 ) - -
Accretion 2,881,322 18,110 - -
Ending Balance $ (2,267,952 ) $
(137,136 ) $
- $ -
Principal Balance as of May 31, 2022 $ 5,361,347 $ 206,772 $ 247,818 $ 41,735
Carrying Value as of May 31, 2022 3,093,395 69,636 247,818 41,735
Net of Short-Term Portion 1,548,351 - 247,818 41,735
Long Term Portion $ 1,545,044 $ 69,636 $ - $ -
Scheduled principal maturities of the Company’s outstanding debt over the next five fiscal years is as follows:
Fiscal year ending May 31,
$ 2,113,439
3,618,061
46,735
51,629
27,808
Thereafter -
$ 5,857,672
Convertible Promissory Notes
Series A-2 Exchange Convertible Note
On or about December 20, 2018, the Company issued a Series A-2 exchange convertible note in the original principal amount of $1,000,000 (the “Series A-2 Note”) to Maxim Group LLC (“Maxim”). The Series A-2 Note accrued interest at a rate of 2.67% per annum, matured on June 20, 2020, and had an initial conversion price of $15.44 per share, subject to certain adjustments.
On June 4, 2020, $100,000 in principal was converted into 10,738 shares of common stock.
On June 18, 2020, the Company and Maxim entered into the first amendment to the Series A-2 Note (the “First Amendment”), pursuant to which the parties agreed to the following: (i) Maxim’s resale of the Company’s common stock underlying the Series A-2 Note shall be limited to 10% of the daily volume of the common stock on each respective trading day, (ii) the maturity date of the Series A-2 Note was extended to December 31, 2020, (iii) the principal amount of the Series A-2 Note was increased by $100,000 and (iv) the conversion price was reduced from $15.44 per share to $9.20 per share.
On December 31, 2020, the Company and Maxim entered into a second amendment to the Series A-2 Note to extend the maturity date of Series A-2 Note to February 15, 2021.
On April 14, 2021, the Company and Maxim entered into the third amendment to the Series A-2 Note with Maxim pursuant to which the parties agreed to the following:
(i) The maturity date of the Series A-2 Note is extended to October 15, 2021.
(ii) The principal balance of the Series A-2 Note is increased by $50,000 as of April 14, 2021.
(iii) The Series A-2 Note was not repaid in its entirety (in cash and/or shares of the Company’s common stock pursuant to conversion(s) of the Series A-2 Note) on or before April 30, 2021, and accordingly, the principal balance of the Series A-2 Note increased by an additional $50,000.
(iv) The Series A-2 Note was not repaid in its entirety (in cash and/or shares of the Company’s common stock pursuant to conversion(s) of the Series A-2 Note) on or before May 15, 2021, and accordingly, the principal balance of the Series A-2 Note increased by an additional $50,000.
(v) If the Series A-2 Note is not repaid in its entirety (in cash and/or shares of the Company’s common stock pursuant to conversion(s) of the Series A-2 Note) on or before July 15, 2021, the principal balance of the Series A-2 Note will increase by an additional $100,000.
(vi) If the Series A-2 Note is not repaid in its entirety (in cash and/or shares of the Company’s common stock pursuant to conversion(s) of the Series A-2 Note) on or before September 15, 2021, the principal balance of the Series A-2 Note will increase by an additional $100,000, representing a total cumulative increase in the principal balance of $350,000 if the Series A-2 Note is not repaid in its entirety on or before September 15, 2021.
(vii) The Company will, within five business days after the Company’s receipt of the Second Tranche Purchase Price of $999,996, pay $500,000 to Maxim, which will reduce the principal owed under the Series A-2 Note by $500,000.
On August 4, 2021, the Company and Maxim entered into the fourth amendment (the “Fourth Amendment”) to the Series A-2 Note pursuant to which the parties agreed that all obligations under the Series A-2 Note, as amended, shall be extinguished, and the Series A-2 Note, as amended, shall be deemed repaid in its entirety, upon the satisfaction of the following obligations: (i) the Company’s payment of $500,000 to Maxim, (ii) the Company’s issuance of 20,000 restricted shares of the Company’s common stock to Maxim, and (iii) the Company’s issuance of a common stock purchase warrant to Maxim for the purchase of 365,000 shares of the Company’s common stock at an exercise price of $13.00 per share.
As of the effective date of the Fourth Amendment, the principal balance of the Series A-2 Note totaled $1,250,000 with associated accrued interest of $81,508. The fair market value of the common stock was $191,202, and the fair market value of the warrants, estimated utilizing the Black-Scholes option-pricing model, was $2,668,610. The combination of the fair market value of the common stock and warrants, as well as the cash consideration, resulted in a loss on extinguishment of debt in the amount of $2,028,304.
During the fiscal year ended May 31, 2022, the Company recognized interest expense in the amount of $5,614 related to the Series A-2 Note. The Series A-2 Note was repaid during the fiscal year ended May 31, 2022. Accordingly, no amount of principal or interest was due as of May 31, 2022.
February 19, 2021 Labrys 12% Convertible Promissory Note
On February 19, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund LP (“Labrys”), an accredited investor, pursuant to which the Company issued a 12% convertible promissory note (the “Labrys Note”) with a maturity date of February 19, 2022 (the “Labrys Maturity Date”), in the principal sum of $1,650,000. In addition, the Company issued 10,000 shares of its common stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys Note, the Company agreed to pay to $1,650,000 (the “Labrys Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 12% per annum (provided that the first twelve months of interest shall be guaranteed). The Labrys Note carries an original issue discount of $165,000 (“Labrys OID”). Accordingly, the Company received net proceeds of $1,485,000 that it used for its operational expenses and the repayment of certain existing debt obligations. Labrys may convert the Labrys Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Note) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
The Company may prepay the Labrys Note at any time prior to the date that an Event of Default (as defined in the Labrys Note) (each an “Labrys Event of Default”) occurs at an amount equal to 100% of the Labrys Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Labrys Note or Labrys SPA.
Upon Labrys’s provision of notice to the Company of the occurrence of any Labrys Event of Default, which has not been cured within five calendar days, the Labrys Note shall become immediately due and payable and the Company shall pay to Labrys, in full satisfaction of its obligations hereunder, an amount equal to the Labrys Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Labrys Event of Default, additional interest will accrue from the date of the Labrys Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law.
As of March 16, 2022, the Company and Labrys entered into an amendment (the “Labrys Amendment”) to the Labrys SPA and the Labrys Note, as amended. Pursuant to the terms of the Labrys Amendment, the maturity date of the Labrys Note was extended to the earlier of (i) September 15, 2022, and (ii) the date that the Company’s common stock is listed on the Nasdaq Stock Market or the New York Stock Exchange. In addition, the Labrys Note was amended to provide that Labrys has the right, at any time on or following the date that an event of default occurs under the Labrys Note, as amended, to convert all or any portion of the then outstanding and unpaid principal and interest into common stock, subject to a 4.99% equity blocker. In the Labrys Amendment, the parties also agreed that the Company has already received cash proceeds in excess of the $2,000,000 minimum threshold referenced in the Labrys Note. Pursuant to the terms of the Labrys Amendment, Labrys waived its rights to receive any portion of the next $750,000 of cash proceeds received by the Company to the extent that such amounts are received by the Company between March 15, 2022 and April 9, 2022.
Upon the issuance of the March 2022 FirstFire Note (as defined below), March 2022 GS Note (as defined below), and March 2022 Ionic Note (as defined below) described below, the conversion price of the Labrys Note was reduced from $11.50 per share to $1.00 per share.
During the fiscal years ended May 31, 2022 and 2021, the Company made principal repayments of $659,409 and $100,000, respectively. During the fiscal year ended May 31, 2022, the Company recognized $904,803 in total interest expense associated with the Labrys Note, comprised of $61,965 in cash interest payments and $842,838 in accretion expense related to the debt discount. As of May 31, 2022, the carrying value and face value of the Labrys Note was $890,591 as the debt discount was full accreted by that date.
March 2021 FirstFire Global 12% Convertible Promissory Note
On March 10, 2021, the Company, entered into a securities purchase agreement (the “March 2021 FirstFire SPA”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the “FirstFire”), pursuant to which the Company issued a 12% convertible promissory note (“March 2021 FirstFire Note”) with a maturity date of March 10, 2022, in the principal sum of $560,000. The Company received net proceeds of $130,606, net of an original issue discount of $56,000 (“March 2021 FirstFire OID”), net of origination fees of $8,394, and the repayment of principal and interest of $365,000 on an existing debt obligation owed to FirstFire. In addition, the Company issued 3,394 shares of its common stock to the FirstFire as a commitment fee pursuant to the March 2021 FirstFire SPA. Pursuant to the terms of the March 2021 FirstFire Note, the Company agreed to pay to $560,000 (the “March 2021 FirstFire Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum (provided that the first twelve months of interest shall be guaranteed). The FirstFire may convert the March 2021 FirstFire Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the March 2021 FirstFire Note) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the March 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share.
The Company may prepay the March 2021 FirstFire Note at any time prior to the date that an Event of Default (as defined in the March 2021 FirstFire Note) (each an “March 2021 FirstFire Event of Default”) occurs at an amount equal to 100% of the March 2021 FirstFire Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The March 2021 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the March 2021 FirstFire Note or March 2021 FirstFire SPA.
Upon FirstFire’s provision of notice to the Company of the occurrence of any March 2021 FirstFire Event of Default, which has not been cured within 5 calendar days, the March 2021 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the March 2021 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125% (the “March 2021 FirstFire Default Amount”). Upon the occurrence of a March 2021 FirstFire Event of Default, additional interest will accrue from the date of the March 2021 FirstFire Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law.
The Company was required to make an interim payment to FirstFire in the amount of $123,200, on or before September 10, 2021, towards the repayment of the balance of the March 2021 FirstFire Note. On September 17, 2021, the Company issued to FirstFire a three-year common stock warrant to purchase of 40,000 shares of the Company’s common stock at an exercise price of $10.73 per share as consideration for FirstFire entering into a first amendment to the March 2021 FirstFire Note in order to delay this interim payment. Upon the issuance of the warrants, the Company recorded the fair value of the warrants in the amount of $248,547 and took a related interest expense charge of $248,547.
On October 1, 2021, the Company issued to FirstFire a second three-year common stock warrant to purchase 40,000 shares of the Company’s common stock at an exercise price of $10.73 per share as consideration for FirstFire entering into a second amendment to the March 2021 FirstFire Note in order to remove the capital raising ceiling in such note. Upon the issuance of the warrants, the Company recorded the fair value of the warrants in the amount of $201,351 and took a related interest expense charge of $201,351.
On April 29, 2022, FirstFire converted $50,000 of the outstanding principal balance of the March 2021 FirstFire Note at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 50,000 shares of common stock to FirstFire at a fair market value of $2.20 per share and recognized a loss on debt extinguishment of $60,000.
During the fiscal year ended May 31, 2022, the Company recognized $206,065 of interest expense related to the amortization of debt discount related to the March 2021 FirstFire Note. As of May 31, 2022, the carrying value and face value of the March 2021 FirstFire Note was $510,000 as the debt discount was full accreted by that date.
June 2021 FirstFire Global 12% Convertible Promissory Note
On June 11, 2021, the Company entered into a securities purchase agreement (the “June 2021 FirstFire SPA”) with FirstFire, pursuant to which the Company issued (i) a 12% convertible promissory note (the “June 2021 FirstFire Note”) in the principal sum of $1,266,666 (the “June 2021 FirstFire Principal Sum”), (ii) 11,875 shares of its common stock as a commitment fee (“June 2021 FirstFire Commitment Shares”), and (iii) a three-year warrant (“June 2021 FirstFire Warrant”) to purchase 593,750 shares of the Company’s common stock at an exercise price of $10.73 per share, subject to certain adjustments.
The following are the material terms of the June 2021 FirstFire SPA and June 2021 FirstFire Note:
● The June 2021 FirstFire Note matures on June 10, 2023 (the “June 2021 FirstFire Maturity Date”).
● At its election, FirstFire may convert the June 2021 FirstFire Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the June 2021 FirstFire Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the June 2021 Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the June 2021 FirstFire Note after 180 days from June 10, 2021.
● The June 2021 FirstFire Note carries an original issue discount of $126,666 (“June 2021 FirstFire OID”).
● The Company may prepay the June 2021 FirstFire Note at any time prior to maturity in accordance with the terms of the June 2021 FirstFire Note.
● The June 2021 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the June 2021 FirstFire Note or the June 2021 FirstFire SPA. Upon the occurrence of any event of default (as defined in the June 2021 FirstFire Note) which has not been cured within three calendar days, the June 2021 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the June 2021 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the June 2021 FirstFire SPA, the June 2021 FirstFire Commitment Shares and the shares underlying the June 2021 FirstFire Note and June 2021 FirstFire Warrant carry standard registration rights.
Upon issuance of the June 2021 FirstFire Note, the Company received net proceeds of $1,140,000 and used such proceeds for working capital and to pay off an existing promissory note issued by the Company in favor of Maxim. Upon issuance of the June 2021 FirstFire Commitment Shares, the June 2021 FirstFire Note, and the June 2021 First Fire Warrant, the Company allocated the $1,140,000 in net proceeds received between the fair market value of the June 2021 FirstFire Commitment Shares, the beneficial conversion feature of the June 2021 FirstFire Note, and the June 2021 FirstFire Warrant. The fair value of the June 2021 FirstFire Commitment Shares was $22,949; the fair value of the beneficial conversion feature of the June 2021 FirstFire Note was $174,851; and the fair value of the June 2021 FirstFire Warrant was $942,200. The combination of these three components as well as the June 2021 FirstFire OID resulted in a total debt discount at issuance of $1,266,667 which is accreted over the term of the June 2021 FirstFire Note.
On September 16, 2021, the Company made an interim payment on the June 2021 FirstFire Note in the amount of $175,000.
Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the June 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $978,379, which included $705,879 related to the accretion of the debt discount and accrued interest in the amount of $272,500. As of May 31, 2022, the carrying value of the June 2021 FirstFire Note was $530,879, net of $560,788 in unaccreted debt discount.
June 2021 GS Capital Securities 12% Convertible Promissory Note
On June 16, 2021, the Company entered into a securities purchase agreement (the “June 2021 GS SPA”) with GS Capital Partners, LLC (“GS”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “June 2021 GS Note”) in the principal sum of $333,333 (the “June 2021 GS Principal Sum”), (ii) 3,125 shares of its common stock as a commitment fee (“June 2021 GS Commitment Shares”), and (iii) a three-year warrant (“June 2021 GS Warrant”) to purchase 156,250 shares of the Company’s common stock at an exercise price of $10.73 per share, subject to certain adjustments.
The following are the material terms of the June 2021 GS SPA and June 2021 GS Note:
● The June 2021 GS Note matures on June 10, 2023 (the “June 2021 GS Maturity Date”).
● At its election, GS may convert the June 2021 GS Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the June 2021 GS Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the June 2021 GS Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the June 2021 GS Note after 180 days from June 10, 2021.
● The June 2021 GS Note carries an original issue discount of $33,333 (“June 2021 GS OID”).
● The Company may prepay the June 2021 GS Note at any time prior to maturity in accordance with the terms of the June 2021 GS Note.
● The June 2021 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the June 2021 GS Note or the June 2021 GS SPA. Upon the occurrence of any event of default (as defined in the June 2021 GS Note) which has not been cured within three calendar days, the June 2021 GS Note shall become immediately due and payable and the Company shall pay to GS, in full satisfaction of its obligations hereunder, an amount equal to the June 2021 GS Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the June 2021 GS SPA, the June 2021 GS Commitment Shares and the shares underlying the June 2021 GS Note and June 2021 GS Warrant carry standard registration rights.
Upon issuance of the June 2021 GS Note, the Company received net proceeds of $300,000 and used such proceeds for working capital. Upon issuance of the June 2021 GS Commitment Shares, the June 2021 GS Note, and the June 2021 GS Warrant, the Company allocated the $300,000 in net proceeds received between the fair market value of the June 2021 GS Commitment Shares, the beneficial conversion feature of the June 2021 GS Note, and the June 2021 GS Warrant. The fair value of the June 2021 GS Commitment Shares was $5,963; the fair value of the beneficial conversion feature of the June 2021 GS Note was $53,899; and the fair value of the June 2021 GS Warrant was $240,138. The combination of these three components as well as the June 2021 GS OID resulted in a total debt discount at issuance of $333,333 which is accreted over the term of the June 2021 GS Note.
Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the June 2021 GS Note was reduced from $11.50 per share to $1.00 per share.
On April 18, 2022, GS converted $50,333 of the outstanding principal balance the June 2021 GS Note and $3,389 in associated accrued interest at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 53,720 shares of common stock to GS at a fair market value of $2.77 per share and recognized a loss on debt extinguishment of $95,085.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $267,957, which included $187,957 related to the accretion of the debt discount and accrued interest in the amount of $80,000. As of May 31, 2022, the carrying value of the June 2021 GS Note was $137,624, net of $145,376 in unaccreted debt discount.
August 2021 Jefferson Street Capital 12% Convertible Promissory Note
On August 23, 2021, the Company entered into a securities purchase agreement (the “August 2021 Jefferson SPA”) with Jefferson Street Capital, LLC (“Jefferson”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “August 2021 Jefferson Note”) in the principal sum of $333,333 (the “August 2021 Jefferson Principal Sum”), (ii) 3,125 shares of its common stock as a commitment fee (“August 2021 Jefferson Commitment Shares”), and (iii) a three-year warrant (“August 2021 Jefferson Warrant”) to purchase 156,250 shares of the Company’s common stock at an exercise price of $10.73 per share, subject to certain adjustments.
The following are the material terms of the August 2021 Jefferson SPA and August 2021 Jefferson Note:
● The August 2021 Jefferson Note matures on August 23, 2023 (the “August 2021 Jefferson Maturity Date”).
● At its election, Jefferson may convert the August 2021 Jefferson Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the August 2021 Jefferson Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the August 2021 Jefferson Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the August 2021 Jefferson Note after 180 days from August 23, 2021.
● The August 2021 Jefferson Note carries an original issue discount of $33,333 (“August 2021 Jefferson OID”).
● The Company may prepay the August 2021 Jefferson Note at any time prior to maturity in accordance with the terms of the August 2021 Jefferson Note.
● The August 2021 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Jefferson Note or the August 2021 Jefferson SPA. Upon the occurrence of any event of default (as defined in the August 2021 Jefferson Note) which has not been cured within three calendar days, the August 2021 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 Jefferson Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the August 2021 Jefferson SPA, the August 2021 Jefferson Commitment Shares underlying and the shares underlying the August 2021 Jefferson Note and August 2021 Jefferson Warrant carry standard registration rights.
Upon issuance of the August 2021 Jefferson Note, the Company received net proceeds of $300,000 and used such proceeds for working capital as well as the payment of $15,000 in fees associated with the loan. Upon issuance of the August 2021 Jefferson Commitment Shares, the August 2021 Jefferson Note, and the August 2021 Jefferson Warrant, the Company allocated the $300,000 in net proceeds received between the fair market value of the August 2021 Jefferson Commitment Shares, the beneficial conversion feature of the August 2021 Jefferson Note, and the August 2021 Jefferson Warrant. The fair value of the August 2021 Jefferson Commitment Shares was $4,945; the fair value of the beneficial conversion feature of the August 2021 Jefferson Note was $62,051; and the fair value of the August 2021 Jefferson Warrant was $233,004. The combination of these three components as well as the August 2021 Jefferson OID resulted in a total debt discount at issuance of $333,333 which is accreted over the term of the August 2021 Jefferson Note. The $15,000 paid as loan origination fees was recorded directly to additional paid in capital.
Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the August 2021 Jefferson Note was reduced from $11.50 per share to $1.00 per share.
During the year ended May 31, 2022, the Company recorded interest expense of $206,941, which included $126,941 related to the accretion of the debt discount and accrued interest in the amount of $80,000. As of May 31, 2022, the carrying value of the August 2021 Jefferson Note was $126,941, net of $206,392 in unaccreted debt discount.
August 2021 Lucas Ventures Capital 12% Convertible Note
On August 31, 2021, the Company entered into a securities purchase agreement (the “August 2021 Lucas SPA”) with Lucas Ventures, LLC (“Lucas”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “August 2021 Lucas Note”) in the principal sum of $200,000 (the “August 2021 Lucas Principal Sum”), (ii) 3,749 shares of its common stock as a commitment fee (“August 2021 Lucas Commitment Shares”), and (iii) a three-year warrant (“August 2021 Lucas Warrant”) to purchase 187,400 shares of the Company’s common stock at an exercise price of $10.22 per share, subject to certain adjustments.
The following are the material terms of the August 2021 Lucas SPA and August 2021 Lucas Note:
● The August 2021 Lucas Note matures on August 31, 2023 (the “August 2021 Lucas Maturity Date”).
● At its election, Lucas may convert the August 2021 Lucas Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the August 2021 Lucas Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the August 2021 Lucas Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the August 2021 Lucas Note after 180 days from August 31, 2021.
● The August 2021 Lucas Note carries an original issue discount of $20,000 (“August 2021 Lucas OID”).
● The Company may prepay the August 2021 Lucas Note at any time prior to maturity in accordance with the terms of the August 2021 Lucas Note.
● The August 2021 Lucas Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Lucas Note or the August 2021 Lucas SPA. Upon the occurrence of any event of default (as defined in the August 2021 Lucas Note) which has not been cured within three calendar days, the August 2021 Lucas Note shall become immediately due and payable and the Company shall pay to Lucas, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 Lucas Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the August 2021 Lucas SPA, the August 2021 Lucas Commitment Shares underlying and the shares underlying the August 2021 Lucas Note and August 2021 Lucas Warrant carry standard registration rights.
Upon issuance of the August 2021 Lucas Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well as the payment of $9,000 in fees associated with the loan. Upon issuance of the August 2021 Lucas Commitment Shares, the August 2021 Lucas Note, and the August 2021 Lucas Warrant, the Company allocated the $180,000 in net proceeds received between the fair market value of the August 2021 Lucas Commitment Shares, the beneficial conversion feature of the August 2021 Lucas Note, and the August 2021 Lucas Warrant. The fair value of the August 2021 Lucas Commitment Shares was $3,903; the fair value of the beneficial conversion feature of the August 2021 Lucas Note was $22,149; and the fair value of the August 2021 Lucas Warrant was $153,948. The combination of these three components as well as the August 2021 Lucas OID resulted in a total debt discount at issuance of $200,000 which is accreted over the term of the August 2021 Lucas Note. The $9,000 paid as loan origination fees was recorded directly to additional paid in capital.
On March 16, 2022, the Company and Lucas Ventures entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the “Lucas Amendment”). Pursuant to the terms of the Lucas Amendment, the parties agreed that the conversion price of the August 2021 Lucas Note was decreased from $11.50 per share to $1.00 per share and that Lucas may not convert the August 2021 Lucas Note, as amended, prior to September 15, 2022.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $122,794, which included $74,794 related to the accretion of the debt discount and accrued interest in the amount of $48,000. As of May 31, 2022, the carrying value of the August 2021 Lucas Note was $74,794, net of $125,206 in unaccreted debt discount.
August 2021 LGH Investments, LLC 12% Convertible Promissory Note
On August 31, 2021, the Company and LGH Investments, LLC, (“LGH”) entered into a securities purchase agreement (the “August 2021 LGH SPA”) pursuant to which the Company issued a 12% convertible promissory note (the “August 2021 LGH Note”) in the principal sum of $200,000 (the “August 2021 LGH Principal Sum”).
The following are the material terms of the August 2021 LGH SPA and August 2021 LGH Note:
● The August 2021 LGH Note matures on August 31, 2023 (the “August 2021 LGH Maturity Date”).
● At its election, LGH may convert the August 2021 LGH Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the August 2021 LGH Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the August 2021 LGH Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the August 2021 LGH Note after 180 days from August 31, 2021.
● The August 2021 LGH Note carries an original issue discount of $20,000 (“August 2021 LGH OID”).
● The Company may prepay the August 2021 LGH Note at any time prior to maturity in accordance with the terms of the August 2021 LGH Note.
● The August 2021 LGH Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 LGH Note or the August 2021 LGH SPA. Upon the occurrence of any event of default (as defined in the August 2021 LGH Note which has not been cured within three calendar days, the August 2021 LGH Note shall become immediately due and payable and the Company shall pay to LGH, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 LGH Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the August 2021 LGH SPA, the shares underlying the August 2021 LGH Note carry standard registration rights.
Upon issuance of the August 2021 LGH Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well as the payment of $6,500 in fees associated with the loan. Upon issuance of the August 2021 LGH, the Company recorded a total debt discount of $26,500 that includes the LGH OID and the $6,500 paid as fees associated with the issuance of the loan and is accreted over the term of the August 2021 LGH Note.
As of March 16, 2022, the Company and LGH entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the “LGH Amendment”). Pursuant to the terms of the LGH Amendment, the parties agreed that the conversion price of the August 2021 LGH Note was decreased from $11.50 per share to $1.00 per share and that LGH may not convert the LGH Note, as amended, prior to September 15, 2022.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $57,910, which included $9,910 related to the accretion of the debt discount and accrued interest in the amount of $48,000. As of May 31, 2022, the carrying value of the August 2021 LGH Note was $183,410, net of $16,590 in unaccreted debt discount.
September 2021 Ionic Ventures, LLC 12% Convertible Promissory Note
On September 28, 2021, the Company entered into a securities purchase agreement (the “September 2021 Ionic SPA”) with Ionic Ventures, LLC (“Ionic”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “September 2021 Ionic Note”) in the principal sum of $1,555,556 (the “September 2021 Ionic Principal Sum”), (ii) 14,584 shares of its common stock as a commitment fee (“September 2021 Ionic Commitment Shares”), and (iii) a three-year warrant (“September 2021 Ionic Warrant”) to purchase 729,167 shares of the Company’s common stock at an exercise price of $10.73 per share, subject to certain adjustments.
The following are the material terms of the September 2021 Ionic SPA and September 2021 Ionic Note:
● The September 2021 Ionic Note matures on September 28, 2023 (the “September 2021 Ionic Maturity Date”).
● At its election, Ionic may convert the September 2021 Ionic Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the September 2021 Ionic Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments.
● The Company agree to pay interest on the September 2021 Ionic Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the September 2021 Ionic Note after 180 days from September 28, 2021.
● The September 2021 Ionic Note carries an original issue discount of $155,556 (“September 2021 Ionic OID”).
● The Company may prepay the September 2021 Ionic Note at any time prior to maturity in accordance with the terms of the September 2021 Ionic Note.
● The September 2021 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Ionic Note or the September 2021 Ionic SPA. Upon the occurrence of any event of default (as defined in the September 2021 Ionic Note) which has not been cured within three calendar days, the August 2021 Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction of its obligations hereunder, an amount equal to the September 2021 Ionic Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the September 2021 Ionic SPA, the September 2021 Ionic Commitment Shares underlying and the shares underlying the September 2021 Ionic Note and September 2021 Ionic Warrant carry standard registration rights.
Upon issuance of the September 2021 Ionic Note, the Company received net proceeds of $1,400,000 and used such proceeds for working capital as well as the payment of $98,000 in fees associated with the loan. Upon issuance of the September 2021 Ionic Commitment Shares, the September 2021 Ionic Note, and the September 2021 Ionic Warrant, the Company allocated the $1,400,000 in net proceeds received between the fair market value of the September 2021 Ionic Commitment Shares, the beneficial conversion feature of the September 2021 Ionic Note, and the September 2021 Ionic Warrant. The fair value of the September 2021 Ionic Commitment Shares was $26,721; the fair value of the beneficial conversion feature of the September 2021 Ionic Note was $335,303; and the fair value of the September 2021 Ionic Warrant was $1,037,976. The combination of these three components as well as the September 2021 Ionic OID resulted in a total debt discount at issuance of $1,555,556 which is accreted over the term of the September 2021 Ionic Note. The $98,000 paid as loan origination fees was recorded directly to additional paid in capital.
Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the September 2021 Ionic Note was reduced from $11.50 per share to $1.00 per share.
On April 25, 2022, Ionic converted $87,800 of the outstanding principal balance the September 2021 Ionic Note at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 87,800 shares of common stock to Ionic at a fair market value of $2.61 per share and recognized a loss on debt extinguishment of $141,358.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $951,725, which included $578,392 related to the accretion of the debt discount and accrued interest in the amount of $373,333. As of May 31, 2022, the carrying value of the September 2021 Ionic Note was $490,592, net of $977,164 in unaccreted debt discount.
March 2022 FirstFire Global 12% Convertible Promissory Note
On March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 FirstFire SPA”) with FirstFire, pursuant to which the Company issued (i) a 12% convertible promissory note (the “March 2022 FirstFire Note”) in the principal sum of $110,000 (the “March 2022 FirstFire Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“March 2022 FirstFire Commitment Shares”), and (iii) a three-year warrant (“March 2022 FirstFire Warrant”) to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share, subject to certain adjustments.
The following are the material terms of the March 2022 FirstFire SPA and March 2022 FirstFire Note:
● The March 2022 FirstFire Note matures on September 21, 2022 (the “March 2022 FirstFire Maturity Date”).
● At its election, FirstFire may convert the March 2022 FirstFire Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the March 2022 FirstFire Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments.
● The Company agree to pay interest on the March 2022 FirstFire Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed.
● The March 2022 FirstFire Note carries an original issue discount of $10,000 (“March 2022 FirstFire OID”).
● The Company may prepay the March 2022 FirstFire Note at any time prior to maturity in accordance with the terms of the March 2022 FirstFire Note.
● The March 2022 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the March 2022 FirstFire Note or the March 2022 FirstFire SPA. Upon the occurrence of any event of default (as defined in the March 2022 I FirstFire Note) which has not been cured within period stipulated by the March 2022 FirstFire Note, the March 2022 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the March 2022 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the March 2022 FirstFire SPA, the March 2022 FirstFire Commitment Shares and the shares underlying the March 2022 FirstFire Note and March 2022 FirstFire Warrant carry standard registration rights.
Upon issuance of the March 2022 FirstFire Note, the Company received net proceeds of $100,000 and used such proceeds for working capital. Upon issuance of the March 2022 FirstFire Commitment Shares, the March 2022 FirstFire Note, and the March 2022 FirstFire Warrant, the Company allocated the $100,000 in net proceeds received between the fair market value of the March 2022 FirstFire Commitment Shares, the beneficial conversion feature of the March 2022 FirstFire Note, and the March 2022 FirstFire Warrant. The fair value of the March 2022 FirstFire Commitment Shares was $1,158; the fair value of the beneficial conversion feature of the March 2022 FirstFire Note was $45,418; and the fair value of the March 2022 FirstFire Warrant was $53,424. The combination of these three components as well as the March 2022 FirstFire OID resulted in a total debt discount at issuance of $110,000 which is accreted over the term of the March 2022 FirstFire Note.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $49,046, which included $42,446 related to the accretion of the debt discount and accrued interest in the amount of $6,600. As of May 31, 2022, the carrying value of the March 2022 FirstFire Note was $42,446, net of $67,554 in unaccreted debt discount.
March 2022 GS Capital Securities 12% Convertible Promissory Note
On March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 GS SPA”) with GS, pursuant to which the Company issued (i) a 12% convertible promissory note (the “March 2022 GS Note”) in the principal sum of $82,500 (the “March 2022 GS Principal Sum”), (ii) 703 shares of its common stock as a commitment fee (“March 2022 GS Commitment Shares”), and (iii) a three-year warrant (“March 2022 GS Warrant”) to purchase 37,500 shares of the Company’s common stock at an exercise price of $1.00 per share, subject to certain adjustments.
The following are the material terms of the March 2022 GS SPA and March 2022 GS Note:
● The March 2022 GS Note matures on September 21, 2022 (the “March 2022 GS Maturity Date”).
● At its election, GS may convert the March 2022 GS Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the March 2022 GS Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments.
● The Company agree to pay interest on the March 2022 GS Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed.
● The March 2022 GS Note carries an original issue discount of $7,500 (“March 2022 GS OID”).
● The Company may prepay the March 2022 GS Note at any time prior to maturity in accordance with the terms of the March 2022 GS Note.
● The March 2022 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the March 2022 GS Note or the March 2022 GS SPA. Upon the occurrence of any event of default (as defined in the March 2022 GS Note) which has not been cured within period stipulated by the March 2022 GS Note, the March 2022 GS Note shall become immediately due and payable and the Company shall pay to GS, in full satisfaction of its obligations hereunder, an amount equal to the March 2022 GS Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the March 2022 GS SPA, the March 2022 GS Commitment Shares and the shares underlying the March 2022 GS Note and March 2022 GS Warrant carry standard registration rights.
Upon issuance of the March 2022 GS Note, the Company received net proceeds of $75,000 and used such proceeds for working capital. Upon issuance of the March 2022 GS Commitment Shares, the March 2022 GS Note, and the March 2022 GS Warrant, the Company allocated the $75,000 in net proceeds received between the fair market value of the March 2022 GS Commitment Shares, the beneficial conversion feature of the March 2022 GS Note, and the March 2022 GS Warrant. The fair value of the March 2022 GS Commitment Shares was $871; the fair value of the beneficial conversion feature of the March 2022 GS Note was $34,062; and the fair value of the March 2022 GS Warrant was $40,067. The combination of these three components as well as the March 2022 GS OID resulted in a total debt discount at issuance of $82,500 which is accreted over the term of the March 2022 GS Note.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $36,784, which included $31,834 related to the accretion of the debt discount and accrued interest in the amount of $4,950. As of May 31, 2022, the carrying value of the March 2022 GS Note was $31,834, net of $50,666 in unaccreted debt discount.
March 2022 Ionic Ventures 12% Convertible Promissory Note
On March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 Ionic SPA”) with Ionic, pursuant to which the Company issued (i) a 12% convertible promissory note (the “March 2022 Ionic Note”) in the principal sum of $110,000 (the “March 2022 Ionic Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“March 2022 Ionic Commitment Shares”), and (iii) a three-year warrant (“March 2022 Ionic Warrant”) to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00, subject to certain adjustments.
The following are the material terms of the march 2022 Ionic SPA and March 2022 Ionic Note:
● The March 2022 Ionic Note matures on September 21, 2022 (the “March 2022 Ionic Maturity Date”).
● At its election, Ionic may convert the March 2022 Ionic Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the March 2022 Ionic Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments.
● The Company agree to pay interest on the March 2022 Ionic Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed.
● The March 2022 Ionic Note carries an original issue discount of $10,000 (“March 2022 Ionic OID”).
● The Company may prepay the March 2022 Ionic Note at any time prior to maturity in accordance with the terms of the March 2022 Ionic Note.
● The March 2022 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the March 2022 Ionic Note or the March 2022 Ionic SPA. Upon the occurrence of any event of default (as defined in the March 2022 Ionic Note) which has not been cured within period stipulated by the March 2022 Ionic Note, the March 2022 Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction of its obligations hereunder, an amount equal to the March 2022 Ionic Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the March 2022 Ionic SPA, the March 2022 Ionic Commitment Shares and the shares underlying the March 2022 Ionic Note and March 2022 Ionic Warrant carry standard registration rights.
Upon issuance of the March 2022 Ionic Note, the Company received net proceeds of $100,000 and used such proceeds for working capital. Upon issuance of the March 2022 Ionic Commitment Shares, the March 2022 Ionic Note, and the March 2022 Ionic Warrant, the Company allocated the $100,000 in net proceeds received between the fair market value of the March 2022 Ionic Commitment Shares, the beneficial conversion feature of the March 2022 Ionic Note, and the March 2022 Ionic Warrant. The fair value of the March 2022 Ionic Commitment Shares was $1,158; the fair value of the beneficial conversion feature of the March 2022 Ionic Note was $45,418; and the fair value of the March 2022 Ionic Warrant was $53,424. The combination of these three components as well as the March 2022 Ionic OID resulted in a total debt discount at issuance of $110,000 which is accreted over the term of the March 2022 Ionic Note.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $49,046, which included $42,446 related to the accretion of the debt discount and accrued interest in the amount of $6,600. As of May 31, 2022, the carrying value of the March 2022 Ionic Note was $42,446, net of $67,554 in unaccreted debt discount.
April 2022 Jefferson Street Capital LLC 12% Convertible Promissory Note
On April 1, 2022, the Company entered into a securities purchase agreement (the “April 2022 Jefferson SPA”) with Jefferson, pursuant to which the Company issued (i) a 12% convertible promissory note (the “April 2022 Jefferson Note”) in the principal sum of $82,500 (the “April 2022 Jefferson Principal Sum”), (ii) 703 shares of its common stock as a commitment fee (“April 2022 Jefferson Commitment Shares”), and (iii) a three-year warrant (“April 2022 Jefferson Warrant”) to purchase 37,500 shares of the Company’s common stock at an exercise price of $1.00 per share, subject to certain adjustments.
The following are the material terms of the April 2022 Jefferson SPA and April 2022 Jefferson Note:
● The April 2022 Jefferson Note matures on October 1, 2022 (the “April 2022 Jefferson Maturity Date”).
● At its election, Jefferson may convert the April 2022 Jefferson Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the April 2022 Jefferson Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments.
● The Company agree to pay interest on the April 2022 Jefferson Principal Sum at the rate of 12% per annum provided that the first six months of interest shall be guaranteed.
● The April 2022 Jefferson Note carries an original issue discount of $7,500 (“April 2022 Jefferson OID”).
● The Company may prepay the April 2022 Jefferson Note at any time prior to maturity in accordance with the terms of the April 2022 Jefferson Note.
● The April 2022 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the April 2022 Jefferson Note or the April 2022 Jefferson SPA. Upon the occurrence of any event of default (as defined in the April 2022 Jefferson Note) which has not been cured within period stipulated by the April 2022 Jefferson Note, the April 2022 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson, in full satisfaction of its obligations hereunder, an amount equal to the April 2022 Jefferson Principal Sum then outstanding plus accrued interest multiplied by 125%.
● Pursuant to the April 2022 Jefferson SPA, the April 2022 Jefferson Commitment Shares and the shares underlying the April 2022 Jefferson Note and April 2022 Jefferson Warrant carry standard registration rights.
Upon issuance of the April 2022 Jefferson Note, the Company received net proceeds of $75,000 and used such proceeds for working capital. Upon issuance of the April 2022 Jefferson Commitment Shares, the April 2022 Jefferson Note, and the April 2022 Jefferson Warrant, the Company allocated the $75,000 in net proceeds received between the fair market value of the April 2022 Jefferson Commitment Shares, the beneficial conversion feature of the April 2022 Jefferson Note, and the April 2022 Jefferson Warrant. The fair value of the April 2022 Jefferson Commitment Shares was $871; the fair value of the beneficial conversion feature of the April 2022 Jefferson Note was $34,062; and the fair value of the April 2022 Jefferson Warrant was $40,067. The combination of these three components as well as the April 2022 Jefferson OID resulted in a total debt discount at issuance of $82,500 which is accreted over the term of the April 2022 Jefferson Note.
During the fiscal year ended May 31, 2022, the Company recorded interest expense of $36,784, which included $31,834 related to the accretion of the debt discount and accrued interest in the amount of $4,950. As of May 31, 2022, the carrying value of the April 2022 Jefferson Note was $31,834, net of $50,666 in unaccreted debt discount.
Secured Promissory Notes
On November 15, 2021, the Company entered into a 10% secured promissory note with an accredited investor (“Secured Note One”) for which it received net proceeds of $250,000, consisting of a face amount of $262,500 and an original issuance discount of $12,500 (the “Secured Note One OID”). In addition, the Company issued 30,000 commitment warrants to the investor for the purchase of the Company’s common stock at an exercise price of $10.73 per share (“Secured Note One Warrants”). The Secured Note One had a perfected security interest in 50 personal computers the Company intended to use in its operations. The Secured Note One required 60 monthly payments of principal and interest in the amount of $5,577.
Upon issuance of the Secured Note One and Secured Note One Warrants, the Company allocated the $250,000 in net proceeds received between the fair market value of Secured Note One and the Secured Note One Warrants. The fair value of the Secured Note One Warrants was $84,517. The combination of fair market value of the Secured Note One Warrant and the Secured Note One OID resulted in a total debt discount at issuance of $97,017 which is accreted over the term of the Secured Note One.
During the fiscal year ended May 31, 2022, the Company made principal payments of $20,768 on Secured Note One. For the fiscal year ended May 31, 2022, the Company recognized $26,030 in total interest expense associated with Secured Note One, comprised of $14,711 in cash interest payments and $11,319 in accretion expense related to the original issuance discount and debt discount related to the warrants. As of May 31, 2022, the carrying value of Secured Note One is $41,917, net of $87,315 in unaccreted debt discounts.
On November 18, 2021, the Company entered into a 10% secured promissory note with an accredited investor (“Secured Note Two”) for which it received net proceeds of $150,000, consisting of a face amount of $157,500 and an original issuance discount of $7,500 (“Secured Note Two OID”). In addition, the Company issued 18,000 commitment warrants for the purchase of the Company’s common stock at an exercise price of $10.73 per share (“Secured Note Two Warrant”). The Secured Note Two has a perfected security interest in 30 personal computers the Company intended to use in its operations. The Secured Note Two required 60 monthly payments of principal and interest in the amount of $3,346.
Upon issuance of the Secured Note Two and Secured Note Two Warrants, the Company allocated the $150,000 in net proceeds received between the fair market value of Secured Note Two and the Secured Note Two Warrants. The fair value of the Secured Note Two Warrants was $50,710. The combination of fair market value of the Secured Note Two Warrant and the Secured Note Two OID resulted in a total debt discount at issuance of $58,210 which is accreted over the term of the Secured Note Two.
During the fiscal year ended May 31, 2022, the Company made principal payments of $12,461 on Secured Note Two. For the fiscal year ended May 31, 2022, the Company recognized $15,618 in total interest expense associated with Secured Note Two, comprised of $8,827 in cash interest payments and $6,791 in accretion expense related to the original issuance discount and debt discount related to the warrants. As of May 31, 2022, the carrying value of Secured Two Note is $25,151, net of $52,389 in unaccreted debt discounts.
Related Party Note Payable
On December 10, 2021, the Company entered into a loan agreement with Jed Kaplan, the Company’s former Chairman of the Board and a greater than 5% stockholder, that has a principal amount of $247,818 (See Note 6 - Related Party Transactions). The loan bears interest at a rate of 5% per annum and matured on June 10, 2022. During the fiscal year ended May 31, 2022, the Company recognized interest expense of $5,839.
Other Short-Term Note Payable
During 2020, the Company received loan proceeds in the amount of $82,235 under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). During the year ended May 31, 2022, the Company $40,500 of the obligation was forgiven by the Small Business Administration.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this report, including our historical financial statements and related notes included elsewhere in this report, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Summary of Material Risks
Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:
●
our history of losses;
● our inability to attract sufficient demand for our services and products;
●
our ability to successfully execute our growth and acquisition strategy and manage effectively our growth;
●
changes in the competitive environment in our industry and the markets we serve, and our ability to compete effectively;
● our dependence on a strong brand image;
● our cash needs and the adequacy of our cash flows and earnings;
● our ability to access additional capital;
● our dependence upon our executive officers, founders and key employees;
● our ability to attract and retain qualified personnel;
● our reliance on our technology systems, the impact of technological changes and cybersecurity risks;
● changes in applicable laws or regulations;
● our ability to protect our trademarks or other intellectual property rights;
● potential litigation from competitors or customers;
● public health epidemics or outbreaks (such as the novel strain of coronavirus (COVID-19)) and our responses to such events could materially and adversely impact our business;
● our substantial amount of indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness; and
● the possibility that we may be adversely affected by other economic, business, and/or competitive factors.
Risks Related to Our Business
We have a relatively limited operating history and limited revenues to date and thus are subject to risks of business development and you have no basis on which to evaluate our ability to achieve our business objective.
Because we have a relatively limited operating history and limited revenues to date, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage operating companies in rapidly evolving markets. These risks include that:
● we may not have sufficient capital to achieve our growth strategy;
● we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements;
● our growth strategy may not be successful; and
● fluctuations in our operating results will be significant relative to our revenues.
Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business could be significantly harmed.
We have a history of operating losses and our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal years ended May 31, 2022 and 2021.
To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended May 31, 2022 and 2021, we reported net losses of $17,838,138 and $6,194,828, respectively. Net cash used in operating activities for the fiscal years ended May 31, 2022 and 2021 was $2,679,110 and $1,617,914, respectively. As of May 31, 2022, we had an aggregate accumulated deficit of $29,838,444. We anticipate that we will continue to report losses and negative cash flow for the foreseeable future. Our management has concluded that our historical recurring losses from operations and negative cash flows from operations as well as our dependence on private equity and other financings raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal years ended May 31, 2022 and 2021.
Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Ability to Continue as a Going Concern.”
We are a holding company and depend upon our subsidiaries for our cash flows.
We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.
Future acquisitions or strategic investments could disrupt our business and harm our business, results of operations or financial condition.
We may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business.
Acquisitions involve numerous risks, any of which could harm our business, including:
● straining our financial resources to acquire a company;
● anticipated benefits may not materialize as rapidly as we expect, or at all;
● diversion of management time and focus from operating our business to address acquisition integration challenges;
● retention of employees from the acquired company;
● cultural challenges associated with integrating employees from the acquired company into our organization;
● integration of the acquired company’s accounting, management information, human resources and other administrative systems;
● the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; and
● litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties.
Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could have a material adverse effect on business, results of operations or financial condition.
We may require additional funding for our growth plans, and such funding may result in a dilution of your investment.
We attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.
These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate actions.
Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.
We may not have sufficient capital to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives.
Our current liquidity and capital resources may not be sufficient to allow us to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives. If we require additional capital resources, we may seek such funds directly from third party sources; however, we may not be able to obtain sufficient equity capital and/or debt financing from third parties to allow us to fund our expected ongoing operations or we may not be able to obtain such equity capital or debt financing on acceptable terms or conditions. Factors affecting the availability of equity capital or debt financing to us on acceptable terms and conditions include:
● our current and future financial results and position;
● the collateral availability of our otherwise unsecured assets;
● the market’s, investors and lenders’ view of our industry and products;
● the perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations; and
● the price, volatility and trading volume and history of our Common Stock.
If we are unable to obtain the equity capital or debt financing necessary to fund our ongoing operations, pursue our strategy and sustain our growth initiatives, we may be forced to scale back our operations or our expansion initiatives, and our business and operating results will be materially adversely affected.
Our growth strategy depends on the availability of suitable locations for our Simplicity Esports Gaming Centers and our ability to open new Simplicity Esports Gaming Centers and operate them profitably.
A key element of our growth strategy is to extend our brand by opening corporate owned as well as franchising retail Simplicity Esports Gaming Centers in locations in the United States that we believe will provide attractive returns on investment. We have identified numerous sites for potential corporate Simplicity Esports Gaming Centers and many other sites for potential franchised esports gaming centers, in the United States, however, desirable locations for additional Simplicity Esports Gaming Center openings may not be available at an acceptable cost when we identify a particular opportunity for a new Simplicity Esports Gaming Center.
In addition, our ability to open new Simplicity Esports Gaming Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond our control, including our ability or the ability of the selected franchisee to:
● reach acceptable agreements regarding the lease of the locations;
● comply with applicable zoning, licensing, land use and environmental regulations;
● raise or have available an adequate amount of cash or currently available financing for construction and opening costs;
● timely hire, train and retain the skilled management and other employees necessary to meet staffing needs;
● obtain, for acceptable cost, required permits and approvals, including liquor licenses; and
● efficiently manage the amount of time and money used to build and open each new Simplicity Esports Gaming Center.
If we succeed in opening new Simplicity Esports Gaming Centers on a timely and cost-effective basis, we may nonetheless be unable to attract enough customers to the new Simplicity Esports Gaming Centers because potential customers may be unfamiliar with our brands or concepts, or our entertainment and menu options might not appeal to them. Our new Simplicity Esports Gaming Centers may not meet or exceed our performance targets, including target cash-on-cash returns. New Simplicity Esports Gaming Centers may even operate at a loss, which could have a significant adverse effect on our overall operating results.
Our operations of Simplicity Esports Gaming Centers are significantly dependent on changes in public and customer tastes and discretionary spending patterns. Our inability to successfully anticipate customer preferences or to gain popularity for such Simplicity Esports Gaming Centers games may negatively impact our profitability.
Our success depends significantly on public and customer tastes and preferences, which can be unpredictable. If we are unable to successfully anticipate customer preferences or increase the popularity of the games offered at the Simplicity Esports Gaming Centers, the per capita revenue and overall customer expenditures at the Simplicity Esports Gaming Centers may decrease, and thereby negatively impact our profitability. In response to such developments, we may need to increase our marketing and product development efforts and expenditures, adjust our game or product sale pricing, modify the games themselves, or take other actions, which may further erode our profit margins, or otherwise adversely affect our results of operations and financial condition. In particular, we may need to expend considerable cost and effort in carrying out extensive research and development to assess the potential interest in a game, testing and launching new games, and to remain abreast with continually evolving technology and trends, as well as the success and popularity of Simplicity stream team’s casters, influencers and personalities among Simplicity Esports LLC’s dedicated fan base.
While we may incur significant expenditures of this nature, including in the future as we continue to expand our operations, there can be no assurance that any such expenditures or investments by us will yield expected or commensurate returns or results, within a reasonable or anticipated time, or at all.
The nature of our business exposes us to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at the Simplicity Esports Gaming Centers, or health and safety concerns arising from improper use of our game equipment or at our food and beverage venues.
Our business inherently exposes us to negative publicity or customer complaints as a result of accidents, injuries, or in extreme cases, deaths, arising from instances of air-borne, water-borne or food-borne contagion or illness, food contamination, spoilage, tampering, equipment failure, improper use of our equipment, fire, explosion, terrorist attacks or civil riots, and other safety or security issues, such as kidnapping, or associated risks arising from other actual or perceived non-compliance with safety, quality or service standards or norms in relation to the various game, entertainment and food and beverage attractions at the Simplicity Esports Gaming Centers. Even isolated or sporadic incidents or accidents may have a negative impact on our brand image and reputation, and the Simplicity Esports Gaming Centers’, or games’ or our own popularity with customers. The considerable expansion of social media in recent years has compounded the effect of any potential negative publicity.
We cannot guarantee that our or our franchisees’ employee training, internal controls and other precautions will be sufficient to prevent any such occurrence at the Simplicity Esports Gaming Centers, in relation to our Simplicity global virtual reality gaming and fully integrated esports platform, or to control or mitigate any negative consequences. In addition, we or our franchisees rely on third-party security and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although we monitor vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part, our ability to assure a safe and satisfactory experience to our customers is necessarily limited to the extent of our or our franchisees’, dependence on third parties, from time to time. Moreover, we may not be able to distance or insulate ourselves from any adverse publicity or reputational damage arising from any act, omission or negligence on the part of a vendor or other third party, which may negatively affect a customer’s experience at any of the Simplicity Esports Gaming Centers.
We or our franchisees may not be able to operate in the United States, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition.
Each Simplicity Esports Gaming Center will be subject to licensing and regulation by alcoholic beverage control, amusement, health, sanitation, safety, building code and fire agencies in the country, state, county and/or municipality in which the Simplicity Esports Gaming Center is located. In the United States, each Simplicity Esports Gaming Center with a restaurant or bar will be required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county and municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. In some states, the loss of a license for cause with respect to one Simplicity Esports Gaming Center may lead to the loss of licenses at all Simplicity Esports Gaming Centers in that state and could make it more difficult to obtain additional licenses in that state. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each Simplicity Esports Gaming Center, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. Our failure or a failure by a franchisee in obtaining and maintaining the required licenses, permits and approvals at any one Simplicity Esports Gaming Center could impact the continuing operations of existing Simplicity Esports Gaming Centers, or delay or prevent the opening of new Simplicity Esports Gaming Centers. Although we do not anticipate any material difficulties occurring in the future, the failure to receive or retain a liquor license, or any other required permit or license, in a particular location, or to continue to qualify for, or renew licenses, could have a material adverse effect on operations and our ability to obtain such a license or permit in other locations.
As a result of operating certain entertainment games and attractions, including skill-based games that offer redemption prizes, the Simplicity Esports Gaming Centers in the United States are subject to amusement licensing and regulation by the countries, states, provinces, counties and municipalities in which our Simplicity Esports Gaming Centers are located. These laws and regulations can vary significantly by country, state, province, county, and municipality and, in some jurisdictions, may require us to modify our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states in the United States and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to our redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games we offer. Furthermore, other states, provinces, counties and municipalities may make changes to existing laws to further regulate legalized gaming and illegal gambling. Adoption of these laws, or adverse interpretation of existing laws, after we have established a Simplicity Esports Gaming Center in the jurisdiction could require the existing center in these jurisdictions to alter the mix of games, modify certain games, change the mix of prizes that we may offer or terminate the use of specific games, any of which could adversely affect our operations.
We are also subject to laws and regulations governing our relationship with our employees, including those related to minimum wage requirements, exempt status, overtime, health insurance mandates, working and safety conditions, immigration status requirements, child labor, and non-discrimination. Additionally, changes in federal labor laws, including card verification regulations, could result in portions of our workforce being subjected to greater organized labor influence, which could result in an increase to our labor costs. A significant portion of Simplicity Esports Gaming Center personnel will be paid at minimum wage rates established by federal, state and municipal law. Increases in the minimum wage result in higher labor costs, which may be only partially offset by price increases and operational efficiencies.
We are also subject to the rules and regulations of the Federal Trade Commission and various state laws regulating the offer and sale of franchises. The Federal Trade Commission and various state laws require that we furnish a franchise disclosure document containing certain information to prospective franchisees, and a number of states require registration of the franchise disclosure document with state authorities. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor-franchisee relationship. The state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. We shall endeavor to make sure that any franchise disclosure document we provide, together with any applicable state versions or supplements, and franchising procedures, comply in all material respects with both the Federal Trade Commission guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises. We do not currently have an active franchise disclosure document.
If we and our franchisees fail to comply with such laws and regulations, we may be subject to various sanctions and/or penalties and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our business and our financial results.
Our growth through franchising may not occur as rapidly as we currently anticipate and may be subject to additional risks.
As part of our growth strategy, we will continue to seek franchisees to operate Simplicity Esports Gaming Centers in certain strategic domestic locations or venues; provided, however, that we do not currently have an active franchise disclosure document. We believe that our ability to recruit, retain and contract with qualified franchisees will be increasingly important to our operations as we expand. Our franchisees are dependent upon the availability of adequate sources of financing in order to meet their development obligations. Such financing may not be available to our franchisees, or only available upon disadvantageous terms. Our franchise strategy may not enhance our results of operations.
Expanding through franchising exposes our business and brand to risks because the quality of the franchised operations will be beyond our immediate control, including risks associated with our confidential information, intellectual properties (including trademarks) and brand reputation. Even if we have contractual remedies to cause franchisees to maintain operational standards, enforcing those remedies may require litigation and therefore our image and reputation may suffer, unless and until such litigation is successfully concluded.
We could face liability from or as a result of our franchisees.
Various state and federal laws will govern the relationship between us and our franchisees and the potential sale of a franchise. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. Such legal actions could result in expensive litigation with our franchisees or government agencies that could adversely affect both our profit and our important relations with our franchisees. In addition, regulatory or legal developments could result in changes to laws or the franchisor/franchisee relationship that could negatively impact the franchise business model and, accordingly, our profit.
We may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment market in the United States, which could have a material adverse effect on our business, results of operations or financial condition.
The out-of-home entertainment market in the United States is highly competitive. Simplicity Esports Gaming Centers that we or our franchisees operate will compete for customers’ discretionary entertainment dollars with providers of out-of-home entertainment, including localized attraction facilities such as movie theatres, sporting events, bowling alleys, sports activity centers, arcades and entertainment centers, nightclubs and restaurants as well as theme parks. Many of the entities operating these businesses are larger and have significantly greater financial resources, a greater number of locations, have been in business longer, have greater name and brand recognition and are better established in the local markets where Simplicity Esports Gaming Centers are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to the Simplicity Esports Gaming Centers we or our franchisees operate. In the United States, the legalization of casino gambling in geographic areas near any future Simplicity Esports Gaming Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on our business and financial condition. We will also face competition from local, regional and national establishments that offer entertainment experiences similar to us. Simplicity Esports Gaming Centers we or our franchisees operate will also face competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie streaming and delivery. If we fail to compete favorably in the competitive out-of-home and home-based entertainment markets it could have a material adverse effect on our business, results of operations and financial condition.
Our senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers and related products.
The members of our senior management team have extensive backgrounds in finance and the management of financial services businesses, however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment centers. We will need to expand our management team, to include individuals with expertise in establishing and operating entertainment centers as well as individuals with expertise in product licensing and franchise operations. If we are unable to recruit professionals with acceptable backgrounds in establishing and operating entertainment centers and with backgrounds in product licensing and financing, we may not be able to pursue our growth strategy which could have a material adverse effect on our business and results of operations.
Our success depends upon our ability to recruit and retain qualified management and operating personnel at Simplicity Esports Gaming Centers.
We and our franchisees must attract, retain and motivate a sufficient number of qualified management and operating personnel in order to maintain consistency in our service, hospitality, quality and atmosphere of our Simplicity Esports Gaming Centers. Qualified management and operating personnel are typically in high demand. If we and our franchisees are unable to attract and retain a satisfactory number of qualified management and operating personnel, labor shortages could delay the planned openings of new Simplicity Esports Gaming Centers which could have a material adverse effect on our business and results of operations.
Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.
Acquisitions are an important element of our overall corporate strategy and use of capital, and these transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The process of integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks may include, but are not limited to:
● diversion of management’s time and focus from operating our business to acquisition integration challenges;
● failure to successfully further develop the acquired business or product lines;
● implementation or remediation of controls, procedures and policies at the acquired company;
● integration of the acquired company’s accounting, human resources and other administrative systems, and coordination of product, engineering and sales and marketing functions;
● transition of operations, users and customers onto our existing platforms;
● reliance on the expertise of our strategic partners with respect to market development, sales, local regulatory compliance and other operational matters;
● failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition;
● in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;
● cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire;
● liability for or reputational harm from activities of the acquired company before the acquisition or from our strategic partners, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and
● litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former shareholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments or strategic alliances could cause us to fail to realize the anticipated benefits of such acquisitions, investments or alliances, incur unanticipated liabilities, and harm our business generally.
Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows. Also, the anticipated benefits of many of our acquisitions may not materialize.
Our insurance coverage may not adequately protect us against all future risks, which may adversely affect our business and prospects.
We maintain insurance coverage, including for fire, acts of god and perils, terrorism, burglary, money, loss of profit, fidelity guarantee, fixed glass and sanitary fitting, electronic equipment, machinery breakdown, portable equipment, sign boards, commercial general liability, marine transit, and directors’ and officers’ liability insurance, as well as employee health and medical insurance, with standard exclusions in each instance. While we maintain insurance in amounts that we consider reasonably sufficient for a business of our nature and scale, with insurers that we consider reliable and credit worthy, we may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our existing insurance policies. Moreover, coverage under such insurance policies would generally be subject to certain standard or negotiated exclusions or qualifications and, therefore, any future insurance claims by us may not be honored by our insurers in full, or at all. In addition, our premium payments under our insurance policies may require a significant investment by us.
To the extent that we suffer loss or damage that is not covered by insurance or that exceeds our insurance coverage, the loss will have to be borne by us and our business, cash flow, financial condition, results of operations and prospects may be adversely affected.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors. We do not have key-man insurance on the life of any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. While our employment agreements with our key executive officers contain non-compete provisions, we do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any November 30 before that time, in which case we would no longer be an emerging growth company as of the following May 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls. As long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
Provisions in our third amended and restated certificate of incorporation, as amended, and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.
Our third amended and restated certificate of incorporation, as amended, contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The Simplicity products and services compete within industries that are characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product introductions, rapidly changing consumer preferences and product obsolescence. In order to continue to compete effectively, we need to respond quickly to technological changes and to understand their impact on customers’ preferences. We may take significant time and resources to respond to these technological changes and changes in consumer preferences. Our business and results of operations may be negatively impacted if our products and services fail to keep pace with these changes.
Various product safety laws and governmental regulations applicable to the distributor of Simplicity Esports LLC’s and/or PLAYlive Nation, Inc.’s products may adversely affect our business, results of operations and financial condition.
Our distribution of Simplicity Esports LLC’s and/or PLAYlive Nation, Inc.’s products will be subject to numerous federal, state, provincial, local and foreign laws and regulations, including laws and regulations with respect to product safety, including regulations enforced by the United States Consumer Products Safety Commission. We and our franchisees could incur costs in complying with these regulations and, if they fail to comply, could incur significant penalties. A failure to comply with applicable laws and regulations, or concerns about product safety, may also lead to a recall or post-manufacture repair of selected Simplicity Esports LLC’s and/or PLAYlive Nation, Inc.’s products, resulting in the rejection of the products by our franchisees, lost sales, increased customer service and support costs, and costly litigation.
Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.
COVID-19
In December 2019 a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.
We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Gaming Centers. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.
The measures taken to date adversely impacted the Company’s business during the year ended May 31, 2022 and will potentially continue to impact the Company’s business. Management observes that all business segments continue to be impacted by reduced foot traffic that began as a result of COVID-19 lockdowns and has continued as consumer habits have changed.
Our substantial amount of indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness.
As of May 31, 2022, we have outstanding convertible notes payable in the principal and accrued interest amount of approximately $6.9 million. Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness. Our indebtedness could have other important consequences to you as a stockholder. For example, it could:
● make it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any of our debt instruments, including financial and other restrictive covenants, could result in an event of default under the senior secured credit facility and the senior subordinated note;
● make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
● require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
● place us at a competitive disadvantage compared to our competitors that have less debt; and
● limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes.
Any of the above listed factors could materially adversely affect our business, financial condition and results of operations.
Risks Relating to Our Esports Business
Our esports businesses are substantially dependent on the continuing popularity of the esports industry as a whole.
The esports industry is in the early stages of its development. Although the esports industry has experienced rapid growth, consumer preferences may shift and there is no assurance this growth will continue in the future. We have taken steps to mitigate these risks to an extent and continue to seek out new opportunities in the esports industry. However, due to the rapidly evolving nature of technology and online gaming, the esports industry may experience volatile and declining popularity as new options for online gaming and esports become available, or consumer preferences shift to other forms of entertainment, and as a consequence, our businesses and results of operations may be materially negatively affected.
Our esports business faces intense and wide-ranging competition, which may have a material negative effect on our business and results of operations.
The success of our esports business is dependent upon the performance and/or popularity of its teams. Simplicity Esports LLC’s teams compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our esports teams compete for attendance, viewership and advertising with a wide range of alternatives available in major metropolitan areas. During some or all of the esports season, our teams face competition, in varying respects and degrees, from professional and collegiate basketball, hockey, baseball, football, and soccer, among others.
As a result of the large number of options available, we face strong competition for the sports and gaming fan. We must compete with other esports teams, traditional sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues, tournaments and genres in which they compete, our ability to provide an entertaining environment at any esports games that we host at our centers, prices charged for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of esports and sports in general, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence, our business and results of operations may be materially negatively affected by competition.
Our businesses are substantially dependent on the continued popularity and/or competitive success of Simplicity Esports LLC’s teams, which cannot be assured.
Our future financial results will be dependent on the Simplicity teams becoming and remaining popular with our fan base and, in varying degrees, on the teams achieving in-game success, which can generate fan enthusiasm, resulting in sustained ticket and merchandise sales during the season. Furthermore, success in the regular season at certain tournaments may qualify one or more of our esports teams for participation in post-season playoffs, which provides us with additional revenue from prize money by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our esports teams, which can improve attendance in subsequent seasons. There can be no assurance that any of our esports teams, will develop a significant fan base, maintain continued popularity or compete in post-season play in the future.
Defection of our esports players to other teams or managers could hinder our success.
We compete with other esports athlete management businesses to sign and retain world class esports players, some of which have greater resources or brand recognition and popularity than ours. Our players may choose to defect to other esports organizations for various reasons, including that they have been made a superior offer or they have chosen to pursue new or other opportunities. The loss or defection of any of our esports players could have negative consequences on our businesses and results of operations. While we take or intend to take, all appropriate steps to retain our players and protect their interests, there can be no assurances that players will not defect to other esports organizations.
The actions of the various esports leagues and tournaments may have a material negative effect on our business and results of operations.
The governing bodies of the various esports leagues and tournaments, under certain circumstances, can take actions that they deem to be in the best interests of their respective leagues or tournaments, which may not necessarily be consistent with maximizing our results of operations and which could affect our esports teams in ways that are different than the impact on other esports teams. For example, they can take actions relating to the rights to telecast the games of league members or tournament participants, including the Simplicity team, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our esports teams and the leagues or tournaments, and the internet-based activities of our esports teams. Certain of these decisions by the esports leagues and tournaments could have a material negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions that the leagues or tournaments take or the power and authority they assert.
We may be unable to effectively manage the growth in the scope and complexity of our business, including our expansion into the esports business which is untested and into adjacent business opportunities.
Our future success depends, in part, on our ability to manage our expanded business, including our aspirations for continued expansion. We intend to dedicate resources to a new business model that is largely untested, as is the case with esports. We do not know to what extent our future expansions will be successful. Further, even if successful, the growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand, damage our reputation or otherwise negatively impact our business.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, services and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, services and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or services incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and services, or recover the opportunity cost of diverting management and financial resources away from other products or services. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.
If, on the other hand, we elect not to pursue the development of products or services incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products and services incorporating that technology or for that platform or against companies using that business model.
Many elements of our business are unique, evolving and relatively unproven. Our business and prospects depend on the continuing development of live streaming of competitive esports gaming. The market for esports and amateur online gaming competition is relatively new and rapidly developing and are subject to significant challenges. Our business relies upon our ability to cultivate and grow an active gamer community, and our ability to successfully monetize such community through tournament fees, subscriptions for our esports gaming services, and advertising and sponsorship opportunities. In addition, our continued growth depends, in part, on our ability to respond to constant changes in the esports gaming industry, including rapid technological evolution, continued shifts in gamer trends and demands, frequent introductions of new games and titles and the constant emergence of new industry standards and practices. Developing and integrating new games, titles, content, products, services or infrastructure could be expensive and time-consuming, and these efforts may not yield the benefits we expect to achieve at all. We cannot assure you that we will succeed in any of these aspects or that the esports gaming industry will continue to grow as rapidly as it has in the past.
We may encounter difficulties in integrating Simplicity Esports LLC’s esports businesses or otherwise realizing the anticipated benefits of the transaction.
As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with, complementary businesses, such as the acquisition of the Simplicity esports business in January 2019. The acquisition of Simplicity Esports LLC involves significant risks and uncertainties, including: (i) the potential for Simplicity Esports LLC’s business to underperform relative to our expectations and the acquisition price, (ii) the potential for Simplicity Esports LLC’s business to cause our financial results to differ from expectations in any given period, or over the longer-term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of Simplicity Esports LLC’s business’s operations going forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating Simplicity Esports LLC’s business, its operations and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of Simplicity Esports LLC’s businesses. Further, the transaction may involve the risk that our senior management’s attention will be excessively diverted from our other operations, the risk that the gaming industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.
Our business may be harmed if our licensing partners, or other third parties with whom we do business, act in ways that put our brand at risk.
We anticipate that our business partners shall be given access to sensitive and proprietary information or control over our intellectual property in order to provide services and support to our teams. These third parties may misappropriate our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. The failure of these third parties to provide adequate services and technologies, the failure of third parties to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation, and may negatively impact our business.
Our business is highly dependent on the success and availability of video game platforms manufactured by third parties.
We expect to derive a substantial portion of our revenues from esports games played on game platforms manufactured by third parties, such as Sony’s PS4®, Microsoft’s Xbox One®, and Nintendo’s Wii U® and Switch®, and PCs. The success of our business will be driven in large part by our ability to accurately predict which platforms will be successful in the marketplace. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We may be required to commit significant resources well in advance of the anticipated introduction of a new platform. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we invested resources do not attain significant market acceptance, we may not be able to recover our costs, which could be significant.
The games we support are subject to scrutiny regarding the appropriateness of their content. If the publishers and distributors we partner with fail to receive their target ratings for certain titles, or if retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business.
Console and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary “App Rating System” and Google Play’s use of the International Age Rating Coalition (IARC) rating system. If the software publishers that supply our games are unable to obtain the ratings they have targeted for their products, it could have a negative impact on our business. In some instances, the software publishers and developers may be required to modify their products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories, which would limit its availability for use in the games that our teams play.
We will depend on servers to operate our games with online features. If we were to lose server functionality for any reason, our business may be negatively impacted.
Our business at our game centers will rely on the continuous operation of servers, some of which are owned and operated by third parties. Although we shall strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games.
We also rely on networks operated by third parties, such as the PlayStation® Network, Xbox Live® and Steam®, for the functionality of the games we use which have online features. An extended interruption to any of these services could adversely affect our ability to operate our games with online features, negatively impacting our business.
Further, insufficient server capacity could also negatively impact our game center business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur unnecessary additional operating costs.
The esports gaming industry is very “hit” driven. We may not have access to “hit” games or titles.
Select game titles dominate competitive esports and online gaming, including League of Legends, Minecraft, Fortnite and Overwatch, and many new games titles are regularly introduced in each major industry segment (console, mobile and PC free-to-download). Despite the number of new entrants, only a very few “hit” titles account for a significant portion of total revenue in each segment.
The size and engagement level of our online and in person gamers are critical to our success and are closely linked to the quality and popularity of the esports game publishers with which we have licenses. Esports game publishers on our gaming platform, including those who have entered into license agreements with us, may leave us for other gaming platforms or leagues which may offer better competition, and terms and conditions than we do. Furthermore, we may lose esports game publishers if we fail to generate the number of gamers to our tournaments and league competitions expected by such publishers. In addition, if popular esports game publishers cease to license their games to us, or our live streams fail to attract gamers, we may experience a decline in gamer traffic, subscriptions and engagement, which may have a material and adverse impact on our results of operations and financial conditions.
We must continue to attract and retain the most popular esports gaming titles in order to maintain and increase the popularity of our leagues, tournaments and competitions, and ensure the sustainable growth of our gamer community. We must continue to identify and enter into license agreements with esports gaming publishers developing “hit’ games that resonate with our community on an ongoing basis. We cannot assure you that we can continue to attract and retain the same level of first-tier esports game publishers and our ability to do so is critical to our future success.
If we fail to keep our existing gamers highly engaged, to acquire new gamers, to successfully implement a membership model for our gaming community, our business, profitability and prospects may be adversely affected.
Our success depends on our ability to maintain and grow the number of gamers attending and participating in our in-person and online tournaments and competitions, and using our gaming platform, and keeping our gamers highly engaged. Of particular importance is the successful deployment and expansion of our membership model to our gaming community for purposes of creating predictable recurring revenues.
In order to attract, retain and engage gamers and remain competitive, we must continue to develop and expand our leagues, including internationally, produce engaging tournaments and competitions, successfully license the newest “hit” esports games and titles, implement new technologies and strategies, improve features of our gaming platform and stimulate interactions in our gamer community.
A decline in the number of our gamers in our ecosystem may adversely affect the engagement level of our gamers, the vibrancy of our gamer community, or the popularity of our league play, which may in turn reduce our monetization opportunities, and have a material and adverse effect on our business, financial condition and results of operations. If we are unable to attract and retain gamers, our revenues may decline and our results of operations and financial condition may suffer.
We cannot assure you that our online and in person gaming platform and centers will remain sufficiently popular with gamers to offset the costs incurred to operate and expand them. It is vital to our operations that we remain sensitive and responsive to evolving gamer preferences and offer first-tier esports game content that attracts our gamers. We must also keep providing gamers with new features and functions to enable superior content viewing, and social interaction. Further, we will need to continue to develop and improve our gaming platform and centers and to enhance our brand awareness, which may require us to incur substantial costs and expenses. If such increased costs and expenses do not effectively translate into an improved gamer experience and long-term engagement, our results of operations may be materially and adversely affected.
Risks Related to International Operations
The risks related to international operations, in particular in countries outside of the United States, could negatively affect the Company’s results.
It is expected that the Company will derive between 15% to 20% of its revenue from transactions denominated in currencies other than the United States dollar, such as Brazil, and the Company expects that receivables with respect to foreign sales will account for a significant amount of its total accounts and receivables. As such, the Company’s operations may be adversely affected by changes in foreign government policies and legislation or social instability and other factors which are not within the control of the Company, including, but not limited to, recessions in foreign economies, expropriation, nationalization and limitation or restriction on repatriation of funds, assets or earnings, longer receivables collection periods and greater difficulty in collecting accounts receivable, changes in consumer tastes and trends, renegotiation or nullification of existing contracts or licenses, changes in gaming policies, regulatory requirements or the personnel administering them, currency fluctuations and devaluations, exchange controls, economic sanctions and royalty and tax increases, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, including royalty and tax increases and retroactive tax claims, volatility of financial markets and fluctuations in foreign exchange rates, difficulties in the protection of intellectual property particularly in countries with fewer intellectual property protections, the effects that evolving regulations regarding data privacy may have on the Company’s online operations, adverse changes in the creditworthiness of parties with whom the Company has significant receivables or forward currency exchange contracts, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted. The Company’s operations may also be adversely affected by social, political and economic instability and by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, its business may be harmed.
The Company’s international activities may require protracted negotiations with host governments, national companies and third parties. Foreign government regulations may favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where it conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of United States or enforcing American judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on it. The Company believes that management’s experience to date in commercializing its products, services and solutions in Brazil may be of assistance in helping to reduce these risks. Some countries in which the Company may operate may be considered politically and economically unstable.
Doing business in the industries in which the Company operates often requires compliance with numerous and extensive procedures and formalities. These procedures and formalities may result in unexpected or lengthy delays in commencing important business activities. In some cases, failure to follow such formalities or obtain relevant evidence may call into question the validity of the entity or the actions taken. Management of the Company is unable to predict the effect of additional corporate and regulatory formalities which may be adopted in the future including whether any such laws or regulations would materially increase the Company’s cost of doing business or affect its operations in any area.
The Company may in the future enter into agreements and conduct activities outside of the jurisdictions where it currently carries on business, which expansion may present challenges and risks that the Company has not faced in the past, any of which could adversely affect the results of operations and/or financial condition of the Company.
The Company is subject to foreign exchange and currency risks that could adversely affect its operations, and the Company’s ability to mitigate its foreign exchange risk through hedging transactions may be limited.
The Company expects that it will derive between 15% and 20% of its revenues in currencies other than the United States dollar; however, a substantial portion of the Company’s operating expenses are incurred in United States dollars. Fluctuations in the exchange rate between the U.S. dollar, the Real (Brazil) and other currencies may have a material adverse effect on the Company’s business, financial condition and operating results. The Company’s consolidated financial results are affected by foreign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions denominated in currencies other than United States dollars and from the translation of foreign-currency-denominated balance sheet accounts into United States dollar-denominated balance sheet accounts. The Company is exposed to currency exchange rate fluctuations because portions of its revenue and expenses are denominated in currencies other than the United States dollar, particularly the Real. In particular, uncertainty regarding economic conditions in Brazil pose risk to the stability of the Real. Exchange rate fluctuations could adversely affect the Company’s operating results and cash flows and the value of its assets outside of United States. If a foreign currency is devalued in a jurisdiction in which the Company is paid in such currency, then the Company’s customers may be required to pay higher amounts for the Company’s products or services, which they may be unable or unwilling to pay.
While the Company may enter into forward currency swaps and other derivative instruments intended to mitigate the foreign currency exchange risk, there can be no assurance the Company will do so or that any instruments that the Company enters into will successfully mitigate such risk. If the Company enters into foreign currency forward or other hedging contracts, the Company would be subject to the risk that a counterparty to one or more of these contracts defaults on its performance under the contracts. During an economic downturn, a counterparty’s financial condition may deteriorate rapidly and with little notice, and the Company may be unable to take action to protect its exposure. In the event of a counterparty default, the Company could lose the benefit of its hedging contract, which may harm its business and financial condition. In the event that one or more of the Company’s counterparties becomes insolvent or files for bankruptcy, its ability to eventually recover any benefit lost as a result of that counterparty’s default may be limited by the liquidity of the counterparty. The Company expects that it will not be able to hedge all of its exposure to any particular foreign currency, and it may not hedge its exposure at all with respect to certain foreign currencies. Changes in exchange rates and the Company’s limited ability or inability to successfully hedge exchange rate risk could have an adverse impact on the Company’s liquidity and results of operations.
We may be unable to obtain licenses in new jurisdictions where our customers operate.
We are subject to regulation in any jurisdiction where our customers access our website. To expand into any such jurisdiction we may need to be licensed, or obtain approvals of our products or services. If we do not receive, or receive a revocation of a license in a particular jurisdiction for our products or services, we would not be able to sell or place our products or services in that jurisdiction. Any such outcome could materially and adversely affect our results of operations and any growth plans for our business.
Privacy concerns could result in regulatory changes and impose additional costs and liabilities on the Company, limit its use of information, and adversely affect its business.
Personal privacy has become a significant issue in the United States, Brazil, Europe, and many other countries in which the Company currently operates and may operate in the future. Many federal, state, and foreign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection, use, and disclosure of personal information obtained from individuals. Changes to laws or regulations affecting privacy could impose additional costs and liability on the Company and could limit its use of such information to add value for customers. If the Company were required to change its business activities or revise or eliminate services, or to implement burdensome compliance measures, its business and results of operations could be harmed. In addition, the Company may be subject to fines, penalties, and potential litigation if it fails to comply with applicable privacy regulations, any of which could adversely affect the Company’s business, liquidity and results of operation.
The Company’s results of operations could be affected by natural events in the locations in which it operates or where its customers or suppliers operate.
The Company, its customers, and its suppliers have operations in locations subject to natural occurrences such as severe weather and other geological events, including hurricanes, earthquakes, or flood that could disrupt operations. Any serious disruption at any of the Company’s facilities or the facilities of its customers or suppliers due to a natural disaster could have a material adverse effect on the Company’s revenues and increase its costs and expenses. If there is a natural disaster or other serious disruption at any of the Company’s facilities, it could impair its ability to adequately supply its customers, cause a significant disruption to its operations, cause the Company to incur significant costs to relocate or re-establish these functions and negatively impact its operating results. While the Company intends to seek insurance against certain business interruption risks, such insurance may not adequately compensate the Company for any losses incurred as a result of natural or other disasters. In addition, any natural disaster that results in a prolonged disruption to the operations of the Company’s customers or suppliers may adversely affect its business, results of operations or financial condition.
Risks Related to Regulation
The Company is subject to various laws relating to trade, export controls, and foreign corrupt practices, the violation of which could adversely affect its operations, reputation, business, prospects, operating results and financial condition.
We are subject to risks associated with doing business outside of the United States, including exposure to complex foreign and U.S. regulations such as the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws which generally prohibit U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions and other penalties. It may be difficult to oversee the conduct of any contractors, third-party partners, representatives or agents who are not our employees, potentially exposing us to greater risk from their actions. If our employees or agents fail to comply with applicable laws or company policies governing our international operations, we may face legal proceedings and actions which could result in civil penalties, administration actions and criminal sanctions. Any determination that we have violated any anti-corruption laws could have a material adverse impact on our business. Changes in trade sanctions laws may restrict the Company’s business practices, including cessation of business activities in sanctioned countries or with sanctioned entities.
Violations of these laws and regulations could result in significant fines, criminal sanctions against the Company, its officers or its employees, requirements to obtain export licenses, disgorgement of profits, cessation of business activities in sanctioned countries, prohibitions on the conduct of its business and its inability to market and sell the Company’s products or services in one or more countries. Additionally, any such violations could materially damage the Company’s reputation, brand, international expansion efforts, ability to attract and retain employees and the Company’s business, prospects, operating results and financial condition.
Regulations that may be adopted with respect to the internet and electronic commerce may decrease the growth in the use of the internet and lead to the decrease in the demand for esports products and services.
The Company may become subject to any number of laws and regulations that may be adopted with respect to the internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. As well, current laws, which predate or are incompatible with the internet and electronic commerce, may be applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the context of the internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the internet. The adoption of new laws or regulations relating to the internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the internet, decrease the demand for esports’ products and services, increase esports’ cost of doing business or could otherwise have a material adverse effect on esports’ business, revenues, operating results and financial condition.
Risk Factors Relating to Our Common Stock
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for you to resell your common stock.
Our common stock is quoted on the OTCQB tier of the OTC Markets Group, Inc. (“OTC Markets”). Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in your having difficulty reselling any shares of our common stock.
Once our common stock is listed on Nasdaq Capital Market or NYSE American, there can be no assurance that we will be able to comply with the national stock exchange’s continued listing standards.
We intend to list our common stock on the Nasdaq Capital Market or the NYSE American under the symbol “WINR.” There is no assurance that our listing application will be approved by the Nasdaq Capital Market or the NYSE American. Assuming that our common stock is listed, there can be no assurance any broker will be interested in trading our stock. Therefore, it may be difficult to sell your shares of common stock if you desire or need to sell them. We cannot provide any assurance that an active and liquid trading market in our securities will develop or, if developed, that such market will continue.
If our common stock is approved for listing on the Nasdaq Capital Market or NYSE American, there is no guarantee that we will be able to maintain such listing for any period of time by perpetually satisfying continued listing requirements. Our failure to continue to meet these requirements may result in our securities being delisted from Nasdaq Capital Market or NYSE American, as the case may be.
The market price of our common stock is likely to be highly volatile because of several factors, including a limited public float.
The market price of our common stock has been volatile in the past and the market price of our common stock is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
● actual or anticipated fluctuations in our operating results;
● the absence of securities analysts covering us and distributing research and recommendations about us;
● we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
● overall stock market fluctuations;
● announcements concerning our business or those of our competitors;
● actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
● conditions or trends in the industry;
● litigation;
● changes in market valuations of other similar companies;
● future sales of common stock;
● departure of key personnel or failure to hire key personnel; and
● general market conditions.
Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
Our common stock is currently a “penny stock” under SEC rules. It may be more difficult to resell securities classified as “penny stock.”
Our common stock is currently a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). If our common stock becomes listed on the Nasdaq Capital Market, it will not be considered “penny stock,” however, if we are unable to maintain that listing and our common stock is no longer listed on the Nasdaq Capital Market, unless we maintain a per-share price above $5.00, our common stock will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal remedies available to an investor in “penny stocks” may include the following:
● If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.
● If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.
If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.
If the benefits of any proposed acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the closing of the proposed acquisition may decline. The market values of our common stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In addition, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.
Being a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability to attract and retain qualified directors.
As a public reporting company, we are subject to the reporting requirements of the Exchange Act. These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.
As a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material effect on our business, financial condition and results of operations. These rules and regulations may also make it more difficult and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.
We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of some other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
As a public reporting company with less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
● are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
● are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
● are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);
● are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
● may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and
● are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,070,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter.
We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions.
If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.
Our internal control over financial reporting has weaknesses and conditions that require correction or remediation. For the fiscal year ended May 31, 2022, we identified a material weakness in our assessment of the effectiveness of disclosure controls and procedures. We did not effectively segregate certain accounting duties due to the small size of our accounting staff. We plan to increase the size of our accounting staff at the appropriate time for our business and its size to ameliorate our concern that we do not effectively segregate certain accounting duties, which we believe would resolve the material weakness in disclosure controls and procedures, but there can be no assurances as to the timing of any such action or that we will be able to do so.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the approximately 3,158,161 shares of our common stock outstanding as of September 26, 2022, approximately 742,429 shares are tradable without restriction. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.
Anti-takeover provisions contained in our Certificate of Incorporation, as amended, and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Company’s Certificate of Incorporation, as amended, and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:
● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
● limiting the liability of, and providing indemnification to, our directors and officers;
● controlling the procedures for the conduct and scheduling of stockholder meetings;
● providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and
● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.
Any provision of our Certificate of Incorporation, as amended, or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
We have never paid dividends on our common stock and have no plans to do so in the future.
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock. See “Dividend Policy.”
We will indemnify and hold harmless our officers and directors to the maximum extent permitted by Delaware law.
Our bylaws provide that we will indemnify and hold harmless our officers and directors against claims arising from our activities, to the maximum extent permitted by Delaware law. If we were called upon to perform under our indemnification agreement, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
Even if our recent Reverse Stock Split achieves the requisite increase in the market price of our common stock, there can be no assurance that we will be approved for listing on a national securities exchange or able to comply with other continued listing standards of a national securities exchange.
Even if our recent Reverse Stock Split increased the market price of our common stock sufficiently so that we comply with the minimum market price requirement, we cannot assure you that we will be able to comply with the other standards that we are required to meet in order to be approved for listing on a national securities exchange or maintain a listing of our common stock on such exchange.
The Reverse Stock Split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by the Reverse Stock Split given the reduced number of shares outstanding following the Reverse Stock Split. In addition, the Reverse Stock Split may have increased the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty affecting such sales.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters are located at 7000 W. Palmetto Park Road, Suite 505, Boca Raton, Florida 33433, where we lease approximately 250 rentable square feet of office space from an unaffiliated third party. The term of the lease expired on June 1, 2022, but it continues on a month-to-month basis. Terms of the office lease provide for a base rent payment of $800 per month. As of May 31, 2022, we leased approximately 40,000 rentable square feet of retail and office space from unaffiliated third parties in eleven locations in Florida, Oregon, Texas, California, Missouri, Montana, and Washington State for our corporate offices and gaming centers. These leases expire at various times through July 2030. As of May 31, 2022, terms of the office and retail leases provided for aggregate base rent payments of approximately $39,000 per month with annual price escalations. We believe that these facilities are adequate for our current and near-term future needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Price Range of Securities
Our Common Stock and Public Warrants are quoted on the OTCQB under the symbols “WINR” and “WINRW”, respectively.
The following table includes the high and low bids for our Common Stock and Public Warrants for the fiscal years ended May 31, 2022 and 2021.
Common Stock (1) Public Warrants (2)
High Low High Low
Fiscal Year 2022
March 1 to May 31, 2022 $ 3.30
$ 1.21
$ 0.049
$ 0.02
December 1, 2021 to February 28, 2022 7.00
3.00
0.19
0.03
September 1 to November 30, 2021 10.60
6.25
0.23
0.11
June 1 to August 31, 2021 14.30
9.50
0.35
0.11
Fiscal Year 2021
March 1 to May 31, 2021 $ 22.00 $ 10.60 $ 0.85 $ 0.29
December 1, 2020 to February 28, 2021 21.08 11.00 0.87 0.29
September 1 to November 30, 2020 16.30 6.68 0.41 0.17
June 1 to August 31, 2020 18.64 6.46 0.39 0.17
On September 23, 2022, the closing prices of our Common Stock and Public Warrants were $0.0403 and $0.0177, respectively. As of September 26, 2022, we had 3,158,161 shares of Common Stock, approximately 682,688 Public Warrants and approximately 2,696,335 Private Warrants issued and outstanding.
Holders
As of September 26, 2022, there were approximately 152 holders of record of our common stock and 64 holders of record of our public warrants.
Dividends
The Company has not paid any dividends on its common stock to date. It is the present intention of the Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate the board of directors declaring any dividends in the foreseeable future on our common stock. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the foreseeable future, we may have trouble raising additional funds which could affect our ability to expand our business operations.
Recent Sales of Unregistered Securities
During the year ended May 31, 2022, the Company issued unregistered shares of its common stock as follows:
● On June 1, 2021, the Company issued 7,500 shares of its common stock, valued at $12.51 per share, as compensation to a third-party vendor for services;
● On June 11, 2021, the Company issued 11,875 shares of its common stock, valued at $14.00 per share, in association with a convertible promissory note issued to an accredited investor (See Note 7- Debt)
● On June 16, 2021, the Company issued 3,125 shares of its common stock, valued at $11.80 per share, in association with a convertible promissory note issued to an accredited investor (See Note 7 - Debt)
● On June 23, 2021, the Company issued 9,346 shares of its common stock, valued at $10.70 per share, as consideration for $100,000 in account payable due to a third-party vendor;
● On July 26, 2021, the Company issued 4,500 shares of its common stock, valued at $16.72 per share, as compensation to a third-party vendor for services;
● On July 22, 2021, the Company issued 6,000 shares of its common stock, valued at $10.85 per share, as consideration for the acquisition of certain assets (See Note 5 - Acquisitions);
● On August 4, 2021, the Company issued 20,000 shares of its common stock, valued at $9.56 per share, as a portion of the consideration for the full extinguishment of a convertible promissory note and associated accrued interest payable. The Company recognized a loss on the entire extinguishment transaction totaling $262,819 (See Note 7- Debt);
● On August 20, 2021, the Company issued 82,500 shares of its common stock, valued at $10.10 per share, as compensation to officers and directors of the Company;
● On August 20, 2021, the Company issued 1,375 shares of its common stock, valued at $10.10 per share, as compensation to a third-party vendor for services;
● On August 23, 2021, the Company issued 3,125 shares of its common stock, valued at $10.12 per share, in association with a convertible promissory note issued to an accredited investor (See Note 7 - Debt);
● On August 31, 2021, the Company issued 1,039 shares of its common stock, valued at $9.40 per share, as compensation to a third-party vendor for services;
● On August 31, 2021, the Company issued 3,749 shares of its common stock, valued at $10.16 per share, in association with a convertible promissory note issued to an accredited investor (See Note 7 - Debt
● On September 28, 2021, the Company issued 14,584 shares of its common stock, valued at $8.50 per share, in association with a convertible promissory note issued to an accredited investor (See Note 7 - Debt);
● On October 14, 2021, the Company issued 7,500 shares of its common stock, valued at $9.00, as compensation to a third-party vendor for services;
● On November 2, 2021, the Company issued 2,156 shares of its common stock, valued at $8.74 per share, as compensation to employees of the Company;
● On November 24, 2021, the Company issued 10,524 shares of its common stock, valued at $8.09 per share, as consideration for $63,143 in account payable due to a third-party vendor. In association with this issuance, the Company recognized $21,997 as a loss on the issuance of these shares;
● On March 21, 2022, the Company issued 2,573 shares of its common stock, valued at $3.00 per share, in association with convertible promissory notes issued to four accredited investors (See Note 7 - Debt);
● On April 1, 2022, the Company issued 703 shares of its common stock, valued at $3.00 per share, in association with convertible promissory notes issued to four accredited investors (See Note 7 - Debt)
● On April 6, 2022, the Company issued 20,000 shares of its common stock, valued at $2.90 per share, as consideration for $50,000 in account payable due to a third-party vendor. In association with this issuance, the Company recognized $8,000 as a loss on the issuance of the shares;
● On April 18, 2022, the Company issued 53,720 shares of its common stock, valued at $2.77, to an accredited investor upon conversion of $50,333 in principal and $3,387 in associated accrued interest payable due under a convertible promissory note. In association with this issuance, the Company recognized $95,085 as a loss on the extinguishment of debt (See Note 7 - Debt);
● On April 25, 2022, the Company issued 87,800 shares of its common stock, valued at $2.61 per share, to an accredited investor upon conversion of $87,800 in principal due under a convertible promissory note. In association with this issuance, the Company recognized $141,358 as a loss on the extinguishment of debt (See Note 7 - Debt); and
● On April 29, 2022, the Company issued 50,000 shares of its common stock, valued at $2.20, to an accredited investor upon conversion of $50,000 in principal due under a convertible promissory note. In association with this issuance, the Company recognized $60,000 as a loss on the extinguishment of debt (See Note 7 - Debt).
In addition, on November 17, 2021, the Company issued 275,000 stock purchase options to two officers of the Company. The options were exercisable at $7.78 per share. Options granted on November 17, 2021, were to vest as follows: 68,750 on November 17, 2021, 68,750 on May 17, 2022, 68,750 on November 17, 2022, and 68,750 on May 17, 2023. The options granted on November 17, 2021, were to be exercisable for a period of five years from the date of grant. The options granted on November 17, 2021, were forfeited effective March 1, 2022.
Also, on May 6, 2022, the Company issued 500,000 stock purchase options to two officers and six directors of the Company. The options are exercisable at $2.77 per share. Options granted on May 6, 2022, vest as follows: 50% of the total issued at the date of grant, 25% on the 90-day anniversary of the date of grant, and 25% vest on the 180-day anniversary of the date of grant. The options are exercisable for a period of three years from the date of grant.
The above shares were issued pursuant to an exemption from the registration requirements of the Securities Act available to the Company by Section 4(a)(2) promulgated thereunder.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References herein to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company and its consolidated subsidiaries. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere herein.
Overview
We are a global esports organization, that is capitalizing on the growth in esports through two business units: Simplicity Esports, LLC (“Simplicity Esports LLC”) and PLAYlive Nation, Inc. (“PLAYlive”). During the fiscal year ended May 31, 2022, we also had a third business unit: Simplicity One Brasil Ltda (“Simplicity One”). During the first quarter of the fiscal year ending May 31, 2023, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments.
Our Esports Teams
We own and manage multiple professional esports teams. Revenue is generated from prize winnings, corporate sponsorships, advertising, league subsidy payments and potential league revenue sharing payments from the publishers of video games.
Through our wholly owned subsidiary, Simplicity Esports LLC, we own and manage multiple professional esports teams competing in games such as Heroes of the Storm. We are committed to growing and enhancing the esports industry, fostering the development of amateurs to compete professionally and signing established professional gamers to support their paths to greater success.
In addition, from January 2020 to July 2022, we managed Flamengo eSports, one of the leading Brazilian League of Legends® teams competing in the top tier league CBLoL, through our 76% owned subsidiary, Simplicity One. In July 2022, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments.
Online Tournaments
In response to demand from customers for online esports tournaments which was likely triggered by the social distancing protocols attendant to the COVID-19 pandemic, we introduced in March 2020 an initiative of online esports tournaments. Since March 2020, through our wholly owned subsidiary, Simplicity Esports LLC, we had been holding online esports tournaments in the United States. As of August 2022, we have temporarily ceased organizing online tournaments while focusing on expense reduction and operational efficiency.
Our Gaming Centers
As of May 31, 2022, we had 29 operational locations (17 corporate locations and 12 franchise locations), through our subsidiaries throughout the U.S., giving casual gamers the opportunity to play in a social setting with other members of the gaming community. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months.
In addition, aspiring and established professional gamers have an opportunity to compete in local and national esports tournaments held in our gaming centers for prizes, notoriety, and potential contracts to play for one of our professional esports teams. In this business unit, revenue is generated from franchise royalties, the sale of game time, memberships, tournament entry fees, birthday party events, corporate party events, concessions and gaming-related merchandise.
Our business plan encompasses a brick-and-click physical and digital approach to further recognize revenue from all verticals, which we believe to be unique in the industry. The physical centers, together with our esports teams, lifestyle brand and marketing campaigns offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360-degree approach driving traffic to both our digital platform, tournaments (online and in-person), and physical real estate to maximize the monetization opportunities with these relationships. In addition, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
Optimally, the esports gaming centers of Simplicity Esports LLC (“Simplicity Esports Gaming Centers”) measure between 2,000 and 4,000 square feet, with dozens of gaming stations. The Simplicity Esports Gaming Centers feature cutting edge technology, futuristic aesthetic décor and dynamic high-speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing monetization opportunity for sponsors and advertisers. As of September 26, 2022, our corporate owned stores operate in approximately 40,000 square feet of retail space in desirable, high traffic locations.
Creating content that engages fans, sponsors and developers, while promoting our brand is one of our primary goals. In August 2021, we announced a partnership with Television Korea 24 (“ESTV”) to provide esports and gaming content for their 24-7 live linear channel around the world. ESTV can be viewed in over 45 countries, including the U.S. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We believe we possess a deep perception of our markets and understand the new age of branding while maintaining authenticity to the gaming community that comprises our fanbase.
As a result of COVID-19, all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. See “Risk Factors-Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.”
Corporate Gaming Centers
As of May 31, 2022, we operated 17 corporate-owned retail Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months.
Franchised Gaming Centers
Due to interest from potential franchisees, in 2019 we launched a franchising program to accelerate the expansion of our planned nationwide footprint. We sell specific franchise territories, through our wholly owned subsidiary PLAYlive, and assist with the establishment and buildout of esports gaming centers to potential business owners that desire to use our branding, infrastructure and process to open and operate gaming centers. We currently operate 12 fully constructed franchise esports gaming centers. Franchise revenue is generated from the sale of franchise territories, supplying furniture, equipment and merchandise to the franchisees for buildout of their centers, a gross sales royalty fee and a national marketing fee. We license the use of our branding, assist in identifying and negotiating commercial locations, assist in overseeing the buildout and development, provide access to proprietary software for point of sale, inventory management, employee training and other HR functions. Franchisees also have an opportunity to participate in our national esports tournament events. Once an esports gaming center is opened, we provide operational guidance, support and use of branding elements in exchange for a monthly royalty fee calculated as 6% of gross sales. Prior to selling a franchise, among other things, the Company is required to provide a potential franchisee with a franchise disclosure document. We do not currently have an active franchise disclosure document.
The combination of the esports gaming centers, owned or franchised by our wholly owned subsidiaries Simplicity Esports LLC or PLAYlive, provides us with what we believe is one of the largest esports gaming center footprints in North America.
Franchise Roll Up Strategy
We began implementing a franchise roll-up strategy in July 2020 because of the disruption caused by COVID-19 related stay-at-home orders, and the disruption it caused to the commercial real estate market. The reduction in revenues for some franchisees because of stay-at-home orders, and government mandates to remain closed created significant accrued rent payments due to landlords. We have been able to come to terms with many franchisees to acquire the assets of their gaming centers and make them corporate owned. We have simultaneously negotiated new leases with some of the largest national mall chains, including Simon Property Group and Brookfield Asset Management, and are in the process of negotiating additional locations with other landlords. The new leases involve significant reductions in or elimination of fixed rent and the addition of percentage of revenues rent terms.
Our Stream Team
The Simplicity Esports LLC stream team encompasses commentators (commonly known as “casters”), influencers and personalities who connect to a dedicated fan base. Our electric group of live personalities represent our organization to the fullest with their own unique style. We are proud to support and present a diverse group of gamers as we engage fans across a multitude of esports genres. Our Twitch affiliation has enabled our stream team to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis. Through Simplicity Esports LLC, we have begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry.
COVID-19
As a result of COVID-19, all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Gaming Centers, the majority of which are operating at restricted capacity based on local COVID-19 regulations. Subsequent to May 31, 2022, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Although our franchise agreements with franchisees of Simplicity Esports Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Esports Gaming Centers are operating, a limited number of the franchisees of Simplicity Esports Gaming Centers have defaulted on their obligations to pay their minimum monthly royalty payment to us. This has resulted in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. As of May 31, 2022, we have recorded an allowance for doubtful accounts of approximately $39,000 and have written off $4,000, partly in conjunction with taking back certain franchises and converting them to company owned stores. Notwithstanding our efforts to support franchisees and still collect on receivables, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. We have waived the minimum monthly royalty payment obligations from July 2020 through present day and are instead billing the franchisees a true-up of 6% of gross sales without a minimum. We continue to assess possible similar accommodations to the franchisees in light of the impact of COVID-19. Additionally, the disruptions in commercial real estate caused by COVID-19 lockdowns have allowed the Company to strengthen its existing relationships with national landlords by signing new locations with percentage rent leases.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.
The measures taken to date adversely impacted the Company’s business during the year ended May 31, 2022 and will potentially continue to impact the Company’s business. Management observes that all business segments continue to be impacted by reduced foot traffic that began as a result of COVID-19 lockdowns and has continued as consumer habits have changed.
For the fiscal years ended May 31, 2022 and 2021, we generated revenues of $3,552,665 and $1,551,923 and reported net losses of $17,838,138 and $6,096,855, respectively. Net cash used in operating activities for the fiscal years ended May 31, 2022 and 2021 was $2,679,110 and $1,617,914, respectively. As of May 31, 2022, we had an aggregate accumulated deficit of $29,838,444. We anticipate that we will continue to report losses and negative cash flow. There is substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk Factors-We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.”
Results of Operations
The following table summarizes our operating results for the fiscal years ended May 31, 2022 and 2021.
Fiscal Year Fiscal Year
Ended Ended
May 31, 2022 May 31, 2021
Franchise royalties and license fees $ 262,663 $ 151,634
Franchise deposit revenue 31,987 154,291
Company-owned stores and other revenue 2,897,293 1,053,226
Esports revenue 360,722 192,772
Total revenue 3,552,665 1,551,923
Less: Cost of goods sold (2,492,238 ) (1,014,310 )
Gross margin 1,060,427 537,613
Operating expenses (12,090,974 ) (5,335,112 )
Other expense (6,807,591 ) (1,397,329 )
Net loss attributable to non-controlling interest 291,593 97,973
Net Loss $ (17,838,138 ) $ (6,096,855 )
Summary of Statement of Operations for the Fiscal Year Ended May 31, 2022 and 2021:
Revenue
We generated $3,552,665 of revenue for the fiscal year ended May 31, 2022 as compared to $1,551,923 for the fiscal year ended May 31, 2021. The increase in revenue was principally due to the increase in the number of company owned stores we operate, offset by a slight reduction in franchise royalties and franchise deposit revenue as franchises were converted to company owned stores.
Franchise royalties, franchise deposit and termination revenue and company-owned stores sales and other revenues, totaled $3,191,943 and $1,359,151, for the fiscal years ended May 31, 2022 and 2021. In addition, esports revenue was $360,722 during the fiscal year ended May 31, 2022, up from $192,772 in the fiscal year ended May 31, 2021. This increase was due to inclusion of the full year of operations of Simplicity One Brazil which was acquired in January 2020. In July 2022, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments.
Cost of Goods Sold
Cost of goods sold during the fiscal years ended May 31, 2022 and 2021 totaled $2,492,238 and $1,014,310, respectively. Cost of goods sold is related to player and team expenses related to esports revenues and cost of gaming system and store merchandise sold at company owned stores, including the depreciation on the gaming equipment needed to generate these revenues. The increase is cost of goods sold is directly related to the increase in company owned store revenues.
Operating Expenses
Operating expenses for the fiscal year ended May 31, 2022 totaled $12,090,974, a $6,755,862 increase from the $5,335,112 of operating expense in the fiscal year ended May 31, 2021. The increase was the result of impairment expenses of $4,031,244 recorded in connection with the impairment of goodwill and other intangible assets, impairment expense of $1,355,156 recorded in connection with the right-of use-asset, inventory and fixed assets, increased compensation and related benefits of approximately $476,000, primarily due to a $429,000 decrease in stock-based compensation, coupled with a $900,000 increase in salaries, wages and the related insurance and taxes, predominantly driven by the increase in employees related to the new company owned stores; an increase in professional fees of $669,000, of which $436,000 was for increased legal, accounting and consulting services; an increase in general and administrative expenses of $633,000, primarily due to an increase in amortization of $108,000, an increase in rent of $170,000, and an increase in utilities of $90,000.
Other Expense
Other expense represented an expense of approximately $6,808,000 and $1,400,000 during the fiscal years ended May 31, 2022 and 2021, respectively. The increase in other expense of $5,408,000 is due to an increase of $2,946,000 of interest expense on the notes payable mentioned herein, a $2,290,000 increase in debt forgiveness expense.
Net Loss Attributable to Non-Controlling Interest
As part of the conversion of franchises into company-owned stores, two of the original franchisees retained a 21% interest in the stores, one retained a 49% interest and 24% of our interest in Simplicity One Brasil, some of which is owned by Jed Kaplan, our former Chairman of the Board. As such, a portion of the net loss incurred during the year is allocated to those parties. For the fiscal year ended May 31, 2022, the net loss attributable to non-controlling interest was $291,593, which represents an increase of $193,620 from the year ended May 31, 2021.
Liquidity and Capital Resources
In 2018, the completion of the Initial Public Offering and simultaneous Private Placement, inclusive of the underwriters’ exercise of their over-allotment option, generated gross proceeds to the Company of $54,615,000. Related transaction costs amounted to approximately $3,838,000, consisting of $3,360,000 of underwriting fees, including $1,820,000 of deferred underwriting commissions payable (which was held in the Trust Account) and $478,000 of Initial Public Offering costs.
Following the Initial Public Offering and the underwriter’s partial exercise of the over-allotment option, a total of $52,780,000 was placed in the Trust Account and we had $552,190 of cash held outside of the Trust Account, after payment of all costs related to the Initial Public Offering.
On November 20, 2018, in connection with the closing of our initial Business Combination, the funds in the Trust Account were used for, among other things, the following:
● $45,455,596 to redeem 4,448,260 shares
● $7,255,306 to fund the escrow agreement for Polar and K2
● $150,000 to fund our investment in Smaaash
As of May 31, 2020, we had no cash and marketable securities held in the Trust Account.
As of May 31, 2022 and 2021, we had cash of $103,000 and $414,000, which is available for use by us to cover the costs associated with general corporate purposes. In addition, as of May 31, 2022 and 2021, we had accounts payable and accrued expenses of $2,360,000 and $1,605,000, respectively.
For the fiscal years ended May 31, 2022 and 2021, cash used in operating activities amounted to $2,679,110 and $1,617,914, respectively. The increase in net cash used of approximately $1,061,000 is due to a decrease in shares for services of approximately $1,900,000, an increase in non-cash interest expense of approximately $2,400,000, increased impairment losses of approximately $5,000,000, an increase in depreciation and amortization charges of approximately $110,000 and an increase in debt forgiveness expense of approximately $2,290,000, offset by an increased net loss of approximately $11,600,000. In addition, changes in our operating liabilities and assets provided approximately $1,500,000 of cash, an increase of approximately $1,700,000 from May 31, 2021. The increase in cash provided is due to increased accrued expenses of approximately $930,000, a reduction in deferred revenues of approximately $125,000, a decrease in inventory of approximately $40,000, a decrease in prepaid expenses and security deposits of approximately $20,000 and a decrease in due from franchisee of approximately $45,000, offset by reduced accounts receivable of approximately $132,000 and decreased deferred brokerage fees of approximately $61,000. Cash used in investing activities amounted to $515,179, an increase of $363,230 from the prior year. The increase is attributable to increased purchase of property and equipment of $359,000. Cash provided from financing activities amounted to $2,833,500, an increase of $1,534,000 over the prior year. The increase is mainly attributable to a net cash increase of $1,087,000 for the net effect of the issuance in notes payable, coupled with an increase in funds received from private placement units of $379,000, an increase non-controlling interest in subsidiaries of $179,000, offset by an increase in deferred financing costs of $111,000.
We will need to raise additional funds in order to meet the expenditures required for operating our business.
Off-balance sheet arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements, the Company has an accumulated deficit as of May 31, 2022, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the financial statements are issued.
The Company’s cash position may not be sufficient to support the Company’s daily operations. Management plans to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities.
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As a result of COVID-19, all of our corporate and franchised Simplicity Gaming Centers had been closed effective April 1, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us. As of May 31, 2020, some of our franchised gaming centers have begun to re-open.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.
The measures taken to date adversely impacted the Company’s business during the year ended May 31, 2022 and will potentially continue to impact the Company’s business. Management observes that all business segments continue to be impacted by reduced foot traffic that began as a result of COVID-19 lockdowns and has continued as consumer habits have changed.
Contractual obligations
We do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities, except as follows:
The Company has entered into various lease agreements in support of our corporate offices and our gaming centers. All of the Company’s gaming center leases have been recorded with the appropriate Right of Use (“ROU”) asset and related liability.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived principally from two sources, the first is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.
Intangible Assets and impairment
Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. The Company had intangible assets subject to amortization related to its acquisition of Simplicity Esports, LLC. These costs were included in intangible assets on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the costs, which is 3 to 5 years.
The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the year ended May 31, 2022, the Company performed an internal valuation to review our intangible assets and based upon this valuation, Then Company recorded an impairment charge of $324,000
Goodwill
Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. Our assessment date was May 31, 2022, and the company performed an internal valuation to review our goodwill and based upon this valuation, the Company recorded an impairment charge of $3,707,000.
Operating Lease Right-of-Use Assets and Operating Lease Liabilities
The Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification Topic 842, Leases (Topic 842) and has elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply Topic 842 to arrangements with lease terms of 12 months or less. The Company has entered into various lease agreements mainly to support the operations of its gaming centers.
The significant assumption used to determine the present value of the lease liability was a discount rate ranging from of 12% which was based upon the Company’s estimated incremental borrowing rate at the start of the lease term.
The Company has recorded an impairment charge of $1,355,000 related to the fact that multiple stores were closed subsequent to the end of reporting period.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Reference is made to Pages through comprising a portion of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and principal financial officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2022. Based upon this evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of May 31, 2022.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Controls over Financial Reporting
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of May 31, 2022. Our management’s evaluation of our internal control over financial reporting was based on the 2013 framework in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of May 31, 2022, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weakness which we identified in our internal control over financial reporting:
● Lack of Segregation of Duties - Our finance and accounting department is understaffed and accordingly we cannot maintain sufficient segregation of duties within the financial reporting process.
● Lack of Adequate Staff - The Company does not have enough staff to timely review and approve all the transactions that occur. The Company does not have enough oversight at each of the gaming center locations. Our finance and accounting department is understaffed and the Company relies heavily on its Chief Executive Officer to supply documentation.
Lack of a Systems Control - The Company utilizes a third-party accounting software to maintain its books and records. This third-party system lacks sufficient controls to be considered an effective control environment.
● Lack of Proper Records Retention - There is no centralized file repository for the retention of documentation underlying the financial statements of the Company. Additionally, there is a lack of proper systems to adequately capture and report on the transactions that occur.
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management believes that the material weakness set forth above did not have an effect on our Company’s financial results.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm in accordance with applicable rules of the SEC.
Changes in Internal Control over Financial Reporting
During the three months ended May 31, 2022, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth information regarding our directors and executive officers:
Name
Age
Position
Roman Franklin
Chief Executive Officer, principal financial officer and Class I Director of the Company
Max Hooper
Class II Director of the Company
Edward Leonard Jaroski
Class I Director of the Company
William H. Herrmann, Jr.
Class II Director of the Company
On May 18, 2022, Jed Kaplan submitted his resignation as a member of the Board of Directors, effectively immediately. Mr. Kaplan’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. On June 23, 2022, Laila Cavalcanti Loss submitted her resignation as a member of the Board. On June 30, 2022, Frank Leavy submitted his resignation as a member of the Board, and Beatrice Tarka submitted her resignation as Chairperson of the Board and as a member of the Board. The resignations of Ms. Loss, Mr. Leavy, and Ms. Tarka were not because of a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On June 28, 2022, Nancy Hennessey submitted her resignation as the Company’s Chief Financial Officer, effective June 30, 2022. Ms. Hennessey’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. The Company has commenced a search for Ms. Hennessey’s replacement. Until a replacement Chief Financial Officer is appointed, Roman Franklin, the Company’s Chief Executive Officer, a member of the Board and a greater than 5% stockholder of the Company, will act as the Company’s principal financial officer and principal accounting officer.
Roman Franklin. Mr. Franklin has been a member of our board of directors since August 16, 2017, our Chief Executive Officer since March 29, 2021, and our principal financial officer since May 18, 2022. From December 31, 2018 until March 31, 2021, Mr. Franklin served as our President. Mr. Franklin was Chief Investment Officer of SMC Global USA from March 2016 until December 31, 2016, and prior, President of Franklin Financial Planning from 2005 to 2016. Mr. Franklin is a 16-year veteran of the financial services industry. By the age of 22 he held FINRA Series 7, Series 66, and Life, Health, and Variable Insurance Licenses. In 2005, he founded a fee-only registered investment advisory firm. In 2008, he was one of the youngest recipients of the National Association of Financial Advisors (“NAPFA”) Registered Financial Advisor (RFA) designation. In 2015, he was elected as a Board Member of the NAPFA, South Region Board of Directors, overseeing more than a dozen states from Texas, to Florida, to North Carolina. Mr. Franklin has experience in domestic and international investment, and has been involved in multiple business transactions tied to India. Mr. Franklin holds a Bachelor of Science degree in Management from Barry University and an M.B.A. in Finance from the Graduate School of Business at Stetson University. His civic organization roles include School Advisory Council for Volusia County Schools, City of DeLand Economic Development Committee, and the Boys’ and Girls’ Clubs of Central Florida.
We believe Mr. Franklin’s strong expertise in finance and international and domestic business transactions qualifies him to serve on our board of directors.
Max Hooper. Dr. Hooper, who has been an independent member of our board of directors since August 16, 2017, serves as Managing Director of Merging Traffic, a web-based crowdsourcing portal, since September 2015 and Head of Investment Banking and Senior Vice President of Triloma Securities, a subsidiary of Triloma Financial Group LLC, since January 2016. Dr. Hooper is also the founder and owner of Partners Advisory Group and Partners Capital Group, two financial advisory firms since January 2014. Since February 2018, Dr. Hooper’s primary focus has been as Managing Director/CEO of Managing Traffic and co-owner of Triloma Financial Group. Prior to that, Dr. Hooper was co-founder of Equity Broadcasting Corporation, a media company that owned and operated more than one hundred television stations across the United States. Dr. Hooper is an accomplished entrepreneur and has started multiple businesses in technology/internet, lodging, and services industries. Dr. Hooper has served on the investment committee of several venture capital and angel funds, and has completed “work out” transactions as a Certified Debt Arbitrator representing banks and private transactions. Dr. Hooper also has prior experience with SPACs such as transaction structuring, administration, research, and execution. Dr. Hooper has earned five doctorate degrees from a variety of institutions.
We believe Dr. Hooper’s expertise in investment, management and mergers and acquisitions over various industries qualify him to serve on our board of directors.
Edward Leonard Jaroski. Mr. Jaroski has been an independent member of our board of directors since October 2017. Mr. Jaroski was the founder of Capstone Asset Management Company and had served as its President and Chief Executive Officer from 1987 to March 2016. Mr. Jaroski was Chairman, Chief Executive Officer and President of various Capstone/Steward Funds in the fund complex from 1987 through 2016. Mr. Jaroski was at Tenneco Financial Services from 1981 to 1987, where he was the Executive Vice President. He started his career at Philadelphia Life Insurance Company as Manager of Investments in 1969, where he served until 1981 and also served as its Vice President of Finance. He also served as a Director of Philadelphia Life Asset Management Company. Mr. Jaroski holds the insurance industry professional designations of Chartered Life Underwriter, Charter Financial Consultant and Fellow Life Management Institute. He holds a B.B.A. degree in Accounting from Temple University.
We believe Mr. Jaroski’s experience in investments and asset management qualify him to serve on our board of directors.
William H. Herrmann, Jr. Mr. Herrmann has been an independent member of our board of directors since October 2017. Mr. Herrmann has over 45 years of experience in financial services, and insurance and investment planning industries. Presently, Mr. Herrmann is the Owner of Herrmann & Associates, a financial services firm affiliated with Hudson Heritage Capital Management Inc., a Registered Investment Advisor since February 15, 2006. Mr. Herrmann has also served as an independent Director of Steward Funds, from 2011 until 2017. Mr. Herrmann served as the Chairman of the Nominating and Corporate Governance Committee and was Chairman of the Contracts Committee. He previously served as Independent Lead Director of Steward Funds. Mr. Herrmann is also an Independent Director of Church Capital Fund, where he served as Chairman of the Nominating and Corporate Governance Committees.
Mr. Herrmann is a member of the Advisory Committee to the Liquidation Trustee for Church Capital Fund Liquidation Trust under TMI Trust Company. Mr. Herrmann is also a Trustee of LuLu Shriners Investment Advisory Committee and the Chairman of Beta Rho Property Company. Mr. Herrmann holds a B.A. from the University of Pennsylvania, and an MBA from Temple University, and holds the Chartered Life Underwriter (CLU) designation from American College. Mr. Herrmann holds Series 7, 63, and 65 securities licenses as well as insurance licenses in multiple states.
We believe Mr. Herrmann’s experience in financial services and the investment planning industry qualify him to serve on our board of directors.
Our officers and board of directors are well qualified as leaders. In their prior positions they have gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Our officers and directors also have experience serving on boards of directors and board committees of other public companies and private companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies.
Number and Terms of Office of Officers and Directors
Our board of directors is currently comprised of four directors, divided into two classes, Class I and Class II, with only one class of directors being elected in each year and each class serving a two-year term. There are four Class I directors and two Class II directors.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Board Committees and Director Independence
Our common stock is presently quoted on the OTCQB under the symbol “WINR.” Our warrants issued in connection with our IPO in August 2017 are currently listed on OTCQB under the symbol “WINRW.” Under the rules of the OTCQB, we are not required to maintain a majority of independent directors on our Board of Directors and we are not required to establish committees of the Board of Directors consisting of independent directors. However, we intend to list our common stock on the Nasdaq Capital Market or NYSE American. In order to list our common stock on the Nasdaq Capital Market or NYSE American, we are required to comply with the applicable national securities exchange’s standards relating to corporate governance, requiring, among other things, that:
● A majority of our Board of Directors to consist of “independent directors” as defined by the applicable rules and regulations of the Nasdaq Capital Market or the NYSE American, as applicable;
● The compensation of our executive officers to be determined, or recommended to the Board of Directors for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a Compensation Committee comprised solely of independent directors;
● That director nominees to be selected, or recommended to the Board of Directors for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors; and
● Establishment of an audit committee with at least three independent directors as well as composed entirely of independent directors, where at least one of the independent directors qualifies as an audit committee financial expert under SEC rules and as a financially sophisticated audit committee member under the applicable exchange rules.
Our Board of Directors has determined in its business judgment that each of Messrs. Jaroski and Herrmann and Dr. Hooper is independent within the meaning of the applicable Nasdaq Capital Market and NYSE American rules, the Sarbanes-Oxley Act and related SEC rules. Therefore, a majority of the members of our Board of Directors is not independent.
In addition, our Board of Directors has two standing committees: an Audit Committee and a Compensation Committee.
Committees of the Board of Directors
Our board of directors has two standing committees: an audit committee and a compensation committee. Both our audit committee and our compensation committee are composed solely of independent directors.
Audit Committee
Messrs. Leavy and Dr. Hooper serve as members of our audit committee. The Company plans to appoint one of its board members as a member of the audit committee and appoint one of the current members of the audit committee as chairman of the audit committee in the near future. Under Nasdaq Capital Market and NYSE American listing standards and applicable SEC rules, we are required to have three members of the audit committee, all of whom must be independent. Messrs. Leavy and Dr. Hooper are independent.
Each member of the audit committee is financially literate and our board of directors has determined that the new chairman of the audit committee, to be appointed in the near future, will qualify as an “audit committee financial expert” as defined in applicable SEC rules.
Responsibilities of the audit committee include:
● the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us;
● pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures;
● reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence;
● setting clear hiring policies for employees or former employees of the independent auditors;
● setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
● obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within, the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
● reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
● reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
Compensation Committee
The members of our compensation committee are Mr. Jaroski and Dr. Hooper. The Company plans to appoint one of its board members as a member of the compensation committee and appoint one of the current members of the compensation committee as chairman of the compensation committee in the near future. We have adopted a compensation committee charter, which details the principal functions of the compensation committee, including:
● reviewing and approving the compensation of all of our other executive officers;
● reviewing our executive compensation policies and plans;
● implementing and administering our incentive compensation equity-based remuneration plans;
● assisting management in complying with our proxy statement and annual report disclosure requirements;
● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees;
● producing a report on executive compensation to be included in our annual proxy statement; and
● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the applicable national securities exchange and the SEC.
Director Nominations
We do not have a standing nominating committee. In accordance with Rule 5605(e)(1)(A) of the Nasdaq Listing Rules and Section 804(a) of the NYSE American Company Guide, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees are Messrs. Jaroski and Herrmann, and Dr. Hooper. In accordance with Nasdaq Capital Market and NYSE American rules, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.
The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election. Our stockholders that wish to nominate a director for election to the board of directors should follow the procedures set forth in our bylaws.
We have not formerly established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and employees. We previously filed a copy of our form of Code of Ethics as an exhibit to our registration statement on Form S-1 (File 333-219251). You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K. See “Where You Can Find Additional Information.”
Limitation on Liability and Indemnification of Officers and Directors
Our third amended and restated certificate of incorporation, as amended, provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our restated certificate provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the Delaware General Corporation Law (“DGCL”).
We have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our third amended and restated certificate. Our bylaws also permit us to maintain insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification we provide to our officers and directors will only be able to be satisfied by us if we have sufficient funds outside of the trust account.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
The Board’s Role in Risk Oversight
Although our management is primarily responsible for managing our risk exposure on a daily basis, our board of directors oversees the risk management processes. Our board, as a whole, determines the appropriate level of risk for our Company, assesses the specific risks that we face, and reviews management’s strategies for adequately mitigating and managing the identified risks. Although our board administers this risk management oversight function, our audit committee supports our board in discharging its oversight duties and addresses risks inherent in its area.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that except as set forth below, no Section 16(a) reporting persons failed to timely file their required Section 16(a) reports during the year fiscal ended May 31, 2022.
● Ms. Hennessey, the Company’s former Chief Financial Officer, failed to timely file a Form 3.
● Ms. Loss, a former member of the Company’s Board of Directors, failed to timely file a Form 3.
In addition, during the fiscal year ended May 31, 2022, the following directors filed Form 4s reporting previously unreported transactions from prior fiscal years:
● Mr. Jaroski, a former member of the Company’s Board of Directors, filed a Form 4 reporting five transactions from the fiscal year ended May 31, 2019, and one transaction from each of the fiscal years ended May 31, 2020 and 2021.
● Mr. Caldwell, a former member of the Company’s Board of Directors, filed a Form 4 reporting two transactions from the fiscal year ended May 31, 2019, and one transaction from the fiscal year ended May 31, 2021.
● Mr. Leavy, a former member of the Company’s Board of Directors, filed a Form 4 reporting two transactions from the fiscal year ended May 31, 2019, and one transaction from the fiscal year ended May 31, 2021.
● Mr. Hooper, a former member of the Company’s Board of Directors, filed a Form 4 reporting five transactions from the fiscal year ended May 31, 2019, and one transaction from the fiscal year ended May 31, 2021.
Director Compensation
During the fiscal year ended May 31, 2022, executive officers who are also directors do not receive any additional compensation for their services as directors. Compensation for members of the Board is reviewed annually by the Compensation Committee. The Compensation Committee may not delegate its authority regarding director compensation, and, except as described above, no executive officer plays a role in determining the amount of director compensation. The Compensation Committee considers the amount of time directors dedicate to Company matters and the need to attract and retain qualified directors when determining Board compensation.
Fiscal Year Ended May 31, 2022 Director Compensation Table
Name Fees earned or paid in cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-equity incentive plan compensation
($)
Nonqualified deferred compensation earnings
($)
All Other Compensation
($)
Total
($)
Donald R. Caldwell (3) $ - $ $ - $ - $ - $ - $
Edward Leonard Jaroski $ - $ - $ 14,950 $ - $ - $ - $ 14,950
Frank Leavy (5) $ - $ $ 14,950 $ - $ - $ - $ 14,950
William H. Herrmann, Jr. $ - $ $ 14,950 $ - $ - $ - $ 14,950
Max Hooper $ - $ $ 14,950 $ - $ - $ - $ 14,950
Laila Cavalcanti Loss (6) $ 44,525 (1) $ $ 23,725 (1) $ - $ - $ - $ 68,250
Jed Kaplan (2) $ 121,307 $ - $ 56,063 $ - $ - $ - $ 177,370
Beatrice Tarka (4) $ - $ - $ - $ - $ - $ - $ -
(1) Ms. Loss received common stock valued at $8,775 for legal services provided to the Company. In addition, Ms. Loss earned $44,525 for legal services provided to the Company. Of this amount, $31,525 has been accrued, but not yet been paid to Ms. Loss.
(2) Mr. Kaplan ceased to be an executive officer on March 29, 2021. On March 25, 2021, the Company’s board of directors appointed Mr. Kaplan as Chairman of the Board, effective March 29, 2021. Mr. Kaplan resigned as Chief Executive Officer and Interim Chief Financial Officer effective March 29, 2021. Mr. Kaplan served as our Chairman from March 29, 2021 to April 22, 2022. On May 18, 2022, Jed Kaplan resigned as a member of the Board of Directors of the Company effective immediately and no longer holds any positions with the Company.
(3) On April 22, 2022, Donald Caldwell submitted his resignation as a member of the Board of the Company, effectively immediately.
(4) Ms. Tarka resigned as a member of the Board effective June 30, 2022.
(5) Mr. Leavy resigned as a member of the Board effective June 28, 2022.
(6) Ms. Loss resigned as a member of the Board effective June 23, 2022.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The following table summarizes all compensation recorded by us in the past two fiscal years ended May 31, 2022 for:
● our principal executive officer or other individual serving in a similar capacity, and
● our two most highly compensated executive officers, other than our principal executive officer, who were serving as corporate officers at May 31, 2022.
For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”
Summary Compensation Table
Name and Principal Position Fiscal Year Ended Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)
All Other Compensation
($)
Total
($)
Roman Franklin, 5/31/2022
$ 284,617 (1)
$ - (2) $ - $ 373,755 (3) $ - $ 658,372
Chief Executive Officer 5/31/2021
$ 197,737 $ 150,000 (4) $ 1,032,243 (5) $ - $ - $ 1,379,980
Nancy Hennessey, 5/31/2022
$ 189,892 (6) $ - $ - $ 186,877 (3) $ - $ 376,769
Former Chief Financial Officer (7) 5/31/2021
$ - $ - $ - $ - $ - $ -
(1) Of this amount, $20,832 has been accrued, but not paid to, Mr. Franklin.
(2) During the fiscal year ended May 31, 2022, the Company paid to Mr. Franklin $84,533 of the $150,000 bonus that was earned, but not paid, during the fiscal year ended May 31, 2021.
(3)
Represents the aggregate grant date fair value for stock options granted to the named executive officer in the fiscal year indicated, computed in accordance with FASB Accounting Standards Codification Topic 718, Compensation - Stock Compensation (“Topic 718”). For information about the assumptions made in this valuation, refer to Note 10 “Stockholders’ (Deficit) Equity”.
(4) This amount was earned, but not paid, during the fiscal year ended May 31, 2021. Of this amount, $84,533 was paid to Mr. Franklin during the fiscal year ended May 31, 2022. As of May 31, 2022, $65,467 of this amount remained accrued but unpaid.
(5) Represents the aggregate grant date fair value for all restricted stock granted to Mr. Franklin vested in the current fiscal year, computed in accordance with Topic 718. Assumptions used to determine the aggregate grant date fair value of the restricted stock include per share grant date fair values ranging from $6.56 to $19.75, based on the closing stock price of the Company’s common stock as reported on OTC Markets on various dates.
(6) Of this amount, $45,000 has been accrued, but not paid to, Ms. Hennessey.
(7) Ms. Hennessey ceased to be the Company’s Chief Financial Officer on June 28, 2022.
Outstanding Equity Awards at 2022 Fiscal Year-End
The following table sets forth information on outstanding options and stock awards held by the named executive officers as of May 31, 2022
Option Awards Stock Awards
Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units Of Stock that Have Not Vested (#) (1) Market Value Of Shares Or Units of Stock That Have Not
Vested ($) (1)
Roman Franklin 125,000
125,000
2.77
5/6/2025
- -
Nancy Hennessey 62,500
62,500
2.77
5/6/2025
- -
Option Exercises and Stock Vested Table
The following table sets forth the vesting of restricted stock during the fiscal year ended May 31, 2022 for the named executive officers:
Stock Awards
Name Number of Shares Acquired on
Vesting Value Realized on Vesting
Roman Franklin - $ -
Nancy Hennessey - $ -
Executive Officer and Director Compensation
The Company intends to develop an executive compensation program that is consistent with its existing compensation policies and philosophies, which are designed to align compensation with our business objectives and the creation of stockholder value, while enabling us to attract, motivate and retain individuals who contribute to the long-term success of the Company.
Decisions on the executive compensation program will be made by the compensation committee. The following discussion is based on the present expectations as to the executive compensation program to be adopted by the compensation committee. The executive compensation program actually adopted will depend on the judgment of the members of the compensation committee and may differ from that set forth in the following discussion.
We anticipate that decisions regarding executive compensation will reflect our belief that the executive compensation program must be competitive in order to attract and retain our executive officers. We anticipate that the compensation committee will seek to implement our compensation policies and philosophies by linking a significant portion of our executive officers’ cash compensation to performance objectives and by providing a portion of their compensation as long-term incentive compensation in the form of equity awards.
We anticipate that compensation for our executive officers will have three primary components: base salary, an annual cash incentive bonus and long-term incentive compensation in the form of share-based awards, if any.
Base Salary
Our compensation committee will determine base salaries and manage the base salary review process, subject to existing employment agreements.
Annual Bonuses
We intend to use annual cash incentive bonuses for the executive officers to tie a portion of their compensation to financial and operational objectives achievable within the applicable fiscal year. We expect that, near the beginning of each year, the compensation committee will select the performance targets, target amounts, target award opportunities and other term and conditions of annual cash bonuses for the executive officers, subject to the terms of any employment agreement. Following the end of each year, the compensation committee will determine the extent to which the performance targets were achieved and the amount of the award that is payable to the executive officers.
On July 29, 2020, the board of directors approved a cash bonus to Mr. Franklin in the amount of $75,000 in return for services provided during the 2020 fiscal year. Such bonus was deferred and will be paid when the Company has sufficient funds available to pay such bonus, as to be reasonably determined by the board of directors and the Mr. Franklin. During the fiscal year ended May 31, 2021, the Company paid $40,000 of such bonus amount to Mr. Franklin. As of May 31, 2021, the Company owed $35,000 to Mr. Franklin for the bonus granted for the fiscal year ended May 31, 2020.
In December 2020, the board of directors approved a cash bonus to Mr. Franklin in the amount of $125,000. Such bonus has been deferred and will be paid when the Company has sufficient funds available to pay the bonus, to be reasonably determined by the board of directors and Mr. Franklin.
Stock-Based Awards
We intend to use stock-based awards to reward long-term performance of the executive officers. We believe that providing a meaningful portion of the total compensation package in the form of stock-based awards will align the incentives of its executive officers with the interests of its stockholders and serve to motivate and retain the individual executive officers. Stock-based awards will be awarded under the Incentive Plan, which has been adopted by our Board of Directors and is being submitted to our shareholders for approval at the special meeting in lieu of an annual meeting.
Executive Employment Agreements
On December 31, 2018, the Company also entered into an employment agreement (the “Franklin 2018 Agreement”) with Roman Franklin, pursuant to which the parties agreed that he will serve as the President of the Company. Pursuant to the terms of the Franklin 2018 Agreement, the Company agreed to that Mr. Franklin will receive (i) a monthly base salary of $8,333.33 and (ii) an equity grant of 375 shares of Common Stock per month, which shares will be fully vested upon grant.
On July 29, 2020, the Company entered into a new employment agreement (the “Franklin 2020 Agreement”) with Mr. Franklin. Such employment agreement replaced the Franklin 2018 Agreement. As a result, the Franklin 2018 Agreement was terminated and is of no further force or effect. Pursuant to the terms of the Franklin 2020 Agreement, the Company agreed to pay Mr. Franklin a monthly base salary of $12,500; provided, however, that the parties agreed that such base salary will be deferred and will accumulate until the Company has sufficient cash available to make such payments, to be reasonably determined by the Board of Directors and Mr. Franklin, at which time all accrued and unpaid base salary will be paid. In addition, Mr. Franklin will receive an equity grant of 782 shares of common stock per month, which shares will be fully vested upon grant. Mr. Franklin will also be eligible to receive a quarterly bonus in the form of cash or an equity grant of shares and will be entitled to participate in the Company’s employee benefit plans.
The Franklin 2020 Agreement contains customary non-competition and non-solicitation covenants for a period of one year after the termination of the executive’s employment.
On March 25, 2021, the board of directors appointed Mr. Franklin as the Company’s Chief Executive Officer, effective March 29, 2021. Mr. Kaplan ceased to be the Company’s President on such date. Mr. Franklin continues to be a member of our board of directors. In connection with Mr. Franklin’s appointment, the Company entered into an employment agreement, dated as of March 29, 2021, by and between the Company and Mr. Franklin (the “2021 Franklin Employment Agreement”) which replaced the Franklin 2020 Agreement.
Pursuant to the terms of the 2021 Franklin Employment Agreement, in exchange for Mr. Franklin’s services, the Company agreed to pay Mr. Franklin an annual base salary of $250,000. Mr. Franklin is also eligible to receive a quarterly bonus of up to $15,000 in the form of a cash bonus and/or equity grant of shares of the Company’s common stock. Mr. Franklin’s eligibility for any bonus and the amount thereof will be determined solely at the discretion of the Board of Directors.
Mr. Franklin’s employment and the 2021 Franklin Employment Agreement may be terminated by the Company with or without Cause (as hereinafter defined), or by Mr. Franklin with or without Good Reason (as hereinafter defined). In addition, in the event of Mr. Franklin’s death or total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (“Disability”), during the term of the 2021 Franklin Employment Agreement, the term of the 2021 Franklin Employment Agreement and Mr. Franklin’s employment will terminate on the date of death or Disability.
For purposes of the 2021 Franklin Employment Agreement, “Cause” means, subject to the provisions of the 2021 Franklin Employment Agreement:
(i) Mr. Franklin’s willful failure to perform his duties (other than any such failure resulting from incapacity due to physical or mental illness);
(ii) Mr. Franklin’s willful failure to comply with any valid and legal directive of the Board of Directors; or
(iii) Mr. Franklin’s willful engagement in gross misconduct, which is, in each case, materially injurious to the Company or its affiliates; or
(iv) Actions by Mr. Franklin constituting embezzlement, misappropriation, or fraud, whether or not related to Mr. Franklin’s employment with the Company; or
(v) Mr. Franklin’s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude; or
(vi) Mr. Franklin’s material breach of any material obligation under the 2021 Franklin Employment Agreement, which Mr. Franklin fails to correct within 10 days after Mr. Franklin receives written notice from the Board of Directors of such breach.
For purposes of the 2021 Franklin Employment Agreement, “Good Reason” means the occurrence of any of the following, in each case during the term of the 2021 Franklin Employment Agreement:
(i) A material reduction in Mr. Franklin’s base salary;
(ii) A material reduction in Mr. Franklin’s target bonus opportunity;
(iii) A relocation of Mr. Franklin’s principal place of employment from that set forth in the Franklin Employment Agreement by more than 35 miles;
(iv) A material breach by the Company of any material provision of the Franklin Employment Agreement;
(v) At any time following a Change of Control (as defined in the Franklin Employment Agreement), a material change in Mr. Franklin’s title or responsibilities, or a material diminution by the Company of compensation and benefits (taken as a whole) provided to Mr. Franklin immediately prior to a Change of Control.
Mr. Franklin may not terminate the 2021 Franklin Employment Agreement for Good Reason pursuant to clause (i), (ii), (iii) or (iv) above unless (x) Mr. Franklin, within 30 days following the occurrence of the such condition giving rise to Good Reason, notifies the Company in writing of his intent to terminate with Good Reason; (y) the Company fails to cure such condition within 30 days after being so notified; and (z) Mr. Franklin actually terminates no later than 30 days after the end of the cure period.
Solely in the case of an event of Cause relating to Mr. Franklin’s willful failure to perform his duties (other than any such failure resulting from incapacity due to physical or mental illness), Mr. Franklin’s willful failure to comply with any valid and legal directive of the Board of Directors; or Mr. Franklin’s material breach of any material obligation under the Franklin Employment Agreement, which Mr. Franklin fails to correct within 10 days after Mr. Franklin receives written notice from the Board of Directors of such breach (each, a “Cause Capable of Cure”), the Company may not and will not terminate the Franklin Employment Agreement for Cause unless the Company has provided written notice to Mr. Franklin of the existence of the circumstances providing grounds for termination for a Cause Capable of Cure, and Mr. Franklin has had at least 14 calendar days to cure such circumstances to the reasonable satisfaction of the Company and has thereafter not cured such circumstance within such 14 calendar day period.
Pursuant to the terms of the 2021 Franklin Employment Agreement, upon (i) termination by the Company for Cause, (ii) termination by Mr. Franklin without Good Reason, or (iii) a non-renewal by the Company, the Company will pay to Mr. Franklin the following amounts (the “Franklin Accrued Amounts”):
(i) Any accrued but unpaid base salary;
(ii) Any bonus compensation awarded for the quarterly period preceding that in which termination occurs, but unpaid on the date of termination (the “Prior Quarterly Period Bonus”);
(iii) Reimbursement for unreimbursed business expenses;
(iv) Such employee benefits, if any, to which Mr. Franklin may be entitled under the Company’s employee benefit plans as of the date of termination; provided that, in no event shall Mr. Franklin be entitled to any payments in the nature of severance or termination payments except as specifically provided in the 2021 Franklin Employment Agreement; and
(v) all amounts otherwise required to be paid or provided by law.
Pursuant to the terms of the 2021 Franklin Employment Agreement, upon termination of the 2021 Franklin Employment Agreement solely as a result of Mr. Franklin’s death or Disability, Mr. Franklin or his estate will receive the 2021 Franklin Accrued Amounts and the pro-rated bonus as provided in the 2021 Franklin Employment Agreement.
Upon Mr. Franklin’s termination by the Company without or other than for Cause, or (ii) resignation by Mr. Franklin with Good Reason, then:
(i) the Company will pay to Mr. Franklin the Franklin Accrued Amounts and a pro-rated bonus as provided in the Franklin Employment Agreement;
(ii) the Company will pay to Mr. Franklin $125,000 as a severance payment;
(iii) the Company will pay to Mr. Franklin any salary that Mr. Franklin would have earned through the end of the then-applicable initial term or renewal term, as applicable; and
(iv) any unvested incentive awards then held by Mr. Franklin will immediately be vested in full.
In connection with Nancy Hennessey’s appointment as the Company’s Chief Financial officer on May 11, 2021 and effective May 17, 2021, the Company entered into an employment agreement, dated as of May 17, 2021, by and between the Company and Ms. Hennessey (the “Hennessey Employment Agreement”). Pursuant to the terms of the Hennessey Employment Agreement, in exchange for Ms. Hennessey’s services, the Company agreed to pay Ms. Hennessey an annual base salary of $140,000. In addition, Ms. Hennessey is entitled to receive compensation in the form of an equity grant of $12,500 in the Company’s common stock for each quarter during the term of the Hennessey Employment Agreement, which runs for a period ending one year after May 17, 2021 and automatically renews for successive one year terms unless either party gives 60 days’ advance written notice of its intention not to renew the Hennessey Employment Agreement. Pursuant to the terms of the Hennessey Employment Agreement, Ms. Hennessey will also receive 5,000 shares of common stock upon completion of an uplisting to a national exchange, such as The Nasdaq Stock Market or the NYSE American. Ms. Hennessey’s eligibility for any bonus and the amount thereof will be determined solely at the discretion of the Board of Directors.
Ms. Hennessey’s employment and the Hennessey Employment Agreement may be terminated by the Company with or without Cause (as hereinafter defined), or by Ms. Hennessey with or without Good Reason (as hereinafter defined). In addition, in the event of Ms. Hennessey’s death or total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (“Disability”), during the term of the Hennessey Employment Agreement, the term of the Hennessey Employment Agreement and Ms. Hennessey’s employment will terminate on the date of death or Disability.
For purposes of the Hennessey Employment Agreement, “Cause” means, subject to the provisions of the Hennessey Employment Agreement:
(i) Ms. Hennessey’s willful failure to perform her duties (other than any such failure resulting from incapacity due to physical or mental illness);
(ii) Ms. Hennessey’s willful failure to comply with any valid and legal directive of the Board of Directors; or
(iii) Ms. Hennessey’s willful engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, materially injurious to the Company or its affiliates; or
(iv) Actions by Ms. Hennessey constituting embezzlement, misappropriation, or fraud, whether or not related to Ms. Hennessey’s employment with the Company; or
(v) Ms. Hennessey’s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude; or
(vi) Ms. Hennessey’s material breach of any material obligation under the Hennessey Employment Agreement, which Ms. Hennessey fails to correct within 10 days after Ms. Hennessey receives written notice from the Board of Directors of such breach.
For purposes of the Hennessey Employment Agreement, “Good Reason” means the occurrence of any of the following, in each case during the term of the Hennessey Employment Agreement:
(i) A material reduction in Ms. Hennessey’s base salary;
(ii) A material reduction in Ms. Hennessey’s target bonus opportunity;
(iii) A relocation of Ms. Hennessey’s principal place of employment from that set forth in the Hennessey Employment Agreement by more than 35 miles;
(iv) A material breach by the Company of any material provision of the Hennessey Employment Agreement;
(v) At any time following a Change of Control (as defined in the Hennessey Employment Agreement), a material change in Ms. Hennessey’s title or responsibilities, or a material diminution by the Company of compensation and benefits (taken as a whole) provided to Ms. Hennessey immediately prior to a Change of Control.
Ms. Hennessey may not terminate the Hennessey Employment Agreement for Good Reason pursuant to clause (i), (ii), (iii) or (iv) above unless (x) Ms. Hennessey, within 30 days following the occurrence of the such condition giving rise to Good Reason, notifies the Company in writing of her intent to terminate with Good Reason; (y) the Company fails to cure such condition within 30 days after being so notified; and (z) Ms. Hennessey actually terminates no later than 30 days after the end of the cure period.
Solely in the case of an event of Cause relating to Ms. Hennessey’s willful failure to perform her duties (other than any such failure resulting from incapacity due to physical or mental illness), Ms. Hennessey’s willful failure to comply with any valid and legal directive of the Board of Directors; or Ms. Hennessey’s material breach of any material obligation under the Hennessey Employment Agreement, which Ms. Hennessey fails to correct within 10 days after Ms. Hennessey receives written notice from the Board of Directors of such breach (each, a “Cause Capable of Cure”), the Company may not and will not terminate the Hennessey Employment Agreement for Cause unless the Company has provided written notice to Ms. Hennessey of the existence of the circumstances providing grounds for termination for a Cause Capable of Cure, and Ms. Hennessey has had at least 14 calendar days to cure such circumstances to the reasonable satisfaction of the Company and has thereafter not cured such circumstance within such 14 calendar day period.
Pursuant to the terms of the Hennessey Employment Agreement, upon (i) termination by the Company for Cause, (ii) termination by Ms. Hennessey without Good Reason, or (iii) a non-renewal by the Company, the Company will pay to Ms. Hennessey the following amounts (the “Hennessey Accrued Amounts”):
(i) Any accrued but unpaid base salary, any accrued but unpaid equity grants and accrued but unused vacation;
(ii) Any bonus compensation awarded for the quarterly period preceding that in which termination occurs, but unpaid on the date of termination (the “Prior Quarterly Period Bonus”);
(iii) Reimbursement for unreimbursed business expenses;
(iv) Such employee benefits, if any, to which Ms. Hennessey may be entitled under the Company’s employee benefit plans as of the date of termination; provided that, in no event shall Ms. Hennessey be entitled to any payments in the nature of severance or termination payments except as specifically provided in the Hennessey Employment Agreement; and
(v) all amounts otherwise required to be paid or provided by law.
Pursuant to the terms of the Hennessey Employment Agreement, upon termination of the Hennessey Employment Agreement solely as a result of Ms. Hennessey’s death or Disability, Ms. Hennessey or her estate will receive the Hennessey Accrued Amounts and the pro-rated bonus as provided in the Hennessey Employment Agreement.
Upon Ms. Hennessey’s termination by the Company without or other than for Cause, or (ii) resignation by Ms. Hennessey with Good Reason, then:
(i) the Company will pay to Ms. Hennessey the Hennessey Accrued Amounts and a pro-rated bonus as provided in the Hennessey Employment Agreement;
(ii) the Company will pay to Ms. Hennessey $35,000 as a severance payment;
(iii) the Company will pay to Ms. Hennessey any salary that Ms. Hennessey would have earned through the end of the then-applicable initial term or renewal term, as applicable;
(iv) any unvested incentive awards then held by Ms. Hennessey will immediately be vested in full; and
(v) any additional equity grants to which Ms. Hennessey would have been entitled pursuant to the terms of the Hennessey Employment Agreement will be issued and paid in accordance with the terms of the Hennessey Employment Agreement.
Ms. Hennessey resigned as the Company’s Chief Financial Officer effective June 28, 2022.
Omnibus Incentive Plan
The board and shareholders of the Company approved of the Simplicity Esports and Gaming Company 2020 Omnibus Incentive Plan (the “2020 Plan”) on April 22, 2020 and June 23, 2020, respectively. We believe that the 2020 Plan serves as an essential element of our compensation program and is critical to our ability to attract and retain the highly qualified employees essential for the execution of our business strategy. We believe the 2020 Plan will (i) attract and retain key personnel, and (ii) provide a means whereby directors, officers, employees, consultants, and advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measure by reference to the value of the Company’s common stock, thereby strengthening their commitment to the welfare of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders. The 2020 Plan provides for various stock-based incentive awards, including incentive and nonqualified stock options, stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”), and other equity-based or cash-based awards. On June 4, 2021, the Company filed a registration statement on Form S-8 for the purpose of resale or reoffer thereof, of 1,000,000 shares of the Company’s common stock reserved for issuance pursuant to the 2020 Plan.
Plan Highlights
Highlights of the 2020 Plan are as follows:
● The Compensation Committee, which is comprised solely of independent directors, administers the 2020 Plan.
● The total number of shares of common stock authorized for issuance under the 2020 Plan is 1,000,000 shares, or approximately 31.7% of the common stock outstanding at September 26, 2022.
● No non-employee director may be granted awards under the 2020 Plan during any calendar year if such awards, taken together with any cash fees paid to such non-employee director would exceed a total value of $250,000 (calculated in accordance with the terms of the 2020 Plan).
● The exercise price of options and SARs may not be less than the fair market value of the common stock on the date of grant.
● In addition to other vesting requirements, the Compensation Committee may condition the vesting of awards on the achievement of specific performance targets.
Material Features of the 2020 Plan
Term
The 2020 Plan was effective June 23, 2020. The 2020 Plan will terminate on June 23, 2030, unless the Board terminates it earlier.
Purpose
The purpose of the 2020 Plan is to provide a means through with the Company and its subsidiaries may attract and retain key personnel, and to provide a means whereby directors, officer, employees, consultants, and advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation, thereby strengthening their commitment to the welfare of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders.
Administration
Pursuant to the terms of the 2020 Plan, a committee of the Board or any properly delegated subcommittee, or, if no such committee or subcommittee thereof exists, the Board, shall administer the 2020 Plan. The Compensation Committee, which is comprised entirely of independent directors, administers the 2020 Plan. The Compensation Committee will have the sole and plenary authority to (i) designate participants; (ii) determine the type or types of awards; (iii) determine the number of shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, awards; (iv) determine the terms and conditions of any award; (v) determine whether, to what extent, and under what circumstances awards may be settled in, or exercised for, cash, shares of Company common stock, other securities, other awards, or other property, or canceled, forfeited, or suspended and the method or methods by which awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Company common stock, other securities, other awards, or other property and other amounts payable with respect to an award shall be deferred either automatically or at the election of the participant or of the Compensation Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in, and/or supply any omission in the 2020 Plan and any instrument or agreement relating to, or award granted under, the 2020 Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Compensation Committee shall deem appropriate for the proper administration of the 2020 Plan; (ix) adopt sub-plans; and (x) make any other determination and take any other action that the Compensation Committee deems necessary or desirable for the administration of the 2020 Plan.
The Compensation Committee may delegate its authority to administer the 2020 Plan as permitted by law, except for award grants to non-employee directors.
The Compensation Committee will have the discretion to select particular performance targets in connection with awards under the 2020 Plan. Under the 2020 Plan, performance targets are specific levels of performance of the Company (and/or subsidiaries, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, or any combination of the foregoing), which may be determined in accordance with GAAP or on a non-GAAP basis on the specified measures, including, but not limited to:
● debt ratings;
● share price;
● debt to capital ratio;
● total stockholder return;
● generation of cash;
● acquisition or disposition of assets;
● issuance of new debt;
● acquisition or disposition of companies, entities or businesses;
● establishment of new credit facilities;
● creation of new performance and compensation criteria for key personnel;
● retirement of debt;
● recruiting and retaining key personnel;
● return measures (including, but not limited to, return on assets, return on capital, return on equity);
● customer satisfaction;
● attraction of new capital;
● employee morale;
● cash flow;
● hiring of strategic personnel;
● earnings per share;
● development and implementation of Company policies, strategies and initiatives;
● net income;
● creation of new joint ventures;
● pre-tax income;
● increasing the Company’s public visibility and corporate reputation;
● pre-tax pre-bonus income;
● development of corporate brand name;
● operating income;
● overhead cost reductions; or
● gross revenue;
● any combination of or variations on the foregoing.
● net revenue;
● net margin;
● pre-tax margin;
Eligibility
Employees, directors and independent contractors (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiaries will be eligible to receive awards under the 2020 Plan.
Maximum Shares Available
Awards granted under the 2020 Plan are subject to the following limitations: (i) no more than 1,000,000 shares of common stock (the “Absolute Share Limit”) will be available for awards under the 2020 Plan; (ii) no more than the number of shares of common stock equal to the Absolute Share Limit may be issued in the aggregate pursuant to the exercise of incentive stock options granted under the 2020 Plan; and (iii) the maximum number of shares of common stock subject to awards granted during a single calendar year to any non-employee director, taken together with any cash fees paid to such non-employee director during such calendar year, shall not exceed a total value of $250,000 (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes).
When (i) an option or SAR is granted under the 2020 Plan, the maximum number of shares subject to the option or SAR will be counted against the Absolute Share Limit as one share for every share subject to such option or SAR, regardless of the actual number of shares (if any) used to settle such option or SAR upon exercise; and (ii) an award other than an option or SAR is granted under the 2020 Plan, the maximum number of shares subject to the award will be counted against the Absolute Share Limit as two shares for every share subject to such award, regardless of the actual number of shares (if any) used to settle such award. The issuance of shares or the payment of cash upon the exercise of an award or in consideration of the cancellation or termination of an award shall reduce the total number of shares available under the 2020 Plan, as applicable. If shares are not issued or are withheld from payment of an award to satisfy tax obligations with respect to the award, such shares will not be added back to the Absolute Share Limit, but rather will count against the Absolute Share Limit.
To the extent that an award granted under the 2020 Plan or a prior plan award expires or is canceled, forfeited or terminated, in whole or in part without issuance to the holder thereof of shares of common stock to which the award or prior plan award related or cash or other property in lieu thereof, the unissued shares of common stock will again be available for grant under the 2020 Plan; provided that, in any such case, the number of shares again available for grant under the 2020 Plan shall be the number of shares previously counted against the Absolute Share Limit (or, in the case of prior plan award, the number of shares that would have been counted against the Absolute Share Limit if such prior plan award had been granted under this 2020 Plan) with respect to such unissued shares of common stock to which such award or prior plan award related, as determined in accordance with the terms of the 2020 Plan.
Awards may, in the sole discretion of the Compensation Committee, be granted under the 2020 Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards will not be counted against the Absolute Share Limit; provided, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) will be counted against the aggregate number of shares of common stock available for awards of incentive stock options under the 2020 Plan. Subject to applicable stock exchange requirements, available shares of common stock under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for awards under the 2020 Plan and will not reduce the number of shares of common stock available for issuance under the 2020 Plan.
Adjustments
In the event of a merger, consolidation, reorganization, recapitalization, reorganization, stock split or dividend, or similar event affecting the common stock, the number (including limits on shares of common stock granted) and kind of shares granted under the 2020 Plan, the Compensation Committee will make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of the Absolute Share Limit, the number of shares of common stock or other securities of the Company that may be issued in respect of awards or with respect to which awards may be granted and the terms of any outstanding award.
Restricted Stock
The Compensation Committee will be authorized to award restricted stock under the 2020 Plan. Awards of restricted stock will be subject to the terms and conditions established by the Compensation Committee. Restricted stock is common stock that is subject to such restrictions as may be determined by the Compensation Committee for a specified period.
RSU Awards
The Compensation Committee will be authorized to award RSUs in lieu of or in addition to any restricted stock awards. RSUs will be subject to the terms and conditions established by the Compensation Committee. Each RSU will have an initial value that is at least equal to the fair market value of a share of Company common stock on the date of grant. RSUs may be paid at such time as the Compensation Committee may determine in its discretion, and payments may be made in a lump sum or in installments, in cash, shares of common stock, or a combination thereof, as determined by the Compensation Committee in its discretion.
Options
The Compensation Committee will be authorized to grant options to purchase shares of common stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) for incentive stock options, or “nonqualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the 2020 Plan will be subject to the terms and conditions established by the Compensation Committee. Under the terms of the 2020 Plan, the exercise price of the options will not be less than the fair market value of our common stock at the time of grant. Options granted under the 2020 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee and specified in the applicable award agreement. The maximum term of an option granted under the 2020 Plan will be 10 years from the date of grant (or five years in the case of a qualified option granted to a 10% stockholder). Payment in respect of the exercise of an option may be made in cash or by check, by surrender of unrestricted shares (at their fair market value on the date of exercise), or through a “net exercise,” or the Compensation Committee may, in its discretion and to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism or by such other method as the Compensation Committee may determine to be appropriate.
Stock Appreciation Rights
The Compensation Committee will be authorized to award SARs under the 2020 Plan. SARs will be subject to the terms and conditions established by the Compensation Committee and reflected in the award agreement. A SAR is a contractual right that allows a participant to receive, in the form of either cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An option granted under the 2020 Plan may include SARs, and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the option corresponding to such SARs.
Other Stock-Based Awards
The Compensation Committee will be authorized to award other stock-based awards having terms and conditions as determined by the Compensation Committee. These awards may be granted either alone or in tandem with other awards.
Qualified Performance-Based Awards
Restricted stock and RSUs granted to officers and employees of the Company may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more identified performance targets. The applicable performance period may not be less than three months nor more than 10 years.
Dividends and Voting Rights
Participants awarded stock options and SARs will not receive dividends or dividend equivalents or have any voting rights with respect to shares of common stock underlying these awards prior to the issuance of any such shares. Participants that hold unearned awards subject to performance vesting conditions (other than or in additional to the passage of time) will not receive dividends or dividend equivalents or have any voting rights with respect to shares of common stock underlying these awards prior to the issuance of any such shares; provided, however, that dividends and dividend equivalents may be accumulated in respect of unearned awards and paid within 30 days after such awards are earned and become payable or distributable.
Transferability
Awards granted under the 2020 Plan generally will be transferable only by will or the applicable laws of descent and distribution. In certain limited circumstances, the Compensation Committee may authorize stock options, other than incentive stock options, to be transferred to family members or trusts controlled by family members of the participant. Restricted stock may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until the applicable restrictions lapse.
Change in Control
In the event of a Change in Control (as defined in the 2020 Plan), options become immediately exercisable in full. In addition, in such event the Compensation Committee may accelerate the termination date of the option to a date no earlier than 30 days after notice of such acceleration is given to the participant. Upon the giving of any such acceleration notice, the option shall become immediately exercisable in full.
A participant’s right to SARs under an SAR agreement immediately vest as to 100% of the total number of shares covered by the grant (i) upon termination of the grantee’s employment on account of the grantee’s death or permanent disability; or (ii) upon the occurrence of a Change in Control.
With respect to restricted stock and RSUs, in the event that the grantee’s status as an employee is terminated following a Change in Control, then all unvested shares of restricted stock and RSUs will immediately vest.
Clawback
All awards under the 2020 Plan are subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any clawback, forfeiture or other similar policy adopted by the Board or the Compensation Committee and as in effect from time to time; and (ii) applicable law.
Amendment and Termination
The Board may terminate or amend the 2020 Plan or any portion thereof at any time; provided, however, that the Board may not, without stockholder approval, amend the 2020 Plan if:
● Such approval is necessary to comply with any regulatory requirement applicable to the 2020 Plan;
● It would materially increase the number of securities which may be issued under the 2020 Plan (except for increases expressly provided for in the 2020 Plan; or
● It would materially modify the requirements for participation in the 2020 Plan.
In addition, any such amendment that would materially and adversely affect an award holder’s rights with respect to a previously granted and outstanding award will not to that extent be effective without the consent of the affected holder of such award.
The Compensation Committee may terminate or amend any award agreement, to the extent consistent with the terms of the 2020 Plan and any applicable award agreement and so long as such termination or amendment would not materially and adversely affect an award holder’s rights with respect to a previously granted and outstanding award (unless the affected holder consents thereto); provided, however that the Compensation Committee may not, without stockholder approval, amend or terminate an award or award agreement to:
● Reduce the exercise price of any option or the strike price of any SAR,
● To cancel any outstanding option or SAR and replace it with a new option or SAR (with a lower exercise price or strike price, as the case may be) or other award or cash payment that is greater than the intrinsic value (if any) of the canceled option or SAR; and
● Take any other action which is considered a “repricing” for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted.
U.S. Federal Income Tax Consequences
The following is a general summary of the material U.S. federal income tax consequences to 2020 Plan participants and the Company of the grant, vesting and exercise of awards under the 2020 Plan and the disposition of shares acquired pursuant to the exercise of such awards and is based upon an interpretation of the current federal income tax laws and regulations and may be inapplicable if such laws and regulations are changed. This summary is not intended to be a complete statement of applicable law or constitute tax advice, nor does it address foreign, state, local and payroll tax considerations. Moreover, the U.S. federal income tax consequences to any particular participant may differ from those described herein by reason of, among other things, the particular circumstances of such participant. To the extent that any awards under the 2020 Plan are subject to Section 409A of the Code (“Section 409A”), the following discussion assumes that such awards will be designed to conform to the requirements of Section 409A and the regulations promulgated thereunder (or an exception thereto). The 2020 Plan is not subject to the protective provisions of the Employee Retirement Income Security Act of 1974, as amended, and is not qualified under Section 401(a) of the Code.
Incentive Stock Options. Options issued under the 2020 Plan and designated as incentive stock options are intended to qualify as such under Section 422 of the Code. Under the provisions of Section 422 of the Code and the related regulations, holders of incentive stock options will generally incur no federal income tax liability at the time of grant or upon exercise of those options, and the Company will not be entitled to a deduction at the time of the grant or exercise of the option. However, the difference between the value of the common stock received on the exercise date and the exercise price paid will be an “item of tax preference,” which may give rise to “alternative minimum tax” liability to the holder for the taxable year in which the exercise occurs. The taxation of gain or loss upon the sale of the common stock acquired upon exercise of an incentive stock option depends, in part, on whether the holding period of the shares of our common stock acquired through the exercise of an incentive stock option is at least (i) two years from the date of grant of the option and (ii) one year from the date the option was exercised. If these holding period requirements are satisfied, any gain or loss realized on a subsequent disposition of the shares will constitute long-term capital gain or loss, as the case may be. Assuming both holding periods are satisfied, no deduction will be allowed to us for federal income tax purposes in connection with the grant or exercise of the incentive stock option. If these holding periods requirements are not met, then, upon such “disqualifying disposition” of the shares, the participant will generally realize compensation, taxable as ordinary income, at the time of such disposition in an amount equal to the difference between the fair market value of the share on the date of exercise over the exercise price, limited to the gain on the sale, and that amount will generally be deductible by us for federal income tax purposes, subject to the possible limitations on deductibility under Section 162(m)of the Code for compensation paid to certain executives designated thereunder. Finally, if an otherwise qualified incentive stock option becomes first exercisable in any one year for shares having an aggregate value in excess of $100,000 (based on the grant date value), the portion of the incentive stock option in respect of those excess shares will be treated as a non-qualified stock option for federal income tax purposes.
Non-qualified Stock Options. No income will generally be realized by a participant upon grant of a non-qualified stock option. Upon the exercise of a non-qualified stock option, the participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the underlying exercised shares over the option exercise price paid at the time of exercise. We will be able to deduct this same amount for U.S. federal income tax purposes, but such deduction may be limited under Section 162(m) of the Code for compensation paid to certain executives designated thereunder. Upon a subsequent disposition of the shares acquired under a non-qualified stock option, the participant will realize short-term or long-term capital gain (or loss) depending on the holding period. The capital gain (or loss) will be short-term if the shares are disposed of within one year after the non-qualified stock option is exercised, and long-term if shares were held more than 12 months as of the sale date.
Restricted Stock. A participant will normally not be required to recognize income for federal income tax purposes upon the grant of an award of restricted stock, nor is the Company entitled to any deduction, to the extent that the shares awarded have not vested (i.e., are no longer subject to a substantial risk of forfeiture). On the date an award of restricted stock is no longer subject to a substantial risk of forfeiture, the participant will compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the vested shares on that date and the amount the participant paid for such shares, if any, unless the participant made an election under Section 83(b) of the Code to be taxed at the time of grant. The participant may, however, make an election under Section 83(b) of the Code, within 30 days following the grant of the restricted stock award, to be taxed at the time of the grant of the award based on the difference between the fair market value of the shares on the date of grant and the amount the participant paid for such shares, if any. If the shares subject to such election are subsequently forfeited, the participant will not be entitled to any deduction, refund or loss for tax purposes with respect to the forfeited shares. We will be able to deduct, at the same time as it is recognized by the participant, the amount of taxable compensation to the participant for U.S. federal income tax purposes, but such deduction may be limited under Section 162(m) of the Code for compensation paid to certain executives designated thereunder. Upon the sale of the vested shares, the participant will realize short-term or long-term capital gain or loss depending on the holding period. The holding period generally begins when the restriction period expires. If the recipient timely made a Section 83(b) election, the holding period commences on the date of the grant.
Deferred Stock Units and Restricted Stock Units. A participant will not be subject to federal income tax upon the grant of a deferred stock unit award or a restricted stock unit award, and the Company is not entitled to a deduction at the time of grant. Rather, upon the delivery of shares or cash pursuant to a deferred stock unit award or a restricted stock unit award, the participant will generally have compensation taxable at ordinary income rates in an amount equal to the fair market value of the number of shares (or the amount of cash) actually received with respect to the settlement of the award of such units. We will generally be able to deduct the amount of the ordinary income realized by the participant for U.S. federal income tax purposes, but the deduction may be limited under Section 162(m) of the Code for compensation paid to certain executives designated thereunder. If the participant receives shares upon settlement then, upon disposition of such shares, appreciation or depreciation after the settlement date is treated as either short-term or long-term capital gain or loss, depending on how long the shares have been held.
SARs. SARs are treated very similarly to non-qualified options for tax purposes. No income will normally be realized by a participant upon grant of a SAR. Upon the exercise of a SAR, the participant will recognize compensation taxable as ordinary income in an amount equal to either: (i) the cash received upon exercise; or (ii) if shares are received upon the exercise of the SAR, the fair market value of the shares received in respect of the SAR. We will be able to deduct this same amount for U.S. federal income tax purposes, but such deduction may be limited under Section 162(m) of the Code for compensation paid to certain executives designated thereunder.
Performance Awards. A participant generally will not recognize income upon the grant of a performance award. Upon payment of the performance award, the participant will recognize ordinary income in an amount equal to the cash received or, if the performance award is payable in shares, the fair market value of the shares received. When the participant recognizes ordinary income upon payment of a performance award, the Company generally will be entitled to a tax deduction in the same amount.
Other Stock-Based Awards. A participant will generally have compensation taxable as ordinary income for federal income tax purposes in an amount equal to the difference between the fair market value of the shares on the date the award is settled (whether in shares or cash, or both) over the amount the participant paid for such shares, if any. We will generally be able to deduct, at the same time as it is recognized by the participant, the amount of taxable compensation to the participant for U.S. federal income tax purposes, but such deduction may be limited under Section 162(m) for compensation paid to certain executives designated thereunder.
Consequences of Change of Control. If a change of control of the Company causes awards under the 2020 Plan to accelerate vesting or is deemed to result in the attainment of performance goals, certain participants could, in some cases, be considered to have received “excess parachute payments,” which could subject certain participants to a 20% excise tax on the excess parachute payments and result in a disallowance of the Company’s deductions under Section 280G of the Code.
Section 409A. Section 409A applies to compensation that individuals earn in one year but that is not paid until a future year. This is referred to as non-qualified deferred compensation. Section 409A, however, does not apply to qualified plans (such as a Section 401(k) plan) and certain welfare benefits. If deferred compensation covered by Section 409A meets the requirements of Section 409A, then Section 409A has no effect on the individual’s taxes. The compensation is taxed in the same manner as it would be taxed if it were not covered by Section 409A. If a deferred compensation arrangement does not meet the requirements of Section 409A, the compensation is subject to accelerated taxation in the year in which such compensation is no longer subject to a substantial risk of forfeiture and certain additional taxes, interest and penalties, including a 20% additional income tax. Awards of stock options, SARs, restricted stock units and performance awards under the 2020 Plan may, in some cases, result in the deferral of compensation that is subject to the requirements of Section 409A. Awards under the 2020 Plan are intended to comply with Section 409A, the regulations issued thereunder or an exception thereto. Notwithstanding, Section 409A may impose upon a participant certain taxes or interest charges for which the participant is responsible. Section 409A does not impose any penalties on the Company and does limit the Company’s deduction with respect to compensation paid to a participant.
Section 162(m). The Company generally may deduct any compensation or ordinary income recognized by the recipient of an award under the 2020 Plan when recognized, subject to the limits of Section 162(m) of the Code (“Section 162(m)”). Prior to 2018, Section 162(m) imposed a $1 million limit on the amount a public company may deduct for compensation paid to a Company’s Chief Executive Officer or any of the Company’s three other most highly compensated executive officers (other than the Chief Financial Officer) who were employed as of the end of the year. This limitation did not apply to compensation that met Code requirements for “qualified performance-based compensation.” The performance-based compensation exemption, the last day of the year determination date, and the exemption of the Chief Financial Officer from Code Section 162(m)’s deduction limit have all been repealed under the Tax Cuts and Jobs Act of 2017 (“Tax Reform”), effective for taxable years beginning after December 31, 2017, such that awards paid under the 2020 Plan to our covered executive officers may not be deductible for such taxable years due to the application of the $1 million deduction limitation. However, under Tax Reform transition relief, compensation provided under a written binding contract in effect on November 2, 2017 that is not materially modified after that date continues to be subject to the performance-based compensation exception. As in prior years, while deductibility of executive compensation for federal income tax purposes is among the factors the Compensation Committee considers when structuring our executive compensation, it is not the sole or primary factor considered. Our Board and the Compensation Committee retain the flexibility to authorize compensation that may not be deductible if they believe it is in our best interests.
Tax Withholding. The Company and its affiliates have the right to deduct or withhold, or require a participant to remit to the Company and its affiliates, an amount sufficient to satisfy federal, state and local taxes (including employment taxes) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising with respect to awards under the 2020 Plan.
Equity Compensation Plan Information
The table below sets forth information as of May 31, 2022.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(a) (b) (c)
Equity compensation plans approved by security holders - $ N/A 1,500,000 (1)
Equity compensation plans not approved by security holders - - -
Total - $ - 1,500,000
(1) This represents (i) 500,000 shares of common stock issuable pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”), and (ii) 1,000,000 shares of common stock issuable pursuant to the Simplicity Esports and Gaming Company 2020 Omnibus Incentive Plan (the “2020 Plan”).
The Company’s stockholders approved the 2018 Plan on October 4, 2018. Under the 2018 Plan, 500,000 shares of common stock are authorized for issuance to employees, officers, directors, consultants. The 2018 Plan authorizes the grant of nonqualified stock options and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, other stock bonus awards, and performance compensation awards. The Company does not intend to make any grants under the 2018 Plan.
The Board of Directors and stockholders of the Company approved the 2020 Plan on April 22, 2020 and June 23, 2020, respectively. Under the 2020 Plan, 1,000,000 shares of common stock are authorized for issuance to employees, directors and independent contractors (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiaries. The 2020 Plan authorizes equity-based and cash-based incentives for participants. There were 1,000,000 shares available for award as of May 31, 2022 under the 2020 Plan.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth the number of shares of and percent of the Company’s common stock beneficially owned as of September 26, 2022, by all directors, our named executive officers, our directors and executive officers as a group, and persons or groups known by us to own beneficially 5% or more of our common stock.
Unless otherwise noted, the business address of each of the beneficial owners listed below is c/o Simplicity Esports and Gaming Company, 7000 W. Palmetto Park Rd., Suite 505, Boca Raton, FL 33433.
Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percentage of Class (1)
Directors and Executive Officers
Roman Franklin 450,408 (2) 13.0 %
Max Hooper 21,188 (3) *
Edward Leonard Jaroski 34,938 (4) 1.1 %
William H. Herrmann, Jr. 25,540 (5) *
Nancy Hennessey (6) 146,394 (7) 4.5 %
All directors and officers as a group (4 persons) 532,074 (8) 15.2 %
Principal Shareholders (more than 5%):
Jed Kaplan 322,245 (9) 10.0 %
* less than 1%.
(1)
The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our capital stock outstanding on September 26, 2022. On September 26, 2022, there were 3,158,161 shares of our common stock outstanding. To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding and all shares of our common stock issuable to that person in the event of the exercise of outstanding warrants and other derivative securities owned by that person which are exercisable within 60 days of September 26, 2022. Common stock warrants and derivative securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power and sole investment power for the shares listed opposite such person’s name.
(2) Includes (i) 6,375 shares of Common Stock owned indirectly through Mr. Franklin’s wife, Alyssia Franklin; and (ii) 300,000 shares of Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022.
(3) Includes (i) 1,813 shares of Common Stock owned directly by Merging Traffic, Inc.; (ii) 1,250 shares of our Common Stock issuable upon exercise of 1,250 warrants owned directly by Merging Traffic, Inc. with an exercise price of $92.00 which expire on May 22, 2024 that have vested or will vest within 60 days of September 26, 2022; (iii) 10,000 shares of our Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022. Dr. Hooper is Managing Director of Merging Traffic, Inc.
(4)
Includes (i) 7,500 shares of our Common Stock issuable upon exercise of 7,500 warrants with an exercise price of $92.00 which expire on May 22, 2024 that have vested or will vest within 60 days of September 26, 2022; and (ii) 10,000 shares of Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022.
(5)
Includes (i) 1,250 shares of our Common Stock issuable upon exercise of 1,250 warrants with an exercise price of $92.00 which expire on May 22, 2024 that have vested or will vest within 60 days of September 26, 2022; and (ii) 10,000 shares of Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022.
(6) Ms. Hennessey is the Company’s former Chief Financial Officer. Ms. Hennessey ceased to be the Company’s Chief Financial Officer on June 28, 2022.
(7) Includes 125,000 shares of Common Stock issuable upon exercise of vested stock options.
(8) Represents shares beneficially owned by Messrs. Franklin, Hooper, Jaroski and Herrmann. Includes 340,000 shares of Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022.
(9) Includes (i) 6,250 shares of Common Stock issuable upon exercise of 6,250 warrants with an exercise price of $92.00 which expire on May 22, 2024 that have vested or will vest within 60 days of September 26, 2022; and (ii) 45,000 shares of Common Stock issuable upon exercise of stock options that have vested or will vest within 60 days of September 26, 2022. On May 18, 2022, Jed Kaplan resigned as a member of the Board of Directors of the Company effective immediately and no longer holds any positions with the Company.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Our Audit Committee must review and approve any related person transaction we propose to enter into. Our Audit Committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders. A summary of such policies and procedures is set forth below.
Any potential related party transaction that is brought to the Audit Committee’s attention will be analyzed by the Audit Committee, in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction. At its meetings, the Audit Committee will be provided with the details of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction and the benefits to us and to the relevant related party.
In determining whether to approve a related party transaction, the Audit Committee must consider, among other factors, the following factors to the extent relevant:
● whether the terms of the transaction are fair to us and on the same basis as would apply if the transaction did not involve a related party;
● whether there are business reasons for us to enter into the transaction;
● whether the transaction would impair the independence of an outside director; and
● whether the transaction would present an improper conflict of interest for any director or executive officer.
Any member of the Audit Committee who has an interest in the transaction under discussion must abstain from any voting regarding the transaction, but may, if so requested by the chairman of the Audit Committee, participate in some or all of the Audit Committee’s discussions of the transaction. Upon completion of its review of the transaction, the Audit Committee may determine to permit or to prohibit the transaction.
Kaplan Promissory Note
On December 10, 2021, the Company entered into a related party transaction with Jed Kaplan, the Company’s then Chairman of the Board and a more than 5% shareholder, to provide a loan to the Company to provide additional operating funds for Simplicity One Brasil, LTDA, the Company’s 76%-owned subsidiary. The principal amount of the loan was $247,818. The loan bears interest at a rate of 5% per annum and the entire amount of the principal and accrued interest is due on June 10, 2022. For the year ended May 31, 2022, the Company recorded interest expense of $5,839. The loan may be repaid by the Company, without penalty, at any time. Should the Company fail to make the principal payment due, the loan will convert to a 17% equity stake in Simplicity One Brazil, LTDA, of which Jed Kaplan is already a 20% stakeholder.
On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Prager Metis CPAs LLP (“Prager”) acted as the Company’s independent registered public accounting firm for the fiscal years ended May 31, 2021 and 2020. On July 7, 2022, Prager advised the Company’s Board of Directors that it would not stand for reappointment as the Company’s independent registered public accounting firm.
Prager’s reports on the Company’s financial statements for the two fiscal years ended May 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that such reports expressed substantial doubt regarding the Company’s ability to continue as a going concern. Furthermore, during the fiscal years ended May 31, 2021 and 2020 and through July 7, 2022, there have been no disagreements with Prager on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Prager’s satisfaction, would have caused Prager to make reference to the subject matter of the disagreement in connection with its reports on the Company’s financial statements for such periods.
For the fiscal years ended May 31, 2021 and 2020 and through July 7, 2022, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.
On July 15, 2022, the Company’s Board of Directors appointed Assurance Dimensions (“Assurance”) as the Company’s new independent registered accounting firm. During the Company’s two most recent fiscal years and through July 15, 2022, neither the Company nor anyone acting on the Company’s behalf consulted Assurance with respect to any of the matters or reportable events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
The aggregate fees billed for the fiscal years ended May 31, 2022 and 2021 for:
● Professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in Form 10-Q (“Audit Fees”);
● Assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the financial statements and not reportable under Audit Fees (the “Audit Related Fees”);
● Tax compliance, advice, and planning (“Tax Fees”); and
● Other products or services provided (“Other Fees”)
were as follows:
Year Ended
May 31, 2022
(Assurance) Year Ended
May 31, 2022
(Prager)
Year Ended
May 31, 2021
(Prager)
Audit Fees $ 65,000 $ 60,000 $ 88,000
Audit Related Fees - 49,000 -
Tax Fees - - -
All Other Fees - - -
Total $ 65,000 $ 109,000 $ 88,000
Our audit committee has determined that the services provided by our independent registered public accounting firm are compatible with maintaining the independence of the auditor as our independent registered public accounting firm.
Pre-Approval Policy
The Audit Committee reviews and approves the audit and non-audit services to be provided by our independent registered public accounting firm during the year, considers the effect that performing those services might have on audit independence and approves management’s engagement of our independent registered public accounting firm to perform those services. The Audit Committee reserves the right to appoint a different independent registered public accounting firm at any time during the year if the Board of Directors of the Company and the Audit Committee believe that a change is in the best interest of the Company and our stockholders.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statements Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated financial statements of the registrant and subsidiaries, together with the report thereon of the Company’s independent registered public accounting firm, are included beginning on page of this Annual Report on Form 10-K.
(2) Financial Statements Schedules
All financial statements schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page of this Annual Report on Form 10-K.
(3) Exhibits
Exhibit
No.
Document
2.1
Share Subscription Agreement, dated May 3, 2018, by and among the Company, Smaaash Private, and the Smaaash Founders (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement filed with the SEC on September 19, 2018).
2.2
Amendment Cum Addendum to the Share Subscription Agreement dated May 03, 2018 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement filed with the SEC on September 19, 2018).
2.3
Second Amendment Cum Addendum to the Share Subscription Agreement dated May 03, 2018 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement filed with the SEC on September 19, 2018).
2.4
Third Amendment Cum Addendum to the Share Subscription Agreement dated May 03, 2018 (incorporated by reference to Annex A to the Company’s Proxy Statement Supplement, which was filed with the SEC on November 5, 2018).
2.5
Fourth Amendment Cum Addendum to the Share Subscription Agreement dated May 03, 2018, dated as of November 15, 2018 (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
2.6
Agreement and Plan of Merger dated as of July 25, 2019 by and between the registrant, Esports Merger Sub, Inc., PLAYlive Nation, Inc., Duncan Wood, Robert J. Steinberger, Eric J. Charneski, Jordan C. Jenson, and Alec T. Carpenter, and Duncan Wood in his capacity as representative of the stockholders (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2019).
3.1
Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
3.2
Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on January 2, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019).
3.3
Certificate of Amendment, filed with the Delaware Secretary of State on August 17, 2020 (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K filed with the SEC on August 31, 2020).
3.4
Certificate of Amendment, filed with the Delaware Secretary of State on September 18, 2020 (incorporated by reference to Exhibit 3.4 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-228906) filed on October 5, 2020).
3.5
Certificate of Amendment, filed with the Delaware Secretary of State on September 29, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2020).
3.6
Certificate of Amendment, filed with the Delaware Secretary of State on October 12, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 13, 2020).
3.7
Certificate of Amendment, filed with the Delaware Secretary of State on November 2, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2020).
3.8
Certificate of Amendment, filed with the Delaware Secretary of State on November 17, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 18, 2020).
3.9
Certificate of Designations of the Series X Preferred Stock, filed with the Nevada Secretary of State on August 23, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2022).
3.10
Bylaws (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 12, 2017).
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 31, 2017).
4.2
Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 31, 2017).
4.3
Warrant Agreement, dated August 16, 2017, by and between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 22, 2017).
10.1
Master Franchise Agreement, dated November 20, 2018, by and between the Company and Smaaash Private (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.2
Master License and Distribution Agreement, dated November 20, 2018, by and between the Company and Smaaash Private (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.3
Settlement and Release Agreement, dated November 20, 2018, by and between the Company and Maxim Group LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.4
Demand Secured Promissory Note, dated November 20, 2018, issued to Maxim Group LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.5
Escrow Agreement, dated November 20, 2018, by and among the Company, Ellenoff Grossman and Schole LLP and Shripal Morakhia (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.6
Smaaash Entertainment Inc. 2018 Equity Incentive Plan (incorporated by reference to Annex F to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on September 19, 2018). †
10.7
Side Letter, dated November 16, 2018, by and between the Company and Chardan Capital Markets, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.8
Letter of Undertaking, dated November 16, 2018, by Smaaash Private and Smaaash Founders (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.9
Addendum to Master Franchise Agreement, dated November 29, 2018, by and between the Company and Smaaash Private (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018).
10.10
Promissory Note, dated May 31, 2017, issued to I-AM Capital Partners LLC, our sponsor (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 12, 2017).
10.11
Letter Agreement, dated August 16, 2017, by and between the Company, the Sponsor and the officers and directors of the Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 22, 2017).
10.12
Registration Rights Agreement, dated August 16, 2017, by and among the Company and our sponsor (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on August 22, 2017).
10.13
Securities Subscription Agreement, dated May 31, 2017, among the Registrant and our sponsor (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 31, 2017).
10.14
Amended and Restated Unit Purchase Agreement, dated August 11, 2017, between the Registrant and our sponsor (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on August 14, 2017).
10.15
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 31, 2017).
10.16
Administrative Services Agreement, dated August 16, 2017, by and between the Company and our sponsor (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on August 22, 2017).
10.17
Shareholders’ Agreement, dated May 3, 2018, by and among the Company, FW Metis Limited, Mitesh R. Gowani, the Smaaash Founders, and Smaaash Private (incorporated by reference to Annex D to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on September 19, 2018).
10.18
Stock Purchase Agreement, dated as of November 2, 2018, by and between the Company and Polar Asset Management Partners Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 7, 2018).
10.19
Stock Purchase Agreement, dated as of November 5, 2018, by and between the Company and K2 Principal Fund L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 7, 2018.
10.20
Amendment, dated December 20, 2018, by and among the Company, Polar Asset Management Partners Inc., and The K2 Principal Fund L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2018.
10.21
Share Exchange Agreement, dated December 21, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports, LLC, Jed Kaplan and each of the equity holders of Simplicity Esports, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.22
Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports, LLC, Jed Kaplan and each of the equity holders of Simplicity Esports, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.23
Securities Exchange Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.24
Series A-1 Exchange Convertible Note (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.25
Series A-2 Exchange Convertible Note (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.26
Registration Rights Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.27
Lock-Up Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018).
10.28
Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, by and among the Company, Simplicity Esports, LLC, and Jed Kaplan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019.
10.29
Voting Agreement, Dated December 31, 2018, between the Company and the stockholders of the Company party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019).
10.30
Employment Agreement dated December 31, 2018, between the Company and Roman Franklin (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019). †
10.31
Restricted Stock Award Agreement dated March 27, 2019 between the registrant and Jed Kaplan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 2, 2019). †
10.32
Restricted Stock Award Agreement dated March 27, 2019 between the registrant and Roman Franklin (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 2, 2019). †
10.33
Exclusive Trademark and Symbol Use License Agreement, and Other Covenants, dated November 4, 2019, among Simplicity One Brasil LTDA and Clube de Regatas do Flamengo (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 22, 2020).
10.34
Common Stock Purchase Agreement, dated as of March 11, 2020, between the Company and Triton Funds LP (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2020).
10.35
Registration Rights Agreement, dated as of March 11, 2020, between the Company and Triton Funds LP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2020).
10.36
10% Fixed Convertible Promissory Note dated April 29, 2020 issued by the Company in favor of Harbor Gates Capital, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 5, 2020).
10.37
Promissory Note dated May 12, 2020 issued by the Company in favor of Jed Kaplan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2020).
10.38
Form of Self-Amortization Promissory Note dated June 18, 2020 issued by the Company to an accredited investor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2020).
10.39
Form of Securities Purchase Agreement dated June 18, 2020 by and between the Company and an accredited investor (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2020).
10.40
First Amendment to the Series A-2 Exchange Convertible Note issued on December 20, 2018 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2020).
10.41
2020 Omnibus Incentive Plan (incorporated by reference to Appendix I to the registrant’s definitive proxy statement on Schedule 14A filed with the Commission on June 9, 2020). †
10.42
Employment Agreement dated July 29, 2020 by and between the Company and Roman Franklin (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2020). †
10.43
Form of Self-Amortization Promissory Note dated August 7, 2020 issued by the Company to an accredited investor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2020).
10.44
Self-Amortization Promissory Note dated November 23, 2020, issued by the Company to an accredited investor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2020).
10.45
Securities Purchase Agreement dated November 23, 2020, by and between the Company and an accredited investor (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2020).
10.46
Common Stock Purchase Warrant dated November 23, 2020, issued by the Company to an accredited investor (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2020).
10.47
Promissory Note dated February 19, 2021, issued by the Company to the Holder (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 24, 2021).
10.48
Securities Purchase Agreement dated February 19, 2021, by and between the Company and the Holder (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 24, 2021).
10.49
Promissory Note dated March 10, 2021, issued by the Company to FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2021).
10.50
Securities Purchase Agreement dated March 10, 2021, by and between the Company and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2021).
10.51
Employment Agreement, entered into on March 25, 2021 and effective March 29, 2021, by and between the Company and Roman Franklin (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 29, 2021). †
10.52
Stock Purchase Agreement, dated as of March 31, 2021, by and between the Company and Tiger Trout Capital Puerto Rico, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2021).
10.53
Third Amendment to the Series A-2 Exchange Convertible Note entered into on April 14, 2021, by and between the registrant and Maxim Group LLC (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on April 14, 2021).
10.54
Securities Purchase Agreement, entered into on June 11, 2021 and dated as of June 10, 2021, by and between the Company and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2021).
10.55
Convertible Promissory Note, issued on June 11, 2021 and dated as of June 10, 2021, by the Company in favor of FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2021).
10.56
Common Stock Purchase Warrant, dated as of June 11, 2021, to FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.64 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.57
Securities Purchase Agreement, entered into on June 16, 2021 and dated as of June 10, 2021, by and between the Company and GS Capital Partners, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2021).
10.58
Convertible Promissory Note, issued on June 16, 2021 and dated as of June 10, 2021, by the Company in favor of GS Capital Partners, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2021).
10.59
Common Stock Purchase Warrant, dated as of June 16, 2021, to GS Capital Partners, LLC (incorporated by reference to Exhibit 10.67 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.60
Fourth Amendment to the Series A-2 Exchange Convertible Note entered into on August 19, 2021, by and between the registrant and Maxim Group LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2021).
10.61
Common Stock Purchase Warrant, dated as of August 4, 2021, to Maxim Group, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2021).
10.62
Securities Purchase Agreement, dated August 23, 2021, by and between the Company and Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 27, 2021).
10.63
Convertible Promissory Note, dated August 23, 2021, by the Company in favor of Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 27, 2021).
10.64
Common Stock Purchase Warrant, dated as of August 23, 2021, to Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 27, 2021).
10.65
Securities Purchase Agreement, dated August 31, 2021, by and between the Company and Lucas Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.66
Convertible Promissory Note, dated August 31, 2021, by the Company in favor of Lucas Ventures, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.67
Common Stock Purchase Warrant, dated as of August 31, 2021, to Lucas Ventures, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.68
Convertible Promissory Note, dated August 31, 2021, by the Company in favor of LGH Investments, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.69
Securities Purchase Agreement, dated September 28, 2021, by and between the Company and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2021).
10.70
Convertible Promissory Note, dated September 28, 2021, by the Company in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2021).
10.71
Common Stock Purchase Warrant, dated as of September 28, 2021, to Ionic Ventures, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2021).
10.72
Amendment No. 1 to Convertible Promissory Note, dated September 17, 2021, between the Company and FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.80 to Amendment No. 7 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on October 12, 2021).
10.73
Common Stock Purchase Warrant, dated as of September 17, 2021, to FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.81 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.74
Amendment No. 2 to Convertible Promissory Note, dated October 1, 2021, between the Company and FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.82 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.75
Common Stock Purchase Warrant, dated as of October 1, 2021, to FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.83 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.76
Amendment No. 1 to Common Stock Purchase Warrant, dated as of September 9, 2021, between the Company and FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.84 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.77
Amendment No. 1 to Common Stock Purchase Warrant, dated as of September 9, 2021, between the Company and GS Capital Partners, LLC (incorporated by reference to Exhibit 10.85 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.78
Amendment No. 1 to Common Stock Purchase Warrant, dated as of September 9, 2021, between the Company and Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.86 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.79
Amendment No. 1 to Common Stock Purchase Warrant, dated as of September 9, 2021, between the Company and Lucas Ventures, LLC (incorporated by reference to Exhibit 10.87 to the Company’s Registration Statement (File No. 333-259993) on Form S-1 filed with the SEC on October 1, 2021).
10.80
Securities Purchase Agreement, dated March 21, 2022, by and between the Company and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.88 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.81
Convertible Promissory Note, dated March 21, 2022 by the Company in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.89 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.82
Common Stock Purchase Warrant, dated as of March 21, 2022, to Ionic Ventures, LLC (incorporated by reference to Exhibit 10.90 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.83
Registration Rights Agreement, dated March 21, 2022, by and between the Company and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.91 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.84
Securities Purchase Agreement, dated March 21, 2022, by and between the Company and FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.92 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.85
Convertible Promissory Note, dated March 21, 2022 by the Company in favor of FirstFire Global Opportunities Fund (incorporated by reference to Exhibit 10.93 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.86
Common Stock Purchase Warrant, dated as of March 21, 2022, to FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.94 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.87
Registration Rights Agreement, dated March 21, 2022, by and between the Company and FirstFire Global Opportunities Fund LLC (incorporated by reference to Exhibit 10.95 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.88
Securities Purchase Agreement, dated March 21, 2022, by and between the Company and GS Capital Partners, LLC (incorporated by reference to Exhibit 10.96 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.89
Convertible Promissory Note, dated March 21, 2022, by the Company in favor of GS Capital Partners, LLC (incorporated by reference to Exhibit 10.97 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.90
Common Stock Purchase Warrant, dated as of March 21, 2022, to GS Capital Partners, LLC (incorporated by reference to Exhibit 10.98 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.91
Registration Rights Agreement, dated March 21, 2022, by and between the Company and GS Capital Partners, LLC (incorporated by reference to Exhibit 10.99 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.92
Amendment No. 2 to Promissory Note and Securities Purchase Agreement dated March 16, 2022, by and between the Company and Labrys Fund, LP (incorporated by reference to Exhibit 10.100 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.93
Amendment and Waiver Pursuant to Convertible Promissory Note dated March 16, 2022, by and between the Company and LGH Investments, LLC (incorporated by reference to Exhibit 10.101 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.94
Amendment and Waiver Pursuant to Convertible Promissory Note dated March 16, 2022, by and between the Company and Lucas Ventures, LLC (incorporated by reference to Exhibit 10.102 to Amendment No. 9 to the Company’s Registration Statement on Form S-1 (File No. 333-237634) filed with the SEC on April 8, 2022).
10.95
Securities Purchase Agreement, dated as of April 1, 2022, by and between the registrant and Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.103 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2022).
10.96
Convertible Promissory Note, dated as of April 1, 2022, issued by the registrant in favor of Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.104 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2022).
10.97
Common Stock Purchase Warrant dated as of April 1, 2022, issued by the registrant in favor of Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.105 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2022).
10.99
Registration Rights Agreement, dated as of April 1, 2022, by and between the registrant and Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.106 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2022).
10.100
Securities Purchase Agreement, dated as of July 14, 2022, by and between the registrant and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.101
Convertible Promissory Note, dated as of July 14, 2022, issued by the registrant in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.102
Common Stock Purchase Warrant, dated as of July 14, 2022, issued by the registrant in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.103
Securities Purchase Agreement, dated as of July 14, 2022, by and between the registrant and Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.104
Convertible Promissory Note, dated as of July 14, 2022, issued by the registrant in favor of Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.105
Common Stock Purchase Warrant, dated as of July 14, 2022, issued by the registrant in favor of Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.106
Securities Purchase Agreement, dated as of July 14, 2022, by and between the registrant and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.107
Convertible Promissory Note, dated as of July 14, 2022, issued by the registrant in favor of FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.108
Common Stock Purchase Warrant, dated as of July 14, 2022, issued by the registrant in favor of FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.109
Securities Purchase Agreement, dated as of July 14, 2022, by and between the registrant and GS Capital Partners, LLC (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.110
Convertible Promissory Note, dated as of July 14, 2022, issued by the registrant in favor of GS Capital Partners, LLC (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.111
Common Stock Purchase Warrant, dated as of July 14, 2022, issued by the registrant in favor of GS Capital Partners, LLC (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022).
10.112
Securities Purchase Agreement, dated as of September 8, 2022, by and between the registrant and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.113
Convertible Promissory Note, dated as of September 8, 2022, issued by the registrant in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.114
Common Stock Purchase Warrant, dated as of September 8, 2022, issued by the registrant in favor of Ionic Ventures, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.115
Securities Purchase Agreement, dated as of September 8, 2022, by and between the registrant and Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.116
Convertible Promissory Note, dated as of September 8, 2022, issued by the registrant in favor of Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.117
Common Stock Purchase Warrant, dated as of September 8, 2022, issued by the registrant in favor of Jefferson Street Capital, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.118
Securities Purchase Agreement, dated as of July 14, 2022, by and between the registrant and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.119
Convertible Promissory Note, dated as of July 14, 2022, issued by the registrant in favor of FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.120
Common Stock Purchase Warrant, dated as of July 14, 2022, issued by the registrant in favor of FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022).
10.121
Securities Purchase Agreement, dated as of September 13, 2022, by and between the registrant and GS Capital Partners LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2022).
10.122
Convertible Promissory Note, dated as of September 13, 2022, issued by the registrant in favor of GS Capital Partners LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2022).
10.123
Common Stock Purchase Warrant, dated as of September 13, 2022, issued by the registrant in favor of GS Capital Partners LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2022).
14.1
Code of Ethics (incorporated by reference to Exhibit 14 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-219251) filed with the SEC on July 31, 2017.
21.1*
List of Subsidiaries
23.1*
Consent of Independent Public Accounting Firm
23.2*
Consent of Former Independent Public Accounting Firm
24.1*
Power of Attorney (included on signature page)
31.1*
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
31.2*
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
32.1**
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema
101.CAL*
Inline XBRL Taxonomy Calculation Linkbase
101.LAB*
Inline XBRL Taxonomy Label Linkbase
101.PRE*
Inline XBRL Definition Linkbase Document
101.DEF*
Inline XBRL Definition Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document).
* Filed herewith
** Furnished herewith
† Includes management contracts and compensation plans and arrangements