Filed Pursuant to Rule 253(g)(3)
File No. 024-11447
Offering Circular dated June 11, 2021
CLUBHOUSE
MEDIA GROUP, INC.
3651
Lindell Road, D517
Las
Vegas, Nevada, 89103
(702)
479-3016
$1,000,000
Minimum Offering Amount (250,000 Shares of Common Stock)
$30,000,000
Maximum Offering Amount (7,500,000 Shares of Common Stock)
CLUBHOUSE
MEDIA GROUP, INC., a Nevada corporation, is offering a minimum of 250,000 shares of common stock and a maximum of 7,500,000
shares of common stock, par value of $0.001 per share, on a “best efforts” basis, which we refer to as the Offered Shares.
The minimum offering amount is $1,000,000, which we refer to as the Minimum Offering Amount, and the maximum offering amount is $30,000,000,
which we refer to as the Maximum Offering Amount. The initial public offering price per share of Common Stock is $4.00 per share.
This offering will terminate on the date which is ninety (90) days immediately following the date of qualification by the SEC of the
Offering Statement of which this Offering Circular is a part, subject to extension for up to ninety (90) days with our mutual agreement
of the Company and the Placement Agent, as defined below; provided that, if we have received and accepted subscriptions for the minimum
number of Offered Shares on or before the date which is ninety (90) days immediately following the date of qualification, or the end
of the ninety (90) day extension, if exercised, then we will close on the Minimum Offering Amount (the “Initial Closing”)
and this offering will continue until the earliest of (i) the date which is ninety (90) days after the Initial Closing, or (ii) the date
on which the Maximum Offering Amount is sold (such earliest date, the “Termination Date”). Affiliates of our Company, including
our officers and directors, may invest in the offering and their investment would be counted toward achieving the Minimum Offering Amount.
If, on the Initial Closing date, we have sold less than the maximum number of Offered Shares, then we may hold one or more additional
closings for additional sales (each an “Additional Closing”), up to the maximum number of Offered Shares, and until the Termination
Date. The initial 90-day offering period and any additional 90 day-incremental offering periods will, in the aggregate, not exceed 24
months from the date of this Offering Circular, pursuant to Rule 251(d)(3) of Regulation A. Our Company and the Placement Agent will
consider various factors in determining the timing of any Additional Closings, including the amount of proceeds received at the Initial
Closing, any Additional Closings that have already been held, the level of additional valid subscriptions received after the Initial
Closing, and the eligibility of additional investors under applicable laws. We expect to have Additional Closings on a monthly basis
and expect that we will accept all funds subscribed for each month subject to our working capital and other needs consistent with the
use of proceeds described in this Offering Circular. Investors should expect to wait approximately one month and no longer than
forty-five days before we accept their subscriptions and they receive the Offered Shares subscribed for. An investor’s subscription
is binding and irrevocable and investors will not have the right to withdraw their subscription or receive a return of funds prior to
the next closing unless we reject the investor’s subscription. An investor will receive a confirmation of the investor’s
purchase promptly following the closing in which the investor participates.
Until
we achieve the Minimum Offering Amount, the proceeds for the offering will be kept in a segregated non-interest-bearing account (the
“Offering Escrow Account”) at Pacific Mercantile Bank with Sutter Securities Clearing, LLC (the “Deposit Account Agent”),
serving as the Offering Escrow Account agent. Sutter Securities Clearing, LLC is an affiliate of our Placement Agent. Upon achievement
of the Minimum Offering Amount and the closing on such amount, the proceeds from the Minimum Offering Amount will be distributed to us
and the associated Offered Shares will be issued to the investors. Upon each Additional Closing, if any, the proceeds subject to that
Additional Closing will be distributed to us and the associated Offered Shares will be issued to the investors in such Offered Shares.
If the offering does not close, the proceeds for the offering will be promptly returned to investors, without deduction and without interest.
Checks should be made payable to Sutter Securities Clearing, LLC as Deposit Account Agent for the Company.
After
the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, investors can make payment of the purchase
price by ACH debit transfer, wire transfer, credit card or check into the Offering Escrow Account. Credit card subscription shall not
exceed the lesser of $5,000 or the amount permitted by applicable law, per subscriber. Investors contemplating using their credit card
to invest are urged to carefully review “Risk Factors – Risks of investing using a credit card.”
The
minimum purchase requirement per investor is $250; however, we can waive the minimum purchase requirement on a case-by-case basis in
our sole discretion. We expect to commence the sale of the Offered Shares as of the date on which the Offering Statement the of which
this Offering Circular is a part, is qualified by the SEC.
Our
Common Stock is currently quoted on the OTC Pink tier of the OTC Market Group, Inc. under the symbol “CMGR.” On June 10,
2021, the last reported sale price of our common stock was $6.28.
We
have engaged Boustead Securities, LLC, a registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”),
as the placement agent (the “Placement Agent”) to offer the Offered Shares to prospective investors in the United States
on a best-efforts basis, and the Placement Agent will have the right to engage such other broker-dealers or agents as it determines to
assist in such offering.
A
maximum of $30,000,000 of Offered Shares will be offered worldwide. No sales of Offered Shares will be made anywhere in the world prior
to the qualification of the Offering Statement by the SEC in the United States. All Offered Shares will be initially offered in all jurisdictions
at the same U.S. dollar price that is set forth in this Offering Circular.
See
“Plan of Distribution” and “Description of Securities” for a description of our capital stock.
Shares
Offered by
Company
|
|
Number
of Shares (2)
|
|
|
Price
to
Public
|
|
|
Underwriting
Discounts and Commissions (1) (2)
|
|
|
Proceeds,
Before Expenses, to Company (3)
|
Per
Share
|
|
|
1
|
|
|
$
|
4.00
|
|
|
$
|
0.26
|
|
|
$
|
3.74
|
Total
Minimum
|
|
|
250,000
|
|
|
$
|
1,000,000
|
|
|
$
|
65,000
|
|
|
$
|
935,000
|
Total
Maximum
|
|
|
7,500,000
|
|
|
$
|
30,000,000
|
|
|
$
|
1,950,000
|
|
|
$
|
28,050,000
|
Placement
Agent’s Warrant:(2)
|
|
|
75,000
|
|
|
$
|
Not
applicable
|
|
|
$
|
Not
applicable
|
|
|
$
|
Not
applicable
|
Shares
of Common Stock underlying Placement Agent’s Warrant:(2)
|
|
|
75,000
|
|
|
$
|
Not
applicable
|
|
|
$
|
Not
applicable
|
|
|
$
|
Not
applicable
|
(1)
This table depicts broker-dealer commissions of 6.5% of the gross offering proceeds. Please refer to the section entitled
“Plan of Distribution” beginning on page 43 of this Offering Circular for additional information regarding total underwriter
compensation.
We have agreed to reimburse the Placement Agent for
reasonable out-of-pocket expenses incurred relating to the offering, regardless of whether the offering is consummated, including payment
of up to $45,000 for reimbursement of the Placement Agent’s legal counsel fees. Any out-of-pocket expenses above $1,000 are to
be pre-approved by the Company. We have paid $20,000 to the Placement Agent as a refundable advance, all of which shall be applied
against actual out-of-pocket accountable expenses and such advance shall be reimbursed to us to the extent any portion of the advance
is not actually incurred, in compliance with FINRA Rule 5110(g)(4)(A) in the event of the termination of the offering.
(2)
In addition to the broker-dealer discounts and commissions included in the above table, upon consummation of this offering, we
will issue to the Placement Agent or its designees warrants to purchase an aggregate number of shares of our common stock equal to 1%
of the number of shares of common stock issued in this offering, at an exercise price per share equal to 125% of the initial
public offering price of $4.00 per share, with an aggregate value of $375,000. Assumes that the maximum aggregate offering price
of $30,000,000.00 is received by the Company from investors. The aggregate offering price of this offering is $30,375,000, which
includes the maximum offering amount of common stock that may be sold to investors in this offering ($30,000,000) and the value of the
shares of common stock underlying the warrants issued to the Placement Agent in connection with the offering ($375,000).
(3)
Does not include estimated offering expenses including, without limitation, legal, accounting, auditing, deposit Account Agent,
transfer agent, other professional, printing, advertising, travel, marketing, blue-sky compliance and other expenses of this offering.
We estimate the total expenses of this offering, excluding the Placement Agent’s commissions, will be approximately $245,000
(which includes $45,000 of the Placement Agent’s expenses). See “Plan of Distribution” beginning on page
43.
Generally,
no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income
or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment
does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing,
we encourage you to refer to www.investor.gov.
An
investment in our common stock is subject to certain risks and should be made only by persons or entities able to bear the risk of and
to withstand the total loss of their investment. Prospective investors should carefully consider and review the RISK FACTORS beginning
on page 18.
THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR THE COMMISSION, DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL TO ANY SECURITIES
OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE.
THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN
INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
This
Offering Circular is following the offering circular format described in Part II of Form 1-A.
The
date of this Offering Circular is June 11, 2021.
ITEM
2: TABLE OF CONTENTS
We
have not authorized anyone to provide any information other than that contained or incorporated by reference in this Offering Circular
prepared by us or to which we have referred you. We do not take responsibility for and can provide no assurance as to the reliability
of, any other information that others may give you. This Offering Circular is an offer to sell only the Offered Shares offered hereby
but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular is
current only as of its date, regardless of the time of delivery of this Offering Circular or any sale of Shares.
For
investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this
offering Circular in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and the distribution of this Offering Circular.
MARKET
AND INDUSTRY DATA AND FORECASTS
Certain
market and industry data included in this Offering Circular is derived from information provided by third-party market research firms
or third-party financial or analytics firms that we believe to be reliable. Market estimates are calculated by using independent industry
publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We have not independently
verified such third-party information. The market data used in this Offering Circular involves a number of assumptions and limitations,
and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding any market, industry
or similar data presented herein, such data involves risks and uncertainties and are subject to change based on various factors, including
those discussed under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors”
in this Offering Circular. These and other factors could cause results to differ materially from those expressed in the estimates made
by the independent parties and by us.
Certain
data are also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent
sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources
believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently
verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements
as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding the
industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including
those discussed under the heading “Risk Factors” in this Offering Circular. Similarly, we believe our internal research is
reliable, even though such research has not been verified by any independent sources.
TRADEMARKS
AND COPYRIGHTS
We
own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate
names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that
protect the content of our products and the formulations for such products. This Offering Circular may also contain trademarks, service
marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’
trademarks, service marks, trade names or products in this Offering Circular is not intended to, and should not be read to, imply a relationship
with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this
Offering Circular are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable
law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Offering Circular, including the sections entitled “Business,” “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” contains express or implied forward-looking statements
that are based on our management’s belief and assumptions and on information currently available to our management. Although we
believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events
or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed
or implied by these forward-looking statements. Forward-looking statements in this Offering Circular include, but are not limited to,
statements about:
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the
implementation of our strategic plans for our business;
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our
financial performance;
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fluctuations
in the number of influencers living in our Clubhouses or that we contract with and their number of social media followers;
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developments
relating to our competitors and our industry, including the impact of government regulation;
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estimates
of our expenses, future revenues, capital requirements and our needs for additional financing; and
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other
risks and uncertainties, including those listed under the captions “Business,” “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
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In
some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,”
“intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” “continue,” “could,” “project,” “intend,” “will,”
“will be,” “would,” or the negative of these terms or other comparable terminology and expressions. However,
this is not an exclusive way of identifying such statements. These statements are only predictions. You should not place undue reliance
on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases,
beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current
expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Offering
Circular. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events
or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is
a guarantee of future performance. You should read this Offering Circular and the documents that we reference in this Offering Circular
and have filed with the SEC as exhibits hereto completely and with the understanding that our actual future results may be materially
different from any future results expressed or implied by these forward-looking statements.
The
forward-looking statements in this Offering Circular represent our views as of the date of this Offering Circular. We anticipate that
subsequent events and developments will cause our views to change. Except as expressly required under federal securities laws and the
rules and regulations of the SEC, we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances
arising after the date of this Offering Circular, whether as a result of new information or future events or otherwise. You should therefore
not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Offering Circular.
You should not place undue reliance on the forward-looking statements included in this Offering Circular. All forward-looking statements
attributable to use are expressly qualified by these cautionary statements.
ITEM
3: SUMMARY AND RISK FACTORS
This
summary of the Offering Circular highlights material information concerning our business and this offering. This summary does not contain
all of the information that you should consider before making your investment decision. You should carefully read the entire Offering
Circular, including the information presented under the section entitled “Risk Factors” and the financial data and related
notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such
as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
In
this Offering Circular, unless the context indicates otherwise, “Clubhouse Media,” the “Company,” “we,”
“our,” “ours” or “us” refer to Clubhouse Media Group, Inc., a Nevada corporation, and its subsidiaries,
including West of Hudson Group, Inc., a Delaware corporation, and its subsidiaries.
SUMMARY
Overview
We
operate a global network of professionally run content houses, each of which has its own brand, influencer cohort and production capabilities.
Our Company offers management, production and deal-making services to our handpicked influencers, a management division for individual
influencer clients, and an investment arm for joint ventures and acquisitions for companies in the social media influencer space. Our
management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.
Through
our subsidiary, West of Hudson Group, Inc., or WOHG, we currently generate revenues primarily from talent management of social media
influencers residing in our Clubhouses and for paid promotion by companies looking to utilize such social media influencers to promote
their products or services. We solicit companies for potential marketing collaborations and cultivated content creation, work with the
influencers and the marketing entity to negotiate and formalize a brand deal and then execute the deal and receive a certain percentage
from the deal. In addition to the in-house brand deals, we generate income by providing talent management and brand partnership deals
to external influencers not residing in our Clubhouses. Through Digital Influence Inc. (doing business as Magiclytics), a 100% wholly
owned subsidiary of WOHG, we currently generate revenues primarily by providing predictive analytics for content creation brand deals.
For
the period from January 2, 2020 (inception) to December 31, 2020, Clubhouse Media generated revenues of $1,010,405 and reported a net
loss of $2,577,721 and negative cash flow from operating activities of $1,967,551. For
the three months ended March 31, 2021, Clubhouse Media generated revenues of $523,376, reported a net loss of $5,798,578,
and had negative cash flow from operating activities of $1,628,118. As noted in the
consolidated financial statements of Clubhouse Media, as of March 31, 2021, Clubhouse Media had an accumulated deficit
of $8,456,996. There is substantial doubt regarding the ability of Clubhouse Media to continue as a going concern as a
result of its historical recurring losses and negative cash flows from operations as well as its dependence on private equity and financings.
See “Risk Factors— Clubhouse Media has a history of operating losses and its management has concluded that factors raise
substantial doubt about its ability to continue as a going concern and the auditor of Clubhouse Media has included explanatory paragraphs
relating to its ability to continue as a going concern in its audit report for the period from January 2, 2020 (inception) to December
31, 2020.”
Principal
Products and Services
Our
current principal products and services are comprised of (1) our Clubhouses, (2) our talent management services and (3) our brand development
and content creation.
The
Clubhouses
Through
WOHG, we are the sole owner of “The Clubhouse,” which is an integrated social media influencer incubator with a physical
and digital footprint in Southern California and Europe. The Clubhouse is a collection of content creation houses located in scenic mansions
in Southern California (4 locations), Las Vegas, Nevada (1) and Europe (1 location) that houses who we believe to be some
of the most prominent and widely followed social media influencers, together carrying a currently estimated follower base of approximately
280 million social media followers as of May 25, 2021 across all Clubhouse influencers. The foregoing consists of approximately
150 million followers on Tik Tok, 60 million followers on Instagram, 53 million followers on YouTube, 6 million
followers on Snapchat and 12 million followers on Twitter. The influencers who live in our Clubhouses, as well as the number of their
social media followers, can fluctuate significantly at any given time, and we cannot predict the increase or decline of the number of
influencers who live in our Clubhouses or the number of followers for our Clubhouse influencers at any given time in the future.
Content
Houses at a Glance
Content
houses originated from gaming houses in the gaming industry, where professional video game players and gaming teams lived in the same
residence with each other in order to practice gaming and create content to build their own following. Eventually this concept was adopted
by lifestyle influencers and was found to be a way for individual influencers to create new content with other influencers and grow followers
together.
Our
Clubhouses
The
Clubhouse is an established network of social media content creation houses (Clubhouse BH, Just A House (“JAH”),
Society Las Vegas, Dobre Bothers House, Weheartfans House and Clubhouse Europe that each provide a picturesque living
environment for our band of social media influencers, complete with in-house media production teams, including photographers and videographers.
We believe that this enables the influencers living at these houses to maximize the depth, breadth and scale of followers that those
influencers can build across popular social media platforms.
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“Clubhouse BH” is located in the heart of Beverly Hills in Los Angeles, California and is occupied by a group of content creators who live and work together 24 hours per day and seven days per week, and are equipped with a full media team. We believe that this structure enables successful collaboration and content creation by the content-creators. Clubhouse BH is 12,000 square feet, has 11 bedrooms and sits on one acre of land. Clubhouse BH is targeting men and women aged 17 to 30.
“Dance
Dome LA” is housed under the Clubhouse BH location that targets a subgenre of influencers
in the dance community. Dance Dome aims to target the young male and female demographic of
12-30 years old specifically those interested in the subgenre of dancing related content.
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“Just
a House” (“JAH”) is located in Los Angeles. JAH
is in the process expanding its digital footprint with a young female following aimed
at a demographic of women aged 12 to 30.
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“Dobre
Brothers House” is located in the hill tops of Beverly Hills. Dobre brothers
consist of Darius, Cyrus, Marcus and Lucas Dobre. Dobre Brothers House is aimed at a
demographic of men and women aged 12 to 35.
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“Clubhouse
Europe” is located in the Republic of Malta, where we’ve expanded our international footprint by bringing together
under one roof who we believe to be some of Europe’s most popular influencers. Clubhouse Europe is targeting European
demographic of men and women aged 14 to 30.
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“Weheartfans
House” is a house dedicated to Clubhouse’s weheartfans.com platform.
The website provides fans with exclusive content. The website is currently in beta mode.
Weheartfans House is targeting demographic of men and women aged 18 to 55.
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“Society
Las Vegas” is Clubhouse’s first house in Las Vegas. Society Las Vegas
seeks to target the Las Vegas demographic market of men and women aged 16 to 45.
|
“The
Clubhouse” Online Presence and Plans for Expansion of the Physical Clubhouses
While
“The Clubhouse” network consists of physical locations (as described above), there are numerous “Clubhouse”
accounts owned by The Clubhouse, with a combined following of over 9.4 million followers as of May 25, 2021 across
Instagram, Snapchat, YouTube, and TikTok. These accounts are directly held by us (as opposed to the Clubhouse team of influencers)
and therefore we have direct access to the followers of these accounts, which we consider to be our followers.
We
are constantly surveying opportunities to establish new Clubhouses, and intend to expand our Clubhouse locations as our business continues
to grow. We specifically plan on expanding the Clubhouse footprint further into Europe and the U.S. as well as into Asia, into other
content niche types such as e-gaming, beauty and music. We currently intend to expand with two to four additional Clubhouses each year,
depending on available funding for such expansion and we cannot provide any assurance that we’ll be able to expand at this intended
rate. We also intend to engage in a cross-house collaborative strategy that we believe has not yet been established in the industry and
we have talent that can be deployed to a broad range of brand partnership and other opportunities that we believe can lead to significant
growth opportunities through diversified revenue streams.
Why
We Believe that Influencers Benefit from Content Houses
Influencers
need to constantly create original content to grow their following, and collaborations with other influencers can help facilitate creative
content while allowing for sharing of followers among influencers. Our Clubhouses provide a unique living situation where influencers
can collaborate and work together to grow each other’s following. For example, one of the influencers who was living in our Clubhouses
experienced in four months, growth from 3.22 million followers on Instagram to 5.2 million followers on Instagram. Another one of the
influencers who lived in our Clubhouses experienced in four months, growth from 1.5 million followers on Instagram to 2.3 million followers
on Instagram.
Clubhouse
and Influencer Fit
At
Clubhouse Media, we strive to cultivate a large and committed following for our team of influencers, which we plan to leverage to popularize
our in-house brands, driving sales and brand-awareness to our target customers. Our approach is to create a balance between social media
creativity and the business of social media marketing. We believe that this symbiotic balance creates a higher output for both our Clubhouses
and influencers and creates an attractive one-stop shop for brands to advertise and for influencers to grow and collaborate. The Clubhouse’s
goal is to develop and successfully monetize on its network of influencers through a portfolio of valuable brands by becoming the world’s
leading hub for new media content. The Clubhouse has already received media coverage in publications such as Forbes, the New York Times,
Business Insider and Seventeen, among others.
Talent
Management Services
Doiyen
LLC, our indirectly wholly owned subsidiary, is a talent management company for social media influencers and generates revenues based
on the earnings of its influencer-clients (or “Creators”) by receiving a percentage of the earnings of its Creators. Certain
influencers who live in our various Clubhouses enter into an Exclusive Management Agreement (the “Management Agreement(s)”).
Through Doiyen, we seek to represent some of the world’s top talent in the world of social media. We plan to hire experienced talent
and management agents as well as build our support and administrative resources seeking to expand operations. Our influencers include
entertainers, content creators, and style icons.
Through
Doiyen, we currently represent more than 24 social media influencers, with a combined number of followers on Instagram,
TikTok, and YouTube of over 70,000,000. We are dedicated to helping Doiyen’s influencer-clients build their brands,
maintain creative control of their destinies, and diversify and grow their businesses through “The Clubhouse,” providing
them opportunities to increase their monetization potential and amplify their reach.
We
also may enter into non-exclusive management agreements with certain Creators, however this is extremely rare, as we prefer to only enter
into exclusive management agreements.
Brand
Development and Content Creation
Through
WOH Brands, LLC, a 100% wholly owned subsidiary of WOHG, we engage and also plan to engage in a number of activities with respect to
brand development and incubation, content creation, and technology development, as follows:
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Content
Creation: original long and short form content creation for streaming services or other platforms involved in content distribution;
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Brand
Development and Product Sales: acquiring or creating in-house brands and selling products in various categories, including apparel,
beauty, and other lifestyle brands; and
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Technology:
development and/or acquisition of software geared towards social media, which may be licensed, sold outright, or otherwise monetized
by us.
|
Through
Digital Influence Inc. (doing business as Magiclytics), a 100% wholly owned subsidiary of WOHG, we provide predictive analytics for content
creation brand deals.
Industry
Overview and Market Opportunity
Social
Media and Influencer Marketing and Promotion
According to a Business Insider Intelligence
report titled “Influencer Marketing: State of the social media influencer market in 2021” originally
published in December 2019 and updated February 2021, influencer marketing spending has grown significantly since 2015
and is expected to reach $13.8 billion annually by 2021. According to the same source, currently 78% of companies
spend over 10% of their marketing budget on influencer marketing and 11% of companies allocate more than 40% of
their marketing budget on influencer marketing and the percentage is expected to grow as more companies become comfortable with
the channel. Also according to the same source, companies surveyed about influencer marketing noted that content quality, aligned
target audience demographic and engagement rate were the three most important determinants in choosing influencer partners and
that the two most important goals for influencer marketing based on survey responses were increasing brand awareness and reaching
new audiences in order to expand their existing customer base.
WOHG
intends to capitalize on this growing social media and influencer based advertising spending, utilizing its Clubhouse influencers to
attract advertisers directly, as well as generating business for Creators, for which it will receive compensation pursuant to its Management
Agreements.
Apparel
The
United States apparel market was valued at approximately 368 billion U.S. dollars as of 2019. Store-based retailing was valued at over
268 billion U.S., while e-commerce brought in over 100 million U.S. dollars of revenue. As the internet increasingly influences social
and economic activities, the e-commerce market for retail goods is expected to grow steadily. Our core customer demographic is anywhere
from 12 to 30-year old women and men.
Competition
We
seek to effectively compete with such competitors by out-scaling our competition, focusing on in-house business infrastructure and providing
superior support and management services for our Clubhouse influencers. We strive to have more physical locations than other influencer-house
networks. Currently, we are unaware of any other company that is combining into one business the various business aspects in which we
engage. In addition, we believe the experience of our management team provides us with a significant advantage in the social media influencer
business, as participants in this space have traditionally lacked the business experience that our executive management team possesses,
which we intend to use to our advantage. Notwithstanding, we may not be able to effectively compete with such competitors.
Customers
Our
customers include our influencer-clients, or Creators, (through Doiyen), companies that contract directly with us (through Doiyen) for
paid promotion, and the consumers that purchase our products (through WOH Brands).
Doiyen
and its Creators have already worked with a number of notable brands, including, but not limited to, Fashion Nova, Spotify, McDonalds,
Amazon, and Boohoo.
Sales
and Marketing
We
generally attract clients through our social media presence across various platforms, including YouTube, Instagram, and TikTok.
As
a respected name in the social media influencer industry, we are often approached by influencers who want us to represent them (through
Doiyen), or want to live in one of our Clubhouses. We also scout for up-and-coming talented influencers on various social media platforms,
who we then attempt to engage as clients.
For
paid promotion, we generally receive inbound inquiries for promotional opportunities from companies looking to promote their brands or
products. Doiyen also has a sales team to reach out to specific brands that we believe fits a specific influencer’s style, which
is another way we generate business.
All
products that we sell are marketed through our Clubhouse team of influencers, who provide promotion and marketing social media posts
on our behalf as part of the terms of their living arrangements in the Clubhouses.
Government
Regulation
We
are subject to various federal, state and local laws, both domestically and internationally, governing matters such as:
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licensing
laws for talent management companies, such as California’s Talent Agencies Act;
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licensing,
permitting and zoning;
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health,
safety and sanitation requirements;
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harassment
and discrimination, and other similar laws and regulations;
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compliance
with the Foreign Corrupt Practices Act (“FCPA”) and similar regulations in other countries;
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data
privacy and information security;
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marketing
activities;
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environmental
protection regulations;
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imposition
by the U.S and/or foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and
distributed and ownership restrictions; and
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government
regulation of the entertainment industry.
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We
monitor changes in these laws and believe that we are in material compliance with applicable laws and regulations. See “Risk Factors—Risks
Related to Our Business—We are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these
regulations could adversely affect our business.”
Recent
Developments
For
a detailed description of recent developments of the Company, see “Description of Business—Recent Developments” on
page 64 of this Offering Circular.
Overview
of the Business of West of Hudson Group, Inc.
West
of Hudson Group, Inc., or WOHG, our directly wholly owned subsidiary, is primarily a holding company, and operates various aspects of
its business through its operating subsidiaries of which WOHG is the 100% owner and sole member, in the case of limited liability companies,
and which are as follows:
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Doiyen,
LLC – a talent management company that provides representation to Clubhouse influencers.
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WOH
Brands, LLC – a content-creation studio, social media marketing company, technology developer.
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Digital
Influence Inc. (doing business as Magiclytics) – a company that provides predictive analytics for content creation brand deals.
Organizational Structure
The
following reflects our organization structure after this offering:
Effects
of Coronavirus on the Company
If
the current outbreak of the coronavirus continues to grow, the effects of such a widespread infectious disease and epidemic may inhibit
our ability to conduct our business and operations and could materially harm our company. The coronavirus may cause us to have to reduce
operations as a result of various lock-down procedures enacted by the local, state or federal government, which could restrict the movement
of our influencers outside of or within a specific Clubhouse or even effect the influencer’s ability to create content. The coronavirus
may also cause a decrease in advertising spending by companies as a result of the economic turmoil resulting from the spread of the coronavirus
and thereby having a negative effect on our ability to generate revenue from advertising. Further, if there is a spread of the coronavirus
within any of our Clubhouses, it may cause an inability for our content creators to create and post content and could potentially cause
a specific Clubhouse location to be entirely quarantined. Additionally, we may encounter negative publicity or a negative public reaction
when creating and posting certain content while a coronavirus related lockdown is enacted. The continued coronavirus outbreak may also
restrict our ability to raise funding when needed, and may cause an overall decline in the economy as a whole. The specific and actual
effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond our
control and knowledge. However, the spread of the coronavirus, if it continues, may cause an overall decline in the economy as a whole
and also may materially harm our company.
Notwithstanding
the foregoing possible negative impacts on our business and results of operations, up until now, we do not believe our prior and current
business operations, financial condition, and results of operations have been negatively impacted by the coronavirus pandemic and related
shutdowns. As the social media sector appears to have been thriving during the pandemic and shutdowns, we believe that our social media-based
business and our results of operations have been thriving as well. More specifically, we have been successful at opening several houses,
actively recruiting influencers/creators, creating content, and generating revenue during the pandemic and shutdowns. Notwithstanding,
the ultimate impact of the coronavirus pandemic on our operations remains unknown and will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the coronavirus outbreak, new information which may emerge
concerning the severity of the coronavirus pandemic, and any additional preventative and protective actions that governments, or our
company, may direct, which may result in an extended period of business disruption and reduced operations. The long-term financial impact
cannot be reasonably estimated at this time and may ultimately have a material adverse impact on our business, financial condition, and
results of operations.
Risk
Factors
Our
business is subject to numerous risks and uncertainties, including those described in “Risk Factors” immediately following
this Offering Circular summary and elsewhere in this Offering Circular. These risks represent challenges to the successful implementation
of our strategy and to the growth and future profitability of our business. These risks include, but are not limited to, the following:
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Clubhouse
Media has a history of operating losses;
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There
are no assurances we will realize the anticipated benefits from the acquisition of WOHG;
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The
current outbreak of the coronavirus may have a negative effect on our ability to conduct our business and operations and may also
cause an overall decline in the economy as a whole and could materially harm our Company;
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We
may be adversely affected by political tensions between the United States and China;
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We
may not be able to effectively manage our growth and the increased complexity of our business, which could negatively impact our
brand and financial performance;
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We
may suffer from lack of availability of additional funds;
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The
ability of our Chief Executive Officer, Amir Ben-Yohanan, to control our business may limit or eliminate minority stockholders’
ability to influence corporate affairs;
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We
are not a party to certain of the leases for its Clubhouse properties, and therefore is subject to the risk of those leases being
terminated or altered without its consent;
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Our
business is subject to fluctuations that are not predictable, which subjects our business to increase risks;
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Our
business depends on our ability to provide customers and followers with interesting and useful content, which in turn depends on
the content contributed by the content creators;
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Changes
in public and consumer tastes and preferences and industry trends could reduce demand for our services and content offerings and
adversely affect our business;
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Our
ability to generate revenue from discretionary and corporate spending, such as corporate sponsorships and advertising, is subject
to many factors, including many that are beyond our control;
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We
may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies;
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Because
our success depends substantially on our ability to maintain a professional reputation, adverse publicity concerning us, one of our
businesses, our Creators or our key personnel could adversely affect our business;
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We
depend on the relationships of our talent managers and other key personnel with clients across many categories, including fashion,
music, digital, and sponsorship;
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Our
success depends, in part, on our continuing ability to identify, recruit and retain qualified and experienced talent managers. If
we fail to recruit and retain suitable talent managers or if our relationships with our talent managers change or deteriorate, it
could adversely affect our business;
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Our
failure to identify, sign and retain influencer-clients could adversely affect our business;
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The
markets in which we operate are highly competitive, both within the United States and internationally;
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We
operate in a fast-evolving industry, and we are in the early stage of our business. We cannot guarantee that our monetization strategies
will be successfully implemented or generate sustainable revenues and profit;
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We
rely on technology, such as our information systems, to conduct our business. Failure to protect our technology against breakdowns
and security breaches could adversely affect our business;
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Increases
in the costs of content may have an adverse effect on our business, financial condition and results of operations;
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In
our paid promotion business, if we are unable to prove that our advertising and sponsorship solutions provide an attractive return
on investment for our customers, our financial results could be harmed;
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We
will be attempting to launch brands in new markets and with new products. Our inability to effectively execute our business plan
in relation to these new brands could negatively impact our business;
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Our
intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims,
our business may be harmed;
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As
a creator and a distributor of content over the internet, we face potential liability for legal claims based on the nature and content
of the materials that we create or distribute;
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We
are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these regulations could adversely
affect our business;
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We
could become involved in claims or litigations that may result in adverse outcomes; and
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A
limited market for our common stock.
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In
addition, the management of Clubhouse Media has concluded that its historical recurring losses from operations and negative cash flows
from operations as well as its dependence on securing private equity and other financings raise substantial doubt about its ability to
continue as a going concern and the auditor of Clubhouse Media has included an explanatory paragraph relating to its ability to continue
as a going concern in its audit report for the period from January 2, 2020 (inception) to December 31, 2020.
Company
Information
Our
principal office is located at 3651 Lindell Road, D517, Las Vegas, Nevada 89103 and our phone number is (702) 479-3016. Our corporate
website address is www.clubhousemediagroup.com. Information contained on, or accessible through, our website is not a part of,
and is not incorporated by reference into, this Offering Circular.
THE
OFFERING
Issuer:
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Clubhouse
Media Group, Inc.
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Securities Offered:
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A
minimum of 250,000 and a maximum of 7,500,000 shares of our common stock, par
value $0.001 per share (“Offered Shares”), at an initial public offering price
of $4.00 per Offered Share.
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Offering Price:
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Initial
public offering price is $4.00 per Offered Share.
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Number of Shares Outstanding
Before the Offering:
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There
are outstanding as of the date hereof the following shares of our capital stock: 94,883,195
shares of common stock and one share of Series X Preferred Stock.
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Number of Shares Outstanding
After the Offering:
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95,133,195
shares common stock, if the Minimum Offering Amount of Offered Shares is sold, and 102,383,195 shares of common stock, if
the Maximum Offering Amount of Offered Shares is sold.
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Minimum Offering Amount:
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250,000
shares at $4.00
per Offered Shares, or $1,000,000. Affiliates of our Company, including our officers and
directors, may invest in the offering and their investment would be counted toward achieving
the Minimum Offering Amount.
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Maximum Offering Amount:
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7,500,000
shares at $4.00
per Offered Share, or $30,000,000
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Minimum Investment Amount:
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The minimum investment
amount per investor is $250; however, we may waive the minimum purchase requirement on a case-by-case basis in our sole discretion.
The subscriptions, once received, are irrevocable.
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Investment Amount Restrictions:
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Generally, no sale may
be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or
net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment
does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A. For general information on
investing, we encourage you to refer to www.investor.gov.
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Payment
for Offered Shares:
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After
the qualification by the SEC of the Offering Statement of which this Offering Circular is
a part, investors can make payment of the purchase price by ACH debit transfer, wire transfer,
credit card or check into a segregated non-interest-bearing account at Pacific Mercantile
Bank (the “Offering Escrow Account”). Sutter Securities Clearing, LLC will serve
as the Offering Escrow Account agent. Credit card subscription shall not exceed the lesser
of $5,000 or the amount permitted by applicable law, per subscriber. Investors contemplating
using their credit card to invest are urged to carefully review “Risk Factors –
Risks of investing using a credit card.” Checks should be made payable to Sutter Securities
Clearing, LLC (the “Deposit Account Agent”) as deposit account agent for the
Company. Until we achieve the Minimum Offering Amount, the proceeds for the offering will
be kept in the Offering Escrow Account. Upon achievement of the Minimum Offering Amount and
the closing (“Initial Closing”) on such amount, the proceeds from the Minimum
Offering Amount will be distributed to us and the associated Offered Shares will be issued
to the investors. Following the Initial Closing of this offering, we expect to have several
subsequent closings (“Additional Closings”) of this offering until the Maximum
Offering Amount is raised or the offering is terminated. Our Company and the Placement
Agent will consider various factors in determining the timing of any Additional Closings,
including the amount of proceeds received at the Initial Closing, any Additional Closings
that have already been held, the level of additional valid subscriptions received after the
Initial Closing, and the eligibility of additional investors under applicable laws. We expect
to have Additional Closings on a monthly basis and expect that we will accept all funds subscribed
for each month subject to our working capital and other needs consistent with the use of
proceeds described in this Offering Circular. Investors should expect to wait approximately
one month and no longer than forty-five days before we accept their subscriptions and they
receive the Offered Shares subscribed for. An investor’s subscription is binding
and irrevocable and investors will not have the right to withdraw their subscription or receive
a return of funds prior to the next closing unless we reject the investor’s subscription. You
will receive a confirmation of your purchase promptly following the closing in which you
participate. Upon each Additional Closing, if any, the proceeds subject to that Additional
Closing will be distributed to us and the associated Offered Shares will be issued to the
investors in such Offered Shares. If the offering does not close, the proceeds for the offering
will be promptly returned to investors, without deduction and without interest.
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Use
of Proceeds:
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We
expect to receive net proceeds from this offering of approximately $27,805,000 after
deducting estimated underwriting discounts and commissions (6.5% of the gross proceeds
of the offering) and after our offering expenses, estimated at $245,000 (which includes
$45,000 of the Placement Agent’s expenses). We intend to use a portion of the
net proceeds from this offering for the implementation of our business plan, including but
not limited to, (i) funding business growth initiatives, (ii) funding marketing expenses
and (iii) working capital and general corporate purposes. See “Use of Proceeds.”
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Offering:
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We
have engaged Boustead Securities, LLC, as the Placement Agent to offer the Offered Shares
to prospective investors in the United States, on a best-efforts basis, and the Placement
Agent will have the right to engage such other broker-dealers or agents as it determines
to assist in such offering.
A
maximum of $30,000,000 of Offered Shares will be offered worldwide. All Offered Shares will be initially offered everywhere in
the world at the same U.S. dollar price that is set forth in this Offering Circular; after the initial offering of the Offered
Shares, the offering price and other selling terms may be subject to change.
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Capital
Stock:
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Our
common stock is common equity and contains no preferences as to other classes of our capital stock. Each share of our common stock
entitles the holder to one vote on all matters submitted to the vote of the stockholders, including the election of directors. Our
preferred stock is “blank check” preferred stock whereby the Board of Directors has authority to determine the powers,
preferences, rights, qualifications, limitations and restrictions without separate shareholder approval.
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Voting
Rights:
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The
common stock offered hereby are entitled to one vote per share. The one share of Series X Preferred Stock outstanding, which is held
by Amir Ben-Yohanan, our Chief Executive Officer, is entitled to the number of votes equal to all of the other votes entitled to
be cast on any matter by any other shares or securities of the Company plus one, but will not have any economic or other interest
in the Company.
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Placement
Agent’s Warrant:
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The
Offering Statement of which this Offering Circular is a part also qualifies for sale warrants
(the “Placement Agent’s Warrant”) to purchase up to 75,000 shares
of our common stock (1.0% of the shares of common stock sold in this offering) to
the Placement Agent, as a portion of the underwriting compensation payable in connection
with this offering as well as the underlying common stock. The Placement Agent’s Warrant
will be exercisable at any time, and from time to time, in whole or in part, during the five-year
period commencing 180 days following the qualification date of the Offering Statement of
which this Offering Circular is a part at an exercise price of 125% of the initial
offering price. Please see “Plan of Distribution—Placement Agent’s Warrant”
for a description of these warrants.
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Risk
Factors:
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See
“Risk Factors” beginning on page 18 of this Offering Circular for a discussion of some of the factors you should carefully
consider before deciding to invest in our common stock.
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Trading
Symbols:
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Our
common stock is currently quoted on the OTC Pink tier of the OTC Market Group, Inc. under the symbol “CMGR.”
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Termination
of Offering:
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This
offering will terminate on the date which is ninety (90) days immediately following the date of qualification, subject to extension
for up to ninety (90) days with the mutual agreement of the Company and the Placement Agent; provided that, if we have received and
accepted subscriptions for the minimum number of Offered Shares on or before the date which is ninety (90) days immediately following
the date of qualification, or the end of the ninety (90) day extension, if exercised, then we will close on the Minimum Offering
Amount (the “Initial Closing”) and this offering will continue until the earliest of (i) the date which is ninety (90)
days after the Initial Closing, or (ii) the date on which the Maximum Offering Amount is sold (such earliest date, the “Termination
Date”). If, on the Initial Closing date, we have sold less than the maximum number of Offered Shares, then we may hold one
or more additional closings for additional sales (each an “Additional Closing”), up to the maximum number of Offered
Shares, and until the Termination Date. The initial 90-day offering period and any additional 90 day-incremental offering periods
will, in the aggregate, not exceed 24 months from the date of this Offering Circular, pursuant to Rule 251(d)(3) of Regulation A.
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Transfer
Agent and Registrar:
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Empire
Stock Transfer is our transfer agent and registrar in connection with the offering.
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Dividends:
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Our
ability to pay dividends depends on both our achievement of positive cash flow and our Board of Directors’ discretion in declaring
dividends. The order and priority of our dividends is further described in “Description of Capital Stock – Dividends.”
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Unless
we indicate otherwise, all information in this Offering Circular:
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is
based on 94,883,195 shares of common stock issued and outstanding as of June 10,
2021; and
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excludes
75,000 shares of our common stock underlying the Placement Agent’s Warrant to
be issued to the Placement Agent in connection with this offering if the Maximum Offering
Amount is sold.
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SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The
following table presents the Company’s selected historical consolidated financial data for the periods indicated. The selected
historical consolidated financial data for the period from January 2, 2020 (inception) to December 31, 2020 and the balance sheet data
as of December 31, 2020 are derived from the Company’s audited financial statements. The summary historical financial data for
the three months ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31, 2020 and the balance sheet data
as of March 31, 2021 are derived from the Company’s unaudited financial statements.
Historical
results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future
periods, and results of interim periods are not necessarily indicative of results for the entire year. The data presented below should
be read in conjunction with, and are qualified in their entirety by reference to, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the consolidated financial statements of Clubhouse Media and the notes thereto
included elsewhere in this Offering Circular.
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For
the Period from January 2, 2020 (inception) to December 31,
2020
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For
the Three Months Ended March 31, 2021
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For
the Period from January 2, 2020 (inception) to March 31,
2020
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(unaudited)
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Statement of Operations Data
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Total revenues
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$
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1,010,405
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$
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523,376
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$
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-
|
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Total operating expenses
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2,725,105
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4,367,363
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|
|
227,079
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Loss before income taxes
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$
|
(2,577,721
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)
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$
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(5,798,578
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)
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|
$
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(227,079
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Income tax expense
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-
|
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|
-
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|
|
-
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Net income (loss)
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(2,577,721
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)
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(5,798,578
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)
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$
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(227,079
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)
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Basic and diluted net loss per share
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$
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(0.05
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)
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$
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(0.06
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)
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$
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(0.00
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Balance Sheet Data (at period end)
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Cash and cash equivalents
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$
|
37,774
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$
|
1,938,247
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Working capital (deficit) (1)
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(234,316
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)
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(2,551,073
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)
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Total assets
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534,988
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|
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2,528,833
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Total liabilities
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2,867,074
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|
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|
4,937,177
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|
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Stockholders’ equity (deficit)
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(2,332,086
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)
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(2,408,344
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)
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(1)
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Working
capital (deficit) represents total current assets less total current liabilities
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CAPITALIZATION
The
following table sets forth the Company’s cash and cash equivalents and capitalization as of March 31, 2021 on an
actual basis.
This
table should be read in conjunction with the information contained in this Offering Circular, including “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and the financial statements of Clubhouse Media and the related
notes thereto appearing elsewhere in this Offering Circular.
|
|
As
of
March
31, 2021
|
|
|
|
Actual
|
|
|
|
(Unaudited)
|
|
Cash
and cash equivalents
|
|
$
|
1,938,247
|
|
|
|
|
|
|
Convertible
notes payable, net
|
|
|
563,873
|
|
Convertible
notes payable, net - related party
|
|
|
2,551,535
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Common
stock, $0.001 par value; 500,000,000 shares authorized and 94,302,795 shares issued and outstanding on an actual basis
|
|
|
94,302
|
|
Preferred
stock, $0.001 par value; 50,000,000 shares authorized and 1 share issued and outstanding on an actual basis
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
5,954,350
|
|
Accumulated
deficit
|
|
|
(8,456,996
|
)
|
Accumulated
other comprehensive income
|
|
|
-
|
|
Total
stockholders’ deficit
|
|
|
(2,408,344
|
)
|
Total
capitalization
|
|
$
|
707,064
|
|
RISK
FACTORS
The purchase of the securities
offered hereby involves a high degree of risk. Each prospective investor should consult his, her or its own counsel, accountant and other
advisors as to legal, tax, business, financial, and related aspects of an investment in the securities offered hereby. Prospective investors
should carefully consider the following specific risk factors, in addition to the other information set forth in this Offering Circular,
before purchasing the securities offered hereby.
Below
is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:
|
●
|
Clubhouse
Media has a history of operating losses and its management has concluded that factors raise substantial
doubt about its ability to continue as a going concern and the auditor of Clubhouse Media has included
an explanatory paragraph relating to its ability to continue as a going concern in its audit report
for the period from January 2, 2020 (inception) to December 31, 2020.
|
|
●
|
We are a holding company
and our principal asset is our 100% equity interest in WOHG, through which we own 100% of each of WOHG’s subsidiaries, and
accordingly we are dependent upon distributions from such operating subsidiaries to pay taxes and other expenses.
|
|
●
|
WOHG is an early stage
company with a limited operating history. Such limited operating history of WOHG may not provide an adequate basis to judge our future
prospects and results of operations.
|
|
●
|
Since inception of WOHG,
WOHG has experienced losses, and we may have to further reduce our costs by curtailing future operations to continue as a business.
|
|
●
|
There are no assurances
we will realize the anticipated benefits from the acquisition of WOHG.
|
|
●
|
The current outbreak of
the coronavirus may have a negative effect on our ability to conduct our business and operations and may also cause an overall decline
in the economy as a whole and could materially harm our Company.
|
|
●
|
We may be adversely affected
by political tensions between the United States and China.
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|
●
|
We may fail to successfully
execute our business plan.
|
|
●
|
Our acquisition strategy
creates risks for our business.
|
|
●
|
We may not be able to effectively
manage our growth and the increased complexity of our business, which could negatively impact our brand and financial performance.
|
|
●
|
We may suffer from lack
of availability of additional funds.
|
|
●
|
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.
|
|
●
|
The ability of our Chief
Executive Officer, Amir Ben-Yohanan, to control our business may limit or eliminate minority stockholders’ ability to influence
corporate affairs.
|
|
●
|
We are not a party to certain
of the leases for its Clubhouse properties, and therefore is subject to the risk of those leases being terminated or altered without
its consent.
|
|
●
|
Our business is subject
to fluctuations that are not predictable, which subjects our business to increase risks.
|
|
●
|
Our business depends on
our ability to provide customers and followers with interesting and useful content, which in turn depends on the content contributed
by the content creators.
|
|
●
|
Changes in public and consumer
tastes and preferences and industry trends could reduce demand for our services and content offerings and adversely affect our business.
|
|
●
|
Our ability to generate
revenue from discretionary and corporate spending, such as corporate sponsorships and advertising, is subject to many factors, including
many that are beyond our control.
|
|
●
|
We may not be able to adapt
to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies.
|
|
●
|
Because our success depends
substantially on our ability to maintain a professional reputation, adverse publicity concerning us, one of our businesses, our Creators
or our key personnel could adversely affect our business.
|
|
●
|
We depend on the relationships
of our talent managers and other key personnel with clients across many categories, including fashion, music, digital, and sponsorship.
|
|
●
|
Our success depends, in
part, on our continuing ability to identify, recruit and retain qualified and experienced talent managers. If we fail to recruit
and retain suitable talent managers or if our relationships with our talent managers change or deteriorate, it could adversely affect
our business.
|
|
●
|
Our failure to identify,
sign and retain influencer-clients could adversely affect our business.
|
|
●
|
The markets in which we
operate are highly competitive, both within the United States and internationally.
|
|
●
|
We operate in a fast-evolving
industry, and we are in the early stage of our business. We cannot guarantee that our monetization strategies will be successfully
implemented or generate sustainable revenues and profit.
|
|
●
|
We rely on technology,
such as our information systems, to conduct our business. Failure to protect our technology against breakdowns and security breaches
could adversely affect our business.
|
|
●
|
The commercial success
of our products is dependent, in part, on factors outside our control.
|
|
●
|
Increases in the costs
of content may have an adverse effect on our business, financial condition and results of operations.
|
|
●
|
In our paid promotion business,
if we are unable to prove that our advertising and sponsorship solutions provide an attractive return on investment for our customers,
our financial results could be harmed.
|
|
●
|
We will be attempting to
launch brands in new markets and with new products. Our inability to effectively execute our business plan in relation to these new
brands could negatively impact our business.
|
|
●
|
Our management team’s
attention may be diverted by acquisitions and searches for new acquisition targets, and our business and operations may suffer adverse
consequences as a result.
|
|
●
|
We may be unable to scale
our operations successfully.
|
|
●
|
Economic conditions or
changing consumer preferences could adversely impact our business.
|
|
●
|
Our intellectual property
rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims, our business may
be harmed.
|
|
●
|
We may be found to have
infringed the intellectual property rights of others, which could expose us to substantial damages or restrict our operations.
|
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●
|
As a creator and a distributor
of content over the internet, we face potential liability for legal claims based on the nature and content of the materials that
we create or distribute.
|
|
●
|
We are subject to extensive
U.S. and foreign governmental regulations, and our failure to comply with these regulations could adversely affect our business.
|
|
●
|
Our results of operations,
which are reported in U.S. dollars, could be adversely affected if currency exchange rates fluctuate substantially in the future.
|
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|
Our amended and restated
bylaws provide that state or federal court located within the state of Nevada will be the sole and exclusive forum for substantially
all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers or other employees.
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|
●
|
By purchasing common stock
in this offering, you are bound by the fee-shifting provision contained in our amended and restated bylaws, which may discourage
you to pursue actions against us.
|
|
●
|
As a result of being a
public company, we are subject to additional reporting and corporate governance requirements that will require additional management
time, resources and expense.
|
|
●
|
We may not have sufficient
insurance coverage and an interruption of our business or loss of a significant amount of property could have a material adverse
effect on our financial condition and operations.
|
|
●
|
We could become involved
in claims or litigations that may result in adverse outcomes.
|
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●
|
Trading on the OTC Markets
is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders
to resell their common stock.
|
|
●
|
Our stock price is likely
to be highly volatile because of several factors, including a limited public float.
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●
|
If investors successfully
seek rescission, we would face severe financial demands that we may not be able to meet.
|
|
●
|
Our common stock has been
in the past, and may be in the future, a “penny stock” under SEC rules. It may be more difficult to resell securities
classified as “penny stock.”
|
|
●
|
FINRA sales practice requirements
may also limit a shareholder’s ability to buy and sell our stock.
|
|
●
|
If we fail to maintain
effective internal control over financial reporting, the price of our securities may be adversely affected.
|
|
●
|
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.
|
|
●
|
Our privately issued common
stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
|
|
●
|
This is a fixed price offering
and the fixed offering price may not accurately represent the current value of us or our assets at any particular time. Therefore,
the purchase price you pay for our shares may not be supported by the value of our assets at the time of your purchase.
|
|
●
|
The sale and issuance of
additional shares of our common stock could cause dilution as well as the value of our common stock to decline.
|
|
●
|
Substantial future sales
of shares of our common stock could cause the market price of our common stock to decline.
|
|
●
|
Purchasers in this offering
will experience immediate and substantial dilution in the book value of their investment.
|
|
●
|
Fiduciaries investing the
assets of a trust or pension or profit-sharing plan must carefully assess an investment in our Company to ensure compliance with
ERISA.
|
|
●
|
We may invest or spend
the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.
|
|
●
|
Risks of investing using
a credit card.
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|
●
|
Provisions of our articles
of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
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|
●
|
We do not expect to pay
dividends in the foreseeable future.
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|
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|
We encourage you, however,
to read the full risk factors presented below.
|
RISKS
RELATED TO OUR BUSINESS
Clubhouse
Media has a history of operating losses and its management has concluded that factors raise substantial doubt about its ability to continue
as a going concern and the auditor of Clubhouse Media has included an explanatory paragraph relating to its ability to continue as a
going concern in their audit report for the period from January 2, 2020 (inception) to December 31, 2020.
Clubhouse
Media has a history of operating losses and have incurred cash flow deficits. For the period from January 2, 2020 (inception) to December
31, 2020, Clubhouse Media reported a net loss of $2,577,721 and negative cash flow from operating activities of $1,967,551. For the
three months ended March 31, 2021, Clubhouse Media generated revenues in the amount of $523,376, reported a net loss of $5,798,578, and
had negative cash flow from operating activities of $1,628,118. As of March 31,
2021, Clubhouse Media had an aggregate accumulated deficit of $8,456,996. There is substantial doubt regarding the ability
of Clubhouse Media to continue as going concerns as a result of their historical recurring losses and negative cash flows from operations
as well as their dependence on private equity and financings. Clubhouse Media anticipates that it will continue to report losses and
negative cash flow for the foreseeable future. The management of Clubhouse Media has concluded that their historical recurring losses
from operations and negative cash flows from operations as well as their dependence on private equity and other financings raise substantial
doubt about their ability to continue as a going concern the auditor of Clubhouse Media has included an explanatory paragraph relating
to their ability to continue as a going concern in its audit report for the period from January 2, 2020 (inception) to December 31, 2020.
The
consolidated financial statements of Clubhouse Media 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, including common
stock issued in this offering, 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, including funds to be raised in this offering. 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 even if this offering is successful. 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 our principal asset is our 100% equity interest in WOHG, through which we own 100% of each of WOHG’s
subsidiaries, and accordingly we are dependent upon distributions from such operating subsidiaries to pay taxes and other expenses.
We
are a holding company and our principal asset is our 100% equity interests in WOHG. WOHG operates through its subsidiary wholly-owned
companies, of which it owns 100% of each. Accordingly, we are dependent upon distributions from our operating subsidiaries to pay taxes
and other expenses. If our operating subsidiaries do not generate sufficient revenues such that they can provide distributions to us,
we may be unable to pay our taxes and other expenses which would have a materially adverse effect on our business operations and our
Company as a whole.
WOHG
is an early stage company with a limited operating history. Such limited operating history of WOHG may not provide an adequate basis
to judge our future prospects and results of operations.
On
November 12, 2020, pursuant to the closing of the Share Exchange Agreement, we acquired WOHG, and WOHG thereafter became our wholly owned
subsidiary, and the business of WOHG became the business of the Company going forward. WOHG has limited experience and a limited operating
history in which to assess its future prospects as a company. In addition, the market for the products and services offered through WOHG
is highly competitive. If we fail to successfully develop and offer the products and services offered through WOHG in an increasingly
competitive market, we may not be able to capture the growth opportunities associated with them or recover our development and marketing
costs, and our future results of operations and growth strategies could be adversely affected. The limited history of WOHG may not provide
a meaningful basis for investors to evaluate our business, financial performance, and prospects.
Since
inception of WOHG, WOHG has experienced losses, and we may have to further reduce our costs by curtailing future operations to continue
as a business.
Since
inception of WOHG, WOHG has had operating losses and its cash flow has been inadequate to support its ongoing operations. Its ability
to fund its capital requirements out of its available cash and cash generated from its operations depends on a number of factors, including
its ability to gain interest in its products and services and continue growing its existing operations and its ability to raise funds
as needed. If we cannot continue to generate positive cash flow from operations, we will have to reduce our costs and try to raise working
capital from other sources. These measures could materially and adversely affect our ability to execute our operations and expand our
business.
There
are no assurances we will realize the anticipated benefits from the acquisition of WOHG.
Our
future success will depend, in part, on our ability to realize the anticipated growth opportunities and synergies from combining Clubhouse
Media and WOHG. The combined company may encounter the following difficulties, costs and delays involved in integrating these operations:
|
●
|
failure
to integrate both companies’ businesses and operations;
|
|
●
|
failure
to successfully manage relationships with customers and other important relationships;
|
|
●
|
failure
of customers to continue using the services of the combined company;
|
|
●
|
challenges
encountered in managing larger operations;
|
|
●
|
the
loss of key employees;
|
|
●
|
failure
to manage the growth and growth strategies of both companies;
|
|
●
|
diversion
of the attention of management from other ongoing business concerns;
|
|
●
|
potential
incompatibility of technologies and systems; and
|
|
●
|
potential
impairment charges incurred to write down the carrying amount of intangible assets generated as a result of the mergers.
|
If
the combined company’s operations do not meet the expectations of the pre-existing customers of our companies before, then these
customers may cease doing business with the combined company altogether, which would harm our results of operations and financial condition.
If the management team is not able to develop strategies and implement a business plan that successfully addresses these difficulties,
we may not realize the anticipated benefits of combining the companies. In particular, we are likely to realize lower earnings per share,
which may have an adverse impact on our Company and the market price of our common stock.
The
current outbreak of the coronavirus may have a negative effect on our ability to conduct our business and operations and may also cause
an overall decline in the economy as a whole and could materially harm our Company.
If
the current outbreak of the coronavirus continues to grow, the effects of such a widespread infectious disease and epidemic may inhibit
our ability to conduct our business and operations and could materially harm our Company. The coronavirus may cause us to have to reduce
operations as a result of various lock-down procedures enacted by the local, state or federal government, which could restrict the movement
of our influencers outside of or within a specific Clubhouse or even effect the influencer’s ability to create content. The coronavirus
may also cause a decrease in advertising spending by companies as a result of the economic turmoil resulting from the spread of the coronavirus
and thereby having a negative effect on our ability to generate revenue from advertising. Further, if there is a spread of the coronavirus
within any of our Clubhouses, it may cause an inability for our content creators to create and post content and could potentially cause
a specific Clubhouse location to be entirely quarantined. Additionally, we may encounter negative publicity or a negative public reaction
when creating and posting certain content while a coronavirus related lockdown is enacted. The continued coronavirus outbreak may also
restrict our ability to raise funding when needed and may also cause an overall decline in the economy as a whole. The specific and actual
effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond our
control and knowledge. However, the spread of the coronavirus, if it continues, may cause an overall decline in the economy as a whole
and also may materially harm our Company.
Notwithstanding
the foregoing possible negative impacts on our business and results of operations, up until now, we do not believe our prior and current
business operations, financial condition, and results of operations have been negatively impacted by the coronavirus pandemic and related
shutdowns. As the social media sector appears to have been thriving during the pandemic and shutdowns, we believe that our social media-based
business and our results of operations have been thriving as well. More specifically, we have been successful at opening several houses,
actively recruiting influencers/creators, creating content, and generating revenue during the pandemic and shutdowns. Notwithstanding,
the ultimate impact of the coronavirus pandemic on our operations remains unknown and will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the coronavirus outbreak, new information which may emerge
concerning the severity of the coronavirus pandemic, and any additional preventative and protective actions that governments, or our
company, may direct, which may result in an extended period of business disruption and reduced operations. The long-term financial impact
cannot be reasonably estimated at this time and may ultimately have a material adverse impact on our business, financial condition, and
results of operations.
We
may be adversely affected by political tensions between the United States and China.
Political
tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19 outbreak and sanctions
imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government
of the PRC. On August 6, 2020 then-President Donald Trump issued an executive order requiring ByteDance to sell TikTok to an American
company, or risk being banned in the United States entirely. While ByteDance ultimately complied with this executive order and TikTok
was not banned in the United States, and it is unclear what the Biden administration’s position with respect to TikTok will be,
a ban of a social media platform on which our influencers have acquired significant followers, such as TikTok, would have a material
adverse effect on our business, prospects, financial condition and results of operations. Furthermore, there have been recent media reports
on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital
markets. If any legislation were to be enacted or any regulations were to be adopted along these lines that ultimately had the effect
of harming or outright banning a social media platform utilized by our Company and/or its influencers, it could have a material adverse
effect on our business and operations.
We
may fail to successfully execute our business plan.
Our
shareholders may lose their entire investment if we fail to execute our business plan. Our prospects must be considered in light of the
following risks and uncertainties, including but not limited to, competition, the erosion of ongoing revenue streams, the ability to
retain experienced personnel and general economic conditions. We cannot guarantee that we will be successful in executing our business
plan. If we fail to successfully execute our business plan, we may be forced to cease operations, in which case our shareholders may
lose their entire investment.
Our
acquisition strategy creates risks for our business.
We
expect that we will pursue acquisitions of other businesses, assets or technologies to grow our business. We may fail to identify attractive
acquisition candidates or we may be unable to reach acceptable terms for future acquisitions. We might not be able to raise enough cash
to compete for attractive acquisition targets. If we are unable to complete acquisitions in the future, our ability to grow our business
at our anticipated rate will be impaired.
We
may pay for acquisitions by issuing additional shares of our common stock, which would dilute our shareholders, or by issuing debt, which
could include terms that restrict our ability to operate our business or pursue other opportunities and subject us to meaningful debt
service obligations. We may also use significant amounts of cash to complete acquisitions. To the extent that we complete acquisitions
in the future, we likely will incur future depreciation and amortization expenses associated with the acquired assets. We may also record
significant amounts of intangible assets, including goodwill, which could become impaired in the future. Acquisitions involve numerous
other risks, including:
|
●
|
difficulties
integrating the operations, technologies, services and personnel of the acquired companies;
|
|
|
|
|
●
|
challenges
maintaining our internal standards, controls, procedures and policies;
|
|
●
|
diversion
of management’s attention from other business concerns;
|
|
|
|
|
●
|
over-valuation
by us of acquired companies;
|
|
|
|
|
●
|
litigation
resulting from activities of the acquired company, including claims from terminated employees, customers, former shareholders and
other third parties;
|
|
|
|
|
●
|
insufficient
revenues to offset increased expenses associated with the acquisitions and unanticipated liabilities of the acquired companies;
|
|
|
|
|
●
|
insufficient
indemnification or security from the selling parties for legal liabilities that we may assume in connection with our acquisitions;
|
|
|
|
|
●
|
entering
markets in which we have no prior experience and may not succeed;
|
|
|
|
|
●
|
risks
associated with foreign acquisitions, such as communication and integration problems resulting from geographic dispersion and language
and cultural differences, compliance with foreign laws and regulations and general economic or political conditions in other countries
or regions;
|
|
|
|
|
●
|
potential
loss of key employees of the acquired companies; and
|
|
|
|
|
●
|
impairment
of relationships with clients and employees of the acquired companies or our clients and employees as a result of the integration
of acquired operations and new management personnel.
|
We
may not be able to effectively manage our growth and the increased complexity of our business, which could negatively impact our brand
and financial performance.
As
we grow our business we may incur increasing costs, such as operating costs and marketing costs. If such expansion is not properly managed,
it may adversely affect our financial and operating resources without achieving the desired effects.
As
we only have a limited history of operating our business at its current scale, it is difficult to evaluate our current business and future
prospects, including our ability to grow in the future. In addition, our costs and expenses may increase rapidly as we expand our business
and continue to invest in our Clubhouses to enhance our competitiveness. Continued growth could also strain our ability to maintain reliable
service levels for our clients and customers, develop and improve our operational, financial, legal and management controls, and enhance
our reporting systems and procedures. Our costs and expenses may grow faster than our revenues and may be greater than what we anticipate.
If we are unable to generate adequate revenues and to manage our costs and expenses, we may continue to incur losses in the future and
may not be able to achieve or subsequently maintain profitability. Managing our growth will require significant expenditures and the
allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows,
our business, operating results and financial condition could be harmed.
We
may suffer from lack of availability of additional funds.
We
expect to have ongoing needs for working capital in order to fund operations and to continue to expand our operations. To that end, we
will be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful
in securing additional capital on favorable terms, if at all. If we are successful, whether the terms are favorable or unfavorable, there
is a potential that we will fail to comply with the terms of such financing, which could result in severe liability for our Company.
If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions
of time to fund liabilities, or (d) seek protection from creditors. In addition, any future sale of our equity securities would dilute
the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability
to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek to increase our cash reserves
through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could
result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased
debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition,
our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
In
addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary
for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities,
to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing
all of their investment in our Company.
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.
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;
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|
●
|
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.
The
ability of our Chief Executive Officer, Amir Ben-Yohanan, to control our business may limit or eliminate minority stockholders’
ability to influence corporate affairs.
Voting
control of the Company is held by our Chief Executive Officer, Mr. Ben-Yohanan, through the share of Series X Preferred Stock he holds.
This share of Series X Preferred Stock has a number of votes at any time equal to (i) the number of votes then held or entitled to be
made by all other equity or debt securities of the Company, or pursuant to any other agreement, contract or understanding of the Company,
plus (ii) one. In addition, as of the date of this Offering Circular, Mr. Ben-Yohanan beneficially owned 57,642,068 shares of our common
stock, which represents 60.8% of the voting power of our outstanding common stock. Following this offering, Mr. Ben-Yohanan will
control approximately 56.3% of the voting power of our outstanding common stock if all the common stock being offered are sold.
Because of this voting control through the shares of Series X Preferred Stock and the common stock he beneficially owns, he is able to
significantly influence membership of our Board of Directors, as well as all other matters requiring stockholder approval. The interests
of our Chief Executive Officer may differ from the interests of other stockholders with respect to the issuance of shares, business transactions
with or sales to other companies, selection of other officers and directors and other business decisions. The minority stockholders will
have no way of overriding decisions made by our Chief Executive Officer.
We
are not a party to certain of the leases for its Clubhouse properties, and therefore is subject to the risk of those leases being terminated
or altered without its consent.
We
are not listed as the tenant on the lease agreements for each of Clubhouse BH and Weheartfans House –
Bel Air. Instead, our Chief Executive Officer, Amir Ben-Yohanan, is listed as the tenant of these properties pursuant the
lease agreements for these houses. While Mr. Ben-Yohanan intends to assign these leases to the Company in the future, there is
a possibility that Mr. Ben-Yohanan may not assign these leases in the near term, or at all. If Mr. Ben Yohanan were to depart
the Company, pursuant to a disagreement or otherwise, before assigning these lease agreements to the Company, Mr. Ben-Yohanan
could terminate these leases, or our right to inhabit these properties, without consent or notice to us. Such an event could materially
harm our operating results, as well as our reputation within the influencer community, which is important to our ability to attract
and retain talent.
Our
business is subject to fluctuations that are not predictable, which subjects our business to increase risks.
Our
business is subject to fluctuations with respect to both our influencers and the number of followers on social media we are able to access
through our influencers and our own social media channels. The influencers who live in our Clubhouses, in general, do not stay for long
periods of time. Influencers are not required by contract to live in our Clubhouses, and therefore may leave at any point. While we will
still generate income from our influencers with which we have entered into Management Agreements regardless of whether such influencers
live in our Clubhouses or not, either party may terminate the Management Agreement upon 30 days’ notice without cause. As such,
our roster of Clubhouse influencers can change rapidly and significantly, which also affects the number of social media followers we
can access, which we believe is a material factor in our ability to generate revenues. For example, at least one of our Clubhouse influencers
has over 11 million followers as of the date of this Offering Circular. If this influencer were to leave our Clubhouse, we would immediately
lose access to those followers through our Creator Occupancy Agreement. While we always seek to fill openings in our Clubhouses quickly,
there is no guarantee we will be able to do so, or to fill such openings with influencers with an equal number of followers that the
previous occupant-influencer had. Further, followers on social media in general often fluctuate significantly due to external factors
that are not predictable. The unexpected loss of one or more of our influencers and/or a reduction in the number of ours or our influencers’
followers could have a negative impact on our business.
Our
business depends on our ability to provide customers and followers with interesting and useful content, which in turn depends on the
content contributed by the content creators.
The
quality of the content offered by our influencers and their followers’ level of engagement are critical to our success. In order
to attract and retain users and compete effectively, we must offer interesting and useful content and enhance followers’ viewing
experience. It is vital to our operations that we remain sensitive to and responsive to evolving public and consumer preferences and
offer content that appeals to our followers and customers. We have also been providing our content creators with support and guidance
in various forms, including technical support for content distribution, editing and uploading. However, we cannot assure you that our
content creators can contribute to create popular contents. If our content creators cease to contribute content, or their uploaded content
fails to attract or retain our followers and customers, we may experience a decline in our business and suffer a reduction in revenue.
Changes
in public and consumer tastes and preferences and industry trends could reduce demand for our services and content offerings and adversely
affect our business.
Our
ability to generate revenues is highly sensitive to rapidly changing consumer preferences and industry trends, as well as the popularity
of the talent, brands and owners of IP we represent, and the assets we own. Our success depends on our influencers’ ability to
create quality content through popular social media channels that meet the changing preferences of the broad consumer market and respond
to competition from an expanding array of choices facilitated by technological developments in the delivery of content. Our operations
and revenues are affected by consumer tastes and entertainment trends, which are unpredictable and subject to change and may be affected
by changes in the social and political climate. Changes in consumers’ tastes or a change in the perceptions of our business partners,
whether as a result of the social and political climate or otherwise, could adversely affect our operating results. Our failure to avoid
a negative perception among consumers or anticipate and respond to changes in consumer preferences, including in the form of content
creation or distribution, could result in reduced demand for our product and/or content offerings, or a reduced social media followings
and business opportunities for our Creators, which could have an adverse effect on our business, financial condition and results of operations.
Our
ability to create popular, social media-based entertainment content is increasingly important to the success of our business and our
ability to generate revenues. The production of entertainment content is inherently risky because the revenues we derive from various
sources primarily depend on our ability to reach large audiences and satisfy consumer tastes and expectations in a consistent manner.
The popularity of our content and owned assets is affected by our ability to maintain or develop strong brand awareness and target key
audiences, the sources and nature of competing content offerings, the time and manner in which consumers acquire and view some of our
entertainment products and the options available to advertisers for reaching their desired audiences. Consumer tastes change frequently
and it is a challenge to anticipate what offerings will be successful at any point in time. We invest substantial capital in our content
and owned assets, including in the creation of original content, before learning the extent to which it will achieve popularity with
consumers. A lack of popularity of these, our other content offerings or our owned assets, as well as labor disputes, unavailability
of a star performer, equipment shortages, cost overruns, disputes with production teams or adverse weather conditions, could have an
adverse effect on our business, financial condition and results of operations.
Our
ability to generate revenue from discretionary and corporate spending, such as corporate sponsorships and advertising, is subject to
many factors, including many that are beyond our control.
Our
business depends on discretionary consumer and corporate spending. Many factors related to corporate spending and discretionary consumer
spending, including economic conditions affecting disposable consumer income such as unemployment levels, fuel prices, interest rates,
changes in tax rates and tax laws that impact companies or individuals and inflation can significantly impact our operating results.
While consumer and corporate spending may decline at any time for reasons beyond our control, the risks associated with our businesses
become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising.
During periods of reduced economic activity, many consumers have historically reduced their discretionary spending and advertisers have
reduced their sponsorship and advertising expenditures, which can result in a reduction in sponsorship opportunities. There can be no
assurance that consumer and corporate spending will not be adversely impacted by current economic conditions, or by any future deterioration
in economic conditions, thereby possibly impacting our operating results and growth. A prolonged period of reduced consumer or corporate
spending could have an adverse effect on our business, financial condition and results of operations.
We
may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies.
We
must successfully adapt to and manage technological advances in our industry, including the emergence of alternative social media platforms.
If we are unable to adopt or are late in adopting technological changes and innovations, it may lead to a loss of consumers viewing our
content, and a corresponding reduction in revenues from advertisers. It may also lead to a reduction in ours or our Creators’ ability
to monetize new platforms. Our ability to effectively generate revenue from new content distribution platforms and viewing technologies
will affect our ability to maintain and grow our business. Emerging forms of content distribution may provide different economic models
and compete with current distribution methods (such as Instagram and TikTok) in ways that are not entirely predictable, which could reduce
demand for promotional posts by our team of influencers. We must also adapt to changing consumer behavior driven by advances in technology.
If we fail to adapt our distribution methods and content to emerging technologies and new distribution platforms, our ability to generate
revenue from our targeted audiences may decline and could result in an adverse effect on our business, financial condition and results
of operations.
Because
our success depends substantially on our ability to maintain a professional reputation, adverse publicity concerning us, one of our businesses,
our Creators or our key personnel could adversely affect our business.
Our
professional reputation is essential to our continued success and any decrease in the quality of our reputation could impair our ability
to, among other things, recruit and retain qualified and experienced talent managers and other key personnel, retain or attract Creators,
and retain or attract advertisers, purchasers of our products, (i.e. our customers). Our overall reputation may be negatively impacted
by a number of factors, including negative publicity concerning us, members of our management, our Creators, our customers, and other
key personnel. Any adverse publicity relating to such individuals or entities that we employ or represent, or to our Company, including
from reported or actual incidents or allegations of illegal or improper conduct, such as harassment, discrimination or other misconduct,
could result in significant media attention, even if not directly relating to or involving WOHG, and could have a negative impact on
our professional reputation, potentially resulting in termination of contracts, our inability to attract new customer or client relationships,
or the loss or termination of such employees’ services, all of which could adversely affect our business, financial condition and
results of operations. Our professional reputation could also be impacted by adverse publicity relating to one or more of our owned or
majority owned brands or businesses.
We
depend on the relationships of our talent managers and other key personnel with clients across many categories, including fashion, music,
digital, and sponsorship.
We
depend heavily upon relationships that our talent managers and other key personnel have developed with our influencer-clients, as well
as our corporate customers that utilize our team of influencers for advertising and paid promotion. The personal relationships that our
talent managers, influencers, and other key personnel have developed with brands and other key business contacts help us to secure access
to sponsorships, endorsements, professional contracts, events and other opportunities for our Creators, which is critical to our success.
Due to the importance of those contacts to us, a substantial deterioration in these relationships, or substantial loss of talent managers
or other key personnel who maintain these relationships, could adversely affect our business. In particular, our talent management business
is dependent upon the highly personalized relationships between our team at Doiyen LLC and their Creators – i.e. the influencers
with whom we contract with and represent. A substantial deterioration in the team managing a client may result in a deterioration in
our relationship with, or the loss of, the clients represented by that manager. The substantial loss of multiple talent managers could
have an adverse effect on our business, financial condition and results of operations. Our talent managers and other key personnel are
not party to long-term contracts and, in any event, can leave our Company with little or no notice. We can give no assurance that all
or any of these individuals will remain with us or will retain their associations with key business contacts.
Our
success depends, in part, on our continuing ability to identify, recruit and retain qualified and experienced talent managers. If we
fail to recruit and retain suitable talent managers or if our relationships with our talent managers change or deteriorate, it could
adversely affect our business.
Our
success depends, in part, upon our continuing ability to identify, recruit and retain qualified and experienced talent managers. There
is great competition for qualified and experienced talent managers in the social media industry, and we cannot assure you that we will
be able to continue to hire or retain a sufficient number of qualified persons to meet our requirements, or that we will be able to do
so under terms that are economically attractive to us. Any failure to retain certain talent managers could lead to the loss of sponsorship
and other engagements and have an adverse effect on our business, financial condition and results of operations.
Our
failure to identify, sign and retain influencer-clients could adversely affect our business.
We
derive substantial revenue from the engagements, sponsorships, and branding deals entered into by our influencer-clients. We depend on
identifying, signing and retaining as clients those influencers with significant social media followings, that are deemed to be favorable
candidates for companies to utilize for advertising, promotion, and branding. Our competitive position is dependent on our continuing
ability to attract, develop and retain such clients whose work is likely to achieve a high degree of value and recognition as well as
our ability to provide such clients with sponsorships, endorsements, professional contracts, productions, events and other opportunities.
Our failure to attract and retain these clients, an increase in the costs required to attract and retain such clients, or an untimely
loss or retirement of these clients could adversely affect our financial results and growth prospects. We have not entered into written
agreements with many of the clients we represent. These clients may decide to discontinue their relationship with us at any time and
without notice. In addition, the clients with whom we have entered into written contracts may choose not to renew their contracts with
us on reasonable terms or at all or they may breach or seek to terminate these contracts. If any of our clients decide to discontinue
their relationships with us, whether they are under a contract or not, we may be unable to recoup costs expended to develop and promote
them and our financial results may be adversely affected. Further, the loss of such clients could lead other of our clients to terminate
their relationships with us.
The
markets in which we operate are highly competitive, both within the United States and internationally.
We
face competition from a variety of other domestic and foreign companies. We face competition from alternative providers of the content,
services, and products we and our Creators offer and from other forms of entertainment in a rapidly changing and increasingly fragmented
marketplace. There are other companies and individuals currently providing similar products and services as us in the social media influencer
industry. Our competitors include, but are not limited to, Hype House, Glam House and any other social media influencer collectives and/or
talent management companies specializing in representing influencers, each of which may have greater financial and other resources than
us. We may be unable to successfully compete with these competitors, and may expend significant resources without success. Further, any
increased competition, which may not be foreseeable, or our failure to adequately address any competitive factors, could result in reduced
demand for our content, clients or key brands, which could have an adverse effect on our business, financial condition and results of
operations.
We
operate in a fast-evolving industry, and we are in the early stage of our business. We cannot guarantee that our monetization strategies
will be successfully implemented or generate sustainable revenues and profit.
We
are in the early stage of our business, and our monetization model is evolving. We generate revenues primarily by providing our users
with valuable content. We also generate revenues from advertising and other services. We cannot assure you that we can successfully implement
the existing monetization strategies to generate sustainable revenues, or that we will be able to develop new monetization strategies
to grow our revenues. If our strategic initiatives do not enhance our ability to monetize or enable us to develop new monetization approaches,
we may not be able to maintain or increase our revenues or recover any associated costs. In addition, we may introduce new products and
services to expand our revenue streams, including products and services with which we have little or no prior development or operating
experience. If these new or enhanced products or services fail to engage users, content creators or business partners, we may fail to
diversify our revenue streams or generate sufficient revenues to justify our investments and costs, and our business and operating results
may suffer as a result.
We
rely on technology, such as our information systems, to conduct our business. Failure to protect our technology against breakdowns and
security breaches could adversely affect our business.
We
rely on technology, such as our information systems and social media platforms, to conduct our business. This technology is vulnerable
to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners and vendors, or from
attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals
with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” nation states and others.
The techniques used to breach security safeguards evolve rapidly, and they may be difficult to detect for an extended period of time,
and the measures we take to safeguard our technology may not adequately prevent such incidents.
While
we have taken steps to protect our confidential and personal information and invested in information technology, there can be no assurance
that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use
or disclosure of confidential information. Such incidents could adversely affect our business operations, reputation and client relationships.
Any such breach would require us to expend significant resources to mitigate the breach of security and to address matters related to
any such breach, including the payment of fines. Although we maintain an insurance policy that covers data security, privacy liability
and cyber-attacks, our insurance may not be adequate to cover losses arising from breaches or attacks on our systems. We also may be
required to notify regulators about any actual or perceived personal data breach as well as the individuals who are affected by the incident
within strict time periods.
In
addition, our use of social media presents the potential for further vulnerabilities. For instance, we may be subject to boycotts, spam,
spyware, ransomware, phishing and social engineering, viruses, worms, malware, DDOS attacks, password attacks, man-in-the-middle attacks,
cybersquatting, impersonation of employees or officers, abuse of comments and message boards, fake reviews, doxing and swatting. While
we have internal policies in place to protect against these vulnerabilities, we can make no assurances that we will not be adversely
affected should one of these events occur.
The
commercial success of our products is dependent, in part, on factors outside our control.
The
commercial success of our products is dependent upon unpredictable and volatile factors beyond our control, such as the success of our
competitors’ products. Our failure to attract market acceptance and a sustainable competitive advantage over our competitors would
materially harm our business.
Increases
in the costs of content may have an adverse effect on our business, financial condition and results of operations.
We
need to produce or acquire popular content. The production and acquisition of such content depends on our ability to retain our content
creators. As our business develops, we may incur increasing revenue-sharing costs to compensate our content creators of producing original
content. Increases in market prices for licensed content may also have an adverse effect on our business, financial condition and results
of operations. If we are not able to procure licensed content at commercially acceptable costs, our business and results of operations
will be adversely impacted. In addition, if we are unable to generate sufficient revenues to outpace the increase in market prices for
licensed content, our business, financial condition and results of operations may be adversely affected. We rely on our team to generate
creative ideas for original content and to supervise the original content origination and production process, and we intend to continue
to invest resources in content production. If we are not able to compete effectively for talents or attract and retain top influencers
at reasonable costs, our original content production capabilities would be negatively impacted.
In
our paid promotion business, if we are unable to prove that our advertising and sponsorship solutions provide an attractive return on
investment for our customers, our financial results could be harmed.
Our
ability to grow revenue from our paid promotion business will be dependent on our ability to demonstrate to marketers that their marketing
campaigns with us provide a meaningful return on investment relative to offline and other online opportunities. Our ability, however,
to demonstrate the value of advertising and sponsorship on paid promotion business properties will depend, in part, on the quality of
our products and contents, the actions taken by our competitors to enhance their offerings, whether we meet the expectations of our customers
and a number of other factors. If we are unable to maintain sophisticated and high-quality contents that provide value to our customers
or demonstrate our ability to provide value to our customers, our financial results will be harmed.
We
will be attempting to launch brands in new markets and with new products. Our inability to effectively execute our business plan in relation
to these new brands could negatively impact our business.
We
are attempting launch new product brands into markets in which we have no experience offering products. Launching new products into new
markets is risky, and requires extensive marketing and business expertise. There can be no assurances we will have the capital, personnel
resources, or expertise to be successful in launching these new business efforts.
Our
management team’s attention may be diverted by acquisitions and searches for new acquisition targets, and our business and operations
may suffer adverse consequences as a result.
Mergers
and acquisitions are time intensive, requiring significant commitment of our management team’s focus and resources. If our management
team spends too much time focused on acquisitions or on potential acquisition targets, our management team may not have sufficient time
to focus on our existing business and operations. This diversion of attention could have material and adverse consequences on our operations
and our ability to be profitable.
We
may be unable to scale our operations successfully.
Our
growth strategy will place significant demands on our management and financial, administrative and other resources. Operating results
will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement and
improve our financial, administrative and other resources. If we are unable to respond to and manage changing business conditions, or
the scale of its operations, then the quality of its services, its ability to retain key personnel, and its business could be harmed.
Economic
conditions or changing consumer preferences could adversely impact our business.
A
downturn in economic conditions in one or more of the Company’s markets could have a material adverse effect on our results of
operations, financial condition, business and prospects. Although we attempt to stay informed of government and customer trends, any
sustained failure to identify and respond to trends could have a material adverse effect on our results of operations, financial condition,
business and prospects.
Our
intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims,
our business may be harmed.
The
content created by Clubhouse influencers, including the rights related to that content, are important assets for us, as is the “Clubhouse
Media Group and Clubhouse BH” name. We do not hold any patents protecting our intellectual property, and we have only filed a trademark
application for “The Clubhouse” recently, which has not yet been granted as of the date of this Offering Circular. The Company
subsequently fell out of the trademark response period and was deemed abandoned. The Company has since filed a petition to revive the
abandoned application to continue the pursuant of the trademark. Various events outside of our control pose a threat to our intellectual
property rights as well as to our business. Regardless of the merits of the claims, any intellectual property claims could be time-consuming
and expensive to litigate or settle. In addition, if any claims against us are successful, we may have to pay substantial monetary damages
or discontinue any of our practices that are found to be in violation of another party’s rights. We also may have to seek a license
to continue such practices, which may significantly increase our operating expenses or may not be available to us at all. Also, the efforts
we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property
rights could harm our business or our ability to compete.
We
may be found to have infringed the intellectual property rights of others, which could expose us to substantial damages or restrict our
operations.
We
expect to be subject to legal claims that we have infringed the intellectual property rights of others. The ready availability of damages
and royalties and the potential for injunctive relief have increased the costs associated with litigating and settling patent infringement
claims. Any claims, whether or not meritorious, could require us to spend significant time, money, and other resources in litigation,
pay damages and royalties, develop new intellectual property, modify, design around, or discontinue existing products, services, or features,
or acquire licenses to the intellectual property that is the subject of the infringement claims. These licenses, if required, may not
be available at all or have acceptable terms. As a result, intellectual property claims against us could have a material adverse effect
on our business, prospects, financial condition, operating results and cash flows.
As
a creator and a distributor of content over the internet, we face potential liability for legal claims based on the nature and content
of the materials that we create or distribute.
Failure
to identify and prevent illegal or inappropriate content from being created or distributed by our influencer may subject us to liability.
To the extent that U.S. and foreign authorities find any content being created or distributed by our influencer objectionable, they may
require us to limit or eliminate the dissemination of such content in the form of take-down orders, or otherwise. We may have to conduct
a self-inspection by taking a comprehensive review of the content created by us. However, there can be no assurance that we can identify
all the videos or other content that may violate relevant laws and regulations.
We
are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these regulations could adversely
affect our business.
Our
operations are subject to federal, state and local laws, statutes, rules, regulations, policies and procedures in the United States and
around the world, which are subject to change at any time, governing matters such as:
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licensing
laws for talent agencies, such as California’s Talent Agencies Act;
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licensing,
permitting and zoning requirements for operation of our Clubhouses;
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health,
safety and sanitation requirements;
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harassment
and discrimination, and other labor and employment laws and regulations;
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compliance
with the U.S. Americans with Disabilities Act of 1990;
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compliance
with the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and similar regulations in other countries,
which prohibit U.S. companies and their intermediaries from engaging in bribery or other prohibited payments to foreign officials
and require companies to keep books and records that accurately and fairly reflect the transactions of the Company and to maintain
an adequate system of internal accounting controls;
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compliance
with applicable antitrust and fair competition laws;
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compliance
with international trade controls, including applicable import/export regulations, and sanctions and international embargoes that
may limit or restrict our ability to do business with specific individuals or entities or in specific countries or territories;
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compliance
with anti-money laundering and countering terrorist financing rules, currency control regulations, and statutes prohibiting tax evasion
and the aiding or abetting of tax evasion;
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marketing
activities;
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compliance
with current and future privacy and data protection laws imposing requirements for the processing and protection of personal or sensitive
information, including the GDPR and the E.U. e-Privacy Regulation;
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compliance
with cybersecurity laws imposing country-specific requirements relating to information systems and network design, security, operations,
and use;
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compliance
with laws or regulations that regulate the content contained within videos, games and other content formats created by our influencers;
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tax
laws; and
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imposition
by foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and distributed or
ownership restrictions.
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Noncompliance
with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement
actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, reputational harm, adverse
media coverage, and other collateral consequences. Multiple or repeated failures by us to comply with these laws and regulations could
result in increased fines or proceedings against us. If any subpoenas or investigations are launched, or governmental or other sanctions
are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial
condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion
of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions
could further harm our business, results of operations and financial condition. While we attempt to conduct our business and operations
in a manner that we believe to be in compliance with such laws and regulations, there can be no assurance that a law or regulation will
not be interpreted or enforced in a manner contrary to our current understanding. In addition, the promulgation of new laws, rules and
regulations could restrict or unfavorably impact our business, which could decrease demand for our services, reduce revenue, increase
costs or subject us to additional liabilities.
In
some United States and foreign jurisdictions, we may have direct and indirect interactions with government agencies and state-affiliated
entities in the ordinary course of our business. In the event that we fail to comply with the regulations of a particular jurisdiction,
whether through our acts or omissions or those of third parties, we may be prohibited from operating in those jurisdictions, which could
lead to a decline in various revenue streams in such jurisdictions, and could have an adverse effect on our business, financial condition
and results of operations.
We
are also required to comply with economic sanctions laws imposed by the United States or by other jurisdictions where we do business,
which may restrict our transactions in certain markets, and with certain customers, business partners and other persons and entities.
As a result, we are not permitted to, directly or indirectly (including through a third party intermediary), procure goods, services,
or technology from, or engage in transactions with, individuals and entities subject to sanctions. While we believe we have been in compliance
with sanctions requirements, there can be no guarantee that we will remain in compliance. Any violation of corruption or sanctions laws
could result in fines, civil and criminal sanctions against us or our employees, prohibitions on the conduct of our business (e.g., debarment
from doing business with International Development Banks and similar organizations) and damage to our reputation, which could have an
adverse effect on our business, financial condition and results of operations.
Our
results of operations, which are reported in U.S. dollars, could be adversely affected if currency exchange rates fluctuate substantially
in the future.
As
we expect to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We
generally collect revenue from our international markets in the local currency. Rapid appreciation of the U.S. dollar against these foreign
currencies can harm our reported results and cause the revenue derived from our foreign users to decrease. Such appreciation could increase
the costs of purchasing our products to our customers outside of the U.S., adversely affecting our business, results of operations and
financial condition.
We
will also incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations
in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of our expenses being higher
which may not be offset by additional revenue earned in the local currency. This could have a negative impact on our reported results
of operations.
Our
amended and restated bylaws provide that state or federal court located within the state of Nevada will be the sole and exclusive forum
for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or other employees.
Section
7.4 of our amended and restated bylaws provides that “[u]nless the Corporation consents in writing to the selection of an alternative
forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation
or the Corporation’s stockholders, (iii) an action asserting a claim arising pursuant to any provision of the NRS, or (iv) any
action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located within the state of Nevada,
in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.” This
exclusive forum provision is intended to apply to claims arising under Nevada state law and would not apply to claims brought pursuant
to the Exchange Act or Securities Act, or any other claim for which the federal courts have exclusive jurisdiction. The exclusive forum
provision in our amended and restated bylaws will not relieve us of our duty to comply with the federal securities laws and the rules
and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.
This
exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with
us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees.
In addition, shareholders who do bring a claim in the state or federal court in the State of Nevada could face additional litigation
costs in pursuing any such claim, particularly if they do not reside in or near Nevada. The state or federal court of the State of Nevada
may also reach different judgments or results than would other courts, including courts where a shareholder would otherwise choose to
bring the action, and such judgments or results may be more favorable to us than to our shareholders. However, the enforceability of
similar exclusive forum provisions in other companies’ bylaws has been challenged in legal proceedings, and it is possible that
a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of
actions or proceedings. If a court were to find the exclusive forum provision contained in our amended and restated bylaws to be inapplicable
or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
By
purchasing common stock in this offering, you are bound by the fee-shifting provision contained in our amended and restated bylaws, which
may discourage you to pursue actions against us.
Section
7.4 of our amended and restated bylaws provides that “[i]f any action is brought by any party against another party, relating to
or arising out of these Bylaws, or the enforcement hereof, the prevailing party shall be entitled to recover from the other party reasonable
attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action.”
In
the event you initiate or assert a claims against us, in accordance with the dispute resolution provisions contained in our amended and
restated bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred
in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
THE
FEE SHIFTING PROVISION CONTAINED IN THE AMENDED AND RESTATED BYLAWS IS NOT INTENDED TO BE DEEMED A WAIVER BY ANY HOLDER OF COMMON STOCK
OF THE COMPANY’S COMPLIANCE WITH THE U.S. FEDERAL SECURITIES LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. THE FEE
SHIFTING PROVISION CONTAINED IN THE BYLAWS DO NOT APPLY TO CLAIMS BROUGHT UNDER THE EXCHANGE ACT AND SECURITIES ACT.
As
a result of being a public company, we are subject to additional reporting and corporate governance requirements that will require additional
management time, resources and expense.
As
a public company we are obligated to file with the SEC annual and quarterly information and other reports that are specified in the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). We are also subject to other reporting and corporate governance requirements
under the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, all of which impose significant
compliance and reporting obligations upon us and require us to incur additional expense in order to fulfill such obligations.
We
may not have sufficient insurance coverage and an interruption of our business or loss of a significant amount of property could have
a material adverse effect on our financial condition and operations.
We
currently do not maintain any insurance policies against loss of key personnel and business interruption as well as product liability
claims. If such events were to occur, our business, financial performance and financial position may be materially and adversely affected.
We
could become involved in claims or litigations that may result in adverse outcomes.
From
time-to-time we may be involved in a variety of claims or litigations. Such proceeding may initially be viewed as immaterial but could
prove to be material. Litigations are inherently unpredictable and excessive verdicts do occur. Given the inherent uncertainties in litigation,
even when we can reasonably estimate the amount of possible loss or range of loss and reasonably estimable loss contingencies, the actual
outcome may change in the future due to new developments or changes in approach. In addition, such claims or litigations could involve
significant expense and diversion of management’s attention and resources from other matters.
RISKS
RELATED TO OUR COMMON STOCK AND THE OFFERING
Trading
on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security
holders to resell their common stock.
Our
common stock currently trades on the OTC Pink tier of OTC Market Group LLC’s Marketplace under the symbol “CMGR” and
the Company is currently labeled as a “Shell Risk” at this time. The OTC Market is a network of security dealers who buy
and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,”
as well as volume information. 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 investors having difficulty reselling
any shares of our common stock.
Our
stock price 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:
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actual
or anticipated fluctuations in our operating results;
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the
absence of securities analysts covering us and distributing research and recommendations about us;
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we
may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
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overall
stock market fluctuations;
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announcements
concerning our business or those of our competitors;
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actual
or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
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conditions
or trends in the industry;
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litigation;
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changes
in market valuations of other similar companies;
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future
sales of common stock;
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departure
of key personnel or failure to hire key personnel; and
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general
market conditions.
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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.
If
investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.
Our
Shares have not been registered under the Securities Act of 1933, or the Securities Act, and are being offered in reliance upon the exemption
provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We represent that this Offering Circular does
not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light
of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material
fact, if this offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or
if we fail to register the Offered Shares or find an exemption under the securities laws of each state in which we offer the Offered
Shares, each investor may have the right to rescind his, her or its purchase of the Offered Shares and to receive back from the Company
his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining
such judgment may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may not
be able to meet and it may adversely affect any non-rescinding investors.
Our
common stock has been in the past, and may be in the future, a “penny stock” under SEC rules. It may be more difficult to
resell securities classified as “penny stock.”
Our
common stock has been in the past, and may be in the future, a “penny stock” under applicable SEC rules (generally defined
as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock on a national securities
exchange, or maintain a per-share price above $5.00, these “penny stock” 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:
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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.
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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.
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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. If our common
stock is a “penny stock,” 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.
FINRA
sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable
grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit
your ability to buy and sell our stock and have an adverse effect on the market for our shares.
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 period from January
2, 2020 (inception) to December 31, 2020, we identified a material weakness in our assessment of the effectiveness of disclosure controls
and procedures. We do not have accounting staff with sufficient technical accounting knowledge relating to accounting for U.S. income
taxes and complex U.S. GAAP matters. Currently, we contract with an outside certified public accountant to assist us in maintaining our
disclosure controls and procedures and the preparation of our financial statements for the foreseeable future. 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 have accounting
staff with sufficient technical accounting knowledge relating to accounting for U.S. income taxes and complex U.S. GAAP matters, 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.
Our
privately issued common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell
companies.
Under
a regulation of the SEC known as “Rule 144,” a person who beneficially owns restricted securities of an issuer and who is
not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been
met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be 6 months for
the common stock. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than
a business combination related shell company) or, unless certain conditions are met, that has been at any time previously a shell company.
The
SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting
solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.
As
a result of the share exchange in connection with the acquisition of WOHG, the Company ceased being a shell company as such term is defined
in Rule 12b-2 under the Exchange Act.
While
we believe that as a result of this share exchange, the Company ceased to be a shell company, the SEC and others whose approval is required
in order for shares to be sold under Rule 144 might take a different view.
Rule
144 is available for the resale of securities of former shell companies if and for as long as the following conditions are met:
(i)
the issuer of the securities that was formerly a shell company has ceased to be a shell company,
(ii)
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
(iii)
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form
8-K; and
(iv)
at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status
as an entity that is not a shell company known as “Form 10 Information.”
Although
the Company filed Form 10 Information with the SEC on November 12, 2020, shareholders who receive the Company’s restricted securities
will not be able to sell them pursuant to Rule 144 without registration until the Company has met the other conditions to this exception
and then for only as long as the Company continues to meet the condition described in subparagraph (iii), above, and is not a shell company.
No assurance can be given that the Company will meet these conditions or that, if it has met them, it will continue to do so, or that
it will not again be a shell company.
This
is a fixed price offering and the fixed offering price may not accurately represent the current value of us or our assets at any particular
time. Therefore, the purchase price you pay for our shares may not be supported by the value of our assets at the time of your purchase.
This
is a fixed price offering, which means that the offering price for our shares is fixed and will not vary based on the underlying value
of our assets at any time. Our Board of Directors has determined the offering price in its sole discretion without the input of an investment
bank or other third party. The fixed offering price for our shares has not been based on appraisals of any assets we own or may own,
or of our company as a whole, nor do we intend to obtain such appraisals. Therefore, the fixed offering price established for our shares
may not be supported by the current value of our company or our assets at any particular time.
The
sale and issuance of additional shares of our common stock could cause dilution as well as the value of our common stock to decline.
Investors’
interests in the Company will be diluted and investors may suffer dilution in their net book value per share when we issue additional
shares. We are authorized to issue 500,000,000 shares of common stock. We anticipate that all or at least some of our future funding,
if any, will be in the form of equity financing from the sale of our common stock. If we do sell or issue more common stock, any investors’
investment in the Company will be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value
per share immediately after the additional shares are sold by us. If dilution occurs, any investment in the Company’s common stock
could seriously decline in value.
Substantial
future sales of shares of our common stock could cause the market price of our common stock to decline.
The
market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by
our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale
or the perception in the market that holders of a large number of shares intend to sell their shares.
Purchasers
in this offering will experience immediate and substantial dilution in the book value of their investment.
The
initial public offering price per share will be substantially higher than the pro forma net tangible book value per share of our common
stock outstanding prior to this offering. As a result, investors purchasing common stock in this offering will experience immediate dilution
of $5.741 per share. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial
public offering price when they purchased their shares of common stock. In addition, if we issue additional equity securities, you will
experience additional dilution.
Fiduciaries
investing the assets of a trust or pension or profit-sharing plan must carefully assess an investment in our Company to ensure compliance
with ERISA.
In
considering an investment in the Company of a portion of the assets of a trust or a pension or profit-sharing plan qualified under Section
401(a) of the Code and exempt from tax under Section 501(a), a fiduciary should consider (i) whether the investment satisfies the diversification
requirements of Section 404 of ERISA; (ii) whether the investment is prudent, since the Offered Shares are not freely transferable and
there may not be a market created in which the Offered Shares may be sold or otherwise disposed; and (iii) whether interests in the Company
or the underlying assets owned by the Company constitute “Plan Assets” under ERISA. See “ERISA Consideration.”
We
may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.
The
principal purposes of this offering is to raise additional capital. We currently intend to use the proceeds we receive from this offering
after deducting estimated underwriting discounts and commissions and fees and expenses associated with qualification of offering under
Regulation A, including legal, auditing, accounting, transfer agent, and other professional fees, primarily for the (i) funding of business
growth initiatives, (ii) funding of marketing expenses, and (iii) working capital and general corporate purposes. Our management
will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment
of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively,
our business, financial condition, results of operations and prospects could be harmed, and the market price of our common stock could
decline.
Risks
of investing using a credit card.
We
may accept credit cards for subscriptions, provided that any such credit card subscription shall not exceed the lesser of $5,000 or the
amount permitted by applicable law, per subscriber. An investment in the common stock is a long-term and highly illiquid investment.
Payment by credit card may be appropriate for some investors as a temporary funding convenience, but should not be used as a long term
means to finance an investment in the common stock. Investors contemplating using their credit card to invest are urged to review the
SEC’s Investor Alert dated February 14, 2018 entitled: Credit Cards and Investments – A Risky Combination, which is available
at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_riskycombination. Credit card investment will result in incurrence of third-party
fees and charges (often ranging from 1.5% - 3.0%), interest obligations which will lower your expected investment returns, and could
exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which
would make it more difficult and more expensive to borrow in the future.
Provisions
of our articles of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
Provisions
of our amended and restated articles of incorporation and our bylaws, as amended, may be deemed to have anti-takeover effects, which
include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. Further,
our articles of incorporation, as amended, authorize the issuance of up to approximately 50,000,000 shares of preferred stock with such
rights and preferences as may be determined from time to time by our Board of Directors in their sole discretion. Our Board of Directors
may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that
could adversely affect the voting power or other rights of the holders of our common stock.
We
do not expect to pay dividends in the foreseeable future.
We
do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development
and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may
be unable to sell their shares on favorable terms. We cannot assure you of a positive return on investment or that you will not lose
the entire amount of your investment in our common stock.
This
offering is being conducted on a “best efforts” basis and we may not be able to execute our growth strategy if the $30 million
maximum is not sold.
If
you invest in the common stock and less than Maximum Offering Amount is sold, the risk of losing your entire investment will be increased.
We are offering our common stock on a “best efforts” basis, and we can give no assurance that all of the Offered Shares will
be sold. If less than Maximum Offering Amount is sold, we may be unable to fund all the intended uses described in this Offering Circular
from the net proceeds anticipated from this offering without obtaining funds from alternative sources or using working capital that we
generate. Alternative sources of funding may not be available to us at what we consider to be a reasonable cost, and the working capital
generated by us may not be sufficient to fund any uses not financed by offering net proceeds. No assurance can be given to you that any
funds will be invested in this offering other than your own.
Affiliates
of the Company, including officers, directors and existing members of the Company, may invest in this offering and their funds will be
counted toward the Company achieving the Minimum Offering Amount.
There
is no restriction on affiliates of the Company, including its officers, directors and existing members, investing in the offering. As
a result, it is possible that if the Company has raised some funds, but not reached the Minimum Offering Amount, affiliates can contribute
the balance so that there will be an Initial Closing. The Minimum Offering Amount is typically intended to be a protection for investors
and gives investors confidence that other investors, along with them, are sufficiently interested in the offering and the Company, and
its prospects to receive investments of at least the Minimum Offering Amount. By permitting affiliates to invest in the offering and
make up any shortfall between what non-affiliate investors have invested and the Minimum Offering Amount, this protection is largely
eliminated. Investors should be aware that no funds other than their own and those of affiliates investing along with them may be invested
in this offering.
DETERMINATION
OF OFFERING PRICE
The
public offering price of the common stock was determined by negotiation between the Company and the Placement Agent. That public offering
price is subject to change as a result of market conditions and other factors. The principal factors considered in determining the public
offering price of the Offered Shares included:
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the
information in this Offering Circular, including our financial information;
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the
history and the prospects for the industry in which we compete;
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the
ability of our management;
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the
prospects for our future earnings;
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the
present state of our development and our current financial condition;
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the
general condition of the economy and the securities markets in the United States at the time of this offering;
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the
market price of our common stock quoted on the OTC Pink;
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the
recent market prices of, and the demand for, publicly-traded securities of generally comparable companies; and
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other
factors as were deemed relevant.
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DIVIDEND
POLICY
We
have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable
future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend
on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of
Directors. There are no contractual restrictions on our ability to declare or pay dividends. 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.
MARKET
PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock currently trades on the OTC Pink tier of OTC Market Group LLC’s Marketplace under the symbol “CMGR”, where
the Company is currently labeled as a “shell risk” at this time. Prior to January 20, 2021, our common stock publicly traded
on the OTC Marketplace of OTC Market Group LLC under the symbol “TONJ.” On January 20, 2021, we changed the symbol of our
common stock from “TONJ” to “CMGR,” in conjunction with our name change from “Tongji Healthcare Group,
Inc.” to “Clubhouse Media Group, Inc.”
The
OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information
on current “bids” and “asks,” as well as volume information. The trading of securities on the OTC Pink is often
sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative
effect on the market price of our common stock. The closing price of our common stock on the OTC Pink on June 10, 2021 was $6.28.
The
following table sets forth, for the periods indicated the high and low bid quotations for our common stock. These quotations represent
inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions.
Period
Fiscal
Year 2021
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High
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Low
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First Quarter (January 1, 2021
– March 31, 2021)
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$
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28.43
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$
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1.35
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Second Quarter (April
1, 2021 – June 30, 2021)*
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$
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12.55
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$
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4.21
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Period
Fiscal
Year 2020
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High
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Low
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First Quarter (January 1, 2020
– March 31, 2020)
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$
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0.12
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$
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0.055
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Second Quarter (April 1, 2020 – June
30, 2020)
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$
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0.85
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$
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0.055
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Third Quarter (July 1, 2020 – September
30, 2020)
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$
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3.90
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$
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0.29
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Fourth Quarter (October 1, 2020 –
December 31, 2020)
|
|
$
|
6.96
|
|
|
$
|
0.85
|
|
*Through
June 10, 2021
Holders
As
of June 10, 2021, we had 94,883,195 shares of our common stock par value, $0.001 issued and outstanding. There were approximately
333 holders of record of our common stock.
Issuances
On
June 18, 2020, pursuant to the terms of the Stock Purchase Agreement, dated May 29, 2020, by and among WOHG, the Company, Algonquin Partners
Inc. (“Algonquin”), and Joseph Arcaro, WOHG purchased, and Algonquin sold, 30,000,000 shares of the Company’s common
stock in exchange for payment by WOHG to Algonquin of $240,000. Thereafter, WOHG distributed the 30,000,000 shares of common stock among
the shareholders of WOHG, consisting of Amir Ben-Yohanan, Chris Young and Simon Yu (the “WOHG Shareholders”).
On
November 12, 2020, pursuant to the terms of the Share Exchange Agreement (“Share Exchange Agreement”), dated August 11, 2020,
among (i) WOHG, (ii) WOHG Shareholders and (iii) Mr. Ben-Yohanan as the representative of the WOHG Shareholders, we issued 46,811,195
shares of common stock to the WOHG Shareholders in exchange for 200 shares WOHG’s common stock, par value $0.0001 per share, representing
100% of the issued and outstanding capital stock of WOHG.
On
November 12, 2020, pursuant to the terms of the Share Exchange Agreement, we issued and sold to Amir Ben-Yohanan one share of Series
X Preferred Stock at a purchase price of $1.00.
On
December 8, 2020, the Company issued to Scott Hoey 10,833 shares of Company common stock upon the conversion of the convertible promissory
note issued to Scott Hoey in the principal amount of $7,500 on September 10, 2020 at a conversion price of $0.69 per share.
On
December 8, 2020, the Company issued 18,182 shares of Company common stock to Laura Anthony with a value of $0.0001 per share for
legal services rendered to the Company.
On
December 8, 2020, the Company issued 30,231 shares of Company common stock to Adam Miguest with a value of $2.27 per share as compensation
for bringing in brand deals for influencers.
On
December 8, 2020, the Company issued 15,050 shares of Company common stock to Adam Miguest with a value of $2.27 per share as compensation
for bringing in brand deals for influencers.
On
January 13, 2021, the Company issued 15,688 shares of Company common stock to Laura Anthony with a value of $0.0001 per share for legal
services rendered to the Company.
On
January 20, 2021, in connection with the issuance of a convertible promissory note to ProActive Capital SPV I, LLC in the principal amount
of $250,000, the Company sold to ProActive Capital SPV I, LLC 50,000 shares of Company common stock at a purchase price of $0.001 per
share.
On
January 25, 2021, in connection with the issuance of a convertible promissory note to GS Capital Partners, LLC in the principal amount
of $288,889, the Company sold to GS Capital Partners, LLC 50,000 shares of Company common stock at a purchase price of $0.001 per share.
On
January 26, 2021, the Company issued to Matthew Singer 8,197 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Singer in the principal amount of $13,000 on January 3, 2021 at a conversion price of $1.59 per share.
On
February 12, 2021, in connection with the issuance of a convertible promissory note to Tiger Trout Capital Puerto Rico, LLC in the principal
amount of $1,540,000, the Company sold to Tiger Trout Capital Puerto Rico, LLC 220,000 shares of Company common stock at a purchase price
of $0.001 per share.
On
February 17, 2021, the Company issued 3,472 shares of Company common stock to Laura Anthony with a value of $0.0001 per share for legal
services rendered to the Company.
On
February 17, 2021, the Company issued 2,630 shares of Company common stock to Adam Miguest with a value of $6.37 per share as compensation
for bringing in brand deals for influencers.
On
February 17, 2021, the Company issued Gary Marenzi shares of Company common stock to 54,539 with a value of $0.001 per share as compensation
for services as a director to the Company. However, 34,346 of these shares of common stock were inadvertently issued to Mr. Marenzi.
Therefore, the Company redeemed 34,346 shares of common stock from Mr. Marenzi for an aggregate purchase price $1.00 on March 16, 2021.
On
February 19, 2021, in connection with the issuance of a second convertible promissory note to GS Capital Partners, LLC in the principal
amount of $577,778, the Company sold to GS Capital Partners, LLC 100,000 shares of Company common stock at a purchase price of $0.001
per share.
On
February 23, 2021, the Company issued Digital Frontier Holdings, Inc. shares of Company common stock to 330,610 with a value of $4.76
per share as consideration for the share exchange agreement with Magiclytics .
On
February 23, 2021, the Company issued 22,041 shares of Company common stock to Robert Cohen with a value of $4.76 per share as consideration
for the share exchange agreement with Magiclytics.
On
February 23, 2021, the Company issued 330,610 shares of Company common stock to Wilfred Man with a value of $4.76 per share as consideration
for the share exchange agreement with Magiclytics.
On
February 24, 2021, the Company issued 30,231 shares of Company common stock to Adam Miguest with a value of $2.74 per share as compensation
for bringing in brand deals for influencers.
On
February 26, 2021, the Company issued 7,944 shares of Company common stock to Lindsay Brewer with a value of $17.62 per share as compensation
for services to the Company.
On
March 1, 2021, the Company issued 51,428 shares of Company common stock to Sultan Jaber Alsuwaidi with a value of $4.76 per share as
consideration for the share exchange agreement with Magiclytics.
On
March 3, 2021, the Company issued 5,300 shares of Company common stock to Laura Anthony with a value of $0.001 per share as compensation
for legal services rendered to the Company.
On
March 4, 2021, the Company issued 2,964 shares of Company common stock to Steven Chang with a value of $0.001 per share as compensation
for services to the Company.
On
March 5, 2021, the Company issued 667 shares of Company common stock to Wilfred Man with a value of $14.36 per share as compensation
for services to the Company.
On
March 5, 20201, the Company issued 2,353 shares of Company common stock to Adam Miguest with a value of $14.36 per share as compensation
for bringing in brand deals for influencers.
On
March 9, 2021, the Company issued 31,821 shares of Company common stock to Amir Ben-Yohanan, Chief Executive Officer of the Company,
with a value of $0.001 per share as compensation for services to the Company.
On
March 10, 2021, the Company issued 31,821 shares of Company common stock to Simon Yu, Chief Operating Officer of the Company, with a
value of $0.001 per share as compensation for services to the Company.
On
March 10, 2021, the Company issued 31,821 shares of Company common stock to Christian Young, President of the Company, with a value of
$0.001 per share as compensation for services to the Company.
On
March 11, 2021, in connection with issuance of a convertible promissory note to Labrys in the principal sum of $1,000,000, the Company
issued to Labrys 125,000 shares of its common stock as a commitment fee with a value of $13.40 per share.
On
March 16, 2021, the Company issued 25,322 shares of Company common stock to Harris Tulchin, a Director of the Company, with a value of
$0.001 per share as compensation for services to the Company.
On
March 22, 2021, in connection with the issuance of a third convertible promissory note to GS Capital Partners, LLC in the principal amount
of $577,778, the Company sold to GS Capital Partners, LLC 100,000 shares of Company common stock at a purchase price of $0.001 per share.
On
March 29, 2021, the Company issued 5,000 shares of Company common stock to Scott Hoey with a value of $11.55 per share as compensation
for services to the Company.
On
April 1, 2021, the Company issued 15,000 shares of Company common stock to Anthony Demonte with a value of $0.001 per share as compensation
for services to the Company.
On
April 1, 2021, the Company issued 11,848 shares of Company common stock to Lindsay Brewer with a value of $0.001 per share as compensation
for services to the Company.
On
April 1, 2021, in connection with the issuance of a convertible promissory note to Labrys in the principal sum of $1,000,000, the Company
issued to Labrys 48,076 shares of its common stock as an additional commitment fee with a value of $9.25 per share.
On
April 5, 2021, the Company issued 945 shares of Company common stock to Wilfred Man with a value of $14.36 per share as compensation
for services to the Company.
On
April 5, 2021, the Company issued 821 shares of Company common stock to Steven Chang with a value of $10.41 per share as compensation
for services to the Company.
On
April 7, 2021, in connection with the issuance of a fourth convertible promissory note to GS Capital Partners, LLC in the principal amount
of $550,000, the Company sold to GS Capital Partners, LLC 45,000 shares of Company common stock at a purchase price of $0.001 per share.
On
April 7, 2021, the Company issued 10,584 shares of Company common stock to Laura Anthony with a value of $0.001 per share as compensation
for legal services rendered to the Company.
On
April 7, 2021, the Company issued 401 shares of Company common stock to Noah Faria da Sa Tucker with a value of $12.88 per share as compensation
for services to the Company.
On
April 9, 2021, the Company issued 1,851 shares to each of Amir Ben-Yohanan (Chief Executive Officer of the Company), Harris Tulchin (a
Director of the Company), Christian Young (President of the Company), Gary Marenzi (a Director of the Company), and Simon Yu (Chief Operating
Officer of the Company) with a value of $13.51 per share as compensation for each of their services to the Company.
On
April 14, 2021, in connection with the issuance of a convertible promissory note to Eagle Equities LLC in the principal amount of $1,100,000,
the Company sold to Eagle Equities LLC 165,000 shares of Company common stock at a purchase price of $0.001 per share.
On April 16, 2021,
the Company issued 7,732 shares of Company common stock to John Michael Stommel II with a value of $17.62 per share as compensation for
services to the Company.
On
April 26, 2021, the Company issued 1,208 shares of Company common stock to Adam Miguest with a value of $10.14 per share as compensation
for bringing in brand deals for influencers.
On April 29, 2021, the
Company issued 5,684 shares of Company common stock to Lindsay Brewer with a value of $8.80 per share as compensation for services to
the Company.
On May 4, 2021, the Company
issued 1,124 shares of Company common stock to Wilfred Man with a value of $5.82 per share as compensation for services to the Company.
On May 4, 2021, the Company
issued 978 shares of Company common stock to Steven Chang with a value of $5.82 per share as compensation for services to the Company.
On May 4, 2021, the Company
issued 4,071 shares of Company common stock to Adam Miguest with a value of $5.82 per share as compensation for bringing in brand deals
for influencers.
On May 6, 2021, in connection
with the issuance of a fifth convertible promissory note to GS Capital Partners, LLC in the principal amount of $550,000, the Company
sold to GS Capital Partners, LLC 125,000 shares of Company common stock at a purchase price of $0.001 per share.
On May 11, 2021, the
Company issued 1,173 shares of Company common stock to Andrew Omori with a value of $0.001 per share as compensation for services to
the Company.
On May 11, 2021, the
Company issued 701 shares of Company common stock to Arlene G. Todd with a value of $0.001 per share as compensation for services to
the Company.
On May 11, 2021, the
Company issued 2,348 shares of Company common stock to Andrew Omori with a value of $0.001 per share as compensation for services to
the Company.
On May 11, 2021, the
Company issued 701 shares of Company common stock to Arlene G. Todd with a value of $0.001 per share as compensation for services to
the Company.
On May 12, 2021, the
Company issued 5,880 shares of Company common stock to Laura Anthony with a value of $0.001 per share as compensation for legal services
rendered to the Company.
On May 13, 2021, the Company issued 8,334 shares
of Company common stock to John Michael Stommel II with a value of $0.001 per share as compensation for services to the Company.
On May 13, 2021, the Company issued 55,556 shares
of Company common stock to Phoenix Media & Entertainment with a value of $0.001 per share as compensation for services to the Company.
On May 17, 2021, the Company issued 7,732 shares
of Company common stock to John Michael Stommel II with a value of $0.001 per share as compensation for services to the Company.
On May 19, 2021, the Company issued 444 shares
of Company common stock to Tommy Shek with a value of $9.39 per share as compensation for services to the Company.
On May 25, 2021, the Company issued 444 shares
of Company common stock to Victoria Daniel with a value of $9.39 per share as compensation for services to the Company.
On May 25, 2021, the Company issued 444 shares
of Company common stock to Lindsey Heppner with a value of $9.39 per share as compensation for services to the Company.
On
June 4, 2021, the Company issued 16,666 shares of Company common stock to Phoenix Media & Entertainment with a value of $0.001 per
share as compensation for services to the Company.
On
June 4, 2021, the Company issued 1,031 shares of Company common stock to Arlene G. Todd with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 1,620 shares of Company common stock to Andrew Omori with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 1,031 shares of Company common stock to Arlene G. Todd with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 937 shares of Company common stock to Adam Miguest with a value of $0.001 per share as compensation
for bringing in brand deals for influencers.
On
June 4, 2021, the Company issued 3,145 shares of Company common stock to Andrew Omori with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 687 shares of Company common stock to Lindsey Heppner with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 7,942 shares of Company common stock to Lindsay Brewer with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 1,522 shares of Company common stock to Wilfred Man with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 2,062 shares of Company common stock to Tommy Shek with a value of $0.001 per share as compensation
for services to the Company.
On
June 4, 2021, the Company issued 687 shares of Company common stock to Victoria Daniel with a value of $0.001 per share as compensation
for services to the Company.
On
June 7, 2021, the Company issued 800 shares of Company common stock to Ryan Leland Tallmadge with a value of $0.001 per share as compensation
for services to the Company.
On June 8, 2021,
the Company issued 5,786 shares of Company common stock to Laura Anthony with a value of $0.001 per share for legal services rendered
to the Company.
The
issuances were made pursuant to an exemption from registration as set forth in 506 of Regulation D and Section 4(2) of the Securities
Act.
Transfer
Agent and Registrar
The
Company’s transfer agent Empire Stock Transfer, located at 1859 Whitney Mesa Drive, Henderson, NV 89014.
Equity
Compensation Plans
None.
ITEM
4: DILUTION
Dilution
is the amount by which the offering price paid by purchasers of common stock sold in this offering will exceed the pro forma net tangible
book value per share of common stock after the offering. As of March 31, 2021, our net tangible book value was approximately
$(2,487,997), or $(0.026) per share. Net tangible book value is the value of our total tangible assets less total liabilities.
Based
on an initial offering price of $4.00 per Offered Share of common stock, on an as adjusted basis as of March 31, 2021,
after giving effect to the offering of shares of common stock and the application of the related net proceeds, our net tangible book
value would be:
(i) $25,317,003, or $0.249
per share of common stock, assuming the sale of 100% of the shares offered (7,500,000 shares) with net proceeds in the amount
of $27,805,000 after deducting estimated broker commissions of $1,950,000 and estimated offering expenses of $245,000;
(ii) $18,304,503, or $0.183
per share of common stock, assuming the sale of 75% of the shares offered (5,625,000 shares) with net proceeds in the amount
of $20,792,500 after deducting estimated broker commissions of $1,462,500 and estimated offering expenses of $245,000;
(iii) $11,292,003, or
$0.115 per share of common stock, assuming the sale of 50% of the shares offered (3,750,000 shares) with net proceeds in
the amount of $13,780,000 after deducting estimated broker commissions of $975,000 and estimated offering expenses of $245,000;
and
(iv) ($1,797,997), or
($0.019) per share of common stock, assuming the sale of 10% of the shares offered (250,000 shares) with net proceeds in
the amount of $690,000 after deducting estimated broker commissions of $65,000 and estimated offering expenses of $245,000.
Purchasers
of shares of common stock in this offering will experience immediate and substantial dilution in net tangible book value per share for
financial accounting purposes, as illustrated in the following table on an approximate dollar per share basis, depending upon whether
we sell 100%, 75%, 50%, or 10% of the shares being offered in this offering:
Percentage
of offering shares of Common Stock sold
|
|
100%
|
|
|
75%
|
|
|
50%
|
|
|
10%
|
|
Offering price per share of
Common Stock
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Net tangible book value
per share of Common Stock before this offering
|
|
$
|
(0.026
|
)
|
|
$
|
(0.026
|
)
|
|
$
|
(0.026
|
)
|
|
$
|
(0.026
|
)
|
Increase
in net tangible book value per share attributable to new investors
|
|
$
|
0.275
|
|
|
$
|
0.209
|
|
|
$
|
0.141
|
|
|
$
|
(0.007
|
)
|
Pro
forma net tangible book value per share after this offering
|
|
$
|
0.249
|
|
|
$
|
0.183
|
|
|
$
|
0.115
|
|
|
$
|
(0.019
|
)
|
Immediate
dilution in net tangible book value per share to new investors
|
|
$
|
3.751
|
|
|
$
|
3.817
|
|
|
$
|
3.885
|
|
|
$
|
4.019
|
|
The
following tables sets forth depending upon whether we sell 100%, 75%, 50%, or 10% of the maximum number of Offered Shares in this offering,
as of March 31, 2021, the number of shares of common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering
at the offering price of $4.00 per Offered Share, together with the total consideration paid an average price per share paid by
each of these groups, before deducting estimated broker commissions and estimated offering expenses.
|
|
100%
of the Maximum Shares Sold
|
|
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per
Share
|
|
Existing stockholders
as of March 31, 2021
|
|
|
94,302,795
|
|
|
|
92.6
|
%
|
|
$
|
6,048,652
|
|
|
|
16.8
|
%
|
|
$
|
0.064
|
|
New
investors
|
|
|
7,500,000
|
|
|
|
7.4
|
%
|
|
$
|
30,000,000
|
|
|
|
83.2
|
%
|
|
$
|
4.000
|
|
Total
|
|
|
101,802,795
|
|
|
|
100.0
|
%
|
|
|
36,048,652
|
|
|
|
100.0
|
%
|
|
$
|
0.354
|
|
|
|
75%
of the Maximum Shares Sold
|
|
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per
Share
|
|
Existing stockholders
as of March 31, 2021
|
|
|
94,302,795
|
|
|
|
94.4
|
%
|
|
$
|
6,048,652
|
|
|
|
21.2
|
%
|
|
$
|
0.064
|
|
New
investors
|
|
|
5,625,000
|
|
|
|
5.6
|
%
|
|
$
|
22,500,000
|
|
|
|
78.8
|
%
|
|
$
|
4.000
|
|
Total
|
|
|
99,927,795
|
|
|
|
100.0
|
%
|
|
$
|
28,548,652
|
|
|
|
100.0
|
%
|
|
$
|
0.286
|
|
|
|
50%
of the Maximum Shares Sold
|
|
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per
Share
|
|
Existing stockholders
as of March 31, 2021
|
|
|
94,302,795
|
|
|
|
96.2
|
%
|
|
$
|
6,048,652
|
|
|
|
28.7
|
%
|
|
$
|
0.064
|
|
New
investors
|
|
|
3,750,000
|
|
|
|
3.8
|
%
|
|
$
|
15,000,000
|
|
|
|
71.3
|
%
|
|
$
|
4.000
|
|
Total
|
|
|
98,052,795
|
|
|
|
100.0
|
%
|
|
$
|
21,048,652
|
|
|
|
100.0
|
%
|
|
$
|
0.215
|
|
|
|
10%
of the Maximum Shares Sold (Minimum Offering Amount)
|
|
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per
Share
|
|
Existing stockholders
as of March 31, 2021
|
|
|
94,302,795
|
|
|
|
99.7
|
%
|
|
$
|
6,048,652
|
|
|
|
85.8
|
%
|
|
$
|
0.064
|
|
New
investors
|
|
|
250,000
|
|
|
|
0.3
|
%
|
|
$
|
1,000,000
|
|
|
|
14.2
|
%
|
|
$
|
4.000
|
|
Total
|
|
|
94,552,795
|
|
|
|
100.0
|
%
|
|
$
|
7,048,652
|
|
|
|
100.0
|
%
|
|
$
|
0.075
|
|
The
foregoing discussion and tables above do not give effect to the 75,000 shares of our common stock issuable upon the exercise of
warrants at an exercise price of 125% of the initial offering price per Offered Share which would be issued by us to the Placement
Agent in connection with the offering assuming all of the shares offered in this offering are sold.
ITEM
5: PLAN OF DISTRIBUTION
We
have entered into a placement agency agreement with the Placement Agent, with respect to the shares of our common stock in this offering.
Under the terms and subject to the conditions contained in the placement agency agreement, we have agreed to issue and sell to the public
through the Placement Agent, and the Placement Agent has agreed to offer and sell, up to 7,500,000 shares of our common stock,
on a best efforts basis. The initial public offering price per share of common stock is $4.00 per share.
The
placement agency agreement provides that the obligation of the Placement Agent to arrange for the offer and sale of the shares of our
common stock, which is on a best-efforts basis, is subject to certain conditions precedent. The Placement Agent is under no obligation
to purchase any shares of our common stock for its own account. As a “best efforts” offering, there can be no assurance that
the offering contemplated hereby will ultimately be consummated. The Placement Agent may, but is not obligated to, retain other selected
dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc. The
Placement Agent proposes to offer the Offered Shares to investors at the public offering price, and will receive cash equal to six
and a half percent (6.5%) of the gross amount to be disbursed to the Company at the Initial Closing and each Additional Closing,
if any. The gross proceeds of this offering will be deposited in an Offering Deposit Account established by us, until we have sold a
minimum of 250,000 shares of common stock.
This
offering will terminate on the date which is ninety (90) days immediately following the date of qualification, subject to extension for
up to ninety (90) days with the mutual agreement of the Company and the Placement Agent; provided that, if we have received and accepted
subscriptions for the minimum number of Offered Shares on or before the date which is ninety (90) days immediately following the date
of qualification, or the end of the ninety (90) day extension, if exercised, then we will close on the Minimum Offering Amount (the “Initial
Closing”) and this offering will continue until the earliest of (i) the date which is ninety (90) days after the Initial Closing,
or (ii) the date on which the Maximum Offering Amount is sold. Once we satisfy the Minimum Offering Amount, the funds will be released
to us, less offering expenses, including but not limited to, underwriter’s fees and expenses. Affiliates of our Company, including
our officers and directors, may invest in the offering and their investment would be counted toward achieving the Minimum Offering Amount.
The
Placement Agent has informed us that they may provide an allowance not in excess of $0.20 per share to other dealers out of the
Placement Agent’s commission of $0.26 per share.
Compensation
and Expenses
The
following table and the two succeeding paragraphs summarize the underwriting compensation and estimated expenses we will pay:
|
|
Public
Offering Price
|
|
|
Underwriting
Commissions
|
|
|
Proceeds
to Us,
Before Expenses
|
|
Per
Share
|
|
$
|
4.00
|
|
|
$
|
0.26
|
|
|
$
|
3.74
|
|
Total
minimum offering
|
|
$
|
1,000,000
|
|
|
$
|
65,000
|
|
|
$
|
935,000
|
|
Total
maximum offering
|
|
$
|
30,000,000
|
|
|
$
|
1,950,000
|
|
|
$
|
28,050,000
|
|
We have agreed to reimburse the
Placement Agent for reasonable out-of-pocket expenses incurred relating to the offering, regardless of whether the offering is consummated,
including payment of up to $45,000 for reimbursement of the Placement Agent’s legal counsel fees. Any out-of-pocket expenses above
$1,000 are to be pre-approved by the Company. We have paid $20,000 to the Placement Agent as a refundable advance, all of
which shall be applied against actual out-of-pocket accountable expenses and such advance shall be reimbursed to the Company to the extent
any portion of the advance is not actually incurred, in compliance with FINRA Rule 5110(g)(4)(A) in the event of the termination of the
offering. We estimate that the total expenses of this offering (including the foregoing expenses set forth in this paragraph), excluding
underwriting commissions described above, will be approximately $245,000.
Placement
Agent’s Warrants
As
additional compensation to the Placement Agent, upon consummation of this offering, we will issue to the Placement Agent or its designees
warrants to purchase an aggregate number of shares of our common stock equal to one percent (1%) of the shares of common
stock issued in this offering, at an exercise price per share equal to 125% of the initial public offering price. The Placement
Agent Warrants and the underlying shares of common stock will not be exercised, sold, transferred, assigned, or hypothecated or be the
subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the
Placement Agent Warrants by any person for a period of 180 days from the qualification date of the Offering Circular for this offering
in accordance with FINRA Rule 5110(e)(1). The Placement Agent Warrants will expire on the fifth anniversary of the commencement of sales
of the offering in accordance with FINRA Rule 5110(g)(8)(A). The Placement Agent Warrant to be received by the Placement Agent and related
persons in connection with this offering: (i) fully comply with lock-up restrictions pursuant to FINRA Rule 5110(e)(1); and (ii) fully
comply with transfer restrictions pursuant to FINRA Rule 5110(e)(2).
Right
of First Refusal
Pursuant
to that placement agency agreement with the Placement Agent, we granted the Placement Agent a right of first refusal, for a period of
24 months following the consummation of a private placement transaction assisted by the Placement Agent that closed on January 29, 2021,
to act as financial advisor or a joint financial advisor on at least equal economic terms on any public or private financing (debt or
equity), merger, business combination, recapitalization or sale of some or all of the equity assets of the Company, whether in conjunction
with another broker-dealer or on the Company’s own volition.
Lock-Up
Agreements
The
Company, our executive officers, directors and holder(s) of five percent (5%) or more of our outstanding common stock have agreed not
to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any common stock (i) up until the earlier of (a) the
date of termination of this offering by the Company or (b) 365 days following the date of the initial closing of this offering, in
the case of our officers and directors and (ii) for a period of 180 days following the initial closing of this offering,
in the case of the Company and such beneficial holders of our common stock, subject to certain exceptions (the “Lock-Up Period”).
Notwithstanding
the above, the Placement Agent may engage in stabilization activities. The Placement Agent may in its sole discretion and at any time
without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the Lock-Up Period. When determining
whether or not to release shares from the lock-up agreements, the Placement Agent will consider, among other factors, the security holder’s
reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.
Indemnification
and Contribution
The
placement agency agreement provides for indemnification between us and the placement agents against specified liabilities, including
liabilities under the Securities Act, and for contribution by us and the placement agents to payments that may be required to be made
with respect to those liabilities. We have been advised that, in the opinion of the Commission, indemnification of liabilities under
the Securities Act is against public policy as expressed in the Securities Act, and is therefore, unenforceable.
Electronic
Offer, Sale and Distribution of Offered Shares
An
Offering Circular in electronic format may be made available on the websites maintained by the Placement Agent, or selling group members,
if any, participating in the offering. The Placement Agent may agree to allocate a number of shares to selling group members for sale
to their online brokerage account holders. Internet distributions will be allocated by the Placement Agent and selling group members
that may make Internet distributions on the same basis as other allocations.
We
intend to market the Offered Shares in this offering, in whole or in part, through an online platforms (the “Platform”) operated
by Sutter Securities Group, Inc. (collectively, with its subsidiaries and affiliates, “Sutter Group”), where this Offering
Circular will be posted. Sutter Group is an affiliate of our Placement Agent, and through its wholly owned subsidiary, Sutter Securities
Clearing, LLC, a FINRA member, has been further engaged to provide certain services, including Offering Deposit Account services, in
connection with this offering (Sutter Clearing Services). The fee for Sutter Clearing Services is equal to the greater of $25,000
or 0.15% of the gross offering proceeds ($45,000 for the maximum offering amount raised). Further, we will pay Sutter Securities
Clearing, LLC applicable fees for fund transfers and accounting, including: funds transfer fees – $1.00 per ACH transfer; $10.00
per incoming wire transfer; $15.00 per outgoing domestic wire transfer; $25.00 per outgoing international wire transfer; $10.00 per check;
$10.00 per ACH exception; $10.00 per NACHA upload per file; and other banking and vendor fees as appropriate for funds processing;
and Sutter Securities Group, Inc. applicable fees for debit/credit card processing, including: debit/credit card processing fee of 3.0%
- 4.0%; finance charge of 1.5% per month on any outstanding balance owed.
ERISA
Considerations
Special
considerations apply when contemplating the purchase of Offered Shares on behalf of employee benefit plans that are subject to Title
I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plans, individual retirement accounts
(“IRAs”) and other arrangements that are subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”),
or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code
or ERISA, and entities whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement
(each, a “Plan”). A person considering the purchase of the Offered Shares on behalf of a Plan is urged to consult
with tax and ERISA counsel regarding the effect of such purchase and, further, to determine that such a purchase will not result in a
prohibited transaction under ERISA, the Code or a violation of some other provision of ERISA, the Code or other applicable law. We will
rely on such determination made by such persons, although no Shares of our common stock will be sold to any Plans if management believes
that such sale will result in a prohibited transaction under ERISA or the Code.
Marketability
Our
common stock is currently quoted on the OTCQX tier of the OTC Markets. The OTC Markets is maintained by OTC Market Group, Inc. The securities
traded on the OTC Markets are not listed or traded on the floor of an organized national or regional stock exchange. Instead, these securities
transactions are conducted through a telephone and computer network connecting dealers in stocks. Over-the-counter stocks are traditionally
smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Notwithstanding
our common stock being quoted on the OTC Markets, a purchaser of the Offered Shares may not be able to resell them. Broker-dealers may
be discouraged from effecting transactions in our common stock because they will be considered penny stocks and will be subject to the
penny stock rules. Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on
FINRA brokers-dealers who make a market in a “penny stock.” A penny stock generally includes any non-NASDAQ equity security
that has a market price of less than $5.00 per share. Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000
or an annual income exceeding $200,000, or $300,000 together with his or her spouse or spousal equivalent) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer
or the transactions is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any
transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, unless the
broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer
and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to
the limited market in penny stocks.
The
additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions
in our common stock, which could severely limit the market liquidity of the Offered Shares and impede the sale of our Offered Shares
in the secondary market, assuming one develops.
Foreign
Regulatory Restrictions on Purchase of the Offered Shares
We
have not taken any action to permit a public offering of our Offered Securities outside the United States or to permit the possession
or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus
must inform themselves about and observe any restrictions relating to this offering of Offered Securities and the distribution of the
prospectus outside the United States.
Investor
Perks
To
encourage participation in the offering, the Company is providing specific perks for investors who purchase a minimum of 112 shares of
its Common Stock (“Shares”) in this offering. Additional perks are available for purchases of a greater number of Shares.
All perks must be redeemed within two years of receiving the Shares in this offering, except as indicated below. The Company is of the
opinion that these perks do not alter the sales price or cost basis of the securities in this offering. Instead, the perks are promotional
discounts on future services of the Company, or a “thank you” to investors that help the Company achieve its mission. However,
it is recommended that investors consult a tax professional to fully understand any tax implications of receiving any perks before investing.
The table below presents the investment level to receive the stated perk, and the approximate cash value of the perk:
Investment
Amount
|
|
|
Perk
Description
|
|
Number
of Possible Winners
|
|
Approximate
Cash Value†
|
|
$
|
1,000
|
|
|
Tier
1
|
|
unlimited
winners
|
|
$
|
60
|
|
|
|
|
|
The
investor receives a Clubhouse Owner hoodie sweatshirt, part of an exclusive Clubhouse merchandise collection for investors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,000
|
|
|
Tier
2
|
|
unlimited
winners
|
|
$
|
560
|
|
|
|
|
|
Everything
in Tier1
|
|
|
|
|
|
|
|
|
|
|
The
investor receives exclusive Clubhouse merchandise personally signed by a Clubhouse Media Group affiliated creator.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000
|
|
|
Tier
3
|
|
unlimited
winners
|
|
$
|
1,560
|
|
|
|
|
|
Everything
in Tier 2
|
|
|
|
|
|
|
|
|
|
|
The
investor receives a personal shoutout from a Clubhouse creator on one of Clubhouse Media Group’s Instagram or Tik Tok profiles.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
|
Tier
4
|
|
up
to 50 winners
|
|
$
|
4,560
|
|
|
|
|
|
Everything
in Tier 3
|
|
|
|
|
|
|
|
|
|
|
The
investor receives a photo shoot session on location at one of the Clubhouses facilitated by Clubhouse Media Group’s professionally
trained in-house photographers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
|
Tier
5
|
|
up
to 20 winners
|
|
$
|
8,560
|
|
|
|
|
|
Everything
in Tier 4
|
|
|
|
|
|
|
|
|
|
|
The
investor receives choice of either dance lessons by Dance Dome’s creators (@dancedomela) or a workout session with Clubhouse
Media Group affiliated creators. Activities will be followed by lunch with creators and management team.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
Tier
6
|
|
up
to 20 winners
|
|
$
|
10,560
|
|
|
|
|
|
Everything
in Tier 4
|
|
|
|
|
|
|
|
|
|
|
The
investor receives a brand awareness promotion where a Clubhouse Media Group affiliated creator or Clubhouse’s social media
account will post a social media post on the platform of Clubhouse’s choosing to promote the investor’s brand, product
or services. Subject to social media platform’s terms of use, terms of service, or social media community guidelines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,000
|
|
|
Tier
7
|
|
up
to 18 winners
|
|
$
|
13,060
|
|
|
|
|
|
Everything
in Tier 4
|
|
|
|
|
|
|
|
|
|
|
The
investor along with a friend (i.e. in a foursome including a Clubhouse affiliated creator and a management team member) is invited
to a golf tournament with other investor foursomes including other Clubhouse affiliated creators and management team members. Meals
included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
750,000
|
|
|
Tier
8
|
|
up
to 6 winners
|
|
$
|
34,560
|
|
|
|
|
|
Everything
in Tier 4
|
|
|
|
|
|
|
|
|
|
|
The
investor and a friend receive the right to attend a studio recording with one of Clubhouse Media Group’s affiliated creator
and musician Austin Mahone (@austinmahone) or equivalent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
Tier
9
|
|
up
to 5 winners
|
|
$
|
84,560
|
|
|
|
|
|
Everything
in Tier 4
|
|
|
|
|
|
|
|
|
|
|
The
investor along with a friend receives the right to have paddock access during a race in which Clubhouse Media Group affiliated creator
and professional racecar driver Lindsay Brewer (@lindsaymariebrewer) is competing, as well as the right to join Lindsay and the team
for a post-race dinner. 2-day travel and accommodations included.
|
|
|
|
|
|
|
†
The approximate cash value was determined by management’s best estimates of the value of each item or unique event. Exclusive Clubhouse
sweatshirt design and print ($60), Clubhouse Media Group affiliated creators time in signing sweater and endorsement ($500 ), Clubhouse
creator time to create a shutout and post on social media profile ($2,000), rental of Clubhouse location for photoshoot ($1,000), photographer
time ($1,000), creative director for photoshoot time ($1,000), dance lessons for team of dancers from Dance Dome ($3,000), group lunch
for creators, management team and investors ($1,000), workout session with Clubhouse affiliated creators ($2,500), studio rental for
gym ($500), social media post from one of Clubhouse Media Group’s creator to promote a brand ($4,000), Clubhouse Media Group’s
creative director to develop concept for brand post ($2,000), Golf course rental for up to 50 attendees ($30,000 of which $2,500 is cost
allocable to investor), time of Clubhouse affiliated creator and management team member participating in the foursome with investor ($5,000),
meals for investor, management and creator during day of golf tournament ($1,000), Studio rental and sound engineer rental ($20,000),
Austin Mahone and his team ($20,000), Catering food to studio ($2,000), production assistants for studio session ($8,000), flights to
car race event ($5,000), access to PADDOCK ($55,000), hotel accommodations for investors, management, staff two night stay ($10,000),
meals for investors, management and staff for two days ($10,000). Actual cash value my differ. Subject to COVID-19 restrictions. Actual
cash value may differ. Subject to COVID-19 restrictions.
*Due
to the uniqueness and limited availability of Tiers 5, 6, 7 and 8 to a certain number of investors, we are limiting inclusion of lower
tier perks regarding these tiers to the perks of Tier 4.
Investment
Amount Limitations
Generally,
no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income
or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment
does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing,
you are encouraged to refer to www.investor.gov.
As
a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the offering. The only investor in this
offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation
D. If you meet one of the following tests you should qualify as an Accredited Investor:
(i)
|
You
are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with
your spouse or spousal equivalent in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the
same income level in the current year;
|
|
|
(ii)
|
You
are a natural person and your individual net worth, or joint net worth with your spouse or spousal equivalent, exceeds $1,000,000
at the time you purchase Offered Shares (please see below on how to calculate your net worth);
|
|
|
(iii)
|
You
are a director, executive officer or general partner of the issuer or a director, executive officer, or general partner of the general
partner of the issuer;
|
|
|
(iv)
|
You
are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation,
a Massachusetts or similar business trust or a partnership, or limited liability company, not formed for the specific purpose of
acquiring the Offered Shares, with total assets in excess of $5,000,000;
|
|
|
(v)
|
You
are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered
pursuant to Section 15 of the Exchange Act, an investment advisor registered pursuant to the Investment Advisers Act of 1940 or registered
pursuant to the laws of a state, an investment advisor relying on the exemption of registering with the SEC under the Investment
Advisers Act of 1940, an insurance company as defined by the Securities Act, an investment company registered under the Investment
Company Act of 1940, or a business development company as defined in that act, any Small Business Investment Company licensed by
the Small Business Investment Act of 1958, or a Rural Business Investment Company as defined in the Consolidated Farm and Rural Development
Act, or a private business development company as defined in the Investment Advisers Act of 1940;
|
|
|
(vi)
|
You
are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
|
|
|
(vii)
|
You
are a trust with total assets in excess of $5,000,000, your purchase of Offered Shares is directed by a person who either alone or
with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience
in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were
not formed for the specific purpose of investing in the Offered Shares;
|
|
|
(viii)
|
You
are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000; an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary,
as defined in such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser,
or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
|
|
|
(ix)
|
You
are an entity, of a type not listed in the above paragraphs (iv), (v), (vi), (vii), or (viii), not formed for the specific purpose
of acquiring the Offered Shares, owning investments in excess of $5,000,000;
|
|
|
(x)
|
You
are a natural person holding in good standing one or more professional certifications or designations or credentials from an accredited
educational institution that the SEC has designated as qualifying an individual for accredited investor status;
|
(xi)
|
You
are a “family office,” as defined by the Investment Advisers Act of 1940, with assets under management in excess of $5,000,000,
and is not formed for the specific purpose of acquiring the Offered Shares, and your prospective investment is directed by a person
who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits
and risks of the prospective investment;
|
|
|
(xii)
|
You
are a “family client,” as defined under the Investment Advisers Act of 1940, of a family office meeting the requirements
in the above paragraph (xi), and your prospective investment in the issuer is directed by such family office pursuant to the above
paragraph (xi).
|
Offering
Period and Expiration Date
This
offering will start on the date this Offering Circular is declared qualified by the SEC. This offering will terminate on the date which
is ninety (90) days immediately following the date of qualification, subject to extension for up to ninety (90) days with the mutual
agreement of the Company and the Placement Agent; provided that, if we have received and accepted subscriptions for the minimum number
of Offered Shares on or before the date which is ninety (90) days immediately following the date of qualification, or the end of the
ninety (90) day extension, if exercised, then we will close on the Minimum Offering Amount (the “Initial Closing”) and this
offering will continue until the earliest of (i) the date which is ninety (90) days after the Initial Closing or (ii) the date on which
the Maximum Offering Amount is sold (such earliest date, the “Termination Date”). Affiliates of our Company, including our
officers and directors, may invest in the offering and their investment would be counted toward achieving the Minimum Offering Amount.
If, on the Initial Closing date, we have sold less than the maximum number of Offered Shares, then we may hold one or more additional
closings for additional sales (each an “Additional Closing”), up to the maximum number of Offered Shares, and until the Termination
Date. Our Company and the Placement Agent will consider various factors in determining the timing of any Additional Closings, including
the amount of proceeds received at the Initial Closing, any Additional Closings that have already been held, the level of additional
valid subscriptions received after the Initial Closing and the eligibility of additional investors under applicable laws.
Procedures
for Subscribing
If
you decide to subscribe for any common stock in this offering, you should:
Go
to the offering page at https://invest.clubhousemediagroup.com/clubhousemedia, click on the “Invest” button
and follow the procedures as described.
|
1.
|
Electronically
receive, review, execute and deliver to us through DocuSign, a Subscription Agreement; and
|
|
|
|
|
2.
|
Deliver
funds only by ACH, wire transfer, credit card or check for the amount set forth in the Subscription Agreement directly
to the specified bank account maintained by the Deposit Account Agent.
|
The
Clubhouse Media website will redirect interested investors via the “Invest Now” button to a site operated by Sutter Securities
group, Inc., where investors can receive, review, execute and deliver subscription agreements electronically.
Any
potential investor will have ample time to review the Subscription Agreement, along with their counsel, prior to making any final investment
decision. We shall only deliver such Subscription Documents upon request after a potential investor has had ample opportunity to review
this Offering Circular. Further, we will not accept any money until the SEC declares the Offering Statement qualified.
Following
the Initial Closing on the Minimum Offering Amount, we anticipate that we may hold one or more additional closings for purchases of the
Offered Shares until the offering is fully subscribed or we terminate the offering. Our Company and the Placement Agent will consider
various factors in determining the timing of any Additional Closings, including the amount of proceeds received at the Initial Closing,
any Additional Closings that have already been held, the level of additional valid subscriptions received after the Initial Closing,
and the eligibility of additional investors under applicable laws. We expect to have Additional Closings on a monthly basis and expect
that we will accept all funds subscribed for each month subject to our working capital and other needs consistent with the use of proceeds
described in this Offering Circular. Investors should expect to wait approximately one month and no longer than forty-five days
before we accept their subscriptions and they receive the Offered Shares subscribed for. An investor’s subscription is binding
and irrevocable and investors will not have the right to withdraw their subscription or receive a return of funds prior to the next closing
unless we reject the investor’s subscription. You will receive a confirmation of your purchase promptly following the closing
in which you participate. Upon each Additional Closing, if any, the proceeds subject to that Additional Closing will be distributed to
us and the associated Offered Shares will be issued to the investors in such Offered Shares. If the offering does not close, the proceeds
for the offering will be promptly returned to investors, without deduction and without interest.
Proceeds
will be held with the Deposit Account Agent in an Offering Deposit Account subject to compliance with Exchange Act Rule 15c2-4 until
closing occurs. The Placement Agent and/or the participating broker-dealers will submit a subscriber’s form(s) of payment in compliance
with Exchange Act Rule 15c2-4, generally by noon of the next business day following receipt of the subscriber’s subscription agreement
and form(s) of payment.
You
will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501
of Regulation D or that your investment in the shares of common stock does not exceed 10% of your net worth or annual income, whichever
is greater, if you are a natural person, or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent
fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent
that you have received a copy of this Offering Circular, you are purchasing the shares of common stock for your own account and that
your rights and responsibilities regarding your shares of common stock will be governed by our chart and bylaws, each filed as an exhibit
to the Offering Statement of which this Offering Circular is a part.
Right
to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription
agreement have been transferred to the Deposit Account Agent, we have the right to review and accept or reject your subscription in whole
or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest
or deduction.
Acceptance
of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares
subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription
or request your subscription funds. All accepted subscription agreements are irrevocable.
Under
Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which
do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year
end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income
or net worth (please see below on how to calculate your net worth).
NOTE:
For the purposes of calculating your Net Worth, it is defined as the difference between total assets and total liabilities. This calculation
must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount
equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may
be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase
of the Offered Shares.
In
order to purchase Offered Shares and prior to the acceptance of any funds from an investor, an investor will be required to represent,
to our satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation
on investment in this offering.
Non-U.S.
investors may participate in this offering by depositing their funds in the Offering Deposit Account held at Pacific Mercantile Bank.
Sutter Securities Clearing, LLC will serve as the Deposit Account Agent. Any such funds that the Deposit Account Agent receives shall
be held on deposit until the applicable closing of the offering or such other time as mutually agreed between the Company and the Placement
Agent, and then used to complete securities purchases, or returned if this offering fails to close.
ITEM
6: USE OF PROCEEDS TO ISSUER
We
intend to use the net proceeds for the following purposes in the following order: (a) first towards the fees and expenses associated
with qualification of the offering under Regulation A of up to $245,000, including legal, auditing, accounting, transfer agent,
and other professional fees; (b) second towards the funding of (i) business growth initiatives and (ii) marketing expenses; and
(c) the balance towards working capital and general corporate purposes. In the event that we sell less than the maximum shares offered
in the offering, our first priority is to pay fees associated with the qualification of this offering under Regulation A. No proceeds
will be used to compensate or otherwise make payments to officers or directors except for ordinary payments under employment or consulting
agreements.
The
gross proceeds of this offering will be $30,000,000 if all of the Offered Shares offered hereunder are purchased. However, we cannot
guarantee that we will sell all of the Offered Shares we are offering. The following table summarizes how we anticipate using the gross
proceeds of this offering, depending upon whether we sell 10%, 50%, 75%, or 100% of the Maximum Offering Amount in the offering:
|
|
If
10% of
Offered Shares
Sold (Minimum Offering Amount)
|
|
|
If
50% of
Maximum Offered Shares
Sold
|
|
|
If
75% of
Maximum Offered Shares
Sold
|
|
|
If
100% of
Maximum Offered Shares
Sold
|
|
Gross Proceeds
|
|
$
|
1,000,000
|
|
|
$
|
15,000,000
|
|
|
$
|
22,500,000
|
|
|
$
|
30,000,000
|
|
Offering Expenses (Underwriting Discounts and Commissions
to broker dealers)
|
|
$
|
(65,000
|
)
|
|
$
|
(975,000
|
)
|
|
$
|
(1,462,500
|
)
|
|
$
|
(1,950,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Proceeds
|
|
$
|
935,000
|
|
|
$
|
14,025,000
|
|
|
$
|
21,037,500
|
|
|
$
|
28,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our intended use of the net proceeds is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees for Qualification of Offering under Regulation
A (includes legal, auditing, accounting, transfer agent, and other professional fees)
|
|
$
|
(245,000
|
)
|
|
$
|
(245,000
|
)
|
|
$
|
(245,000
|
)
|
|
$
|
(245,000
|
)
|
Business Growth Initiatives
|
|
|
(483,000
|
)
|
|
|
(9,646,000
|
)
|
|
|
(14,554,750
|
)
|
|
|
(19,463,500
|
)
|
Marketing Expenses
|
|
|
(69,000
|
)
|
|
|
(1,378,000
|
)
|
|
|
(2,079,250
|
)
|
|
|
(2,780,500
|
)
|
Working Capital and General
Corporate Purposes
|
|
|
(138,000
|
)
|
|
|
(2,756,000
|
)
|
|
|
(4,158,500
|
)
|
|
|
(5,561,000
|
)
|
Total Use of Proceeds
|
|
$
|
1,000,000
|
|
|
$
|
15,000,000
|
|
|
$
|
22,500,000
|
|
|
$
|
30,000,000
|
|
The
intended use of proceeds in this section takes into account the potential impacts of COVID-19.
Pending
our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including
without limitation short-term, investment grade, interest bearing instruments and United States government securities and including investments
in related parties.
ITEM
7: DESCRIPTION OF BUSINESS
Overview
We
operate a global network of professionally run content houses, each of which has its own brand, influencer cohort and production capabilities.
Our Company offers management, production and deal-making services to our handpicked influencers, a management division for individual
influencer clients, and an investment arm for joint ventures and acquisitions for companies in the social media influencer space. Our
management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.
Through
our subsidiary, West of Hudson Group, Inc., or WOHG, we currently generate revenues primarily from talent management of social media
influencers residing in our Clubhouses and for paid promotion by companies looking to utilize such social media influencers to promote
their products or services. We solicit companies for potential marketing collaborations and cultivated content creation, work with the
influencers and the marketing entity to negotiate and formalize a brand deal and then execute the deal and receive a certain percentage
from the deal. In addition to the in-house brand deals, we generate income by providing talent management and brand partnership deals
to external influencers not residing in our Clubhouses. Through Digital Influence Inc. (doing business as Magiclytics), a 100% wholly
owned subsidiary of WOHG, we currently generate revenues primarily by providing predictive analytics for content creation brand deals.
For
the period from January 2, 2020 (inception) to December 31, 2020, Clubhouse Media generated revenues of $1,010,405 and reported a net
loss of $2,577,721 and negative cash flow from operating activities of $1,967,551. For
the three months ended March 31, 2021, Clubhouse Media generated revenues of $523,376, reported a net loss of $5,798,578,
and had negative cash flow from operating activities of $1,628,118. As noted in the
consolidated financial statements of Clubhouse Media, as of March 31, 2021, Clubhouse Media had an accumulated deficit
of $8,456,996. There is substantial doubt regarding the ability of Clubhouse Media to continue as a going concern as a
result of its historical recurring losses and negative cash flows from operations as well as its dependence on private equity and financings.
See “Risk Factors— Clubhouse Media has a history of operating losses and its management has concluded that factors raise
substantial doubt about its ability to continue as a going concern and the auditor of Clubhouse Media has included explanatory paragraphs
relating to its ability to continue as a going concern in its audit report for the period from January 2, 2020 (inception) to December
31, 2020.”
Principal
Products and Services
Our
current principal products and services are comprised of (1) our Clubhouses, (2) our talent management services and (3) our brand development
and content creation.
The
Clubhouses
Through
WOHG, we are the sole owner of “The Clubhouse,” which is an integrated social media influencer incubator with a physical
and digital footprint in Southern California and Europe. The Clubhouse is a collection of content creation houses located in scenic mansions
in Southern California (4 locations), Las Vegas, Nevada (1) and Europe (1 location) that houses who we believe to be some
of the most prominent and widely followed social media influencers, together carrying a currently estimated follower base of approximately
280 million social media followers as of May 25, 2021 across all Clubhouse influencers. The foregoing consists of approximately
155 million followers on Tik Tok, 62 million followers on Instagram, 53 million followers on YouTube, 5.8 million followers on Snapchat
and 12 million followers on Twitter. The influencers who live in our Clubhouses, as well as the number of their social media followers,
can fluctuate significantly at any given time, and we cannot predict the increase or decline of the number of influencers who live in
our Clubhouses or the number of followers for our Clubhouse influencers at any given time in the future.
Content
Houses at a Glance
Content
houses originated from gaming houses in the gaming industry, where professional video game players and gaming teams lived in the same
residence with each other in order to practice gaming and create content to build their own following. Eventually this concept was adopted
by lifestyle influencers and was found to be a way for individual influencers to create new content with other influencers and grow followers
together.
Our
Clubhouses
The
Clubhouse is an established network of social media content creation houses (Clubhouse BH, Just A House (“JAH”),
Society Las Vegas, Dobre Bothers House, Weheartfans House and Clubhouse Europe that each provide a picturesque living
environment for our band of social media influencers, complete with in-house media production teams, including photographers and videographers.
We believe that this enables the influencers living at these houses to maximize the depth, breadth and scale of followers that those
influencers can build across popular social media platforms.
Clubhouse
BH Location
“Clubhouse
BH” is located in the heart of Beverly Hills in Los Angeles, California and is occupied by a group of content creators
who live and work together 24 hours per day and seven days per week, and are equipped with a full media team. We believe that this structure
enables successful collaboration and content creation by the content-creators. Clubhouse BH is 12,000 square feet, has 11 bedrooms and
sits on one acre of land. Clubhouse BH is targeting men and women aged 17 to 30.
“Dance
Dome LA” is housed under the Clubhouse BH location that targets a subgenre of influencers in the dance community. Dance Dome aims
to target the young male and female demographic of 12-30 years old specifically those interested in the subgenre of dancing related content.
Just a House Los Angeles
Location
“Just a House”
(“JAH”) is located in Los Angeles. JAH is in the process expanding its digital footprint with
a young female following aimed at a demographic of women aged 12 to 30.
Dobre Brothers House Beverly Hills Location
“Dobre Brothers House”
is located in the hill tops of Beverly Hills. Dobre brothers consist of Darius, Cyrus, Marcus and Lucas Dobre. Dobre Brothers
House is aimed at a demographic of men and women aged 12 to 35.
Republic
of Malta Location
“Clubhouse
Europe” is located in the Republic of Malta, where we’ve expanded our international footprint by bringing together
under one roof who we believe to be some of Europe’s most popular influencers. Clubhouse Europe is targeting European demographic
of men and women aged 14 to 30.
Weheartfans House Bel-Air
Location
“Weheartfans
House” is a house dedicated to Clubhouse’s weheartfans.com platform. The website provides fans with exclusive content.
The website is currently in beta mode. Weheartfans House is targeting demographic of men and women aged 18 to 55.
Society Las Vegas Location
“Society
Las Vegas” is Clubhouse’s first house in Las Vegas. Society Las Vegas seeks to target the Las Vegas demographic market
of men and women aged 16 to 45.
“The
Clubhouse” Online Presence and Plans for Expansion of the Physical Clubhouses
While
“The Clubhouse” network consists of physical locations (as described above), there are numerous “Clubhouse”
accounts owned by The Clubhouse, with a combined following of over 9.4 million followers as of May 25, 2021 across
Instagram, Snapchat, YouTube, and TikTok. These accounts are directly held by us (as opposed to the Clubhouse team of influencers)
and therefore we have direct access to the followers of these accounts, which we consider to be our followers.
We
are constantly surveying opportunities to establish new Clubhouses, and intend to expand our Clubhouse locations as our business continues
to grow. We specifically plan on expanding the Clubhouse footprint further into Europe and the U.S. as well as into Asia, into other
content niche types such as e-gaming, beauty and music. We currently intend to expand with two to four additional Clubhouses each year,
depending on available funding for such expansion and we cannot provide any assurance that we’ll be able to expand at this intended
rate. We also intend to engage in a cross-house collaborative strategy that we believe has not yet been established in the industry and
we have talent that can be deployed to a broad range of brand partnership and other opportunities that we believe can lead to significant
growth opportunities through diversified revenue streams.
Why
We Believe that Influencers Benefit from Content Houses
Influencers
need to constantly create original content to grow their following, and collaborations with other influencers can help facilitate creative
content while allowing for sharing of followers among influencers. Our Clubhouses provide a unique living situation where influencers
can collaborate and work together to grow each other’s following. For example, one of the influencers who was living in our Clubhouses
experienced in four months, growth from 3.22 million followers on Instagram to 5.2 million followers on Instagram. Another one of the influencers who lived in our Clubhouses experienced
in four months, growth from 1.5 million followers on Instagram to 2.3 million followers on Instagram.
Clubhouse
and Influencer Fit
At
Clubhouse Media, we strive to cultivate a large and committed following for our team of influencers, which we plan to leverage to popularize
our in-house brands, driving sales and brand-awareness to our target customers. Our approach is to create a balance between social media
creativity and the business of social media marketing. We believe that this symbiotic balance creates a higher output for both our Clubhouses
and influencers and creates an attractive one-stop shop for brands to advertise and for influencers to grow and collaborate. The Clubhouse’s
goal is to develop and successfully monetize on its network of influencers through a portfolio of valuable brands by becoming the world’s
leading hub for new media content. The Clubhouse has already received media coverage in publications such as Forbes, the New York Times,
Business Insider and Seventeen, among others.
Agreements
and Terms of Living in the Clubhouses
Each
influencer who lives at a Clubhouse location enters into a Creator Occupancy Agreement with Doiyen, LLC (“Doiyen”), a 100%
wholly owned subsidiary of out subsidiary, WOHG (“Creator Occupancy Agreement(s)”). Pursuant to the Creator Occupancy Agreements,
we agree that the influencer will not be required to pay or remit any money for their occupancy in the Clubhouse, nor will be required
to pay any associated utility costs associated.
In
exchange, the influencer agrees adhere to a number terms and conditions for continued stay in the Clubhouse including, but not limited
to:
|
●
|
Participation
in branding and/or promotional endeavors, either on behalf of Clubhouse Media and our subsidiaries, or for third-party advertisers
that pay Doiyen for promotion (we believe that this relationship creates what we refer to as “Free Earned Media Value”);
|
|
●
|
Regular
content-creation with required social media posting on various social media platforms; and
|
|
●
|
Intermittent
tagging and/or mentioning of The Clubhouse on the influencer’s profile and social media posts across various platforms.
|
Through
Doiyen, we retain legal ownership of the content created pursuant to each Creator Occupancy Agreement; however, the content can be shared
with the influencer so that he or she can utilize it for his or her own benefit as well. Pursuant to the Creator Occupancy Agreements,
we may offer influencers individual branding partnerships, including, but not limited to promotional song placements and promotional
events. For all promotional partnership brought by us to the influencers, we receive a percentage of the compensation received by the
influencer pursuant to such partnership, as set forth in each Creator Occupancy Agreement.
Pursuant
to the Creator Occupancy Agreements, influencers will have access to a fully staffed media creation team, videographers, photographers
and editors, as well as collaborative filming facilities and in-house cleaning and security services that we provide. The Creator Occupancy
Agreements also contain a code of conduct that the influencers must follow while living in the Clubhouse, including, but not limited
to, refraining from illegal activities, and being respectful and mindful to other occupants and neighboring homes.
Each
influencer can terminate the Creator Occupancy Agreement at any time for any reason with five days written notice to us. We can terminate
the agreement at any time for any reason and must give the influencer seven days from the date of termination to vacate the Clubhouse.
Talent
Management Services
Doiyen,
our indirectly wholly owned subsidiary, is a talent management company for social media influencers. Through Doiyen, we seek to represent
some of the world’s top talent in the world of social media. We plan to hire experienced talent and management agents as well as
build our support and administrative resources seeking to expand operations. Our influencers include entertainers, content creators,
and style icons.
Through Doiyen, we currently represent more
than 24 social media influencers, with a combined number of followers on Instagram, TikTok, and YouTube of over 70,000,000.
We are dedicated to helping Doiyen’s influencer-clients build their brands, maintain creative control of their destinies,
and diversify and grow their businesses through “The Clubhouse,” providing them opportunities to increase their monetization
potential and amplify their reach.
Talent
Management Agreements
As
a talent management company, Doiyen generates revenues based on the earnings of its influencer-clients (or “Creators”) by
receiving a percentage of the earnings of its Creators. Certain influencers who live in our various Clubhouses enter into an Exclusive
Management Agreement (the “Management Agreement(s)”).
Pursuant
to the Management Agreement, the Creator agrees that during the term of the Management Agreement, the Creator appoints Doiyen as the
sole and personal manager of the Creator, and engages Doiyen to provide services, counsel and advise on the Creator’s career in
social media. Such activities may include, but are not limited to, assisting in the utilization of the Creator’s likeness and representations
in third party brand deals, advising on contract negotiations and artistic selection of projects, and professional and general assistance
with any and all activities as a model and/or influencer through which the Creator’s talent can be developed and utilized via social
media or otherwise.
As
compensation for the services Doiyen provides pursuant to the Management Agreement, Doiyen is entitled to receive a percentage, which
isgenerally between 10% to 50%, of all gross compensation earned and received by the Creator during the term of the Management Agreement,
regardless of whether we introduced the opportunity resulting in compensation to the Creator.
Each
Management Agreement is negotiated separately for each influencer, and Doiyen’s compensation varies depending on a number of factors,
including, but not limited to, the individual characteristics of the Creator (i.e., the number of followers the Creator has, etc.) and
the source of the business opportunities resulting in such compensation for the Creator. For example, if Doiyen introduced the business
opportunity to the Creator, Doiyen is generally entitled to a higher percentage compensation.
Pursuant
to the Management Agreements, each Creator has the sole right to reject or accept any offers presented by us. Pursuant to the Management
Agreements, if the Creator does not receive a bona fide offer that is reasonably acceptable to them or if the Creator does not receive
an aggregate payment of at least $10,000 during any consecutive 3 month period of the term of the Management Agreement, we and each the
Creator have the right to terminate such Management Agreement by providing written notice to the other party of such intent to terminate.
We
also may enter into non-exclusive management agreements with certain Creators, however this is extremely rare, as we prefer to only enter
into exclusive management agreements.
Paid
Promotion
Doiyen
and its contracted Creators primarily generate revenue from companies paying for promotion for their brands, products, and/or services.
There
are three primary types of arrangements through which we will receive revenues from these activities through Doiyen:
(1)
As a talent management company, Doiyen generates revenues based on the earnings of its influencer-clients Creators by receiving a percentage
of the earnings of its Creators. Creators are often sought after directly by companies for specific branding and/or promotional opportunities.
In these situations, the client-company would contract with the Creator directly, and such services provided by the Creator would fall
under the Management Agreement, and Doiyen would receive a percentage of the earnings of the Creator for such services as described above.
(2)
Pursuant to the Creator Occupancy Agreements, the influencers agree to make certain posts on their own social media accounts at our direction,
and we use these “deliverables” to create deals with brands and instruct the influencers to make posts on their social media
accounts as required of them under the Creator Occupancy Agreements for the brands we choose to do deals with. We believe this creates
what we refer to as “Free Earned Media Value.”
(3)
Instead of a dealing directly with individual influencers as part of the talent management services provided through Doiyen, brands can
also work directly with Clubhouse’s branded social media accounts, of which WOHG owns 100%. These house accounts grow as each influencer
is required to promote the house accounts under the Creator Occupancy Agreements, which require Creators to make social media posts at
the direction of Doiyen on such accounts on a regular basis without additional compensation, in exchange for being provided with living
arrangements. When Doiyen exercises this right to provide promotional services to a paying client through the Clubhouse’s social
media accounts, Doiyen receives 100% of the compensation.
Companies
that contract with Doiyen to provide such promotional activities for their advertising campaigns or custom content requests generally
either prepay for services or request credit terms. Such agreements typically provide for either a non-refundable deposit, or a cancellation
fee if the agreement is canceled by Doiyen prior to completion our promotional services.
Brand
Development and Content Creation
Through
WOH Brands, LLC, a 100% wholly owned subsidiary of WOHG, we engage and also plan to engage in a number of activities with respect to
brand development and incubation, content creation, and technology development, as follows:
|
●
|
Content
Creation: original long and short form content creation for streaming services or other platforms involved in content distribution;
|
|
|
|
|
●
|
Brand
Development and Product Sales: acquiring or creating in-house brands and selling products in various categories, including apparel,
beauty, and other lifestyle brands; and
|
|
|
|
|
●
|
Technology:
development and/or acquisition of software geared towards social media, which may be licensed,
sold outright, or otherwise monetized by us.
|
Through
Digital Influence Inc. (doing business as Magiclytics), our 100% wholly owned subsidiary, we provide predictive analytics for content
creation brand deals.
Brand
Development
On
May 19, 2020, WOH Brands began to engage in brand development, with a focus on creating apparel, beauty, and other lifestyle brands with
quality product offerings. Through WOH Brands, our indirectly wholly-owned subsidiary, we intend to acquire, enter into joint ventures
or launch best-in-class brands with an objective of innovation and product uniqueness, derived from demographic data, market research,
and omni-channel experiences.
WOH
Brands is primarily focused on creating brands on our behalf and may consider joint-ventures with other established companies in the
consumer-packaged goods space for purposes of brand and production creation. WOH Brands will not provide its branding or product services
to third parties outside of the Clubhouse Media-family of companies other than companies with which it may enter into a joint venture
or other companies it contracts with to do so.
As
of the date of this Offering Circular, WOH Brands has only sold a minimal amount of products, and has only generated minimal revenues.
Content
Creation
WOH
Brands acts as an internal studio for us, with the ability to develop ideas for, produce, and film content. Each of the Clubhouse locations
are equipped with studios - some with separate studios within the houses and some with the entire house as a studio - and open-areas
that enable content creation. As a Clubhouse Media entity, WOH Brands has access to these resources, including the Clubhouse-influencers
residing at each Clubhouse location, which it can utilize for quality content creation.
Digital
Influence Inc. (doing business as Magiclytics) provides predictive analytics for content creation brand deals.
As
of the date of this Offering Circular, WOH Brands’ activities in this area have been limited to assisting in the production of
paid-promotional content for companies that have engaged Doiyen or Doiyen’s Creators for brand and product promotion, as well as
content-creation for Clubhouse, for which WOH Brands does not receive compensation. WOH Brands’ activities in this capacity include
filming, photography, and graphic design.
Planned
Operations
|
●
|
Brand
Development. As stated above, WOH Brands intends to acquire, enter into joint ventures with, or create new brands in apparel,
beauty, and other lifestyle categories in the future. We believe that we are in a unique position to gather data intelligence from
our dealings with paid brand deals. While companies pay Doiyen and our influencers to promote their products or services, we gain
firsthand insight into what type of brands (and their corresponding products and services) resonate with our demographic. We believe
that this information better positions WOH Brands in deciding what type of product or service to acquire or build. WOH Brands will
not provide its brand development services to third parties outside of the Clubhouse Media-family of companies, but may engage in
joint ventures with third parties.
|
|
●
|
Content
Creation. In the future, WOH Brands intends to create entertainment content for streaming services and other platforms in the
entertainment and/or social media space. WOH Brands expects it could receive ad revenues, revenues for licensing, and/or revenues
for sales of content to purchasers in this space.
|
|
|
|
|
●
|
Technology
Development / Software. WOH Brands also intends to engage in technology and software related to social media, either through
development of such technologies itself, or through acquiring such technologies from other companies. WOH Brands believes there are
a number of areas in which there is opportunity for software to add value to companies in the social media space. For example, WOH
Brands believes that there is a need for software that provides analytic capabilities and generates predictive outcomes for returns
on social media promotional spends on specific influencers. WOH Brands also believes there are opportunities for competition with
certain existing social media platforms. WHO Brands intends to either develop internally or acquire such software and/or technologies,
which it plans to subsequently license, sell, or otherwise monetize to generate revenues.
|
Industry
Overview and Market Opportunity
Social
Media and Influencer Marketing and Promotion
Around
the world, marketing is a key strategy for brands to obtain exposure, achieve better recall, communicate themes and drive increased consumer
engagement. Globally, in 2018, there was an estimated spend of $66 billion on sponsorships, up from $43 billion in 2008, according to
Statista 2019-Worldwide; IEG; 2007 to 2017. As for the overall advertising landscape, Zenith estimated that global advertising
spending reached $579 billion in 2018, and will grow at a CAGR of 4% through 2020.
Advertising
has shifted significantly towards social media over the last few years, and social media influencers who are the primary form of advertisement
distribution is highly disorganized. We believe that one of the most important aspects of building a company or launching a product is
social media marketing. According to an article titled “Global social media research summary July 2020” by Smart Insights
dated August 3, 2020, during the COVID-19 Pandemic, social media experienced a 43% increase in usage. According to an article titled
“55 critical social media statistics to fuel your 2020 strategy” published by SproutSocial dated January 7,
2020, the amount spent on advertising over social media will likely reach $102 billion by 2020.
According to a Business Insider Intelligence report
titled “Influencer Marketing: State of the social media influencer market in 2021” originally published in
December 2019 and updated February 2021, influencer marketing spending has grown significantly since 2015 and is expected to reach
$13.8 billion annually by 2021. According to the same source, currently 78% of companies spend over 10% of
their marketing budget on influencer marketing and 11% of companies allocate more than 40% of their marketing budget on
influencer marketing and the percentage is expected to grow as more companies become comfortable with the channel. Also according to
the same source, companies surveyed about influencer marketing noted that content quality, aligned target audience demographic and engagement
rate were the three most important determinants in choosing influencer partners and that the two most important goals for influencer
marketing based on survey responses were increasing brand awareness and reaching new audiences in order to expand their existing customer
base.
WOHG
intends to capitalize on this growing social media and influencer based advertising spending, utilizing its Clubhouse influencers to
attract advertisers directly, as well as generating business for Creators, for which it will receive compensation pursuant to its Management
Agreements.
Apparel
The
United States apparel market was valued at approximately 368 billion U.S. dollars as of 2019. Store-based retailing was valued at over
268 billion U.S., while e-commerce brought in over 100 million U.S. dollars of revenue. As the internet increasingly influences social
and economic activities, the e-commerce market for retail goods is expected to grow steadily. Our core customer demographic is anywhere
from 12-year old to 30-year old women and men.
Competition
We
face competition from a variety of companies in the different areas in which we operate. We face competition from influencer houses similar
to the Clubhouse, such as Hype House and Glam House. While we do not generate revenue directly from the Clubhouse, the
Clubhouse enables us to attract quality, popular, talented influencers in the social media industry, which we consider to be our primary
asset that enables our various business operations.
As
a talent management company through Doiyen, we compete against other talent management companies that are specific to the social media
influencer space, such as IZEA and Viral Nation. We compete with these other companies on the basis of our brand name, reputation for
access to industry participants and desirable projects, as well as pricing.
For
our brands and products, we currently compete primarily with other specialty retailers, higher-end department stores and Internet businesses
that engage in the retail sale of women’s and men’s apparel, accessories and similar merchandise targeting customers aged
12 to 30. We believe the principal basis upon which we compete are design, quality, and price. We believe that our primary competitive
advantage is high visibility, which we can achieve through our network of Clubhouse influencers.
In
the future, we expect to compete with other content-creators for placement on streaming services and other content platforms, with technology
and software companies in the social media space, and with companies making lifestyle and/or beauty products marketed to social media
audiences.
We
seek to effectively compete with such competitors by out-scaling our competition, focusing on in-house business infrastructure and providing
superior support and management services for our Clubhouse influencers. We strive to have more physical locations than other influencer-house
networks. Currently, we are unaware of any other company that is combining into one business the various business aspects in which we
engage. In addition, we believe the experience of our management team provides us with a significant advantage in the social media influencer
business, as participants in this space have traditionally lacked the business experience that our executive management team possesses,
which we intend to use to our advantage. Notwithstanding, we may not be able to effectively compete with such competitors.
Customers
Our
customers include our influencer-clients, or Creators, (through Doiyen), companies that contract directly with us (through Doiyen) for
paid promotion, and the consumers that purchase our products (through WOH Brands).
Doiyen
and its Creators have already worked with a number of notable brands, including, but not limited to, Fashion Nova, Spotify, McDonalds,
Amazon, and Boohoo.
Sales
and Marketing
We
generally attract clients through our social media presence across various platforms, including YouTube, Instagram, and TikTok.
As
a respected name in the social media influencer industry, we are often approached by influencers who want us to represent them (through
Doiyen), or want to live in one of our Clubhouses. We also scout for up-and-coming talented influencers on various social media platforms,
who we then attempt to engage as clients.
For
paid promotion, we generally receive inbound inquiries for promotional opportunities from companies looking to promote their brands or
products. Doiyen also has a sales team to reach out to specific brands that we believe fits a specific influencer’s style, which
is another way we generate business.
All
products that we sell are marketed through our Clubhouse team of influencers, who provide promotion and marketing social media posts
on our behalf as part of the terms of their living arrangements in the Clubhouses.
Government
Regulation
We
are subject to various federal, state and local laws, both domestically and internationally, governing matters such as:
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licensing
laws for talent management companies, such as California’s Talent Agencies Act;
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licensing,
permitting and zoning;
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health,
safety and sanitation requirements;
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harassment
and discrimination, and other similar laws and regulations;
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compliance
with the Foreign Corrupt Practices Act (“FCPA”) and similar regulations in other countries;
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data
privacy and information security;
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marketing
activities;
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environmental
protection regulations;
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imposition
by the U.S and/or foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and
distributed and ownership restrictions; and
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government
regulation of the entertainment industry.
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We
monitor changes in these laws and believe that we are in material compliance with applicable laws and regulations. See “Risk Factors—Risks
Related to Our Business—We are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these
regulations could adversely affect our business.”
Our
Clubhouses are subject to building and health codes and fire regulations imposed by the state and local governments in the jurisdictions
in which they are located. In addition, our U.S. Clubhouses are subject to the U.S. Americans with Disabilities Act of 1990 which require
us to maintain certain accessibility features at each of the facilities.
Our
entertainment and content businesses are also subject to certain regulations applicable to our use of Internet web sites and mobile applications
such as Tik Tok, Instagram and YouTube. We maintain various web sites and mobile applications that provide information and content regarding
our businesses and offer merchandise for sale. The operation of these web sites and applications may be subject to a range of federal,
state and local laws.
Due
to our involvement in products, we are subject to laws governing advertising and promotions, privacy laws, safety regulations, consumer
protection regulations and other laws that regulate retailers and govern the promotion and sale of merchandise. We monitor changes in
these laws and believe that we are in material compliance with applicable laws.
Intellectual
Property
We
currently do not own any patents, trademarks or any other intellectual property at this time.
The
Company filed a trademark application on April 15, 2020, with the United States Patent and Trademark Office (“USPTO”) under
Application Serial No. 90649015 for the mark:
Overview
of the Business of West of Hudson Group, Inc.
WOHG,
our directly wholly owned subsidiary, was incorporated on May 19, 2020 under the laws of the State of Delaware. WOHG is primarily a holding
company, and operates various aspects of its business through its operating subsidiaries of which WOHG is the 100% owner and sole member,
and which are as follows:
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1.
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Doiyen,
LLC – a talent management company that provides representation to Clubhouse influencers, as further described below.
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2.
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WOH
Brands, LLC – a content-creation studio, social media marketing company, technology developer, and brand incubator, as further
described below.
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3.
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Digital
Influence Inc. (doing business as Magiclytics) – a company that provides predictive
analytics for content creation brand deals.
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Doiyen,
LLC (“Doiyen”), formerly named WHP Management, LLC, and before that named WHP Entertainment LLC, is a California limited
liability company formed on January 2, 2020. Doiyen was acquired by WOHG on July 9, 2020 pursuant to an exchange agreement between WOHG
and Doiyen, pursuant to which WOHG acquired 100% of the membership interests of Doiyen in exchange for 100 shares of common stock of
WOHG. A copy of this agreement is filed as Exhibit 6.7 to the Offering Statement of which this Offering Circular forms a part. As described
above, Doiyen is a talent management company for social media influencers, and seeks to represent some of the world’s top talent
in the world of social media. Doiyen is the entity with which our influencers contract when living in one of our Clubhouses.
WOH
Brands, LLC (“WOH Brands”) is a Delaware limited liability company formed on May 19, 2020 by WOHG. As described above, WOH
Brands engages and also plans to engage in a number of activities, with respect to brand development and incubation, content creation,
and technology development.
Digital
Influence Inc. (doing business as Magiclytics) is a Wyoming corporation formed on July 2, 2018. The Company acquired a 100% interest
in Magiclytics on February 3, 2021. As described above, Magiclytics provides predictive analytics for content creation brand deals.
WOHG
is the 100% owner and sole member and manager of each of these entities pursuant to each of the limited liability company agreements
and bylaws, where applicable, that govern these entities, and has complete and exclusive discretion in the management and control of
the affairs and business of WOH Brands, Doiyen, and Digital Influence Inc. (doing business as Magiclytics) possesses all powers necessary
to carry out the purposes and business of these entities. WOHG is entitled to the receipt of all income (and/or losses) that these entities
generate.
In
addition to the above, WOHG is the 100% owner of two other limited liability companies – Clubhouse Studios, LLC, which holds most
of our intellectual property, and DAK Brands, LLC, each incorporated in the State of Delaware on May 13, 2020. However, each of these
entities has minimal or no operations as of the date of this Offering Circular, and are not intended to have any material operations
in the near future.
Organizational
Structure
The
following reflects our organization structure after this offering:
Organizational
History
Clubhouse
Media Group, Inc. was incorporated under the laws of the State of Nevada on December 19, 2006 with the name Tongji Healthcare Group,
Inc. by Nanning Tongji Hospital, Inc. (“NTH”). On the same day, Tongji, Inc., our wholly owned subsidiary, was incorporated
in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH
was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”)
by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH
was a designated hospital for medical insurance in the city of Nanning and Guangxi province with 105 licensed beds. NTH specializes in
the areas of internal medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation,
dermatology, otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination,
and prevention.
On
December 27, 2006, Tongji, Inc. acquired 100% of the equity of NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH
became a wholly-owned subsidiary of Tongji Inc. Pursuant to the Agreement and Plan of Merger, we issued 15,652,557 shares of common stock
to the shareholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. The acquisition of NTH was
accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of NTH obtained control of the
entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated as the
continuing operating entity. The Company, through NTH, thereafter operated the hospital, until the Company eventually sold NTH, as described
below.
Effective
December 31, 2017, under the terms of a Bill of Sale, we agreed to sell, transfer convey and assign forever all of its rights, title
and interest in its equity ownership interest in its subsidiary, NTH, to Placer Petroleum Co., LLC, an Arizona limited liability company.
Pursuant to the Bill of Sale, consideration for this sale, transfer conveyance and assignment is Placer Petroleum Co, LLC assuming all
assets and liabilities of NTH as of December 31, 2017. As a result of the Bill of Sale, the related assets and liabilities of Nanning
Tongji Hospital, Inc. was reported as discontinued operations effective December 31, 2017. Thereafter, the Company had minimal operations.
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered and Order Granting
Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to NRS 78.347(1)(b), pursuant to which Joseph Arcaro
was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada under NRS 78.347. On May
23, 2019, Joseph Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition,
on May 23, 2019, Joseph Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself
as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019. On November 13, 2019, Mr. Arcaro
filed a Motion to Terminate Custodianship of Tongji Healthcare Group, Inc. pursuant to NRS 78.650(4) with the District Court in Clark
County Nevada. On December 6, 2019, the court granted Mr. Arcaro’s motion, and the custodianship was terminated.
Effective
May 29, 2020, Joseph Arcaro, our Chief Executive Officer, President, Secretary, Treasurer and sole director and the beneficial owner,
through his ownership of Algonquin Partners Inc. (“Algonquin”), of 65% of the Company’s common stock, entered into
a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among West of Hudson Group, Inc., the Company, Algonquin,
and Mr. Arcaro. Pursuant to the terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the Company’s
common stock in exchange for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). Thereafter, WOHG distributed
the 30,000,000 shares of the Company among the shareholders of WOHG. The Stock Purchase closed on June 18, 2020, resulting in a change
of control of the Company.
On
July 7, 2020, we amended our articles of incorporation whereby we increased our authorized capital stock to 550,000,000 shares, comprised
of 500,000,000 shares of common stock, par value $0.001 and 50,000,000 shares of preferred stock, par value $0.001.
Recent
Developments
Share
Exchange Agreement – West of Hudson Group, Inc.
On
August 11, 2020, we entered into the Share Exchange Agreement with (i) WOHG; (ii) each of the WOHG Shareholders; and (iii) Mr. Ben-Yohanan
as the Shareholders’ Representative.
Pursuant
to the terms of the Share Exchange Agreement, the parties agreed that the Company would acquire 100% of WOHG’s issued and outstanding
capital stock, in exchange for the issuance to the WOHG Shareholders of a number of shares of the Company’s common stock to be
determined at the closing of the Share Exchange Agreement.
On
November 12, 2020, the Company filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the
preferred stock of the Company as the Series X Preferred Stock of the Company.
The
closing of the Share Exchange Agreement occurred on November 12, 2020. Pursuant to the terms of the Share Exchange Agreement, the Company
acquired 200 shares WOHG’s common stock, par value $0.0001 per share, representing 100% of the issued and outstanding capital stock
of WOHG, in exchange for the issuance to the WOHG Shareholders of 46,811,195 shares of the Company’s common stock (the “Share
Exchange”). As a result of the Share Exchange, WOHG became a wholly-owned subsidiary of the Company.
In
addition, on November 20, 2020, pursuant to the Share Exchange Agreement and subsequent Waiver, the Company issued and sold to Amir Ben-Yohanan
one share of Series X Preferred Stock, at a purchase price of $1.00. This one share of Series X Preferred Stock has a number of votes
equal to all of the other votes entitled to be cast on any matter by any other shares or securities of the Company plus one, but will
not have any economic or other interest in the Company.
The
Share Exchange is intended to be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the “Code”), and the Share Exchange Agreement is intended to be a “plan of reorganization” within the meaning
of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal
income tax purposes.
On
November 12, 2020, pursuant to the closing of the Share Exchange Agreement, we acquired WOHG, and WOHG thereafter became our wholly owned
subsidiary, and the business of WOHG became the business of the Company going forward.
Other
Recent Developments of West of Hudson Group, Inc.
On
August 3, 2020, on behalf of WOHG, Amir Ben-Yohanan, our Chief Executive Officer, entered into a lease agreement for a term
ending July 31, 2021 for $50,000 a month (for the property currently being used for the Dobre Brothers House
– Beverly Hills location.)
On
September 4, 2020, on behalf of WOHG, Mr. Ben-Yohanan, our Chief Executive Officer, entered into a one year lease agreement
for $40,000 a month for the “Weheartfans House – Bel-Air” Clubhouse.
On
September 6, 2020, WOHG entered into an agreement to rent the property for Clubhouse Europe until November 5, 2020 for 4,000 euros
per month and to be extended month to month thereafter.
As
of November 10, 2020, Mr. Ben-Yohanan, our Chief Executive Officer, advanced $1,044,911.21 to WOHG to pay WOHG’s operating expenses.
Name
Change
On
November 2, 2020, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada in order to amend its
Articles of Incorporation to change the Company’s name from “Tongji Healthcare Group, Inc.” to “Clubhouse Media
Group, Inc.”
On
January 20, 2021, Financial Industry Regulatory Authority (“FINRA”) approved our name change from “Tongji Healthcare
Group, Inc.” to “Clubhouse Media Group, Inc.” and approved the change the symbol of our common stock from “TONJ”
to “CMGR.”
Society Las Vegas Lease
On August 18, 2020, on behalf of the Company, Amir Ben-Yohanan, our
Chief Executive Officer, entered into a one-year lease agreement for a term commencing on February 1, 2021 and ending January 31, 2022
for $12,500 a month (for the property currently being used for the Society Las Vegas – Las Vegas location).
Approval of the Tongji Healthcare Group,
Inc. 2020 Equity Incentive Plan
On November 24, 2020, our Board of Directors approved
the Tongji Healthcare Group, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). Under the 2020 Plan, a total of 13,890,000
shares of common stock are authorized for issuance pursuant to the grant of stock options, stock appreciation rights, restricted stock,
restricted stock units, performance units, performance shares or other cash- or stock-based awards to officers, directors, employees
and eligible consultants to the Company or its subsidiaries. Subject to adjustment as provided in the 2020 Plan, the maximum aggregate
number of shares that may be issued under the 2020 Plan will be cumulatively increased on January 1, 2021 and on each subsequent January
1, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately
preceding December 31, or (ii) an amount determined by our Board of Directors. As of May 25, 2021, the 2020 Plan has 13,589,590 shares
are available for award.
Share
Exchange Agreement - Magiclytics
On
February 3, 2021, the Company entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange Agreement”)
by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”),
each of the shareholders of Magiclytics (the “Magiclytics Shareholders”) and Christian Young, as the representative of the
Magiclytics Shareholders (the “Shareholders’ Representative”). Christian Young is the President, Secretary, and a Director
of the Company, and is also an officer, director, and significant shareholder of Magiclytics.
The
A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties,
which was executed on December 3, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.
Pursuant
to the terms of the A&R Share Exchange Agreement, the Company agreed to acquire from the Magiclytics Shareholders, who hold an aggregate
of 5,000 shares of Magiclytics’ common stock, par value $0.01 per share (the “Magiclytics Shares”), all 5,000 Magiclytics
Shares, representing 100% of Magiclytics’ issued and outstanding capital stock, in exchange for the issuance by the Company to
the Magiclytics Shareholders of the 734,689 shares of the Company’s common stock based on a $3,500,000 valuation of Magiclytics,
to be apportioned between the Magiclytics Shareholders pro rata based on their respective ownership of Magiclytics Shares.
On
February 3, 2021 (the “Magiclytics Closing Date”), the parties closed on the transactions contemplated in the A&R Share
Exchange Agreement, and the Company agreed to issue 734,689 shares of Company common stock to the Magiclytics Shareholders in exchange
for all 5,000 Magiclytics Shares (the “Magiclytics Closing”). On February 3, 2021, pursuant to the closing of the Share Exchange
Agreement, we acquired Magiclytics, and Magiclytics thereafter became our wholly owned subsidiary.
At
the Magiclytics Closing, we agreed to issue to Christian Young and Wilfred Man each 330,610 shares of Company Common Stock, representing
45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing.
As of February 7, 2021, we have not issued the 734,689 shares to the Magiclytics shareholders.
The
number of shares of the Company common stock issued at the Magiclytics Closing was based on the fair market value of the Company common
stock as initially agreed to by the parties, which is $4.76 per share (the “Base Value”). The fair market value was determined
based on the volume weighted average closing price of the Company common stock for the twenty (20) trading day period immediately prior
to the Magiclytics,. In the event that the initial public offering price per share of the Company common stock in this offering pursuant
to Regulation A is less than the Base Value, then within three (3) business days of the qualification by the SEC of the Offering Statement
forming part of this Offering Circular, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company
common stock equal to:
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$3,500,000
divided by the initial public offering price per share of the Company common stock in this offering pursuant to Regulation A, minus;
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(2)
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734,689
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The
resulting number of shares of the Company common stock pursuant to the above calculation will be referred to as the “Additional
Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective ownership
of Magiclytics Shares.
In
addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing Date
the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R Share Exchange
Agreement:
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(i)
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The
Board of Directors of Magiclytics (the “Magiclytics Board”) expanded the size of the Magiclytics Board to 3 persons and
named Simon Yu, a current officer and director of the Company as a director of the Magiclytics Board.
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(ii)
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The
Magiclytics Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary
of the Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics.
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Further,
immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating
costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in
which Magiclytics engages with in the regular course of its business.
Letter
of Intent – The Tinder Blog
On
February 28, 2021, the Company entered into a non-binding Letter of Intent for the acquisition of “The Tinder Blog” (Instagram.com/thetinderblog)
(“TTB”), one of the largest and most successful Instagram meme accounts in the world. The Tinder Blog is an official partner
of Facebook. The Tinder Blog boasts over 4.2 million followers accrued over its six-year existence and an annual net income in excess
of one million dollars on more than one billion web impressions per month. The Tinder Blog has also attracted major advertisers, including
McDonald’s, Amazon Prime, Dunkin Donuts, and Samsung, among others.
Just
a House – Los Angeles Lease
On
March 4, 2021, the Company entered into a three-month lease agreement for a term ending June 15, 2021 for $34,000.00 per month (for the
property currently being used for the Just a House – Los Angeles location.)
Convertible
Promissory Notes
Convertible
Promissory Note – Scott Hoey
On
September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey
Note”).
The
Hoey Note had a maturity date of September 10, 2022, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Hoey Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
December 8, 2020, the Company issued to Mr. Hoey 10,833 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Hoey at a conversion price of $0.69 per share. As of May 25, 2021, the balance of the Hoey Note was $121 consisting
of accrued interest.
Convertible
Promissory Note – Cary Niu
On
September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company issued
a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu Note”).
The
Niu Note has a maturity date of September 18, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Niu Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 30% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Niu Note was $52,980 including a principal balance of $50,000 and accrued interest of $2,980.
Convertible
Promissory Note – Jesus Galen
On
October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen Note”).
The
Galen Note has a maturity date of October 6, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Galen will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Galen Note was $31,768 including a principal balance of $30,000 and accrued interest of $1,768.
Convertible
Promissory Note – Darren Huynh
On
October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh Note”).
The
Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Huynh Note was $52,849 including a principal balance of $50,000 and accrued interest of $2,849.
Convertible
Promissory Note – Wayne Wong
On
October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong Note”).
The
Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Wong Note was $26,424 including a principal balance of $25,000 and accrued interest of $1,424.
Convertible
Promissory Note – Matthew Singer
On
January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000 (“Singer
Note”).
The
Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 70% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Singer Note was $35 consisting of accrued interest.
On January 26,
2021, the Company issued to Mr. Singer 8,197 shares of Company common stock upon the conversion of the convertible promissory note issued
to Mr. Singer at a conversion price of $1.59 per share.
Convertible
Promissory Note – ProActive Capital SPV I, LLC
On
January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital
SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i)
issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000,
reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive
Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the
Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount
ProActive Capital withheld from the total purchase price paid to the Company.
The
ProActive Capital Note has a maturity date of January 20, 2022, and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25,
2021, the balance of the ProActive Capital Note was $258,767 including a principal balance of $250,000 and accrued interest
of $8,767.
The
ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement
related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock
in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by ProActive
Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc.
which occur following the determination of the conversion price.
The
ProActive Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest
on the ProActive Capital Note on any date any such amounts become due and payable, and any
such failure is not cured within three business days of written notice thereof by ProActive
Capital;
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”),
thus incurring a “chilled” status with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section
12(k) of the Exchange Act; the occurrence of any delisting of the Company Common Stock from
any securities exchange on which the Company Common Stock is listed or suspension of trading
of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, ProActive Capital may declare all or any portion of the then-outstanding principal
amount of the ProActive Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the ProActive Capital
Note shall thereupon become, immediately due and payable in cash and ProActive Capital will also have the right to pursue any other remedies
that ProActive Capital may have under applicable law. In the event that any amount due under the ProActive Capital Note is not paid
as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
First
Convertible Promissory Note – GS Capital Partners
On
January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital SPA”) with GS Capital Partners,
LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the
aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS
Capital Note”), and in connection therewith, sold to GS Capital 50,000 shares of Company Common Stock at a purchase price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs
in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25, 2021,
the balance of the GS Capital Note was $298,624 including a principal balance of $288,889 and accrued interest of $9,735.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at
GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related to the
Regulation A offering, at a conversion price equal to 70% of the Regulation A offering price of the Company common stock in the Regulation
A offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price.
The
GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest
on the GS Capital Note on any date any such amounts become due and payable, and any such
failure is not cured within three business days of written notice thereof by GS Capital;
or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”),
thus incurring a “chilled” status with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section
12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which
the Company Common Stock is listed or suspension of trading of the Company Common Stock on
the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the GS Capital Note shall thereupon
become, immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may
have under applicable law. In the event that any amount due under the GS Capital Note is not paid as and when due, such amounts
shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Convertible
Promissory Note – Tiger Trout Capital Puerto Rico
On
January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital
Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date, the Company
(i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting
a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company common stock
for a purchase price of $220.00. On February 12, 2021, the Company issued the 220,000 shares of Company common stock to Tiger Trout.
The
Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if
the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required
to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity
date. As of May 25, 2021, the balance of the Tiger Trout Note was $1,590,208 including a principal balance of $1,540,000
and accrued interest of $50,208.
If
the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date,
that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare
all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”)
due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of
Company common stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after
the issuance date. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout
on 61 days’ notice to the Company.
Convertible
Promissory Note – Amir Ben-Yohanan
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Note”). The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the
Company and its subsidiaries to fund their operations, pursuant to a promissory note dated January 2, 2020, in which West of Hudson Group,
Inc. was named as the borrower due to a scrivener’s error (the “Prior Note”). The Prior Note was intended to be between
WHP Entertainment, LLC, which is now named Doiyen LLC. (West of Hudson Group, Inc. is a wholly owned subsidiary of the Company and Doiyen
LLC is a wholly owned subsidiary of West of Hudson Group, Inc.). Effective as of February 2, 2021, the Prior Note was terminated and
is of no further force or effect.
The Note
bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount
and any accrued and unpaid interest of the Note at any time without penalty. As of May 25, 2021, the balance of the Note was $2,460,493
including a principal balance of $2,400,000 and accrued interest of $60,493.
At the time
the SEC qualifies this Offering Circular, $1,000,000 of the principal amount and accrued interest will automatically converted into a
number of shares of Company common stock equal to (i) $1,000,000 divided by (ii) the initial public offering price per share of Company
common stock in this offering pursuant to Regulation A. These shares will be restricted shares of Company common stock, and not the shares
of Company common stock offered in this offering under Regulation A. In the event that at such time the Company has repaid an amount
of the principal amount and accrued interest such that the remaining indebtedness is less than $1,000,000, then such amount of remaining
indebtedness will be substituted for the $1,000,000 figure above.
Any
portion of the principal amount and interest which is not converted to Company common stock as set forth above will be payable by the
Company commencing on February 2, 2022 as required to amortize the Note and the outstanding indebtedness over the following 24 months.
The final maturity date of the Note is February 2, 2024.
Second
Convertible Promissory Note – GS Capital Partners
On
February 19, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for
a purchase price of $520,000, reflecting a $57,780 original issue discount (the “February 2021 GS Capital Note”), and in
connection therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per
share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS
Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
February 2021 GS Capital Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the February 2021 GS Capital Note, and
the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As
of May 25, 2021, the balance of the February 2021 GS Capital Note was $593,290, respectively, including a principal balance
of $577,778 and accrued interest of $15,512.
The
February 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company
Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement
related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as
amended. At such time, the February 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible
in to restricted shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common
Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
February 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the February 2021 GS Capital Note on
any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice
thereof by GS Capital; or
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●
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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●
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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●
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the February 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the February 2021 GS
Capital Note shall thereupon become immediately due and payable in cash and February 2021 GS Capital will also have the right to pursue
any other remedies that GS Capital may have under applicable law. In the event that any amount due under the February 2021 GS Capital
Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until
paid.
Convertible
Promissory Note – Labrys Fund, LP
On
March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”),
pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the
“Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued 125,000 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
$1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 10% per annum. The
Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing Date (as defined in the Labrys
SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert the Labrys Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at any time at a conversion price equal to
$10.00 per share.
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) occurs
at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus
$750.00 for administrative fees. The Labrys 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. As of May 25, 2021,
the balance of the Labrys’ Note was $771,369, respectively, including a principal balance of $750,000 and
accrued interest of $21,369.
Upon
the occurrence of any Event of Default, 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 Principal Sum then outstanding plus accrued interest multiplied
by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
Third
Convertible Promissory Note – GS Capital Partners
On
March 22, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for a
purchase price of $520,000, reflecting a $57,778 original issue discount (the “March 2021 GS Capital Note”), and in connection
therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per share price
of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
March 2021 GS Capital Note has a maturity date of March 22, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the March 2021 GS Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25,
2021, the balance of the February 2021 GS Capital Note was $588,383, respectively, including a principal balance of $577,778
and accrued interest of $10,605.
The
March 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the March 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice
to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination
of the conversion price.
The
March 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if the Company fails
to pay the then-outstanding principal amount and accrued interest on the March 2021 GS Capital Note on any date any such amounts
become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or
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the Company fails to remain
compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or
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any trading suspension
is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the occurrence of any delisting
of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of
the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the March 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the March
2021 GS Capital Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any
other remedies that GS Capital may have under applicable law. In the event that any amount due under the March 2021 GS Capital Note is
not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Fourth
Convertible Promissory Note – GS Capital Partners
On
April 1, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a
purchase price of $500,000, reflecting a $50,000 original issue discount (the “April 2021 GS Capital Note #1”), and
in connection therewith, sold to GS Capital 45,000 shares of Company’s common stock at a purchase price of $45, representing a
per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for
GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
April 2021 GS Capital Note #1 has a maturity date of April 1, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the April 2021 GS Capital Note #1,
and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
As of May 25, 2021, the balance of the April 2021 GS Capital Note #1 was $558,589, respectively, including
a principal balance of $550,000 and accrued interest of $8,589.
The
April 2021 GS Capital Note #1 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the
Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering
Statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of
1933, as amended. At such time, the April 2021 GS Capital Note #1 (and the principal amount and any accrued and unpaid interest)
will be convertible in restricted shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of
the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be
waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock
splits, etc. which occur following the determination of the conversion price.
The
April 2021 GS Capital Note #1 contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the
April 2021 GS Capital Note #1 on any date any such amounts become due and payable,
and any such failure is not cured within three business days of written notice thereof by
GS Capital; or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”),
thus incurring a “chilled” status with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section
12(k) of the Exchange Act; or
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●
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which
the Company Common Stock is listed or suspension of trading of the Company Common Stock on
the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the April 2021 GS Capital Note #1, together with all accrued and unpaid interest thereon, due and payable, and the April 2021
GS Capital Note #1 shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue
any other remedies that GS Capital may have under applicable law. In the event that any amount due under the April 2021 GS Capital Note
#1 is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding,
until paid.
Convertible
Promissory Note – Eagle Equities LLC
On
April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle
Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate
principal amount of $1,100,000.00 for a purchase price of $1,000,000.00, reflecting a $100,000 original issue discount (the “Eagle
Equities Note”), and in connection therewith, sold to Eagle Equities 165,000 shares of Company’s common stock at a purchase
price of $165, representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed Eagle
Equities the sum of $10,000 for Eagle Equities’ costs in completing the transaction, which amount Eagle Equities withheld from
the total purchase price paid to the Company.
The
Eagle Equities Note has a maturity date of April 13, 2022 and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than upon the circumstances set forth in the Eagle Equities Note – specifically,
if (i) the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock
pursuant to Regulation A under the Securities Act of 1933, as amended; and (ii) the Company receives $3,5000,000 in net proceeds from
such Regulation A Offering, then Company must repay the principal amount and any accrued and unpaid interest on the Eagle Equities Note
within three (3) business days from the date of such occurrence. The Company may prepay all or any portion of the principal amount and
any accrued and unpaid interest at any time without penalty. As of May 25, 2021, the balance of the February 2021 GS Capital Note
was $1,113,561, respectively, including a principal balance of $1,100,000 and accrued interest of $13,561.
The
Eagle Equities Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at Eagle Equities’ election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by Eagle Equities on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price. Alternatively, if the SEC has not qualified the Company’s offering statement related to
the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933 by October 10,
2021, and Eagle Equities Note has not yet been fully repaid, then Eagle Equities will have the right to convert the Eagle Equities Note
(and the principal amount and any accrued and unpaid interest) into restricted shares of Company Common Stock at a conversion price of
$6.50 per share (subject to customary adjustments for any stock splits, etc. which occur following the April 13, 2021).
The Eagle Equities Note contains customary events of default,
including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the Eagle Equities Note on any date any such
amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by Eagle Equities;
or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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●
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, Eagle Equities may declare all or any portion of the then-outstanding principal amount
of the Eagle Equities Note, together with all accrued and unpaid interest thereon, due and payable, and the Eagle Equities Note shall
thereupon become immediately due and payable in cash and Eagle Equities will also have the right to pursue any other remedies that Eagle
Equities may have under applicable law. In the event that any amount due under the Eagle Equities Note is not paid as and when due, such
amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Fifth Convertible
Promissory Note – GS Capital Partners
On April 29, 2021, the
Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to which, on same date,
the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a purchase price of $500,000,
reflecting a $50,000 original issue discount (the “April 2021 GS Capital Note #2”), and in connection therewith, sold to
GS Capital 125,000 shares of Company’s common stock at a purchase price of $125, representing a per share price of $0.001 per share.
In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s costs in completing
the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The April 2021 GS Capital
Note #2 has a maturity date of April 29, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are
due prior to the maturity date other than as specifically set forth in the April 2021 GS Capital Note #2, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25, 2021, the balance
of the April 2021 GS Capital Note #2 was $554,369, respectively, including a principal balance of $550,000 and accrued interest of $4,369.
The April 2021 GS Capital
Note #2 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock at GS Capital’s
election at any time following the time that the SEC qualifies the Company’s Offering Statement related to the Company’s
planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the April
2021 GS Capital Note #2 (and the principal amount and any accrued and unpaid interest) will be convertible in restricted shares of Company
Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering,
subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company.
The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion
price.
The April 2021 GS Capital
Note #2 contains customary events of default, including, but not limited to:
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if the Company fails to pay the then-outstanding principal
amount and accrued interest on the April 2021 GS Capital Note #2 on any date any such amounts become due and payable, and any such
failure is not cured within three business days of written notice thereof by GS Capital; or
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the Company fails to remain compliant with the Depository Trust
Company (“DTC”), thus incurring a “chilled” status with DTC; or
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any trading suspension is imposed by the SEC under Section 12(j)
of the Exchange Act or Section 12(k) of the Exchange Act; or
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the occurrence of any delisting of the Company Common Stock from
any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC
Markets.
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If an event of default
has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the April 2021
GS Capital Note #2, together with all accrued and unpaid interest thereon, due and payable, and the April 2021 GS Capital Note #2 shall
thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital
may have under applicable law. In the event that any amount due under the April 2021 GS Capital Note #2 is not paid as and when due,
such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Sixth
Convertible Promissory Note – GS Capital Partners
On
June 3, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a
purchase price of $500,000, reflecting a $50,000 original issue discount (the “June 2021 GS Capital Note”), and in connection
therewith, sold to GS Capital 85,000 shares of Company’s common stock at a purchase price of $85, representing a per share price
of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company. As
of June 10, 2021, the Company has not issued the 85,000 shares of Company common stock to GS Capital Partners.
The
June 2021 GS Capital Note has a maturity date of June 3, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the June 2021 GS Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
June 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the June 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice
to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination
of the conversion price.
The
June 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the June 2021 GS Capital Note on any
date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof
by GS Capital; or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the June 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the June 2021 GS Capital
Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies
that GS Capital may have under applicable law. In the event that any amount due under the June 2021 GS Capital Note is not paid as and
when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Consulting
Agreement
On
February 3, 2021, in connection with (but not pursuant to) the closing of the A&R Share Exchange Agreement relating to Magiclytics,
the Company entered in a consulting agreement with Chris Young, the President, Secretary, and a Director of the Company. See “Executive
Compensation – Consulting Agreement” for a description of this agreement, which is filed as Exhibit 6.13 to the Offering
Statement of which this Offering Circular forms a part.
Call
Agreements
On
March 12, 2021, Harris Tulchin, a Director of the Company, entered into separate “Call Agreements” with each of Amir Ben-Yohanan,
a Director and the Chief Executive Officer of the Company, and Christian Young, a Director and the President and Secretary of the Company.
See “Interest of Management and Others in Certain Transactions – Call Agreements” for a description of these
agreement, which is filed as Exhibits 6.23 and 6.24 to the Offering Statement of which this Offering Circular forms a part.
Employment
Agreements
On
April 9, 2021, the Company entered into employment agreements with Simon Yu and Harris Tulchin to serve as Chief Operating Officer and
Chief Legal Officer, respectively, of the Company. See “Executive Compensation – Employment Agreements” for
a description of these agreement, which are filed as Exhibit 6.38 and 6.39, respectively, to the Offering Statement of which this Offering
Circular forms a part.
On
April 11, 2021, the Company entered into employment agreements with Amir Ben-Yohanan and Christian Young to serve as Chief Executive
Officer and President, respectively, of the Company. See “Executive Compensation – Employment Agreements” for
a description of these agreement, which are filed as Exhibit 6.40 and 6.41, respectively, to the Offering Statement of which this Offering
Circular forms a part.
Appointment
of Chief Legal Officer
On
April 11, 2021, the Company’s Board formally appointed Harris Tulchin as an executive officer of the Company, with the title of
Chief Legal Officer.
Advisory
Board
On
April 2, 2021, the Company established an advisory board (“Advisory Board”) to provide guidance and advice to the directors
and officers of the Company regarding technical and business matters. The advisory board has no voting powers. The advisory board is
made up of two members including Andrew Omori and Perry Simon.
Andrew
Omori. On April 2, 2021, the Company entered into a consulting agreement with Andrew Omori and appointed Mr. Omori to the Advisory
Board of the Company. Mr. Omori is a partner at Andreessen Horowitz, one of Silicon Valley’s most prominent and successful venture
capital firms, with $17.6 billion in assets under management. Andreessen Horowitz is well known for leading investments in hit social
audio app, Clubhouse (which is not owned, and is not otherwise affiliated with, the Company), as well as Airbnb and Coinbase. Prior to
joining Andreessen Horowitz, Mr. Omori served as a VP at JMP Group and as a successful technology investment banker. Mr. Omori has dedicated
his career to helping technology companies scale and has worked with a variety of social companies including Snap, Pinterest, Roblox,
and the Clubhouse app. Mr. Omori will advise the Board of Directors and the Company regarding optimal pathways for monetizing the Company’s
operations as well as providing the Company with access to relationships, branding opportunities, and partnerships that hold the potential
for further gains in shareholder value.
Perry Simon.
On April 21, 2021, the Company entered into a consulting agreement with Perry Simon and appointed Mr. Simon to the Advisory Board of
the Company. Mr. Simon is the former executive vice president of Primetime at NBC Entertainment, where he helped develop and supervise
some of television’s most iconic series, including “Cheers,” “The Golden Girls,” “Law and Order,”
“L.A. Law,” “Miami Vice,” “Frasier,” Seinfeld, and “The Cosby Show.” He is also a former
General Manager at PBS former Managing Director at BBC Worldwide America, former President of Viacom Productions and former executive
officer at Paul Allen’s Vulcan Productions. Over the past 20 years, Mr. Simon has helped to facilitate the rapid growth of mission-driven
programming, driving large gains in audience size and fan engagement, and winning multiple awards along the way (Golden Globes, Emmys,
and Peabodys). Mr. Simon will advise the Company on non-profit and social impact activities, as well as other business, financial, and
organizational matters, and access his extensive entertainment industry relationships and knowledge for content development, acquisition,
and deal structures.
Employees
We
currently have 4 full time employees, including Amir Ben-Yohanan, our Chief Executive Officer, Christian Young, our President, Simon
Yu, our Chief Operating Officer, and Harris Tulchin, our Chief Business Affairs Officer and Chief Legal Officer. We also contract with
a number of consultants that assist in various aspects of our operations. Contractors exist both at WOHG as well as at our operating
subsidiaries, which is currently Doiyen and WOH Brands.
We
believe that a diverse workforce is important to our success. As we grow our business, we will focus on the hiring, retention and advancement
of women and underrepresented populations, and to cultivate an inclusive and diverse corporate culture. The company has hired a Human
Resources consultant to evaluate and implement our ongoing human capital needs. We will continue to evaluate our use of human capital
measures or objectives in managing our business such as the factors we employ or seek to employ in the development, attraction and retention
of personnel and maintenance of diversity in our workforce.
In
the future, we also intend to provide our employees and their families with access to a variety of innovative, flexible and convenient
health and wellness programs, including benefits that provide protection and security so they can have peace of mind concerning events
that may require time away from work or that impact their financial well-being; that support their physical and mental health by providing
tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors; and that offer
choice where possible so they can customize their benefits to meet their needs and the needs of their families.
We
also expect to provide robust compensation and benefits programs to help meet the needs of our employees.
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.
Custodianship
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered and Order Granting
Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to NRS 78.347(1)(b), pursuant to which Joseph Arcaro
was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada under NRS 78.347. On May
23, 2019, Joseph Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition,
on May 23, 2019, Joseph Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself
as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On
November 13, 2019, Mr. Arcaro filed a Motion to Terminate Custodianship of Tongji Healthcare Group, Inc. pursuant to NRS 78.650(4) with
the District Court in Clark County Nevada. On December 6, 2019, the court granted Mr. Arcaro’s motion, and the custodianship was
terminated. A copy of this order is filed as Exhibit 6.2 to the Offering Statement of which this Offering Circular forms a part.
ITEM
8: DESCRIPTION OF PROPERTY
Our
headquarters is located at 3651 Lindell Road, D517, Las Vegas, Nevada. There is no physical office space here, and this address is mainly
used as a mailing address and call center for WOHG. We pay a fee of $79.00 per month for the use of this headquarters.
Our
management generally works out of 201 Santa Monica Blvd., Suite 30, Santa Monica, California 90401, which is WOHG’s headquarters.
We believe that these facilities are adequate to support the Company’s existing operations and that we will be able to obtain appropriate
additional facilities or alternative facilities on commercially reasonable terms if and when necessary. We do not have a formal lease
pursuant to which it uses these offices, and does not have a monthly rent obligation for use of these premises.
We have four
social media content creation houses located in Los Angeles, California (Clubhouse BH, Just a House
– Beverly Hills, Dobre Bothers House – Beverly Hills, and Weheartfans House – Bel Air),
one social media house located in Las Vegas (Society Las Vegas) and one social media content
creation house located in the Republic of Malta (Clubhouse Europe). Each of these properties is between approximately 6,000
and 7,000 square feet (with the exception of Clubhouse BH, which is approximately 12,000 square feet) and are used by the
Company to provide living arrangements for our team of social media influencers, as well as provide an environment for content
creation. In an effort to provide desirable living arrangements for our team of influencers, as well as provide an ideal location
our influencers to create content, we strive to choose properties that are large, picturesque, and conducive for filming.
Details
of the lease arrangements for each of these Clubhouse properties are summarized below.
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Clubhouse BH: The
tenant at this property is Amir Ben-Yohanan and Amie Ben-Yohanan. The lease term expired on March 31, 2021. (See Exhibit
6.26). We decided to rent this property on a month-to-month basis rather than extend the lease following the expiration of the
lease. While we are not named as the tenant on the lease for this property, it is planned that this lease will be assigned to the
Company in the future. In order to use this property as the Clubhouse in the meantime, we have agreed to reimburse Amir Ben-Yohanan,
its Chief Executive Officer, for any rent expenses incurred by Mr. Ben-Yohanan on our behalf with respect to this property. The monthly
rent paid for Clubhouse BH is $42,000 per month.
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Dobre Brothers House – Beverly Hills:
The tenant at this property is West of Hudson Group, Inc. The lease term expires July 31, 2021, unless earlier extended by
the landlord and tenant. (See Exhibit 6.5). The monthly rent paid for Dobre Brothers House – Beverly Hills
location is $50,000 per month.
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Clubhouse Europe: The tenant at this property is West
of Hudson Group, Inc. The lease term expired on November 5, 2020 and. Pursuant to the mutually agreement of the Company and
the landlord, the lease for this property is now on a month to month basis. (See Exhibit 6.6). The monthly rent
paid and related expenses for the Clubhouse Europe location is $7,000 Euros per month.
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Weheartfans House
– Bel Air: The tenant at this property is Amir Ben-Yohanan. The lease term expires September 30, 2021, unless earlier
extended by the landlord and tenant. (See Exhibit 6.27). While we are not named as the tenant on the lease for this
property, it is planned that this lease will be assigned to the Company in the future. In order to use this property as Clubhouse
in the meantime, we have agreed to reimburse Amir Ben-Yohanan, its Chief Executive Officer, for any rent expenses incurred
by Mr. Ben-Yohanan on our behalf with respect to this property. The monthly rent paid for the Weheartfans House – Bel
Air location is $40,000 per month.
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Just a House – Los Angeles:
The tenant at this property is Clubhouse Media Group, Inc. The three-month lease term expires
June 15, 2021. (See Exhibit 6.42). The monthly rent paid for Just a House – Los Angeles
location is $34,000 per month.
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Society Las Vegas – Las
Vegas: The tenant at this property is Amir Ben-Yohanan. The one-year lease term expires January
31, 2022, and will be on a month-to-month basis thereafter, until either party shall terminate by
giving the other party 30 days written notice. (See Exhibit 6.43). While we are not named
as the tenant on the lease for this property, it is planned that this lease will be assigned to the
Company in the future. In order to use this property as Clubhouse in the meantime, we have agreed
to reimburse Amir Ben-Yohanan, its Chief Executive Officer, for any rent expenses incurred by Mr.
Ben-Yohanan on our behalf with respect to this property. The monthly rent paid for Society Las Vegas
– Las Vegas location is $12,500 per month.
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ITEM
9: MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with (i) Clubhouse Media Group, Inc. financial statements and related
notes thereto, and (ii) the section entitled “Description of Business,” included in this Offering Circular. The discussion
contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from
those anticipated in those forward-looking statements as a result of many factors, including, but not limited to, those set forth under
“Risk Factors” and elsewhere in this Offering Circular. As used in this section “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” unless otherwise indicated or the context requires, the terms “Clubhouse
Media,” the “Company,” “we,” “our,” “ours” or “us” and other similar
terms mean Clubhouse Media Group, Inc. and its subsidiaries.
Overview
We
operate a global network of professionally run content houses, each of which has its own brand, influencer cohort and production capabilities.
Our Company offers management, production and deal-making services to our handpicked influencers, a management division for individual
influencer clients, and an investment arm for joint ventures and acquisitions for companies in the social media influencer space. Our
management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.
Through
our subsidiary, West of Hudson Group, Inc., or WOHG, we currently generate revenues primarily from talent management of social media
influencers residing in our Clubhouses and for paid promotion by companies looking to utilize such social media influencers to promote
their products or services. We solicit companies for potential marketing collaborations and cultivated content creation, work with the
influencers and the marketing entity to negotiate and formalize a brand deal and then execute the deal and receive a certain percentage
from the deal. In addition to the in-house brand deals, we generate income by providing talent management and brand partnership deals
to external influencers not residing in our Clubhouses.
We
were incorporated under the laws of the State of Nevada on December 19, 2006 with the name Tongji Healthcare Group, Inc. by Nanning Tongji
Hospital, Inc. (“NTH”). On the same day, Tongji, Inc., our wholly owned subsidiary, was incorporated in the State of Colorado.
Tongji, Inc. was later dissolved on March 25, 2011.
NTH
was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”)
by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH
was a designated hospital for medical insurance in the city of Nanning and Guangxi province with 105 licensed beds. NTH specializes in
the areas of internal medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation,
dermatology, otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination,
and prevention.
On
December 27, 2006, Tongji, Inc. acquired 100% of the equity of NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH
became a wholly-owned subsidiary of Tongji Inc. Pursuant to the Agreement and Plan of Merger, we issued 15,652,557 shares of common stock
to the shareholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. The acquisition of NTH was
accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of NTH obtained control of the
entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated as the
continuing operating entity. The Company, through NTH, thereafter operated the hospital, until we eventually sold NTH, as described below.
Effective
December 31, 2017, under the terms of a Bill of Sale, we agreed to sell, transfer convey and assign forever all of its rights, title
and interest in its equity ownership interest in its subsidiary, NTH, to Placer Petroleum Co., LLC, an Arizona limited liability company.
Pursuant to the Bill of Sale, consideration for this sale, transfer conveyance and assignment is Placer Petroleum Co, LLC assuming all
assets and liabilities of NTH as of December 31, 2017. As a result of the Bill of Sale, the related assets and liabilities of Nanning
Tongji Hospital, Inc. was reported as discontinued operations effective December 31, 2017. Thereafter, the Company had minimal operations.
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered and Order Granting
Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to NRS 78.347(1)(b), pursuant to which Joseph Arcaro
was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada under NRS 78.347. On May
23, 2019, Joseph Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition,
on May 23, 2019, Joseph Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself
as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019. On November 13, 2019, Mr. Arcaro
filed a Motion to Terminate Custodianship of Tongji Healthcare Group, Inc. pursuant to NRS 78.650(4) with the District Court in Clark
County Nevada. On December 6, 2019, the court granted Mr. Arcaro’s motion, and the custodianship was terminated.
Effective
May 29, 2020, Joseph Arcaro, our Chief Executive Officer, President, Secretary, Treasurer and sole director and the beneficial owner,
through his ownership of Algonquin Partners Inc. (“Algonquin”), of 65% of the Company’s common stock, entered into
a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among West of Hudson Group, Inc., the Company, Algonquin,
and Mr. Arcaro. Pursuant to the terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the Company’s
common stock in exchange for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). Thereafter, WOHG distributed
the 30,000,000 shares of the Company among the shareholders of WOHG. The Stock Purchase closed on June 18, 2020, resulting in a change
of control of the Company.
On
July 7, 2020, we amended our articles of incorporation whereby it increased its authorized capital stock to 550,000,000 shares, comprised
of 500,000,000 shares of common stock, par value $0.001 and 50,000,000 shares of preferred stock, par value $0.001.
On
August 11, 2020, we entered into the Share Exchange Agreement with (i) WOHG, (ii) each of the WOHG Shareholders and (iii) Mr. Ben-Yohanan
as the Shareholders’ Representative.
Pursuant
to the Share Exchange Agreement, the parties agreed that at the closing of the transactions contemplated by the Share Exchange Agreement,
which occurred on November 12, 2020 (the “WOHG Closing”), the Company would acquire 100% of WOHG’s issued and
outstanding capital stock, in exchange for the issuance to the WOHG Shareholders of a number of shares of the Company’s common
stock, par value $0.001 per share to be determined at the WOHG Closing.
Overview
of Business of West of Hudson Group, Inc.
WOHG,
the directly wholly owned subsidiary of Clubhouse Media Group, Inc., was incorporated on May 19, 2020 under the laws of the State of
Delaware. WOHG is primarily a holding company, and operates various aspects of its business through its operating subsidiaries of which
WOHG is the 100% owner and sole member, and which are as follows:
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Doiyen, LLC – a talent
management company that provides representation to Clubhouse influencers, as further described below.
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2.
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WOH Brands, LLC –
a content-creation studio, social media marketing company, technology developer, and brand incubator, as further described below.
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3.
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Digital Influence Inc.
(doing business as Magiclytics) – a company that provides predictive analytics for content creation brand deals.
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Doiyen,
LLC (“Doiyen”), formerly named WHP Management, LLC, and before that named WHP Entertainment LLC, is a California limited
liability company formed on January 2, 2020. Doiyen was acquired by WOHG on July 9, 2020 pursuant to an exchange agreement between WOHG
and Doiyen, pursuant to which WOHG acquired 100% of the membership interests of Doiyen in exchange for 100 shares of common stock of
WOHG. A copy of this agreement is filed as Exhibit 6.7 to the Offering Statement of which this Offering Circular forms a part. As described
above, Doiyen is a talent management company for social media influencers, and seeks to represent some of the world’s top talent
in the world of social media. Doiyen is the entity with which our influencers contract when living in one of our Clubhouses.
WOH
Brands, LLC (“WOH Brands”) is a Delaware limited liability company formed on May 19, 2020 by WOHG. As described above, WOH
Brands engages and also plans to engage in a number of activities, including brand development and incubation, content creation, and
technology development.
Digital
Influence Inc. (doing business as Magiclytics) is a Wyoming corporation formed on July 2, 2018. The Company acquired a 100% interest
in Magiclytics on February 3, 2021. As described above, Magiclytics provides predictive analytics for content creation brand deals.
WOHG
is the 100% owner and sole member and manager of each of these entities pursuant to each of the limited liability company agreements
and bylaws, where applicable, that govern these entities, and has complete and exclusive discretion in the management and control of
the affairs and business of WOH Brands, Doiyen, and Digital Influence Inc. (doing business as Magiclytics) possesses all powers necessary
to carry out the purposes and business of these entities. WOHG is entitled to the receipt of all income (and/or losses) that these entities
generate.
In
addition to the above, WOHG is the 100% owner of two other limited liability companies – Clubhouse Studios, LLC, which holds most
of our intellectual property, and DAK Brands, LLC, each incorporated in the State of Delaware on May 13, 2020. However, each of these
entities has minimal or no operations as of the date of this Offering Circular, and are not intended to have any material operations
in the near future.
Recent
Developments
For
a detailed description of recent developments of the Company, see “Description of Business—Recent Developments” on
page 64 of this Offering Circular.
Plan
of Operations
Over
the next 12 months we expect to require $7,299,770 in operating funds. We expect to undertake the following activities during the following
time periods:
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During this time period,
we will seek to increase Doiyen’s headcount of talent managers so that we can service more influencers and bring in more brand
deals. We also plan to continue development of Magiclytics, our analytic software for brand deals as well as seek to develop a digital
platform where fans of our influencers can pay for exclusive content. The Company is also seeking additional M&A opportunities
to vertically integrate to supplement its current business model. We expect that the total cost for the foregoing activities
will be an estimated amount of $1,512,165.
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During this time period
we plan to seek to increase the number of our Clubhouse locations and managed influencers as well as Doiyen and staff headcount.
We also plan to complete software development, add a sales and software team, and to launch the initial iteration of the aforementioned
digital platform for exclusive content. We expect that the total cost for the foregoing activities will be an estimated amount of
$1,743,295.
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During this time period
we plan to continue to increase the headcount for Doiyen and build up our software sales teams. We expect that the total cost for
the foregoing will be an estimated amount of $1,860,718.
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During this time period
we expect to aim to increase our footprint by adding more Clubhouse locations internationally and nationally. We also intend to increase
our talent management footprint, increasing the number of influencers we manage, as well as seek to increase our software sales team.
We expect that the total cost for the foregoing activities will be an estimated amount of $2,183,592.
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We
are planning to obtain the funds necessary to execute our plan of operations from various capital raises, including potentially through
private placements or our common stock or the issuance and sales of convertible notes, as well as potentially through a registration
statement or an offering statement filed with the SEC.
There
can be no assurance that we’ll be able to obtain the necessary funds for our foregoing operations on terms that are acceptable
to us or at all, and there can be no assurance that our plan of operations can be executed as planned, or at all.
Organizational
Structure
The
following reflects our organization structure after this offering:
Results
of Operations
For the Three Months Ended March 31, 2021
Compared to the Period from January 2, 2020 (Inception) to March 31, 2020
Net Revenue
Net revenue for the three
months ended March 31, 2021 increased by $523,376 from $0 for the period from January 2, 2020 (inception) to March 31, 2020. The increase
was due to the generation of revenue since the second quarter in 2020.
Cost of Goods Sold
Cost of sales for the three
months ended March 31, 2021 increased by $316,684 from $0 for the period from January 2, 2020 (inception) to March 31, 2020. The increase
was due to the generation of revenue since the second quarter in 2020. Cost of sales were mainly commissions paid to social influencers
for their performance according to the management agreement.
Gross profit was $206,692
for the three months ended March 31, 2021 as compared to a gross profit of $0 for the period from January 2, 2020 (inception) to March
31, 2020. The gross profit percentage was 39.5% for the three months ended March 31, 2021 as compared to 0% for the period from January
2, 2020 (inception) to March 31, 2020.
Operating Expenses
Operating expenses for the
three months ended March 31, 2021 were $4,367,363 as compared to $227,079 for the period from January 2, 2020 (inception) to March 31,
2020.
The variances were as follows:
(i) an increase in rent and utilities expense of $443,271 ;(iii) an increase in consultant fees of $236,200; (iv) an increase in sales
and marketing expenses of $14,085; (v) an increase in legal fees of $288,305; (vi) an increase in office expense of $78,209; (vii) an
increase of production expense of $64,585, (viii) an increase of travel expense of $59,656; and (ix) an increase of director expenses
of $285,000. As part of the general and administrative expenses for the three months ended March 31, 2021 and for the period from January
2, 2020 (inception) to March 31, 2020, we recorded public relations, investor relations or business development expenses of $239,414
and $0, respectively. The overall increase in general and administrative expenses resulted from the commencement of our operations since
2020.
Non-cash operating expenses
for the three months ended March 31, 2021 were $442,549 including (i) depreciation of $6,934 and (ii) stock-based compensation of $2,977,264.
Non-cash general and administrative
expenses for the period from January 2, 2020 (inception) to March 31, 2020 was $0.
Other (Income) Expenses
Other (income) expenses for
the three months ended March 31, 2021 was $1,637,908, as compared to $0 for the period from January 2, 2020 (inception) to March 31,
2020. Other expenses for the three months ended March 31, 2021 included (i) change in fair value derivative liability of $(49,533) and
(ii) interest expense of $1,336,075;(iii) extinguishment of debt for $297,138. The change in derivative liability is the non-cash change
in the fair value and relates to our derivative instruments. Interest expense of $1,336,075 was mostly comprised of non-cash interest
of $15,920 from imputed interest, $495,936 from amortization of debt discounts and $629,796 from the fair value of shares issued to one
of the convertible promissory note holders.
Net Loss
Net loss for the three months
ended March 31, 2021 was $5,798,578 as compared to $227,079 for the period from January 2, 2020 (inception) to March 31, 2020 for the
reasons discussed above.
For
the Period from January 2, 2020 (Inception) to December 31, 2020
Net
Revenues
Net
revenue for the period from January 2, 2020 (inception) to December 31, 2020 was $1,010,405. We began to generate revenue mainly from
our brand deals since inception on January 2, 2020.
Cost
of Sales
Cost
of sales for the period from January 2, 2020 (inception) to December 31, 2020 was $579,855. The cost of sales were mainly commissions
paid to social influencers for their performance according to the management agreement.
Gross
Profit
Gross
profit was $430,550 for the period from January 2, 2020 (inception) to December 31, 2020. The gross profit percentage was 42.6% for the
period from January 2, 2020 (inception) to December 31, 2020.
Operating
Expenses
Operating
expenses for the period from January 2, 2020 (inception) to December 31, 2020 were $2,725,105. The major expenses were as follows: (i)
rent and utilities expense of $1,069,934 ;(iii) consultant fees of $269,436; (iv) sales and marketing expenses of $27,810; (v) legal
fees of $318,928; (vi) office expense of $112,310; and (vii) a production expense of $237,791. As part of the general and administrative
expenses for the period from January 2, 2020 (inception) to December 31, 2020, we recorded public relations, investor relations or business
development expenses of $108,081.
Non-cash
operating expenses for the period from January 2, 2020 (inception) to December 31, 2020 were $442,549 including (i) depreciation of $14,945;
(ii) amortization of debt discounts of $26,993; (iii) stock-based compensation of $160,611; and (iv) impairment of goodwill of $240,000.
Other
(Income) Expenses
Other
expenses for the for the period from January 2, 2020 (inception) to December 31, 2020 was $283,166. The other expense for the period
from January 2, 2020 (inception) to December 31, 2020 included (i) change in fair value derivative liability of $61,029 and (ii) interest
expense of $222,207. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments.
Interest expense of $222,207 was mostly comprised of non-cash interest of $87,213 from imputed interest and $108,000 from interest expense
in excess of derivative liability.
Net
Loss
Net
loss for the period from January 2, 2020 (inception) to December 31, 2020 was $2,577,721 for the reasons discussed above.
Liquidity
and Capital Resources
For the Three Months Ended March 31, 2021
Compared to the Period from January 2, 2020 (Inception) to March 31, 2020
Operating Activities
Net cash used in operating
activities for the three months ended March 31, 2021 was $1,628,118. This amount was primarily related to a net loss of $5,798,578 and
change in fair value of derivative liability of $49,533 and offset by (i) net working capital increase of $371,275; (ii) non-cash expenses
of $3,799,185 including (iii) depreciation and amortization of $502,871; (iv) imputed interest of $15,920; (v) stock-based compensation
of $2,977,264; (vi) loss in extinguishment of debt from related party of $297,138; (vii) loss in extinguishment of debt $55,525.
Net cash used in operating
activities for the period from January 2, 2020 (inception) to March 31, 2020 was $415,079. This amount was primarily related to a net
loss of 227,079 and net working capital decrease of $188,000.
Investment Activities
Net cash used in investing
activities for the three months ended March 31, 2021 was $6,909.
Net cash used in investing
activities for the period from January 2, 2020 (inception) to March 31, 2020 was $0.
Financing Activities
Net cash provided by financing
activities for the three months ended March 31, 2021 was $3,535,500. The amount was related to proceeds from our chief executive officer
and chairman of the Board of $135,000 and repayment to our chief executive officer and chairman of the Board of $137,500 and proceed
from borrowing from convertible notes payable of $3,538,000.
Net cash provided by financing
activities for the period from January 2, 2020 (inception) to March 31, 2020 was $373,079. The amount was related to proceeds from our
chief executive officer and chairman of the Board of $373,079
For the Period from January 2, 2020 (Inception)
to December 31, 2020
Operating
Activities
Net
cash used in operating activities for the period from January 2, 2020 (inception) to December 31, 2020 was $1,967,551. This amount was
primarily related to a net loss of $2,577,721 and (i) net working capital increase of $88,621; and offset by (ii) non-cash expenses of
$698,791 including (iii) depreciation and amortization of $41,938; (iv) imputed interest of $87,213; (v) stock-based compensation of
$160,611; (vi) impairment of goodwill of $240,000; (vii) non-cash interest expense in excess of derivative liability of $108,000; and
(viii) change in fair value of derivative liability of $61,029.
Investment
Activities
Net
cash used in investing activities for the period from January 2, 2020 (inception) to December 31, 2020 was $319,737. The 2020 amount
related to the cash paid in the public shell company of $240,00 and acquisition of $79,737 of fixed assets.
Financing
Activities
Net
cash provided by financing activities for the period from January 2, 2020 (inception) to December 31, 2020 was $2,325,062. The 2020 amount
related to proceeds from our chief executive officer and chairman of the Board of $2,162,562 and convertible notes payable of $162,500.
Effects
of Coronavirus on the Company
If
the current outbreak of the coronavirus continues to grow, the effects of such a widespread infectious disease and epidemic may inhibit
our ability to conduct our business and operations and could materially harm our Company. The coronavirus may cause us to have to reduce
operations as a result of various lock-down procedures enacted by the local, state or federal government, which could restrict the movement
of our influencers outside of or within a specific Clubhouse or even effect the influencer’s ability to create content. The coronavirus
may also cause a decrease in advertising spending by companies as a result of the economic turmoil resulting from the spread of the coronavirus
and thereby having a negative effect on our ability to generate revenue from advertising. Further, if there is a spread of the coronavirus
within any of our Clubhouses, it may cause an inability for our content creators to create and post content and could potentially cause
a specific Clubhouse location to be entirely quarantined. Additionally, we may encounter negative publicity or a negative public reaction
when creating and posting certain content while a coronavirus related lockdown is enacted. The continued coronavirus outbreak may also
restrict our ability to raise funding when needed, and may cause an overall decline in the economy as a whole. The specific and actual
effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond our
control and knowledge. However, the spread of the coronavirus, if it continues, may cause an overall decline in the economy as a whole
and also may materially harm our Company.
Notwithstanding
the foregoing possible negative impacts on our business and results of operations, up until now, we do not believe our prior and current
business operations, financial condition, and results of operations have been negatively impacted by the coronavirus pandemic and related
shutdowns. As the social media sector appears to have been thriving during the pandemic and shutdowns, we believe that our social media-based
business and our results of operations have been thriving as well. More specifically, we have been successful at opening several houses,
actively recruiting influencers/creators, creating content, and generating revenue during the pandemic and shutdowns. Notwithstanding,
the ultimate impact of the coronavirus pandemic on our operations remains unknown and will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the coronavirus outbreak, new information which may emerge
concerning the severity of the coronavirus pandemic, and any additional preventative and protective actions that governments, or our
company, may direct, which may result in an extended period of business disruption and reduced operations. The long-term financial impact
cannot be reasonably estimated at this time and may ultimately have a material adverse impact on our business, financial condition, and
results of operations.
Going
Concern
We
adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic
205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant
conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern
and to meet its obligations as they become due within one year after the date that the financial statements are issued.
The
accompanying financial statements have been prepared assuming that we will continue as a going concern. While the Company is attempting
to generate additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily
operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions
presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue
as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional
funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s
ability to further implement its business plan and generate revenues. We will require additional cash funding to fund operations. Therefore,
we concluded there was substantial doubt about the Company’s ability to continue as a going concern.
To
fund further operations, we will need to raise additional capital. We may obtain additional financing in the future through the issuance
of its common stock, or through other equity or debt financings. Our ability to continue as a going concern or meet the minimum liquidity
requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If
the necessary financing is not obtained or achieved, we will likely be required to reduce its planned expenditures, which could have
an adverse impact on the results of operations, financial condition and our ability to achieve its strategic objective. There can be
no assurance that financing will be available on acceptable terms, or at all. The financial statements contain no adjustments for the
outcome of these uncertainties. These factors raise substantial doubt about our ability to continue as a going concern and have a material
adverse effect on our future financial results, financial position and cash flows.
Convertible
Promissory Notes
Convertible
Promissory Note – Scott Hoey
On
September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey
Note”).
The
Hoey Note had a maturity date of September 10, 2022, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Hoey Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
December 8, 2020, the Company issued to Mr. Hoey 10,833 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Hoey at a conversion price of $0.69 per share. As of May 25, 2021, the balance of the Hoey Note was $121 consisting
of accrued interest.
Convertible
Promissory Note – Cary Niu
On
September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company issued
a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu Note”).
The
Niu Note has a maturity date of September 18, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Niu Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 30% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Niu Note was $52,980 including a principal balance of $50,000 and accrued interest of $2,980.
Convertible
Promissory Note – Jesus Galen
On
October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen Note”).
The
Galen Note has a maturity date of October 6, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Galen will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Galen Note was $31,768 including a principal balance of $30,000 and accrued interest of $1,768.
Convertible
Promissory Note – Darren Huynh
On
October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh Note”).
The
Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Huynh Note was $52,849 including a principal balance of $50,000 and accrued interest of $2,849.
Convertible
Promissory Note – Wayne Wong
On
October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong Note”).
The
Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Wong Note was $26,424 including a principal balance of $25,000 and accrued interest of $1,424.
Convertible
Promissory Note – Matthew Singer
On
January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000 (“Singer
Note”).
The
Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 70% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date. As of May 25, 2021, the balance
of the Singer Note was $35 consisting of accrued interest.
On
January 26, 2021, the Company issued to Mr. Singer 8,197 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Singer at a conversion price of $1.59 per share.
Convertible
Promissory Note – ProActive Capital SPV I, LLC
On
January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital
SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i)
issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000,
reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive
Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the
Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount
ProActive Capital withheld from the total purchase price paid to the Company.
The
ProActive Capital Note has a maturity date of January 20, 2022, and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25,
2021, the balance of the ProActive Capital Note was $258,767 including a principal balance of $250,000 and accrued interest
of $8,767.
The
ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement
related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock
in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by ProActive
Capital on 61 days’ notice to the Company.
The
conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion
price.
The
ProActive Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the
ProActive Capital Note on any date any such amounts become due and payable, and any such
failure is not cured within three business days of written notice thereof by ProActive Capital;
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”),
thus incurring a “chilled” status with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section
12(k) of the Exchange Act; the occurrence of any delisting of the Company Common Stock from
any securities exchange on which the Company Common Stock is listed or suspension of trading
of the Company Common Stock on the OTC Markets.
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If an event of default has
occurred and is continuing, ProActive Capital may declare all or any portion of the then-outstanding principal amount of the ProActive
Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the ProActive Capital Note shall thereupon
become, immediately due and payable in cash and ProActive Capital will also have the right to pursue any other remedies that ProActive
Capital may have under applicable law. In the event that any amount due under the ProActive Capital Note is not paid as and when
due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
First Convertible
Promissory Note – GS Capital Partners
On January 25, 2021, the
Company entered into a securities purchase agreement (the “GS Capital SPA”) with GS Capital Partners, LLC (“GS Capital”),
pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the aggregate principal amount of
$288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS Capital Note”), and in connection
therewith, sold to GS Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing
of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which
amount GS Capital withheld from the total purchase price paid to the Company.
The GS Capital Note has
a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior
to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any portion of the
principal amount and any accrued and unpaid interest at any time without penalty. As of May 25, 2021, the balance of the GS Capital
Note was $298,624 including a principal balance of $288,889 and accrued interest of $9,735.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at
GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related to the
Regulation A offering, at a conversion price equal to 70% of the Regulation A offering price of the Company common stock in the Regulation
A offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price.
The
GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the GS Capital Note on any date any such
amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital;
or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the GS Capital Note shall thereupon
become, immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may
have under applicable law. In the event that any amount due under the GS Capital Note is not paid as and when due, such amounts
shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Convertible
Promissory Note – Tiger Trout Capital Puerto Rico
On
January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital
Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date, the Company
(i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting
a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company common stock
for a purchase price of $220.00. On February 12, 2021, the Company issued the 220,000 shares of Company common stock to Tiger Trout.
The
Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if
the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required
to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity
date. As of May 25, 2021, the balance of the Tiger Trout Note was $1,590,208 including a principal balance of $1,540,000
and accrued interest of $50,208.
If
the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date,
that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare
all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”)
due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of
Company common stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after
the issuance date. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout
on 61 days’ notice to the Company.
Convertible
Promissory Note – Amir Ben-Yohanan
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Note”). The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the
Company and its subsidiaries to fund their operations, pursuant to a promissory note dated January 2, 2020, in which West of Hudson Group,
Inc. was named as the borrower due to a scrivener’s error (the “Prior Note”). The Prior Note was intended to be between
WHP Entertainment, LLC, which is now named Doiyen LLC. (West of Hudson Group, Inc. is a wholly owned subsidiary of the Company and Doiyen
LLC is a wholly owned subsidiary of West of Hudson Group, Inc.). Effective as of February 2, 2021, the Prior Note was terminated and
is of no further force or effect.
The Note
bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount
and any accrued and unpaid interest of the Note at any time without penalty. As of May 25, 2021, the balance of the Note was $2,460,493
including a principal balance of $2,400,000 and accrued interest of $60,493.
At
the time the SEC qualifies this Offering Circular, $1,000,000 of the principal amount and accrued interest will automatically converted
into a number of shares of Company common stock equal to (i) $1,000,000 divided by (ii) the initial public offering price per share of
Company common stock in this offering pursuant to Regulation A. These shares will be restricted shares of Company common stock, and not
the shares of Company common stock offered in this offering under Regulation A. In the event that at such time the Company has repaid
an amount of the principal amount and accrued interest such that the remaining indebtedness is less than $1,000,000, then such amount
of remaining indebtedness will be substituted for the $1,000,000 figure above.
Any
portion of the principal amount and interest which is not converted to Company common stock as set forth above will be payable by the
Company commencing on February 2, 2022 as required to amortize the Note and the outstanding indebtedness over the following 24 months.
The final maturity date of the Note is February 2, 2024.
Second
Convertible Promissory Note – GS Capital Partners
On
February 19, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for
a purchase price of $520,000, reflecting a $57,780 original issue discount (the “February 2021 GS Capital Note”), and in
connection therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per
share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS
Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
February 2021 GS Capital Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the February 2021 GS Capital Note, and
the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As
of May 25, 2021, the balance of the February 2021 GS Capital Note was $593,290, respectively, including a principal balance
of $577,778 and accrued interest of $15,512.
The
February 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company
Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement
related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as
amended. At such time, the February 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible
in to restricted shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common
Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
February 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the February 2021 GS Capital Note on
any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice
thereof by GS Capital; or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the February 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the February 2021 GS
Capital Note shall thereupon become immediately due and payable in cash and February 2021 GS Capital will also have the right to pursue
any other remedies that GS Capital may have under applicable law. In the event that any amount due under the February 2021 GS Capital
Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until
paid.
Convertible
Promissory Note – Labrys Fund, LP
On
March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”),
pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the
“Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued 125,000 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
$1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 10% per annum. The
Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing Date (as defined in the Labrys
SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert the Labrys Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at any time at a conversion price equal to
$10.00 per share.
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) occurs
at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus
$750.00 for administrative fees. The Labrys 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. As of May 25, 2021,
the balance of the Labrys’ Note was $771,369, respectively, including a principal balance of $750,000 and
accrued interest of $21,369.
Upon
the occurrence of any Event of Default, 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 Principal Sum then outstanding plus accrued interest multiplied
by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
Third
Convertible Promissory Note – GS Capital Partners
On
March 22, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for a
purchase price of $520,000, reflecting a $57,778 original issue discount (the “March 2021 GS Capital Note”), and in connection
therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per share price
of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
March 2021 GS Capital Note has a maturity date of March 22, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the March 2021 GS Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25,
2021, the balance of the February 2021 GS Capital Note was $588,383, respectively, including a principal balance of $577,778
and accrued interest of $10,605.
The
March 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the March 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice
to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination
of the conversion price.
The
March 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if the Company fails
to pay the then-outstanding principal amount and accrued interest on the March 2021 GS Capital Note on any date any such amounts
become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or
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the Company fails to remain
compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or
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any trading suspension
is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the occurrence of any delisting
of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of
the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the March 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the March 2021 GS Capital
Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies
that GS Capital may have under applicable law. In the event that any amount due under the March 2021 GS Capital Note is not paid as and
when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Fourth
Convertible Promissory Note – GS Capital Partners
On
April 1, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a
purchase price of $500,000, reflecting a $50,000 original issue discount (the “April 2021 GS Capital Note #1”), and
in connection therewith, sold to GS Capital 45,000 shares of Company’s common stock at a purchase price of $45, representing a
per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for
GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
April 2021 GS Capital Note #1 has a maturity date of April 1, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the April 2021 GS Capital Note #1,
and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
As of May 25, 2021, the balance of the April 2021 GS Capital
Note #1 was $558,589, respectively, including a principal balance of $550,000 and accrued interest of $8,589.
The
April 2021 GS Capital Note #1 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the
Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering
Statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of
1933, as amended. At such time, the April 2021 GS Capital Note #1 (and the principal amount and any accrued and unpaid interest)
will be convertible in restricted shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of
the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be
waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock
splits, etc. which occur following the determination of the conversion price.
The
April 2021 GS Capital Note #1 contains customary events of default, including, but not limited to:
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if the Company fails to
pay the then-outstanding principal amount and accrued interest on the April 2021 GS Capital Note #1 on any date any such amounts
become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or
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the Company fails to remain
compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or
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any trading suspension
is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the occurrence of any delisting
of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of
the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the April 2021 GS Capital Note #1, together with all accrued and unpaid interest thereon, due and payable, and the April 2021
GS Capital Note #1 shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue
any other remedies that GS Capital may have under applicable law. In the event that any amount due under the April 2021 GS Capital Note
#1 is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding,
until paid.
Convertible
Promissory Note – Eagle Equities LLC
On
April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle
Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate
principal amount of $1,100,000.00 for a purchase price of $1,000,000.00, reflecting a $100,000 original issue discount (the “Eagle
Equities Note”), and in connection therewith, sold to Eagle Equities 165,000 shares of Company’s common stock at a purchase
price of $165, representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed Eagle
Equities the sum of $10,000 for Eagle Equities’ costs in completing the transaction, which amount Eagle Equities withheld from
the total purchase price paid to the Company.
The
Eagle Equities Note has a maturity date of April 13, 2022 and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than upon the circumstances set forth in the Eagle Equities Note – specifically,
if (i) the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock
pursuant to Regulation A under the Securities Act of 1933, as amended; and (ii) the Company receives $3,5000,000 in net proceeds from
such Regulation A Offering, then Company must repay the principal amount and any accrued and unpaid interest on the Eagle Equities Note
within three (3) business days from the date of such occurrence. The Company may prepay all or any portion of the principal amount and
any accrued and unpaid interest at any time without penalty. As of May 25, 2021, the balance of the February 2021 GS Capital Note
was $1,113,561, respectively, including a principal balance of $1,100,000 and accrued interest of $13,561.
The
Eagle Equities Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at Eagle Equities’ election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by Eagle Equities on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price. Alternatively, if the SEC has not qualified the Company’s offering statement related to
the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933 by October 10,
2021, and Eagle Equities Note has not yet been fully repaid, then Eagle Equities will have the right to convert the Eagle Equities Note
(and the principal amount and any accrued and unpaid interest) into restricted shares of Company Common Stock at a conversion price of
$6.50 per share (subject to customary adjustments for any stock splits, etc. which occur following the April 13, 2021).
The
Eagle Equities Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the
Eagle Equities Note on any date any such amounts become due and payable, and any such failure
is not cured within three business days of written notice thereof by Eagle Equities; or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, Eagle Equities may declare all or any portion of the then-outstanding principal amount
of the Eagle Equities Note, together with all accrued and unpaid interest thereon, due and payable, and the Eagle Equities Note shall
thereupon become immediately due and payable in cash and Eagle Equities will also have the right to pursue any other remedies that Eagle
Equities may have under applicable law. In the event that any amount due under the Eagle Equities Note is not paid as and when due, such
amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Fifth Convertible
Promissory Note – GS Capital Partners
On April 29, 2021, the
Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to which, on same date,
the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a purchase price of $500,000,
reflecting a $50,000 original issue discount (the “April 2021 GS Capital Note #2”), and in connection therewith, sold to
GS Capital 125,000 shares of Company’s common stock at a purchase price of $125, representing a per share price of $0.001 per share.
In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s costs in completing
the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The April 2021 GS Capital
Note #2 has a maturity date of April 29, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are
due prior to the maturity date other than as specifically set forth in the April 2021 GS Capital Note #2, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. As of May 25, 2021, the balance
of the April 2021 GS Capital Note #2 was $554,369, respectively, including a principal balance of
$550,000 and accrued interest of $4,369.
The April 2021 GS Capital
Note #2 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock at GS Capital’s
election at any time following the time that the SEC qualifies the Company’s Offering Statement related to the Company’s
planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the April
2021 GS Capital Note #2 (and the principal amount and any accrued and unpaid interest) will be convertible in restricted shares of Company
Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering,
subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company.
The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion
price.
The April 2021 GS Capital
Note #2 contains customary events of default, including, but not limited to:
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if the Company fails to pay the then-outstanding principal
amount and accrued interest on the April 2021 GS Capital Note #2 on any date any such amounts become due and payable, and any such
failure is not cured within three business days of written notice thereof by GS Capital; or
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the Company fails to remain compliant with the Depository Trust
Company (“DTC”), thus incurring a “chilled” status with DTC; or
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any trading suspension is imposed by the SEC under Section 12(j)
of the Exchange Act or Section 12(k) of the Exchange Act; or
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the occurrence of any delisting of the Company Common Stock from
any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC
Markets.
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If an event of default
has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the April 2021
GS Capital Note #2, together with all accrued and unpaid interest thereon, due and payable, and the April 2021 GS Capital Note #2 shall
thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital
may have under applicable law. In the event that any amount due under the April 2021 GS Capital Note #2 is not paid as and when due,
such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Sixth
Convertible Promissory Note – GS Capital Partners
On
June 3, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to
which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a
purchase price of $500,000, reflecting a $50,000 original issue discount (the “June 2021 GS Capital Note”), and in connection
therewith, sold to GS Capital 85,000 shares of Company’s common stock at a purchase price of $85, representing a per share price
of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company. As
of June 10, 2021, the Company has not issued the 85,000 shares of Company common stock to GS Capital Partners.
The
June 2021 GS Capital Note has a maturity date of June 3, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the June 2021 GS Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
June 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the June 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice
to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination
of the conversion price.
The
June 2021 GS Capital Note contains customary events of default, including, but not limited to:
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if
the Company fails to pay the then-outstanding principal amount and accrued interest on the June 2021 GS Capital Note on any
date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof
by GS Capital; or
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the
Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status
with DTC; or
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any
trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or
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the
occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed
or suspension of trading of the Company Common Stock on the OTC Markets.
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If
an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount
of the June 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the June 2021 GS Capital
Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies
that GS Capital may have under applicable law. In the event that any amount due under the June 2021 GS Capital Note is not paid as and
when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Off-Balance
Sheet Arrangements
As
of March 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated
under the Securities Act of 1934 reasonably likely to have a material effect on our financial condition.
Critical
Accounting Policies and Estimates
Use
of Estimates
In
preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue
recognition, the allowance for bad debt, useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance
for deferred tax assets, and assumptions used in assessing impairment of long-lived assets. Actual results could differ from those estimates.
Reverse
Merger Accounting
The
Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. WOHG was the acquirer for financial reporting
purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are
reflected in the historical financial statements prior to the Merger will be those of WOHG and will be recorded at the historical cost
basis of WOHG since its inception on January 2, 2020. The consolidated financial statements after completion of the Merger include the
assets and liabilities of the Company and WOHG, historical operations of WOHG since its inception on January 2, 2020 to the closing date
of the merger, and operations of the Company from the closing date of the Merger. Common stock and the corresponding capital amounts
of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction
with the Merger, WOHG received no cash and assumed no liabilities from Clubhouse Media Group, Inc. All members of the Company’s
executive management are from WOHG.
Lease
On
January 2, 2020, the Company adopted FASB ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition method with
a cumulative effect adjustment to accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases
as stated below.
As
described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC 842 for the Company
was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for operating leases with terms
longer than 12 months. The Company elected to use the short term exception and does not records assets/liabilities for short term leases
as of December 31, 2020.
The
Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an
arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with
terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease
term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized
incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term
when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual
lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized
on a straight-line basis over the lease term.
Leased
right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived
assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment
of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present,
the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income,
and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue
Recognition
In
May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606),
which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires
a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the
Company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that
have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with
ASU 2014-09 (collectively, the new revenue standards).
Under
the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount
that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the
five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary
and permanent staffing solutions and sale of consumer products.
The
Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide
custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The
Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service,
which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services
to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and
does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content
requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a
cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services
are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness
of the customer and payment and transaction history.
For
Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations
in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs,
tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing
in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos.
Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding
the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination
of all types of these performance obligations on a statement of work for a lump sum fee. The Company allocates revenue to each performance
obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided
over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been
satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including
management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
Based
on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation
to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to
any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement
of work. The contract liabilities as of December 31, 2020 was $73,643.
Goodwill
Impairment
We
test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount
of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss
on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will
be retained.
For
other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s
estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total
related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows
and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair
value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Based on its review, the Company believes that, as of December 31, 2020, there was no impairment loss of its long-lived assets.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in
the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company
establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The
Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its
technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities.
Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold
are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies
potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations
and comprehensive income (loss) as income tax expense.
The
Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating
losses from inception to December 31, 2020. The net operating losses that has future benefits will be recorded as $773,921 deferred tax
assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued expenses,
if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were
also estimated to approximate fair value.
The
Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets and liabilities.
As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements,
ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which
are described below:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV hierarchy
gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level 3 inputs.
The
Company used Level 3 inputs for its valuation methodology for the derivative liabilities for conversion feature of the convertible notes
in determining the fair value the weighted-average Binomial option pricing model following assumption inputs. The fair value of derivative
liability as of December 31, 2020 was $304,490.
Stock
based Compensation
Stock
based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and
will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). Share-based
compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the
fair value of the share-based payment, whichever is more readily determinable.
Derivative
instruments
The
fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability
are recorded in the consolidated statement of operations under other (income) expense.
Our
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated
statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model to value the
derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date.
Related
Parties
The
Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 related parties include:
a.
affiliates of the Company;
b.
entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option
Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity;
c.
trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management;
d.
principal owners of the Company;
e.
management of the Company;
f.
other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g.
other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the
preparation of financial statements is not required in those statements.
The
disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts
of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing
the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement.
New
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology
that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within
those fiscal years. We did not expect the adoption of this guidance have a material impact on its consolidated financial statements.
ITEM
10: DIRECTORS, EXECUTIVE OFFICERS
AND
SIGNIFICANT EMPLOYEES
BOARD
OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Each
director of the Board of Directors shall serve for a term ending on the date of the annual meeting of stockholders following the annual
meeting of the stockholders at which such director was elected. Notwithstanding the foregoing, each director shall serve until his or
her successor is elected and qualified or until his or her death, resignation or removal. Our officers are appointed by our Board to
a term of one year and serve until their successors are duly appointed and qualified, or until the officer is removed from office. Our
Board has no nominating, audit or compensation committees.
Set
forth below is certain information concerning the directors and executive officers of the Company.
Name
|
|
Age
|
|
Position
|
Amir
Ben-Yohanan (1)
|
|
49
|
|
Chief
Executive Officer and Director, Principal Executive Officer and Principal Financial and Accounting Officer
|
Christian
J. Young (1)
|
|
38
|
|
President,
Secretary, and Director
|
Simon
Yu (1)
|
|
39
|
|
Chief
Operating Officer and Director
|
Harris
Tulchin (2)
|
|
68
|
|
Chief Business Affairs,
Chief Legal Officer and Director
|
Gary
Marenzi (3)
|
|
65
|
|
Director
|
|
(1)
|
Mr.
Ben-Yohanan, Mr. Young, and Mr. Yu were each appointed to their positions with the Company pursuant to the terms of the Stock Purchase
Agreement dated May 29, 2020 by and among West of Hudson Group, Inc., Tongji Healthcare Group Inc, Algonquin Partners Inc., and Joseph
Arcaro. Pursuant to the terms of the Stock Purchase Agreement, and in connection with the closing of the Stock Purchase Agreement
on June 18, 2020, Mr. Arcaro, the then-sole member of the Board of Directors of the Company, appointed Amir Ben-Yohanan, Christian
J. Young and Simon Yu to the above officer and director positions, and thereafter, immediately resigned from all positions with the
Company. On April 9, 2021, the Company entered into an Employment Agreement with Simon Yu to serve as Chief Operating Officer of
the Company. On April 11, 2021, the Company entered into Employment Agreements with Amir Ben-Yohanan and Christian Young to serve
as Chief Executive Officer and President, respectively, of the Company.
|
|
(2)
|
Mr.
Marenzi was appointed on July 28, 2020, immediately after, and in connection with, his appointment a director of the Company, Mr.
Marenzi and the Company entered into an independent director agreement (the “Marenzi Independent Director Agreement”).
The Marenzi Independent Director Agreement, also dated July 28, 2020, sets out the terms and conditions of Mr. Marenzi’s role
as a director of the Company.
|
|
(3)
|
On
August 5, 2020, immediately after, and in connection with, his appointment a director of the Company, Mr. Tulchin and the Company
entered into a director agreement (the “Tulchin Director Agreement”). The Tulchin Director Agreement, also dated August
5, 2020, sets out the terms and conditions of Mr. Tulchin’s role as a director of the Company. On March 12, 2021, the Company
and Mr. Tulchin entered into an amendment to Mr. Tulchin’s Director Agreement. On April 11, 2021, Mr. Tulchin was appointed
as Chief Legal Officer of the Company by the Board of Directors. On April 9, 2021, the Company entered into an Employment Agreement
with Mr. Tulchin to serve as Chief Legal Officer of the Company.
|
Amir
Ben-Yohanan, Chief Executive Officer and Director
Amir
Ben-Yohanan was appointed as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors on
June 18, 2020. Mr. Ben-Yohanan worked for over 15 years for large multinational corporations, such as AT&T and the Associated Press,
as a Senior Director of Finance where he oversaw internal audit, compliance and financial reporting departments. In 2012, he left a successful
career in the corporate world to become an entrepreneur. In August 2015, Mr. Ben-Yohanan founded West of Hudson Properties, a real estate
investment and property management firm headquartered in Hackensack, NJ. West of Hudson Properties currently owns and manages over $300
million in real estate assets across 95+ multi-family residential properties. More recently, he has expanded the operation and successfully
completes several multi-family ground up construction projects each year in New Jersey and Pennsylvania.
Mr.
Ben-Yohanan earned his Master’s Degree in Finance from the University of Sydney Australia in 1999 and holds an undergraduate degree
in Accounting.
Christian
J. Young, President, Secretary, and Director
Christian
J. Young was appointed as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors on June
18, 2020. Prior to joining the Company, Mr. Young served as President of WOHG since March 2020. Prior to joining WOHG, he held positions
as a lawyer and chef, and was also a serial entrepreneur, involved in the founding of over a dozen enterprises. Mr. Young is also a YouTube
personality and travel blogger. From 2018 to 2019, Mr. Young served as chief strategy officer for Cannabis Strategic Ventures. Since
2015, Mr. Young has been a YouTube branded content developer, Strategic Advisor to Venture Fund Amplify.LA, and as an advisor at the
USC Venture Incubator. From 2015 to 2017, Mr. Young also acted as entrepreneur in residence for Lamp Post Group.
Simon
Yu, Chief Operating Officer and Director
Simon
Yu was appointed as the Company’s Chief Operating Officer and as a member of the Company’s Board of Directors on June 18,
2020. Mr. Yu is the Chief Executive Officer for Cannabis Strategic Ventures and has served in this position since 2017. In 2014, Mr.
Yu also founded a regional California staffing firm that uses technology and education to change the way staffing agencies serve their
clients. Mr. Yu has almost 20 years of management experience in healthcare, with 11 of those years in sales and operations for the healthcare
staffing industry. Throughout his career, Mr. Yu has launched startups in e-commerce, import/export, medical devices, and staffing. Mr.
Yu was also a Startup Advisor at the University of Southern California’s Business Incubator and was an Adjunct Professor of Entrepreneurship
at California State University, Los Angeles.
Harris
Tulchin, Chief Business Affairs, Chief Legal Officer and Director
Mr.
Tulchin was appointed Chief Business Affairs and Chief Legal Officer and as a member of the Company’s Board of Directors on April
11, 2021 and August 5, 2020, respectively. Mr. Tulchin is an entertainment lawyer, producer, author, and producer’s representative
and has been practicing entertainment, transactional, and labor law since 1978. He is the Chairman, founder and owner of Harris Tulchin
& Associates LTD, an international entertainment and multimedia law firm that provides legal services to its clients in the motion
picture, television, music, and multimedia industries. Mr. Tulchin has served as the Chairman of Harris Tulchin & Associates LTD
since his firm’s incorporation in 2000 where he has represented clients in every facet of the entertainment industry, including
major film studios, producers, writers, directors, actors, digital developers, animators, and musicians. Mr. Tulchin has also held numerous
senior roles at various other companies in his career, serving as, among others, Senior Vice President of Business Affairs and General
Counsel for Cinema Group, General Counsel and Head of Business Affairs for KCET Television, Senior Counsel for United Artists, Director
of Business Affairs at MGM Television, and Counsel for Filmways Pictures. He has produced or executive produced over a dozen films, including
“To Sleep With Anger” starring Danny Glover and directed by Charles Burnett, which was admitted into Sundance and Cannes
Film Festivals in 1990, and was a winner of four Independent Spirit Awards. Mr. Tulchin is also the co-author of a book considered a
staple of the motion picture industry, entitled: “The Independent Film Producer’s Survival Guide: A Legal and Business Sourcebook”,
published by Schirmer Press, New York (2002, 2005, 2010).
In
addition to serving as Chairman of his law firm, Mr. Tulchin also serves as Chief Legal Adviser and a member of the advisory board of
Cinezen Blockchained Entertainment AB, a Swedish start-up blockchain/cryptocurrency video-on-demand distribution platform with the goal
to revolutionize the existing model of film distribution. He has served in these capacities since the Company’s inception in September
2017, and provides guidance on business and legal issues in connection with the Company’s operations.
In
his role as director of the Company, Mr. Tulchin brings a wealth of expertise in both the legal and business aspects of the development,
production, financing and distribution of entertainment product, and the international licensing of content in all media and will provide
valuable guidance to the Company as it endeavors to implement its plan of operations.
He
is a graduate of Cornell University and UC Hastings College of Law, and was admitted to The State Bar of California in 1979 and the Hawaii
State Bar in 1978. He is presently inactive in Hawaii.
Gary
Marenzi, Director
Gary
Marenzi was appointed as an independent member of the Company’s Board of Directors on July 28, 2020. Prior to joining the Company,
Mr. Marenzi previously held the role of President of Paramount International Television, MGM Worldwide Television and ITV. He has been
instrumental in raising capital for MGM during its growth years in 2008, and helped ITV’s OTT channel acquire the rights to distribute
James Bond. He has launched global content franchises including STARGATE, NCIS, TEEN WOLF, and History Channel’s VIKINGS. He is
an active Board Member of the Hollywood Radio & TV Society (HRTS), and has served on the Executive Committees of the National Association
of Television Program Executives (NATPE) and the International Academy of Television Arts & Sciences (IATAS). Gary is the founder
and President of Marenzi & Associates, which provides creative collaboration, strategic management advice and implementation for
the media and entertainment industry with clients such as Lebron James’s Media Company “Uninterrupted”. He served as
President of Marenzi & Associates from 2011 to 2016 and since 2019 on. From 2016 to 2019, Mr. Marenzi served as Head of Entertainment
Sales & Partnerships for Endeavor Content.
Mr.
Marenzi received both his BA and MBA from Stanford University.
Advisory
Board
On
April 2, 2021, the Company established an advisory board (“Advisory Board”) to provide guidance and advice to the directors
and officers of the Company regarding technical and business matters. The advisory board has no voting powers. The advisory board is
made up of two members including Andrew Omori and Perry Simon.
Andrew
Omori. On April 2, 2021, the Company entered into a consulting agreement with Andrew Omori and appointed Mr. Omori to the Advisory
Board of the Company. Mr. Omori is a partner at Andreessen Horowitz, one of Silicon Valley’s most prominent and successful venture
capital firms, with $17.6 billion in assets under management. Andreessen Horowitz is well known for leading investments in hit social
audio app, Clubhouse (which is not owned, and is not otherwise affiliated with, the Company), as well as Airbnb and Coinbase. Prior to
joining Andreessen Horowitz, Mr. Omori served as a VP at JMP Group and as a successful technology investment banker. Mr. Omori has dedicated
his career to helping technology companies scale and has worked with a variety of social companies including Snap, Pinterest, Roblox,
and the Clubhouse app. Mr. Omori will advise the Board of Directors and the Company regarding optimal pathways for monetizing the Company’s
operations as well as providing the Company with access to relationships, branding opportunities, and partnerships that hold the potential
for further gains in shareholder value.
Perry
Simon. On April 21, 2021, the Company entered into a consulting
agreement with Perry Simon and appointed Mr. Simon to the Advisory Board of the Company. Mr. Simon is the former executive vice president
of Primetime at NBC Entertainment, where he helped develop and supervise some of television’s most iconic series, including “Cheers,”
“The Golden Girls,” “Law and Order,” “L.A. Law,” “Miami Vice,” “Frasier,”
Seinfeld, and “The Cosby Show.” He is also a former General Manager at PBS former Managing Director at BBC Worldwide America,
former President of Viacom Productions and former executive officer at Paul Allen’s Vulcan Productions. Over the past 20 years,
Mr. Simon has helped to facilitate the rapid growth of mission-driven programming, driving large gains in audience size and fan engagement,
and winning multiple awards along the way (Golden Globes, Emmys, and Peabodys). Mr. Simon will advise the Company on non-profit and social
impact activities, as well as other business, financial, and organizational matters, and access his extensive entertainment industry
relationships and knowledge for content development, acquisition, and deal structures.
Committees
We
do not have a standing nominating, compensation or audit committee. Rather, our full Board of Directors performs the functions of these
committees. We do not believe it is necessary for our Board of Directors to appoint such committees because the volume of matters that
come before our Board of Directors for consideration permits the directors to give sufficient time and attention to such matters to be
involved in all decision making. Additionally, because our common stock is not listed for trading or quotation on a national securities
exchange, we are not required to have such committees.
Director
Independence
We
have one independent director (Gary Marenzi), as such term is defined in the listing standards of The NASDAQ Stock Market, at this time.
The Company is not quoted on any exchange that requires director independence requirements.
Code
of Ethics
We
have not yet adopted a code of ethics that applies to all of our employees, officers and directors, including those officers responsible
for financial reporting. We expect that we will adopt a code of ethics in the near future.
Family
Relationships
None.
Involvement
in Certain Legal Proceedings
No
executive officer, member of the Board of Directors or control person of our Company has been involved in any legal proceeding listed
in Item 401(f) of Regulation S-K in the past 10 years.
ITEM
11: COMPENSATION OF
DIRECTORS
AND EXECUTIVE OFFICERS
No
executive compensation was paid during the period from January 2, 2020 (inception) to December 31, 2020 to the officers and directors
of the Company. However, the Company has entered into Employment Agreements, a Consulting Agreement, and Directors Agreements with its
officers and directors, as applicable, as described below.
Employment
Agreements
Simon
Yu Employment Agreement
On April 9, 2021, the Company entered
into an employment agreement with Simon Yu, its Chief Operating Officer. Pursuant to this employment agreement, Mr. Yu agreed to continue
to serve as Chief Operating Officer of the Company, reporting to the Chief Executive Officer of the Company (or other person determined
by the Chief Executive Officer or the Company’s Board of Directors (the “Board”). As compensation for Mr. Yu’s
services, the Company agreed to pay Mr. Yu an annual base salary of $380,000 (the “Base Salary”) comprised of two parts a
“Cash Portion”, and an “Optional Portion”. The Cash Portion is a monthly cash payment of $15,000 – or $180,000
on an annual basis. The remaining $200,000 per year – the Optional Portion – is payable as follows:
|
(i)
|
If the Company’s
Board determines that the Company has sufficient cash on hand to pay all or a portion of the Optional Portion in cash, such amount
shall be paid in cash.
|
|
(i)
|
If
the Board determines that the Company does not have sufficient cash on hand to pay all of
the Optional Portion in cash, then the portion of the Optional Portion which the Board determines
that the Company has sufficient cash on hand to pay in cash will be paid in cash, and the
remainder (the “Deferred Portion”) will either:
|
|
|
|
|
|
|
a.
|
be paid at a later date,
when the Board determines that the Company has sufficient cash on hand to enable the Company to pay the Deferred Portion; or
|
|
|
|
b.
|
will not be paid in cash
– and instead, the Company will issue shares of Company Common Stock equal to (A) the Deferred Portion, divided by (B) the
VWAP (as defined in the employment agreement) as of the date of issuance of such shares of Company Common Stock.
|
In
addition, pursuant to the employment agreement, Mr. Yu is entitled to be paid discretionary annual bonuses as determined by the Board
(currently intended to be a maximum of $250,000 per year), and is also entitled to receive fringe benefits, such as, but not limited
to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days,
and certain insurances.
The
initial term of the employment agreement is one (1) year from the effective date of the agreement (i.e. April 9, 2022), unless earlier
terminated. Thereafter, the term is automatically extended on an annual basis for terms of one (1) year each, unless either the Company
or Mr. Yu provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least thirty
(30) days prior to the expiration of the then-current term.
Mr.
Yu’s employment with the Company shall be “at will,” meaning that either Mr. Yu or the Company may terminate Mr. Yu’s
employment at any time and for any reason, subject to certain terms and conditions.
The
Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement
and Mr. Yu may terminate the employment agreement at any time, with or without “good reason”, as defined in the employment
agreement. If the Company terminates the employment agreement for cause or Mr. Yu terminates the employment agreement without good reason,
Mr. Yu will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed
or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be
paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be
paid via the issuance of shares of Company Common Stock. Mr. Yu will also be entitled to payment for any unreimbursed expenses as of
the termination date. However, any unvested portion of any equity granted to Mr. Yu will be immediately forfeited as of the termination
date.
If the Company terminates the employment
agreement without cause or Mr. Yu terminates the employment agreement with good reason, Mr. Yu will be entitled to receive the same compensation
(unpaid accrued salary and unreimbursed expenses), and, in addition, will be entitled to receive, in one lump sum, the remainder of Mr.
Yu’s annual salary that has not yet been paid as of the date of the termination – either in cash, or in shares of Company
Common Stock. Further, any equity grant already made to Mr. Yu shall, to the extent not already vested, be deemed automatically vested.
Harris
Tulchin Employment Agreement
On
April 9, 2021, the Company entered into an employment agreement with Harris Tulchin for Mr. Tulchin to serve as Chief Legal Officer of
the Company. The terms of Mr. Tulchin’s employment agreement are identical to the terms of the employment agreement of Simon Yu
described above.
Christian
Young Employment Agreement
On
April 11, 2021, the Company entered into an employment agreement with Christian Young for Mr. Young to serve as President of the Company.
The terms of Mr. Young’s employment agreement are identical to the terms of the employment agreement of Simon Yu and Harris Tulchin
described above, except for the fact that the Company and Mr. Young acknowledged that each of them are also the parties to that certain
Consulting Agreement, dated as of February 3, 2021 (the “Consulting Agreement”), and that the Consulting Agreement and Mr.
Young’s employment agreement will operate independently of each other – except that in the event of a conflict between this
employment agreement and the Consulting Agreement, the terms and conditions of this employment agreement will control.
Amir
Ben-Yohanan Employment Agreement
On
April 11, 2021, the Company entered into an employment agreement with Amir Ben-Yohanan for Mr. Ben-Yohanan to serve as Chief Executive
Officer of the Company. The terms of Mr. Ben-Yohanan’s employment agreement are identical to the terms of the employment agreements
of Simon Yu and Harris Tulchin described above, except for the following terms:
|
●
|
Mr.
Ben-Yohanan’s Base Salary is $400,000 per year
|
|
●
|
Mr.
Ben-Yohanan reports only to the Board of Directors of the Company.
|
Director
Agreements
Non-Independent
Director Agreements with Amir Ben-Yohanan, Christopher Young, and Simon Yu
Effective
March 4, 2021, the Company entered into director agreements (each, a “Non-Independent Director Agreement”, and collectively,
the “Non-Independent Director Agreements”) with three of its current officers who serve as non-independent directors: Amir
Ben-Yohanan, Christopher Young, and Simon Yu (each, a “Non-Independent Director” and collectively, the “Non-Independent
Directors”). The Non-Independent Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s,
and Mr. Yu’s role as a non-independent director of the Company.
Pursuant
to the Non-Independent Director Agreements, each of the Non-Independent Directors agreed to serve as a director of the Company. The Company
acknowledged that each of the Non-Independent Directors currently hold positions with other companies, and agreed that each Non-Independent
Director may continue to hold such positions so long as they do not interfere with the Non-Independent Director’s duties as a director
of the Company (such as providing sufficient time and attention to the Company, in the form of participation in telephonic and/or in-person
phone meetings).
Pursuant
to the Non-Independent Director Agreements, the Company agreed to compensate each of the Non-Independent Directors as follows:
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An
issuance of 31,821 shares of Company common stock, to be issued on March 4, 2021, as compensation for services provided by each of
the Non-Independent Directors to the Company prior to March 4, 2021; and
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An
issuance of a number of shares of Company common stock having a fair market value (as defined in each of the Non-Independent Director
Agreements) of $25,000 at the end of each calendar quarter that the Non-Independent Director serves as a director.
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The
Non-Independent Director Agreements acknowledge and agree that the Company has filed a registration statement on Form S-8 with the Securities
and Exchange Commission (the “Form S-8), with respect to certain shares that may be issued to employees, consultants and other
personnel providing services to the Company. As long as the Company has sufficient shares of Company common stock registered on the Form
S-8, or any replacement registration statement thereto, the Company agreed that any shares to be granted to a Non-Independent Director
pursuant to the applicable Non-Independent Director Agreement will be shares of Company common stock registered on the Form S-8. Each
Non-Independent Director acknowledged that such shares issued will be subject to the resale requirements of SEC Rule 144 applicable to
“control” securities. The Company also agreed to reimburse each Non-Independent Director for out of pocket, reasonable expenses
incurred in connection with such Non-Independent Director’s services as a director of the Company.
Pursuant
to the Non-Independent Director Agreements, each of the Non-Independent Directors and the Company agreed to customary provisions relating
to ownership of intellectual property created by a Non-Independent Director on behalf of the Company in such Non-Independent Director’s
capacity as a director, to the extent related to the Company’s “influencer business”, as defined in each of the Non-Independent
Director Agreements. Among other things, except with respect to intellectual property created on a Non-Independent Director’s own
time and not in direct service to the Company, each Non-Independent Director assigns all intellectual property rights to the Company
directly related to the Company’s influencer business. The Non-Independent Director Agreement also contains customary confidentiality
provisions.
Each
of Mr. Ben-Yohanan’s, Mr. Young’s, and Mr. Yu’s Non-Independent Director Agreement will remain in full force and effect
until their resignation, removal, or death. Each Non-Independent Director Agreement may be amended or terminated only upon the mutual
agreement of the Company and the applicable Non-Independent Director.
Independent
Director Agreements with Harris Tulchin and Gary Marenzi
Harris
Tulchin
The Company entered
into a Director Agreement with Mr. Tulchin on August 5, 2020.
Pursuant
to the Director Agreement, Mr. Tulchin agreed to serve as a director of the Company, provided that the Company acknowledges that Mr.
Tulchin currently holds positions with other companies, and agrees that Mr. Tulchin may continue to hold such positions so long as they
do not interfere with Mr. Tulchin’s obligations as a director of the Company (such as providing sufficient time and attention to
the Company, in the form of participation in telephonic and/or in-person phone meetings).
As
compensation for his services as a director, the Company agreed to issue Mr. Tulchin a number of shares of common stock of the Company
having a fair market value (as defined in the Director Agreement) of $25,000 at the end of each calendar quarter that he serves as a
director. The Company also agreed to reimburse Mr. Tulchin for out of pocket, reasonable expenses incurred in connection with his services
as a director of the Company. Pursuant to the Director Agreement, the Company agreed to customary provisions relating to ownership of
intellectual property created by Mr. Tulchin on behalf of the Company in his capacity as a director to, to the extent related to the
Company’s influencer business. The Director Agreement also contains customary confidentiality provisions.
On
March 12, 2021 (the “Amendment Date”), the Company and Mr. Tulchin entered into an amendment to Mr. Tulchin’s Director
Agreement (the “Amendment”). Pursuant to the Amendment, the Company and Mr. Tulchin agreed that the Original Director agreement
would be modified to provide that any such issuance of Company common stock granted to Mr. Tulchin will be shares of common stock registered
on the Company’s registration statement on Form S-8 with the Securities and Exchange Commission, effective as of January 19, 2021
(the “Form S-8), so long as the Company has sufficient shares of Common Stock registered on the Form S-8.
In
addition, pursuant to the Amendment, the Company and Mr. Tulchin agreed that the Original Director Agreement would be modified to provide
that, on the Amendment Date, Mr. Tulchin would receive the following issuances of common stock, and such issuances will also be shares
of common stock registered on the Company’s Form S-8, so long as the Company has sufficient shares of Common Stock registered on
the Form S-8:
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6,500
shares of common stock as additional consideration for Mr. Tulchin’s service to the
Company between the effective date of the Original Director Agreement and the Amendment Date;
and
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18,822
shares of common stock, representing shares of common stock that would have been issued to
Mr. Tulchin for the period from August 5, 2020 to December 31, 2020, as Mr. Tulchin and the
Company had agreed to delay such issuances until the Form S-8 became effective.
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The
Director Agreement will remain in full force and effect until the resignation, removal, or death of Mr. Tulchin. The Director Agreement
may be amended or terminated only upon the mutual agreement of the Company and Mr. Tulchin.
Gary
Marenzi
The
Company entered into an Independent Director Agreement with Mr. Marenzi on July 28, 2020. Pursuant to the Independent Director Agreement,
Mr. Marenzi agreed to serve as an independent director of the Company, provided that the Company acknowledges that Mr. Marenzi currently
holds positions with other companies, and agrees that Mr. Marenzi may continue to hold such positions so long as they do not interfere
with (a) Mr. Marenzi’s status as an independent director; or (b) Mr. Marenzi’s obligations as a director of the Company (such
as providing sufficient time and attention to the Company, in the form of participation in telephonic and/or in-person phone meetings).
Mr. Marenzi also confirms that he is independent (as such term has been construed under Nevada law with respect to directors of Nevada
corporations and the OTC Markets, the NASDAQ Stock Exchange and the New York Stock Exchange).
As
compensation for his services as a director, the Company agreed to issue Mr. Marenzi a number of shares of common stock of the Company
having a fair market value (as defined in the Independent Director Agreement) of $25,000 at the end of each calendar quarter that he
serves as a director. The Company also agreed to reimburse Mr. Marenzi for out of pocket, reasonable expenses incurred in connection
with his services as a director of the Company. Pursuant to the Independent Director Agreement, the Company agreed to customary provisions
relating to ownership of intellectual property created by Mr. Marenzi on behalf of the Company in his capacity as a director of the Company.
The Independent Director Agreement also contains customary confidentiality provisions. Mr. Marenzi also agrees to not use any tradename,
service mark or trademark of the of the Company or refer to the of the Company in any promotional or sales activity or materials without
first obtaining the prior written consent of the Company.
The
Independent Director Agreement will remain in full force and effect until the resignation, removal, or death of Mr. Marenzi. The Independent
Director Agreement may be amended or terminated only upon the mutual agreement of the Company and Mr. Marenzi.
Consulting
Agreement
On
February 3, 2021 (the “Effective Date”), in connection with (but not pursuant to) the closing of the A&R Share Exchange
Agreement regarding Magiclytics, the Company entered in a consulting agreement with Chris Young, the President, Secretary, and a Director
of the Company (the “Consulting Agreement”).
Pursuant
to the Consulting Agreement, Mr. Young agreed to provide the Company with certain services, including, but not limited to:
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Obtaining
and structuring “Campaigns” (i.e., specific marketing efforts for brands) for the benefit of the Company and its subsidiaries,
including Magiclytics, by utilizing certain data technology capabilities of Magiclytics to help improve the success of such Campaigns;
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Overseeing
software development and continued software innovation;
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Leading
sales efforts for Magiclytics by managing a sales team that procures customers and provide customer support; and
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Being
responsible for day-to-day operations of Magiclytics, subject to the direction of the Board of Directors of Magiclytics.
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Mr.
Young is engaged as an independent contractor pursuant to the Consulting Agreement. Pursuant to the Consulting Agreement, the Company
agreed to customary provisions relating to ownership of intellectual property created by Mr. Young on behalf of the Company in his capacity
as a Consultant. The Consulting Agreement also contains customary confidentiality provisions, as well as non-solicitation provisions,
whereby Mr. Young agrees not to solicit any of the Company’s employees during the term of the Consulting Agreement and for two
years thereafter.
As
compensation for Mr. Young’s services pursuant to the Consulting Agreement, the Company agreed to issue to Mr. Young shares of
Company common stock upon the completion of certain milestones, as follows:
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(i)
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Upon
the first to occur of (i) Magiclytics actually receiving $500,000 in Gross Revenue following the Effective Date; and (ii) Magiclytics
having conducted 1,250 Campaigns (subject to certain conditions) following the Effective Date, the Company will issue to Mr. Young
a number of shares of Company common stock equal to (i) $393,750, divided by (ii) the VWAP (as defined below) as of the date that
the earlier of this clause (i) and clause (ii) below have occurred (the “Tranche 1 Satisfaction Date”).
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(ii)
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Upon
the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 1 Satisfaction
Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 1
Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company common stock equal to (i) $393,750, divided
by (ii) the VWAP as of the date that the earlier of clause (i) above and this clause (ii) of have occurred (the “Tranche 2
Satisfaction Date”).
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(iii)
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Upon
the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 2 Satisfaction
Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 2
Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company common stock equal to (i) $393,750, divided
by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 3 Satisfaction
Date”).
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(iv)
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Upon
the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 3 Satisfaction
Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 3
Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company common stock equal to (i) $393,750, divided
by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 4 Satisfaction
Date”).
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For
purposes of the Consulting Agreement, the term “VWAP” will mean for any date, the price determined by the first of the following
clauses that applies:
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(i)
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If
the Company common stock is then listed for trading on the OTC Markets or a United States or Canadian national securities exchange
(as applicable, the “Trading Market”), then the volume-weighted average (rounded to the nearest $0.0001) of the closing
price of Company common stock on such Trading Market during the 20-trading day period immediately prior to the applicable measurement
date, as reported by such Trading Market or other reputable source;
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(ii)
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if
the Company common stock is not then listed or quoted for trading on a Trading Market, and if prices for the Company common stock
are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Company common stock so reported; and
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(iii)
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if
the VWAP cannot be calculated the Company common stock pursuant to (i) or (ii) above, the VWAP of such security on such date shall
be the fair market value of such security as mutually determined in good faith by the Company’s Board of Directors and Mr.
Young.
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Following
the Tranche 4 Satisfaction Date, at the end of each 12 month period following such date while the Consulting Agreement is still in effect,
the Company will issue to Mr. Young a number of shares of Company common stock equal to (i) 4.5% of the Net Income (as defined below)
of Magiclytics during such 12 month period divided by (ii) the VWAP as of the last date of such 12 month period. (For purposes of the
Consulting Agreement, “Net Income” means the net income of Magiclytics for the applicable period, as determined in accordance
with Generally Accepted Accounting Principles in the United States, consistently applied, as determined by the Company’s accountants).
During
the term of the Consulting Agreement, the Company also agreed to reimburse the Mr. Young’s travel and other reasonable expenses
related to Mr. Young’s performance under the Consulting Agreement/ All expenses must be approved in writing by the Company in advance
of Mr. Young incurring said expenses, and any expenses not pre-approved in writing by Company will not be reimbursed and will be Mr.
Young’s sole responsibility.
The
term of the Consulting Agreement commences on the Effective Date and continues for a period of five (5) years thereafter, unless sooner
terminated by either the Company or Mr. Young. The Company may terminate the agreement at any time, with or without “cause”,
as defined in the Consulting Agreement, and Mr. Young may terminate the agreement at any time, with or without “good reason”
(as defined in the Consulting Agreement). If the Company terminates the Consulting Agreement for cause or Mr. Young terminates the Consulting
Agreement without good reason, Mr. Young will be entitled to receive any shares of Company Stock owed or accrued as of that time under
the Consulting Agreement, and to be paid any unreimbursed expenses owed to Mr. Young as of that date. However, if the Company terminates
the Consulting Agreement without cause, or Mr. Young terminates the Consulting Agreement with good reason, then the Company must, in
addition to issuing accrued shares and paying unreimbursed expenses, continue to issue to Mr. Young any shares of Company common stock
required pursuant to the terms of the Consulting Agreement until the end of the initial term of the Consulting Agreement (i.e. 5 years
after the Effective Date).
Outstanding Equity Awards at December 31, 2020
None of the Named Executive Officers had any outstanding
equity awards at December 31, 2020.
Compensation Plans
Overview
The
Board of Directors and shareholders holding a majority of the Company’s voting capital approved and adopted the 2020 Equity Incentive
Plan (the “2020 Plan”) on November 24, 2020 and June 8, 2021, respectively. The 2020
Plan authorizes the issuance of up to an aggregate maximum of 13,890,000 shares of the common stock, subject to adjustment as described
in the 2020 Plan. The 2020 Plan shall be administered by the Board or one or more committees appointed by the Board or another
committee (“Administrator”). The Administrator, in its discretion, selects the individuals
to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards. The 2020 Plan authorizes
the Company to grant stock options, stock appreciation rights, restricted shares, restricted share unit, cash awards, other awards, and
performance-based awards. Awards may be granted to the Company’s officers, employees, directors and consultants.
The
purpose of 2020 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through
the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this 2020 Plan, in whole or in part. To the extent then required by applicable
law or any applicable stock exchange or required under the Internal Revenue Code to preserve the intended tax consequences of the 2020
Plan, or deemed necessary or advisable by the Board, the 2020 Plan and any amendment to the 2020 Plan shall be subject to stockholder
approval. Unless earlier terminated by the Board, the 2020 Plan will terminate ten years from the date of adoption.
Authorized
Shares
A
total of 13,890,000 shares of the Company’s common stock are authorized for issuance
pursuant to the 2020 Plan. Subject to adjustment as provided in the 2020 Plan, the maximum aggregate number of shares that may be issued
under the 2020 Plan will be cumulatively increased on January 1, 2021 and on each subsequent January 1, by a number of shares equal to
the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii)
an amount determined by the Board.
Additionally,
if any award issued pursuant to the 2020 Plan expires or becomes unexercisable without having been exercised in full, is surrendered
pursuant to an exchange program, as provided in the 2020 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”),
performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares
(or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto
will become available for future grant or sale under the 2020 Plan (unless the 2020 Plan has terminated). With respect to stock appreciation
rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2020 Plan; all remaining
shares under stock appreciation rights will remain available for future grant or sale under the 2020 Plan (unless the 2020 Plan has terminated).
Shares that have actually been issued under the 2020 Plan under any award will not be returned to the 2020 Plan and will not become available
for future distribution under the 2020 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted
stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure
to vest, such shares will become available for future grant under the 2020 Plan. Shares used to pay the exercise price of an award or
to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2020 Plan. To the extent
an award under the 2020 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares
available for issuance under the 2020 Plan.
Notwithstanding
the foregoing and, subject to adjustment as provided in the 2020 Plan, the maximum number of shares that may be issued upon the exercise
of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the
Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under
the 2020 Plan in accordance with the foregoing.
Plan
Administration
The
Board or one or more committees appointed by the Board will administer the 2020 Plan. In addition, if the Company determines it is desirable
to qualify transactions under the 2020 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, such transactions
will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the
2020 Plan, the administrator has the power to administer the 2020 Plan and make all determinations deemed necessary or advisable for
administering the 2020 Plan, including the power to determine the fair market value of the Company’s common stock, select the service
providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for
use under the 2020 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards
may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award
or the shares relating thereto), construe and interpret the terms of the 2020 Plan and awards granted under it, prescribe, amend and
rescind rules relating to the 2020 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority
to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended
past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would
otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to
transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange
program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or
lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is
increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
Eligibility
Awards
under the 2020 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary,
members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock
options may be granted only to employees of the Company or a subsidiary.
Stock
Options
Stock
options may be granted under the 2020 Plan. The exercise price of options granted under the 2020 Plan generally must at least be equal
to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable
award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine
the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator,
as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant,
they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award
agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the
absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service.
An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2020 Plan, the administrator determines
the other terms of options.
Stock
Appreciation Rights
Stock
appreciation rights may be granted under the 2020 Plan. Stock appreciation rights allow the recipient to receive the appreciation in
the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights
may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their
stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time
in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months.
In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for
three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration
of its term. Subject to the provisions of the 2020 Plan, the administrator determines the other terms of stock appreciation rights, including
when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common
stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock
appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted
Stock
Restricted
stock may be granted under the 2020 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest
in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted
stock granted to any employee, director or consultant and, subject to the provisions of the 2020 Plan, will determine the terms and conditions
of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator
may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however,
that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients
of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting,
unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of
repurchase or forfeiture.
Restricted
Stock Units
RSUs
may be granted under the 2020 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of
the Company’s common stock. Subject to the provisions of the 2020 Plan, the administrator determines the terms and conditions of
RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement
of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state
securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may
pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the
foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
Performance
Units and Performance Shares
Performance
units and performance shares may be granted under the 2020 Plan. Performance units and performance shares are awards that will result
in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The
administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which
they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The
administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals
(including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator
in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce
or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall
have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial
value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion,
may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.
Non-Employee
Directors
The
2020 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options)
under the 2020 Plan. The 2020 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director
in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value
of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the
United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other
than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size
of any potential compensation or equity awards to the Company’s non-employee directors.
Non-transferability
of Awards
Unless
the administrator provides otherwise, the 2020 Plan generally does not allow for the transfer of awards and only the recipient of an
award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional
terms and conditions as the administrator deems appropriate.
Certain
Adjustments
In
the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential
benefits available under the 2020 Plan, the administrator will adjust the number and class of shares that may be delivered under the
2020 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2020 Plan.
Dissolution
or Liquidation
In
the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable
and all awards will terminate immediately prior to the consummation of such proposed transaction.
Merger
or Change in Control
The
2020 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control”
(as defined in the 2020 Plan), each outstanding award will be treated as the administrator determines, including, without limitation,
that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or
an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant,
that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control;
(iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse,
in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines,
terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in
exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award
or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt,
if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained
upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without
payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or
(v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or
all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event
of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options
and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions
on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting
criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided
otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s
subsidiaries or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger
or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation
right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock
appreciation right will terminate upon the expiration of such period.
For
awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding
options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based
vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved
at 100% of target levels and all other terms and conditions met.
Clawback
Awards
will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national
securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the
participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment
upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all
or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided
upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.
Amendment
and Termination
The
administrator has the authority to amend, suspend or terminate the 2020 Plan provided such action does not impair the existing rights
of any participant. The 2020 Plan automatically will terminate on November 23, 2030, unless it is terminated sooner.
Director
Compensation
Historically,
the Company’s directors had not received compensation for their service. However, the Company recently entered into Director Agreements,
as amended (described above), pursuant to which our independent directors and non-independent directors of the Company receive compensation.
Our corporate governance committee will review and make recommendations to the board regarding compensation of directors, including equity-based
plans. We will reimburse our non-employee directors for reasonable travel expenses incurred in attending board and committee meetings.
We also intend to allow our non-employee directors to participate in any equity compensation plans that we adopt in the future.
Executive
Compensation Philosophy
Our
Board determines the compensation given to our executive officers in their sole determination. Our Board reserves the right to pay our
executives or any future executives a salary, and/or issue them shares of stock issued in consideration for services rendered and/or
to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This
package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our
executives with our long-term business strategies. Additionally, the Board reserves the right to grant performance base stock options
in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.
Incentive
Bonus
The
Board may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board believes
such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount
of revenue and profits we are able to generate each month, both of which are a direct result of the actions and ability of such executives.
Long-Term,
Stock Based Compensation
In order to attract, retain and motivate executive talent necessary to
support the Company’s long-term business strategy we may award our executives and any future executives with long-term, stock-based
compensation in the future, at the sole discretion of our Board.
ITEM
12: SECURITY OWNERSHIP OF
MANAGEMENT
AND CERTAIN SECURITYHOLDERS
The
following table sets forth information about the beneficial ownership of our common stock at June 10, 2021, as adjusted to reflect
the sale of 7,500,000 shares of our common stock in this offering, assuming the Maximum Offering Amount is sold, for:
|
●
|
each
person known to us to be the beneficial owner of more than 10% of our common stock;
|
|
|
|
|
●
|
each
named executive officer;
|
|
|
|
|
●
|
each
of our directors; and
|
|
|
|
|
●
|
all
of our executive officers and directors as a group.
|
Unless
otherwise noted below, the address for each beneficial owner listed on the table is in care of Clubhouse Media Group, Inc., 3651 Lindell
Road, D517, Las Vegas, Nevada 89103. We have determined beneficial ownership in accordance with the rules of the SEC. We believe, based
on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with
respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
|
|
Shares
Beneficially
Owned
Prior to
the
Offering (1)
|
|
|
Percentage
of Shares
Beneficially Owned(2)
|
|
|
|
|
|
|
Before
Offering
|
|
|
After
Offering (8)
|
|
Name
of Beneficial Owner
|
|
|
|
|
|
|
|
|
|
|
|
|
Named
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amir
Ben-Yohanan (3)
|
|
|
57,642,068
|
|
|
|
60.8
|
%
|
|
|
56.3
|
%
|
Christian
J. Young (4)
|
|
|
13,147,762
|
|
|
|
13.9
|
%
|
|
|
12.8
|
%
|
Simon
Yu (5)
|
|
|
3,876,083
|
|
|
|
4.1
|
%
|
|
|
3.8
|
%
|
Harris
Tulchin (6)
|
|
|
3,878,584
|
|
|
|
3.9
|
%
|
|
|
3.7
|
%
|
Gary
Marenzi (7)
|
|
|
23,895
|
|
|
|
*
|
%
|
|
|
*
|
%
|
All
named executive officers and directors as a group (5 persons)
|
|
|
78,568,392
|
|
|
|
79.6
|
%
|
|
|
74.0
|
%
|
10%
Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
*less
than one percent
(1)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect
to securities. Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder
has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days,
including upon exercise of common shares purchase options or warrants. We did not deem these shares outstanding, however, for the purpose
of computing the percentage ownership of any other person.
(2)
Based on 94,883,195 shares of the Company’s common stock issued and outstanding as of June 10, 2021.
(3)
Mr. Ben-Yohanan is the Company’s Chief Executive Officer and a member of its Board of Directors. Mr. Ben-Yohanan beneficially owns
one share of Series X Preferred Stock which has a number of votes equal to all of the other votes entitled to be cast on any matter by
any other shares or securities of the Company plus one, but does not have any economic or other interest in the Company.
(4)
Mr. Young is the Company’s President, Secretary and a member of its Board of Directors.
(5)
Mr. Yu is the Company’s Chief Operating Officer and a member of its Board of Directors.
(6)
Mr. Tulchin is the Company’s Chief Business Affairs Officer, Chief Legal Officer and a member of its Board of Directors. Pursuant
to the terms of an amended Director Agreement, the Company agreed to issue Mr. Tulchin a number of shares of common stock of the Company
having a fair market value (as defined in the Director Agreement) of $25,000 at the end of each calendar quarter that he serves as a
director. As of March 12, 2021, pursuant to the terms of the amended Director Agreement, the Company has issued to Mr. Tulchin an aggregate
of 25,322 shares of the Company’s common stock which are registered under the Company’s effective Form S-8. Pursuant to a
Call Agreement between Mr. Tulchin and Mr. Ben-Yohanan, Mr. Ben-Yohanan granted to Mr. Tulchin the right to acquire from Mr. Ben-Yohanan,
at any time from the date of the Call Agreement until November 13, 2027 (the “Call Period”), up to 3,032,122 of the shares
of Company common stock held by Mr. Ben-Yohanan. Pursuant to a Call Agreement between Mr. Tulchin and Mr. Young, Mr. Young granted to
Mr. Tulchin the right to acquire from Mr. Young, at any time during the same Call Period, up to 808,438 of the shares of Company common
stock held by Mr. Young. The Call Period will be automatically extended for any period during which there is a legal impediment to a
closing of the acquisition of the shares occurring. If exercised, Mr. Tulchin will acquire the shares of Company common stock at a price
of $0.0001 per share. See “Interest of Management and Others in Certain Transactions – Call Agreements” in this
Offering Circular for a description of these agreements.
(7)
Mr. Marenzi is a member of its Board of Directors. Pursuant to the Independent Director Agreement, the Company agreed to issue Mr. Marzeni
a number of shares of common stock of the Company having a fair market value (as defined in the Independent Director Agreement) of $25,000
at the end of each calendar quarter that he serves as a director.
(8)
Assumes the sale of all 7,500,000 shares of our common stock in this offering.
ITEM
13: INTEREST OF MANAGEMENT AND
OTHERS
IN CERTAIN TRANSACTIONS
The
following includes a summary of transactions since January 2, 2020 (inception), or any currently proposed transaction, in which the Company
was or is to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of their
total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect
material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the
amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related
Party Transactions of Clubhouse Media Group, Inc.
Stock
Purchase Agreement
Effective
May 29, 2020, Joseph Arcaro, the Chief Executive Officer, President, Secretary, Treasurer and sole director of the Company and the beneficial
owner, through his ownership of Algonquin Partners Inc. (“Algonquin”), of 65% of the Company’s common stock, entered
into a Stock Purchase Agreement by and among West of Hudson Group, Inc. (“WOHG”), the Company, Algonquin, and Mr. Arcaro.
Pursuant to the terms of the Stock Purchase Agreement, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the
Company’s common stock in exchange for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). The Stock Purchase
closed on June 18, 2020, resulting in a change of control of the Company.
Non-Independent
Director Agreements
Effective
March 4, 2021, the Company entered into director agreements with three of its current officers who serve as non-independent directors:
Amir Ben-Yohanan, Christopher Young, and Simon Yu. See “Executive Compensation – Director
Agreements” for a description of these agreements, which are filed as Exhibits 6.20, 6.21, and 6.22 to the Offering Statement of
which this Offering Circular forms a part.
Independent
Director Agreements
The
Company entered into a Director Agreement with Mr. Tulchin and an Independent Director Agreement with Mr. Marenzi on August 5, 2020 and
July 28, 2020, respectively. The Company entered into an amendment to the Director Agreement with Mr. Tulchin on March 12, 2021. See
“Executive Compensation – Director Agreements” for a description of these agreements, which are filed as Exhibits
6.3, 6.4 and 6.25 to the Offering Statement of which this Offering Circular forms a part.
Share
Exchange Agreement
On
August 11, 2020, Tongji Healthcare Group, Inc., entered into the Share Exchange Agreement with (i) WOHG; (ii) each of the WOHG Shareholders;
and (iii) Mr. Ben-Yohanan as the Shareholders’ Representative.
Pursuant
to the terms of the Share Exchange Agreement, the parties agreed that the Company would acquire 100% of WOHG’s issued and outstanding
capital stock, in exchange for the issuance to the WOHG Shareholders of a number of shares of the Company’s common stock to be
determined at the closing of the Share Exchange Agreement.
The
closing of the Share Exchange Agreement occurred on November 12, 2020. Pursuant to the terms of the Share Exchange Agreement, the Company
acquired 200 shares WOHG’s common stock, par value $0.0001 per share, representing 100% of the issued and outstanding capital stock
of WOHG, in exchange for the issuance to the WOHG Shareholders of 46,811,195 shares of the Company’s common stock (the “Share
Exchange”). As a result of the Share Exchange, WOHG became a wholly-owned subsidiary of the Company.
In
addition, pursuant to the Share Exchange Agreement and subsequent Waiver, the Company issued and sold to Amir Ben-Yohanan one share of
Series X Preferred Stock (as described below), at a purchase price of $1.00. This one share of Series X Preferred Stock has a number
of votes equal to all of the other votes entitled to be cast on any matter by any other shares or securities of the Company plus one,
but will not have any economic or other interest in the Company.
Convertible
Promissory Note
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Note”). The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the
Company and its subsidiaries to fund their operations. The Prior Note listed West of Hudson Group, Inc. as the borrower due to a scrivener’s
error and was intended to be between WHP Entertainment, LLC, which is now named Doiyen LLC. (West of Hudson Group, Inc. is a wholly owned
subsidiary of the Company and Doiyen LLC is a wholly owned subsidiary of West of Hudson Group, Inc.). Effective as of February 2, 2021,
the Prior Note was terminated and is of no further force or effect.
The
Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal
amount and any accrued and unpaid interest of the Note at any time without penalty. As of May 25, 2021, the balance of the Note
was $2,460,493 including a principal balance of $2,400,000 and accrued interest of $60,493.
At
the time the SEC qualifies this Offering Circular, $1,000,000 of the principal amount and accrued interest will automatically converted
into a number of shares of Company common stock equal to (i) $1,000,000 divided by (ii) the initial public offering price in this offering
pursuant to Regulation A. These shares will be restricted shares of Company common stock, and not the shares of Company common stock
offered in this offering under Regulation A. In the event that at such time the Company has repaid an amount of the principal amount
and accrued interest such that the remaining indebtedness is less than $1,000,000, then such amount of remaining indebtedness will be
substituted for the $1,000,000 figure above.
Any
portion of the principal amount and interest which is not converted to Company common stock as set forth above will be payable by the
Company commencing on February 2, 2022 as required to amortize the Note and the outstanding indebtedness over the following 24 months.
The final maturity date of the Note is February 2, 2024.
Employment
Agreements
On
April 9, 2021, the Company entered into employment agreements with Simon Yu and Harris Tulchin to serve as Chief Operating Officer and
Chief Business Affairs/Chief Legal Officer, respectively, of the Company. See “Executive Compensation – Employment
Agreements” for a description of these agreement, which are filed as Exhibit 6.38 and 6.39, respectively, to the Offering Statement
of which this Offering Circular forms a part.
On April 11, 2021, the Company entered
into employment agreements with Amir Ben-Yohanan and Christian Young to serve as Chief Executive Officer and President, respectively,
of the Company. See “Executive Compensation – Employment Agreements” for a description of these agreement, which
are filed as Exhibit 6.40 and 6.41, respectively, to the Offering Statement of which this Offering Circular forms a part.
Consulting
Agreement
On
February 3, 2021, in connection with (but not pursuant to) the closing of the A&R Share Exchange Agreement relating to Magiclytics,
the Company entered in a consulting agreement with Chris Young, the President, Secretary, and a Director of the Company. See “Executive
Compensation – Consulting Agreement” for a description of this agreement, which is filed as Exhibit 6.13 to the Offering
Statement of which this Offering Circular forms a part.
Call
Agreements
On
March 12, 2021, Harris Tulchin, a Director of the Company, entered into separate “Call Agreements” with each of Amir Ben-Yohanan,
a Director and the Chief Executive Officer of the Company, and Christian Young, a Director and the President and Secretary of the Company.
Pursuant
to the Call Agreement between Mr. Tulchin and Mr. Ben-Yohanan, Mr. Ben-Yohanan granted to Mr. Tulchin the right to acquire from Mr. Ben-Yohanan,
at any time from the date of the Call Agreement until November 13, 2027 (the “Call Period”), up to 3,032,122 of the shares
of Company common stock held by Mr. Ben-Yohanan. Pursuant to the Call Agreement between Mr. Tulchin and Mr. Young, Mr. Young granted
to Mr. Tulchin the right to acquire from Mr. Young, at any time during the same Call Period, up to 808,438 of the shares of Company common
stock held by Mr. Young. The Call Period will be automatically extended for any period during which there is a legal impediment to a
closing of the acquisition of the shares occurring.
If
exercised, Mr. Tulchin will acquire the shares of Company common stock at a price of $0.0001 per share. Mr. Tulchin may exercise his
rights under the Call Agreements in one or more closings, subject to a maximum number of closings under each Call Agreement of 35. In
connection with the Call Agreements, each of Mr. Ben-Yohanan and Mr. Young agreed that during the Call Period they would not sell or
transfer any of the shares of Company common stock held by them which are subject to Mr. Tulchin’s acquisition rights under the
respective Call Agreement.
The Call
Agreements contain customary representations and warranties, and conditions to the closing of the acquisition of the shares, and the
number of shares that Mr. Tulchin may acquire from each of Mr. Ben-Yohanan and Mr. Young is subject to customary adjustments in the event
of stock splits and similar events.
Related
Party Transactions of West of Hudson Group, Inc.
On
January 2, 2020, WOHG issued a promissory note to Amir Ben-Yohanan, our Chief Executive Officer. Pursuant to the terms of the Prior Note,
WOHG was entitled to borrow up $5,000,000 at an interest rate of 0% during the term of the promissory note. The promissory note had a
maturity date of January 31, 2023, at which time all principal amount of the note would be fully due and payable to Amir Ben-Yohanan.
As of June 30, 2020, WOHG has a balance of $1,062,538 owed to on this promissory note. As of November 10, 2020, Amir-Ben-Yohanan advanced
an additional $1,044,911.21 to WOHG to pay operating expenses of the Company. However, on February 2, 2021, the Company and Mr. Ben-Yohanan,
entered into a new promissory note in the total principal amount of $2,400,000 which replaced the Prior Note from WOHG.
Policy
for Approval of Related Party Transactions
We
have adopted a written policy relating to the approval or ratification of “related party transactions.” A “related
party transaction” is any consummated or proposed transaction or series of transactions: (i) in which the company was or is to
be a participant; (ii) the amount of which exceeds (or is reasonably expected to exceed) $120,000 in the aggregate over the duration
of the transaction (without regard to profit or loss); and (iii) in which a “related party” had, has or will have a direct
or indirect material interest. “Related parties” under this policy will include: (i) our directors, nominees for director
or executive officers; (ii) any record or beneficial owner of more than 5% of any class of our voting securities; (iii) any immediate
family member of any of the foregoing if the foregoing person is a natural person; and (iv) any other person who maybe a “related
person” pursuant to Item 404 of Regulation S-K under the Exchange Act. Pursuant to the policy, the audit committee (or the full
Board of Directors, in the absence of an audit committee) will consider (i) the relevant facts and circumstances of each related party
transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s-length dealings with
an unrelated third party, (ii) the extent of the related party’s interest in the transaction, (iii) whether the transaction contravenes
our code of ethics or other policies, (iv) whether the audit committee (or the Board of Directors, as the case may be) believes the relationship
underlying the transaction to be in the best interests of the Company and its stockholders and (v) the effect that the transaction may
have on a director’s status as an independent member of the board and on his or her eligibility to serve on the board’s committees.
Management will present to the audit committee (or the Board of Directors, as the case may be) each proposed related party transaction,
including all relevant facts and circumstances relating thereto. Under the policy, we may consummate related party transactions only
if our audit committee (or the Board of Directors, as the case may be) approves or ratifies the transaction in accordance with the guidelines
set forth in the policy. The policy does not permit any director or executive officer to participate in the discussion of, or decision
concerning, a related person transaction in which he or she is the related party.
Director
Independence
We
have one independent director (Gary Marenzi), as such term is defined in the listing standards of The NASDAQ Stock Market, at this time.
The Company is not quoted on any exchange that requires director independence requirements.
ITEM
14: SECURITIES BEING OFFERED
General
Our
authorized capital stock consists of 500,000,000 shares of common stock, par value $0.001 per share and 50,000,000 shares of preferred
stock, $0.001 par value per share (the “Preferred Stock”), of which 1 share is designated as Series X Preferred Stock. As
of June 10, 2021, there are 94,883,195 shares of common stock outstanding and 1 share of Series X Preferred Stock outstanding.
Common
Stock
Dividend
Rights
Subject
to preferences that may apply to any shares of our preferred stock outstanding at the time, for as long as such stock is outstanding,
the holders of our common stock are entitled to receive ratably any dividends as may be declared by our Board of Directors out of funds
legally available for dividends. See the section titled “Dividend Policy” for additional information.
Voting
Rights
Holders
of our common stock are entitled to one vote per share on any matter to be voted upon by stockholders. We have not provided for cumulative
voting for the election of directors in our amended and restated certificate of incorporation.
No
Preemptive or Similar Rights
Our
common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Liquidation
Rights
If
we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would
be distributable ratably among the holders of our common stock outstanding at that time, subject to prior satisfaction of all outstanding
debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of
preferred stock.
Undesignated
Preferred Stock
Subject
to limitations prescribed by Delaware law, our Board of Directors may issue preferred stock in one or more series, establish from time
to time the number of shares to be included in each series, and determine for each such series of preferred stock the voting powers,
designations, preferences, and special rights, qualifications, limitations, or restrictions as permitted by law, in each case without
further vote of action by our stockholders. Our Board of Directors may also increase or decrease the number of shares of any series of
preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders.
Our Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing
a change in control of our Company and might adversely affect the market price of our common stock and the voting and other rights of
the holders of our common stock.
Series
X Preferred Stock
On
November 12, 2020, the Company filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the
preferred stock of the Company as the Series X Preferred Stock of the Company. The one share of Series X Preferred Stock, when issued
will have a number of votes equal to all of the other votes entitled to be cast on any matter by any other shares or securities of the
Company plus one. The Series X Stock will not have any economic or other interest in the Company.
The
share of Series X Preferred Stock may not be transferred after issuance. If any transfer is attempted, the Series X Preferred Stock will
be automatically redeemed by the Company at a redemption price of $1.00. The Series X Preferred Stock is not convertible into any other
class of stock of the Company.
The
terms of the Series X Preferred Stock cannot be amended without prior written consent of the holder of the Series X Preferred Stock,
and no amendment of the Certificate of Designations for the Series X Preferred Stock may be made including by merger, consolidation or
otherwise, without the vote of the Series X Preferred Stock holder.
On
November 12, 2020, pursuant to the Share Exchange Agreement and subsequent Waiver, the Company sold to Amir Ben-Yohanan one share of
Series X Preferred Stock at a purchase price of $1.00.
The
Form of Certificate of Designations for the Series X Preferred Stock filed as Exhibit 2.4 to the Offering Statement of which this Offering
Circular forms a part of contains the full rights and preferences of the Series X Preferred Stock.
Warrants
There
are currently no warrants outstanding.
Placement
Agent’s Warrants
In
connection with this offering, we have agreed to issue to the Placement Agent, or its designees, a warrant to purchase common stock in
an amount equal to one percent (1.0%) of the common stock issued in this offering. The Placement Agent’s Warrant
will be exercisable beginning on the date of issuance and will expire five years from the date of issuance, and will have an exercise
price of 125% of the initial public offering. For more information regarding this warrant, see the section titled “Plan
of Distribution”.
Options
There
are currently no options outstanding.
Exclusive
Forum Provision
Section
7.4 of our amended and restated bylaws provide that “[u]nless the Corporation consents in writing to the selection of an alternative
forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation
or the Corporation’s stockholders, (iii) an action asserting a claim arising pursuant to any provision of the NRS, or (iv) any
action asserting a claim governed by the internal affairs doctrine, shall be a state or federal court located within the state of Nevada,
in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.”
This
provision would not apply to suits brought to enforce a duty or liability created by the Securities Act, Exchange Act or any other claim
for which the U.S. federal courts have exclusive jurisdiction.
This
choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and
employees. Alternatively, a court could find these provisions of our amended and restated bylaws to be inapplicable or unenforceable
in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated
with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Fee
Shifting Provision
Section
7.4 of our amended and restated bylaws provides that “[i]f any action is brought by any party against another party, relating to
or arising out of these Bylaws, or the enforcement hereof, the prevailing party shall be entitled to recover from the other party reasonable
attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action.”
In
the event you initiate or assert a claims against us, in accordance with the dispute resolution provisions contained in our amended and
restated bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred
in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
THE
FEE SHIFTING PROVISION CONTAINED IN THE BYLAWS IS NOT INTENDED TO BE DEEMED A WAIVER BY ANY HOLDER OF WORTHY COMMUNITY BONDS OF THE COMPANY’S
COMPLIANCE WITH THE U.S. FEDERAL SECURITIES LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. THE FEE SHIFTING PROVISION CONTAINED
IN THE BYLAWS DO NOT APPLY TO CLAIMS BROUGHT UNDER THE EXCHANGE ACT AND SECURITIES ACT.
Anti-Takeover
Effects of Certain Provisions of Our Amended and Restated Bylaws
Provisions
of our amended and restated bylaws could make it more difficult to acquire us by means of a merger, tender offer, proxy contest, open
market purchases, removal of incumbent directors and otherwise. These provisions, which are summarized below, are expected to discourage
types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first
negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals
because negotiation of these proposals could result in an improvement of their terms.
Calling
of Special Meetings of Shareholders. Our amended and restated bylaws provide that special meetings of the shareholders may be called
only by the Board, unless otherwise required by law.
The
Company’s amended and restated bylaws, as amended and restated, provide that the Company is not governed by the provisions of Sections
78.378 to 78.3793, inclusive, of the Nevada Revised Statues, and such sections do not therefore apply to the Company or to an acquisition
of a controlling interest by any shareholder of the Company.
Indemnification
of Directors and Officers
Our
Articles of Incorporation provide for the indemnification of our officers and directors to the fullest extent permitted by the laws of
the State of Nevada and may, if and to the extent authorized by our Board of Directors, so indemnify our officers and any other person
whom we have the power to indemnify against liability, reasonable expense or other matter. This indemnification policy could result in
substantial expenditure by us, which we may be unable to recoup.
Our
Articles of Incorporation provide that none of our directors or officers shall be personally liable to us or our shareholders for monetary
damages for a breach of fiduciary duty as a director or officer provided, however, that the foregoing provisions shall not eliminate
or limit the liability of a director or officer for acts or omissions which involve intentional misconduct, fraud or knowing violation
of law, or the unlawful payment of dividends. Limitations on liability provided for in our Articles of Incorporation do not restrict
the availability of non-monetary remedies and do not affect a director’s responsibility under any other law, such as the federal
securities laws or state or federal environmental laws.
We
believe that these provisions will assist us in attracting and retaining qualified individuals to serve as executive officers and directors.
The inclusion of these provisions in our Articles of Incorporation may have the effect of reducing a likelihood of derivative litigation
against our directors and may discourage or deter shareholders or management from bringing a lawsuit against directors for breach of
their duty of care, even though such an action, if successful, might otherwise have benefited us or our shareholders.
Insofar
as indemnification by us for liabilities arising under the Exchange Act may be permitted to our directors, officers and controlling persons
pursuant to provisions of the Articles of Incorporation and bylaws, or otherwise, we have been advised that in the opinion of the SEC,
such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such
director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director,
officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Exchange Act and will be governed by the final adjudication of such issue.
At
the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which
indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim
for such indemnification.
Transfer
Agent
Empire
Stock Transfer (“Transfer Agent”) is our transfer agent and registrar.
The
Transfer Agent’s address is at 1859 Whitney Mesa Drive, Henderson, Nevada 89014 and its telephone number is (702) 818-5898.
SHARES
ELIGIBLE FOR FUTURE SALE
Shares
Eligible for Future Sale
Immediately
prior to this offering, there was little to no trading activity in our common stock. Future sales of substantial amounts of common stock
in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock.
All
shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for
any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales would
be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
Rule
144
Under
a regulation of the SEC known as “Rule 144,” a person who beneficially owns restricted securities of an issuer and who is
not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been
met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be 6 months for
the common stock. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than
a business combination related shell company) or, unless certain conditions are met, that has been at any time previously a shell company.
The
SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting
solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.
As
a result of the Share Exchange as described in this Offering Circular, the Company ceased being a shell company as such term is defined
in Rule 12b-2 under the Exchange Act.
While
we believe that as a result of the Share Exchange, the Company ceased to be a shell company, the SEC and others whose approval is required
in order for shares to be sold under Rule 144 might take a different view.
Rule
144 is available for the resale of securities of former shell companies if and for as long as the following conditions are met:
(i)
the issuer of the securities that was formerly a shell company has ceased to be a shell company,
(ii)
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
(iii)
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form
8-K; and
(iv)
at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status
as an entity that is not a shell company known as “Form 10 Information.”
Although
the Company filed Form 10 Information with the SEC on November 12, 2020, shareholders who receive the Company’s restricted securities
will not be able to sell them pursuant to Rule 144 without registration until the Company has met the other conditions to this exception
and then for only as long as the Company continues to meet the condition described in subparagraph (iii), above, and is not a shell company.
No assurance can be given that the Company will meet these conditions or that, if it has met them, it will continue to do so, or that
it will not again be a shell company.
CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The
following is a summary of certain United States federal income tax consequences generally applicable to the ownership and disposition
of our common stock by a non-U.S. holder (as defined below) that purchases our common stock pursuant to this offering and holds such
common stock as a “capital asset” within the meaning of the Code. This discussion is based on currently existing provisions
of the Code, applicable United States Treasury regulations promulgated thereunder, judicial decisions, and rulings and pronouncements
of the United States Internal Revenue Service (the “IRS”) all as in effect on the date hereof and all of which are subject
to change, possibly with retroactive effect, or subject to different interpretation. This discussion does not address all the tax consequences
that may be relevant to specific holders in light of their particular circumstances or to holders subject to special treatment under
United States federal income tax laws (such as financial institutions, insurance companies, tax-exempt organizations, controlled foreign
corporations, passive foreign investment companies, retirement plans, partnerships and their partners, dealers in securities, brokers,
United States expatriates, persons who have acquired our common stock as compensation or otherwise in connection with the performance
of services, or persons who have acquired our common stock as part of a straddle, hedge, conversion transaction or other integrated investment).
This discussion does not address the state, local, or foreign tax or United States federal estate or alternative minimum tax consequences
relating to the ownership and disposition of our common stock. Prospective investors should consult their tax advisors regarding the
United States federal tax consequences of owning and disposing of our common stock, as well as the applicability and effect of any state,
local or foreign tax laws.
As
used in this discussion, the term “non-U.S. holder” refers to a beneficial owner of our common stock that is not, for United
States federal income tax purposes, any of the following:
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an
individual who is a citizen or resident of the United States;
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a
corporation (or other entity or arrangement taxable as a corporation for United States federal income tax purposes) created or organized
in or under the laws of the United States or any state thereof, including the District of Columbia;
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any
entity or arrangement treated as a partnership for United States federal income tax purposes;
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an
estate the income of which is subject to United States federal income tax regardless of its source; or
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a
trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more United
States persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under
applicable Treasury regulations to be treated as a United States person.
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If
a partnership or other entity or arrangement treated as a partnership for United States federal income tax purposes holds our common
stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partnership
that holds our common stock and any partner who owns an interest in such a partnership should consult their tax advisors regarding the
United States federal income tax consequences of an investment in our common stock.
You
should consult your tax advisors concerning the particular United States federal income tax consequences to you of the purchase, ownership,
and disposition of our common stock as well as the consequences to you arising under the laws of any other applicable taxing jurisdiction
in light of your particular circumstances.
Distributions
on Common Stock
As
discussed under “Dividend Policy” above, we do not currently expect to make distributions on our stock. If we do make a distribution
of cash or other property (other than certain distributions of our stock or rights to acquire our stock) in respect of our common stock,
the distribution generally will be treated as a dividend to the extent of our current or accumulated earnings and profits as determined
under United States federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and
profits will generally be treated first as a tax-free return of capital, on a share-by-share basis, to the extent of the non-U.S. holder’s
tax basis in our common stock, and, to the extent such portion exceeds the non-U.S. holder’s tax basis in our common stock, the
excess will be treated as gain from the disposition of the common stock, the tax treatment of which is discussed below under “—Sale,
Exchange or Other Taxable Disposition.”
The
gross amount of dividends paid to a non-U.S. holder with respect to our common stock generally will be subject to United States federal
withholding tax at a rate of 30%, unless (i) an applicable income tax treaty reduces or eliminates such tax, and the non-U.S. holder
certifies that it is eligible for the benefits of such treaty in the manner described below, or (ii) the dividends are effectively connected
with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty,
are attributable to a permanent establishment maintained by the non-U.S. holder in the United States) and the non-U.S. holder satisfies
certain certification and disclosure requirements. In the latter case, generally, a non-U.S. holder will be subject to United States
federal income tax with respect to such dividends on a net income basis at regular graduated United States federal income tax rates in
the same manner as a United States person (as defined under the Code). Additionally, a non-U.S. holder that is a corporation may be subject
to a branch profits tax equal to 30% (or such lower rate as may be specified by an applicable income tax treaty) of its effectively connected
earnings and profits for the taxable year, as adjusted for certain items.
A
non-U.S. holder that wishes to claim the benefit of an applicable income tax treaty with respect to dividends on our common stock will
be required to provide the applicable withholding agent with a valid IRS Form W-8BEN or W-8BEN-E (or other applicable form) and certify
under penalties of perjury that such holder (i) is not a United States person (as defined under the Code) and (ii) is eligible for the
benefits of such treaty, and the withholding agent must not have actual knowledge or reason to know that the certification is incorrect.
This certification must be provided to the applicable withholding agent prior to the payment of dividends and may be required to be updated
periodically. If our common stock is held through a non-United States partnership or non-United States intermediary, such partnership
or intermediary will also be required to comply with additional certification requirements under applicable Treasury regulations. A non-U.S.
holder eligible for a reduced rate of United States federal withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Prospective
investors, and in particular prospective investors engaged in a United States trade or business, are urged to consult their tax advisors
regarding the United States federal income tax consequences of owning our common stock.
Sale,
Exchange, or Other Taxable Disposition
Generally,
a non-U.S. holder will not be subject to United States federal income tax on gain realized upon the sale, exchange, or other taxable
disposition of our common stock unless (i) the gain is effectively connected with such non-U.S. holder’s conduct of a trade or
business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained
by the non-U.S. holder in the United States), (ii) such non-U.S. holder is an individual present in the United States for 183 days or
more in the taxable year of the sale, exchange, or other taxable disposition and certain other conditions are satisfied, or (iii) we
are or become a “United States real property holding corporation” (as defined in Section 897(c) of the Code) at any time
during the shorter of the five-year period ending on the date of disposition or the non-U.S. holder’s holding period for our common
stock and either (a) our common stock has ceased to be traded on an established securities market prior to the beginning of the calendar
year in which the sale, exchange or other taxable disposition occurs, or (b) the non-U.S. holder owns (actually or constructively) more
than five percent of our common stock at some time during the shorter of the five-year period ending on the date of disposition or such
holder’s holding period for our common stock. Although there can be no assurances in this regard, we believe that we are not a
United States real property holding corporation, and we do not expect to become a United States real property holding corporation.
Generally,
gain described in clause (i) of the immediately preceding paragraph will be subject to tax on a net income basis at regular graduated
United States federal income tax rates in the same manner as if the non-U.S. holder were a United States person (as defined under the
Code). A non-U.S. holder that is a corporation may also be subject to a branch profits tax equal to 30% (or such lower rate as may be
specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for
certain items. An individual non-U.S. holder described in clause (ii) of the immediately preceding paragraph will be required to pay
(subject to applicable income tax treaties) a flat 30% tax on the gain derived from the sale, exchange, or other taxable disposition,
which may be offset by certain United States source capital losses, even though the individual is not considered a resident of the United
States.
Foreign
Account Tax Compliance Act
Withholding
at a rate of 30% is required on dividends in respect of our common stock, and, after December 31, 2016 will be required on gross proceeds
from the sale or other disposition of our common stock, in each case, held by or through certain foreign financial institutions (including
investment funds), unless such institution enters into an agreement with the United States Treasury Department to report, on an annual
basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain United States
persons and by certain non-United States entities that are wholly or partially owned by United States persons and to withhold on certain
payments. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations,
may modify these requirements. Accordingly, the entity through which our common stock is held will affect the determination of whether
such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale or other disposition of, our common
stock held by an investor that is a non-financial non-United States entity that does not qualify under certain exemptions will be subject
to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any substantial United States
owners or (ii) provides certain information regarding the entity’s substantial United States owners. Prospective investors should
consult their tax advisors regarding the possible implications of these rules on their investment in our common stock.
ADDITIONAL
REQUIREMENTS AND RESTRICTIONS
Broker-Dealer
Requirements
Each
of the participating broker-dealers, authorized registered representatives or any other person selling Shares on our behalf is required
to:
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make
every reasonable effort to determine that the purchase of Shares is a suitable and appropriate investment for each investor based
on information provided by such investor to the broker-dealer, including such investor’s age, investment objectives, income,
net worth, financial situation and other investments held by such investor; and
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maintain,
for at least six (6) years, records of the information used to determine that an investment in our Shares is suitable and appropriate
for each investor.
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In
making this determination, your participating broker-dealer, authorized registered representative or other person selling Shares on our
behalf will, based on a review of the information provided by you, consider whether you:
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meet
the minimum suitability standards established by us and the investment limitations established under Regulation A;
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can
reasonably benefit from an investment in our Shares based on your overall investment objectives and portfolio structure;
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are
able to bear the economic risk of the investment based on your overall financial situation; and
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have
an apparent understanding of:
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the
fundamental risks of an investment in the Offered Shares;
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the
risk that you may lose your entire investment;
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the
lack of liquidity of the Offered Shares;
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the
restrictions on transferability of the Offered Shares;
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the
background and qualifications of our management; and
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our
business.
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Stock
Certificates
Ownership
of the Offered Shares will be “book-entry” only form, meaning that ownership interests shall be recorded by the Transfer
Agent, and kept only on the books and records of Transfer Agent. There will be no cost to the Subscriber to hold the shares, in book
entry, on the books of the Company. No physical certificates shall be issued, nor received, by Transfer Agent or any other person. The
Transfer Agent records and maintains securities of Company in book-entry form only. Book-entry form means the Transfer Agent maintains
shares on an investor’s behalf without issuing or receiving physical certificates. Securities that are held in un-certificated
book-entry form have the same rights and privileges as those held in certificate form, but the added convenience of electronic transactions
(e.g. transferring ownership positions between a broker-dealer and the Transfer Agent), as well as reducing risks and costs required
to store, manage, process and replace lost or stolen securities certificates. Transfer Agent shall send out email confirmations of positions
and notifications of changes “from” Company upon each and every event affecting any person’s ownership interest, with
a footer referencing Transfer Agent.
Restrictions
Imposed by the USA PATRIOT Act and Related Acts
In
accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, or the USA PATRIOT Act, the securities offered hereby may not be offered, sold, transferred or delivered, directly or indirectly,
to any “unacceptable investor,” which means anyone who is:
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a
“designated national,” “specially designated national,” “specially designated terrorist,” “specially
designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions
set forth in the Foreign Assets Control Regulations of the United States, or U.S., Treasury Department;
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acting
on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes
under the Regulations of the U.S. Treasury Department;
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within
the scope of Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit,
or Support Terrorism, effective September 24, 2001;
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a
person or entity subject to additional restrictions imposed by any of the following statutes or regulations and executive orders
issued thereunder: the Trading with the Enemy Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act
of 1996, the International Emergency Economic Powers Act, the United Nations Participation Act, the International Security and Development
Cooperation Act, the Nuclear Proliferation Prevention Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya
Sanctions Act of 1996, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export
Financing and Related Programs Appropriations Act or any other law of similar import as to any non-U.S. country, as each such act
or law has been or may be amended, adjusted, modified or reviewed from time to time; or
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designated
or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply
in the future similar to those set forth above.
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ERISA
CONSIDERATIONS
An
investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject
to the fiduciary responsibility and prohibited transaction provisions of ERISA and restrictions imposed by Section 4975 of the Code.
For these purposes the term “employee benefit plan” includes, but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an
employer or employee organization. Among other things, consideration should be given to:
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whether
the investment is prudent under Section 404(a)(1)(B) of ERISA;
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whether
in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and
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whether
the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment
returns.
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The
person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine
whether an investment in us is authorized by the appropriate governing instrument and is a proper investment for the plan.
Section
406 of ERISA and Section 4975 of the Code prohibit employee benefit plans from engaging in specified transactions involving “plan
assets” with parties that are “parties in interest” under ERISA or “disqualified persons” under the Code
with respect to the plan.
In
addition to considering whether the purchase of Shares is a prohibited transaction, a fiduciary of an employee benefit plan should consider
whether the plan will, by investing in us, be deemed to own an undivided interest in our assets, with the result that our operations
would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction
rules of the Code.
The
Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire
equity interests would be deemed “plan assets” under some circumstances. Under these regulations, an entity’s assets
would not be considered to be “plan assets” if, among other things:
(1)
the equity interests acquired by employee benefit plans are publicly offered securities - i.e., the equity interests are widely held
by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal
securities laws;
(2)
the entity is an “operating company”—i.e., it is primarily engaged in the production or sale of a product or service
other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or
(3)
there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class
of equity interest is held by the employee benefit plans referred to above.
We
do not intend to limit investment by benefit plan investors in us because we anticipate that we will qualify as an “operating company”.
If the Department of Labor were to take the position that we are not an operating company and we had significant investment by benefit
plans, then we may become subject to the regulatory restrictions of ERISA which would likely have a material adverse effect on our business
and the value of our common stock.
Plan
fiduciaries contemplating a purchase of Shares should consult with their own counsel regarding the consequences under ERISA and the Code
in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.
ACCEPTANCE
OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A REPRESENTATION BY OUR BOARD OF DIRECTORS OR ANY OTHER PARTY RELATED TO US THAT
THIS INVESTMENT MEETS THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS INVESTMENT IS APPROPRIATE
FOR ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL ADVISERS AS TO THE
PROPRIETY OF AN INVESTMENT IN US IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN.
LEGAL
MATTERS
The
validity of the securities offered by this Offering Circular will be passed upon for us by Anthony L.G., PLLC, 625 N. Flagler Drive,
Ste. 600, West Palm Beach, Florida 33401.
EXPERTS
Clubhouse
Media’s balance sheet as of December 31, 2020 and the related statement of operations, changes in stockholders’ equity and
cash flow for the period from January 2, 2020 (inception) to December 31, 2020 included in this Offering Circular have been audited by
Fruci & Associates II, PLLC, independent registered public accounting firm, as indicated in their report with respect thereto, and
have been so included in reliance upon the report of such firm given on their authority as experts in accounting and auditing.
APPOINTMENT
OF AUDITOR
On
September 8, 2020, the Board of Directors of the Company terminated the engagement of BF Borgers CPA PC as the Company’s independent
registered accounting firm.
On
September 8, 2020, the Company’s Board of Directors appointed Fruci & Associates II, PLLC (“Fruci”) as the Company’s
new independent registered accounting firm. From the Company’s inception on January 2, 2020 through September 8, 2020, neither
the Company nor anyone acting on the Company’s behalf consulted Fruci with respect to any of the matters or reportable events set
forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed an Offering Statement on Form 1-A with the Commission under Regulation A of the Securities Act with respect to the common
stock offered by this Offering Circular. This Offering Circular, which constitutes a part of the Offering Statement, does not contain
all of the information set forth in the Offering Statement or the exhibits and schedules filed therewith. For further information with
respect to us and our common stock, please see the Offering Statement and the exhibits and schedules filed with the Offering Statement.
Statements contained in this Offering Circular regarding the contents of any contract or any other document that is filed as an exhibit
to the Offering Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full
text of such contract or other document filed as an exhibit to the Offering Statement. The Offering Statement, including its exhibits
and schedules, may be inspected without charge at the public reference room maintained by the Commission, located at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549, and copies of all or any part of the Offering Statement may be obtained from such offices upon the
payment of the fees prescribed by the Commission. Please call the Commission at 1-800-SEC-0330 for further information about the public
reference room. The Commission also maintains an Internet website that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address of the site is www.sec.gov.
We
also maintain a website at www.clubhousemediagroup.com. After the completion of this offering, you may access these materials at our
website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the Commission. Information
contained on our website is not a part of this Offering Circular and the inclusion of our website address in this Offering Circular is
an inactive textual reference only.
After
the completion of this Tier II, Regulation A offering, we intend to continue to file reports under Section 15(d) of the Exchange Act,
which, in accordance with Rule 257(b)(6) of Regulation A, will satisfy our reporting obligations under Regulation A. Such reports and
other information will be available for inspection and copying at the public reference room and on the Commission’s website referred
to above.
If
we no longer file reports under Section 15(d) of the Exchange Act, we will be required to furnish the following reports, statements,
and tax information to each stockholder:
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Reporting
Requirements under Tier II of Regulation A. If we no longer file reports under Section 15(d) of the Exchange Act, we will be
required under Rule 257 of Regulation A to file: an annual report with the SEC on Form 1-K; a semi-annual report with the SEC on
Form 1-SA; current reports with the SEC on Form 1-U; and a notice under cover of Form 1-Z. The necessity to file current reports
will be triggered by certain corporate events, similar to the ongoing reporting obligation faced by issuers under the Exchange Act,
however the requirement to file a Form 1-U is expected to be triggered by significantly fewer corporate events than that of the Form
8-K. Such reports and other information will be available for inspection and copying at the public reference room and on the Commission’s
website referred to above. Parts I & II of Form 1-Z will be filed by us if and when we decide to and are no longer obligated
to file and provide annual reports pursuant to the requirements of Regulation A.
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Annual
Reports. As soon as practicable, but in no event later than one hundred twenty (120) days after the close of our fiscal year,
ending on the last Sunday of a calendar year, our Board of Directors will cause to be mailed or made available, by any reasonable
means, to each Stockholder as of a date selected by the Board of Directors, an annual report containing financial statements of the
Company for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, company
equity and cash flows, with such statements having been audited by an accountant selected by the Board of Directors. The Board of
Directors shall be deemed to have made a report available to each stockholder as required if it has either (i) filed such report
with the SEC via its Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system and such report is publicly available on
such system or (ii) made such report available on any website maintained by the Company and available for viewing by the stockholders.
|
|
|
|
|
3.
|
Tax
Information. On or before January 31st of the month immediately following our fiscal year, which is currently January 1st through
December 31st, we will send to each stockholder such tax information as shall be reasonably required for federal and state income
tax reporting purposes.
|
CLUBHOUSE MEDIA GROUP, INC.
Index to Financial Statements
Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020
|
F-2
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31, 2020 (Unaudited)
|
F-3
|
Consolidated Statement of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31, 2020 (Unaudited)
|
F-4
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31, 2020 (Unaudited)
|
F-5
|
Notes to Unaudited Consolidated Financial Statements
|
F-6
|
Clubhouse
Media Group, Inc.
Consolidated
Balance Sheets
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,938,247
|
|
|
$
|
37,774
|
|
Accounts receivable, net
|
|
|
47,832
|
|
|
|
213,422
|
|
Prepaid Expense
|
|
|
134,025
|
|
|
|
–
|
|
Other current assets
|
|
|
266,000
|
|
|
|
219,000
|
|
Total current assets
|
|
|
2,386,104
|
|
|
|
470,196
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
63,076
|
|
|
|
64,792
|
|
Intangibles
|
|
|
79,653
|
|
|
|
–
|
|
Total assets
|
|
$
|
2,528,833
|
|
|
$
|
534,988
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholder’s equity (deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
434,526
|
|
|
$
|
219,852
|
|
Deferred revenue
|
|
|
83,420
|
|
|
|
73,648
|
|
Convertible notes payable, net
|
|
|
563,873
|
|
|
|
19,493
|
|
Convertible notes payable, net - related party
|
|
|
2,551,535
|
|
|
|
–
|
|
Shares to be issued
|
|
|
951,105
|
|
|
|
87,029
|
|
Derivative liability
|
|
|
254,957
|
|
|
|
304,490
|
|
Due to related parties
|
|
|
97,761
|
|
|
|
–
|
|
Total current liabilities
|
|
|
4,937,177
|
|
|
|
704,512
|
|
|
|
|
|
|
|
|
|
|
Notes payable - related party
|
|
|
–
|
|
|
|
2,162,562
|
|
Total liabilities
|
|
|
4,937,177
|
|
|
|
2,867,074
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Stockholder’s equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001, authorized 50,000,000 shares; 1 share issued and outstanding at March 31, 2021 and December
31, 2020
|
|
|
–
|
|
|
|
–
|
|
Common stock, par value $0.001, authorized 500,000,000 shares; 94,302,795 and 92,682,632 shares issued
and outstanding at March 31, 2021 and December 31, 2020, respectively
|
|
|
94,302
|
|
|
|
92,682
|
|
Additional paid-in capital
|
|
|
5,954,350
|
|
|
|
152,953
|
|
Accumulated deficit
|
|
|
(8,456,996
|
)
|
|
|
(2,577,721
|
)
|
Accumulated other comprehensive income
|
|
|
-
|
|
|
|
–
|
|
Total stockholder’s equity (deficit)
|
|
|
(2,408,344
|
)
|
|
|
(2,332,086
|
)
|
Total liabilities and stockholder’s equity (deficit)
|
|
$
|
2,528,833
|
|
|
$
|
534,988
|
|
See
Accompanying Notes to Unaudited Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statements of Operations
|
|
For the three months ended March 31, 2021
|
|
|
For the period from January 2, 2020 (inception) to
March 31, 2020
|
|
|
|
|
|
|
|
|
Total Revenue, net
|
|
$
|
523,376
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
316,684
|
|
|
|
-
|
|
Gross profit
|
|
|
206,692
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
3,843,372
|
|
|
|
227,079
|
|
Rent expense
|
|
|
523,991
|
|
|
|
-
|
|
Total operating expenses
|
|
|
4,367,363
|
|
|
|
227,079
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,160,671
|
)
|
|
|
(227,079
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
1,336,075
|
|
|
|
-
|
|
Loss in extinguishment of debt - related party
|
|
|
297,138
|
|
|
|
-
|
|
Other expense, net
|
|
|
54,227
|
|
|
|
-
|
|
Change in fair value of derivative liability
|
|
|
(49,533
|
)
|
|
|
-
|
|
Total other (income) expenses
|
|
|
1,637,907
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,798,578
|
)
|
|
|
(227,079
|
)
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(5,798,578
|
)
|
|
$
|
(227,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
93,330,191
|
|
|
|
92,623,386
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
See
Accompanying Notes to Unaudited Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statements of Stockholder’s Equity (Deficit)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Preferred Shares
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholder’s
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2020 (Inception)
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
-
|
|
Shares outstanding as of the recapitalization
|
|
|
45,812,191
|
|
|
|
45,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,812
|
|
Shares issued in recapitalization
|
|
|
46,811,195
|
|
|
|
46,811
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(92,323
|
)
|
|
|
-
|
|
|
|
(45,512
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(227,079
|
)
|
|
|
(227,079
|
)
|
Balance at March 31, 2020
|
|
|
92,623,386
|
|
|
|
92,623
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(92,323
|
)
|
|
|
(227,079
|
)
|
|
|
(226,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
|
92,682,632
|
|
|
|
92,682
|
|
|
|
1
|
|
|
|
-
|
|
|
|
152,953
|
|
|
|
(2,577,721
|
)
|
|
|
(2,332,086
|
)
|
Stock compensation expense
|
|
|
207,817
|
|
|
|
208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,112,980
|
|
|
|
-
|
|
|
|
2,113,188
|
|
Conversion of convertible debt
|
|
|
8,197
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,992
|
|
|
|
-
|
|
|
|
13,000
|
|
Shares issued to settle accounts payable
|
|
|
24,460
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148,485
|
|
|
|
-
|
|
|
|
148,510
|
|
Shares issued as debt issuance costs for convertible notes payable
|
|
|
645,000
|
|
|
|
645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,440,755
|
|
|
|
-
|
|
|
|
3,441,400
|
|
Beneficial conversion features
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,000
|
|
|
|
-
|
|
|
|
51,000
|
|
Acquisition of Magiclytics
|
|
|
734,689
|
|
|
|
735
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,265
|
|
|
|
(80,697
|
)
|
|
|
(60,697
|
)
|
Imputed Interest
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,920
|
|
|
|
-
|
|
|
|
15,920
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,798,578
|
)
|
|
|
(5,798,578
|
)
|
Balance at March 31, 2021
|
|
|
94,302,795
|
|
|
$
|
94,302
|
|
|
|
1
|
|
|
$
|
-
|
|
|
$
|
5,954,350
|
|
|
$
|
(8,456,996
|
)
|
|
$
|
(2,408,344
|
)
|
See
Accompanying Notes to Unaudited Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statements of Cash Flow
(Unaudited)
|
|
For the three months
ended March 31,
|
|
|
For the period from January 2, 2020 (Inception)
to
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5,798,578
|
)
|
|
$
|
(227,079
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
502,871
|
|
|
|
–
|
|
Imputed interest
|
|
|
15,920
|
|
|
|
–
|
|
Stock compensation expense
|
|
|
2,977,264
|
|
|
|
–
|
|
Loss in extinguishment of debt - related party
|
|
|
297,138
|
|
|
|
–
|
|
Change in fair value of derivative liability
|
|
|
(49,533
|
)
|
|
|
–
|
|
Loss in extinguishment of debt
|
|
|
55,525
|
|
|
|
–
|
|
Interest expense - derivative liability
|
|
|
–
|
|
|
|
|
|
Net changes in operating assets & liabilities:
|
|
|
–
|
|
|
|
–
|
|
Accounts receivable
|
|
|
165,590
|
|
|
|
–
|
|
Inventory
|
|
|
–
|
|
|
|
–
|
|
Other receivable
|
|
|
–
|
|
|
|
–
|
|
Prepaid expense, deposits and other current assets
|
|
|
(181,023
|
)
|
|
|
(42,000
|
)
|
Other assets
|
|
|
-
|
|
|
|
(104,000
|
)
|
Accounts payable, accrued liabilities, due to affiliates,
and other long-term liabilities
|
|
|
386,708
|
|
|
|
(42,000
|
)
|
Net cash used in operating activities
|
|
|
(1,628,118
|
)
|
|
|
(415,079
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
(5,220
|
)
|
|
|
–
|
|
Purchases of intangible assets
|
|
|
(1,765
|
)
|
|
|
|
|
Cash received from acquisition of Magiclytics
|
|
|
76
|
|
|
|
–
|
|
Net cash used in investing activities
|
|
|
(6,909
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings from related party note payable
|
|
|
135,000
|
|
|
|
373,079
|
|
Repayment to related party convertible note payable
|
|
|
(137,500
|
)
|
|
|
-
|
|
Borrowings from convertible notes payable
|
|
|
3,538,000
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
3,535,500
|
|
|
|
373,079
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
1,900,473
|
|
|
|
(42,000
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
37,774
|
|
|
|
–
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,938,247
|
|
|
$
|
(42,000
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing Activities:
|
|
|
|
|
|
|
|
|
Shares issued for conversion from convertible note payable
|
|
$
|
13,000
|
|
|
|
$
|
|
Shares issued to settle accounts payable
|
|
$
|
148,510
|
|
|
$
|
-
|
|
See
Accompanying Notes to Unaudited Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Notes
to the Unaudited Consolidated Financial Statements
March
31, 2021 and 2020
NOTE
1 - ORGANIZATION AND OPERATIONS
Clubhouse
Media Group, Inc. (formerly known as Tongji Healthcare Group, Inc. or the “Company”) was incorporated under the laws of the
State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji, Inc., a wholly
owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH
was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”)
by Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH
is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes in the areas of internal
medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology, otolaryngology,
traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination, and prevention.
On
December 27, 2006, Tongji, Inc. acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH
became a wholly owned subsidiary of Tongji, Inc. Pursuant to the Agreement and Plan of Merger, the Company issued 15,652,557 shares of
common stock to the stockholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. The acquisition
of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of NTH obtained control
of the entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated
as the continuing operating entity. The Company, through NTH, thereafter operated the hospital until the Company eventually sold NTH,
as described below.
Effective
December 31, 2017, under the terms of a Bill of Sale, the Company agreed to sell, transfer convey and assign forever all of its rights,
title and interest in its equity ownership interest in NTH to Placer Petroleum Co., LLC. Pursuant to the Bill of Sale, consideration
for this sale, transfer conveyance and assignment is Placer Petroleum Co., LLC assuming all assets and liabilities of NTH as of December
31, 2017. Thereafter, the Company had minimal operations.
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered an Order Granting
Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to Nevada Revised Statutes (“NRS”) 78.347(1)(b),
pursuant to which Mr. Arcaro was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada
under NRS 78.347.
On
May 23, 2019, Mr. Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition,
on May 23, 2019, Mr. Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself
as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On
May 29, 2020, Mr. Arcaro, through his ownership of Algonquin Partners Inc. (“Algonquin”), owner 65% of the Company’s
common stock, entered into a Stock Purchase Agreement by and among West of Hudson Group, Inc. (“WOHG”), the Company, Algonquin,
and Mr. Arcaro. The Stock Purchase Agreement, as subsequently amended, is referred to herein as the “SPA.” Pursuant to the
terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the Company’s common stock in exchange
for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). The Stock Purchase closed on June 18, 2020, resulting
in a change of control of the Company. Mr. Arcaro resigned from any and all officer and director positions with the Company.
On
July 7, 2020, the Company increased the authorized capital stock of the Company to 550,000,000, comprised of 500,000,000 shares of common
stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001.
West
of Hudson Group, Inc. (“WOHG”) was incorporated in the State of Delaware on May 19, 2020 and owned 100% of WOH Brands, LLC
(“WOH”), Oopsie Daisy Swimwear, LLC (“Oopsie”), and DAK Brands, LLC (“DAK”), which were incorporated
in the State of Delaware on May 13, 2020.
Doiyen
LLC (“Doiyen”) was incorporated in the State of California on January 2, 2020 and renamed to Doiyen LLC in July 7, 2020 and
100% owned by WOHG.
The
Company is an entertainment company engaged in the sale of own brand products, e-commerce platform advertising, and promotion for other
companies on their social media accounts.
On
November 12, 2020, the Company and WOHG entered into the Merger Agreement, and WOHG thereafter became a wholly owned subsidiary of the
Company. WOHG was determined to be the accounting acquirer in the Merger based upon the terms of other factors, including: (1) the security
holders owned approximately 50.54% of the Company’s issued and outstanding common stock as of immediately after the closing of
the Merger. Following the completion of the Merger, the Company changed its name from Tongji Healthcare Group, Inc. to Clubhouse Media
Group, Inc. The Merger was accounted for as a reverse-merger and recapitalization in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). WOHG was the acquirer for financial reporting purposes and
Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are
reflected in the historical financial statements prior to the Merger will be those of WOHG and will be recorded at the historical cost
basis of WOHG. The unaudited consolidated financial statements after completion of the Merger include the assets and liabilities
of the Company and WOHG, historical operations of WOHG and operations of the Company from the closing date of the Merger. Common
stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting
the exchange ratio in the Merger. This was a common control transactions so all amounts were based on historical cost and
no goodwill was recorded.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
unaudited consolidated financial statements have been prepared in accordance with GAAP and include all adjustments necessary for the
fair presentation of the Company’s financial position for the periods presented.
The
unaudited consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements
at that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on
Form 10-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 15, 2021, or the Annual Report.
Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2021.
Principles
of Consolidation
The
unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Use
of Estimates
In
preparing the unaudited consolidated financial statements in conformity with GAAP, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the unaudited
consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant
estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful
life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in
assessing impairment of long-lived assets. Actual results could differ from those estimates.
Reverse
Merger Accounting
The
Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. WOHG was the acquirer for financial reporting
purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are
reflected in the historical financial statements prior to the Merger will be those of WOHG and will be recorded at the historical cost
basis of WOHG since its inception on January 2, 2020. The consolidated financial statements after completion of the Merger include the
assets and liabilities of the Company and WOHG, historical operations of WOHG since its inception on January 2, 2020 to the closing date
of the merger, and operations of the Company from the closing date of the Merger. Common stock and the corresponding capital amounts
of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction
with the Merger, WOHG received no cash and assumed no liabilities from Clubhouse Media Group, Inc. All members of the Company’s
executive management are from WOHG.
Business
Combination
The
Company applies the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from
goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is
measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities
assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to
the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period
or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the unaudited consolidated statements of operations.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are
on deposit with financial institutions without any restrictions.
Advertising
Advertising
costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying unaudited consolidated
statements of operations. We incurred advertising expenses of $20,545 and $22,770 for the three months ended March 31, 2021 and for the
period from January 2, 2020 (inception) to March 31, 2020, respectively.
Accounts
Receivable
The
Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects of a
significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale.
The Company does not expect to collect receivables greater than one year from the time of sale.
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be uncollectible are charged
or written-off against the reserve. As of March 31, 2021 and December 31, 2020, there were $0 and $0 for bad debt allowance for accounts
receivable.
Property
and equipment, net
Plant
and equipment are stated at cost less accumulated depreciation and impairment. Depreciation of property, plant and equipment and are
calculated on the straight-line method over their estimated useful lives or lease terms generally as follows:
Classification
|
|
Useful
Life
|
Equipment
|
|
3
years
|
Lease
On
January 2, 2020, the Company adopted ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative
effect adjustment to accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated
below. As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC 842 for
the Company was the recognition in the unaudited consolidated balance sheet of certain lease-related assets and liabilities for operating
leases with terms longer than 12 months. The Company elected to use the short-term exception and does not records assets/liabilities
for short term leases as of March 31, 2021 and December 31, 2020.
The
Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an
arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with
terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease
term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized
incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term
when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual
lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized
on a straight-line basis over the lease term.
Leased
right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived
assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment
of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present,
the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income,
and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue
Recognition
In
May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606),
which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires
a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the
company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that
have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with
ASU 2014-09 (collectively, the new revenue standards).
Under
the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount
that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the
five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary
and permanent staffing solutions and sale of consumer products.
The
Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide
custom content, influencer marketing, amplification or other campaign management services (“Managed Services”)
The
Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service,
which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services
to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and
does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content
requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a
cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services
are recorded as a contract liability until earned. The Company assesses collectibility based on a number of factors, including the creditworthiness
of the customer and payment and transaction history.
For
Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations
in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs,
tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing
in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos.
Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding
the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination
of all types of these performance obligations on a statement of work for a lump sum fee. The Company allocates revenue to each performance
obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided
over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been
satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including
management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
Based
on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation
to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to
any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement
of work. The contract liabilities as of March 31, 2021 and December 31, 2020 were $83,420 and $73,848, respectively.
Goodwill
Impairment
We
test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount
of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss
on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will
be retained.
For
other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s
estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total
related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows
and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair
value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Based on its review, the Company believes that, as of and for the three months ended March 31, 2021 and December 31, 2020, there were
no impairment loss of its long-lived assets.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in
the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company
establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The
Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its
technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities.
Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold
are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies
potential accrued interest and penalties related to unrecognized tax benefits within the accompanying unaudited consolidated statements
of operations and comprehensive income (loss) as income tax expense.
The
Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating
losses from inception to December 31, 2020. The net operating losses that has future benefits will be recorded as $541,321 deferred tax
assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued expenses,
if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were
also estimated to approximate fair value.
The
Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets and liabilities.
As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements,
ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which
are described below:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV hierarchy
gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level 3 inputs.
The
Company used Level 3 inputs for its valuation methodology for the derivative liabilities for conversion feature of the convertible notes
in determining the fair value the weighted-average Binomial option pricing model following assumption inputs. The fair value of derivative
liability as of March 31, 2021 and December 31, 2020 were $254,957 and $304,490, respectively.
Basic
Income (Loss) Per Share
Under
the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to
common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss
per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution
limitations. Potential common shares consist of the convertible promissory notes payable as of March 31, 2021 and December 31, 2020.
As of March 31, 2021 and December 31, 2020, there were approximately 4,139,081 and 127,922 potential shares issuable upon
conversion of convertible notes payable.
The
table below presents the computation of basic and diluted earnings per share for the three month ended March 31, 2021 and for the period
from January 2, 2020 (inception) to March 31, 2020:
|
|
For the three months ended March 31, 2021
|
|
|
For the period from January 2, 2020 (inception) to
March 31, 2020
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,798,578
|
)
|
|
$
|
(227,079
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
|
93,330,191
|
|
|
|
92,623,286
|
|
Dilutive common stock equivalents
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding—diluted
|
|
|
93,330,191
|
|
|
|
92,623,386
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of accounts receivable. The Company does not require
collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment
practices of its customers to minimize collection risk on accounts receivable.
Stock
based Compensation
Stock
based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and
will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). Share-based
compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the
fair value of the share-based payment, whichever is more readily determinable.
Derivative
instruments
The
fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability
are recorded in the unaudited consolidated statement of operations under other (income) expense.
Our
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives under ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the
unaudited consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing
model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12 months of the balance sheet date.
Beneficial
Conversion Features
If
a conversion features did not meet the definition of derivative liability under ASC 815, the Company evaluates the conversion feature
for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note. If the
effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note,
the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method. The
Company amortized $495,936 and $0 of the discount on the convertible notes payable to interest expense for the three months
ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31, 2020, respectively.
Related
Parties
The
Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 related parties include:
a.
affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the
FV option under the FV Option Subsection of Section 825– 10–15, to be accounted for by the equity method by the investing
entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship
of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and
can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing
its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the
preparation of financial statements is not required in those statements.
The
disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts
of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing
the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the
financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events
occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in
such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits
of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the
contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Management does not believe, based upon information available at this time that these matters will have a material adverse effect on
the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not
materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
New
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology
that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within
those fiscal years. We did not expect the adoption of this guidance have a material impact on its unaudited consolidated financial statements.
On
October 1, 2020, we early adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12),
which simplifies the accounting for income taxes. This guidance was effective beginning January 1, 2021, with early adoption permitted.
The adoption of this new standard did not have a material impact on our unaudited consolidated financial statements.
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available
for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for
convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter
of 2022 on a full or modified retrospective basis, with early adoption permitted. The Company is currently evaluating the timing, method
of adoption and overall impact of this standard on its consolidated financial statements.
NOTE
3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company 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 accompanying financial statements, the Company had a net loss of $5,798,578 for the three months ended March 31, 2021,
negative working capital as of March 31, 2021, and stockholder’s deficit of $8,456,996. These factors among others raise substantial
doubt about the Company’s ability to continue as a going concern.
While
the Company is attempting to generate additional revenues, the Company’s cash position may not be significant enough to support
the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management
believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity
for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and
in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
4 – BUSINESS COMBINATIONS
Acquisition
of Magiclytics
On
February 3, 2021, the Company entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange Agreement”)
by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”),
each of the shareholders of Magiclytics (the “Magiclytics Shareholders”) and Christian Young, as the representative of the
Magiclytics Shareholders (the “Shareholders’ Representative”). Christian Young is the President, Secretary, and a Director
of the Company, and is also an officer, director, and significant shareholder of Magiclytics.
The
A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties,
which was executed on December 3, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.
On
February 3, 2021 (the “Magiclytics Closing Date”), the parties closed on the transactions contemplated in the A&R Share
Exchange Agreement, and the Company agreed to issue 734,689 shares of Company common stock to the Magiclytics Shareholders in exchange
for all 5,000 Magiclytics Shares (the “Magiclytics Closing”). On February 3, 2021, pursuant to the closing of the Share Exchange
Agreement, we acquired Magiclytics, and Magiclytics thereafter became our wholly owned subsidiary.
At
the Magiclytics Closing, we agreed to issue to Christian Young and Wilfred Man each 330,610 shares of Company Common Stock, representing
45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing.
The
number of shares of the Company common stock issued at the Magiclytics Closing was based on the fair market value of the Company common
stock as initially agreed to by the parties, which is $4.76 per share (the “Base Value”). The fair market value was determined
based on the volume weighted average closing price of the Company common stock for the twenty (20) trading day period immediately prior
to the Magiclytics,. In the event that the initial public offering price per share of the Company common stock in this Offering pursuant
to Regulation A is less than the Base Value, then within three (3) business days of the qualification by the SEC of the Offering Statement
forming part of this offering circular, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company
common stock equal to:
|
(1)
|
$3,500,000
divided by the initial public offering price per share of the Company common stock in this
Offering pursuant to Regulation A, minus;
|
|
(2)
|
734,689
|
The
resulting number of shares of the Company common stock pursuant to the above calculation will be referred to as the “Additional
Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective ownership
of Magiclytics Shares.
In
addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing Date
the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R Share Exchange
Agreement:
|
(i)
|
The
Board of Directors of Magiclytics (the “Magiclytics Board”) expanded the size
of the Magiclytics Board to 3 persons and named Simon Yu, a current officer and director
of the Company as a director of the Magiclytics Board.
|
|
(ii)
|
The
Magiclytics Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian
Young as the President and Secretary of the Magiclytics and Simon Yu as the Chief Operating
Officer of Magiclytics.
|
Further,
immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating
costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in
which Magiclytics engages with in the regular course of its business.
In
connection with the closing, the Company entered in a consulting agreement with Christian Young, a Director of the Company. The compensation
will be paid according to the 8-K filed on February 8, 2021 with the SEC.
Immediately
prior to closing of the Agreement, Chris Young is the President and Director of the Company, and was the Chief Executive Officer, a Director,
and a principal shareholder of 45% of outstanding capital stock of Magiclytics at the time of the share exchange. As a result of the
common ownership upon closing of the transaction, the acquisition was considered a common-control transaction and was outside the scope
of the business combination guidance in ASC 805-10. The entities are deemed to be under common control as of February
27, 2018, which was the date that the majority shareholder acquired control of the Company and, therefore, held control over both companies.
The Company recorded the consideration issued to purchase Magiclytics based on the carrying value of the net assets received
and $97,761 related party payables assumed per the acquisition agreement as of February 3, 2021 of $ (60,697). The financial statements
as of March 31, 2021 were adjusted as if the acquisition happened at the beginning of the year as of January 1, 2021.
Acquisition
Consideration
The
following table summarizes the carrying value of purchase price consideration to acquire Magiclytics:
Description
|
|
Amount
|
|
Carrying value of purchase consideration:
|
|
|
|
Common stock issued
|
|
$
|
(60,697
|
)
|
Total purchase price
|
|
$
|
(60,697
|
)
|
Purchase
Price Allocation
The
following is an allocation of purchase price as of the February 3, 2021 acquisition closing date based upon an estimate of the carrying
value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):
Description
|
|
Amount
|
|
Purchase price allocation:
|
|
|
|
Cash
|
|
$
|
76
|
|
Intangibles
|
|
|
77,889
|
|
Related party payable
|
|
|
(97,761
|
)
|
AP and accrued liabilities
|
|
|
(40,901
|
)
|
Identifiable net assets acquired
|
|
|
(60,697
|
)
|
Total purchase price
|
|
$
|
(60,697
|
)
|
NOTE
5 – PROPERTY AND EQUIPMENT
Fixed
assets, net consisted of the following:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
Estimated
Useful Life
|
|
|
(unaudited)
|
|
|
|
|
|
|
Equipment
|
|
$
|
84,956
|
|
|
$
|
79,737
|
|
|
3
years
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant, and equipment, gross
|
|
|
84,956
|
|
|
|
79,737
|
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
(21,880
|
)
|
|
|
(14,945)
|
|
|
|
Property,
plant, and equipment, net
|
|
$
|
63,076
|
|
|
$
|
64,792
|
|
|
|
Depreciation
expense were $6,935 and $0 for the three months ended March 31, 2021 and for the period from January 2, 2020 (inception) to March 31,
2020, respectively.
NOTE
6 – INTANGIBLES
As of March 31, 2021 and December
31, 2020, the Company has intangible assets of $79,653 and $0 from the acquisition of Magiclytics in February 2021. It is a platform
that internally developed for revenue prediction from influencer collaboration.
NOTE
7 – OTHER ASSETS
As
of March 31, 2021 and December 31, 2020, other assets consist of security deposit of $266,000 and $219,000 for operating leases, respectively.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
Convertible
Promissory Note – Scott Hoey
On
September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey
Note”).
The
Hoey Note had a maturity date of September 10, 2022 and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Hoey Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price (“VWAP”) during the 20-trading day period immediately prior
to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
December 8, 2020, the Company issued to Mr. Hoey 10,833 shares of Company common stock upon the conversion of the $7,500 convertible
promissory note issued to Mr. Hoey at a conversion price of $0.69 per share.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – Cary Niu
On
September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company issued
a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu Note”).
The
Niu Note has a maturity date of September 18, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Niu Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 30% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 30% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – Jesus Galen
On
October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen Note”).
The
Galen Note has a maturity date of October 6, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Galen will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – Darren Huynh
On
October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh Note”).
The
Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – Wayne Wong
On
October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong Note”).
The
Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – Matthew Singer
On
January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000 (“Singer
Note”).
The
Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 70% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
January 26, 2021, the Company issued to Matthew Singer 8,197 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Singer in the principal amount of $13,000 on January 3, 2021 at a conversion price of $1.59 per share.
Since
the conversion price is based on 70% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
Convertible
Promissory Note – ProActive Capital SPV I, LLC
On
January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital
SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i)
issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000,
reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive
Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the
Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount
ProActive Capital withheld from the total purchase price paid to the Company.
The
ProActive Capital Note has a maturity date of January 20, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement
related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock
in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by ProActive
Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits,
etc. which occur following the determination of the conversion price.
The
$25,000 original issue discounts, the fair value of 50,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $217,024.
Convertible
Promissory Note – GS Capital Partners #1
On
January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital #1”) with GS Capital Partners,
LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the
aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS
Capital Note”), and in connection therewith, sold to GS Capital 50,000 shares of Company Common Stock at a purchase price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs
in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at
GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the
Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61
days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
$28,889 original issue discounts, the fair value of 50,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $288,889.
Convertible
Promissory Note – GS Capital Partners #2
On
February 19, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #2”),
pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778
for a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection therewith, sold to GS Capital 100,000
shares of Company’s common stock, par value $0.001 per share at a purchase price of $100, representing a per share price
of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement
related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933,
as amended (the “Regulation A Offering”). At such time, the GS Capital Note (and the principal amount and any accrued
and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common
Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
$57,778 original issue discounts, the fair value of 100,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $577,778.
Convertible
Promissory Note – GS Capital Partners #3
On
March 16, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #3”), pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for
a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection therewith, sold to GS Capital 100,000 shares
of Company’s common stock, par value $0.001 per share at a purchase price of $100, representing a per share price of
$0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of March 22, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement
related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933,
as amended (the “Regulation A Offering”). At such time, the GS Capital Note (and the principal amount and any accrued
and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common
Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
$57,778 original issue discounts, the fair value of 100,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $577,778.
Convertible
Promissory Note – Tiger Trout Capital Puerto Rico
On
January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital
Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date, the Company
(i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting
a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company common stock
for a purchase price of $220.00.
The
Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if
the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required
to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity
date.
If
the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date,
that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare
all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”)
due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of
Company common stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after
the issuance date. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout
on 61 days’ notice to the Company.
The
$440,000 original issue discounts, the fair value of 220,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $1,540,000.
Convertible
Promissory Note – Amir Ben-Yohanan
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Amir 2021 Note”) to replace the Amir 2020 note. The Note memorializes a $2,400,000 loan that Mr.
Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Note bears simple interest at a rate
of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest
of the Note at any time without penalty.
At
the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A under the Securities Act
of 1933, as amended, $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or
the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value
$0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered
in the Offering Circular.
The
Amir 2021 Note added a substantial new conversion features as compare to the Amir 2020 note, therefore, the issuance of a new debt instrument
and satisfaction of an existing debt instrument by the debtor should be accounted for as debt extinguishment if the debt instruments
have substantially different terms. The Company recorded $297,138 as debt extinguishment
expense in the unaudited consolidated statement of operations under other (income) expense.
Convertible
Promissory Note – Labrys Fund, LP
On
March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”),
pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the
“Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued 125,000 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
$1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 10% per annum. The
Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing Date (as defined in the Labrys
SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert the Labrys Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at any time at a conversion price equal to
$10.00 per share.
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) occurs at an
amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750.00 for
administrative fees. The Labrys 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
the occurrence of any Event of Default, 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 Principal Sum then outstanding plus accrued interest multiplied
by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The
$100,000 original issue discounts, the fair value of 125,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $1,000,000.
Convertible Promissory Note Holder
|
|
Start Date
|
|
End Date
|
|
Note
Principal
Balance
|
|
|
Debt Discounts As of Issuance
|
|
|
Amortization
|
|
|
Debt Discounts As of 3/31/2021
|
|
Scott Hoey
|
|
9/10/2020
|
|
9/10/2022
|
|
|
-
|
|
|
|
7,500
|
|
|
|
(7,500
|
)
|
|
|
-
|
|
Cary Niu
|
|
9/18/2020
|
|
9/18/2022
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
(13,288
|
)
|
|
|
36,712
|
|
Jesus Galen
|
|
10/6/2020
|
|
10/6/2022
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
(7,233
|
)
|
|
|
22,767
|
|
Darren Huynh
|
|
10/6/2020
|
|
10/6/2022
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
(12,055
|
)
|
|
|
37,945
|
|
Wayne Wong
|
|
10/6/2020
|
|
10/6/2022
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
(6,027
|
)
|
|
|
18,973
|
|
Matt Singer
|
|
1/3/2021
|
|
1/3/2023
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
(13,000
|
)
|
|
|
-
|
|
ProActive Capital
|
|
1/20/2021
|
|
1/20/2022
|
|
|
250,000
|
|
|
|
217,024
|
|
|
|
(41,621
|
)
|
|
|
175,403
|
|
GS Capital #1
|
|
1/25/2021
|
|
1/25/2022
|
|
|
288,889
|
|
|
|
288,889
|
|
|
|
(51,446
|
)
|
|
|
237,443
|
|
Tiger Trout SPA
|
|
1/29/2021
|
|
1/29/2022
|
|
|
1,540,000
|
|
|
|
1,540,000
|
|
|
|
(257,370
|
)
|
|
|
1,282,630
|
|
GS Capital #2
|
|
2/16/2021
|
|
2/16/2022
|
|
|
577,778
|
|
|
|
577,778
|
|
|
|
(63,318
|
)
|
|
|
514,460
|
|
Labrys Fund, LLP
|
|
3/11/2021
|
|
3/11/2022
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
(54,795
|
)
|
|
|
945,205
|
|
GS Capital #3
|
|
3/16/2021
|
|
3/16/2022
|
|
|
577,778
|
|
|
|
577,778
|
|
|
|
(23,744
|
)
|
|
|
554,034
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
3,825,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
Remaining note principal balance
|
|
|
|
4,389,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
convertible promissory notes, net
|
|
|
|
563,873
|
|
Future
maturities of convertible notes payable at March 31, 2021 are as follows:
Years ending December 31,
|
|
|
|
2021
|
|
$
|
-
|
|
2022
|
|
|
4,389,445
|
|
2023
|
|
|
–
|
|
2024
|
|
|
–
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
–
|
|
|
|
$
|
4,389,445
|
|
NOTE
9 – SHARES TO BE ISSUED - LIABILITY
As
of March 31, 2021 and December 31, 2020, the Company entered into various consulting agreements with consultants, directors, and terms
of future financing from Labrys. The balances of shares to be issued – liability were $951,105 and $87,029 and has not been issued
as of March 31, 2021 and December 31, 2020. The Company recorded these consultant and director shares under liability based on the shares
will be issued at a fixed monetary amount known at inception under ASC 480.
NOTE
10 – DERIVATIVE LIABILITY
The
derivative liability is derived from the conversion features in note 8 signed for the period ended December 31, 2020. All were valued
using the weighted-average Binomial option pricing model using the assumptions detailed below. As of March 31, 2021 and December 31,
2020, the derivative liability were $254,957 and $304,490, respectively. The Company recorded $49,533 and $0 loss from gain (loss) in
derivative liability during the three months ended March 31, 2021 and 2020, respectively. The Binomial model with the following assumption
inputs:
|
|
March 31, 2021
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
1.4
– 1.5 years
|
|
Risk-Free Interest Rate
|
|
|
0.16
|
%
|
Expected Volatility
|
|
|
306
- 311 %
|
|
Fair
value of the derivative is summarized as below:
Beginning Balance, December 31, 2020
|
|
$
|
304,490
|
|
Additions
|
|
|
-
|
|
Mark to Market
|
|
|
(49,533
|
)
|
Cancellation of Derivative Liabilities Due to Conversions
|
|
|
-
|
|
Reclassification to APIC Due to Conversions
|
|
|
-
|
|
Ending Balance, March 31, 2021
|
|
$
|
254,957
|
|
|
|
December
31, 2020
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
1.6
– 2.0 years
|
|
Risk-Free Interest Rate
|
|
|
0.13
– 0.17
|
%
|
Expected Volatility
|
|
|
318
- 485
|
%
|
Fair
value of the derivative is summarized as below:
Beginning Balance, December 31, 2019
|
|
$
|
-
|
|
Additions
|
|
|
270,501
|
|
Mark to Market
|
|
|
61,029
|
|
Cancellation of Derivative Liabilities Due to Conversions
|
|
|
-
|
|
Reclassification to APIC Due to Conversions
|
|
|
(27,040
|
)
|
Ending Balance, December 31, 2020
|
|
$
|
304,490
|
|
NOTE
11 – NOTE PAYABLE, RELATED PARTY
For
the period ended December 31, 2020, the Company signed a note payable agreement (“Amir 2020 note”) with the Company’s
Chief Executive Officer for advances up to $5,000,000 at 0% interest rate. The entire balance has to be paid back on or before January
31, 2023. As of December 31, the Company has a balance of $2,162,562 owed to the Chief Executive Officer of the Company. The note payable
was subsequently amended on February 2, 2021.
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Amir 2021 Note”) to replace the Amir 2020 note. The Note memorializes a $2,400,000 loan that Mr.
Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Note bears simple interest at a rate
of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest
of the Note at any time without penalty.
At
the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A under the Securities Act
of 1933, as amended, $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or
the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value
$0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered
in the Offering Circular.
In
accordance with ASC 470-50-40-10 a modification or an exchange of debt that adds or eliminates a substantive conversion option as of
the conversion date would always be considered substantial and require extinguishment accounting. We concluded the conversion features
of the Amir 2021 note is substantial. As a result, we recorded a loss on the extinguishment of debt in the amount of $297,138 in our
consolidated statements of operations and credit as premium on the note payable to the related party. The premium will be amortized over
the life of the loan which is expired on February 2, 2024.
NOTE
12 – RELATED PARTY TRANSACTIONS
As
of December 31, 2020, the Company’s Chief Executive Officer had advanced $2,162,562 to the Company for payment of the Company’s
operating expenses. The Company recorded $87,213 as imputed interest and recorded as additional paid in capital for the year ended December
31, 2020 from the loan advanced by the Company’s Chief Executive Officer.
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Amir 2021 Note”) to replace the Amir 2020 note. The Note memorializes a $2,400,000 loan that Mr.
Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Note bears simple interest at a rate
of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest
of the Note at any time without penalty. The Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may
prepay all or any portion of the principal amount and any accrued and unpaid interest of the Note at any time without penalty.
At
the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A under the Securities Act
of 1933, as amended, $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or
the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value
$0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered
in the Offering Circular.
For
the three months ended March 31, 2021, the Board of Directors approved and paid $285,000 cash bonuses to Amir Ben-Yohanan, Chris Young,
and Simon Yu.
For
the three months ended March 31, 2021, the Company’s Chief Executive Officer advanced an additional $135,000 to the Company to
pay the Company’s operating expenses.
Effective
March 4, 2021, the Company entered into three (3) separate director agreements with three Amir Ben-Yohanan, Christopher Young, and Simon
Yu. The Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s, and Mr. Yu’s role
as a director of the Company.
Pursuant
to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
|
●
|
An
issuance of 31,821 shares of the Company’s common stock, par value par value $0.001
(“Common Stock”), to be issued on the Effective Date, as compensation for services
provided by each of the Directors to the Company prior to the Effective Date; and
|
|
●
|
An
issuance of a number of shares of Common Stock having a fair market value (as defined in
each of the Director Agreements) of $25,000 at the end of each calendar quarter that the
Director serves as a director.
|
As
of March 31, 2021 and December 31, 2020, the Company has a payable balance owed to Christian Young of $0 and $23,685.
As
of March 31, 2021 and December 31, 2020, the Company has a payable balance owed to the original Magiclytics shareholders of $97,761
and $0 from the acquisition of Magiclytics on February 3, 2021.
NOTE
13 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
July 7, 2020, the Company increased the authorized capital stock of the Company to 550,000,000, comprised of 500,000,000 shares of common
stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001.
Preferred
Stock
As
of March 31, 2021 and December 31, 2020, there was 1 preferred share issued and outstanding.
On
November 12, 2020, the Company filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the
preferred stock of the Company as the Series X Preferred Stock of the Company.
In
November 2020, the Company issued and sold to the Company’s Chief Executive Officer 1 share of Series X Preferred Stock, at a purchase
price of $1.00. The share of Series X Preferred Stock shall have a number of votes at any time equal to (i) the number of votes then
held or entitled to be made by all other equity securities of the Company, debt securities of the Company or pursuant to any other agreement,
contract or understanding of the Company, plus (ii) one (1). The Series X Preferred Stock shall vote on any matter submitted to the holders
of the Common Stock, or any class thereof, for a vote, and shall vote together with the Common Stock, or any class thereof, as applicable,
on such matter for as long as the share of Series X Preferred Stock is issued and outstanding. The Series X Preferred Stock shall not
have the right to vote on any matter as to which solely another class of Preferred Stock of the Company is entitled to vote pursuant
to the certificate of designations of such other class of Preferred Stock of the Company.
The
Series X Preferred Stock shall not be convertible into shares of any other class of stock of the Company and entitled to receive any
dividends paid on any other class of stock of the Company.
In
the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation
of the Company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the
Series X Preferred Stock shall not be entitled to receive any distribution of any of the assets or surplus funds of the Company and shall
not participate with the Common Stock or any other class of stock of the Company therein.
Common
Stock
As
of March 31, 2021 and December 31, 2020, the Company had 50,000,000 shares of common stock authorized with a par value of $0.001. There
were 94,302,795 and 92,682,632 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
For
the three months ended March 31, 2021, the Company issued 207,817 shares to consultants and directors at fair value of $2,113,188.
For
the three months ended March 31, 2021, the Company issued 734,689 shares to acquire Magiclytics,
For
the three months ended March 31, 2021, the Company issued 8,197 shares to settle a conversion of $13,000 convertible promissory note.
For
the three months ended March 31, 2021, the Company issued 24,460 shares to settle an accounts payable balance of $148,510.
For
the three months ended March 31, 2021, the Company issued 645,000 shares as debt issuance costs for convertible notes payable at fair
value of $3,441,400.
NOTE
14 – COMMITMENTS AND CONTINGENCIES
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus
originating in Wuhan, China (the “COVID-19 outbreak”), and the risks to the international community as the virus spreads
globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase
in exposure globally. The Company’s suppliers may decrease production levels based on factory closures and reduced operating hours
in those facilities. Likewise, the Company is dependent on its workforce to deliver its products. Developments such as social distancing
and shelter-in-place directives may impact the Company’s ability to deploy its workforce effectively. The full impact of the COVID-19
outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will
have on the Company’s financial condition, liquidity, and future results of operations.
Management
is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and
workforce. The Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time. If the pandemic continues,
it may have a material effect on the Company’s results of future operations, financial position, and liquidity in the next 12 months.
On
March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations,
increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement
property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote
continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company
did not obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries.
The
Company continues to examine the impact that the CARES Act may have on our business. Currently, management is unable to determine the
total impact that the CARES Act will have on our financial condition, results of operations, or liquidity.
The
Company has four short term leases in the United States and two month to month leases in Europe as of March 31, 2021. All short-term
leases will be expired in 2021. The total monthly rent expense is approximately $180,000.
NOTE
15 – SUBSEQUENT EVENTS
The
Company has evaluated events subsequent to March 31, 2021, to assess the need for potential recognition or disclosure in the unaudited
consolidated financial statements. Such events were evaluated through May 17, 2021, the date and time the unaudited consolidated financial
statements were issued, and it was determined that no subsequent events, except as follows, occurred that required recognition or disclosure
in the unaudited consolidated financial statements.
Convertible
Promissory Note – GS Capital Partners #4
On
April 1, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #4”), pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for
a purchase price of $500,000, reflecting a $50,000 original issue discount, and in connection therewith, sold to GS Capital 45,000 shares
of Company’s common stock, par value $0.001 per share at a purchase price of $45, representing a per share price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs
in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of April 1, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement
related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933,
as amended (the “Regulation A Offering”). At such time, the GS Capital Note (and the principal amount and any accrued
and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common
Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
$50,000 original issue discounts, 45,000 shares issued at fair value of $437,400, and the beneficial conversion features were recorded
as debt discounts and amortized over the term of the note, but since the total debt discounts cannot exceed the note principal balance
of $550,000, the total debt discount at the inception date of this convertible promissory note were recorded at $550,000.
Convertible
Promissory Note – Eagle Equities LLC
On
April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle
Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate
principal amount of $1,100,000 for a purchase price of $1,000,000.00, reflecting a $100,000 original issue discount (the “Eagle
Equities Note”), and, in connection therewith, sold to Eagle Equities 165,000 shares of Company’s common stock, par value
of $0.001 per share (the “Company Common Stock”) at a purchase price of $165.00, representing a per share price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed Eagle Equities the sum of $10,000 for Eagle Equities’
costs in completing the transaction, which amount Eagle Equities withheld from the total purchase price paid to the Company.
The
Eagle Equities Note has a maturity date of April 13, 2022 and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than upon the circumstances set forth in the Eagle Equities Note – specifically,
if (i) the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock
pursuant to Regulation A under the Securities Act of 1933, as amended; and (ii) the Company receives $3,5000,000 in net proceeds from
such Regulation A Offering, then Company must repay the principal amount and any accrued and unpaid interest on the Eagle Equities Note
within three (3) business days from the date of such occurrence. The Company may prepay all or any portion of the principal amount and
any accrued and unpaid interest at any time without penalty.
The
Eagle Equities Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at Eagle Equities’ election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by Eagle Equities on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price. Alternatively, if the SEC has not qualified the Company’s offering statement related to
the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933 by October 10,
2021, and Eagle Equities Note has not yet been fully repaid, then Eagle Equities will have the right to convert the Eagle Equities Note
(and the principal amount and any accrued and unpaid interest) into restricted shares of Company Common Stock at a conversion price of
$6.50 per share (subject to customary adjustments for any stock splits, etc. which occur following the April 13, 2021).
Convertible
Promissory Note – GS Capital Partners #5
On
April 29, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with GS Capital Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company issued
a convertible promissory note to GS Capital in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting
a $50,000 original issue discount (the “April 2021 GS Capital Note #2”) and, in connection therewith, sold to GS Capital
125,000 shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”) at
a purchase price of $125, representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed
GS Capital the sum of $5,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total
purchase price paid to the Company.
The
April 2021 GS Capital Note #2 has a maturity date of April 29, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the April 2021 GS Capital Note #2, and
the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
April 2021 GS Capital Note #2 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Company Common Stock”) at GS Capital’s election at any time following
the time that the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common
Stock pursuant to Regulation A under the Securities Act of 1933, as amended (the “Regulation A Offering”). At such time,
the April 2021 GS Capital Note #2 (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion
price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial
ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject
to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
Consulting
Agreement
On
April 2, 2021, the Company entered into a Consulting Agreement by and between the Company and Andrew Omori. Pursuant to the terms of
the Consulting Agreement, Mr. Omori agreed to (i) provide general corporate advice on strategic matters to the Company, and (ii) serve
as an advisor to the Company’s Board of Directors. Among other things, Mr. Omori will not act as an investment advisor or broker/dealer,
his services are not exclusive, he will not negotiate the sale of the Company’s securities, and Mr. Omori is not required to render
any specific number of hours to the Company. In exchange for Mr. Omori’s services, at the end of each one-month period, the Company
will issue to Mr. Omori a number of shares of the Company’s common stock equal to $30,000 divided by the VWAP as of the last day
of such monthly period or the date of earlier termination or expiration of the Consulting Agreement, as applicable. The Consulting Agreement
will continue for a period of one year from April 2, 2021, unless sooner terminated in accordance with the terms of the Consulting Agreement.
The term of the Consulting Agreement may be renewed upon the mutual written agreement of the parties via an amendment to the Consulting
Agreement. The Consulting Agreement may be terminated at any time by either party upon notice to the other party.
Simon
Yu Employment Agreement
On
April 9, 2021, the Company entered into an employment agreement with Simon Yu, its Chief Operating Officer. Pursuant to this employment
agreement, Mr. Yu agreed to continue to serve as Chief Operating Officer of the Company, reporting to the Chief Executive Officer of
the Company (or other person determined by the Chief Executive Officer or the Company’s Board of Directors (the “Board”).
As compensation for Mr. Yu’s services, the Company agreed to pay Mr. Yu an annual base salary of $380,000 (the “Base Salary”)
comprised of two parts a “Cash Portion”, and an “Optional Portion”. The Cash Portion is a monthly cash payment
of $15,000 – or $180,000 on an annual basis. The remaining $200,000 per year – the Optional Portion – is payable as
follows:
|
(i)
|
If
the Company’s Board determines that the Company has sufficient cash on hand to pay all or a portion of the Optional Portion
in cash, such amount shall be paid in cash.
|
|
(i)
|
If
the Board determines that the Company does not have sufficient cash on hand to pay all of
the Optional Portion in cash, then the portion of the Optional Portion which the Board determines
that the Company has sufficient cash on hand to pay in cash will be paid in cash, and the
remainder (the “Deferred Portion”) will either:
|
|
|
|
a.
|
be
paid at a later date, when the Board determines that the Company has sufficient cash on hand to enable the Company to pay the Deferred
Portion; or
|
|
|
|
b.
|
will
not be paid in cash – and instead, the Company will issue shares of Company Common Stock equal to (A) the Deferred Portion,
divided by (B) the VWAP (as defined in the employment agreement) as of the date of issuance of such shares of Company Common Stock.
|
In
addition, pursuant to the employment agreement, Mr. Yu is entitled to be paid discretionary annual bonuses as determined by the Board
(currently intended to be a maximum of $250,000 per year), and is also entitled to receive fringe benefits, such as, but not limited
to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days,
and certain insurances.
The
initial term of the employment agreement is one (1) year from the effective date of the agreement (i.e. April 9, 2022), unless earlier
terminated. Thereafter, the term is automatically extended on an annual basis for terms of one (1) year each, unless either the Company
or Mr. Yu provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least thirty
(30) days prior to the expiration of the then-current term.
Mr.
Yu’s employment with the Company shall be “at will,” meaning that either Mr. Yu or the Company may terminate Mr. Yu’s
employment at any time and for any reason, subject to certain terms and conditions.
The
Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement
and Mr. Yu may terminate the employment agreement at any time, with or without “good reason”, as defined in the employment
agreement. If the Company terminates the employment agreement for cause or Mr. Yu terminates the employment agreement without good reason,
Mr. Yu will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed
or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be
paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be
paid via the issuance of shares of Company Common Stock. Mr. Yu will also be entitled to payment for any unreimbursed expenses as of
the termination date. However, any unvested portion of any equity granted to Mr. Yu will be immediately forfeited as of the termination
date.
If
the Company terminates the employment agreement without cause or Mr. Yu terminates the employment agreement with good reason, Mr. Yu
will be entitled to receive the same compensation (unpaid accrued salary and unreimbursed expenses), and, in addition, will be entitled
to receive, in one lump sum, the remainder of Mr. Yu’s annual salary that has not yet been paid as of the date of the termination
– either in cash, or in shares of Company Common Stock. Further, any equity grant already made to Mr. Yu shall, to the extent not
already vested, be deemed automatically vested.
Harris
Tulchin Employment Agreement
On
April 9, 2021, the Company entered into an employment agreement with Harris Tulchin for Mr. Tulchin to serve as Chief Legal Officer of
the Company. The terms of Mr. Tulchin’s employment agreement are identical to the terms of the employment agreement of Simon Yu
described above.
On
April 11, 2021, the Company’s Board formally appointed Harris Tulchin as an executive officer of the Company, with the title of
Chief Legal Officer.
Christian
Young Employment Agreement
On
April 11, 2021, the Company entered into an employment agreement with Christian Young for Mr. Young to serve as President of the Company.
The terms of Mr. Young’s employment agreement are identical to the terms of the employment agreement of Simon Yu and Harris Tulchin
described above, except for the fact that the Company and Mr. Young acknowledged that each of them are also the parties to that certain
Consulting Agreement, dated as of February 3, 2021 and filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed
February 8, 2021 with the SEC (the “Consulting Agreement”), and that the Consulting Agreement and Mr. Young’s employment
agreement will operate independently of each other – except that in the event of a conflict between this employment agreement and
the Consulting Agreement, the terms and conditions of this employment agreement will control.
Amir
Ben-Yohanan Employment Agreement
On
April 11, 2021, the Company entered into an employment agreement with Amir Ben-Yohanan for Mr. Ben-Yohanan to serve as Chief Executive
Officer of the Company. The terms of Mr. Ben-Yohanan’s employment agreement are identical to the terms of the employment agreements
of Simon Yu and Harris Tulchin described above, except for the following terms:
|
●
|
Mr.
Ben-Yohanan’s Base Salary is $400,000 per year
|
|
●
|
Mr.
Ben-Yohanan reports only to the Board of Directors of the Company.
|
Repayment
of Labrys Convertible Promissory Note
In
May 2021, the Company paid $250,000 cash to reduce the balance of the convertible promissory note from Labrys Fund, LP.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Clubhouse Media Group, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of Clubhouse Media Group, Inc. (“the Company”) as of December
31, 2020, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the
period from January 2, 2020 (inception) to December 31, 2020, and the related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020, and the results of its operations and its cash flows for the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3 to the financial statements, the Company has net losses and negative working capital. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Valuation
of Allowance for Uncollectible Accounts
Description
of the Matter: At December 31, 2020, the Company’s accounts receivable was $213,422. As described in Note 2 to the consolidated
financial statements, the Company maintains an allowance against potential losses through analysis of historical and current factors
on a customer-by-customer basis. Auditing the allowance for uncollectible accounts requires analysis and testing of calculations
and assessments made by the Company. Additionally, the Company has not had a significant operating history on which to calculate
an allowance, which introduces a level of subjectivity that requires additional testing and assessment.
How
We Addressed the Matter: We obtained an understanding of the Company’s processes surrounding accounts receivable and
the allowance for uncollectible accounts and tested the collectability of the accounts receivable at December 31, 2020. We tested
the collectability by obtaining cash receipts received subsequent to year end for the entire balance of accounts receivable at
December 31, 2020.
Valuation
of Derivative Liabilities for Conversion Features in Convertible Debt
Description
of the Matter: At December 31, 2020, the Company’s derivative liability was $304,490. As described in Note 2 to the
consolidated financial statements, the Company records a derivative liability for embedded conversion features by performing a
valuation of the conversion features using the binomial model. The use of the binomial model requires the Company to determine
appropriate inputs to put into the model. Auditing the valuation of the derivative liability requires testing and analysis of
the underlying estimates and assumptions the Company used as inputs in the binomial model.
How
We Addressed the Matter: Our audit procedures consisted of testing the key inputs that were used in the binomial model by
calculating our own internal valuation of the derivative liability and comparing to what was recorded by the Company.
We
have served as the Company’s auditor since 2020.
Spokane,
Washington
March
15, 2021
Clubhouse
Media Group, Inc.
Consolidated
Balance Sheet
|
|
As
of December 31,
|
|
|
|
2020
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
37,774
|
|
Accounts
receivable, net
|
|
|
213,422
|
|
Other
current assets
|
|
|
219,000
|
|
Total
current assets
|
|
|
470,196
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
64,792
|
|
Total
assets
|
|
$
|
534,988
|
|
|
|
|
|
|
Liabilities
and stockholder’s equity (deficit)
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
219,852
|
|
Deferred
revenue
|
|
|
73,648
|
|
Convertible
notes payable, net
|
|
|
19,493
|
|
Shares
to be issued
|
|
|
87,029
|
|
Derivative
liability
|
|
|
304,490
|
|
Due
to related parties
|
|
|
–
|
|
Total
current liabilities
|
|
|
704,512
|
|
|
|
|
|
|
Notes
payable - related party
|
|
|
2,162,562
|
|
Total
liabilities
|
|
|
2,867,074
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
–
|
|
|
|
|
|
|
Stockholder’s
equity:
|
|
|
|
|
Preferred
stock, par value $0.001, authorized 50,000,000 shares; 1 share issued and outstanding at December 31, 2020
|
|
|
–
|
|
Common
stock, par value $0.001, authorized 500,000,000 shares; 92,682,632 shares issued and outstanding at December 31, 2020
|
|
|
92,682
|
|
Additional
paid-in capital
|
|
|
152,953
|
|
Accumulated
deficit
|
|
|
(2,577,721
|
)
|
Accumulated
other comprehensive income
|
|
|
-
|
|
Total
stockholder’s equity (deficit)
|
|
|
(2,332,086
|
)
|
Total
liabilities and stockholder’s equity (deficit)
|
|
$
|
534,988
|
|
See
Accompanying Notes to Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statement of Operations
For
the period from January 2, 2020 (inception) to December 31, 2020
|
|
|
|
|
Total
Revenue, net
|
|
$
|
1,010,405
|
|
Cost
of sales
|
|
|
579,855
|
|
Gross
profit
|
|
|
430,550
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Selling,
general, and administrative
|
|
|
1,494,692
|
|
Rent
expense
|
|
|
990,413
|
|
Impairment
of goodwill
|
|
|
240,000
|
|
Total
operating expenses
|
|
|
2,725,105
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,294,555
|
)
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
Interest
expense, net
|
|
|
222,207
|
|
Other
(income) expense, net
|
|
|
(70
|
)
|
Change
in fair value of derivative liability
|
|
|
61,029
|
|
Total
other (income) expenses
|
|
|
283,166
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(2,577,721
|
)
|
|
|
|
|
|
Income
tax (benefit) expense
|
|
|
–
|
|
Net
income (loss)
|
|
$
|
(2,577,721
|
)
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
52,099,680
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.05
|
)
|
See
Accompanying Notes to Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statement of Stockholder’s Equity (Deficit)
|
|
Common
Stock
|
|
|
Preferred
Shares
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Total
Stockholder’s
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 2, 2020 (inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
$
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
as of the recapitalization
|
|
|
45,812,191
|
|
|
|
45,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,812
|
|
Shares
issued in recapitalization
|
|
|
46,811,195
|
|
|
|
46,811
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(92,323
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,512
|
)
|
Stock
compensation expense
|
|
|
30,231
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73,552
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73,582
|
|
Conversion
of convertible debt
|
|
|
10,833
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,540
|
|
Shares
issued to settle accounts payable
|
|
|
18,182
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Imputed
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,213
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,577,721
|
)
|
|
|
-
|
|
|
|
(2,577,721
|
)
|
Balance
at December 31, 2020
|
|
|
92,682,632
|
|
|
$
|
92,682
|
|
|
|
1
|
|
|
$
|
-
|
|
|
$
|
152,953
|
|
|
$
|
(2,577,721
|
)
|
|
$
|
-
|
|
|
$
|
(2,332,086
|
)
|
See
Accompanying Notes to Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Consolidated
Statement of Cash Flow
For
the period from January 2, 2020 (inception) to December
31, 2020
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
Net loss
|
|
$
|
(2,577,721
|
)
|
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
|
41,938
|
|
Imputed interest
|
|
|
87,213
|
|
Stock compensation expense
|
|
|
160,611
|
|
Impairment of goodwill
|
|
|
240,000
|
|
Change in fair value of derivative liability
|
|
|
61,029
|
|
Interest expense in excess of derivative
liability
|
|
|
108,000
|
|
Net changes in operating assets &
liabilities:
|
|
|
|
|
Accounts receivable
|
|
|
(213,422
|
)
|
Deposits and other current assets
|
|
|
(219,000
|
)
|
Subscription receivable
|
|
|
–
|
|
Other assets
|
|
|
–
|
|
Accounts payable
and accrued liabilities
|
|
|
343,801
|
|
Net cash used in operating activities
|
|
|
(1,967,551
|
)
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
(79,737
|
)
|
Cash paid for
Tongji public shell company
|
|
|
(240,000
|
)
|
Net cash used in investing activities
|
|
|
(319,737
|
)
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
Borrowings from note payable - related
party
|
|
|
2,162,562
|
|
Borrowings from
convertible notes payable
|
|
|
162,500
|
|
Net cash provided by financing activities
|
|
|
2,325,062
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
37,774
|
|
Cash and cash
equivalents at beginning of period
|
|
|
–
|
|
Cash and cash
equivalents at end of period
|
|
$
|
37,774
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
|
|
|
|
Supplemental disclosure of non-cash
investing and financing Activities:
|
|
|
|
|
Reclass of derivative
liability to APIC
|
|
$
|
27,040
|
|
Shares issued
for conversion from convertible note payable
|
|
$
|
7,500
|
|
Shares issued
to settle accounts payable
|
|
$
|
50,000
|
|
See
Accompanying Notes to Consolidated Financial Statements.
Clubhouse
Media Group, Inc.
Notes
to Consolidated Financial Statements
For
the Period from January 2, 2020 (inception) to December
31, 2020
NOTE
1 - ORGANIZATION AND OPERATIONS
Clubhouse
Media Group, Inc. (formerly known as Tongji Healthcare Group, Inc. or the “Company”) was incorporated under the laws
of the State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji,
Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on
March 25, 2011.
NTH
was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”)
by Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH
is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes in the areas of internal
medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology,
otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination,
and prevention.
On
December 27, 2006, Tongji, Inc. acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger, pursuant to which
NTH became a wholly owned subsidiary of Tongji, Inc. Pursuant to the Agreement and Plan of Merger, the Company issued 15,652,557
shares of common stock to the stockholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of
NTH. The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders
of NTH obtained control of the entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization
of NTH, with NTH being treated as the continuing operating entity. The Company, through NTH, thereafter operated the hospital
until the Company eventually sold NTH, as described below.
Effective
December 31, 2017, under the terms of a Bill of Sale, the Company agreed to sell, transfer convey and assign forever all of its
rights, title and interest in its equity ownership interest in NTH to Placer Petroleum Co., LLC. Pursuant to the Bill of Sale,
consideration for this sale, transfer conveyance and assignment is Placer Petroleum Co., LLC assuming all assets and liabilities
of NTH as of December 31, 2017. Thereafter, the Company had minimal operations.
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered an
Order Granting Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to Nevada Revised Statutes
(“NRS”) 78.347(1)(b), pursuant to which Mr. Arcaro was appointed custodian of the Company and given authority to reinstate
the Company with the State of Nevada under NRS 78.347.
On
May 23, 2019, Mr. Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada.
In addition, on May 23, 2019, Mr. Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada,
designating himself as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On May 29, 2020, Mr. Arcaro, through his ownership
of Algonquin Partners Inc. (“Algonquin”), owner 65% of the Company’s common stock, entered into a Stock Purchase Agreement
by and among West of Hudson Group, Inc. (“WOHG”), the Company, Algonquin, and Mr. Arcaro. The Stock Purchase Agreement, as
subsequently amended, is referred to herein as the “SPA.” Pursuant to the terms of the SPA, WOHG agreed to purchase, and
Algonquin agreed to sell, 30,000,000 shares of the Company’s common stock in exchange for payment by WOHG to Algonquin of $240,000
(the “Stock Purchase”). The Stock Purchase closed on June 18, 2020, resulting in a change of control of the Company. Mr.
Arcaro resigned from any and all officer and director positions with the Company.
On July 7, 2020, the Company increased the authorized
capital stock of the Company to 550,000,000, comprised of 500,000,000 shares of common stock, par value $0.001, and 50,000,000 shares
of preferred stock, par value $0.001.
West of Hudson Group, Inc. (“WOHG”)
was incorporated in the State of Delaware on May 19, 2020 and owned 100% of WOH Brands, LLC (“WOH”), Oopsie Daisy Swimwear,
LLC (“Oopsie”), and DAK Brands, LLC (“DAK”), which were incorporated in the State of Delaware on May 13, 2020.
Doiyen LLC (“Doiyen”) was incorporated
in the State of California on January 2, 2020 and renamed to Doiyen LLC in July 7, 2020 and 100% owned by WOHG.
The Company is an entertainment company engaged
in the sale of own brand products, e-commerce platform advertising, and promotion for other companies on their social media accounts.
On November 12, 2020, the Company and WOHG entered into the Merger Agreement, and WOHG thereafter
became a wholly owned subsidiary of the Company. WOHG was determined to be the accounting acquirer in the Merger based upon the terms
of other factors, including: (1) the security holders owned approximately 50.54% of the Company’s issued and outstanding common
stock as of immediately after the closing of the Merger. Following the completion of the Merger, the Company changed its name from Tongji
Healthcare Group, Inc. to Clubhouse Media Group, Inc. The Merger was accounted for as a reverse-merger and recapitalization in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). WOHG was the acquirer for financial
reporting purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations
that are reflected in the historical financial statements prior to the Merger will be those of WOHG and will be recorded at the historical
cost basis of WOHG. The consolidated financial statements after completion
of the Merger include the assets and liabilities of the Company and WOHG, historical operations of WOHG and operations of the Company
from the closing date of the Merger. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively
restated as capital stock shares reflecting the exchange ratio in the Merger. This was a common control transactions so all amounts were
based on historical cost and no goodwill was recorded.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position for the
periods presented.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Use
of Estimates
Significant
estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt,
useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions
used in assessing impairment of long-lived assets. Actual results could differ from those estimates.
Reverse
Merger Accounting
The Merger was accounted for
as a reverse-merger and recapitalization in accordance with accounting principles generally accepted in the United States of America
(“GAAP”). WOHG was the acquirer for financial reporting purposes and Clubhouse Media Group, Inc. was the acquired
company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements
prior to the Merger will be those of WOHG and will be recorded at the historical cost basis of WOHG since its inception on
January 2, 2020. The consolidated financial statements after completion of the Merger include the assets and liabilities of
the Company and WOHG, historical operations of WOHG since its inception on January 2, 2020 to the closing date of the merger,
and operations of the Company from the closing date of the Merger. Common stock and the corresponding capital amounts of the
Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction
with the Merger, WOHG received no cash and assumed no liabilities from Clubhouse Media Group, Inc. All members of the Company’s
executive management are from WOHG.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents
are on deposit with financial institutions without any restrictions.
Advertising
Advertising
costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying consolidated
statements of operations. We incurred advertising expenses of $27,810 for the period from January 2, 2020 (inception) to
December 31, 2020.
Accounts
Receivable
The
Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects
of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the
time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the
composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current
economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be
uncollectible are charged or written-off against the reserve. As of December 31, 2020, there was $0 for bad
debt allowance for accounts receivable.
Property
and equipment, net
Plant
and equipment are stated at cost less accumulated depreciation and impairment. Depreciation of property, plant and equipment and
are calculated on the straight-line method over their estimated useful lives or lease terms generally as follows:
Classification
|
|
Useful
Life
|
Equipment
|
|
3 years
|
Lease
On
January 2, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative effect
adjustment to accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated
below. As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC
842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for
operating leases with terms longer than 12 months. The Company elected to use the short term exception and does not records assets/liabilities
for short term leases as of December 31, 2020.
The
Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether
an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all
leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying
asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease
term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a
lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use
asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made,
less any lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
Leased
right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its
long-lived assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility
leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment.
If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable
including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset
group.
Revenue
Recognition
In
May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic
606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard
requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration
that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU
No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The
Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
Under
the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in
an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues
following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue
from providing temporary and permanent staffing solutions and sale of consumer products.
The
Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to
provide custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The
Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms
of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies
the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee
stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage
their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically
provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion
of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses
collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
For
Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance
obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the
provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through
advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article,
informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public
awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external
use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for
a lump sum fee. The Company allocates revenue to each performance obligation in the contract at inception based on its relative
standalone selling price. These performance obligations are to be provided over a stated period that generally ranges from one
day to one year. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service
provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single
performance obligation that is satisfied at the time the customer receives the benefits from the services.
Based
on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary
obligation to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the
risk of payment to any third-party creators and it establishes the contract price directly with its customers based on the services
requested in the statement of work. The contract liabilities as of December 31, 2020 was $73,648.
Goodwill
Impairment
We
test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying
amount of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the
gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting
unit that will be retained.
For
other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s
estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation
to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based
on undiscounted cash flows and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised
values.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market
value, if readily determinable. Based on its review, the Company believes that, as of December 31, 2020, there
were no impairment loss of its long-lived assets.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law. For deferred tax assets, management evaluates the probability of realizing the future
benefits of such assets. The Company establishes valuation allowances for its deferred tax assets when evidence suggests it is
unlikely that the assets will be fully realized.
The
Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely
on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by
the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold are recognized in
the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer
meet the more likely than not threshold are derecognized in the first subsequent financial reporting period in which that threshold
is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within
the accompanying consolidated statements of operations and comprehensive income (loss) as income tax expense.
The
Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating
losses from inception to December 31, 2020. The net operating losses that has future benefits will be recorded as $541,321 deferred
tax assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued
expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts
of debt were also estimated to approximate fair value.
The
Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets
and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and
comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used
to measure FV into three broad levels, which are described below:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV
hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level
3 inputs.
The
Company used Level 3 inputs for its valuation methodology for the derivative liabilities for conversion feature of the convertible
notes in determining the fair value the weighted-average Binomial option pricing model following assumption inputs. The fair value
of derivative liability as of December 31, 2020 was $304,490.
Basic
Income (Loss) Per Share
Under
the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available
to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted
net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the
Company, subject to anti-dilution limitations. Potential common shares consist of the convertible promissory notes payable as
of December 31, 2020. As of December 31, 2020, there are approximately 127,922 potential shares issuable upon conversion
of convertible notes payable.
The
table below presents the computation of basic and diluted earnings per share for the period from January 2, 2020 (inception)
to December 31, 2020:
For
the period from January 2, 2020 (inception) to December 31, 2020
|
|
Numerator:
|
|
|
|
|
Net loss
|
|
$
|
(2,577,721
|
)
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
|
52,099,680
|
|
Dilutive common stock equivalents
|
|
|
-
|
|
Weighted average common shares outstanding—diluted
|
|
|
52,099,680
|
|
Net loss per share:
|
|
|
|
|
Basic
|
|
$
|
(0.050
|
)
|
Diluted
|
|
$
|
(0.050
|
)
|
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of accounts receivable. The Company does not
require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition
and payment practices of its customers to minimize collection risk on accounts receivable.
Stock
based Compensation
Stock
based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award,
and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award).
Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily determinable.
Derivative
instruments
The
fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives
liability are recorded in the consolidated statement of operations under other (income) expense.
Our
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing
model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Related
Parties
The
Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 related parties include:
a.
affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election
of the FV option under the FV Option Subsection of Section 825– 10–15, to be accounted for by the equity method by
the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or
under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which
the Company may deal if one party controls or can significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other
parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of financial statements is not required in those statements.
The
disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such
other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the
dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties
as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the
date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment.
In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result
in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a
potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information available at this time that these matters will have a material
adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance
that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations
or cash flows.
New
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing
a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including
those interim periods within those fiscal years. We did not expect the adoption of this guidance have a material impact on its
consolidated financial statements.
NOTE
3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company 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 accompanying financial statements, the Company had a net loss of $2,577,721 for the period from January 2,
2020 (inception) to December 31, 2020, negative working capital as of December 31, 2020, and stockholder’s deficit of
$2,332,086. These factors among others raise substantial doubt about the Company’s ability to continue as a going
concern.
While
the Company is attempting to generate additional revenues, the Company’s cash position may not be significant enough to
support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering.
Management believes that the actions presently being taken to further implement its business plan and generate revenues provide
the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to
generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate revenues.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
4 – PROPERTY AND EQUIPMENT
Fixed
assets, net consisted of the following:
|
|
December
31, 2020
|
|
|
Estimated
Useful Life
|
|
|
|
|
|
|
Equipment
|
|
$
|
79,737
|
|
|
3
years
|
|
|
|
|
|
|
|
Property, plant, and equipment, gross
|
|
|
79,737
|
|
|
|
Less: accumulated
depreciation and amortization
|
|
|
(14,945
|
)
|
|
|
Property, plant,
and equipment, net
|
|
$
|
64,792
|
|
|
|
Depreciation
expense was $14,945 for the period from January 2, 2020 (inception) to December 31, 2020.
NOTE
5 – GOODWILL
As
of December 31, 2020, the Company paid cash of $240,000 for a public trading shell, Tongji Healthcare Group, Inc. The Company
has no assets and liabilities as of the acquisition date on May 29, 2020 so the entire consideration was recorded as goodwill.
The intention of this acquisition is to acquire Tongji Healthcare Group, Inc. for reverse merger purpose.
The
Company impaired $240,000 goodwill for the period ended December 31, 2020 prior to the merger and recapitalization because Tongji
Healthcare Group, Inc. operations will not be utilized post-acquisition in 2020.
NOTE
6 – OTHER ASSETS
As
of December 31, 2020, other assets consist of security deposit of $219,000 for operating leases.
NOTE
7 – CONVERTIBLE NOTES PAYABLE
Convertible
Promissory Note – Scott Hoey
On
September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey
Note”).
The
Hoey Note had a maturity date of September 10, 2022 and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Hoey Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until
the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common
stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately
prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
December 8, 2020, the Company issued to Mr. Hoey 10,833 shares of Company common stock upon the conversion of the $7,500 convertible
promissory note issued to Mr. Hoey at a conversion price of $0.69 per share.
Convertible
Promissory Note – Cary Niu
On
September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company
issued a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu
Note”).
The
Niu Note has a maturity date of September 18, 2022 and bears interest at 8% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the Niu Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares
of Company common stock at a conversion price of 30% of the volume weighted average of the closing price during the 20-trading
day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring
after the issuance date.
Convertible
Promissory Note – Jesus Galen
On
October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen
Note”).
The
Galen Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Galen will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares
of Company common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading
day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring
after the issuance date.
Convertible
Promissory Note – Darren Huynh
On
October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh
Note”).
The
Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares
of Company common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading
day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring
after the issuance date.
Convertible
Promissory Note – Wayne Wong
On
October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong
Note”).
The
Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right,
until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company
common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading day period
immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance
date.
Convertible
Promissory Note Holder
|
|
Start
Date
|
|
End
Date
|
|
Debt
Discounts As of Issuance
|
|
|
Amortization
|
|
|
Debt
Discounts As of 12/31/20
|
|
Scott
Hoey
|
|
9/10/2020
|
|
9/10/2022
|
|
|
7,500
|
|
|
|
(7,500
|
)
|
|
|
-
|
|
Cary Niu
|
|
9/18/2020
|
|
9/18/2022
|
|
|
50,000
|
|
|
|
(7,123
|
)
|
|
|
42,877
|
|
Jesus Galen
|
|
10/6/2020
|
|
10/6/2022
|
|
|
30,000
|
|
|
|
(3,534
|
)
|
|
|
26,466
|
|
Darren Huynh
|
|
10/6/2020
|
|
10/6/2022
|
|
|
50,000
|
|
|
|
(5,890
|
)
|
|
|
44,110
|
|
Wayne Wong
|
|
10/6/2020
|
|
10/6/2022
|
|
|
25,000
|
|
|
|
(2,946
|
)
|
|
|
22,054
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
135,507
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
Note principal
|
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
convertible promissory notes, net
|
|
|
|
19,493
|
|
Future
maturities of convertible notes payable at December 31, 2020 are as follows:
Years
ending December 31,
|
|
|
|
2021
|
|
$
|
-
|
|
2022
|
|
|
155,000
|
|
2023
|
|
|
–
|
|
2024
|
|
|
–
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
–
|
|
|
|
$
|
155,000
|
|
NOTE
8 – SHARES TO BE ISSUED - LIABILITY
As
of December 31, 2020, the Company entered into various consulting agreements with two directors and one consultant. The Company
will issue common shares at fair value of $25,000 in each quarter. The balance of shares to be issued – liability was $87,029
and has not been issued as of December 31, 2020. The Company recorded these shares under liability based on the shares will be
issued at a fixed monetary amount known at inception under ASC 480.
NOTE
9 – DERIVATIVE LIABILITY
The
derivative liability is derived from the conversion features in note 7. All were valued using the weighted-average Binomial option
pricing model using the assumptions detailed below. As of December 31, 2020, the derivative liability was $304,490. The Company
recorded $61,029 loss from changes in derivative liability during the period ended December 31, 2020. The Binomial model with
the following assumption inputs:
|
|
|
December
31, 2020
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
1.6 – 2.0 years
|
|
Risk-Free Interest Rate
|
|
|
0.13 – 0.17
|
%
|
Expected Volatility
|
|
|
318 - 485
|
%
|
Fair
value of the derivative is summarized as below:
Beginning Balance at inception, January 2,
2020
|
|
$
|
-
|
|
Additions
|
|
|
270,501
|
|
Mark to Market
|
|
|
61,029
|
|
Cancellation of Derivative Liabilities Due to
Conversions
|
|
|
-
|
|
Reclassification
to APIC Due to Conversions
|
|
|
(27,040
|
)
|
Ending Balance, December 31, 2020
|
|
$
|
304,490
|
|
NOTE
10 – NOTE PAYABLE, RELATED PARTY
For
the period ended December 31, 2020, the Company signed a note payable agreement with the Company’s Chief Executive Officer
for advances up to $5,000,000 at 0% interest rate. The entire balance has to be paid back on or before January 31, 2025. As of
December 31, the Company has a balance of $2,162,562 owed to the Chief Executive Officer of the Company. The note payable was
subsequently amended in February 2021 (See note 15 subsequent event).
NOTE
11 – RELATED PARTY TRANSACTIONS
As
of December 31, 2020, the Company’s Chief Executive Officer had advanced $2,162,562 to the Company for payment of the Company’s
operating expenses. The Company recorded $87,213 as imputed interest and recorded as additional paid in capital for the period
from January 2, 2020 (inception) to December 31, 2020 from the loan advanced by the Company’s Chief Executive Officer.
As
of December, 31, 2020, the Company has a payable balance owed to Christian Young of $23,685.
NOTE
12 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
July 7, 2020, the Company increased the authorized capital stock of the Company to 550,000,000, comprised of 500,000,000 shares
of common stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001.
Preferred
Stock
As of December 31, 2020, there was 1 preferred
share issued and outstanding.
On November 12, 2020, the Company filed a Certificate
of Designations with the Secretary of State of Nevada to designate one share of the preferred stock of the Company as the Series X Preferred
Stock of the Company.
In November 2020, the Company issued and sold
to the Company’s Chief Executive Officer 1 share of Series X Preferred Stock, at a purchase price of $1.00. The share of Series
X Preferred Stock shall have a number of votes at any time equal to (i) the number of votes then held or entitled to be made by all other
equity securities of the Company, debt securities of the Company or pursuant to any other agreement, contract or understanding of the
Company, plus (ii) one (1). The Series X Preferred Stock shall vote on any matter submitted to the holders of the Common Stock, or any
class thereof, for a vote, and shall vote together with the Common Stock, or any class thereof, as applicable, on such matter for as
long as the share of Series X Preferred Stock is issued and outstanding. The Series X Preferred Stock shall not have the right to vote
on any matter as to which solely another class of Preferred Stock of the Company is entitled to vote pursuant to the certificate of designations
of such other class of Preferred Stock of the Company.
The Series X Preferred Stock shall not be convertible
into shares of any other class of stock of the Company and entitled to receive any dividends paid on any other class of stock of the
Company.
In the event of any liquidation, dissolution or
winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of the Company wherein the Company is not the
surviving entity, or a sale of all or substantially all of the assets of the Company, the Series X Preferred Stock shall not be entitled
to receive any distribution of any of the assets or surplus funds of the Company and shall not participate with the Common Stock or any
other class of stock of the Company therein.
Common
Stock
As
of December 31, 2020, the Company had 50,000,000 shares of common stock authorized with a par value of $0.001. There were 92,682,632
shares issued and outstanding as of December 31, 2020.
On
November 12, 2020, pursuant to the terms of the Share Exchange Agreement, the Company issued 46,811,195 shares of common stock
to the WOHG Shareholders in exchange for 200 shares WOHG’s common stock, par value $0.0001 per share, representing 100%
of the issued and outstanding capital stock of WOHG.
For
the period ended December 31, 2020, the Company issued 30,231 shares to a consultant at fair value of $73,582.
For
the period ended December 31, 2020, the Company issued 10,833 shares to settle a conversion of $7,500 convertible promissory note
and a reclass of derivative liability of $27,040.
For
the period ended December 31, 2020, the Company issued 18,182 shares to settle an accounts payable balance of $50,000.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain
of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”), and the risks to the international community
as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic,
based on the rapid increase in exposure globally. The Company’s suppliers may decrease production levels based on factory
closures and reduced operating hours in those facilities. Likewise, the Company is dependent on its workforce to deliver its products.
Developments such as social distancing and shelter-in-place directives may impact the Company’s ability to deploy its workforce
effectively. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain
as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results
of operations.
Management
is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry,
and workforce. The Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time. If the pandemic
continues, it may have a material effect on the Company’s results of future operations, financial position, and liquidity
in the next 12 months.
On
March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.”
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side
social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net
interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax
depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans
that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide
liquidity to small businesses harmed by COVID-19. The Company did not obtain CARES Act relief financing under the Paycheck Protection
Program (“PPP Loans”) for each of its operating subsidiaries.
The
Company continues to examine the impact that the CARES Act may have on our business. Currently, management is unable to determine
the total impact that the CARES Act will have on our financial condition, results of operations, or liquidity.
The
Company has three short term leases in the United States and one month to month lease in Europe as of December 31, 2020. All short
term leases will be expired in 2021. The total monthly rent expense is approximately $136,800.
NOTE
14 – INCOME TAXES
Income
tax provision is summarized as follows:
The
actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of
21% to the loss before income taxes as follows:
For
the period from January 2, 2020 (Inception) to December 31, 2020
|
|
|
|
“Expected” income
tax benefit
|
|
$
|
541,321
|
|
Decrease in valuation allowance
|
|
|
(541,321
|
)
|
Income tax provision
|
|
$
|
-
|
|
The cumulative
tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows as of December
31, 2020:
|
|
December
31, 2020
|
Deferred tax assets:
|
|
|
|
|
Net operating
loss carry forwards
|
|
|
541,321
|
|
Valuation
allowance
|
|
|
(541,321
|
)
|
|
|
|
-
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
As
of December 31, 2020, we had approximately $2,577,721 in net operating loss carryforwards for federal tax purposes, respectively.
In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax assets, the level of
historical taxable income and tax planning strategies in making the assessment of the realizability of deferred tax assets. We
have identified the U.S. federal as our “major” tax jurisdiction. With limited exceptions, we remain subject to IRS
examination of our income tax returns filed within the last three (3) years.
NOTE
15 – SUBSEQUENT EVENTS
The
Company has evaluated events subsequent to December 31, 2020, to assess the need for potential recognition or disclosure in the
consolidated financial statements. Such events were evaluated through March 15, 2021, the date and time the consolidated financial
statements were issued, and it was determined that no subsequent events, except as follows, occurred that required recognition
or disclosure in the consolidated financial statements.
On
January 7, 2021, the Company entered into a lease agreement in Las Vegas, NV to lease a new content creation mansion. The new
lease commences on February 1, 2021 and a 12-month term, and the rental costs of approximately $12,500 per month.
On
January 13, 2021, the Company issued 15,688 common shares for legal services of $21,179.
On
January 21, 2021, the Company issued 15,050 shares of Company common stock to a consultant as compensation for bringing in brand
deals for influencers.
Convertible
Promissory Note – Matthew Singer
On
January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the
Company issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000
(“Singer Note”).
The
Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or
any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right,
until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company
common stock at a conversion price of 70% of the volume weighted average of the closing price during the 20-trading day period
immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance
date.
On
January 26, 2021, the Company issued to Matthew Singer 8,197 shares of Company common stock upon the conversion of the convertible
promissory note issued to Mr. Singer in the principal amount of $13,000 on January 3, 2021 at a conversion price of $1.59 per
share.
As
of March 15, 2021, the Company’s Chief Executive Officer advanced an additional $130,013 to the Company to pay the Company’s
operating expenses
Convertible
Promissory Note – ProActive Capital SPV I, LLC
On
January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive
Capital SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the
Company (i) issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase
price of $225,000, reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection
therewith, sold to ProActive Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition,
at the closing of this sale, the Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in
completing the transaction, which amount ProActive Capital withheld from the total purchase price paid to the Company.
The
ProActive Capital Note has a maturity date of January 20, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and
the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common
Stock at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s Offering
Statement related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company
Common Stock in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be
waived by ProActive Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments
for any stock splits, etc. which occur following the determination of the conversion price.
Convertible
Promissory Note – GS Capital Partners
On
January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital SPA”) with GS Capital
Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note
to GS Capital the aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue
discount (the “GS Capital Note”), and in connection therewith, sold to GS Capital 50,000 shares of Company Common
Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the
sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase
price paid to the Company.
The
GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may
prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at GS Capital’s election at any time following the time that the SEC qualifies the Company’s Offering Statement related
to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock
in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS
Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits,
etc. which occur following the determination of the conversion price.
On
February 19, 2021, the Company entered into another securities purchase agreement with GS Capital, pursuant to which, on same
date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for a purchase
price of $520,000, reflecting a $57,780 original issue discount, and in connection therewith, sold to GS Capital 100,000 shares
of Company’s common stock, par value $0.001 per share at a purchase price of $100, representing a per share price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s
costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may
prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination
of the conversion price.
Convertible
Promissory Note – Tiger Trout Capital Puerto Rico
On
January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout
Capital Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date,
the Company (i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000,
reflecting a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares
Company common stock for a purchase price of $220.00. As of February 8, 2021, the Company has not issued the 220,000 shares of
Company common stock to Tiger Trout.
The
Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may
prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however,
that if the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000
is required to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior
to its maturity date.
If
the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity
date, that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger
Trout may declare all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger
Trout Note (the “Indebtedness”) due and payable, and the Indebtedness will become immediately due and payable in cash
by the Company. Further, Tiger Trout will have the right, until the Indebtedness is paid in full, to convert all, but only all,
of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of $0.50 per share, subject to
customary adjustments for stock splits, etc. occurring after the issuance date. The Tiger Trout Note contains a customary beneficial
ownership limitation of 9.99%, which may be waived by Tiger Trout on 61 days’ notice to the Company.
Convertible
Promissory Note – Amir Ben-Yohanan
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Note”). The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced
to the Company and its subsidiaries to fund their operations.
The
Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal
amount and any accrued and unpaid interest of the Note at any time without penalty.
At
the time of the qualification by the United States Securities and Exchange Commission of the Company’s Offering Circular,
pursuant to Regulation A under the Securities Act of 1933, as amended, $1,000,000 of the Indebtedness shall, automatically and
without any further action of the Company or the Holder, be converted into a number of restricted fully paid and non-assessable
shares of shares of common stock, par value $0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii) the price
per share of the Common Stock as offered in the Offering Circular.
Share
Exchange Agreement – Magiclytics
On
February 3, 2021, the Company entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange
Agreement”) by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”),
each of the shareholders of Magiclytics (the “Magiclytics Shareholders”) and Christian Young, as the representative
of the Magiclytics Shareholders (the “Shareholders’ Representative”). Christian Young is the President, Secretary,
and a Director of the Company, and is also an officer, director, and significant shareholder of Magiclytics.
The
A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties,
which was executed on December 3, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.
On
February 3, 2021 (the “Magiclytics Closing Date”), the parties closed on the transactions contemplated in the A&R
Share Exchange Agreement, and the Company agreed to issue 734,689 shares of Company common stock to the Magiclytics Shareholders
in exchange for all 5,000 Magiclytics Shares (the “Magiclytics Closing”). On February 3, 2021, pursuant to the closing
of the Share Exchange Agreement, we acquired Magiclytics, and Magiclytics thereafter became our wholly owned subsidiary.
At
the Magiclytics Closing, we agreed to issue to Christian Young and Wilfred Man each 330,610 shares of Company Common Stock, representing
45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics
Closing.
The
number of shares of the Company common stock issued at the Magiclytics Closing was based on the fair market value of the Company
common stock as initially agreed to by the parties, which is $4.76 per share (the “Base Value”). The fair market value
was determined based on the volume weighted average closing price of the Company common stock for the twenty (20) trading day
period immediately prior to the Magiclytics,. In the event that the initial public offering price per share of the Company common
stock in this Offering pursuant to Regulation A is less than the Base Value, then within three (3) business days of the qualification
by the SEC of the Offering Statement forming part of this offering circular, the Company will issue to the Magiclytics Shareholders
a number of additional shares of Company common stock equal to:
|
(1)
|
$3,500,000 divided
by the initial public offering price per share of the Company common stock in this Offering pursuant to Regulation A, minus;
|
|
(2)
|
734,689
|
The
resulting number of shares of the Company common stock pursuant to the above calculation will be referred to as the “Additional
Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective
ownership of Magiclytics Shares.
In
addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing
Date the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R
Share Exchange Agreement:
|
(i)
|
The Board of Directors
of Magiclytics (the “Magiclytics Board”) expanded the size of the Magiclytics Board to 3 persons and named Simon
Yu, a current officer and director of the Company as a director of the Magiclytics Board.
|
|
(ii)
|
The Magiclytics
Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary of the
Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics.
|
Further,
immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating
costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties
in which Magiclytics engages with in the regular course of its business.
In
connection with the closing, the Company entered in a consulting agreement with Christian Young, a Director of the Company. The
compensation will be paid according to the 8-K filed on February 8, 2021 with the SEC.
On
February 1 2021, the Board of Directors approved the payments of $240,000 cash bonuses to Amir Ben-Yohanan, Chris Young, and Simon
for their new services in 2021.
On
March 3, 2021, the Company entered into a non-binding letter of intent with “The Tinder Blog” (Instagram.com/thetinderblog).
Effective
March 4, 2021, the Company entered into three (3) separate director agreements with three Amir Ben-Yohanan, Christopher Young,
and Simon Yu . The Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s, and
Mr. Yu’s role as a director of the Company.
Pursuant
to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
|
●
|
An issuance of 31,821
shares of the Company’s common stock, par value par value $0.001 (“Common Stock”), to be issued on the Effective
Date, as compensation for services provided by each of the Directors to the Company prior to the Effective Date; and
|
|
|
|
|
●
|
An issuance of a
number of shares of Common Stock having a fair market value (as defined in each of the Director Agreements) of $25,000 at
the end of each calendar quarter that the Director serves as a director.
|
Between
January 2021 to March 2021, the Company issued a total of 20,033 shares as stock-based compensation to a consultant, 15,688 shares
to settle account payable from legal services, 734,689 shares for acquisition of Magiclytics, 106,707 shares for S-8 shares to
Directors and consultants, and 428,197 shares as bonus shares to the convertible promissory notes holders issued in 2021.
Convertible
Promissory Note – Labrys Fund, LP
On
March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”),
pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022
(the “Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued 125,000 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 $1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate
of 10% per annum. The Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing
Date (as defined in the Labrys SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert
the Labrys Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys
Note) at any time at a conversion price equal to $10.00 per share.
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) occurs
at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus
$750.00 for administrative fees. The Labrys 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
the occurrence of any Event of Default, 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 Principal Sum then outstanding plus accrued
interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest
will accrue from the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted
by law.
CLUBHOUSE
MEDIA GROUP, INC.
Best
Efforts Offering of
$1,000,000
Minimum Offering Amount (250,000 Shares of Common Stock)
$30,000,000
Maximum Offering Amount (7,500,000 Shares of Common Stock)
OFFERING
CIRCULAR
June
11, 2021
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