As
filed with the Securities and Exchange Commission on July 12, 2019
Registration
No. 333-228906
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 1 to
Form
S-1
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF 1933
SIMPLICITY
ESPORTS AND GAMING COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
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6770
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82-1231127
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(State
or other jurisdiction of incorporation or organization)
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer
Identification
Number)
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7000
W. Palmetto Park Rd., Suite 210
Boca
Raton, FL 33433
Telephone:
(855) 345-9467
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jed
Kaplan
Chief
Executive Officer
625
N. Flagler Drive, Suite 600
West
Palm Beach, FL 33401
Telephone:
(855) 345-9467
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
to:
Laura
Anthony, Esq.
Craig
D. Linder, Esq.
Anthony
L.G., PLLC
625
N. Flagler Drive, Suite 600
West
Palm Beach, FL 33401
Telephone:
(561) 514-0936
Approximate
date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [X]
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Smaller
reporting company [X]
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Emerging
growth company [X]
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If
an emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
[ ]
CALCULATION
OF REGISTRATION FEE
Title of each class
of securities to be registered
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Amount
to
be
registered
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Proposed
maximum
offering
price
per
share
of
common
stock
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|
|
Proposed
maximum
aggregate
offering
price
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Amount
of
registration
fee
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Common Stock, par value $0.0001 per share
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5,461,500
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(1)
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$
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11.50
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(2)
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$
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62,807,250.00
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$
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7,612.24
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Common Stock, par value $0.0001 per share
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987,500
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(3)
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$
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4.00
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(4)
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$
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3,950,000.00
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|
$
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478.74
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|
Common Stock, par value $0.0001 per share
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6,360,617
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(5)
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$
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2.00
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(6)
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$
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12,721,234.00
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$
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1,541.81
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Warrants to purchase Common Stock
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261,500
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(7)
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—
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(8)
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—
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0
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|
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TOTAL
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$
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9,632.79
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(9)
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(1)
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Represents the issuance by the registrant of (i) 5,200,000 shares of its common stock, par value $0.0001 per
share (“Common Stock”), that may be issued upon the exercise of 5,200,000 warrants (the “Public Warrants”)
originally sold as part of units in the registrant’s initial public offering (the “IPO”), and (ii) 261,500 shares
of Common Stock that may be issued upon the exercise of the 261,500 warrants (the “Private Placement Warrants” and
together with the Public Warrants, the “Warrants”) originally sold as part of private placement units in a private
placement that closed simultaneously with the consummation of the IPO. Pursuant to Rule 416 under the Securities Act of 1933, as
amended (the “Securities Act”), there are also being registered such indeterminable additional shares of Common Stock
as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions, and the resale of such
shares of Common Stock.
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(2)
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Based
on the $11.50 exercise price of a Warrant in accordance with Rule 457(g) under the Securities Act.
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(3)
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Represents the issuance by the registrant of
987,500 shares of its Common Stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”)
originally sold as part of private placement units in a private placement commenced in March 2019. Pursuant to Rule 416 under
the Securities Act, there are also being registered such indeterminable additional shares of Common Stock as may be issued
to prevent dilution as a result of stock splits, stock dividends or similar transactions, and the resale of such shares of
Common Stock.
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(4)
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Based on the $4.00 exercise price of a 2019 Warrant
in accordance with Rule 457(g) under the Securities Act.
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(5)
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Represents the resale of 6,360,617
shares of Common Stock by the selling securityholders named in the prospectus that forms
a part of this registration statement on Form S-1. Pursuant to Rule 416 under the
Securities Act, there are also being registered such indeterminable additional shares
of Common Stock as may be issued to prevent dilution as a result of stock splits, stock
dividends or similar transactions, and the resale of such shares of Common Stock.
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(6)
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Represents
the fixed price at which the selling stockholders will sell their shares of Common Stock registered for resale in this
prospectus for the duration of this offering.
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(7)
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Represents
the resale of the Private Placement Warrants.
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(8)
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No
fee pursuant to Rule 457(g) under the Securities Act.
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(9)
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Previously
paid $8,035.48.
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The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities,
and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION, DATED JULY 12, 2019
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SIMPLICITY
ESPORTS AND GAMING COMPANY
6,449,000
Shares of Common
Stock Underlying Warrants
6,360,617
Shares of Common
Stock for Resale by Selling Securityholders
261,500
Warrants to Purchase Common Stock for Resale by Selling Securityholders
This
prospectus relates to the issuance by us of up to 6,449,000 shares of our common stock, par value $0.0001 per share
(“Common Stock”), which consist of (a) 5,200,000 shares of Common Stock that may be issued upon the exercise of
5,200,000 warrants (the “Public Warrants”) originally sold as part of units in our initial public offering (the
“IPO”) and which entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common
Stock, (b) 261,500 shares of Common Stock that may be issued upon the exercise of 261,500 warrants (the “Private
Placement Warrants”) underlying units originally issued in a private placement that closed simultaneously with the
consummation of the IPO (the “Private Placement Units”), which entitle the holder to purchase Common Stock at an
exercise price of $11.50 per share of Common Stock, and (c) 987,500 shares of our Common Stock, which represent shares of
Common Stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”, and together with the
Public Warrants and Private Placement Warrants, the “Warrants”) originally sold as part of units in a private
placement that commenced on March 27, 2019 (the “2019 Private Placement”) and which entitle the holder to
purchase Common Stock at an exercise price of $4.00 per share of Common Stock.
In addition, this prospectus
relates to the resale from time to time of 6,360,617 shares of Common Stock and 261,500 Private Placement Warrants by
the selling securityholders named in this prospectus or their permitted transferees (the “Selling Securityholders”).
We
will receive the proceeds from the exercise of the Warrants for cash, but not from the resale of the Private Placement Warrants
or the shares of Common Stock underlying the Warrants.
The
Selling Securityholders will sell their shares registered for resale in this prospectus at a fixed price of $2.00
per
share for the duration of this offering. See “Determination of Offering Price” and “Plan of
Distribution.”
We
will not receive any of the proceeds from the sale of the securities owned by the Selling Securityholders. See “Use of
Proceeds” beginning on page 40 of this prospectus. We will bear all costs, expenses and fees in connection with the
registration of these securities, including with regard to compliance with state securities or “blue sky” laws.
The Selling Securityholders will bear all commissions and discounts, if any, attributable to their sale of securities. See
“Plan of Distribution” beginning on page 77 of this prospectus.
Our
Common Stock and Public Warrants are currently quoted on the OTCQB tier of the OTC Market Group, Inc. under the symbols “WINR”
and “WINRW,” respectively. On July 10, 2019, the closing price of our Common Stock and Public Warrants were
$1.72 and $0.33, respectively. As of July 12, 2019, we had 6,952,195 shares of Common Stock and 5,200,000
Public Warrants issued and outstanding.
Our
principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone
number is (855) 345-9467.
We
are an “emerging growth company” under applicable federal securities laws and are subject to reduced public company
reporting requirements. Investing in our securities involves a high degree of risk.
See
“Risk Factors” beginning on page 18 for a discussion of information that should be considered in connection
with the ownership of our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of the prospectus is ____________ , 2019
TABLE
OF CONTENTS
You
should rely only on the information contained in this prospectus or a supplement to this prospectus. We have not authorized anyone
to provide you with different information. This prospectus is not an offer to sell securities, and it is not soliciting an offer
to buy securities, in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained
in this prospectus or any supplement to this prospectus is accurate as of any date other than the date on the front cover of those
documents.
Cautionary
Note Regarding Forward-Looking Statements
This
prospectus contains forward-looking statements. Specifically, forward-looking statements may include statements relating to:
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our
future financial performance;
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changes
in the market for our products and services;
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our
expansion plans and opportunities; and
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other
statements preceded by, followed by or that include the words “estimate,” “plan,” “project,”
“forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,”
“target” or similar expressions.
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These
forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts
and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not
be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking
statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events
or otherwise, except as may be required under applicable securities laws.
As
a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different
from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
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the
level of demand for our products and services;
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competition
in our markets;
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our
ability to grow and manage growth profitably;
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our
ability to access additional capital;
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changes
in applicable laws or regulations;
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our
ability to attract and retain qualified personnel;
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the
possibility that we may be adversely affected by other economic, business, and/or competitive factors; and
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other
risks and uncertainties indicated in this prospectus, including those under “Risk Factors.”
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INDUSTRY
AND MARKET DATA
We
are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal
surveys, market research, publicly available information and industry publications. The market research, publicly available information
and industry publications that we use generally state that the information contained therein has been obtained from sources believed
to be reliable. The information therein represents the most recently available data from the relevant sources and publications
and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus.
Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding
the other forward-looking statements in this prospectus.
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 prospectus 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 prospectus 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 prospectus 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.
SUMMARY
This
summary only highlights the more detailed information appearing elsewhere in this prospectus. As this is a summary, it does not
contain all of the information that you should consider in making an investment decision. You should read this entire prospectus
carefully, including the information under “Risk Factors” and our financial statements and the related notes included
elsewhere in this prospectus, before investing.
Unless
the context otherwise requires, “we,” “us,” or “the Company” refers to (i) “Simplicity
Esports and Gaming Company” after the consummation of the Acquisition of Simplicity Esports, LLC, (ii) “Smaaash Entertainment
Inc.” before the consummation of the Acquisition of Simplicity Esports, LLC but after the closing of the Transactions with
Smaaash Entertainment Private Limited, and (iii) I-AM Capital Acquisition Company prior to the closing of the Transactions
with Smaaash Entertainment Private Limited
.
“Simplicity Esports LLC” means Simplicity Esports, LLC,
a Florida limited liability company, and its consolidated subsidiaries. “Smaaash Private” means Smaaash Entertainment
Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries.
Overview
We
are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience.
Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class
talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team
and roster. Our management and players are well known influencers within the esports community and we plan to use their skills
to create a seamless content creation plan to help gamers feel closer to our brand than any other in the industry. We intend
to create a platform that will help grow esports for generations of gamers.
For
the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate
any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153
and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070, reported a net loss
of $3,095,960, and had negative cash flow from operating activities of $823,847. As noted in our consolidated financial
statements, we had an accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and
negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result
of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings.
See “Risk Factors—We have a history of operating losses and our auditors have indicated that there is a substantial
doubt about our ability to continue as a going concern.”
Acquisition
of Simplicity Esports, LLC
On
January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December
21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange
Agreement, dated December 30, 2018, the “
Share Exchange Agreement
”) by and among the Company, Simplicity
Esports, LLC, a Florida limited liability company (“
Simplicity Esports LLC
”), each of the equity holders
of Simplicity Esports LLC (“
Simplicity Owners
”) and Jed Kaplan, in the capacity as the representative
of the Simplicity Owners (the “
Representative
”). Pursuant to the Share Exchange Agreement the Simplicity
Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly
issued shares of common stock of the Company (the “
Acquisition
”).
Background
of Simplicity Esports, LLC
Founded
in 2017, Simplicity Esports LLC is committed to growing and enhancing the esports industry, fostering the development of
amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success.
Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports
takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as
teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base, including viewership
of our content.
As
of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has
now become the primary business of the Company. Simplicity Esports LLC is an established brand in the esports industry
with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE,
and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a
dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions
of minutes of Simplicity Esports LLC content monthly, via various social media outlets, including YouTube, Twitter and
Twitch.
The
acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe
will increase shareholder value and boost our growth strategy as we continue the build out of our brick and mortar esports
centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly
esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with
top class talent. Our management and players are known within the esports community and we plan to use their skills to create
a seamless content creation plan, helping gamers feel closer to our brand than any other in the industry. We plan to open
and operate corporate-owned retail esports gaming centers (“
Gaming Centers
”), as well
as to franchise Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and esports in
a social setting, regardless of skill or experience.
Brick
& Mortar Gaming Centers
Our
business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As
a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical
Gaming Centers will compliment our esports team, lifestyle brand and marketing campaign offer opportunities for additional
revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse
fan base with a 360 degree approach driving traffic to both our digital and physical real estate, ultimately monetizing
these relationships. In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies
and brand development blueprints which complement our publicly available information.
We
intend to open and operate 15 Gaming Centers by the end of 2019 and a total of 50 throughout the United States over the
next 24 months. These Gaming Centers will be funded by us as well as a combination of tenant improvement allowances from
landlords and sponsorships. Our first Gaming Center opened in Boca Raton, Florida in May 2019. Due to unsolicited
interest from potential franchisees, we have launched a franchising program to accelerate the expansion of our planned
nationwide footprint. Furthermore, we have engaged a national tenant representation real estate broker to assist in the strategic
planning and negotiations for our future Gaming Center locations.
Optimally,
our Gaming Centers will measure between 1,200 and 2,500 square feet, thereby representing a national
footprint unlike any esports organization. The team Simplicity branded Gaming Centers will feature cutting edge technology,
a futuristic décor aesthetic and the most dynamic current high speed gaming equipment. We believe our brick-and-click
strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing
monetization opportunity.
Creating
content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team
will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a
broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint
for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining
authenticity.
Simplicity
Stream Team
We
are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented
below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the
fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base.
Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain
titles on a 24/7 basis.
Potential
Revenue Capacity
The
following table shows our potential revenue capacity, per location, from game play.
We
also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL
REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20%
|
$157,248
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40%
|
$314,496
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60%
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$471,744
|
80%
|
$628,992
|
*Assumes
2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future
revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate
History
Formation
We
were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital
Acquisition Company. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,
reorganization or similar business combination with one or more businesses. Although we were not limited to a particular industry
or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India.
On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019,
we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We are authorized to issue
21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value of $0.0001 per share
(“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of July
12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no shares of preferred stock issued
or outstanding.
Founder
Shares
On
May 31, 2017, we issued 1,437,500 shares of Common Stock (the “
Founder Shares
”) to I-AM Capital Partners
LLC, our sponsor (the “
Sponsor
”), in exchange for a capital contribution of $25,000. Upon the partial
exercise of the underwriters’ over-allotment option on September 13, 2017, 137,500 Founder Shares were forfeited by the
Sponsor, for a balance of 1,300,000 Founder Shares held by our Sponsor.
Initial
Public Offering and Private Placement
On
August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“
IPO
”)
of public units (“
Public Units
”), generating gross proceeds of $50.0 million. Each Public Unit consisted
of one share of our Common Stock (“
Public Shares
”), one right to receive one-tenth of one share our
Common Stock upon consummation of an initial business combination (“
Public Right
”), and one redeemable
warrant (“
Public Warrants
”). Each warrant entitled the holder to purchase one share of common stock
at an exercise price of $11.50 per share, subject to adjustment.
Concurrently
with the closing of the IPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“
Private Placement
Units
”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a private placement. The Private Placement
Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of
the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are
held by the Sponsor or their permitted transferees.
On
August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained
in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company
up to an additional 750,000 Public Units (the “
Over-Allotment Units
”) and, in addition, the Company
received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On
September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold
at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On
September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional
7,000 Private Placement Units (the “
Over-Allotment Placement Units
”), generating gross proceeds of $70,000.
On
September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On
October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the Nasdaq Capital
Market under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively.
The
Founder Shares are identical to the Public Shares and holders of Founder Shares have the same stockholder rights as the holders
of our Public Shares (“
Public Stockholders
”) which include our initial stockholders, including the holders
of our Founder Shares prior to the IPO (“
initial stockholders
”) and members of our management team,
including our executive officers and directors (“
management
” and “
management team
”),
to the extent our initial stockholders and/or members of our management team purchased Public Shares, provided that each initial
stockholder’s and member of our management team’s status as a “public stockholder” shall only exist with
respect to such Public Shares), except that the Founder Shares and the shares of Common Stock (“
Private Placement
Shares
”) forming part of the Private Placement Units are subject to certain transfer restrictions.
Consummation
of Transactions with Smaaash Entertainment Private Limited
On
November 20, 2018 (the “
Closing Date
”), the Company and Smaaash Entertainment Private Limited, a private
limited company incorporated under the laws of India, consummated the transactions (the “
Transactions
”
or the “
Business Combination
”) contemplated by the share subscription agreement (as amended, the “
Subscription
Agreement
”), following the approval at the special meeting of the stockholders of the Company held on November 9,
2018 (the “
Special Meeting
”).
At the Special Meeting,
holders of 4,448,260 Public Shares exercised their right to redeem those shares for cash at a price of $10.2187363 per share,
for an aggregate of approximately $45,455,596. Immediately after giving effect to the initial Transactions (including as a result
of the redemptions described above) the issuance of 2,000,000 shares of common stock to the Smaaash founders, the issuance of
520,000 shares of common stock upon conversion of the Public Rights at the Closing and the issuance of 208,000 shares of common
stock to Chardan Capital Markets, LLC (“Chardan”) as consideration for services), there were 5,119,390 shares
of common stock and warrants to purchase approximately.
On
November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of common
stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
Pursuant
to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360
newly issued equity shares of Smaaash Private at the closing of the Transactions (the “
Closing
”).
In
addition, AHA Holdings Private Limited (“
AHA Holdings
”) and Shripal Morakhia (together with AHA Holdings,
the “
Smaaash Founders
”) agreed that within six months following the Closing Date, they would transfer
all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted
basis as of June 22, 2018) (the “
Additional Smaaash Shares
”) to the Company in exchange for newly issued
shares of our Common Stock (the “
Transferred Company Shares
”) in an amount which would enable the Smaaash
Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At
the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion
of the Transferred Company Shares (the “
Upfront Company Shares
”). In connection with the issuance of
the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront
Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in
full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred
in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will
be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional
Smaaash Shares.
On
November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to
transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common
Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November
30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In
connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc.,
changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR”
and “IAMXW,” respectively, and entered into a master franchise agreement (“
Master Franchise Agreement
”)
and a master license and distribution agreement (“
Master Distribution Agreement
”) with Smaaash Private.
Prior to the Closing, the Company was a shell company with no operations, formed as a vehicle to effect a business combination
with one or more operating businesses. After the Closing, the Company’s primary assets consisted of shares in Smaaash
Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant
to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were
not transferred in full to the Company in the designated six-month period.
Master
Franchise Agreement
Franchise
and license right
. Under the Master Franchise Agreement, Smaaash Private has granted to the Company an exclusive right to
establish and operate Smaaash Centers (as defined under the Master Franchise Agreement) and to sublicense the right to establish
and operate Smaaash Centers to third party franchisees, and a license to use the products and other services developed by Smaaash
Private with respect to the Smaaash Centers, in the territories of North America and South America (“
Territory
”).
Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (as set out in
the Master Franchise Agreement) for the purposes of establishing and operating the Smaaash Centers in the Territory. The Master
Franchise Agreement has been executed on an arms’ length basis between Smaaash Private and the Company.
Obligations
of the Company
. The Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash
Private’s business in the Territory during the term of the Master Franchise Agreement. The Company will market, promote
and publicize the Smaaash Centers in the Territory. The Company or third party sub-franchisees shall be under an obligation to
set up at least six Smaaash Centers during the first calendar year.
Obligations
of Smaaash Private
. Smaaash Private shall assist in training and installing the equipment and bear all the costs associated
therewith. The franchisee or sub-franchisee will bear the cost to set up the Smaaash Center.
License
fees and other payments
. Franchisee or the third party franchisee will be entitled to receive the revenue generated from each
of the Smaaash Centers. In connection with the operations of the Smaaash Centers by sub-franchisees, the Company shall be entitled
to receive (i) a signup fee equal to 5% of the capital expenditure of the sub-franchisee, (ii) 5% of the revenue of the sub-franchisee
on an annual basis; and (iii) a 15% markup of the products sold to the sub-franchisee. Smaaash Private will not receive any portion
of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership
of Smaaash Marks
. Smaaash Private will be the sole owner of all intellectual property related to the Smaaash Centers. All
future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term
of the Agreement
. The Master Franchise Agreement will commence from its execution date and continue until the agreement is
terminated in accordance with the Master Franchise Agreement.
Termination
.
The Master Franchise Agreement may be terminated (i) by the mutual written agreement of parties or (ii) by Smaaash Private if
the Company fails to make a payment, ceases to operate or abandon’s the Smaaash Centers or fails to use best efforts to
market the Smaaash Centers and such failure is not cured within 30 days’ notice of the failure.
Addendum
to Master Franchise Agreement
On
November 29, 2018, the Company and Smaaash Private executed an addendum to the Master Franchise Agreement (the “
Amendment
”).
Pursuant to the Amendment, Smaaash Private grants the Company the exclusive rights to set up family and entertainment centers
under the name “Total Sports Center” in the United States (“
Total Sports Centers
”) in which
51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying
the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements
for such centers. Smaaash Private will also appoint the management team for the centers. Smaaash Private will be entitled to 3%
of the net revenue of each center, subject to conditions to be confirmed by the parties.
Master
License and Distribution Agreement
Grant
of license and distribution rights
. Under the Master Distribution Agreement, Smaaash Private has granted to the Company an
exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities
(“
Products
”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup
to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master
Franchise Agreement.
Pricing
.
The Company may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the price at
which Smaaash Private sold the Products to the Company.
Grant
of license in Smaaash Marks.
Smaaash Private has also granted the Company a license to use the Trademarks (as set out in the
Master Distribution Agreement) on a royalty free basis for the purpose of promoting the sale of the Products in the Territory.
Ownership
of the Smaaash Games
. Smaaash Private will be the sole owner of any intellectual property rights relating to the Products
and all the goodwill relating thereto.
Term.
The Master Distribution Agreement will commence from its execution date and continue until the agreement is terminated in
accordance with the Master Distribution Agreement.
Termination.
The Master Distribution Agreement may be terminated (i) by the mutual written agreement of parties, (ii) by Smaaash Private
if the Company fails to make a payment or use best efforts to market the Products and such failure is not cured within 30 days’
of notice of the failure, and (iii) by the Company for any reason upon 120 days’ notice.
Overview
of Smaaash Entertainment Private Limited
Smaaash
Private operates 40 state-of-the-art games and entertainment centers (“
Smaaash Centers
”), including
39 Smaaash Centers in India and one international Smaaash Center in the U.S., in addition to carrying out product sales of its
games and equipment that Smaaash has developed in-house, supported by its sponsorship and other revenues.
Smaaash
Private’s core concept is to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending
Augmented Reality (“
AR
”) and Virtual Reality (“
VR
”) and other games, indoor
entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers
across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash Private’s
game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Following
the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports
LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement,
as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future
pursue Smaaash Private business opportunities.
Settlement
Agreement
On
November 20, 2018, the Company entered into a settlement and release agreement (“
Settlement Agreement
”)
with Maxim Group LLC, the underwriter for the Company’s IPO (“
Maxim
”). Pursuant to the Settlement
Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in
the amount of $1.8 million (the “
Note
”) to settle the payment obligations of the Company under the underwriting
agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends
on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The
Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and
including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and
including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum
and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If
a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“
Alternate
Payment Amount
”) at a redemption price equal to 125% of the Alternate Payment Amount.
The
principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i)
one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii)
one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii)
one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The
Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets
held in escrow with respect to (i) that certain stock purchase agreement with Polar Asset Management Partners Inc. (“Polar”),
pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days
after the consummation of the Transactions and (ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“
K2
”),
pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after
the consummation of the Transactions.
The
amount payable under the Note may be paid in shares of our Common Stock or securities convertible or exercisable into shares of
our Common Stock (the “
Alternate Equity Payment
”) if and only if the Company and Maxim mutually agree
on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in
such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So
long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will
be used to repay this Note.
Convertible
Note Payable
On
December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group
LLC (the “
Holder
”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender
and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed
immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount
of $500,000 (the “
Series A-1 Note
”) and a Series A-2 Exchange Convertible Note in the principal amount
of $1,000,000 (the “
Series A-2 Note
,” and collectively with Series A-1 Note, the “
Exchange
Notes
”).
The
Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date
of the Acquisition (as defined below) or June 20, 2020 (the “
Maturity Date
”). The Company may pay the
interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However,
the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“
Equity
Conditions
”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior
to the interest payment date (“
Interest Notice Period
”), (ii) the Company has provided proper notice
pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of
its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest
Notice Period.
The
Series A-1 Note is convertible into shares of the Company’s common stock (“
Conversion Shares
”)
at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings,
distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically
adjusted to equal the arithmetic average of the volume weighted average price (“
VWAP
”) of the Company’s
common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note
at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right
to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally,
the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity
Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic
conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder)
on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation
date.
At
any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for
cash in an amount (the “
Optional Redemption Amount
”) equal to the sum of (a) 100% of the then outstanding
principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect
of the note (the “
Optional Redemption
”). The Company may only effect an Optional Redemption if each
of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing
on the date when the notice of the Optional Redemption is delivered to the date of the Optional Redemption and through and including
the date payment of the Optional Redemption Amount is actually made in full.
Except
as otherwise provided in the Series A-1 Note, including, without limitation, an Optional Redemption, the Company may not prepay
any portion of the principal amount of the note without the prior written consent of the Holder.
The
Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more
than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’
prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic
conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation,
then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until
such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation,
at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The
Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase
any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The
Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity
date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion
price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five
trading days prior to the notice of conversion and $0.50.
As
of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of
the Company’s common stock.
Amendments
to Forward Purchase Agreements and Warrants
On
December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “
Amendment
”),
pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase
price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up
to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share
up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4)
then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of
the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z)
to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment
for the Shares prior to the final closing of the Stock Sales.
In
addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement
Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment
(the “
Exercise Price Adjustment
”) and (2) to revise the redemption provisions of the warrants to provide
that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written
notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share
(as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “
Redemption
Threshold Adjustment
”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment
shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition
of Simplicity Esports, LLC
On
January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition
and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive
an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision
was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion
of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares
are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In
connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to
the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the
Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity
Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants
to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants
under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq
Delisting
On
December 10, 2018, the Company received a written notice (the “
Notice
”) from the Listing Qualifications
Division of The Nasdaq Stock Market LLC (“
Nasdaq
”) indicating that the Company has not complied with
the requirements of IM-5101-2 of the listing rules of Nasdaq (the “
Listing Rules
”).
The
Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1)
that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence
that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its public warrant
has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule
5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On
January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with
Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional
Shares (the “
LAS Notification
”).
The
Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed
the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange
Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate
basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination
regarding the Company’s continued listing on Nasdaq.
Management
of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“
Nasdaq
”)
to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport
centers.
On April 1, 2019, the
Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants. The Company’s
common stock and public warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On
April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and
Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public
warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April
2, 2019.
The
Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR”
and “WINRW,” respectively.
Recent
Developments
Private
Unit Offering
In
2019, the Company sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit
to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common
stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement
Agreement
In March of 2019, the
Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owes this attorney
approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then
another approximate $725,000 to be paid over time.
Restricted
Stock Award
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial
Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.
Such
shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors,
36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of
such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly
owned subsidiary of our company, 24,000 shares of our restricted Common Stock.
Such shares
vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each
of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan,
Franklin and Grossman on December 31, 2018.
Debt
Conversion
On
May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness
of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between
Polar and us.
Special
Public Warrant Holder Meeting
On
June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant
holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly
and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share
to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions
of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’
written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed
to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Summary
Risk Factors
Our
business is subject to numerous risks and uncertainties, including those in the section entitled “Risk Factors” and
elsewhere in this prospectus. These risks include, but are not limited to, the following:
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inability to attract sufficient demand for our services and products;
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changes
in the competitive environment in our industry and the markets we serve, and our ability to compete effectively;
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our
ability to attract and retain qualified personnel;
|
|
|
|
|
●
|
our
reliance on our technology systems, the impact of technological changes and cybersecurity risks;
|
|
|
|
|
●
|
changes
in applicable laws or regulations;
|
|
|
|
|
●
|
our
ability to protect our trademarks or other intellectual property rights;
|
|
|
|
|
●
|
potential
litigation from competitors or customers; and
|
|
|
|
|
●
|
the
possibility that we may be adversely affected by other economic, business, and/or competitive factors.
|
In addition, our auditors have raised substantial
doubt regarding our ability to continue as a going concern as a result of our historical recurring losses from operations and
negative cash flows from operations as well as our dependence on private equity and financings in Note 2 of our unaudited consolidated
financial statements for the nine-months ended February 28, 2019.
Corporate
Information
Our
principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone
number at that location is (855) 345-9467.
THE
OFFERING
We
are registering (i) the issuance by us of up to 6,449,000 shares of our Common Stock which may be issued upon the exercise
of the Warrants, and (ii) the resale from time to time by the Selling Securityholders of 6,360,617 shares of Common Stock
and 261,500 warrants (“
Private Placement Warrants
”) forming part of the Private Placement Units.
“
Warrants
”
means our redeemable warrants, which includes all of our warrants sold as part of the Public Units as well as the Private
Placement Warrants and 2019 Warrants to the extent they are no longer held by the initial purchasers of the Private Placement
Warrants, 2019 Warrants or their permitted transferees.
Common
Stock and Warrants Held by Selling Securityholders
Securities
Outstanding Prior to This Registration
|
6,952,195 shares
of our Common Stock are issued and outstanding as of July 12, 2019. In addition,
as of July 12, 2019, 6,449,000 shares of Common Stock underlying Warrants
are issuable upon exercise of the 6,449,0000 outstanding Warrants.
|
|
|
Securities
Outstanding After
This
Registration
|
13,401,195
shares of our Common
Stock, which assumes the exercise of all Warrants. The number of outstanding shares of Common Stock that will be outstanding
after this offering excludes 500,000 shares of Common Stock reserved and available for issuance under the 2018 Equity Incentive
Plan (the “Incentive Plan”).
|
Common
Stock Held by the
Selling
Securityholders
|
We
are registering 6,360,617 shares of Common Stock held by the Selling Securityholders named herein.
|
|
|
Private
Placement Warrants
offered
by certain Selling Securityholders
|
We
are registering 261,500 Private Placement Warrants to be offered from time to time by certain Selling Securityholders. Each
Private Placement Warrant entitles the holder to purchase Common Stock at an exercise price of $11.50 per share of Common
Stock, subject to adjustment as set forth in the warrant agreement between Continental Stock Transfer & Trust Company,
as warrant agent, and us.
|
|
|
Warrants
Held by the Selling Securityholders
|
Each
Public Warrant and Private Placement
Warrant entitles the
holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the
holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private
Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon
redemption or liquidation. The Private Placement Warrants may also be exercised on a cashless basis pursuant to the terms
of such warrants.
|
|
|
Terms
of Offering
|
The Selling Securityholders will determine
when and how they will dispose of the Common Stock and Private Placement Warrants registered under this prospectus for
resale, as well as any shares of Common Stock issued by the Company in a registered issuance under this prospectus
upon exercise of any Warrants.
|
|
|
Use
of Proceeds
|
We
will not receive any of the proceeds from the sale of shares of Common Stock or Private Placement Warrants by the Selling
Securityholders. However, we will receive proceeds from the cash exercise of Warrants if they are exercised by the Selling
Securityholders, provided that the Private Placement Warrants may be exercised on a cashless basis. We intend to use any net
proceeds from the cash exercise of the Warrants for working capital, and general corporate purposes.
|
|
|
Trading
Market and Ticker
Symbol
|
The
Company’s Common Stock and Public Warrants currently have been quoted on the OTCQB under the symbols “WINR”
and “WINRW,” respectively.
|
Issuance
of Warrant Shares Underlying the Warrants
Warrant
Shares to be Issued
upon
Exercise of Warrants
|
6,449,000
shares of Common Stock underlying the Warrants.
|
|
|
Shares
Outstanding Prior to Exercise of Warrants
|
6,952,195
shares of Common
Stock as of July 12, 2019.
|
|
|
Shares
to be Outstanding
Assuming
Exercise of All
Warrants
|
13,401,195
shares of Common
Stock.
|
|
|
Terms
of Warrants
|
Each Public Warrant and
Private Placement Warrant entitles the holder to purchase one share of our Common
Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder
to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each
Public Warrant and Private Placement Warrant may be exercised at any time commencing
on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation.
|
|
|
Use
of Proceeds
|
We expect to receive approximately
$66,757,250 in gross proceeds assuming the cash exercise of all of the (i)
Public Warrants and Private Placement Warrants at an exercise price of $11.50 per
share of Common Stock and (ii) 2019 Warrants at an exercise price of $4.00 per share
of Common Stock. However, the Private Placement Warrants may be exercised on a cashless
basis, in which case we would expect to receive $63,750,000 in gross proceeds
from the cash exercise of the Public Warrants and 2019 Warrants. We intend to
use any net proceeds from the cash exercise of the Warrants for working capital and general
corporate purposes.
|
|
|
Trading
Market
|
Our
Public Warrants are currently quoted on the OTCQB tier of the OTC Market Group,
Inc. under the symbols “WINRW.”
|
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The
following table presents our selected historical consolidated financial data for the periods indicated. The selected historical
consolidated financial data for the year ended May 31, 2018 and for the period from April 17, 2017 (inception) to May 31, 2017
and the balance sheet data as of May 31, 2018 and 2017 are derived from the audited financial statements. The selected historical
financial data for the nine months ended February 28, 2019 and 2018 and the balance sheet data as of February 28, 2019 and 2018
are derived from our 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 our consolidated financial statements and
the notes thereto included elsewhere in this prospectus.
|
|
Year
Ended
May
31,
2018
|
|
|
For
the
period
from
April
17,
2017
(Inception)
to
May 31,
2017
|
|
|
Nine
Months
Ended
February
28,
2019
|
|
|
Nine
Months
Ended
February
28,
2018
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Statement
of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
14,070
|
|
|
$
|
0
|
|
Total
operating expenses
|
|
|
530,564
|
|
|
|
672
|
|
|
|
3,811,612
|
|
|
|
305,690
|
|
Loss
from operations
|
|
|
(530,564
|
)
|
|
|
(672
|
)
|
|
|
(3,797,542
|
)
|
|
|
(305,690
|
)
|
Total
other income
|
|
|
521,702
|
|
|
|
0
|
|
|
|
701,582
|
|
|
|
312,000
|
|
Loss
before provision for taxes
|
|
|
(8,862
|
)
|
|
|
(672
|
)
|
|
|
(3,095,960
|
)
|
|
|
6,310
|
)
|
Income
tax provisions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,145
|
|
Net
income (loss)
|
|
$
|
(8,862
|
)
|
|
$
|
(672
|
)
|
|
$
|
(3,095,960
|
)
|
|
$
|
4,165
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
458,062
|
|
|
$
|
30,000
|
|
|
$
|
1,245,666
|
|
|
$
|
483,867
|
|
Working
capital (deficit) (1)
|
|
$
|
216,034
|
|
|
$
|
24,328
|
|
|
$
|
(1,710,836
|
)
|
|
$
|
250,354
|
|
Total
assets
|
|
$
|
53,356,883
|
|
|
$
|
55,000
|
|
|
$
|
7,367,438
|
|
|
$
|
53,358,226
|
|
Total
liabilities
|
|
$
|
2,065,197
|
|
|
$
|
30,672
|
|
|
$
|
2,956,556
|
|
|
$
|
2,053,513
|
|
Commitments
|
|
$
|
46,291,685
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
46,304,712
|
|
Stockholders’
equity
|
|
$
|
5,550,098
|
|
|
$
|
24,328
|
|
|
$
|
4,410,882
|
|
|
$
|
5,000,001
|
|
(1)
Working capital (deficit) represents total current assets less total current liabilities.
RISK
FACTORS
An
investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well
as the other information contained in this prospectus, including our historical financial statements and related notes included
elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential
to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual
results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our
common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements”.
We
may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause.
These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional
risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future
and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks
and uncertainties.
Risks
Related to Our Business
We
have a relatively limited operating history and limited revenues to date and thus are subject to risks of business development
and you have no basis on which to evaluate our ability to achieve our business objective.
Because
we have a relatively limited operating history and limited revenues to date, you should consider and evaluate our operating prospects
in light of the risks and uncertainties frequently encountered by early-stage operating companies in rapidly evolving markets.
These risks include:
|
●
|
that
we may not have sufficient capital to achieve our growth strategy;
|
|
|
|
|
●
|
that
we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’
requirements;
|
|
|
|
|
●
|
that
our growth strategy may not be successful; and
|
|
|
|
|
●
|
that
fluctuations in our operating results will be significant relative to our revenues.
|
Our
future growth will depend substantially on our ability to address these and the other risks described in this section. If we do
not successfully address these risks, our business could be significantly harmed.
We
have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue
as a going concern.
To date, we have not been
profitable and have incurred significant losses and cash flow deficits. For the fiscal year ended May 31, 2018 and the period
from April 17, 2017 (inception) to May 31, 2017, we reported net losses of $8,862 and $672, respectively, and negative cash flow
from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019 and 2018, we reported
a net loss of $3,095,960 and net income of $4,165, respectively, and negative cash flow from operating activities of $823,847
and $38,299, respectively. As of February 28, 2019, we had an aggregate accumulated deficit of approximately $3,105,494. We anticipate
that we will continue to report losses and negative cash flow. As a result of these net losses and cash flow deficits as well
as our dependence on private equity and financings, our independent auditors have indicated that there is a substantial
doubt about our ability to continue as a going concern in Note 2 of our unaudited consolidated financial statements for the
nine-months ended February 28, 2019.
Our
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These
adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities
that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, 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 depend upon our subsidiaries for our cash flows.
We
are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently,
our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds
by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any
payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal
restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse
effect on our business, results of operations or financial condition.
Future
acquisitions or strategic investments could disrupt our business and harm our business, results of operations or financial condition.
We
may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we
identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition,
and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired
business.
Acquisitions
involve numerous risks, any of which could harm our business, including:
|
●
|
straining
our financial resources to acquire a company;
|
|
|
|
|
●
|
anticipated
benefits may not materialize as rapidly as we expect, or at all;
|
|
|
|
|
●
|
diversion
of management time and focus from operating our business to address acquisition integration challenges;
|
|
|
|
|
●
|
retention
of employees from the acquired company;
|
|
|
|
|
●
|
cultural
challenges associated with integrating employees from the acquired company into our organization;
|
|
|
|
|
●
|
integration
of the acquired company’s accounting, management information, human resources and other administrative systems;
|
|
|
|
|
●
|
the
need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked
effective controls, procedures and policies; and
|
|
|
|
|
●
|
litigation
or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or
other third parties.
|
Failure
to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing
or completely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could
also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses
or the impairment of goodwill, any of which could have a material adverse effect on business, results of operations or financial
condition.
We
may require additional funding for our growth plans, and such funding may result in a dilution of your investment.
We
attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans
should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be
predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise
additional funds to meet these funding requirements.
These
additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure
you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain
additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing
even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’
consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain
corporate actions.
Further,
if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable
or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.
We
may become subject to the requirements of the Investment Company Act, which would limit our business operations and require us
to spend significant resources to comply with such act.
The
Investment Company Act of 1940, as amended (the “Investment Company Act”), defines an “investment
company” as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities
and owns investment securities having a value exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash
items and securities issued by the federal government. While we believe that a reasonable investor would not conclude that we
are engaged primarily in investing in securities based on our business plan focused on operating a global virtual reality gaming
and fully integrated esports platform, operating corporate owned as well as franchising Simplicity Esports Gaming Centers in United
States, and making acquisitions in the active entertainment industry in the United States, the composition of our assets after
the Acquisition and Transactions, including our ownership of equity shares in Simplicity Esports LLC and Smaaash Private, could
contribute to a conclusion that we meet the threshold definition of an investment company. While the Investment Company Act also
has several exclusions and exceptions that we would seek to rely upon to avoid being deemed an investment company, our reliance
on any such exclusions or exceptions may be misplaced resulting in violation of the Investment Company Act, the consequences of
which can be significant. For example, investment companies that fail to register under the Investment Company Act are prohibited
from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate
commerce. Section 47(b) of the Investment Company Act provides that a contract made, or whose performance involves, a violation
of the Investment Company Act is unenforceable by either party unless a court finds that enforcement would produce a more equitable
result than non-enforcement. Similarly, a court may not deny rescission to any party seeking to rescind a contract that violates
the Investment Company Act, unless the court finds that denial of rescission would produce more equitable result than granting
rescission.
If
we are deemed to be an investment company under the Investment Company Act, Rule 3a-2 of the Investment Company Act provides that
inadvertent or transient investment companies will not be treated as investment companies subject to the provisions of the Investment
Company Act, provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s
business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement
of the earlier of (1) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the value of such
issuer’s total assets on either a consolidated or unconsolidated basis, or (2) the date on which an issuer owns or proposes
to acquire investment securities (as defined in section 3(a) of the Investment Company Act) having a value exceeding 40% of the
value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. If the
Company becomes an inadvertent investment company, and fails to meet the requirements of the transient investment company exemption
under Rule 3a-2 of the Investment Company Act, then we will be required to register as an investment company with the SEC.
We
may not have sufficient capital to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives.
After
the consummation of the acquisition of Simplicity Esports LLC, our remaining liquidity and capital resources may not be sufficient
to allow us to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives. If we require additional
capital resources, we may seek such funds directly from third party sources; however, we may not be able to obtain sufficient
equity capital and/or debt financing from third parties to allow us to fund our expected ongoing operations or we may not be able
to obtain such equity capital or debt financing on acceptable terms or conditions. Factors affecting the availability of equity
capital or debt financing to us on acceptable terms and conditions include:
|
●
|
Our
current and future financial results and position;
|
|
|
|
|
●
|
the
collateral availability of our otherwise unsecured assets;
|
|
|
|
|
●
|
the
market’s, investors and lenders’ view of our industry and products;
|
|
|
|
|
●
|
the
perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations;
and
|
|
|
|
|
●
|
the
price, volatility and trading volume and history of our Common Stock.
|
If
we are unable to obtain the equity capital or debt financing necessary to fund our ongoing operations, pursue our strategy and
sustain our growth initiatives, we may be forced to scale back our operations or our expansion initiatives, and our business and
operating results will be materially adversely affected.
Our
growth strategy depends on the availability of suitable locations for our Simplicity Esports Gaming Centers and our ability to
open new Simplicity Esports Gaming Centers and operate them profitably.
A
key element of our growth strategy is to extend our brand by opening corporate owned as well as franchising retail Simplicity
Esports Gaming Centers in locations in the United States that we believe will provide attractive returns on investment. We have
initially identified five sites for potential Simplicity Esports Gaming Centers, in the United States, however, desirable locations
for additional Simplicity Esports Gaming Center openings may not be available at an acceptable cost when we identify a
particular opportunity for a new Simplicity Esports Gaming Center.
In
addition,
our ability to open new Simplicity
Esports Gaming Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are
beyond our control, including our ability or the ability of the selected franchisee to:
|
●
|
reach
acceptable agreements regarding the lease of the locations;
|
|
|
|
|
●
|
comply
with applicable zoning, licensing, land use and environmental regulations;
|
|
|
|
|
●
|
raise
or have available an adequate amount of cash or currently available financing for construction and opening costs;
|
|
|
|
|
●
|
timely
hire, train and retain the skilled management and other employees necessary to meet staffing needs;
|
|
|
|
|
●
|
obtain,
for acceptable cost, required permits and approvals, including liquor licenses; and
|
|
|
|
|
●
|
efficiently
manage the amount of time and money used to build and open each new Simplicity Esports Gaming Center.
|
If
we succeed in opening new Simplicity Esports Gaming Centers on a timely and cost-effective basis, we may nonetheless be unable
to attract enough customers to the new Simplicity Esports Gaming Centers because potential customers may be unfamiliar with our
Simplicity Esports Gaming Centers or concepts, or our entertainment and menu options might not appeal to them. Our new Simplicity
Esports Gaming Centers may not meet or exceed our performance targets, including target cash-on-cash returns. New Simplicity Esports
Gaming Centers may even operate at a loss, which could have a significant adverse effect on our overall operating results.
Our
operations of Simplicity Esports Gaming Centers are significantly dependent on changes in public and customer tastes and discretionary
spending patterns. Our inability to successfully anticipate customer preferences or to gain popularity for such Simplicity Esports
Gaming Centers games may negatively impact our profitability.
Our
success depends significantly on public and customer tastes and preferences, which can be unpredictable. If we are unable to successfully
anticipate customer preferences or increase the popularity of the games offered at the Simplicity Esports Gaming Centers, the
per capita revenue and overall customer expenditures at the Simplicity Esports Gaming Centers may decrease, and thereby negatively
impact our profitability. In response to such developments, we may need to increase our marketing and product development efforts
and expenditures, adjust our game or product sale pricing, modify the games themselves, or take other actions, which may further
erode our profit margins, or otherwise adversely affect our results of operations and financial condition. In particular, we may
need to expend considerable cost and effort in carrying out extensive research and development to assess the potential interest
in a game, testing and launching new games, and to remain abreast with continually evolving technology and trends, as well as
the success and popularity of Simplicity stream team’s casters, influencers and personalities among Simplicity Esports LLC’s
dedicated fan base.
While
we may incur significant expenditures of this nature, including in the future as we continue to expand our operations, there can
be no assurance that any such expenditures or investments by us will yield expected or commensurate returns or results, within
a reasonable or anticipated time, or at all.
The
nature of our business exposes us to negative publicity or customer complaints, including in relation to, among other things,
accidents, injuries or thefts at the Simplicity Esports Gaming Centers, or health and safety concerns arising from improper use
of our game equipment or at our food and beverage venues.
Our
business inherently exposes us to negative publicity or customer complaints as a result of accidents, injuries, or in extreme
cases, deaths, arising from instances of air-borne, water-borne or food-borne contagion or illness, food contamination, spoilage,
tampering, equipment failure, improper use of our equipment, fire, explosion, terrorist attacks or civil riots, and other safety
or security issues, such as kidnapping, or associated risks arising from other actual or perceived non-compliance with safety,
quality or service standards or norms in relation to the various game, entertainment and food and beverage attractions at the
Simplicity Esports Gaming Centers. Even isolated or sporadic incidents or accidents may have a negative impact on our brand image
and reputation, and the Simplicity Esports Gaming Centers’ or games’ or our own popularity with customers. The considerable
expansion of social media in recent years has compounded the effect of any potential negative publicity.
We
cannot guarantee that its employee training, internal controls and other precautions will be sufficient to prevent any such occurrence
at the Simplicity Esports Gaming Centers, in relation to our Simplicity global virtual reality gaming and fully integrated esports
platform, or to control or mitigate any negative consequences. In addition, we or our franchisees rely on third-party security
and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although we monitors
vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part,
our ability to assure a safe and satisfactory experience to our customers is necessarily limited to the extent of our or our franchisees’,
dependence on third parties, from time to time. Moreover, we may not be able to distance or insulate ourselves from any adverse
publicity or reputational damage arising from any act, omission or negligence on the part of a vendor or other third party, which
may negatively affect a customer’s experience at any of the Simplicity Esports Gaming Centers.
We
or our franchisees may not be able to operate in the United States, or obtain and maintain licenses and permits necessary for
such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results
of operations or financial condition.
Each
Simplicity Esports Gaming Center will be subject to licensing and regulation by alcoholic beverage control, amusement, health,
sanitation, safety, building code and fire agencies in the country, state, county and/or municipality in which the Simplicity
Esports Gaming Center is located. In the United States, each Simplicity Esports Gaming Center with a restaurant or bar will be
required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county
and municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time.
In some states, the loss of a license for cause with respect to one Simplicity Esports Gaming Center may lead to the loss of licenses
at all Simplicity Esports Gaming Centers in that state and could make it more difficult to obtain additional licenses in that
state. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each Simplicity Esports Gaming
Center, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control
and handling and storage and dispensing of alcoholic beverages. Our failure or a failure by a franchisee in obtaining and maintaining
the required licenses, permits and approvals at any one Simplicity Esports Gaming Center could impact the continuing operations
of existing Simplicity Esports Gaming Centers, or delay or prevent the opening of new Simplicity Esports Gaming Centers. Although
we do not anticipate any material difficulties occurring in the future, the failure to receive or retain a liquor license, or
any other required permit or license, in a particular location, or to continue to qualify for, or renew licenses, could have a
material adverse effect on operations and our ability to obtain such a license or permit in other locations.
As
a result of operating certain entertainment games and attractions, including skill-based games that offer redemption prizes, the
Simplicity Esports Gaming Centers in the United States are subject to amusement licensing and regulation by the countries, states,
provinces, counties and municipalities in which our Simplicity Esports Gaming Centers are located. These laws and regulations
can vary significantly by country, state, province, county, and municipality and, in some jurisdictions, may require us to modify
our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states in the United States
and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable
to our redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types
of redemption games we offer. Furthermore, other states, provinces, counties and municipalities may make changes to existing laws
to further regulate legalized gaming and illegal gambling. Adoption of these laws, or adverse interpretation of existing laws,
after we have established a Simplicity Esports Gaming Center in the jurisdiction could require the existing center in these jurisdictions
to alter the mix of games, modify certain games, change the mix of prizes that we may offer or terminate the use of specific games,
any of which could adversely affect our operations.
We
are also subject to laws and regulations governing our relationship with our employees, including those related to minimum wage
requirements, exempt status, overtime, health insurance mandates, working and safety conditions, immigration status requirements,
child labor, and non-discrimination. Additionally, changes in federal labor laws, including card verification regulations, could
result in portions of our workforce being subjected to greater organized labor influence, which could result in an increase to
our labor costs. A significant portion of Simplicity Esports Gaming Center personnel will be paid at minimum wage rates established
by federal, state and municipal law. Increases in the minimum wage result in higher labor costs, which may be only partially offset
by price increases and operational efficiencies.
We
are also subject to the rules and regulations of the Federal Trade Commission and various state laws regulating the offer and
sale of franchises. The Federal Trade Commission and various state laws require that we furnish a franchise disclosure document
containing certain information to prospective franchisees, and a number of states require registration of the franchise disclosure
document with state authorities. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial
number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the
franchisor-franchisee relationship. The state laws often limit, among other things, the duration and scope of non-competition
provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate
sources of supply. We shall endeavor to make sure that any franchise disclosure document we provide, together with any applicable
state versions or supplements, and franchising procedures, comply in all material respects with both the Federal Trade Commission
guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises.
If
we and our franchisees fail to comply with such laws and regulations, we may be subject to various sanctions and/or penalties
and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our business
and our financial results.
Our
growth through franchising may not occur as rapidly as we currently anticipate and may be subject to additional risks.
As
part of our growth strategy, we will continue to seek franchisees to operate Simplicity Esports Gaming Centers in certain strategic
domestic locations or venues. We believe that our ability to recruit, retain and contract with qualified franchisees will be increasingly
important to our operations as we expand. Our franchisees are dependent upon the availability of adequate sources of financing
in order to meet their development obligations. Such financing may not be available to our franchisees, or only available upon
disadvantageous terms. Our franchise strategy may not enhance our results of operations.
Expanding
through franchising exposes our business and brand to risks because the quality of the franchised operations will be beyond our
immediate control, including risks associated with our confidential information, intellectual properties (including trademarks)
and brand reputation. Even if we have contractual remedies to cause franchisees to maintain operational standards, enforcing those
remedies may require litigation and therefore our image and reputation may suffer, unless and until such litigation is successfully
concluded.
We
could face liability from or as a result of our franchisees.
Various
state and federal laws will govern the relationship between us and our franchisees and the potential sale of a franchise. If we
fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government
agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model,
we may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. Such
legal actions could result in expensive litigation with our franchisees or government agencies that could adversely affect both
our profit and our important relations with our franchisees. In addition, regulatory or legal developments could result in changes
to laws or the franchisor/franchisee relationship that could negatively impact the franchise business model and, accordingly,
our profit.
We
may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment market in the United
States, which could have a material adverse effect on our business, results of operations or financial condition.
The
out-of-home entertainment market in the United States is highly competitive. Simplicity Esports Gaming Centers that we
or our franchisees operate will compete for customers’ discretionary entertainment dollars with providers of out-of-home
entertainment, including localized attraction facilities such as movie theatres, sporting events, bowling alleys, sports activity
centers, arcades and entertainment centers, nightclubs and restaurants as well as theme parks. Many of the entities operating
these businesses are larger and have significantly greater financial resources, a greater number of locations, have been in business
longer, have greater name and brand recognition and are better established in the local markets where Simplicity Esports Gaming
Centers are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers
and succeed in attracting customers who would otherwise come to the Simplicity Esports Gaming Centers we or our franchisees operate.
In the United States, the legalization of casino gambling in geographic areas near any future Simplicity Esports Gaming
Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on our business
and financial condition. We will also face competition from local, regional and national establishments that offer entertainment
experiences similar to us. Simplicity Esports Gaming Centers we or our franchisees operate will also face competition from increasingly
sophisticated home-based forms of entertainment, such as internet and video gaming and home movie streaming and delivery. If we
fail to compete favorably in the competitive out-of-home and home-based entertainment markets it could have a material adverse
effect on our business, results of operations and financial condition.
Our
senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers
and related products.
The
members of our senior management team have extensive backgrounds in finance and the management of financial services businesses,
however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment
centers. We will need to expand our management team, to include individuals with expertise in establishing and operating entertainment
centers as well as individuals with expertise in product licensing and franchise operations. If we are unable to recruit professionals
with acceptable backgrounds in establishing and operating entertainment centers and with backgrounds in product licensing and
financing, we may not be able to pursue our growth strategy which could have a material adverse effect on our business
and results of operations.
Our
success depends upon our ability to recruit and retain qualified management and operating personnel at Simplicity Esports Gaming
Centers.
We
and our franchisees must attract, retain and motivate a sufficient number of qualified management and operating personnel in order
to maintain consistency in our service, hospitality, quality and atmosphere of our Simplicity Esports Gaming Centers. Qualified
management and operating personnel are typically in high demand. If we and our franchisees are unable to attract and retain a
satisfactory number of qualified management and operating personnel, labor shortages could delay the planned openings of new Simplicity
Esports Gaming Centers which could have a material adverse effect on our business and results of operations.
Our
business and operations are subject to various risks relating to the acquisitions of target companies. Our inability to complete
and successfully integrate the future acquisition targets may affect our growth strategy, market share, profitability or competitive
position.
We
plan to expand through future acquisitions of companies along with organic growth. There can be no assurance that we will be able
to successfully integrate the acquired businesses into our existing operations as planned. We may be adversely impacted by liabilities
that we assume from these acquisitions, including known and unknown obligations, intellectual property or other assets, terminated
employees, current or former clients, or other third parties, and we may fail to identify or adequately assess the magnitude of
certain liabilities, shortcomings or other circumstances prior to the acquisitions, which could result in unexpected legal or
regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes, or other adverse effects on our business.
Our
insurance coverage may not adequately protect us against all future risks, which may adversely affect our business and prospects.
We
maintain insurance coverage, including for fire, acts of god and perils, terrorism, burglary, money, loss of profit, fidelity
guarantee, fixed glass and sanitary fitting, electronic equipment, machinery breakdown, portable equipment, sign boards, commercial
general liability, marine transit, and directors’ and officers’ liability insurance, as well as employee health and
medical insurance, with standard exclusions in each instance. While we maintain insurance in amounts that we consider reasonably
sufficient for a business of our nature and scale, with insurers that we consider reliable and credit worthy, we may face losses
and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our existing insurance policies.
Moreover, coverage under such insurance policies would generally be subject to certain standard or negotiated exclusions or qualifications
and, therefore, any future insurance claims by us may not be honored by our insurers in full, or at all. In addition, our premium
payments under our insurance policies may require a significant investment by us.
To
the extent that we suffers loss or damage for which we did not obtain insurance, that is not covered by insurance or that exceeds
our insurance coverage, the loss will have to be borne by us and our business, cash flow, financial condition, results of operations
and prospects may be adversely affected.
Changes
in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and
results of operations.
We
are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to
comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may
be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from
time to time and those changes could have a material adverse effect on our business, investments and results of operations. In
addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect
on our business and results of operations.
We
are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our
operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors.
We believe that our success depends on the continued service of our executive officers and directors. In addition, our executive
officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts
of interest in allocating management time among various business activities, including identifying potential business combinations
and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any
of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers
could have a detrimental effect on us.
Our
executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that
conflict with our interests.
We
have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having
a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction
to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for
their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict
between their interests and ours.
We
are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure
requirements available to emerging growth companies, this could make our securities less attractive to investors and may make
it more difficult to compare our performance with other public companies.
We
are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being
required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important.
We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier,
including if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any June 30 before that time,
in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors
will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less
attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise
would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means
that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may
make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging
growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accounting standards used.
Compliance
obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
Section
404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual
Report on Form 10-K for the year ended May 31, 2019. As long as we remain an emerging growth company, we will not be required
to comply with the independent registered public accounting firm attestation requirement on our internal control over financial
reporting.
Provisions
in our third amended and restated certificate of incorporation, as amended, and Delaware law may inhibit a takeover of
us, which could limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.
Our
third amended and restated certificate of incorporation, as amended, contains provisions that may discourage unsolicited takeover
proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors
and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more
difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing
market prices for our securities.
If
we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The
Simplicity products and services compete within industries that are characterized by swiftly changing technology, evolving industry
standards, frequent new and enhanced product introductions, rapidly changing consumer preferences and product obsolescence. In
order to continue to compete effectively, we need to respond quickly to technological changes and to understand their impact on
customers’ preferences. We may take significant time and resources to respond to these technological changes and changes
in consumer preferences. Our business and results of operations may be negatively impacted if our products and services fail to
keep pace with these changes.
A
failure or unanticipated delay in securing any necessary or desired certification for Simplicity Esports LLC’s products
from government or regulatory organizations could impair distribution of Simplicity Esports LLC’s products and materially
and adversely affect our results of operations and financial condition.
In
order for certain Simplicity Esports LLC’s products to be commercially distributed for use in certain target markets, they
must first be certified by certain government or regulatory organizations, such as the Underwriters Laboratory (UL) in the U.S.
and the Technischer Überwachungs-Verein (TÜV) and Conforme Européene (CE) in Europe. A failure or unanticipated
delay in securing any necessary or desired certification for the Simplicity Esports LLC’s products could impair sales of
Simplicity Esports LLC’s products and materially and adversely affect our business, results of operations and financial
condition.
Various
product safety laws and governmental regulations applicable to the distributor of Simplicity Esports LLC’s products may
adversely affect our business, results of operations and financial condition.
Our
distribution of Simplicity Esports LLC’s products will be subject to numerous federal, state, provincial, local and foreign
laws and regulations, including laws and regulations with respect to product safety, including regulations enforced by the United
States Consumer Products Safety Commission. We and our franchisees could incur costs in complying with these regulations and,
if they fail to comply, could incur significant penalties. A failure to comply with applicable laws and regulations, or concerns
about product safety, may also lead to a recall or post-manufacture repair of selected Simplicity Esports LLC’s products,
resulting in the rejection of the products by our franchisees, lost sales, increased customer service and support costs, and costly
litigation.
Risks
Relating to Our Esports Business
Our
esports business faces intense and wide-ranging competition, which may have a material negative effect on our business and results
of operations
.
The
success of an esports business, like the esports business of Simplicity Esports LLC, is dependent upon the performance and/or
popularity of its teams. Simplicity Esports LLC’s teams compete, in varying respects and degrees, with other live sporting
events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications
and other alternative sources. For example, our esports teams compete for attendance, viewership and advertising with a wide range
of alternatives available in major metropolitan areas. During some or all of the esports season, our teams face competition, in
varying respects and degrees, from professional and collegiate basketball, hockey, baseball, football, and soccer, among others.
As
a result of the large number of options available, we face strong competition for the sports and gaming fan. We must compete with
other esports teams, traditional sports teams and sporting events, in varying respects and degrees, including on the basis of
the quality of the teams we field, their success in the leagues, tournaments and genres in which they compete, our ability to
provide an entertaining environment at any esports games that we host at our centers, prices charged for tickets and the viewing
availability of our teams on multiple media alternatives. Given the nature of esports and sports in general, there can be no assurance
that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence,
our business and results of operations may be materially negatively affected by competition.
Our
businesses are substantially dependent on the continued popularity and/or competitive success of Simplicity Esports LLC’s
teams, which cannot be assured.
Our
future financial results will be dependent on the Simplicity teams becoming and remaining popular with our fan base and, in varying
degrees, on the team achieving in-game success, which can generate fan enthusiasm, resulting in sustained ticket and merchandise
sales during the season. Furthermore, success in the regular season at certain tournaments may qualify one or more of our esports
teams for participation in post-season playoffs, which provides us with additional revenue from prize money by increasing the
number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our esports
teams, which can improve attendance in subsequent seasons. There can be no assurance that any of our esports teams, will develop
a significant fan base, maintain continued popularity or compete in post-season play in the future.
The
actions of the various esports leagues and tournaments may have a material negative effect on our business and results of operations.
The
governing bodies of the various esports leagues and tournaments, under certain circumstances, can take actions that they deem
to be in the best interests of their respective leagues or tournaments, which may not necessarily be consistent with maximizing
our results of operations and which could affect our esports teams in ways that are different than the impact on other esports
teams. For example they can take actions relating to the rights to telecast the games of league members or tournament participants,
including the Simplicity team, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual
property of our esports teams and the leagues or tournaments, and the internet-based activities of our esports teams. Certain
of these decisions by the esports leagues and tournaments could have a material negative effect on our business and results of
operations. From time to time, we may disagree with or challenge actions that the leagues or tournaments take or the power and
authority they assert.
We
may be unable to effectively manage the growth in the scope and complexity of our business, including our expansion into the esports
business which is untested and into adjacent business opportunities.
Our
future success depends, in part, on our ability to manage our expanded business, including through the acquisition of Simplicity,
and our aspirations for continued expansion. We intend to dedicate resources to a new business model that is largely untested,
as is the case with esports. We do not know to what extent our future expansions will be successful. Further, even if successful,
the growth of our business could create significant challenges for our management, operational, and financial resources, and could
increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result
in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal
controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways
may cause damage to our brand, damage our reputation or otherwise negatively impact our business.
Our
industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among,
emerging technologies and business models, our business may be negatively impacted.
Technology
changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, services and
business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability
for these new products, services and business models is inherently uncertain and volatile, and if we invest in the development
of interactive entertainment products or services incorporating a new technology or for a new platform that does not achieve significant
commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front”
costs of developing and marketing those products and services, or recover the opportunity cost of diverting management and financial
resources away from other products or services. Further, our competitors may adapt to an emerging technology or business model
more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers,
or both.
If,
on the other hand, we elect not to pursue the development of products or services incorporating a new technology or for new platforms,
or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences.
It may take significant time and resources to shift product development resources to that technology, platform or business model,
as the case may be, and may be more difficult to compete against existing products and services incorporating that technology
or for that platform or against companies using that business model.
We
may encounter difficulties in integrating Simplicity Esports LLC’s esports businesses or otherwise realizing the anticipated
benefits of the transaction.
As
part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint
ventures with, complementary businesses, such as the acquisition of the Simplicity esports business. The acquisition of Simplicity
Esports LLC involves significant risks and uncertainties, including: (i) the potential for Simplicity Esports LLC’s business
to underperform relative to our expectations and the acquisition price, (ii) the potential for Simplicity Esports LLC’s
business to cause our financial results to differ from expectations in any given period, or over the longer-term, (iii) unexpected
tax consequences from the acquisition, or the tax treatment of Simplicity Esports LLC’s business’s operations going
forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating Simplicity Esports
LLC’s business, its operations and its employees in an efficient and effective manner, (v) any unknown liabilities or internal
control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of Simplicity Esports LLC’s
businesses. Further, the transaction may involve the risk that our senior management’s attention will be excessively diverted
from our other operations, the risk that the gaming industry does not evolve as anticipated and that any intellectual property
or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives,
cost savings or other anticipated benefits are otherwise not achieved.
Our
business may be harmed if our licensing partners, or other third parties with whom we do business, act in ways that put our brand
at risk.
We
anticipate that our business partners shall be given access to sensitive and proprietary information or control over our intellectual
property in order to provide services and support to our teams. These third parties may misappropriate our information or intellectual
property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. The failure of these third
parties to provide adequate services and technologies, the failure of third parties to adequately maintain or update their services
and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to
our business operations or an adverse effect on our reputation, and may negatively impact our business.
Our
business is highly dependent on the success and availability of video game platforms manufactured by third parties.
We
expect to derive a substantial portion of our revenues from esports games played on game platforms manufactured by third parties,
such as Sony’s PS4, Microsoft’s Xbox One, and Nintendo’s Wii U and Switch, and PCs. The success of our business
will be driven in large part by our ability to accurately predict which platforms will be successful in the marketplace. We also
rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their
manufacturers. We may be required to commit significant resources well in advance of the anticipated introduction of a new platform.
If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If
the platforms for which we invested resources do not attain significant market acceptance, we may not be able to recover our costs,
which could be significant.
The
games we support are subject to scrutiny regarding the appropriateness of their content. If the publishers and distributors we
partner with fail to receive their target ratings for certain titles, or if retailers refuse to sell such titles due to what they
perceive to be objectionable content, it could have a negative impact on our business.
Console
and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self-regulatory body
based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including
information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability
of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for
product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary
“App Rating System” and Google Play’s use of the International Age Rating Coalition (IARC) rating system. If
the software publishers that supply our games are unable to obtain the ratings they have targeted for their products, it could
have a negative impact on our business. In some instances, the software publishers and developers may be required to modify their
products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product,
or may prevent its sale altogether in certain territories, which would limited its availability for use in the games that our
teams play.
We
will depend on servers to operate our games with online features. If we were to lose server functionality for any reason, our
business may be negatively impacted.
Our
business at our game centers will rely on the continuous operation of servers, some of which are owned and operated by third parties.
Although we shall strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited
hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers
that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying
for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games
with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales
for, or in, such games.
We
also rely on networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam, for the functionality of
the games we use which have online features. An extended interruption to any of these services could adversely affect our ability
to operate our games with online features, negatively impacting our business.
Further,
insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity
required by our business, we may incur unnecessary additional operating costs.
Risks
Related to Smaaash Private
Smaaash
Private has significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private debt financing arrangements
may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial
condition and results of operations, as well as restrict Smaaash Private’s operational flexibility.
As
on December 31, 2017, Smaaash Private’s outstanding indebtedness on a consolidated basis aggregated to $44.10 million, including
$44.05 million of secured debt and $0.05 million of unsecured debt, Smaaash Private may incur additional indebtedness in the future.
Smaaash
Private’s significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private’s debt financing
arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s
financial condition and results of operations, as well as restricting Smaaash Private’s operational flexibility.
The
possible implications of Smaaash Private’s significant indebtedness may include, but are not limited to, the following:
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a
portion of Smaaash Private’s cash flows may be used towards repayment of Smaaash Private’s existing debt, which
will reduce the availability of cash to fund Smaaash Private’s working capital requirements, capital expenditures, planned
expansions or acquisitions or other strategic objectives, and general corporate purposes;
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Smaaash
Private’s ability to obtain additional funding in the future at reasonable, or less restrictive, terms may be restricted;
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fluctuations
in market interest rates may affect the cost of Smaaash Private’s borrowings, as Smaaash Private’s loans are,
currently as well as typically, at variable interest rates;
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Smaaash
Private’s ability to declare dividends, while any actual payments are due under the terms of Smaaash Private’s
borrowings;
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Smaaash
Private may be more vulnerable to economic downturns;
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Smaaash
Private’s ability to withstand competitive pressures may be limited;
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Smaaash
Private may have reduced operational flexibility in responding to business, regulatory and economic conditions and developments;
and
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Smaaash
Private’s requirement to obtain lenders’ consents for various activities, including, but not limited to, any change
in control or ownership of Smaaash Private.
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Smaaash
Private is continually expanding and so may need to continually raise capital. If Smaaash Private is unable to raise capital on
commercially favorable terms, including due to Smaaash Private’s high debt-equity ratio, Smaaash Private’s growth
trajectory might be affected.
Smaaash
Private is in the process of expansion and may need additional capital despite the fact that it has a significant portion of debt
on its books. Due, in part, to Smaaash Private’s significant debt there are various reasons for it not being able to raise
capital on commercially favorable terms including, but not limited to (i) high debt to equity ratio, (ii) trends in global capital
and credit markets, and (iii) existing debt terms. Smaaash Private’s inability to maintain or obtain sufficient cash flow,
credit facilities and other sources of funds, in a timely manner, or at all, to meet Smaaash Private’s expansion strategy
requirements could adversely affect Smaaash Private’s growth trajectory.
The
high fixed cost structure of Smaaash Private’s operations can result in significantly lower margins if Smaaash Private’s
revenues should decline, which may adversely affect Smaaash Private’s business, financial condition, results of operations
and prospects.
Smaaash
Private’s total aggregate expenditure was $18.9 million for fiscal year 2017, the most recent year for which data is
available to us. A large proportion of Smaaash Private’s expenses are fixed expenses, including the cost of full-time
employees, fixed rentals, interest costs, security and insurance, which do not vary significantly with retail traffic at Smaaash
Centers. These expenses may continue to increase, in the aggregate, from year to year, particularly as Smaaash Private continue
to expand its network of Smaaash Centers in the future. In the event that Smaaash Private’s expenses increase at a faster
rate than Smaaash Private’s revenues and if Smaaash Private is unable to rationalize Smaaash Private’s costs or realize
efficiencies of scale, Smaaash Private may not be able to pass on such costs to Smaaash Private’s customers or offset its
expenses. In such case, Smaaash Private may experience a decline in its profit margins and, in general, an adverse impact on its
business, financial condition, results of operations and prospects.
Smaaash
Private has significant capital expenditure requirements, and inability to raise adequate financing on commercially acceptable
terms may limit Smaaash Private’s strategic initiatives and growth prospects.
Smaaash
Private’s business is inherently capital intensive. Smaaash Private’s total capital expenditure was $19.23 million
in fiscal year 2017, the most recent year for which data is available to us. Smaaash Private is required to undertake capital
investments on a regular basis, to introduce new games and entertainment options, or to improve existing games and entertainment
options and, particularly, when Smaaash Private opens new Smaaash Centers. In addition, Smaaash Private must incur expenditures
to maintain and improve supporting or complementary infrastructure and services at Smaaash Centers, including Smaaash Private’s
food and beverage venues, parking and other facilities. The actual amounts and timing of Smaaash Private’s future capital
expenditure may differ from Smaaash Private’s estimates, from time to time, including on account of, among other things,
availability of land for future expansion, interest rates, future cash flows being less than Smaaash Private had estimated, fluctuations
in currency exchange rates or commodity prices, unforeseen delays or cost overruns on Smaaash Private’s part or on the part
of any of Smaaash Private’s equipment or technology supply or other vendors or partners, technological advances, design
changes, inability to obtain or delay in obtaining requisite regulatory approvals or third party consents such as from lenders
or lessors or others, unanticipated expenses, delays in Smaaash Private’s payments from corporate customers in Smaaash Private’s
product sales business or issues with the credit worthiness of such customers, general economic conditions, market developments
and new opportunities or challenges in the industry, or in the geographies in which Smaaash Private operate. Smaaash Private’s
capital expenditures and investments may rise in the future, given Smaaash Private’s expansion plans as well as the scope
of Smaaash Private’s existing operations. The financing required by Smaaash Private for such capital expenditures and investments
may not be available to it on commercially acceptable terms or at all, or Smaaash Private’s ability to seek additional financing
in the future may be restricted due to the terms of Smaaash Private’s existing or future borrowings, or regulatory constraints
on equity or debt capital raising, or a range of macroeconomic factors, including interest rates.
Smaaash
Private’s inability to raise adequate financing on commercially acceptable terms, or at all, in the future may limit Smaaash
Private’s strategic initiatives and growth prospects. In addition, there can be no assurance that Smaaash Private’s
capital investment will yield the planned returns at any time in the future, at expected rates, or at all. In any such event,
Smaaash Private’s business, financial condition, results of operations and prospects may be adversely affected.
Smaaash
Private, as well as its affiliated companies, have unsecured borrowings from time to time, which may be repayable on demand, including
on the occurrence of an event of default in the terms of such financing agreements. Any unexpected calls for repayment of a significant
amount of such borrowings may impact Smaaash Private’s ability to manage its debt service obligations.
Smaaash
Private, as well as Smaaash Private’s affiliates, have unsecured borrowings from time to time, which may be repayable on
demand, including on the occurrence of an actual or alleged event of default. Any unexpected calls for repayment of a significant
amount of such borrowings may impact Smaaash Private’s ability to manage its debt service obligations. Any failure to service
such indebtedness or comply with any obligations under such financing agreements may cause it to incur penalty interest or may
result in the termination of one or more of Smaaash Private’s credit facilities or acceleration or cross-acceleration of
payments under such credit facilities, as well as the declaration of an event of default or cross-default, which may adversely
affect Smaaash Private’s business, financial condition, results of operation and prospects.
Smaaash
Private has a relatively limited operating history and may not be able to sustain Smaaash Private’s growth levels in the
future.
Smaaash
Private commenced commercial operations at Smaaash Private’s first Smaaash Center in Mumbai in November 2012, and all of
Smaaash Private’s other Smaaash Centers have commenced commercial operations within the last three fiscal years. Smaaash
Private’s first international Smaaash Center, in the Mall of America, in Minnesota, U.S.A. was opened in December 2016.
Consequently, Smaaash Private currently has relatively limited operating experience, particularly, overseas, and may encounter
challenges in further expansion, including its proposed overseas expansion.
Consequently,
it may be difficult to evaluate Smaaash Private’s past performance and prospects. Smaaash Private may not be able to sustain
any historical growth rates in the future, and may not be able to leverage its experience in its existing markets in order
to grow Smaaash Private’s business in new markets.
Smaaash
Private has entered, and may continue to enter, into certain related party transactions. There can be no assurance that Smaaash
Private could not have achieved more favorable terms, if such transactions had not been entered into with related parties, or
that Smaaash Private will be able to maintain existing terms in the future, where the terms are or may be more favorable than
if the transactions had not been entered into with related parties.
Smaaash
Private has entered into various transactions with related parties. While Smaaash Private believes that all such transactions
have been conducted on an arm’s length basis and contain commercially reasonable terms, Smaaash Private may have been able
to achieve more favorable terms had such transactions been entered into with unrelated parties. It is also likely that Smaaash
Private may enter into related party transactions in the future. Although all material related party transactions that Smaaash
Private may enter into, will be subject to board or shareholder approval, as necessary under the Companies Act 2013, there can
be no assurance that such transactions, individually or in the aggregate, will not have an adverse effect on Smaaash Private’s
financial condition and results of operations or that Smaaash Private could not have achieved more favorable terms if such transactions
had not been entered into with related parties. Such related party transactions may potentially involve conflicts of interest.
Such
transactions, individually or in the aggregate, may not always be in the best interests of Smaaash Private’s minority shareholders
and will not have an adverse effect on Smaaash Private’s business, results of operations, financial condition and cash flows
Since
a majority of Smaaash Private’s directors, officers and assets reside or are located outside of the United States, we may
have difficulty enforcing judgments against Smaaash Private, its directors and officers.
Smaaash
Private is incorporated under the laws of India. Further, Smaaash Private conducts substantially all of its operations in India.
The majority of its directors and officers, reside outside the United States, and a majority of Smaaash Private’s assets
and some or all of the assets of such persons are located outside the United States. As a result, it may be difficult or impossible
to effect service of process within the United States upon Smaaash Private or those persons, or to recover against Smaaash Private
or those persons on judgments of United States courts, including judgments predicated upon the civil liability provisions of the
United States federal securities laws. An award of punitive damages by a United States courts based upon United States federal
securities laws is likely to be construed by Indian courts to be penal in nature and therefore unenforceable in India. Further,
no claim may be brought in India against Smaaash Private or its directors and officers in the first instance for a violation of
United States federal securities laws because these laws have no extraterritorial application under Indian law and are not enforceable
in India. However, an Indian court may impose civil liability, including the possibility of monetary damages, on Smaaash
Private or its directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Indian
law. Moreover, it is unlikely that a courts in India would award damages on the same basis as a foreign courts if an action were
brought in India or that the Indian courts would enforce foreign judgments if it viewed the amount of damages as excessive or
inconsistent with Indian practice or public policy.
The
courts of India will not automatically enforce judgments of United States courts obtained in actions against Smaaash Private or
its directors and officers, predicated upon the civil liability provisions of the United States federal securities laws, or entertain
actions brought in India against Smaaash Private or such persons predicated solely upon United States federal securities laws.
Further, the United States has not been declared by the Government of India to be a reciprocating territory for the purposes of
enforcement of foreign judgments, and there are grounds upon which Indian courts may decline to enforce the judgments of United
States courts. Some remedies available under the laws of United States jurisdictions, including remedies available under the United
States federal securities laws, may not be allowed in Indian courts if contrary to public policy in India. Because judgments of
United States courts are not automatically enforceable in India, it may be difficult for you to recover against Smaaash Private
or its directors and officers or some experts named in this proxy statement/prospectus based upon such judgments. In India, prior
approval of the RBI is required in order to repatriate any amount recovered pursuant to such judgments. See “
Enforceability
of Civil Liabilities.
”
Risks
Related to Our Ownership of Smaaash Private’s Share Equity
Smaaash
Private’s principal stockholders and management own a significant percentage of its share equity stock and will be able
to exert significant control over matters subject to shareholder approval.
Shripal
Morakhia and AHA Holdings Private Limited, his affiliated entity, and FW Metis, Smaaash Private’s principal shareholders,
beneficially own approximately 24.34% and 21.23%, respectively, of Smaaash Private’s share equity after the Transactions.
Accordingly, these shareholders have significant influence over the outcome of corporate actions requiring shareholder approval,
including the election of directors, any merger, consolidation or sale of all or substantially all of its assets or any other
significant corporate transaction. The interests of these shareholders may not be the same as or may even conflict with Smaaash
Private’s interests. The concentration in ownership may have the effect of delaying, preventing or deterring a change in
control of Smaaash Private and deprive Smaaash Private’s shareholders of an opportunity to receive a premium for their equity
shares as part of a sale of Smaaash Private.
There
is currently no trading market for Smaaash’s equity shares and liquidity of the equity shares is limited.
Smaaash’s
equity shares of are not registered under the securities laws of India, the United States or any state or other jurisdiction,
and accordingly there is no public trading market for the equity shares that we received in the Transaction and no public trading
market is expected to develop in the foreseeable future. Therefore, we may not be able to readily sell or transfer the Smaaash
Private equity shares that we own.
Risk
Factors Relating to Our Securities and Capital Structure
We
have not paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock in the future.
Any return on investment in our common stock may be limited to the value of our Common Stock.
We
have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable
future. The payment of dividends on our Common Stock would depend on earnings, financial condition, and other business and economic
factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends on our Common Stock,
our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
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 and/or warrants.
Our
Common Stock and Public Warrants are quoted on the OTCQB tier of the OTC Markets Group, Inc. (“
OTC Markets
”).
Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to
many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the
market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange,
and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system
like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in 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 and Public Warrants have been volatile in the past and the market price of our Common Stock and Public
Warrants and Private Placement Warrants are likely to be highly volatile in the future. You may not be able to resell shares
of our Common Stock and/or Private Placement Warrants 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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or anticipated fluctuations in our operating results;
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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 and/or Private Placement
Warrants . 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 and/or Private Placement Warrants, regardless of our actual
operating performance.
If
securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its
market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities
could decline.
The
trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish
about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish
research on the Company. If no securities or industry analysts commence coverage of the Company, our stock price and trading volume
would likely be negatively impacted. If any of the analysts who may cover the Company change their recommendation regarding our
securities adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would
likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports
on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Our
common stock has in the past been a “penny stock” under SEC rules, and our warrants may be subject to the “penny
stock” rules. It may be more difficult to resell securities classified as “penny stock.”
In
the past, our common stock was 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 and our warrants on a national stock exchange,
or maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend
the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited
investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in
penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a
standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation
of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each
penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment
for the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal
remedies available to an investor in “penny stocks” may include the following:
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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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However,
investors who have signed arbitration agreements may have to pursue their claims through arbitration.
These
requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that
becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our
securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our Private Placement
Warrants and may affect your ability to resell our common stock and our Private Placement Warrants.
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 or our Private Placement Warrants will not be classified as a “penny stock” in the
future.
A
sale of a substantial number of shares of our Common Stock may cause the price of the Common Stock to decline.
If
our stockholders sell substantial amounts of our Common Stock in the public market, the market price of our Common Stock could
fall. These sales also may make it more difficult for us to sell our equity or equity-related securities in the future at a time
and price that we deem reasonable or appropriate. This risk is significant because of concentrated positions of our Common Stock
held by a small group of investors.
Because
certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions
requiring stockholder approval.
Our
directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 59.2%
of our outstanding shares of Common Stock. Accordingly, our executive officers, directors and principal stockholders, and
their respective affiliates, will have significant influence on the ability to control the Company and the outcome of issues submitted
to our stockholders.
If
the benefits of any proposed acquisition of do not meet the expectations of investors, stockholders or financial analysts, the
market price of our Common Stock may decline.
If
the benefits of any proposed acquisition of do not meet the expectations of investors or securities analysts, the market price
of our Common Stock prior to the closing of the proposed acquisition may decline. The market values of our Common Stock at the
time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In
addition, broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating
performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our
securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies
which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions
or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional
securities and our ability to obtain additional financing in the future.
Changes
in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including
changes to our previously filed financial statements, which could cause our stock price to decline.
We
prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC
and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles
or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously
reported results.
Being
a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability
to attract and retain qualified directors.
As
a public reporting company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). These requirements generate significant accounting, legal and financial compliance costs and make
some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The
Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control
over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial
reporting, significant resources and management oversight are required.
As
a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material
effect on our business, financial condition and results of operations. These rules and regulations may also make it more difficult
and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer
insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent,
could be adversely impacted.
We
are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable
to public companies may result in our financial statements not being comparable to those of some other public companies. As a
result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive
to investors.
As
a public reporting company with less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging
growth company” under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company
may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are
otherwise generally applicable to public companies. In particular, as an emerging growth company we:
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not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control
over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
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are
not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and
analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion
and analysis”);
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are
not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements
(commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute”
votes);
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are
exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
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may
present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis
of Financial Condition and Results of Operations (“MD&A”); and
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are
eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107
of the JOBS Act.
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We
intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods
for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in
periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging
growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain
of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a
“smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain
an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not
required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive
Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under
the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years
after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933,
as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth
company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more
than $1,070,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates,
or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC
rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the
market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently
completed second fiscal quarter.
We
cannot predict if investors will find our securities less attractive due to our reliance on these exemptions.
Failure
to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and stock price.
We
are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management
to certify financial and other information in our quarterly and annual reports and provide an annual management report on the
effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and
procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial
reporting pursuant to Section 404 until year-end 2017. However, as an emerging growth company, our independent registered public
accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting
pursuant to Section 404 until the end of the fiscal year for which our second annual report is due or the date we are no longer
an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse
in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To
comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions,
such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and
maintaining internal control can divert our management’s attention from other matters that are important to the operation
of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses
that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements
of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply
with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective,
or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal
control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy
and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could
become subject to investigations by the Financial Industry Regulatory Agency, the SEC or other regulatory authorities, which could
require additional financial and management resources.
Anti-takeover
provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover
attempt.
The
Company’s certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing
changes in control or changes in our management without the consent of our board of directors. These provisions include:
|
●
|
no
cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
|
|
|
|
|
●
|
the
exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors
or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our
board of directors;
|
|
|
|
|
●
|
the
ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and
other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquirer;
|
|
|
|
|
●
|
limiting
the liability of, and providing indemnification to, our directors and officers;
|
|
|
|
|
●
|
controlling
the procedures for the conduct and scheduling of stockholder meetings;
|
|
|
|
|
●
|
providing
that directors may be removed prior to the expiration of their terms by stockholders only for cause; and
|
|
|
|
|
●
|
advance
notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose
matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting
a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of
the Company.
|
These
provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of
directors and management.
Any
provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change
in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect
the price that some investors are willing to pay for our securities.
In the event that our common stock
price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement
Warrants are exercisable, the Private Placement Warrants may not have any value.
The
warrants will be immediately exercisable and expire on the fifth anniversary of the date of issuance. The Private Placement
Warrants will have an initial exercise price per share equal to $11.50. In the event that our common stock price does
not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants
are exercisable, the Private Placement Warrants may not have any value.
There is no established
trading market for the Private Placement Warrants to be sold in this offering, and the market for the Private Placement
Warrants may be highly volatile or may decline regardless of our operating performance. We do not intend to list the Private
Placement Warrants, nor do we expect the Private Placement Warrants to be quoted, on any securities exchange.
There
must be a current registration statement in order for you to exercise the Private Placement Warrants.
Holders of Private
Placement Warrants will be able to exercise the Private Placement Warrants only if a current registration statement
relating to the common stock underlying the Private Placement Warrants is then in effect. Although we will attempt to maintain
the effectiveness of a current registration statement covering the common stock underlying the Private Placement Warrants,
there can be no assurance that we will be able to do so. If the registration statement covering the shares issuable upon exercise
of the Private Placement Warrants is no longer effective, the Private Placement Warrants may only be exercised on
a “cashless” basis and will be issued with restrictive legends unless such shares are eligible for sale under Rule
144 of the Securities Act of 1933, as amended.
Holders
of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock.
Until
you acquire shares of our common stock upon exercise of your Private Placement Warrants, you will have no rights with respect
to our common stock. Upon exercise of your Private Placement Warrants, you will be entitled to exercise the rights of a
common stockholder only as to matters for which the record date occurs after the exercise date.
USE
OF PROCEEDS
All
of the shares of Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders
for their respective accounts. We will not receive any of the proceeds from these sales. We will receive up to an aggregate of
approximately $66,757,250.00 from the exercise of Warrants, assuming the exercise in full of all of the Warrants for cash.
We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents and capitalization as of February 28, 2019 on an actual basis.
This
table should be read in conjunction with the information contained in this prospectus, including “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto
appearing elsewhere in this prospectus.
|
|
As
of February 28, 2019
|
|
|
|
Actual
|
|
|
|
(unaudited)
|
|
Cash
and cash equivalents
|
|
$
|
1,245,666
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred
stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding on an actual basis
|
|
|
-
|
|
Common
stock - $0.0001 par value; 20,000,000 shares authorized; 6,313,038 shares issued and outstanding on an actual basis
|
|
|
632
|
|
Common
stock issuable - 2,030,000 shares on an actual basis
|
|
|
203
|
|
Additional
paid-in capital
|
|
|
7,515,541
|
|
Accumulated
deficit
|
|
|
(3,105,494
|
)
|
Total
stockholders’ equity
|
|
|
4,410,882
|
|
Total
capitalization
|
|
$
|
7,367,438
|
|
Determination
of Offering PRice
Resale
of Common Stock by Selling Securityholders
Our
Common Stock is quoted on the OTCQB under the symbol “WINR.” The shares
registered for resale in this
prospectus
being offered by the Selling Securityholders
will be sold at a fixed price of $2.00 for the duration of this offering. The offering price of the shares bears no relation to
book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the Selling Securityholders.
Resale
of Private Placement Warrants by Selling Securityholders
Our
Public Warrants are quoted on the OTCQB under the symbol “WINRW.” The actual offering price by the Selling Securityholders
of the Private Placement Warrants covered by this prospectus will be determined by prevailing market prices at the time of
sale, by private transactions negotiated by the Selling Securityholders or as otherwise described in the section entitled
“Plan of Distribution.” The exercise price of the Private Placement Warrants as well as the Public Warrants is established
based on the terms of the Warrant Agreement and bears no relationship to the book value, assets or earnings of our company or
any other recognized criteria of value.
Issuance
of Shares of Common Stock Underlying Warrants
The
price of the shares of Common Stock underlying the Warrants registered hereby is determined by reference to the exercise price
of the Warrants, such that each (i) Public Warrant and Private Placement Warrant entitles the holder to purchase one share
of our Common Stock at an exercise price of $11.50 per share and (ii) 2019 Warrant entitles the holder to purchase one share
of our Common Stock at an exercise price of $4.00 per share.
PRice
range of securities and dividends
Price
Range of Securities
Our
Common Stock and Public Warrants are currently quoted on the OTCQB under the symbols “WINR” and “WINRW”,
respectively. On October 9, 2017, our Common Stock and Public Warrants commenced public trading on the NASDAQ Capital Market
under the symbols “IAM” and “IAMXW”, respectively. On November 20, 2018, we changed the symbols of our
Common Stock and Public Warrants to “SMSH” and “SMSHW”, respectively, in conjunction with our name
change from “I-AM Capital Acquisition Company” to “Smaaash Entertainment, Inc.” On January 10, 2019, we
changed the symbols of our Common Stock and Public Warrants to “WINR” and “WINRW”, respectively,
in conjunction with our name change from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company.”
However, on January 25, 2019, the NASDAQ suspended our Common Stock and Public Warrants from trading on the NASDAQ Capital
Market and the OTCQB commenced the quotation of our Common Stock and Public Warrants. On April 2, 2019, the NASDAQ Capital
Market filed a Form 25 for our Common Stock and Public Warrants, which became effective ten days thereafter.
The
following table includes the high and low bids for our Common Stock and Public Warrants for the periods presented, since
the consummation of our IPO on August 22, 2017.
|
|
Common
Stock
(1)
|
|
Public
Warrants
(2)
|
|
|
|
High
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Fiscal
Year 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1 to July 10, 2019
|
|
$
|
2.20
|
|
|
|
0.56
|
|
|
|
0.70
|
|
|
|
0.04
|
|
December
1, 2018 to February 28, 2019
|
|
$
|
6.62
|
|
|
|
1.23
|
|
|
|
0.52
|
|
|
|
0.06
|
|
September
1 to November 30, 2018
|
|
$
|
11.05
|
|
|
|
3.15
|
|
|
|
0.46
|
|
|
|
0.17
|
|
June
1 to August 31, 2018
|
|
$
|
11.05
|
|
|
|
9.86
|
|
|
|
0.50
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1 to May 31, 2018
|
|
$
|
10.52
|
|
|
|
9.90
|
|
|
|
0.50
|
|
|
|
0.34
|
|
December
1, 2017 to February 28, 2018
|
|
$
|
10.02
|
|
|
|
9.80
|
|
|
|
0.60
|
|
|
|
0.21
|
|
September
1 to November 30, 2017
|
|
$
|
9.98
|
|
|
|
9.80
|
|
|
|
0.34
|
|
|
|
0.26
|
|
August
16 to August 31, 2017 (3)
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(1)
|
Our
Common Stock began separate trading on NASDAQ on October 9, 2017.
|
|
|
(2)
|
Our
Public Warrants began separate trading on NASDAQ on October 9, 2017.
|
|
|
(3)
|
Our
Common Stock and Public Warrants did not trade separately from the Public Units until October 9, 2017.
|
On July 10, 2019,
the closing price of our Common Stock and Public Warrants were $1.72 and $0.33, respectively. As of July 12,
2019, we had 6,952,195 shares of Common Stock and 5,200,000 Public Warrants.
Holders
As
of July 12, 2019, there were approximately 108 holders of record of our Common Stock and 59 holders of record
of our Public Warrants.
Dividends
The
Company has not paid any dividends on its Common Stock to date. It is the present intention of the Company to retain any earnings
for use in its business operations and, accordingly, the Company does not anticipate the board of directors declaring any dividends
in the foreseeable future on our Common Stock. Consequently, you will only realize an economic gain on your investment in our
Common Stock if the price appreciates. You should not purchase our Common Stock expecting to receive cash dividends. Since we
do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares,
then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends
may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because
we may not pay dividends in the foreseeable future, we may have trouble raising additional funds which could affect our ability
to expand our business operations.
DESCRIPTION
OF BUSINESS
Unless
the context otherwise requires, “we,” “us,” or “the Company” refers to (i) “Simplicity
Esports and Gaming Company” after the consummation of the Acquisition of Simplicity Esports, LLC, (ii) “Smaaash Entertainment
Inc.” before the consummation of the Acquisition of Simplicity Esports, LLC but after the closing of the Transactions with
Smaaash Entertainment Private Limited, and (iii) I-AM Capital Acquisition Company prior to the closing of the Transactions
with Smaaash Entertainment Private Limited
.
“Simplicity Esports LLC” means Simplicity Esports, LLC,
a Florida limited liability company, and its consolidated subsidiaries “Smaaash Private” means Smaaash Entertainment
Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries
Overview
We
are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience.
Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class
talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team
and roster. Our management and players are well known influencers within the esports community and we plan to use their skill
to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization
intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
Acquisition
of Simplicity Esports, LLC
On
January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December
21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange
Agreement, dated December 30, 2018, the “
Share Exchange Agreement
”) by and among the Company, Simplicity
Esports, LLC, a Florida limited liability company (“
Simplicity Esports LLC
”), each of the equity holders
of Simplicity Esports LLC (“
Simplicity Owners
”) and Jed Kaplan, in the capacity as the representative
of the Simplicity Owners (the “
Representative
”). Pursuant to the Share Exchange Agreement the Simplicity
Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly
issued shares of common stock of the Company (the “
Acquisition
”).
Background
of Simplicity Esports, LLC
Founded
in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs
to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports
(also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes
the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams.
Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our
content.
As
of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has
now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an
engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL
19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated
fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes
of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The
acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe
will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers.
Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports
experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top
class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless
content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans
to open and operate corporate-owned retail esports gaming centers (“
Simplicity Esports Gaming Centers
”)
as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy
gaming and Esports in a social setting, regardless of skill or experience.
Brick
& Mortar Esports Gaming Locations
Our
business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As
a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical
centers complimented with our esports team, lifestyle brand and marketing campaign offer opportunities for additional revenue
via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base
with a 360 degree approach driving traffic to both our digital and physical real estate ultimately monetizing these relationships.
In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies and brand development
blueprints which complement our publicly available information.
We
intend to open and operate 15 centers by the end of 2019 and a total of 50 throughout the United States over the next 24 months.
These centers are funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships. Our
first center was opened May, 3 2019. Due to unsolicited interest from potential franchisees we have launched a franchising program
to accelerate the expansion of our planned nationwide footprint. Furthermore, we have engaged a national tenant representation
real estate broker to assist in the strategic planning and negotiations for our future gaming center locations.
Optimally,
our gaming centers will measure between 1200 and 2500 square feet thereby representing a national footprint unlike any esports
organization. The team Simplicity branded centers will feature cutting edge technology, futuristic aesthetic décor and
the most dynamic current high speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities
for sponsor and advertisers to connect with our audience, creating an intriguing monetization opportunity.
Creating
content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team
will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a
broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint
for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining
authenticity.
Simplicity
Stream Team
We
are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented
below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the
fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base.
Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain
titles on a 24/7 basis.
Potential
Revenue Capacity
The
following table shows our potential revenue capacity, per location, from game play.
We
also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL
REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20
|
%
|
|
$
|
157,248
|
|
40
|
%
|
|
$
|
314,496
|
|
60
|
%
|
|
$
|
471,744
|
|
80
|
%
|
|
$
|
628,992
|
|
*Assumes
2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future
revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate
History
Formation
We
were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital
Acquisition Company. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,
reorganization or similar business combination with one or more businesses. Although we were not limited to a particular industry
or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India.
On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019,
we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We
are authorized to issue 21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value
of $0.0001 per share (“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per
share. As of July 12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no
shares of preferred stock issued or outstanding.
Founder
Shares
On
May 31, 2017, we issued 1,437,500 shares of Common Stock (the “
Founder Shares
”) to I-AM Capital Partners
LLC, our sponsor (the “
Sponsor
”), in exchange for a capital contribution of $25,000. Upon the partial
exercise of the underwriters’ over-allotment option on September 13, 2017, 137,500 Founder Shares were forfeited by the
Sponsor, for a balance of 1,300,000 Founder Shares held by our Sponsor.
Initial
Public Offering and Private Placement
On
August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“
IPO
”)
of public units (“
Public Units
”), generating gross proceeds of $50.0 million. Each Public Unit consisted
of one share of our Common Stock (“
Public Shares
”), one right to receive one-tenth of one share our
Common Stock upon consummation of an initial business combination (“
Public Right
”), and one redeemable
warrant (“
Public Warrants
”). Each warrant entitled the holder to purchase one share of common stock
at an exercise price of $11.50 per share, subject to adjustment.
Concurrently
with the closing of the IPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“
Private Placement
Units
”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a private placement. The Private Placement
Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of
the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are
held by the Sponsor or their permitted transferees.
On
August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained
in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company
up to an additional 750,000 Public Units (the “
Over-Allotment Units
”) and, in addition, the Company
received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On
September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold
at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On
September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional
7,000 Private Placement Units (the “
Over-Allotment Placement Units
”), generating gross proceeds of $70,000.
On
September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On
October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the Nasdaq Capital
Market under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively.
The
Founder Shares are identical to the Public Shares and holders of Founder Shares have the same stockholder rights as the holders
of our Public Shares (“
Public Stockholders
”) which include our initial stockholders, including the holders
of our Founder Shares prior to the IPO (“
initial stockholders
”) and members of our management team,
including our executive officers and directors (“
management
” and “
management team
”),
to the extent our initial stockholders and/or members of our management team purchased Public Shares, provided that each initial
stockholder’s and member of our management team’s status as a “public stockholder” shall only exist with
respect to such Public Shares), except that the Founder Shares and the shares of Common Stock (“
Private Placement
Shares
”) forming part of the Private Placement Units are subject to certain transfer restrictions.
Consummation
of Transactions with Smaaash Entertainment Private Limited
On
November 20, 2018 (the “
Closing Date
”), the Company and Smaaash Entertainment Private Limited, a private
limited company incorporated under the laws of India, consummated the transactions (the “
Transactions
”
or the “
Business Combination
”) contemplated by the share subscription agreement (as amended, the “
Subscription
Agreement
”), following the approval at the special meeting of the stockholders of the Company held on November 9,
2018 (the “
Special Meeting
”).
At
the Special Meeting, holders of 4,448,260 Public Shares exercised their right to redeem those shares for cash at a price of $10.2187363
per share, for an aggregate of approximately $45,455,596. Immediately after giving effect to the initial Transactions (including
as a result of the redemptions described above) the issuance of 2,000,000 shares of common stock to the Smaaash founders, the
issuance of 520,000 shares of common stock upon conversion of the Public Rights at the Closing and the issuance of 208,000 shares
of common stock to Chardan as consideration for services), there were 5,119,390 shares of common stock and warrants to purchase
approximately.
On
November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of common
stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
Pursuant
to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360
newly issued equity shares of Smaaash Private at the closing of the Transactions (the “
Closing
”).
In
addition, AHA Holdings Private Limited (“
AHA Holdings
”) and Shripal Morakhia (together with AHA Holdings,
the “
Smaaash Founders
”) agreed that within six months following the Closing Date, they would transfer
all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted
basis as of June 22, 2018) (the “
Additional Smaaash Shares
”) to the Company in exchange for newly issued
shares of our Common Stock (the “
Transferred Company Shares
”) in an amount which would enable the Smaaash
Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At
the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion
of the Transferred Company Shares (the “
Upfront Company Shares
”). In connection with the issuance of
the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront
Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in
full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred
in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will
be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional
Smaaash Shares.
On
November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to
transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common
Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November
30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In
connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc.,
changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR”
and “IAMXW,” respectively, and entered into a master franchise agreement (“
Master Franchise Agreement
”)
and a master license and distribution agreement (“
Master Distribution Agreement
”) with Smaaash Private.
Prior to the Closing, the Company was a shell company with no operations, formed as a vehicle to effect a business combination
with one or more operating businesses. After the Closing, the Company’s primary assets consist of shares in Smaaash Private
and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant
to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were
not transferred in full to the Company in the designated six-month period.
Master
Franchise Agreement
Franchise
and license right
. Under the Master Franchise Agreement, Smaaash Private has granted to the Company an exclusive right to
establish and operate Smaaash Centers (as defined under the Master Franchise Agreement) and to sublicense the right to establish
and operate Smaaash Centers to third party franchisees, and a license to use the products and other services developed by Smaaash
Private with respect to the Smaaash Centers, in the territories of North America and South America (“
Territory
”).
Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (as set out in
the Master Franchise Agreement) for the purposes of establishing and operating the Smaaash Centers in the Territory. The Master
Franchise Agreement has been executed on an arms’ length basis between Smaaash Private and the Company.
Obligations
of the Company
. The Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash
Private’s business in the Territory during the term of the Master Franchise Agreement. The Company will market, promote
and publicize the Smaaash Centers in the Territory. The Company or third party sub-franchisees shall be under an obligation to
set up at least six Smaaash Centers during the first calendar year.
Obligations
of Smaaash Private
. Smaaash Private shall assist in training and installing the equipment and bear all the costs associated
therewith. The franchisee or sub-franchisee will bear the cost to set up the Smaaash Center.
License
fees and other payments
. Franchisee or the third party franchisee will be entitled to receive the revenue generated from each
of the Smaaash Centers. In connection with the operations of the Smaaash Centers by sub-franchisees, the Company shall be entitled
to receive (i) a signup fee equal to 5% of the capital expenditure of the sub-franchisee, (ii) 5% of the revenue of the sub-franchisee
on an annual basis; and (iii) a 15% markup of the products sold to the sub-franchisee. Smaaash Private will not receive any portion
of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership
of Smaaash Marks
. Smaaash Private will be the sole owner of all intellectual property related to the Smaaash Centers. All
future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term
of the Agreement
. The Master Franchise Agreement will commence from its execution date and continue until the agreement is
terminated in accordance with the Master Franchise Agreement.
Termination
.
The Master Franchise Agreement may be terminated (i) by the mutual written agreement of parties or (ii) by Smaaash Private if
the Company fails to make a payment, ceases to operate or abandon’s the Smaaash Centers or fails to use best efforts to
market the Smaaash Centers and such failure is not cured within 30 days’ notice of the failure.
Addendum
to Master Franchise Agreement
On
November 29, 2018, the Company and Smaaash Private executed an addendum to the Master Franchise Agreement (the “
Amendment
”).
Pursuant to the Amendment, Smaaash Private grants the Company the exclusive rights to set up family and entertainment centers
under the name “Total Sports Center” in the United States (“
Total Sports Centers
”) in which
51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying
the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements
for such centers. Smaaash Private will also appoint the management team for the centers. Smaaash Private will be entitled to 3%
of the net revenue of each center, subject to conditions to be confirmed by the parties.
Master
License and Distribution Agreement
Grant
of license and distribution rights
. Under the Master Distribution Agreement, Smaaash Private has granted to the Company an
exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities
(“
Products
”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup
to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master
Franchise Agreement.
Pricing
.
The Company may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the price at
which Smaaash Private sold the Products to the Company.
Grant
of license in Smaaash Marks.
Smaaash Private has also granted the Company a license to use the Trademarks (as set out in the
Master Distribution Agreement) on a royalty free basis for the purpose of promoting the sale of the Products in the Territory.
Ownership
of the Smaaash Games
. Smaaash Private will be the sole owner of any intellectual property rights relating to the Products
and all the goodwill relating thereto.
Term.
The Master Distribution Agreement will commence from its execution date and continue until the agreement is terminated in
accordance with the Master Distribution Agreement.
Termination.
The Master Distribution Agreement may be terminated (i) by the mutual written agreement of parties, (ii) by Smaaash Private
if the Company fails to make a payment or use best efforts to market the Products and such failure is not cured within 30 days’
of notice of the failure, and (iii) by the Company for any reason upon 120 days’ notice.
Settlement
Agreement
On
November 20, 2018, the Company entered into a settlement and release agreement (“
Settlement Agreement
”)
with Maxim Group LLC, the underwriter for the Company’s IPO (“
Maxim
”). Pursuant to the Settlement
Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in
the amount of $1.8 million (the “
Note
”) to settle the payment obligations of the Company under the underwriting
agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends
on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The
Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and
including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and
including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum
and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If
a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“
Alternate
Payment Amount
”) at a redemption price equal to 125% of the Alternate Payment Amount.
The
principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i)
one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii)
one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii)
one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The
Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets
held in escrow with respect to (i) that certain stock purchase agreement with Polar, pursuant to which Polar agreed to sell up
to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions and
(ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“
K2
”), pursuant to which K2
agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the
Transactions.
The
amount payable under the Note may be paid in shares of our Common Stock or securities convertible or exercisable into shares of
our Common Stock (the “
Alternate Equity Payment
”) if and only if the Company and Maxim mutually agree
on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in
such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So
long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will
be used to repay this Note.
Convertible
Note Payable
On
December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group
LLC (the “
Holder
”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender
and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed
immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount
of $500,000 (the “
Series A-1 Note
”) and a Series A-2 Exchange Convertible Note in the principal amount
of $1,000,000 (the “
Series A-2 Note
,” and collectively with Series A-1 Note, the “
Exchange
Notes
”).
The
Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date
of the Acquisition (as defined below) or June 20, 2020 (the “
Maturity Date
”). The Company may pay the
interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However,
the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“
Equity
Conditions
”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior
to the interest payment date (“
Interest Notice Period
”), (ii) the Company has provided proper notice
pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of
its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest
Notice Period.
The
Series A-1 Note is convertible into shares of the Company’s common stock (“
Conversion Shares
”)
at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings,
distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically
adjusted to equal the arithmetic average of the volume weighted average price (“
VWAP
”) of the Company’s
common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note
at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right
to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally,
the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity
Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic
conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder)
on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation
date.
At
any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for
cash in an amount (the “
Optional Redemption Amount
”) equal to the sum of (a) 100% of the then outstanding
principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect
of the note (the “
Optional Redemption
”). The Company may only effect an Optional Redemption if each
of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing
on the date when the notice of the Optional Redemption is delivered to the date of the Optil Redemption and through and including
the date payment of the Optional Redemption Amount is actually made in full.
Except
as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay
any portion of the principal amount of the note without the prior written consent of the Holder.
The
Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more
than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’
prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic
conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation,
then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until
such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation,
at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The
Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase
any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The
Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity
date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion
price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five
trading days prior to the notice of conversion and $0.50.
As
of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of
the Company’s common stock.
Amendments
to Forward Purchase Agreements and Warrants
On
December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “
Amendment
”),
pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase
price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up
to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share
up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4)
then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of
the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z)
to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment
for the Shares prior to the final closing of the Stock Sales.
In
addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement
Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment
(the “
Exercise Price Adjustment
”) and (2) to revise the redemption provisions of the warrants to provide
that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written
notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share
(as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “
Redemption
Threshold Adjustment
”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment
shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition
of Simplicity Esports, LLC
On
January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition
and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive
an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision
was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion
of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares
are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In
connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to
the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the
Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity
Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants
to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants
under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq
Delisting
On
December 10, 2018, the Company received a written notice (the “
Notice
”) from the Listing Qualifications
Division of The Nasdaq Stock Market LLC (“
Nasdaq
”) indicating that the Company has not complied with
the requirements of IM-5101-2 of the listing rules of Nasdaq (the “
Listing Rules
”).
The
Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1)
that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence
that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least
400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2)
which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On
January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with
Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional
Shares (the “
LAS Notification
”).
The
Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed
the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange
Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate
basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination
regarding the Company’s continued listing on Nasdaq.
Management
of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“
Nasdaq
”)
to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport
centers.
On
April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants.
The Company’s common stock and public warrants were previously suspended from trading on Nasdaq, effective January
25, 2019.
On
April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and
Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public
warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April
2, 2019.
The
Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR”
and “WINRW,” respectively.
Recent
Developments
Private
Unit Offering
In
2019, the Company sold an aggregate of 987,500 units
(the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000.
Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase
price of $4.00.
Settlement
Agreement
In
March 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owed
this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement
agreement and then another approximate $525,000 to be paid over time.
Restricted
Stock Award
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial
Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.
Such
shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors,
36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000
of such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly
owned subsidiary of our company, 24,000 shares of our restricted Common Stock.
Such shares
vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each
of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan,
Franklin and Grossman on December 31, 2018.
Debt
Conversion
On
May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness
of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between
Polar and us.
Special
Public Warrant Holder Meeting
On
June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant
holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly
and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share
to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions
of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’
written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed
to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Overview
of Smaaash Entertainment Private Limited
Smaaash
Private operates 40 state-of-the-art games and entertainment centers (“
Smaaash Centers
”), including
39 Smaaash Centers in India and one international Smaaash Center in the U.S., in addition to carrying out product sales of its
games and equipment that Smaaash has developed in-house, supported by its sponsorship and other revenues.
Smaaash
Private’s core concept is to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending
Augmented Reality (“
AR
”) and Virtual Reality (“
VR
”) and other games, indoor
entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers
across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash Private’s
game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Smaaash
Private’s game attractions are classified as follows:
|
●
|
Active
games and interactive sports simulators (“
Active Games
”), including active game options such as
single and multi-level go-karting lanes and bowling alleys, as well as interactive simulator-based game options such as Super
Keeper, Hoop Shot, Extreme Drone Racing and more;
|
|
|
|
|
●
|
In-house
developed AR and VR games, including Finger Coaster, Jurassic Escape, Vertigo Walk The Plank, Fly Max and Haunted Hospital;
and
|
|
|
|
|
●
|
Arcade
games and others, including Camel Racing, Hoop Shot and Human Claw; soft play zones which are conceptualized as indoor play
areas for young children, including a ball pool, designed to encourage longer and repeat visits to Smaaash Centers and doing
away with the requirement for families to make alternative childcare arrangements for the duration of their visits to Smaaash
Centers; and indoor game viewing areas.
|
Smaaash
Private’s game offerings are complemented by its in-house food & beverage services.
Smaaash
Private launched its flagship Smaaash Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket
game (obtained by Smaaash Private under a perpetual license from its founder and the patent-holder, Shripal Morakhia, for a one-time
fee) as anchor attraction. Over the last five years, Smaaash Private has transformed into a multi-center integrated games and
entertainment company, with a wide suite of in-house developed AR and VR and other games, as well as food and beverage
options at each of the Smaaash Centers. Among other marketing initiatives, from time to time, Smaaash Private ties up with local
athletes, sports icons and celebrities, including cricket, football, basketball and ice hockey players, to customize its games
and increase their appeal to its customers, including via brand ambassadorships and game options designed around specific sports
personalities.
Smaaash
Private launched its first international Smaaash Center in December 2016, at the Mall of America in Minnesota, USA. Its star attraction
in its U.S. Smaaash Center is a multi-level go-karting track and games developed and launched specifically for this Smaaash Center,
keeping in mind local preferences, such as its ice hockey-themed game called “
What the Puck
”, and Active Games
such as Super Keeper, Hoop Shot and Extreme Drone Racing, among others.
In
fiscal year 2018, Smaaash Private acquired PVR bluO and SVM’s bowling and gaming assets to expand its footprint across India.
The acquisitions added 20 Smaaash Centers to Smaaash Private’s portfolio.
Following
the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports
LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement,
as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future
pursue Smaaash business opportunities.
Employees
As
of July 12,
2019, we had three full-time employees and
no part-time employees. None of our employees is represented by a union. We consider our relations with our employees
to be good.
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.
Properties
We
lease approximately 250 rentable square feet of office space from an unaffiliated third party for our corporate office
located at 7000 W. Palmetto Park Road, Suite 507, Boca Raton, Florida 33433. This lease expires on June 1, 2022.
Terms of the office lease provide for a base rent payment of $800 per month. We also lease approximately 1,200 rentable
square feet of retail space from an unaffiliated third party for our Boca Raton Esports Gaming Center. This lease expires
in 2024. Terms of the office lease provide for a base rent payment of $2,200 per month and a share of the buildings
operating expenses such as taxes and maintenance of $760 per month. We believe that these facilities are adequate for our
current and near-term future needs.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References
in this prospectus to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company,
formerly known as Smaaash Entertainment Inc. and prior to that as I-AM Capital Acquisition Company. The following discussion and
analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this prospectus.
Overview
We
are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience.
Our intention is to have gamer’s involved at the grassroots level and feel a sense of unity as we compete with top class
talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team
and roster. Our management and players are well known influencers within the esports community and we plan to use their skill
to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization
intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
For
the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate
any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153
and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070 and reported a net loss
of $3,095,960, and negative cash flow from operating activities of $823,847. As noted in our consolidated financial statements,
we had an accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash
flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical
recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk
Factors” - We have a history of operating losses and our auditors have indicated that there is a substantial doubt about
our ability to continue as a going concern.”
Consummation
of Transactions with Smaaash Entertainment Private Limited
On
November 20, 2018 (the “
Closing Date
”), the Company and Smaaash Entertainment Private Limited, a private
limited company incorporated under the laws of India, consummated the transactions (the “
Transactions
”
or the “
Business Combination
”) contemplated by the share subscription agreement (as amended, the “
Subscription
Agreement
”), following the approval at the special meeting of the stockholders of the Company held on November 9,
2018 (the “
Special Meeting
”).
Pursuant
to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360
newly issued equity shares of Smaaash Private at the closing of the Transactions (the “
Closing
”).
In
addition, AHA Holdings Private Limited (“
AHA Holdings
”) and Shripal Morakhia (together with AHA Holdings,
the “
Smaaash Founders
”) agreed that within six months following the Closing Date, they would transfer
all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted
basis as of June 22, 2018) (the “
Additional Smaaash Shares
”) to the Company in exchange for newly issued
shares of our Common Stock (the “
Transferred Company Shares
”) in an amount which would enable the Smaaash
Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At
the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion
of the Transferred Company Shares (the “
Upfront Company Shares
”). In connection with the issuance of
the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront
Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in
full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred
in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will
be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional
Smaaash Shares.
On
November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to
transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common
Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November
30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In
connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc.,
changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR”
and “IAMXW,” respectively, and entered into a master franchise agreement (“
Master Franchise Agreement
”)
and a master license and distribution agreement (“
Master Distribution Agreement
”) with Smaaash Private.
Prior to the Closing, the Company was a shell company with no operations, formed as a vehicle to effect a business combination
with one or more operating businesses. After the Closing, the Company’s primary assets consist of shares in Smaaash Private
and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant
to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were
not transferred in full to the Company in the designated six-month period.
Following
the January 2019 acquisition of Simplicity Esports LLC described below, we determined to shift our current primary focus to the
Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The
Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and
we may now or in the future pursue Smaaash Private business opportunities.
Acquisition
of Simplicity Esports, LLC
On
January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December
21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange
Agreement, dated December 30, 2018, the “
Share Exchange Agreement
”) by and among the Company, Simplicity
Esports, LLC, a Florida limited liability company (“
Simplicity Esports LLC
”), each of the equity holders
of Simplicity Esports LLC (“
Simplicity Owners
”) and Jed Kaplan, in the capacity as the representative
of the Simplicity Owners (the “
Representative
”). Pursuant to the Share Exchange Agreement the Simplicity
Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly
issued shares of common stock of the Company (the “
Acquisition
”).
Background
of Simplicity Esports, LLC
Founded
in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs
to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports
(also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes
the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams.
Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our
content.
As
of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has
now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an
engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL
19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated
fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes
of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The
acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe
will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers.
Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports
experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top
class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless
content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans
to open and operate corporate-owned retail esports gaming centers (“
Simplicity Esports Gaming Centers
”)
as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy
gaming and Esports in a social setting, regardless of skill or experience.
Results
of Operations
Our
only activities from April 17, 2017 (date of inception) through November 20, 2018 were organizational activities, those necessary
to prepare for the IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination.
Following the IPO through and after our business combination, we had not generated any operating revenues.
Following
the acquisition of Simplicity Esports and Gaming, LLC, the Company began generating revenue and incurring additional expenses.
Summary
of Statement of Operations for the Three Months Ended February 28, 2019 and 2018:
Other
Income
We
have generated $164 of non-operating income in the form of interest income for the three months ended February 28, 2019 as compared
to $158,712 for the three months ended February 28, 2018. The change is attributable to the decrease in the cash held in trust
account.
For
the three months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim.
The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also,
in December 2018, one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The
Company’s revenue for the three months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue
of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General
and Administrative Expenses
General
and administrative expenses for the three months ended February 28, 2019 was $430,011 as compared to $114,465 for the three months
ended February 28, 2018 and increase of $315,546 or approximately 276%. The change is primarily attributable to the acquisition
of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll
and related costs, stock based compensation and professional services.
Net
Loss
Net
loss for the three months ended February 28, 2019 was $115,776, as compared to net income of $29,203, for the three months ended
February 28, 2018.
Summary
of Statement of Operations for the Nine Months Ended February 28, 2019 and 2018:
Other
Income
We
have generated $401,582 of non-operating income in the form of interest income for the nine months ended February 28, 2019 as
compared to $312,000 for the three months ended February 28, 2018.
For
the nine months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim.
The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also,
in December of 2018 one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The
Company’s revenue for the nine months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue
of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General
and Administrative Expenses
General
and administrative expenses for the nine months ended February 28, 2019 was $3,811,613 as compared to $305,690 for the nine months
ended February 28, 2018 and increase of $3,505,923. The change is primarily attributable to two events, first the acquisition
of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll
and related costs, stock based compensation and professional services. Second the issuance of shares for services in November
of 2018.
Net
Loss
Net
loss for the nine months ended February 28, 2019 was $3,095,960, as compared to net income of $4,165, for the nine months ended
February 28, 2018.
Summary
of Statement of Operations for the Period from April 17, 2017 (date of inception) through May 31, 2018:
Our
only activities from April 17, 2017 (date of inception) through May 31, 2018 were organizational activities, those necessary to
prepare for our IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination including
the Transactions. Following the IPO through May 31, 2018 (after our business combination on August 22, 2017), we had not generated
any operating revenues.
Other
Income
We
generated $521,702 through May 31, 2018 of non-operating income in the form of interest income. We expect to incur increased expenses
as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
Net
Loss
For
the year ended May 31, 2018, we had net loss of $8,862, which consists of operating costs of $530,564 offset by interest income
of $521,702 on cash and marketable securities held in the trust account.
Liquidity
and Capital Resources
The
completion of the IPO and simultaneous Private Placement, inclusive of the underwriters’ exercise of their over-allotment
option, generated gross proceeds to the Company of $54,615,000. Related transaction costs amounted to approximately $3,838,000,
consisting of $3,360,000 of underwriting fees, including $1,820,000 of deferred underwriting commissions payable (which was held
in the Trust Account) and $478,000 of Initial Public Offering costs.
Following
the IPO and the underwriter’s partial exercise of the over-allotment option, a total of $52,780,000 was placed in the Trust
Account and we had $552,190 of cash held outside of the Trust Account, after payment of all costs related to the IPO.
On
November 20, 2018, in connection with the closing of the Transactions, the funds in the Trust Account were used for, among other
things, the following:
|
●
|
$45,455,596
to redeem 4,448,260 shares;
|
|
|
|
|
●
|
$7,255,306
to fund the escrow agreement for Polar and K2; and
|
|
|
|
|
●
|
$150,000
to fund our investment in Smaaash.
|
As
of February 28, 2019, we had no cash and marketable securities held in the Trust Account.
As
of February 28, 2019, we had cash of $1,245,666 held outside the Trust Account, which is available for use by us to cover the
costs associated with due diligence procedures and other general corporate purposes. In addition, as of February 28, 2019, we
had accrued expenses of $871,315.
For
the nine months ended February 28, 2019, cash used in operating activities amounted to $823,847, mainly resulting from net loss
of $3,095,960, offset by stock issued for services of $2,169,143. Changes in our operating liabilities and assets generated cash
of $654,552.
For
the period from April 17, 2017 (date of inception) through May 31, 2018, cash used in operating activities amounted to $470,153,
mainly resulting from net loss of $8,862, offset by interest earned on marketable securities held in the trust account of $521,702.
Changes in our operating assets and liabilities generated cash of $60,411.
We
will need to raise additional funds in order to meet the expenditures required for operating our business.
Off-balance
sheet financing arrangements
We
have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in
transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest
entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered
into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments
of other entities, or purchased any non-financial assets.
Going
Concern
The
Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which
contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and
net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not
be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private
or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient
revenue 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
sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The
consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Contractual
obligations
We
do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities, except as follows:
On
November 20, 2018, the Company entered into a settlement and release agreement with Maxim Group, LLC, the underwriter for the
IPO. Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory
note in favor of Maxim in the amount of $1.8 million to settle the payment obligations of the Company under the underwriting agreement
dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate
of 52,000 shares of its common stock held by Maxim and its affiliate.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ
from those estimates.
Revenue
Recognition
As
of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance
sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S.
GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the
goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that
were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective
method and the adoption did not have a material impact on its financial statements.
The
Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product
sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the
Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first
is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming
tournaments.
Goodwill
Goodwill
is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill,
but we assess our goodwill for impairment at least annually. Our assessment date was January 31, 2019 and qualitative considerations
indicated no impairment.
MANAGEMENT
The
following table sets forth information regarding our directors and executive officers:
Name
|
|
Age
|
|
Position
|
Jed
Kaplan
|
|
54
|
|
Chief
Executive Officer, interim Chief Financial Officer, and Class II Director of the Company
|
Donald
R. Caldwell
|
|
71
|
|
Chairman
and Class I Director of the Company
|
Roman
Franklin
|
|
35
|
|
President
and Class I Director of the Company
|
Steven
Grossman
|
|
45
|
|
President
of Simplicity Esports, LLC
|
F.
Jacob Cherian
|
|
54
|
|
Class
II Director of the Company
|
Suhel
Kanuga
|
|
43
|
|
Class
II Director of the Company
|
Max
Hooper
|
|
71
|
|
Class
II Director of the Company
|
Frank
Leavy
|
|
65
|
|
Class
I Director of the Company
|
Edward
Leonard Jaroski
|
|
71
|
|
Class
I Director of the Company
|
William
H. Herrmann, Jr.
|
|
72
|
|
Class
II Director of the Company
|
Jed
Kaplan
, has been a member of our board of directors since December 31, 2018 and our sole Chief Executive Officer and interim
Chief Financial Officer since February 8, 2019. From December 31, 2018 to February 8, 2019, Mr. Kaplan served as our co-Chief
Executive Officer.
He has served as the Chief Executive Officer of Shearson Financial Services,
a FINRA registered broker dealer, since May 1995. Mr. Kaplan has extensive sports management experience with various professional
sports organizations. Mr. Kaplan graduated from City University of New York in 1989 with a Bachelor of Business Administration
degree.
The
Company believes Mr. Kaplan’s strong expertise in the financial services and sports management industries qualifies him
to serve on its board of directors.
F.
Jacob Cherian,
has been a member of our board of directors since April 17, 2017 (date of inception). From December 31,
2018 to February 8, 2019, Mr. Cherian served as our co-Chief Executive Officer. From April 17, 2017 to December 31, 2018, Mr.
Cherian served as our sole Chief Executive Officer. He is also one of the managing members of our Sponsor. Mr. Cherian co-founded
and served as Chairman, Chief Executive Officer and director of Millennium India from July 2006 to October 2013, completing a
$58 million initial public offering in July 2006. Millennium India completed a business combination with SMC, an India-headquartered
diversified financial services company with over 2,500 locations in over 500 cities in India serving approximately 1.7 million
investors by acquiring a 14.9% interest in SMC. Mr. Cherian served on the Board of Directors of SMC from 2008 to December 2017,
and also served on the Board of Directors of Moneywise Financial Services, a non-bank finance company in India, from 2008 to December
2017. From April 2004 to July 2006, Mr. Cherian served as Partner in the financial services division of Computer Sciences Corporation
(“CSC”), a Fortune 500 firm with approximately $15.0 billion in annual revenues. Mr. Cherian’s prior work experience
includes positions as a director in New York with KPMG LLP / KPMG Consulting from October 1998 to March 2004, and JP Morgan &
Co from September 1995 to September 1998 in its Fixed Income Credit Portfolio & Derivatives Division. Mr. Cherian has extensive
international experience and has relocated to, and had multi-year residences in, both Europe and India. He is frequently featured
in leading publications and industry conferences for his insights on emerging trends and growth markets, and is a respected authority
on South Asian and India-related affairs. Mr. Cherian holds a Bachelor of Arts degree in Accounting & Information Systems
from Queens College of CUNY and an MBA in International Finance from St. John’s University. He has also served as Adjunct
Professor of Finance at the Tobin College of Business at St. John’s University’s MBA Program for ten years.
We
believe Mr. Cherian’s extensive executive experience and leadership in global including India related business transactions
qualifies him to serve on our board of directors.
Suhel
Kanuga,
has been a member of our board of directors since April 17, 2017 (date of inception). From April 17, 2017 to February
8, 2019, Mr. Kanuga served as our Chief Financial Officer and Secretary. He is also one of the managing members of our Sponsor.
Mr. Kanuga co-founded Millennium India, completing a $58 million initial public offering in July 2006 and consummated a business
combination with SMC and served at various positions including President, Chief Financial Officer, Treasurer, Secretary, Chief
Compliance Officer and Director from March 2006 through May 2015. Mr. Kanuga also served on the Board of Directors of SAM Global
Securities, prior to its amalgamation with SMC from January 2008 to February 2009. From April 2004 to July 2006, Mr. Kanuga served
as Principal in the financial services division of CSC. He also held management positions at KPMG Consulting in New York from
January 1999 to August 2004 and prior to that, U.S. West, Inc. Mr. Kanuga has significant international management experience,
having worked with businesses across the United States, Europe and Asia. Mr. Kanuga is experienced in identifying business value,
and structuring investments and acquisitions to scale up businesses. Mr. Kanuga has been interviewed in the media for his views
and expertise on emerging markets/India investments and governance, and has also presented at industry conferences. He holds Bachelor’s
degrees in Mathematics and Economics from Lawrence University.
We
believe Mr. Kanuga’s deep understanding of finance and international business management and transactions qualifies him
to serve on our board of directors.
Donald
R. Caldwell,
who has been an independent director and the Chairman of our board of directors since August 16, 2017, is
an experienced investor, co-founded Cross Atlantic Capital Partners, Inc., a venture capital management company, where he has
served as its Chairman and Chief Executive Officer since 1999. At Cross Atlantic Capital Partners, Inc., Mr. Caldwell has raised
four investment funds totaling over $500 million of committed capital and is responsible for the firm’s operations, building
the investment team, and growing the Cross Atlantic franchise through fundraising, network development, and deal flow generation.
Prior to founding Cross Atlantic Capital Partners, Inc. in March 1999, Mr. Caldwell was President and Chief Operating Officer
of Safeguard Scientifics, Inc. (NYSE: SFE) (“Safeguard”) from 1996 to 1999, where he also previously served as Executive
Vice President from 1993 to 1996. In addition to his service on our board, Mr. Caldwell currently serves on the board of directors
of three public companies: InsPro Technologies Corporation (OTC: ITCC) since 2008, where he serves as chairman of the board and
member of the audit committee; Lightning Gaming, Inc., since June 2015, where he serves as a director and chairman of the audit
committee; and Quaker Chemical Corporation (NYSE: KWR) since 1997, where he serves as lead director, as chairman of the executive
committee and member of the compensation and audit committees; Mr. Caldwell was previously a member of the board of directors
of Diamond Cluster International, Inc. from 1994 to 2010 and has served as a director for several private companies and non-profit
organizations, including software and money management firms as well as the Pennsylvania Academy of the Fine Arts and the Committee
for Economic Development. Mr. Caldwell is a Certified Public Accountant (Retired) and holds a Bachelor of Science degree from
Babson College and a Master of Business Administration from the Graduate School of Business at Harvard University.
We
believe Mr. Caldwell’s deep financial, entrepreneurial and business expertise and extensive experience as a member of the
boards and board committees of other public companies qualifies him to serve on our board of directors.
Roman
Franklin
, has been a member of our board of directors since August 16, 2017 and our President since December 31, 2018.
Mr. Franklin has been Chief Investment Officer of SMC Global USA since March 2016, and prior, President of Franklin Financial
Planning from 2005 to 2016. Roman Franklin is a 14-year veteran of the financial services industry. By the age of 22 he held FINRA
Series 7, Series 66, and Life, Health, and Variable Insurance Licenses. In 2005, he founded a fee-only registered investment advisory
firm. In 2008, he was one of the youngest recipients of the National Association of Financial Advisors (“NAPFA”) Registered
Financial Advisor (RFA) designation. In 2015, he was elected as a Board Member of the NAPFA, South Region Board of Directors,
overseeing more than a dozen states from Texas, to Florida, to North Carolina. Mr. Franklin has experience in domestic and international
investment, and has been involved in multiple business transactions tied to India, including the sale of a 50% equity stake in
his wealth management business to Indian financial services firm SMC. Mr. Franklin holds a Bachelor’s Science degree in
Management from Barry University and an M.B.A. in Finance from the Graduate School of Business at Stetson University. His civic
organization roles include School Advisory Council for Volusia County Schools, City of DeLand Economic Development Committee,
and the Boys’ and Girls’ Clubs of Central Florida.
We
believe Mr. Franklin’s strong expertise in finance and international and domestic business transactions, in particular those
with Indian exposure, qualifies him to serve on our board of directors.
Steven
Grossman
,
has served as the President of our wholly-owned subsidiary Simplicity
Esports, LLC since January 2018. Mr. Grossman has been employed by Shearson Financial Services, a FINRA registered broker dealer,
since February 2001 and has served as its President since January 2010. Mr. Grossman graduated from Towson University in 1995
with a Bachelor of Science degree.
Max
Hooper
, who has been an independent member of our board of directors since August 16, 2017, serves as Managing Director
of Merging Traffic, a web-based crowdsourcing portal, since September 2015 and Head of Investment Banking and Senior Vice President
of Triloma Securities, a subsidiary of Triloma Financial Group LLC, since January 2016. Dr. Hooper is also the founder and owner
of Partners Advisory Group and Partners Capital Group, two financial advisory firms since January 2014. Since February 2018, Dr.
Hooper’s primary focus has been as Managing Director/CEO of Managing Traffic and co-owner of Triloma Financial Group. Prior
to that, Dr. Hooper was co-founder of Equity Broadcasting Corporation, a media company that owned and operated more than one hundred
television stations across the United States. Dr. Hooper is an accomplished entrepreneur and has started multiple businesses in
technology/internet, lodging, and services industries. Dr. Hooper has served on the investment committee of several venture capital
and angel funds, and has completed “work out” transactions as a Certified Debt Arbitrator representing banks and private
transactions. Dr. Hooper also has prior experience with SPACs such as transaction structuring, administration, research, and execution.
Dr. Hooper has earned five doctorate degrees from a variety of institutions.
We
believe Dr. Hooper’s expertise in investment, management and mergers and acquisitions over various industries qualify him
to serve on our board of directors.
Frank
Leavy
, has been an independent member of our board of directors since August 16, 2017. Since 2007, Mr. Leavy has been
the Senior Vice President and Director of Finance and Administration for Blake’s All Natural Foods, a manufacturer of “better
for you” frozen entrees. Prior to that, he held various financial officer positions at member companies of Group Rossignol,
a world leading company in the winter sports industry. Specifically, he was Controller of Rossignol Ski Company from 1982 to 2006
and Vice President of Finance of Skis Dynastar, Inc. and Skis Dynastar Canada from 2000 to 2006. He also served as Chief Operating
Officer at Roger Cleveland Golf Company, a subsidiary of Group Rossignol from 1999 to 2000 and was elected a director of the company
from 2003 to 2005. Mr. Leavy holds a Bachelor of Arts degree from the College of the Holy Cross and a Master of Science degree
in accounting from the Graduate School of Professional Accounting at Northeastern University.
We
believe Mr. Leavy’s extensive experience in corporate finance qualify him to serve on our board of directors.
Edward
Leonard Jaroski
, has been an independent member of our board of directors since October 2017. Mr. Jaroski was the founder
of Fixed Income Portfolio Manager at Capstone Asset Management Company and has served as its President and Chief Executive Officer
since 1987. Mr. Jaroski has been Chairman, Chief Executive Officer and President of various Capstone/Steward Funds in the
fund complex from 1987 through 2016. Mr. Jaroski was at Tenneco Financial Services from 1981 to 1987, where he was the Executive
Vice President. He started his career at Philadelphia Life Insurance Company as Manager of Investments in 1969, where he served
until 1981 and also served as its Vice President of Finance. He also served as a Director of Philadelphia Life Asset Management
Company. Mr. Jaroski holds the insurance industry professional designations of Chartered Life Underwriter, Charter Financial Consultant
and Fellow Life Management Institute. He holds a B.B.A. degree in Accounting from Temple University.
We
believe Mr. Jaroski’s experience in investments and asset management qualify him to serve on our board of directors.
William
H. Herrmann, Jr.,
has been an independent member of our board of directors since October 2017. Mr. Herrmann has over 40
years of experience in financial services, and insurance and investment planning industries. Presently, Mr. Herrmann is the Owner
of Herrmann & Associates, a financial services firm affiliated with Hudson Heritage Capital Management Inc., a Registered
Investment Advisor since February 15, 2006. Mr. Herrmann has also served as Director of Steward Funds, since 2011, and presently
serves as its lead independent director. Mr. Herrmann serves as the Chairman of the Nominating and Corporate Governance
Committee of Steward Funds. He previously served as the Chairman of the Contracts Committee of Steward Funds. Mr. Herrmann is
also a Director of Church Capital Fund, where he serves as the Chairman of the Nominating and Corporate Governance Committees.
Mr. Herrmann is also a Trustee of LuLu Shriners Investment Advisory Committee and the Chairman of Beta Rho Property Company. Mr.
Herrmann holds a B.A. from the University of Pennsylvania, and an MBA from Temple University, and holds the Chartered Life Underwriter
(CLU) designation from American College. Mr. Herrmann holds Series 7, 63, and 65 securities licenses as well as insurance licenses
in multiple states.
We
believe Mr. Herrmann’s experience in financial services and the investment planning industry qualify him to serve on our
board of directors.
Mr.
Kaplan is Mr. Grossman’s brother-in-law, there are no other family relationships among any of the Company’s directors
or executive officers.
Our
officers and board of directors are well qualified as leaders. In their prior positions they have gained experience in core management
skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership
development. Our officers and directors also have experience serving on boards of directors and board committees of other public
companies and private companies, and have an understanding of corporate governance practices and trends, which provides an understanding
of different business processes, challenges, and strategies.
Number
and Terms of Office of Officers and Directors
Our
board of directors is divided into two classes, Class I and Class II, with only one class of directors being elected in each year
and each class serving a two-year term.
Our
officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific
terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate.
Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents,
Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Director
Independence
Since
we are currently quoted on the OTCQB tier of the OTC Markets Group, we are not required to comply with the corporate governance
rules of a national exchange, such as the NYSE American (“NYSE”), or national quotation system, such as the NASDAQ
Capital Market (the “NASDAQ”), and instead may comply with less stringent corporate governance standards of the OTCQB.
The OTCQB does not require any of its members to establish any committees comprised of members of our board of directors, including
an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. Instead,
the functions of those committees may be undertaken by the board of directors as a whole. Unlike the requirements of the NYSE
or NASDAQ, the OTCQB does not require that a majority of our board members be independent and does not require that all or any
portion of our board of directors include “independent” directors, nor are we currently required to establish or maintain
an Audit Committee or other committee of our board of directors. Although we may comply with less stringent corporate governance
standards while listed on the OTCQB, we have elected to voluntarily comply with the corporate governance rules of the NASDAQ in
order to provide the same protections afforded to stockholders of companies that are subject to all of the corporate governance
rules of the NASDAQ.
The
NASDAQ standards relating to corporate governance, require, among other things, that:
●
A majority of our board of directors to consist of “independent directors.” An “independent director”
is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual
having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s
exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that
Messrs. Caldwell, Leavy, Jaroski and Herrmann and Dr. Hooper are “independent directors” as defined in the NASDAQ
listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent
directors are present;
●
The compensation of our executive officers to be determined, or recommended to the board of directors for determination, by independent
directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate
or by a Compensation Committee comprised solely of independent directors;
●
Director nominees to be selected, or recommended to the board of directors for selection, by independent directors constituting
a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination
committee comprised solely of independent directors; and
●
An audit committee with at least three independent directors as well as composed entirely of independent directors be established
and maintained, where at least one of the independent directors qualifies as an audit committee financial expert under SEC rules
and as a financially sophisticated audit committee member under the applicable Exchange rules.
Committees
of the Board of Directors
Our
board of directors has two standing committees: an audit committee and a compensation committee. Both our audit committee and
our compensation committee are composed solely of independent directors.
Audit
Committee
Messrs.
Caldwell and Leavy and Dr. Hooper will serve as members of our audit committee. Mr. Caldwell serves as chairman of the audit committee.
Under NASDAQ listing standards and applicable SEC rules, we are required to have three members of the audit committee, all of
whom must be independent. Messrs. Caldwell, and Leavy and Dr. Hooper are independent.
Each
member of the audit committee is financially literate and our board of directors has determined that Mr. Caldwell qualifies as
an “audit committee financial expert” as defined in applicable SEC rules.
Responsibilities
of the audit committee include:
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●
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the
appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent
registered public accounting firm engaged by us;
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●
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pre-approving
all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm
engaged by us, and establishing pre-approval policies and procedures;
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●
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reviewing
and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued
independence;
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●
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setting
clear hiring policies for employees or former employees of the independent auditors;
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●
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setting
clear policies for audit partner rotation in compliance with applicable laws and regulations;
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●
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obtaining
and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal
quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer
review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within, the preceding
five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
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●
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reviewing
and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by
the SEC prior to us entering into such transaction; and
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●
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reviewing
with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters,
including any correspondence with regulators or government agencies and any employee complaints or published reports that
raise material issues regarding our financial statements or accounting policies and any significant changes in accounting
standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
|
Compensation
Committee
The
members of our compensation committee are Messrs. Caldwell and Jaroski and Dr. Hooper. Mr. Caldwell serves as chairman of the
compensation committee. We have adopted a compensation committee charter, which details the principal functions of the compensation
committee, including:
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●
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reviewing
and approving the compensation of all of our other executive officers;
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●
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reviewing
our executive compensation policies and plans;
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●
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implementing
and administering our incentive compensation equity-based remuneration plans;
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●
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assisting
management in complying with our proxy statement and annual report disclosure requirements;
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●
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approving
all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers
and employees;
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●
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producing
a report on executive compensation to be included in our annual proxy statement; and
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●
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reviewing,
evaluating and recommending changes, if appropriate, to the remuneration for directors.
|
The
charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation
consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of
the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel
or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required
by NASDAQ and the SEC.
Director
Nominations
We
do not have a standing nominating committee. In accordance with Rule 5605(e)(2) of the NASDAQ rules, a majority of the independent
directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent
directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation
of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees
are Messrs. Caldwell, Jaroski, Leavy, and Herrmann, and Dr. Hooper. In accordance with Rule 5605(e)(1)(A) of the
NASDAQ rule, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee
charter in place.
The
board of directors will also consider director candidates recommended for nomination by our stockholders during such times as
they are seeking proposed nominees to stand for election. Our stockholders that wish to nominate a director for election to the
board of directors should follow the procedures set forth in our bylaws.
We
have not formerly established any specific, minimum qualifications that must be met or skills that are necessary for directors
to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background,
diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and
the ability to represent the best interests of our stockholders.
Code
of Ethics
We
have adopted a Code of Ethics applicable to our directors, officers and employees. We previously filed a copy of our form of Code
of Ethics as an exhibit to our registration statement on Form S-1 (File 333-219251). You will be able to review these documents
by accessing our public filings at the SEC’s web site at
www.sec.gov
. In addition, a copy of the Code of Ethics will
be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our
Code of Ethics in a Current Report on Form 8-K. See “Where You Can Find Additional Information.”
Limitation
on Liability and Indemnification of Officers and Directors
Our
third amended and restated certificate of incorporation, as amended, provides that our officers and directors will be indemnified
by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our restated
certificate provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary
duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the DGCL.
We
have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification
provided for in our third amended and restated certificate. Our bylaws also permit us to maintain insurance on behalf of any officer,
director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such
indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers
and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our
obligations to indemnify our officers and directors.
Our
officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account,
and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising
out of, any services provided to us and will not seek recourse against the trust account for any reason whatsoever. Accordingly,
any indemnification we provide to our officers and directors will only be able to be satisfied by us if we have sufficient funds
outside of the trust account.
These
provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These
provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though
such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment
may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant
to these indemnification provisions.
We
believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced
officers and directors.
The
Board’s Role in Risk Oversight
Although
our management is primarily responsible for managing our risk exposure on a daily basis, our board of directors oversees the risk
management processes. Our board, as a whole, determines the appropriate level of risk for our Company, assesses the specific risks
that we face, and reviews management’s strategies for adequately mitigating and managing the identified risks. Although
our board administers this risk management oversight function, our audit committee supports our board in discharging its oversight
duties and addresses risks inherent in its area.
EXECUTIVE
COMPENSATION
None
of our executive officers, directors or director nominees received any cash (or non-cash) compensation for services rendered to
us for the years ended May 31, 2019 and 2018. During the year ended May 31, 2018, we paid an affiliate of
our executive officers a total of $10,000 per month for office space, utilities and secretarial support. Our Sponsor, executive
officers and directors, or any of their respective affiliates, were entitled to be reimbursed for any out-of-pocket expenses incurred
in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable
business combinations.
Executive
Officer and Director Compensation
The
Company intends to develop an executive compensation program that is consistent with its existing compensation policies and philosophies,
which are designed to align compensation with our business objectives and the creation of stockholder value, while enabling us
to attract, motivate and retain individuals who contribute to the long-term success of the Company.
Decisions
on the executive compensation program will be made by the compensation committee. The following discussion is based on the present
expectations as to the executive compensation program to be adopted by the compensation committee. The executive compensation
program actually adopted will depend on the judgment of the members of the compensation committee and may differ from that set
forth in the following discussion.
We
anticipate that decisions regarding executive compensation will reflect our belief that the executive compensation program must
be competitive in order to attract and retain our executive officers. We anticipate that the compensation committee will seek
to implement our compensation policies and philosophies by linking a significant portion of our executive officers’ cash
compensation to performance objectives and by providing a portion of their compensation as long-term incentive compensation in
the form of equity awards.
We
anticipate that compensation for our executive officers will have three primary components: base salary, an annual cash incentive
bonus and long-term incentive compensation in the form of share-based awards, if any.
Base
Salary
Our
compensation committee will determine base salaries and manage the base salary review process, subject to existing employment
agreements.
Annual
Bonuses
We
intend to use annual cash incentive bonuses for the executive officers to tie a portion of their compensation to financial and
operational objectives achievable within the applicable fiscal year. We expect that, near the beginning of each year, the compensation
committee will select the performance targets, target amounts, target award opportunities and other term and conditions of annual
cash bonuses for the executive officers, subject to the terms of any employment agreement. Following the end of each year, the
compensation committee will determine the extent to which the performance targets were achieved and the amount of the award that
is payable to the executive officers.
Stock-Based
Awards
We
intend to use stock-based awards to reward long-term performance of the executive officers. We believe that providing a meaningful
portion of the total compensation package in the form of stock-based awards will align the incentives of its executive officers
with the interests of its stockholders and serve to motivate and retain the individual executive officers. Stock-based awards
will be awarded under the Incentive Plan, which has been adopted by our Board of Directors and is being submitted to our shareholders
for approval at the special meeting in lieu of an annual meeting.
Executive
Employment Agreements
On
December 31, 2018, the Company entered into an employment agreement with Jed Kaplan, pursuant to which he shall serve as the Co-Chief
Executive Officer of the Company until March 31, 2019, at which point he shall automatically become the sole Chief Executive Officer
of the Company. Mr. Kaplan shall not receive a salary or other monetary compensation and in lieu thereof he shall receive an equity
grant of 10,000 shares of Common Stock per month, which shares shall be fully vested upon grant. Mr. Kaplan shall also be eligible
to receive a quarterly bonus in the form of cash or equity shares, and shall be entitled to participate in the Company’s
employee benefit plans. The term of Mr. Kaplan’s employment agreement is for an initial one-year term, which shall automatically
renew for successive one-year terms unless either party provides 60 days’ advance written notice of its intention not to
renew the agreement at the conclusion of the then applicable term. The term of the employment agreement may be terminated by the
Company with or without cause or by Mr. Kaplan with or without good reason, as such terms are defined therein. The foregoing description
of Mr. Kaplan’s employment agreement is qualified in its entirety by reference to the employment agreement, which is attached
hereto as Exhibit 10.3 and is herein incorporated by reference.
On
December 31, 2018, the Company also entered into an employment agreement with Roman Franklin, pursuant to which he shall serve
as the President of the Company. During the term of his employment agreement, Mr. Franklin shall receive (i) a monthly base salary
of $8,333.33 and (ii) an equity grant of 3,000 shares of Common Stock per month, which shares shall be fully vested upon grant.
Mr. Franklin shall also be eligible to receive a quarterly bonus in the form of cash or equity shares, and shall be entitled to
participate in the Company’s employee benefit plans. The term of Mr. Franklin’s employment agreement is for an initial
one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance
written notice of its intention not to renew the agreement at the conclusion of the then applicable term. The term of the employment
agreement may be terminated by the Company with or without cause or by Mr. Franklin with or without good reason, as such terms
are defined therein. The foregoing description of Mr. Franklin’s employment agreement is qualified in its entirety by reference
to the employment agreement, which is attached hereto as Exhibit 10.6 and is herein incorporated by reference.
On
December 31, 2018, the Company also entered into an employment agreement with Steven Grossman, pursuant to which he shall continue
to serve as the President of Simplicity Esports, LLC. During the term of his employment agreement, Mr. Grossman shall receive
(i) a monthly base salary of $5,208.33 and (ii) an equity grant of 2,000 shares of Common Stock per month, which shares shall
be fully vested upon grant. Mr. Grossman shall also be eligible to receive a quarterly bonus in the form of cash or equity shares,
and shall be entitled to participate in Company’s employee benefit plans. The term of Mr. Grossman’s employment agreement
is for an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60
days’ advance written notice of its intention not to renew the agreement at the conclusion of the then applicable term.
The term of the employment agreement may be terminated by the Company with or without cause or by Mr. Grossman with or without
good reason, as such terms are defined therein.
Each
of the employment agreements contain customary non-competition and non-solicitation covenants for a period of one year after the
termination of the executive’s employment.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of our Common Stock as of July 12, 2019, by:
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each
person known by us to be the beneficial owner of more than 5% of our outstanding shares of Common Stock;
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●
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each
of our current named executive officers and directors that beneficially own shares of our Common Stock; and
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●
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all
our named executive officers and directors as a group.
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Information
with respect to beneficial ownership has been furnished by each director, named executive officer or 5% or more stockholder, as
the case may be. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them.
Name
of Beneficial Owner (1)
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|
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|
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Amount
of beneficial
ownership
|
|
|
Percent
of outstanding
Common Stock(2)
|
|
Directors
and Executive Officers
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|
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|
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|
Jed
Kaplan (3)
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|
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1,131,614
|
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|
16.2
|
%
|
Roman
Franklin (4)
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|
|
307,000
|
|
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4.4
|
%
|
F.
Jacob Cherian
|
|
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307,286
|
|
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4.4
|
%
|
Suhel
Kanuga
|
|
|
307,287
|
|
|
|
4.4
|
%
|
Donald
R. Caldwell (5)
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|
|
97,000
|
|
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|
1.4
|
%
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Max
Hooper (6)
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|
|
29,500
|
|
|
|
|
*
|
Frank
Leavy (7)
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|
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27,625
|
|
|
|
|
*
|
Edward
Leonard Jaroski (8)
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|
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128,500
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|
1.8
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%
|
William
H. Herrmann, Jr. (9)
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28,500
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|
|
|
|
*
|
All
directors and officers as a group (9 persons)
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3,364,312
|
|
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|
33.3
|
%
|
Principal
Shareholders (more than 5%):
|
|
|
|
|
|
|
|
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The
K2 Principal Fund, L.P. (10)
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849,655
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10.99
|
%
|
Polar
Asset Management Partners Inc. (11)
|
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760,419
|
|
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|
10.89
|
%
|
IRIS Cantor
Trust (12)
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|
|
395,164
|
|
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|
5.7
|
%
|
Timothy P.
Schenden – SEP IRA (13)
|
|
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515,322
|
|
|
|
7.4
|
%
|
*
Less than 1%.
|
(1)
|
Unless
otherwise indicated, the business address of each of the stockholders is 7000 W. Palmetto Park Road, Suite 210, Boca Raton,
Florida 33433.
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(2)
|
The calculation in this column
is based upon 6,952,195 shares of Common Stock outstanding as of July 12, 2019,
which does not include 6,449,000 shares of our Common Stock that may be issued
upon the exercise of (a) 5,200,000 Public Warrants, (b) 261,500 Private Placement Warrants,
and (c) 987,500 2019 Warrants. Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with respect to
securities. Shares of Common Stock that are currently convertible or exercisable within
60 days of July 12, 2019 are deemed to be beneficially owned by the person holding
such securities for the purpose of computing the percentage of ownership of such person,
but are not treated as outstanding for the purpose of computing the percentage ownership
of any other person.
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|
|
|
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(3)
|
Includes
60,000 shares of our restricted Common Stock that have vested or will vest within 60 days of July 12, 2019, and
50,000 shares of Common Stock issuable upon exercise of 20,000 warrants.
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(4)
|
The
number of shares of Common Stock beneficially owned by Roman Franklin is 118,000 and includes 18,000 shares of our restricted
Common Stock that have vested or will vest within 60 days of July 12, 2019.
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|
|
|
|
(5)
|
The
number of shares of Common Stock beneficially owned by Donald R. Caldwell is 97,000 and includes 20,000 shares of our Common
Stock issuable upon exercise of 20,000 warrants.
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|
|
|
|
(6)
|
Max
Hooper is Managing Director of Merging Traffic, Inc. The number of shares of Common Stock
beneficially owned by Merging Traffic, Inc., is 29,500 and includes 14,500 shares
of Common Stock owned directly by Merging Traffic, Inc., 10,000 shares of our Common
Stock issuable upon exercise of 10,000 warrants, and 5,000 shares of our Common
Stock owned directly by Max Hooper.
|
|
|
|
|
(7)
|
The
number of shares of Common Stock beneficially owned by Frank Leavy is 27,625 and includes 7,500 shares of our Common Stock
issuable upon exercise of 7,500 warrants.
|
|
|
|
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(8)
|
The
number of shares of Common Stock beneficially owned by Edward Leonard Jaroski is 128,500 and includes 60,000
shares of our Common Stock issuable upon exercise of 60,000 warrants.
|
|
|
|
|
(9)
|
The
number of shares of Common Stock beneficially owned by William H. Herrmann, Jr. is 28,500 and includes 10,000 shares of our
Common Stock issuable upon exercise of 10,000 warrants.
|
|
|
|
|
(10)
|
K2
GenPar 2017 Inc., an Ontario corporation (“
GenPar
”), is the
general partner of The K2 Principal Fund, L.P., an Ontario limited partnership (the “
Fund
”).
GenPar is a direct wholly-owned subsidiary of Shawn Kimel Investments, Inc., an Ontario
corporation (“
SKI
”). K2 & Associates Investment Management
Inc., an Ontario corporation (“
K2 & Associates
”), is a
direct 66.5% owned subsidiary of SKI, and is the investment manager of the Fund. Shawn
Kimel is the chairman of each of SKI, GenPar and K2 & Associates. The principal office
of the stockholder is 2 Bloor St West, Suite 801, Toronto, Ontario, M4W 3E2. The
number of shares of Common Stock beneficially owned by the Fund is 849,655
which includes (i) 66,000 shares of Common Stock transferred by the Sponsor to the
Fund as additional consideration for the Fund agreeing to potentially sell shares of
our Common Stock to the Company pursuant to a stock purchase agreement dated November
5, 2018 by and between the Company and the Fund and (ii) 781,655 shares
of our Common Stock issuable upon exercise of 781,655 warrants.
|
|
|
|
|
(11)
|
Polar
Asset Management Partners Inc. (“
Polar
”) serves as investment
advisor to Polar Multi-Strategy Master Fund (“
PMSMF
”), Crown
Managed Accounts SPC (“CMA”) and certain managed accounts (together with
PMSMF and CMA, the “
Polar Vehicles
”) and has sole voting
and investment discretion with respect to the securities which are held by the Polar
Vehicles. The principal office of the stockholder is 401 Bay Street, Suite 1900, PO Box
19, Toronto, Ontario M5H 2Y4, Canada. The number of shares of Common Stock beneficially
owned by Polar is 760,419 which includes (i) 20,203 shares of Common Stock
held by CMA and 283,116 shares of Common Stock held by Polar (which includes 150,000
shares of Common Stock transferred by the Sponsor to the Polar as additional consideration
for Polar agreeing to potentially sell shares of our Common Stock to the Company pursuant
to a stock purchase agreement dated November 2, 2018 by and between the Company and Polar)
and (ii) 456,600 shares of our Common Stock issuable upon exercise of 423,712
warrants held by CMA and 32,888 warrants held by Polar.
|
|
|
|
|
(12)
|
The
principal office of the stockholder is 220 Banyan Road, Palm Beach, Florida 33480-4804.
|
|
|
|
|
(13)
|
The
principal office of the stockholder is 6599 NW 33
rd
Ave., Boca Raton, Florida 33496-3317.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our
audit committee must review and approve any related person transaction we propose to enter into. Our audit committee charter details
the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and
may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders.
A summary of such policies and procedures is set forth below.
Any
potential related party transaction that is brought to the audit committee’s attention will be analyzed by the audit committee,
in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship
does, in fact, constitute a related party transaction. At its meetings, the audit committee will be provided with the details
of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the
transaction and the benefits to us and to the relevant related party.
In
determining whether to approve a related party transaction, the audit committee must consider, among other factors, the following
factors to the extent relevant:
|
●
|
whether
the terms of the transaction are fair to us and on the same basis as would apply if the
transaction did not involve a related party;
|
|
|
|
|
●
|
whether
there are business reasons for us to enter into the transaction;
|
|
|
|
|
●
|
whether
the transaction would impair the independence of an outside director; and
|
|
|
|
|
●
|
whether
the transaction would present an improper conflict of interest for any director or executive officer.
|
Any
member of the audit committee who has an interest in the transaction under discussion must abstain from any voting regarding the
transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s
discussions of the transaction. Upon completion of its review of the transaction, the audit committee may determine to permit
or to prohibit the transaction.
Founder
Shares
On
May 31, 2017, we issued 1,437,500 shares of our Common Stock to the Sponsor (the Founder Shares in exchange for a capital contribution
of $25,000. On September 13, 2017, 137,500 Founder Shares were forfeited by the Sponsor upon the partial exercise of the underwriters’
over-allotment option.
The
Founder Shares are identical to the shares of Common Stock included in the Units and holders of Founder Shares have the same stockholder
rights as Public Stockholders, except that (i) the Founder Shares and the shares of Common Stock underlying the Private Placement
Units are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which
it has agreed (A) to waive its redemption rights with respect to the Founder Shares, and the shares of Common Stock underlying
the Private Placement Units and the Public Units in connection with the completion of a business combination and (B) to waive
its rights to liquidating distributions from the trust account with respect to the Founder Shares and the shares of Common Stock
underlying the Private Placement Units if the Company fails to complete a business combination within 12 months from the closing
of the IPO (or up to 21 months from the closing of the IPO if the Company extends the period of time to consummate a business
combination).
With
certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers
and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions)
until the earlier of one year after the completion of an initial business combination or earlier of (i) subsequent to the Company’s
business combination, the last sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing
at least 150 days after an initial Business Combination, or (ii) the date following the completion of an Initial Business Combination
on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders
having the right to exchange their shares of Common Stock for cash, securities or other property.
Private
Placement Units
In
addition, the Sponsor purchased, pursuant to a written agreement, an aggregate of 254,500 Private Placement Units at $10.00 per
Private Placement Unit for proceeds of $2,545,000 in the aggregate in the private placement. This purchase took place on a private
placement basis simultaneously with the completion of the IPO. This issuance was made pursuant to the exemption from registration
contained in Section 4(a)(2) of the Securities Act.
On
September 13, 2017, 7,000 additional Private Placement Units were purchased by the Sponsor at $10.00 per Private Placement Unit
upon the partial exercise of the underwriter’s over-allotment option.
Registration
Rights
We
have entered into a registration rights agreement with respect to the founder shares and private placement units (and their constituent
securities). Pursuant to the registration rights agreement, we are required to register the founder shares and private placement
units (and their constituent securities) for sale under the Securities Act. Holders of these securities are entitled to make up
to three demands that we register certain of its securities held by them for sale under the Securities Act and to have the securities
covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right
to include their securities in other registration statements filed by us. We will bear the costs and expenses of filing any such
registration statements.
Administrative
Services
We
agreed, commencing on the effective date of the IPO through the earlier of our consummation of a business combination or its liquidation,
to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. For the three
months ended November 30, 2018, we have paid $30,080 which is presented as general and administrative expense on the accompanying
statement of operations. In December 2018, this monthly administrative service fee agreement was terminated.
Working
Capital Loan
The
Sponsor has loaned us $201,707 in the aggregate, to be used for a portion of the expenses of the IPO and working capital purposes.
The loan is non-interest bearing, unsecured and was due at the earlier of December 31, 2017 or the closing of the IPO. As of November
30, 2018, $120,089 of the Sponsor’s loan has been repaid. As of February 28, 2019, the balance of the Sponsor loan is $85,238.
Cash
Balance
We
maintain our cash balance at a financial services company that is owned by an officer of our company.
Related
Officers
Jed
Kaplan, our Chief Executive Officer, is the brother-in-law of Steven Grossman, the President of our subsidiary, Simplicity Esports,
LLC.
Restricted
Stock Awards to Certain Officers
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial
Officer and a member of our board of directors, 120,000 shares of our restricted common stock. Such shares vest over the next
nine months.
Also on March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman
Franklin, our President and a member of our board of directors, 36,000 shares of our restricted common stock. Such shares vest
over the next nine months also. Lastly,
on March 27, 2019, pursuant to a Restricted Stock Award and collectively with the
Kaplan Restricted Stock Award and the Franklin Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports,
LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted common stock. Such shares also vest over the next
nine months.
Each
of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan,
Franklin and Grossman on December 31, 2018.
SELLING
SECURITYHOLDERS
The
Selling Securityholders may offer and sell, from time to time, any or all of the Private Placement Warrants, shares of
Common Stock, and shares of Common Stock underlying the Warrants covered by this prospectus. Selling Securityholders are offering
for resale 6,360,617 shares of Common Stock under this registration statement.
In addition, (i)
the resale by Selling Securityholders of the 261,500 Private Placement Warrants and (ii) the issuance by
the Company of 6,449,000 shares of Common Stock underlying the Warrants (which consist of (a) 5,200,000 shares that may
be issued upon the exercise of Public Warrants originally sold as part of units in our IPO and which entitle the holder
to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, (b) 261,500 shares of Common
Stock that may be issued upon the exercise of the Private Placement Warrants, underlying Private Placement Units, which
entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock), and (c) 987,500
shares of Common Stock that may be issued upon the exercise of the 2019 Warrants originally sold as part of units in the 2019
Private Placement and which entitle the holder to purchase Common Stock at an exercise price of $4.00 per share of Common
Stock) are being registered by the registration statement of which this prospectus forms a part pursuant to registration
rights granted to the Selling Securityholders in connection with our initial organization, the IPO, the Transactions and/or
the 2019 Private Placement. See the section entitled “Plan of Distribution” for further information regarding
the Selling Securityholders’ method of distributing these securities.
The following table provides,
as of July 12, 2019, information regarding the beneficial ownership of our Common Stock and Warrants held by each Selling
Securityholder, the securities that may be sold by each Selling Securityholder under this prospectus and the number and percentage
of securities that each Selling Securityholder will beneficially own after this offering. Applicable percentages are based on
6,360,617 shares of Common Stock offered for resale and 6,449,000 shares of Common Stock underlying the Warrants
as of July 12, 2019.
The
Selling Securityholders are not making any representation that any shares of Common Stock or Private Placement Warrants
covered by this prospectus will be offered for sale. Because each Selling Securityholder may dispose of all, none or some portion
of their securities, no estimate can be given as to the number of securities that will be beneficially owned by a Selling Securityholder
upon termination of this offering. For purposes of the table below, however, we have assumed that after termination of this offering
none of the securities covered by this prospectus will be beneficially owned by the Selling Securityholders and further assumed
that the Selling Securityholders will not acquire beneficial ownership of any additional securities during the offering. In addition,
the Selling Securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of,
at any time and from time to time, our securities in transactions exempt from the registration requirements of the Securities
Act after the date on which the information in the table is presented.
We
may amend or supplement this prospectus from time to time in the future to update or change this Selling Securityholders list
and the securities that may be resold.
See
the section entitled “Plan of Distribution” for further information regarding the stockholders’ method of distributing
these shares.
Common
Stock
|
|
Number
of
Shares of
Common Stock Beneficially
|
|
|
Number of
Shares of Common Stock
Offered
|
|
|
Shares
of Common Stock Beneficially Owned After Completion of the Offering(1)
|
|
Name
|
|
Owned(1)
|
|
|
Hereby
(2)
|
|
|
Number
|
|
|
Percentage
|
|
Timothy
Eden(3)
|
|
|
57,000
|
|
|
|
57,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Darby Tyser(4)
|
|
|
44,500
|
|
|
|
44,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Albert Allen(5)
|
|
|
44,500
|
|
|
|
44,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Wilton Lee(6)
|
|
|
48,400
|
|
|
|
48,400
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Edward Jaroski(7)
|
|
|
128,500
|
|
|
|
128,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO William Herrmann(8)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Merging Traffic, Inc.(9)
|
|
|
24,500
|
|
|
|
24,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Sharon Katuin(10)
|
|
|
26,650
|
|
|
|
26,650
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Barbara Winkler-Chimbor(11)
|
|
|
28,220
|
|
|
|
28,220
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Frank Leavy(12)
|
|
|
27,625
|
|
|
|
27,625
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Paul Torre(13)
|
|
|
22,250
|
|
|
|
22,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Erin Fitch(14)
|
|
|
18,075
|
|
|
|
18,075
|
|
|
|
0
|
|
|
|
0.0
|
%
|
David Crossmier(15)
|
|
|
14,750
|
|
|
|
14,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Donald Sera(16)
|
|
|
14,750
|
|
|
|
14,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO David Keenum(17)
|
|
|
14,250
|
|
|
|
14,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Fred Zollinger(18)
|
|
|
14,750
|
|
|
|
14,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ann Akers(19)
|
|
|
14,500
|
|
|
|
14,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Robert Ripley(20)
|
|
|
15,500
|
|
|
|
15,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Gregory Hall(21)
|
|
|
14,500
|
|
|
|
14,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
William Jones(22)
|
|
|
11,900
|
|
|
|
11,900
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Paul Reitz(23)
|
|
|
10,350
|
|
|
|
10,350
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Joseph Frick(24)
|
|
|
10,140
|
|
|
|
10,140
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Judith Koons(25)
|
|
|
9,100
|
|
|
|
9,100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Shirley W. Barnard(26)
|
|
|
7,920
|
|
|
|
7,920
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Vipul Vassa(27)
|
|
|
7,750
|
|
|
|
7,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ravi Parik(28)
|
|
|
8,000
|
|
|
|
8,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Bradley Westover(29)
|
|
|
7,750
|
|
|
|
7,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Suzanne Ronneau(30)
|
|
|
8,250
|
|
|
|
8,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Mary Tryon(31)
|
|
|
7,750
|
|
|
|
7,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Marjorie Lee(32)
|
|
|
7,250
|
|
|
|
7,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Silvanus Williams(33)
|
|
|
9,250
|
|
|
|
9,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ardys B. Clawson(34)
|
|
|
7,250
|
|
|
|
7,250
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Helen Carter(35)
|
|
|
5,950
|
|
|
|
5,950
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO June Rayle(36)
|
|
|
5,950
|
|
|
|
5,950
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Clyde Steven Batiste(37)
|
|
|
5,070
|
|
|
|
5,070
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Francis Malanowski(38)
|
|
|
4,350
|
|
|
|
4,350
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO John T. Vonesh(39)
|
|
|
4,450
|
|
|
|
4,450
|
|
|
|
0
|
|
|
|
0.0
|
%
|
James Hermann(40)
|
|
|
3,930
|
|
|
|
3,930
|
|
|
|
0
|
|
|
|
0.0
|
%
|
William Jordan(41)
|
|
|
3,930
|
|
|
|
3,930
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Vian Borg(42)
|
|
|
3,520
|
|
|
|
3,520
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView Trust Company FBO Leon Pike(43)
|
|
|
3,310
|
|
|
|
3,310
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Barbara Conn(44)
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jason Franklin(45)
|
|
|
3,600
|
|
|
|
3,600
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Scott Berg(46)
|
|
|
2,850
|
|
|
|
2,850
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Donald Caldwell(47)
|
|
|
97,000
|
|
|
|
97,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Sandeep Dhanuka(48)
|
|
|
71,580
|
|
|
|
71,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Buttonwood Capital LLC(49)
|
|
|
8,375
|
|
|
|
8,375
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Christian Thomas Holzman
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Lloyd David Franklin
|
|
|
2,750
|
|
|
|
2,750
|
|
|
|
0
|
|
|
|
0.0
|
%
|
James Mark Franklin
|
|
|
7,682
|
|
|
|
7,682
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Alyssia Marie Franklin
|
|
|
51,000
|
|
|
|
51,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Roman Nehemiah Franklin
|
|
|
256,000
|
|
|
|
256,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
F. Jacob Cherian
|
|
|
307,286
|
|
|
|
307,286
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Suhel Kanuga
|
|
|
307,287
|
|
|
|
307,287
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Max Hooper
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Christopher Dorman
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Margaret Ticehurst
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Richard Ticehurst
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Alan Totten
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Deborah Totten
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Susan MacFadden
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Edward Nance
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Simon Franklin
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Mariel Dejesus
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Corina Jaime
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Chantina Omar
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Kendal Franklin
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Robert Franklin
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Michelle Franklin
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Barbara Franklin
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Dalaynee Deck
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Nathen Skinner
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Virginia Skinner
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Pilar Puglise
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Asalilia Heath
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Russell Smith
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Tarik Mobolaji Andwele
|
|
|
100
|
|
|
|
100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
William E. Findley Living Trust Dtd 3/1/2004
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Cup & Cross Ministries International
|
|
|
300
|
|
|
|
300
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Maxim Partners LLC
|
|
|
243,648
|
|
|
|
243,648
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Chardan Capital Markets, LLC
|
|
|
208,000
|
|
|
|
208,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Crown Managed Accounts SPC(50)
|
|
|
444,415
|
|
|
|
444,415
|
|
|
|
0
|
|
|
|
0.0
|
%
|
K2 Principal Fund L.P. (51)
|
|
|
847,655
|
|
|
|
847,655
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Polar Asset Management Partners Inc. (52)
|
|
|
316,004
|
|
|
|
316,004
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Timothy P. Schenden – SEP IRA (53)
|
|
|
640,322
|
|
|
|
640,322
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jed Kaplan – Roth IRA (54)
|
|
|
490,322
|
|
|
|
490,322
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Iris Cantor Trust (55)
|
|
|
595,164
|
|
|
|
595,164
|
|
|
|
0
|
|
|
|
0.0
|
%
|
John Desiderio Trust (56)
|
|
|
495,161
|
|
|
|
495,161
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jed Kaplan – SEP IRA
|
|
|
331,775
|
|
|
|
331,775
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jed Kaplan
|
|
|
290,000
|
|
|
|
290,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Scythe LLC (57)
|
|
|
397,580
|
|
|
|
397,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
James L. Orleans – IRA (58)
|
|
|
271,372
|
|
|
|
271,372
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Steven Grossman
|
|
|
158,400
|
|
|
|
158,400
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Steven Grossman – IRA
|
|
|
151,620
|
|
|
|
151,620
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Cant Fish LLC (59)
|
|
|
147,580
|
|
|
|
147,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
John Marchese – IRA
|
|
|
97,580
|
|
|
|
97,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Mike Zahalsky PSP
|
|
|
97,580
|
|
|
|
97,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
One Plus Four LLC
|
|
|
97,580
|
|
|
|
97,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Zahalsky Investments Holdings LLLP
|
|
|
97,580
|
|
|
|
97,580
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Bill Yates
|
|
|
91,800
|
|
|
|
91,800
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Fidelity Management Trust Company FBO Christopher Leary (60)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Sterling Hall (61)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Mad Money Entertainment
|
|
|
48,792
|
|
|
|
48,792
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Bryan Rosenblatt
|
|
|
29,275
|
|
|
|
29,275
|
|
|
|
0
|
|
|
|
0.0
|
%
|
RBC Capital Markets FBO Robert Winters (62)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Suzanne G. Fisher Revocable Trust (63)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jamie Kaplan – SEP IRA
|
|
|
19,517
|
|
|
|
19,517
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Michael Zoller (64)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
(1)
|
The amounts and percentages of Common Stock beneficially owned are determined in accordance with the SEC’s rules, pursuant to which a person is deemed to be a “beneficial owner” of a security if that person has or shares voting or investment power or has the right to acquire such power within 60 days through exercise of any option, warrant or other right. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Except as otherwise indicated in these footnotes, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of Common Stock.
|
|
|
|
|
(2)
|
The shares of Common Stock shown in this column includes
shares of Common Stock that are offered for resale by the Selling Securityholders, as well as shares of Common Stock that
are offered for sale by us pursuant to this prospectus.
|
|
|
|
|
(3)
|
The number of shares of Common Stock beneficially owned by Timothy
Eden includes 20,000 shares of our Common Stock issuable upon exercise of 20,000 Private Placement Warrants.
|
|
|
|
|
(4)
|
The number of shares of Common Stock beneficially owned by Darby
Tyser includes 15,000 shares of our Common Stock issuable upon exercise of 15,000 Private Placement Warrants.
|
|
|
|
|
(5)
|
The number of shares of Common Stock beneficially owned by Albert
Allen includes 15,000 shares of our Common Stock issuable upon exercise of 15,000 Private Placement Warrants.
|
|
|
|
|
(6)
|
The number of shares of Common Stock beneficially owned by Wilton
Lee includes 14,000 shares of our Common Stock issuable upon exercise of 14,000 Private Placement Warrants.
|
|
|
|
|
(7)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Edward Jaroski includes 60,000 shares of our Common Stock issuable upon exercise of 60,000
Private Placement Warrants.
|
|
|
|
|
(8)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO William Herrmann includes 10,000 shares of our Common Stock issuable upon exercise of 10,000 Private
Placement Warrants.
|
|
|
|
|
(9)
|
The number of shares of Common Stock beneficially owned by Merging
Traffic, Inc. includes 10,000 shares of our Common Stock issuable upon exercise of 10,000 Private Placement Warrants.
|
|
|
|
|
(10)
|
The number of shares of Common Stock beneficially owned by Sharon
Katuin includes 8,500 shares of our Common Stock issuable upon exercise of 8,500 Private Placement Warrants.
|
|
|
|
|
(11)
|
The number of shares of Common Stock beneficially owned by Barbara
Winkler-Chimbor includes 8,200 shares of our Common Stock issuable upon exercise of 8,200 Private Placement Warrants.
|
|
|
|
|
(12)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Frank Leavy includes 7,500 shares of our Common Stock issuable upon exercise of 7,500 Private Placement
Warrants.
|
|
|
|
|
(13)
|
The number of shares of Common Stock beneficially owned by Paul
Torre includes 7,500 shares of our Common Stock issuable upon exercise of 7,500 Private Placement Warrants.
|
|
|
|
|
(14)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Erin Fitch includes 5,300 shares of our Common Stock issuable upon exercise of 5,300 Private Placement
Warrants.
|
|
|
|
|
(15)
|
The number of shares of Common Stock beneficially owned by David
Crossmier includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
(16)
|
The number of shares of Common Stock beneficially owned by Donald
Sera includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
|
|
|
(17)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO David Keenum includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement
Warrants.
|
|
|
|
|
(18)
|
The number of shares of Common Stock beneficially owned by Fred
Zollinger includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
|
|
|
(19)
|
The number of shares of Common Stock beneficially owned by Ann
Akers includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
|
|
|
(20)
|
The number of shares of Common Stock beneficially owned by Robert
Ripley includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
|
|
|
(21)
|
The number of shares of Common Stock beneficially owned by Gregory
Hall includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants.
|
|
|
|
|
(22)
|
The number of shares of Common Stock beneficially owned by William
Jones includes 4,000 shares of our Common Stock issuable upon exercise of 4,000 Private Placement Warrants.
|
|
|
|
|
(23)
|
The number of shares of Common Stock beneficially owned by Paul
Reitz includes 3,500 shares of our Common Stock issuable upon exercise of 3,500 Private Placement Warrants.
|
|
|
|
|
(24)
|
The number of shares of Common Stock beneficially owned by Joseph
Frick includes 3,400 shares of our Common Stock issuable upon exercise of 3,400 Private Placement Warrants.
|
|
|
|
|
(25)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Judith Koons includes 3,000 shares of our Common Stock issuable upon exercise of 3,000 Private Placement
Warrants.
|
|
|
|
|
(26)
|
The number of shares of Common Stock beneficially owned by Shirley
W. Barnard includes 2,700 shares of our Common Stock issuable upon exercise of 2,700 Private Placement Warrants.
|
|
|
|
|
(27)
|
The number of shares of Common Stock beneficially owned by Vipul
Vassa includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(28)
|
The number of shares of Common Stock beneficially owned by Ravi
Parik includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(29)
|
The number of shares of Common Stock beneficially owned by Bradley
Westover includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(30)
|
The number of shares of Common Stock beneficially owned by Suzanne
Ronneau includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(31)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Mary Tryon includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement
Warrants.
|
|
|
|
|
(32)
|
The number of shares of Common Stock beneficially owned by Marjorie
Lee includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(33)
|
The number of shares of Common Stock beneficially owned by Silvanus
Williams includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(34)
|
The number of shares of Common Stock beneficially owned by Ardys
B. Clawson includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
(35)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Helen Carter includes 2,000 shares of our Common Stock issuable upon exercise of 2,000 Private Placement
Warrants.
|
|
|
|
|
(36
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO June Rayle includes 2,000 shares of our Common Stock issuable upon exercise of 2,000 Private Placement
Warrants.
|
|
|
|
|
(37)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Clyde Steven Batiste includes 1,700 shares of our Common Stock issuable upon exercise of 1,700 Private
Placement Warrants.
|
|
|
|
|
(38)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Francis Malanowski includes 1,500 shares of our Common Stock issuable upon exercise of 1,500 Private
Placement Warrants.
|
|
|
|
|
(39)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO John T. Vonesh includes 1,500 shares of our Common Stock issuable upon exercise of 1,500 Private
Placement Warrants.
|
|
|
|
|
(40)
|
The number of shares of Common Stock beneficially owned by James
Hermann includes 1,300 shares of our Common Stock issuable upon exercise of 1,300 Private Placement Warrants.
|
|
|
|
|
(41)
|
The number of shares of Common Stock beneficially owned by William
Jordan includes 1,300 shares of our Common Stock issuable upon exercise of 1,300 Private Placement Warrants.
|
|
|
|
|
(42)
|
The number of shares of Common Stock beneficially owned by Vian
Borg includes 1,200 shares of our Common Stock issuable upon exercise of 1,200 Private Placement Warrants.
|
|
|
|
|
(43)
|
The number of shares of Common Stock beneficially owned by NuView
Trust Company FBO Leon Pike includes 1,100 shares of our Common Stock issuable upon exercise of 1,100 Private Placement
Warrants.
|
|
|
|
|
(44)
|
The number of shares of Common Stock beneficially owned by Barbara
Conn includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants.
|
|
|
|
|
(45)
|
The number of shares of Common Stock beneficially owned by Jason
Franklin includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants.
|
|
|
|
|
(46)
|
The number of shares of Common Stock beneficially owned by Scott
Berg includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants.
|
|
|
|
|
(47)
|
The number of shares of Common Stock beneficially owned by Donald
Caldwell includes 20,000 shares of our Common Stock issuable upon exercise of 20,000 Private Placement Warrants.
|
|
|
|
|
(48)
|
The number of shares of Common Stock beneficially owned by Sandeep
Dhanuka includes 19,800 shares of our Common Stock issuable upon exercise of 19,800 Private Placement Warrants.
|
|
|
|
|
(49)
|
The number of shares of Common Stock beneficially owned by Buttonwood
Capital LLC includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants.
|
|
|
|
|
(50)
|
The number of shares of Common Stock beneficially owned by Crown Managed Accounts SPC includes
423,712 shares of our Common Stock issuable upon exercise of 423,712 warrants.
|
|
(51)
|
The
number of shares
of Common Stock beneficially owned by K2 Principal Fund L.P. includes 781,655 shares of our Common Stock issuable upon
exercise of 781,655 warrants.
|
|
|
|
|
(52)
|
The
number of shares of Common Stock beneficially owned by Polar Asset Management Partners Inc. includes 32,888 shares of our
Common Stock issuable upon exercise of 32,888 warrants.
|
|
|
|
|
(53)
|
The number of shares of Common Stock beneficially owned by Timothy
P. Schenden – SEP IRA includes 125,000 shares of our Common Stock issuable upon exercise of 125,000 warrants.
|
|
|
|
|
(54)
|
The number of shares of Common Stock beneficially owned by Jed
Kaplan – Roth IRA includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants.
|
|
|
|
|
(55)
|
The number of shares of Common Stock beneficially owned by Iris
Cantor Trust includes 200,000 shares of our Common Stock issuable upon exercise of 200,000 warrants.
|
|
|
|
|
(56)
|
The number of shares of Common Stock beneficially owned by John
Desiderio Trust includes 150,000 shares of our Common Stock issuable upon exercise of 150,000 warrants.
|
|
|
|
|
(57)
|
The number of shares of Common Stock beneficially owned by Scythe
LLC includes 150,000 shares of our Common Stock issuable upon exercise of 150,000 warrants.
|
|
|
|
|
(58)
|
The number of shares of Common Stock beneficially owned by James
L. Orleans includes 62,500 shares of our Common Stock issuable upon exercise of 62,500 warrants.
|
|
|
|
|
(59)
|
The number of shares of Common Stock beneficially owned by Cant
Fish LLC includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants.
|
|
|
|
|
(60)
|
The number of shares of Common Stock beneficially owned by Christopher
Leary includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants.
|
|
|
|
|
(61)
|
The number of shares of Common Stock beneficially owned by Sterling
Hall includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants.
|
|
|
|
|
(62)
|
The number of shares of Common Stock beneficially owned by RBC
Capital Markets FBO Robert Winters includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants.
|
|
|
|
|
(63)
|
The number of shares of Common Stock beneficially owned by Suzanne
G. Fisher Revocable Trust includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants.
|
|
|
|
|
(64)
|
The number of shares of Common Stock beneficially owned by Michael Zoller includes 25,000
shares of our Common Stock issuable upon exercise of 25,000 warrants.
|
Private
Placement Warrants
|
|
Number
of
Private Placement Warrants
Beneficially
|
|
|
Number
of Private Placement Warrants
Offered
|
|
|
Private
Placement Warrants Beneficially Owned After Completion of the Offering
|
|
Name
|
|
Owned(1)
|
|
|
Hereby
|
|
|
Number
|
|
|
Percentage
|
|
Timothy
Eden
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Darby
Tyser
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Albert
Allen
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Wilton
Lee
|
|
|
14,000
|
|
|
|
14,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Edward Jaroski
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO William Herrmann
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Merging
Traffic, Inc.
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Sharon
Katuin
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Barbara
Winkler-Chimbor
|
|
|
8,200
|
|
|
|
8,200
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Frank Leavy
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Paul
Torre
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Erin Fitch
|
|
|
5,300
|
|
|
|
5,300
|
|
|
|
0
|
|
|
|
0.0
|
%
|
David
Crossmier
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Donald
Sera
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO David Keenum
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Fred
Zollinger
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ann
Akers
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Robert
Ripley
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Gregory
Hall
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
William
Jones
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Paul
Reitz
|
|
|
3,500
|
|
|
|
3,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Joseph
Frick
|
|
|
3,400
|
|
|
|
3,400
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Judith Koons
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Shirley
W. Barnard
|
|
|
2,700
|
|
|
|
2,700
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Vipul
Vassa
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ravi
Parik
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Bradley
Westover
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Suzanne
Ronneau
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Mary Tryon
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Marjorie
Lee
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Silvanus
Williams
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Ardys
B. Clawson
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Helen Carter
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO June Rayle
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Clyde Steven Batiste
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Francis Malanowski
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO John T. Vonesh
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
James
Hermann
|
|
|
1,300
|
|
|
|
1,300
|
|
|
|
0
|
|
|
|
0.0
|
%
|
William
Jordan
|
|
|
1,300
|
|
|
|
1,300
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Vian
Borg
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
0
|
|
|
|
0.0
|
%
|
NuView
Trust Company FBO Leon Pike
|
|
|
1,100
|
|
|
|
1,100
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Barbara
Conn
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Jason
Franklin
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Scott
Berg
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Donald
Caldwell
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Sandeep
Dhanuka
|
|
|
19,800
|
|
|
|
19,800
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Buttonwood
Capital LLC
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0.0
|
%
|
PLAN
OF DISTRIBUTION
Issuance
of Common Stock Underlying Warrants
Pursuant
to the terms of the Warrants, the shares of Common Stock issuable upon exercise thereof will be distributed to those Warrant holders
who surrender the certificates representing the Warrants and provide payment of the exercise price through their brokers to our
warrant agent, Continental Stock Transfer & Trust Company.
Resale
of Common Stock by Selling Securityholders
We
are registering Common Stock offered by this prospectus on behalf of the Selling Securityholders. The Selling
Securityholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling Common
Stock received after the date of this prospectus from a Selling Securityholder as a gift, pledge, limited liability company
or partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of
their securities on the OTCQB (in the case of our Common Stock) or any other stock exchange, market or trading facility on
which such securities are traded or in private transactions. These shares of Common Stock registered for resale in this
prospectus shall be sold at a fixed price of $2.00
for the duration of this offering. The
offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It
has been arbitrarily determined by the Selling Securityholders.
Resale
of Private Placement Warrants by Selling Securityholders
We
are registering Private Placement Warrants, offered by this prospectus on behalf of the Selling Securityholders. The Selling Securityholders,
which as used herein includes donees, pledgees, transferees or other successors-in-interest selling Private Placement Warrants
received after the date of this prospectus from a Selling Securityholder as a gift, pledge, limited liability company or partnership
distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their securities
on the OTCQB (in the case of our Private Placement Warrants) or any other stock exchange, market or trading facility on which
such securities are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at
negotiated prices.
The
Selling Securityholders may use any one or more of the following methods when disposing of their Common Stock or Private Placement
Warrants or interests therein:
|
●
|
in
market transactions, including transactions on a national securities exchange or quotations service or over-the-counter market;
|
|
|
|
|
●
|
in
privately negotiated transactions;
|
|
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
|
|
●
|
in
a block trade in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
|
|
|
|
|
●
|
through
the settlement of short sales (including short sales “against the box”), in each case subject to compliance with
the Securities Act and other applicable securities laws;
|
|
|
|
|
●
|
through
one or more underwriters in a public offering on a firm commitment or best-efforts basis;
|
|
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange, if any;
|
|
|
|
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
●
|
broker-dealers
may agree with the Selling Securityholders to sell a specified number of such securities at a stipulated price per security;
|
|
|
|
|
●
|
directly
to one or more purchasers;
|
|
|
|
|
●
|
in
other ways not involving market makers or established trading markets;
|
|
|
|
|
●
|
by
pledge to secure debts and other obligations;
|
|
|
|
|
●
|
through
agents; or
|
|
|
|
|
●
|
in
any combination of the above or by any other legally available means.
|
The
Selling Securityholders may, from time to time, pledge or grant a security interest in some or all of the securities owned by
them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell
their securities, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of Selling Securityholders to include the pledgee, transferee or
other successors in interest as Selling Securityholders under this prospectus. The Selling Securityholders also may transfer their
securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our securities or interests therein, the Selling Securityholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of our securities in the course of
hedging the positions they assume. The Selling Securityholders may also sell their securities short and deliver these securities
to close out their short positions, or loan or pledge such securities to broker-dealers that in turn may sell these securities.
The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery to such broker-dealers or other financial institutions
of securities offered by this prospectus, which securities such broker-dealers or other financial institutions may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction).
The
aggregate proceeds to the Selling Securityholders from the sale of the securities offered by them will be the purchase price of
the security less discounts or commissions, if any. Each of the Selling Securityholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any proposed purchase of their securities to be made directly
or through agents. We will not receive any of the proceeds from the resale of securities being offered by the Selling Securityholders
named herein. However, we will receive proceeds from the exercise of the Warrants if they are exercised by a holder thereof.
The
Selling Securityholders also may resell all or a portion of their securities in open market transactions in reliance upon Rule
144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.
The
Selling Securityholders and any broker-dealers that act in connection with the sale of securities might be deemed to be “underwriters”
within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by such broker-dealers and any profit
on the resale of the securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
To
the extent required, the securities to be sold, the names of the Selling Securityholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to
the registration statement that includes this prospectus.
Blue
Sky Restrictions on Resale
In
order to comply with the securities laws of some states, if applicable, our securities may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states our securities may not be sold unless they have
been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied
with.
If
a Selling Securityholder wants to sell its securities under this prospectus in the United States, the Selling Securityholder will
also need to comply with state securities laws, also known as “Blue Sky laws,” with regard to secondary sales. All
states offer a variety of exemptions from registration for secondary sales. Many states, for example, have an exemption for secondary
trading of securities registered under Section 12(g) of the Exchange Act, or for securities of issuers that publish continuous
disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s.
The broker for a Selling Securityholder will be able to advise a Selling Securityholder in which states our securities are exempt
from registration with that state for secondary sales.
Any
person who purchases our securities from a Selling Securityholder offered by this prospectus who then wants to sell such securities
will also have to comply with Blue Sky laws regarding secondary sales.
When
the registration statement that includes this prospectus becomes effective, and a Selling Securityholder indicates in which state(s)
such Selling Securityholder desires to sell such Selling Securityholder’s securities, we will be able to identify whether
such Selling Securityholder will need to register or will be able to rely on an exemption therefrom.
We
have advised the Selling Securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of securities in the market and to the activities of the Selling Securityholders and their affiliates. In addition, we will
make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholders
for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify
any broker-dealer that participates in transactions involving the sale of their securities against certain liabilities, including
liabilities arising under the Securities Act.
We
have agreed to indemnify the Selling Securityholders against liabilities, including certain liabilities under the Securities Act
and state securities laws, relating to the registration of the securities offered by this prospectus.
We
are required to pay all of our fees and expenses incident to the registration of the securities covered by this prospectus, including
with regard to compliance with state securities or “blue sky” laws. The registration expenses of any registration
effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities
Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective, will
be borne by the Company.
DESCRIPTION
OF SECURITIES
Pursuant
to our third amended and restated certificate of incorporation, our authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.0001 per share, and 1,000,000 shares of undesignated preferred stock, par value $0.0001 per share.
The following description summarizes the material terms of our capital stock. Because it is only a summary, it may not contain
all the information that is important to you.
Common
Stock
Prior
to the date of this prospectus, there were 6,952,195 shares of our Common Stock outstanding.
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Unless specified
in our third amended and restated certificate of incorporation, as amended, or bylaws, or as required by applicable provisions
of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of our shares of Common Stock that are voted
is required to approve any such matter voted on by our stockholders. Our board of directors is divided into two classes, each
of which will generally serve for a term of two years with only one class of directors being elected in each year. There is no
cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted
for the election of directors can elect all of the directors. Our stockholders are entitled to receive ratable dividends when,
as and if declared by the board of directors out of funds legally available therefor.
Preferred
Stock
Our
third amended and restated certificate of incorporation, as amended, provides that shares of preferred stock may be issued from
time to time in one or more series. Our board of directors will be authorized to fix the voting rights, if any, designations,
powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions
thereof, applicable to the shares of each series. Our board of directors will be able to, without stockholder approval, issue
preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the
common stock and could have anti-takeover effects. The ability of our board of directors to issue preferred stock without stockholder
approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management.
We have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred
stock, we cannot assure you that we will not do so in the future. No shares of preferred stock are being issued or registered
in this offering.
Warrants
Public
Stockholders’ Warrants
Each
warrant entitles the registered holder to purchase one share of our Common Stock at a price of $11.50 per share, subject to adjustment
as discussed below, at any time commencing on the later of 12 months from the closing of our IPO or 30 days after the completion
of our initial business combination. Warrants may be exercised only for a whole number of shares of Common Stock. The warrants
will expire five years after the completion of our initial business combination, at 5:00 p.m., New York City time, or earlier
upon redemption or liquidation.
We
will not be obligated to deliver any shares of Common Stock pursuant to the exercise of a warrant and will have no obligation
to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Common
Stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations
described below with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and we will not
be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise
is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available.
In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder
of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event
will we be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised
warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share
of common stock underlying such unit.
This
registration statement complies with our obligation to as soon as practicable, but in no event later than thirty (30) days, after
the closing of our initial business combination, use our best efforts to file with the SEC a registration statement for the registration,
under the Securities Act, of the shares of Common Stock issuable upon exercise of the warrants. We will use our best efforts to
cause the same to become effective no later than ninety (90) days after the closing of our initial business combination and to
maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of
the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if our Common Stock is at
the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a
“covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public
Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities
Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement or register
or qualify the shares under blue sky laws, and in the event we do not so elect, we will use our best efforts to register or qualify
the shares under the blue sky laws of the state of residence in those states in which the warrants were initially offered by us
in this offering.
Once
the warrants become exercisable, we may call the warrants for redemption:
|
●
|
in
whole and not in part;
|
|
|
|
|
●
|
at
a price of $0.01 per warrant;
|
|
|
|
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upon
not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant
holder; and
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if,
and only if, the reported last sale price of the common stock equals or exceeds $21.00 per share for any 20 trading days within
a 30-trading day period ending on the third trading day prior to the date we send to the notice of redemption to the warrant
holders.
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If
and when the warrants become redeemable by us, we may exercise our redemption right even if the issuance of shares of Common Stock
upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws and we are
unable to effect such registration or qualification, subject to our obligation in such case to use our best efforts to register
or qualify the shares of Common Stock under the blue sky laws of the state of residence in those states in which the warrants
were initially offered by us in this offering.
We
have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time
of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice
of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled
redemption date. However, the price of the common stock may fall below the $21.00 redemption trigger price as well as the $11.50
warrant exercise price after the redemption notice is issued.
If
we call the warrants for redemption as described above, our management will have the option to require any holder that wishes
to exercise his, her or its warrant to do so on a “cashless basis.” In determining whether to require all holders
to exercise their warrants on a “cashless basis,” our management will consider, among other factors, our cash position,
the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares
of Common Stock issuable upon the exercise of our warrants. If our management takes advantage of this option, all holders of warrants
would pay the exercise price by surrendering their warrants for that number of shares of Common Stock equal to the quotient obtained
by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied by the difference between
the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair
market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the
third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes
advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of
Common Stock to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring
a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant
redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants
after our initial business combination. If we call our warrants for redemption and our management does not take advantage of this
option, the initial purchasers and their permitted transferees would still be entitled to exercise their Private Placement Warrants
contained in the Private Placement Units for cash or on a cashless basis using the same formula described above that other warrant
holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis,
as described in more detail below.
A
holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have
the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s
affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such other amount
as a holder may specify) of the shares of Common Stock outstanding immediately after giving effect to such exercise.
If
the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a split-up
of shares of Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event,
the number of shares of Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in
the outstanding shares of Common Stock. A rights offering to holders of common stock entitling holders to purchase shares of Common
Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to
the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity
securities sold in such rights offering that are convertible into or exercisable for common stock) multiplied by (ii) one (1)
minus the quotient of (x) the price per share of common stock paid in such rights offering divided by (y) the fair market value.
For these purposes (i) if the rights offering is for securities convertible into or exercisable for common stock, in determining
the price payable for common stock, there will be taken into account any consideration received for such rights, as well as any
additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of common
stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares
of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In
addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash,
securities or other assets to the holders of common stock on account of such shares of Common Stock (or other shares of our capital
stock into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to
satisfy the redemption rights of the holders of common stock in connection with a proposed initial business combination, (d) as
a result of the repurchase of shares of Common Stock by the company if the proposed initial business combination is presented
to the stockholders of the company for approval, or (e) in connection with the redemption of our Public Shares upon our failure
to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the
effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each
share of common stock in respect of such event.
If
the number of outstanding shares of our Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification
of shares of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock
split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be decreased
in proportion to such decrease in outstanding shares of Common Stock.
Whenever
the number of shares of Common Stock purchasable upon the exercise of the warrants is adjusted, as described above, the warrant
exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x)
the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the warrants immediately
prior to such adjustment, and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately
thereafter.
In
case of any reclassification or reorganization of the outstanding shares of Common Stock (other than those described above or
that solely affects the par value of such shares of Common Stock), or in the case of any merger or consolidation of us with or
into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result
in any reclassification or reorganization of our outstanding shares of Common Stock), or in the case of any sale or conveyance
to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection
with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis
and upon the terms and conditions specified in the warrants and in lieu of the shares of our Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon
a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised
their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the
kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities,
cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of the kind and
amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender,
exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer
made by the company in connection with redemption rights held by stockholders of the company as provided for in the company’s
amended and restated certificate of incorporation or as a result of the repurchase of shares of Common Stock by the company if
a proposed initial business combination is presented to the stockholders of the company for approval) under circumstances in which,
upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of
Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker
(within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate
is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares
of Common Stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior
to the expiration of such tender or exchange offer, accepted such offer and all of the common stock held by such holder had been
purchased pursuant to such tender or exchange offer, subject to adjustments (from and after the consummation of such tender or
exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. Additionally, if less
than 70% of the consideration receivable by the holders of common stock in such a transaction is payable in the form of common
stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter
market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant
properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price
will be reduced as specified in the warrant agreement based on the per share consideration minus Black-Scholes Warrant Value (as
defined in the warrant agreement) of the warrant in order to determine and realize the option value component of the warrant.
This formula is to compensate the warrant holder for the loss of the option value portion of the warrant value due to the requirement
that the warrant holder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model
for estimating fair market value where no quoted market price for an instrument is available.
The
warrants have been issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company,
as warrant agent, and us. You should review a copy of the warrant agreement, which will be filed as an exhibit to the registration
statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the warrants.
The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity
or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants
to make any change that adversely affects the interests of the registered holders of Public Warrants.
The
warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied
by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to
us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common
stock and any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares
of Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters
to be voted on by stockholders. Warrants may be exercised only for a whole number of shares of Common Stock. No fractional shares
will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of Common Stock to be
issued to the warrant holder.
Private
Placement Warrants
The
Private Placement Warrants (including the common stock issuable upon exercise of the Private Placement Warrants), will not be
redeemable by us so long as they are held by the initial purchasers or their permitted transferees. Otherwise, the Private Placement
Warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the IPO. If
the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private
Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants.
If
holders of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering
his, her or its warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product
of the number of shares of Common Stock underlying the warrants, multiplied by the difference between the exercise price of the
warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value”
shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior
to the date on which the notice of warrant exercise is sent to the warrant agent. The reason that we have agreed that these warrants
will be exercisable on a cashless basis so long as they are held by the initial purchasers and their permitted transferees is
because it is not known at this time whether they will be affiliated with us following a business combination. If they remain
affiliated with us, their ability to sell our securities in the open market will be significantly limited. We expect to have policies
in place that prohibit insiders from selling our securities except during specific periods of time. Even during such periods of
time when insiders will be permitted to sell our securities, an insider cannot trade in our securities if he or she is in possession
of material non-public information. Accordingly, unlike Public Stockholders who could exercise their warrants and sell the shares
of Common Stock received upon such exercise freely in the open market in order to recoup the cost of such exercise, the insiders
could be significantly restricted from selling such securities. As a result, we believe that allowing the holders to exercise
such warrants on a cashless basis is appropriate.
Special
Public Warrant Holder Meeting
On
June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant
holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly
and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share
to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions
of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’
written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed
to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
2019 Warrants
In 2019, the Company issued 987,500 warrants (“2019 Warrants”) which formed a part of units
privately placed in a units offering. The warrants expire 5-years from the date of issuance and are exercisable at a purchase
price of $4.00 per share.
Dividends
We
have not paid any cash dividends on our Common Stock to date and do not intend to pay cash dividends. The payment of cash dividends
in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent
to completion of a business combination. The payment of any cash dividends will be within the discretion of our board of directors
at such time. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends
in the foreseeable future, except if we increase the size of the offering pursuant to Rule 462(b) under the Securities Act, in
which case we will effect a stock dividend immediately prior to the consummation of the offering in such amount as to maintain
the ownership of our initial stockholders prior to this offering at 20% of our issued and outstanding shares of our Common Stock
upon the consummation of this offering (not including the Private Placement Shares and the shares of Common Stock issuable to
Maxim upon the consummation of this offering). Further, if we incur any indebtedness, our ability to declare dividends may be
limited by restrictive covenants we may agree to in connection therewith.
Our
Transfer Agent and Warrant Agent
The
transfer agent for our Common Stock and warrant agent for our Warrants is Continental Stock Transfer & Trust Company. We have
agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents
and each of its stockholders, directors, officers and employees against all liabilities, including judgments, costs and reasonable
counsel fees that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due
to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.
Certain
Anti-Takeover Provisions of Delaware Law and our Third Amended and Restated Certificate of Incorporation, as Amended, and Bylaws
We
are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware
corporations, under certain circumstances, from engaging in a “business combination” with:
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a
stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested stockholder”);
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an
affiliate of an interested stockholder; or
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an
associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.
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A
“business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of
Section 203 do not apply if:
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our
board of directors approves the transaction that made the stockholder an “interested stockholder,” prior to the
date of the transaction;
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after
the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned
at least 85% of our voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares
of Common Stock; or
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on
or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized
at a meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder.
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Our
third amended and restated certificate of incorporation, as amended, provides that our board of directors will be classified into
two classes of directors. As a result, in most circumstances, a person can gain control of our board only by successfully engaging
in a proxy contest at two or more annual meetings.
Our
authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could
be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult
or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Exclusive
Forum for Certain Lawsuits
Our
third amended and restated certificate of incorporation, as amended, will require, to the fullest extent permitted by law, that
derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other
similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the
stockholder bringing such suit will be deemed to have consented to service of process on such stockholder’s counsel. Although
we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits
to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
Special
Meeting of Stockholders
Our
bylaws provide that special meetings of our stockholders may be called only by a majority vote of our board of directors, by our
Chief Executive Officer or by our Chairman.
Advance
Notice Requirements for Stockholder Proposals and Director Nominations
Our
bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates
for election as directors at our annual meeting of stockholders must provide timely notice of their intent in writing. To be timely,
a stockholder’s notice will need to be received by the secretary to our principal executive offices not later than the close
of business on the 90th day nor earlier than the opening of business on the 120th day prior to the scheduled date of the annual
meeting of stockholders. If our annual meeting is called for a date that is not within 45 days before or after such anniversary
date, a stockholder’s notice will need to be received not earlier than the opening of business on the 120th day before the
meeting and not later than the later of (x) the close of business on the 90th day before the meeting or (y) the close of business
on the 10th day following the day on which we first publicly announce the date of the annual meeting. Our bylaws also specify
certain requirements as to the form and content of a stockholder’s notice for an annual meeting. Specifically, a stockholder’s
notice must include: (i) a brief description of the business desired to be brought before the annual meeting, the text of the
proposal or business and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such
stockholder and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class or
series and number of shares of our capital stock owned beneficially and of record by such stockholder and by the beneficial owner,
if any, on whose behalf the proposal is made, (iv) a description of all arrangements or understandings between such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made and any other person or persons (including their names)
in connection with the proposal of such business by such stockholder, (v) any material interest of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made in such business and (vi) a representation that such stockholder intends to
appear in person or by proxy at the annual meeting to bring such business before such meeting. These notice requirements will
be deemed satisfied by a stockholder as to any proposal (other than nominations) if the stockholder has notified us of such stockholder’s
intention to present such proposal at an annual meeting in compliance with Rule 14a-8 of the Exchange Act, and such stockholder
has complied with the requirements of such rule for inclusion of such proposal in the proxy statement we prepare to solicit proxies
for such annual meeting. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement
must comply with the notice periods contained therein. The foregoing provisions may limit our stockholders’ ability to bring
matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Rule
144
Pursuant
to Rule 144, a person who has beneficially owned restricted shares of our Common Stock or Warrants for at least six months would
be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time
of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements
for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during
the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons
who have beneficially owned restricted shares of our Common Stock or Warrants for at least six months but who are our affiliates
at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which
such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater
of:
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1% of the total number of shares of Common Stock then outstanding; or
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the average weekly reported trading volume of the Common Stock during the four calendar weeks preceding the filing of a notice
on Form 144 with respect to the sale.
Sales
by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability
of current public information about us.
For
purposes of the six-month holding period requirement of Rule 144, a person who beneficially owns restricted shares of our Common
Stock issued pursuant to a cashless exercise of a Warrant shall be deemed to have acquired such shares, and the holding period
for such shares shall be deemed to have commenced, on the date the Warrant was originally issued.
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule
144 is not available for the resale of securities initially issued by shell companies (other than business combination related
shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important
exception to this prohibition if the following conditions are met:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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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 Form 8-K reports;
and
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its
status as an entity that is not a shell company.
As
of the date of this prospectus, we had 6,952,195 shares of Common Stock outstanding. As of the date of this prospectus,
there are 6,449,000 Warrants outstanding, consisting of 5,200,000 Public Warrants, 261,500 Private Placement Warrants
and 987,500 2019 Warrants. Each Warrant is exercisable for one share of our Common Stock. The Public Warrants are
freely tradable. In addition, we were obligated to file no later than 30 business days after the closing of the Transaction the
registration statement of which this prospectus forms a part covering the 6,449,000 shares of our Common Stock that may
be issued upon the exercise of the Warrants and the resale from time to time of 6,360,617 shares of Common Stock and 261,500
Private Placement Warrants by the Selling Securityholders and cause this registration statement to become effective and maintain
the effectiveness of this registration statement until the expiration of the Private Placement Warrants.
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The
following is a discussion of the material U.S. federal income tax considerations generally applicable to the acquisition, ownership
and disposition of our Common Stock and Warrants. This discussion is limited to certain U.S. federal income tax considerations
to beneficial owners of our securities who hold the securities as a capital asset within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”). This discussion does not describe all of the tax consequences
that may be relevant to you in light of your particular circumstances, including the alternative minimum tax, the Medicare contribution
tax on certain investment income and the different consequences that may apply if you are subject to special rules that apply
to certain types of investors, such as:
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financial
institutions or financial services entities;
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broker-dealers;
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insurance
companies;
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governments
or agencies or instrumentalities thereof;
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regulated
investment companies;
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real
estate investment trusts;
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expatriates
or former long-term residents of the United States;
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persons
that actually or constructively own five percent or more of our voting shares;
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persons
that acquired our securities pursuant to an exercise of employee share options, in connection with employee share incentive
plans or otherwise as compensation;
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dealers
or traders subject to a mark to market method of accounting with respect to the securities;
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persons
holding the securities as part of a “straddle,” hedge, constructive sale, conversion or other integrated or similar
transaction;
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U.S.
holders (as defined below) whose functional currency is not the U.S. dollar;
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partnerships
or other pass through entities for U.S. federal income tax purposes; and
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tax
exempt entities.
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If
you are a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of your partners will generally
depend on the status of the partners and your activities.
This
discussion is based on the Code and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury
regulations as of the date hereof, changes to any of which subsequent to the date of this prospectus may affect the tax consequences
described herein. This discussion does not address any aspect of state, local or non-U.S. taxation, or any U.S. tax law other
than the U.S. federal income tax (such as gift, estate or Medicare contribution taxes) or except as discussed below, any tax reporting
obligations of a holder of our securities. This discussion also assumes that any distribution made (or deemed made on our securities
and any consideration received (or deemed received) by a holder from the sale or other disposition of our securities will be in
U.S. dollars.
We
have not sought, and will not seek, a ruling from the Internal Revenue Service (the “IRS”) as to any U.S. federal
income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld
by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions
will not adversely affect the accuracy of the statements in this discussion.
THIS
DISCUSSION IS ONLY A SUMMARY OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR
SECURITIES. EACH PROSPECTIVE INVESTOR IN OUR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR
TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.
Personal
Holding Company Status
We
could be subject to a second level of U.S. federal income tax on a portion of our income if we are determined to be a personal
holding company, or PHC, for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S.
federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer
individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such
as certain tax-exempt organizations, pension funds and charitable trusts) own or are deemed to own (pursuant to certain constructive
ownership rules) more than 50% of the stock of the corporation by value and (ii) at least 60% of the corporation’s adjusted
ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of PHC income (which
includes, among other things, dividends, interest, certain royalties, annuities and, under certain circumstances, rents).
Depending
on the date and size of our transactions, at least 60% of our adjusted ordinary gross income may consist of PHC income as discussed
above. In addition, depending on the concentration of our stock in the hands of individuals, including the members of our sponsor
and certain tax-exempt organizations, pension funds and charitable trusts, more than 50% of our stock may be owned or deemed owned
(pursuant to the constructive ownership rules) by such persons during the last half of a taxable year. Thus, no assurance can
be given that we will not become a PHC following this offering or in the future. If we are or were to become a PHC in a given
taxable year, we would be subject to an additional PHC tax, currently 20%, on our undistributed PHC income, which generally includes
our taxable income, subject to certain adjustments. The PHC requirements may apply to us in the taxable year of the offering and/or
future taxable years.
U.S.
Holders
This
section applies to you if you are a “U.S. holder.” A U.S. holder is a beneficial owner of our securities who or that
is, for U.S. federal income tax purposes:
|
●
|
an
individual who is a citizen or resident of the United States;
|
|
●
|
a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws
of the United States, any state thereof or the District of Columbia;
|
|
●
|
an
estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
|
|
●
|
a
trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust
and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) it has in effect
a valid election to be treated as a U.S. person.
|
Taxation
of Distributions.
If we pay cash distributions to U.S. holders of shares of our Common Stock, such distributions generally
will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or
accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and
accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero)
the U.S. holder’s adjusted tax basis in our Common Stock. Any remaining excess will be treated as gain realized on the sale
or other disposition of the common stock and will be treated as described under “U.S. holders — Gain or Loss on Sale,
Taxable Exchange or Other Taxable Disposition of Our Securities” below.
Dividends
we pay to a U.S. holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite
holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for
purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we
pay to a non-corporate U.S. holder generally will constitute “qualified dividends” that will be subject to tax at
the maximum tax rate accorded to long-term capital gains.
Gain
or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities.
Upon a sale or other taxable disposition
of our securities which, in general, would include a redemption of common stock or warrants, a U.S. holder generally will recognize
capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax
basis in such securities. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s
holding period for the securities so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders
will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to various limitations that are
not described herein because a discussion of such limitations depends on each U.S. holder’s particular facts and circumstances.
Generally,
the amount of gain or loss recognized by a U.S. holder is an amount equal to the difference between (i) the sum of the amount
of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis
in its securities so disposed of. A U.S. holder’s adjusted tax basis in its common stock or warrants generally will equal
the U.S. holder’s acquisition cost less, in the case of a share of common stock, any prior distributions treated as a return
of capital.
Exercise
or Lapse of a Warrant.
Except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally
will not recognize taxable gain or loss from the acquisition of common stock upon exercise of a warrant for cash. The U.S. holder’s
tax basis in the share of our Common Stock received upon exercise of the warrant generally will be an amount equal to the sum
of the U.S. holder’s initial investment in the warrant and the exercise price. It is unclear whether a U.S. holder’s
holding period for the shares of Common Stock received upon exercise of the warrants will commence on the date of exercise of
the warrant or the day following the date of exercise of the warrants; in either case, the holding period will not include the
period during which the U.S. holder held the warrants. If a warrant is allowed to lapse unexercised, a U.S. holder generally will
recognize a capital loss equal to such holder’s tax basis in the warrant.
The
tax consequences of a cashless exercise of a warrant are not clear under current tax law. A cashless exercise may be tax-free,
either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal
income tax purposes. In either tax-free situation, a U.S. holder’s basis in the common stock received would equal the holder’s
basis in the warrant. If the cashless exercise were treated as not being a realization event, it is unclear whether a U.S. holder’s
holding period for the shares of Common Stock would be treated as commencing on the date of exercise of the warrant or the day
following the date of exercise of the warrant. If the cashless exercise were treated as a recapitalization, the holding period
of the common stock would include the holding period of the warrant.
It
is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized.
In such event, a U.S. holder could be deemed to have surrendered warrants equal to the number of common shares having a value
equal to the exercise price for the total number of warrants to be exercised. The U.S. holder would recognize capital gain or
loss in an amount equal to the difference between the fair market value the warrants deemed surrendered and the U.S. holder’s
tax basis in the warrants deemed surrendered. In this case, a U.S. holder’s tax basis in the common stock received would
equal the sum of the fair market value of the warrants deemed surrendered and the U.S. holder’s tax basis in the warrants
exercised. It is unclear whether a U.S. holder’s holding period for the shares of Common Stock would commence on the date
of exercise of the warrant or the day following the date of exercise of the warrant.
Due
to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which,
if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law.
Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
Possible
Constructive Distributions.
The terms of each warrant provide for an adjustment to the number of shares of Common Stock
for which the warrant may be exercised or to the exercise price of the warrant in certain events, as discussed in the section
of this prospectus captioned “Description of Securities — Warrants — Public Stockholders’ Warrants.”
An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. holders of the warrants would, however,
be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’
proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of Common Stock
that would be obtained upon exercise) as a result of a distribution of cash to the holders of shares of our Common Stock which
is taxable to the U.S. holders of such shares as described under “U.S. holders — Taxation of Distributions”
above. For example, if the exercise price of the warrants is decreased as a result of certain taxable dividends paid to holders
of the common stock (as contemplated by the terms of the warrant in certain circumstances), then the amount by which such exercise
was decreased could be considered an increase in the warrant holder’s proportionate interest in our assets or earnings and
profits, which may result in a constructive distribution to holders of the warrants. Such constructive distribution would be subject
to tax as described under that section in the same manner as if the U.S. holders of the warrants received a cash distribution
from us equal to the fair market value of such increased interest. For certain information reporting purposes, we are required
to determine the date and amount of any such constructive distributions. Recently proposed Treasury regulations, which we may
rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.
Information
Reporting and Backup Withholding.
In general, information reporting requirements may apply to dividends paid to a U.S. holder
and to the proceeds of the sale or other disposition of our securities, unless the U.S. holder is an exempt recipient. Backup
withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of
exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any
amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s U.S.
federal income tax liability provided the required information is timely furnished to the IRS.
Non-U.S.
Holders
This
section applies to you if you are a “Non-U.S. holder.” A Non-U.S. holder is a beneficial owner of our securities who
or that is, for U.S. federal income tax purposes:
|
●
|
a
non resident alien individual, other than certain former citizens and residents of the United States subject to U.S. tax as
expatriates;
|
|
●
|
a
foreign corporation; or
|
|
●
|
an
estate or trust that is not a U.S. holder;
|
but
does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition. If
you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the sale
or other disposition of a security.
Taxation
of Distributions.
In general, any distributions we make to a Non-U.S. holder of shares of our Common Stock, to the extent
paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute
dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the Non-U.S. holder’s
conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend
at a rate of 30%, unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax
treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E).
Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s
adjusted tax basis in its shares of our Common Stock and, to the extent such distribution exceeds the Non-U.S. holder’s
adjusted tax basis, as gain realized from the sale or other disposition of the common stock, which will be treated as described
under “Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities” below.
In addition, if we determine that we are classified as a “United States real property holding corporation” (see “Non-U.S.
holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities” below), we will withhold
15% of any distribution that exceeds our current and accumulated earnings and profits.
The
withholding tax does not apply to dividends paid to a Non-U.S. holder who provides a Form W-8ECI, certifying that the dividends
are effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States. Instead, the
effectively connected dividends will be subject to regular U.S. federal income tax as if the Non-U.S. holder were a U.S. resident,
subject to an applicable income tax treaty providing otherwise. A Non-U.S. corporation receiving effectively connected dividends
may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).
Exercise
of a Warrant.
The U.S. federal income tax treatment of a Non-U.S. holder’s exercise of a warrant, or the lapse
of a warrant held by a Non-U.S. holder, generally will correspond to the U.S. federal income tax treatment of the exercise or
lapse of a warrant by a U.S. holder, as described under “U.S. holders — Exercise or Lapse of a Warrant” above,
although to the extent a cashless exercise results in a taxable exchange, the consequences would be similar to those described
below in “Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities.”
Gain
on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities.
A Non-U.S. holder generally will not be subject
to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition
of our securities unless:
|
●
|
the
gain is effectively connected with the conduct of a trade or business by the Non-U.S. holder within the United States (and,
under certain income tax treaties, is attributable to a United States permanent establishment or fixed base maintained by
the Non-U.S. holder); or
|
|
|
|
|
●
|
we
are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during
the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. holder held our securities,
and, in the case where shares of our Common Stock are regularly traded on an established securities market, the Non-U.S. holder
has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period
preceding the disposition or such Non-U.S. holder’s holding period for the shares of our Common Stock. There can be
no assurance that our Common Stock will be treated as regularly traded on an established securities market for this purpose.
|
Unless
an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable
U.S. federal income tax rates as if the Non-U.S. holder were a U.S. resident. Any gains described in the first bullet point above
of a Non-U.S. holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a
30% rate (or lower treaty rate).
If
the second bullet point above applies to a Non-U.S. holder, gain recognized by such holder on the sale, exchange or other disposition
of our securities will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our securities
from such holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition.
We will be classified as a U.S. real property holding corporation if the fair market value of our “U.S. real property interests”
equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests plus our other assets used
or held for use in a trade or business, as determined for U.S. federal income tax purposes.
Information
Reporting and Backup Withholding
. Information returns will be filed with the IRS in connection with payments of dividends
and the proceeds from a sale or other disposition of our securities. A Non-U.S. holder may have to comply with certification procedures
to establish that it is not a United States person in order to avoid information reporting and backup withholding requirements.
The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements
necessary to avoid the backup withholding as well. The amount of any backup withholding from a payment to a Non-U.S. holder will
be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund,
provided that the required information is timely furnished to the IRS.
FATCA
Withholding Taxes.
Provisions commonly referred to as “FATCA” impose withholding of 30% on payments of dividends
(including constructive dividends) on our securities, and, beginning January 1, 2019, sales or other disposition proceeds from
our securities to “foreign financial institutions” (which is broadly defined for this purpose and in general includes
investment vehicles) and certain other Non-U.S. entities unless various U.S. information reporting and due diligence requirements
(generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption
applies (typically certified as to by the delivery of a properly completed IRS Form W-8BEN-E). If FATCA withholding is imposed,
a beneficial owner of the payment that is not a foreign financial institution (or that is a foreign financial institution entitled
to a reduced rate of withholding tax with respect to such payment under an income tax treaty) generally may be entitled to a refund
or credit of any amounts withheld by filing a U.S. federal income tax return and providing certain other information to the IRS
(which may entail significant administrative burden). Foreign financial institutions located in jurisdictions that have an intergovernmental
agreement with the United States governing FATCA may be subject to different rules. Prospective investors should consult their
tax advisers regarding the effects of FATCA on their investment in our securities.
LEGAL
MATTERS
The
validity of the securities offered by this prospectus will be passed upon for us by Anthony L.G., PLLC, 625 N. Flagler Drive,
Suite 600, West Palm Beach, Florida 33401.
EXPERTS
Our
balance sheets as of May 31, 2018 and May 31, 207 and the related statement of operations, changes in stockholders’ equity
and cash flows for the year ended May 31, 2018 and for the period from April 17, 2017 (date of inception) through May 31, 2017
included in this prospectus have been audited by Prager Metis, 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.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S−1 under the Securities Act with respect to the shares of Common
Stock and Private Placement Warrants being offered by this prospectus. This prospectus does not contain all of the information
included in the registration statement. For further information pertaining to us and our Common Stock and the Private Placement
Warrants you should refer to the registration statement and its exhibits. Statements contained in this prospectus concerning any
of our contracts, agreements or other documents are not necessarily complete. If a contract or document has been filed as an exhibit
to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this
prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
We
are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports and other information
with the SEC. Our filings with the SEC are available to the public on the SEC’s website at http://www.sec.gov. The information
we file with the SEC or contained on or accessible through any website that we may maintain is not part of this prospectus or
the registration statement of which this prospectus is a part. You may also read and copy, at SEC prescribed rates, any document
we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s
Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information
on the operation of the Public Reference Room.
SIMPLICITY
ESPORTS AND GAMING COMPANY
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets, as of May 31, 2018 and May 31, 2017 (Audited)
|
F-3
|
Consolidated
Statement of Operations, Fiscal Year Ended May 31, 2018 and Period from April 17, 2017 (Inception) through May 31, 2017 (Audited)
|
F-4
|
Consolidated
Statement of Stockholder’s Equity, Fiscal Year Ended May 31, 2018 and Period from April 17, 2017 (Inception) through
May 31, 2017 (Audited)
|
F-5
|
Consolidated
Statement of Cash Flows, Fiscal Year Ended May 31, 2018 and Period from April 17, 2017 (Inception) through May 31, 2017 (Audited)
|
F-6
|
Notes
to Audited Financial Statements
|
F-7
|
Condensed
Consolidated Balance Sheets, as of February 28, 2019 (Unaudited) and May 31, 2018
|
F-17
|
Condensed
Consolidated Statement of Operations, Three Months and Nine Months Ended February 28, 2019 and February 28, 2018 (Unaudited)
|
F-18
|
Consolidated
Statements of Changes in Stockholders’ Equity (Unaudited)
|
F-19
|
Condensed
Consolidated Statement of Cash Flows, Three Months and Nine Months Ended February 28, 2019 and February 28, 2018 (Unaudited)
|
F-20
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-21
|
Report
of Independent Registered Public Accounting Firm
To
the shareholders and the board of directors of I-AM Capital Acquisition Company
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of I-AM Capital Acquisition Company (the “Company”) as of May 31, 2018
and 2017, the related statements of operations, stockholders’ equity, and cash flows for year ended May 31, 2018 and the
period April 17, 2017 (inception) thru May 31, 2017 and the related notes and schedules (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 May 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended May 31, 2018
and the period April 17, 2017 (inception) thru May 31, 2017, in conformity with U.S. generally accepted accounting principles.
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 audits. 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 audits 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. Our audits 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 audits 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 audits provide a reasonable basis for our opinion.
/s/
Prager Metis CPAs, LLC
|
|
Prager
Metis CPAs, LLC
|
|
We
have served as the Company’s auditor since 2017.
Basking
Ridge, New Jersey
July
23, 2018
I-AM
CAPITAL ACQUISITION COMPANY
BALANCE SHEETS
|
|
May
31, 2018
|
|
|
May
31, 2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
458,063
|
|
|
$
|
30,000
|
|
Deferred
offering costs
|
|
|
—
|
|
|
|
25,000
|
|
Prepaid
expenses
|
|
|
3,168
|
|
|
|
—
|
|
Total
Current Assets
|
|
|
461,231
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
Cash
held in Trust Account
|
|
|
52,895,652
|
|
|
|
—
|
|
Total
Assets
|
|
$
|
53,356,883
|
|
|
$
|
55,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Loan
payable - Related party
|
|
$
|
81,618
|
|
|
$
|
30,672
|
|
Accrued
expenses
|
|
|
63,579
|
|
|
|
—
|
|
Deferred
legal fees
|
|
|
100,000
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
245,197
|
|
|
|
30,672
|
|
Deferred
underwriting fees
|
|
|
1,820,000
|
|
|
|
—
|
|
Total
Liabilities
|
|
|
2,065,197
|
|
|
|
30,672
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Common
stock subject to possible redemption, $.0001 par value; 4,560,757 and -0- shares as of May 31, 2018 and May 31, 2017, respectively,
at redemption value
|
|
|
46,291,685
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Preferred
Stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
Stock - $0.0001 par value; 20,000,000 shares authorized; 2,252,743 and 1,437,500 shares issued and outstanding (excluding
4,560,757 and -0- shares subject to possible redemption) as of May 31, 2018 and May 31, 2017, respectively
|
|
|
225
|
|
|
|
144
|
|
Additional
paid-in capital
|
|
|
5,009,310
|
|
|
|
24,856
|
|
Accumulated
deficit
|
|
|
(9,534
|
)
|
|
|
(672
|
)
|
Total
stockholders’ equity
|
|
|
5,000,001
|
|
|
|
24,328
|
|
Total
Liabilities and stockholders’ equity
|
|
$
|
53,356,883
|
|
|
$
|
55,000
|
|
The
accompanying notes are an integral part of the financial statements
I-AM
CAPITAL ACQUISITION COMPANY
STATEMENTS OF OPERATIONS
|
|
Year
Ended
May 31, 2017
|
|
|
For
the period from April 17, 2017 (Inception) to
May 31, 2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
530,564
|
|
|
|
672
|
|
Loss
from operations
|
|
|
(530,564
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
521,702
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for taxes
|
|
|
(8,862
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,862
|
)
|
|
$
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
2,050,790
|
|
|
|
1,750,000
|
|
The
accompanying notes are an integral part of the financial statements
I-AM
CAPITAL ACQUISITION COMPANY
STATEMENT OF STOCKHOLDERS EQUITY
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholder’s
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
- April 17, 2017 (inception)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Sponsor
(1)
|
|
|
1,437,500
|
|
|
|
144
|
|
|
|
24,856
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(672
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- May 31, 2017
|
|
|
1,437,500
|
|
|
$
|
144
|
|
|
$
|
24,856
|
|
|
$
|
(672
|
)
|
|
$
|
24,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 5,200,000 Units, net of underwriting discount and offering expenses
|
|
|
5,200,000
|
|
|
|
520
|
|
|
|
48,160,700
|
|
|
|
—
|
|
|
|
48,161,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 261,500 Private Units
|
|
|
261,500
|
|
|
|
26
|
|
|
|
2,614,974
|
|
|
|
—
|
|
|
|
2,615,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares to underwriter
|
|
|
52,000
|
|
|
|
5
|
|
|
|
499,995
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subject to redemption
|
|
|
(4,560,757
|
)
|
|
|
(456
|
)
|
|
|
(46,291,229
|
)
|
|
|
|
|
|
|
(46,291,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock forfeited by Sponsor
|
|
|
(137,500
|
)
|
|
|
(14
|
)
|
|
|
14
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,862
|
)
|
|
|
(8,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at May 31, 2018
|
|
|
2,252,743
|
|
|
$
|
225
|
|
|
$
|
5,009,310
|
|
|
$
|
(9,534
|
)
|
|
$
|
5,000,001
|
|
(1)
|
Includes
an aggregate of 187,500 shares of common stock that are subject to forfeiture to the extent that the underwriters over-allotment
is not exercised in full (note 6).
|
The
accompanying notes are an integral part of the financial statements
I-AM
CAPITAL ACQUISITION COMPANY
STATEMENTS OF CASH FLOWS
|
|
Year
Ended
May 31, 2018
|
|
|
For
the period from
April 17, 2017 (Inception)
to May 31, 2017
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,862
|
)
|
|
$
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Interest
earned on marketable securities held in trust account
|
|
|
(521,702
|
)
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
63,579
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(3,168
|
)
|
|
|
|
|
Net
Cash used in Operating Activities
|
|
|
(470,153
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investment
of cash in Trust Account
|
|
|
(52,780,000
|
)
|
|
|
|
|
Interest
Income released from Trust Account
|
|
|
406,050
|
|
|
|
|
|
Net
Cash used in Investing Activities
|
|
|
(52,373,950
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of Units, net of commissions
|
|
|
50,860,100
|
|
|
|
|
|
Proceeds
from sale of Private Units
|
|
|
2,615,000
|
|
|
|
|
|
Proceeds
from note payable - related party, net
|
|
|
171,035
|
|
|
|
30,672
|
|
Repayment
of note payable - related party, net
|
|
|
(120,089
|
)
|
|
|
|
|
Proceeds
from issuance of common stock to Sponsor
|
|
|
|
|
|
|
25,000
|
|
Payment
of offering costs
|
|
|
(253,880
|
)
|
|
|
(25,000
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
53,272,166
|
|
|
|
30,672
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
428,063
|
|
|
|
30,000
|
|
Cash
at beginning of period
|
|
|
30,000
|
|
|
|
—
|
|
Cash
at end of period
|
|
$
|
458,063
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Deferred
underwriting fees charged to additional paid in capital
|
|
$
|
1,820,000
|
|
|
|
|
|
Deferred
legal fees charged to additional paid in capital
|
|
$
|
100,000
|
|
|
|
|
|
Issuance
of common stock to underwriters charged to additional paid in capital
|
|
$
|
500,000
|
|
|
|
|
|
Initial
classification of common stock subject to possible redemption
|
|
$
|
44,337,271
|
|
|
|
|
|
Change
in value of common stock subject to possible redemption
|
|
$
|
1,954,414
|
|
|
|
|
|
Offering
costs charged to additional paid in capital
|
|
$
|
25,000
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statements
I-AM
CAPITAL ACQUISITION COMPANY
NOTES
TO FINANCIAL STATEMENTS
MAY
31, 2018 and 2017
NOTE
1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
I-AM
Capital Acquisition Company (the “Company”), is a blank check company organized under the laws of the State of Delaware
on April 17, 2017. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,
reorganization or similar business combination with one or more businesses (“Business Combination”). Although the
Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the
Company intends to focus on businesses with a connection to India. The Company is an early stage and emerging growth company and,
as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
The
Company’s sponsor is I-AM Capital Partners LLC (the “Sponsor”). The Company has selected May 31 as its fiscal
year end.
At
May 31, 2018, the Company had not commenced any principal operations nor generated revenue to date. All activity for the period
from April 17, 2017 (inception) through May 31, 2018 related to the Company’s formation and the initial public offering
(the “Initial Public Offering”), which is described below, and identifying a target company for a business combination.
The Company will not generate any operating revenues until after completion of its initial Business Combination, at the earliest.
The Company will generate non-operating income in the form of interest income from the proceeds held in trust derived from the
Initial Public Offering. Accordingly, the Company’s activities are subject to significant risks and uncertainties, including
failing to consummate the Initial Business Combination. Organizational costs and administrative expenses that are not related
to the Initial Public Offering and concurrent private placement are expensed as incurred.
Financing
The
registration statement for the Company’s Initial Public Offering (as described in Note 3) was declared effective by the
United States Securities and Exchange Commission (the “SEC”) on August 16, 2017. The Company intends to finance a
Business Combination with the net proceeds from the sale of $50,000,000 of units in the Initial Public Offering (the “Public
Units”) and the sale of $2,545,000 of units (the “Private Units” and, together with the Public Units, the “Units”)
in the simultaneous private placement (the “Private Placement” as described in Note 3). Upon the closing of the Initial
Public Offering and the Private Placement on August 22, 2017, $50,750,000 was deposited in a trust account with Continental Stock
Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below.
Contained
in the underwriting agreement for the Initial Public Offering is an over-allotment option allowing the underwriters to purchase
from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company
received a commitment from the Sponsor to purchase up to an additional 26,250 Private Units in order to maintain the amount of
cash in the Trust Account equal to $10.15 per Public Unit sold in the Initial Public Offering. On September 13, 2017, the underwriters
partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per
Unit, generating gross proceeds of $2,000,000. Also on September 13, 2017, simultaneously with the sale of the Over-Allotment
Units, the Company consummated the sale of an additional 7,000 Placement Units (the “Over-Allotment Placement Units”),
generating gross proceeds of $70,000.
Trust
Account
The
Trust Account will be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or
less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, which invest
only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of
its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside
the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing
general and administrative expenses.
The
Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay
taxes or up to a maximum of $600,000 of working capital expenses, if any, none of the funds held in trust will be released until
the earlier of: (i) the completion of the initial Business Combination; or (ii) the redemption of 100% of the shares of common
stock included in the Public Units sold in the Initial Public Offering if the Company is unable to complete its initial Business
Combination within 12 months (or 21 months if extended) from the closing of the Initial Public Offering (subject to the requirements
of law).
Business
Combination
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering, although it initially intends to focus its efforts on businesses with a connection to India. Substantially all of the
net proceeds of the Initial Public Offering are intended to be generally applied toward consummating a Business Combination with
a Target Business. As used herein, “Target Business” must be with one or more target businesses that together have
a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and
taxes payable on interest earned) at the time of the Company’s signing a definitive agreement in connection with its initial
Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination.
The
Company will have until 12 months from the closing of the Initial Public Offering to consummate a Business Combination. However,
if the Company anticipates that it may not be able to consummate a Business Combination within 12 months, the Company may extend
the period of time to consummate a Business Combination up to three times, each by an additional three months (for a total of
up to 21 months to complete a Business Combination). Pursuant to the terms of the Company’s amended and restated certificate
of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company,
in order to extend the time available for the Company to consummate its initial Business Combination, the Sponsor or its affiliates
or designees, upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account approximately
$303,160 ($0.0583 per Unit), on or prior to the date of the applicable deadline, for each three month extension, up to an aggregate
of approximately $910,000 if extended three times, or $0.1750 per Unit. The Sponsor and its affiliates or designees are not obligated
to fund the Trust Account to extend the time for the Company to complete its initial Business Combination. In the event that interest
in the trust is available for withdrawal for working capital purposes and has not been used to pay taxes or other working capital
expenses, the Company may apply the accrued interest in the Trust Account or such withdrawn interest to the Sponsor’s obligation
to loan the Company money in connection with an extension, and the amount that the Sponsor would be obligated to loan the Company
in connection with such extension would be reduced by the amount of interest so applied. If the Company does not complete a Business
Combination within this period of time (“Combination Period”), it shall, as promptly as reasonably possible but not
more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account
and as promptly as reasonably possible following such redemption, subject to the approval of its remaining stockholders and its
board of directors, dissolve and liquidate, subject in each case to its obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable law.
In
the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the initial public offering price per Public Unit in the Initial Public Offering.
The Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the
Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares,
regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate
amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination,
including interest but less taxes payable and up to a maximum of $600,000 of working capital released to the Company, or (ii)
provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the
need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the
Trust Account as of two business days prior to commencement of the tender offer, including interest but less taxes payable. The
decision as to whether the Company will seek stockholder approval of the Business Combination or will allow stockholders to sell
their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors
such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder
approval unless a vote is required by NASDAQ rules. If the Company seeks stockholder approval, it will complete its Business Combination
only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in
no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001
upon consummation of the initial Business Combination. In such case, the Company would not proceed with the redemption of its
public shares and the related Business Combination, and instead may search for an alternate Business Combination.
As
a result of the public stockholders’ redemption rights, such shares of common stock will be recorded at redemption amount
and classified as temporary equity upon the completion of the Initial Offering, in accordance with FASB ASC 480, “Distinguishing
Liabilities from Equity.” The amount in the Trust Account is initially anticipated to be $10.15 per public common share,
subject to increase of up to an additional $0.1750 per share in the event that the Sponsor elects to extend the period of time
to consummate a Business Combination, as described in more detail in the prospectus. The per-share amount to be distributed to
investors who properly redeem their shares will not be reduced by the deferred underwriting commissions paid to the underwriters.
There will be no redemption rights upon the completion of the initial Business Combination with respect to the warrants. The initial
stockholders have entered into letter agreements, pursuant to which they have agreed to waive their redemption rights with respect
to their Founder Shares (defined in Note 4), shares of common stock underlying the Private Units and the Public Units, and any
additional shares they may acquire during or after the Initial Public Offering in connection with the completion of the Business
Combination. Prior to acquiring any securities from the initial stockholders, permitted transferees must enter into a written
agreement with the Company agreeing to be bound by the same restriction.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging
Growth Company
Section
102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from
being required to comply with new or revised financial accounting standards until private companies (that is, those that have
not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective
or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect
to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which
means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial
Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Offering
Costs
The
Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses
of Offering”. Offering costs of approximately $3,728,000 consisting principally of underwriter discounts of $3,250,000 (including
approximately $1,820,000 of which payment is deferred) and approximately $478,000 of professional, printing, filing, regulatory
and other costs have been charged to additional paid in capital upon completion of the Initial Public Offering.
Common
stock subject to possible redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “
Distinguishing Liabilities from Equity
.” Common stock subject to mandatory redemption
(if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable common stock (including
common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock are classified as stockholders’ equity. The Company’s common stock features certain redemption
rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
Accordingly, at May 31, 2018, 4,560,757 shares of common stock subject to possible redemption at the redemption amount are presented
as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
Net
income (loss) per share
The
Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income (loss)
per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the
period. Shares of common stock subject to possible redemption at May 31, 2018 have been excluded from the calculation of basic
income (loss) per share and diluted loss per share year ended May 31, 2018 since such shares, if redeemed, only participate in
their pro rata share of the Trust Account earnings. The Company has not considered the effect of (1) warrants sold in the Initial
Public Offering and Private Placement to purchase shares of common stock, (2) rights sold in the Initial Public Offering and Private
Placement that convert into shares of common stock, and (3) the unit purchase option granted to the underwriters in the calculation
of diluted income (loss) per share, since the exercise of the warrants and the conversion of the rights into shares of common
stock is contingent upon the occurrence of future events.
Income
Taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740, “
Income Taxes
,” which requires
an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities
are computed for differences between the financial statements and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized.
ASC
Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities.
On
December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform,
the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires
companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue
its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”)
to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The
ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations
and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a
result of Tax Reform.
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet adopted accounting pronouncements, would have a material effect on the
Company’s financial statements.
NOTE
3 — INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT
Initial
Public Offering
On
August 22, 2017, the Company sold 5,000,000 Public Units at a purchase price of $10.00 per Public Unit in the Initial Public Offering,
generating gross proceeds of $50.0 million. The Company incurred offering costs of approximately $3.7 million, inclusive of approximately
$3.2 million of underwriting fees. The Company paid $1 million of underwriting fees upon the closing of the Initial Public Offering,
issued 50,000 shares of common stock for underwriting fees, and deferred $1.82 million of underwriting fees until the consummation
of the initial Business Combination.
Each
Unit consists of one share of the Company’s common stock, one right to receive one-tenth of one share of the Company’s
common stock upon consummation of the Company’s initial Business Combination (“Right”), and one redeemable warrant
(“Warrant”). Each Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50
per share, subject to adjustment. No fractional shares will be issued upon exercise of the Warrants. The Warrants will become
exercisable on the later of (i) 30 days after the completion of the initial Business Combination and (ii) 12 months from the closing
of the Initial Public Offering, and will expire five years after the completion of the initial Business Combination or earlier
upon redemption or liquidation.
The
Company may redeem the Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day
redemption period”), only in the event that the last sale price of the common stock equals or exceeds $21.00 per share for
any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption
is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants
and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the
Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all
holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders
to exercise their warrants on a “cashless basis,” management will consider, among other factors, the Company’s
cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing
the maximum number of shares of common stock issuable upon the exercise of the Warrants.
Each
holder of a Right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. No fractional
shares will be issued upon exchange of the Rights. No additional consideration will be required to be paid by a holder of Rights
in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has
been included in the Unit purchase price paid for by investors in the Initial Public Offering. If the Company enters into a definitive
agreement for a Business Combination in which the Company will not be the surviving entity, each holder of a right will be required
to affirmatively convert its rights in order to receive the 1/10 share of common stock underlying each right (without paying any
additional consideration).
There
will be no redemption rights or liquidating distributions with respect to the Warrants and Rights, which will expire worthless
if the Company fails to complete it Business Combination within the Combination Period.
The
Company granted the underwriters a 45-day option to purchase up to 750,000 additional Public Units to cover any over-allotment,
at the initial public offering price less any underwriting discounts and commissions. On September 13, 2017 the underwriters purchased
200,000 additional public units for gross proceeds of $2,000,000 less commissions of 110,000, of which $70,000 are deferred.
The
Company issued Maxim Group LLC (“Maxim”), as compensation for the Initial Public Offering, an aggregate of 52,000
shares (including 20,000 shares issued in connection with the partial exercise of the over-allotment option. The Company accounted
for the fair value of these shares as an expense of the Initial Public Offering resulting in a charge directly to stockholders’
equity.
Unit
Purchase Option
At
the time of the closing of the Initial Public Offering, the Company sold to Maxim, for an aggregate of $100, an option (the “UPO”)
to purchase 250,000 Units (which increased to 260,000 units upon the partial exercise of the underwriters’ over-allotment
option) (See Note 5). The Company has accounted for the fair value of the UPO, inclusive of the receipt of the $100 cash payment,
as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates
that the fair value of this UPO is approximately $743,600 (or $2.86 per Unit) using the Black-Scholes option-pricing model. The
fair value of the UPO is estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2)
risk-free interest rate of 1.73% and (3) expected life of five years. The UPO may be exercised for cash or on a “cashless”
basis, at the holder’s option (except in the case of a forced cashless exercise upon the Company’s redemption of the
Warrants, as described above), such that the holder may use the appreciated value of the UPO (the difference between the exercise
prices of the UPO and the underlying Warrants and Rights, and the market price of the Units and underlying shares of common stock)
to exercise the UPO without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the
UPO or the Warrants or Rights underlying the UPO. The holder of the UPO will not be entitled to exercise the UPO or the Warrants
or Rights underlying the UPO unless a registration statement covering the securities underlying the UPO is effective or an exemption
from registration is available. If the holder is unable to exercise the UPO or underlying Warrants or Rights, the UPO, Warrants
or Rights, as applicable, will expire worthless.
The
Company granted the holders of the UPO, demand and “piggy back” registration rights for periods of five and seven
years, respectively, from the effective date of the registration statement relating to the Initial Public Offering, including
securities directly and indirectly issuable upon exercise of the UPO.
Private
Placement
Concurrently
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private
Unit, generated gross proceeds of $2,545,000 in a Private Placement. The proceeds from the Private Units was added to the proceeds
from the Initial Public Offering held in the Trust Account. The Private Units (including their component securities) will not
be transferable, assignable or salable until 30 days after the completion of the initial Business Combination and the warrants
included in the Private Units (the “Private Placement Warrants”) will be non-redeemable so long as they are held by
the Sponsor or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or their
permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the
same basis as the Warrants included in the Public Units sold in the Initial Public Offering. Otherwise, the Private Placement
Warrants and the Rights underlying the Private Units have terms and provisions that are identical to those of the Warrants and
Rights, respectively, sold as part of the Public Units in the Initial Public Offering and have no net cash settlement provisions.
On
September 13, 2017, the Sponsor purchased 7,000 additional Private Units for gross proceeds of $70,000 upon partial exercise of
the underwriter’s over-allotment option.
If
the Company does not complete a Business Combination within the Combination Period, the proceeds of the Private Placement will
be part of the liquidating distribution to the public stockholders and the Private Units and their component securities issued
to the Sponsor will expire worthless.
NOTE
4 — RELATED PARTY TRANSACTIONS
Founder
Shares
On
May 31, 2017, the Company issued 1,437,500 shares of the Company’s common stock to the Sponsor (the “Founder Shares”)
in exchange for a capital contribution of $25,000. 137,500 Founder Shares were forfeited by the Sponsor upon the partial exercise
of the underwriters’ over-allotment option.
The
Founder Shares are identical to the shares of common stock included in the Units and holders of Founder Shares have the same stockholder
rights as public stockholders, except that (i) the Founder Shares and the shares of common stock underlying the Private Units
are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which it has
agreed (A) to waive its redemption rights with respect to the Founder Shares, and the shares of common stock underlying the Private
Units and the Public Units in connection with the completion of a Business Combination and (B) to waive its rights to liquidating
distributions from the Trust Account with respect to the Founder Shares and the shares of common stock underlying the Private
Units if the Company fails to complete a Business Combination within 12 months from the closing of the Initial Public Offering
(or up to 21 months from the closing of the Initial Public Offering if the Company extends the period of time to consummate a
Business Combination).
With
certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers
and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions)
until the earlier of one year after the completion of an initial Business Combination or earlier of (i) subsequent to the Company’s
Business Combination, the last sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing
at least 150 days after an initial Business Combination, or (ii) the date following the completion of an Initial Business Combination
on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders
having the right to exchange their shares of common stock for cash, securities or other property.
Private
Units
In
addition, the Sponsor purchased, pursuant to a written agreement, an aggregate of 254,500 Private Units at $10.00 per Private
Unit for proceeds of $2,545,000 in the aggregate in the Private Placement. This purchase took place on a private placement basis
simultaneously with the completion of the Initial Public Offering. This issuance was be made pursuant to the exemption from registration
contained in Section 4(a) (2) of the Securities Act.
On
September 13, 2017, the Sponsor purchased 7,000 additional Private Units at $10.00 per Private Unit upon the partial exercise
of the underwriter’s over-allotment option.
Administrative
Service Fee
The
Company has agreed, commencing on the effective date of the Initial Public Offering through the earlier of the Company’s
consummation of a Business Combination or its liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial and administrative support. For the year ended May 31, 2018, the Company has paid an aggregate of $100,000 which
is presented as general and administrative expense on the accompanying statement of operations.
Loan
The
Sponsor has loaned the Company $201,707 in the aggregate, to be used for a portion of the expenses of the Initial Public Offering
and working capital purposes. The loan is non-interest bearing, unsecured and due at the earlier of December 31, 2017 or the closing
of the Initial Public Offering. As of May 31, 2018, $120,089 of the Sponsor’s loan has been repaid. As of May 31, 2018 and
2017 the balance of the sponsor loan is $81,618 and $30,672, respectively.
NOTE
5 — COMMITMENTS AND CONTINGENCIES
Registration
Rights
Pursuant
to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private
Units (and constituent securities) at the closing of the Initial Public Offering, the Company is required to register certain
securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to
three demands that the Company register certain of its securities held by them for sale under the Securities Act and to have the
securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have
the right to include their securities in other registration statements filed by the Company. The Company will bear the costs and
expenses of filing any such registration statements.
Unit
Purchase Option
The
Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which
increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50
per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised
for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first
anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the
Company’s initial Business Combination, and terminating on the fifth anniversary of such effectiveness date. The Units issuable
upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the
warrants underlying the Units sold to the underwriters is $13.00 per share.
Deferred
Legal Fees
The
Company has committed to pay its attorneys a deferred legal fee of $100,000 upon the consummation of the Initial Business Combination
relating to services performed in connection with the IPO. This amount has been accrued in the accompanying balance sheet.
NOTE
6 — STOCKHOLDERS’ EQUITY
Common
Stock
The
Company is authorized to issue 20,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the shares
of the Company’s common stock are entitled to one vote for each share. At May 31, 2018, there were 6,813,500 shares of common
stock issued and outstanding, which reflects the 137,500 shares that were forfeited by the Sponsor due to the underwriters’
over-allotment option being exercised in part, and includes 4,560,757 shares of the Company’s common stock subject to possible
redemption.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. At May 31, 2018, there
were no shares of preferred stock issued or outstanding.
NOTE
7 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
The
Trust Account can be invested in U.S. government securities, within the meaning set forth in the Investment Company Act, having
a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by
the Company meeting the conditions of Rule 2a-7 of the Investment Company Act.
The
Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay
income taxes and up to $600,000 of interest to pay working capital expenses if any, none of the funds held in the Trust Account
will be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of 100% of the shares
of common stock included in the Public Units sold in the Initial Public Offering if the Company is unable to complete its initial
Business Combination within 12 months (or 21 months if extended) from the closing of the Initial Public Offering (subject to the
requirements of law).
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
Level
1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
Level
2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
Level
3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis at
May 31, 2018 and May 31, 2017, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine
such fair value:
Description
|
|
Level
|
|
|
May
31,2018
|
|
|
May
31, 2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
52,895,652
|
|
|
$
|
—
|
|
NOTE
8 - INCOME TAX
The
Company’s net deferred tax assets are as follows:
|
|
May
31, 2018
|
|
Deferred
tax asset
|
|
|
|
|
Net
Operating Loss
|
|
$
|
2,000
|
|
Total
deferred tax assets
|
|
|
2,000
|
|
Valuation
allowance
|
|
|
(2,000
|
)
|
Deferred
tax asset, net of allowance
|
|
$
|
—
|
|
As
of May 31, 2018, the Company had U.S. federal and state net operating loss carryovers (“NOLs”) of $9,534 available
to offset future taxable income. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s
NOLs may be subject to an annual limitation in the event of a change in control as defined under the regulations.
In
assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion
of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary differences representing net future deductible amounts
become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment. After consideration of all of the information available, management believes
that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established
a full valuation allowance. For the year ended May 31, 2018, the change in the valuation allowance was $2,000.
A
reconciliation of the federal income tax rate to the Company’s effective tax rate at December 31, 2017 is as follows:
|
|
Year
Ended
May 31, 2018
|
|
Statutory
federal income tax rate
|
|
|
28.0
|
%
|
State
taxes, net of federal tax benefit
|
|
|
0.0
|
%
|
Deferred
tax rate change
|
|
|
(7.0
|
)%
|
Change
in valuation allowance
|
|
|
(21.0
|
)%
|
Income
tax provision
|
|
|
—
|
%
|
On
December 22, 2017, the Tax Cuts and Jobs Act was signed into legislation. As part of the legislation, the U.S. corporate income
tax rate was reduced to 21%. The Company has a recorded full valuation allowance against its deferred tax assets.
The
Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions and is subject to examination
by the various taxing authorities.
NOTE
9 – SUBSCRIPTION AGREEMENT
On
May 3, 2018, the Company entered into a share subscription agreement (the “Subscription Agreement”), with Smaaash
Entertainment Private Limited, a private limited company incorporated under the laws of India (“Smaaash”), Shripal
Morakhia (“Morakhia”), and AHA Holdings Private Limited (“AHA Holdings”, and together with Morakhia, the
“Smaaash Founders”), pursuant to which the Company agreed to contribute a cash amount of up to $49 million (the “Investment
Amount”) to Smaaash in exchange for (i) up to 76,641,157 newly issued equity shares of Smaaash (“Subscription Shares”),
(ii) the right to act as the sole distributor of Smaaash’s active entertainment games in North and South America and (iii)
the right to act as the master franchisee for Smaaash’s active entertainment centers in North and South America (the transactions
contemplated by the Subscription Agreement, collectively, the “Transaction”). Assuming a cash contribution amount
of $49 million, the Subscription Agreement provided that the equity shares received by the Company would represent approximately
24.53% of the equity capital of Smaaash; provided that such percentage shall be decreased proportionately depending on the number
of shares of the Company’s common stock that the public holders of the Company’s common stock elect to redeem in connection
with the vote on the Transaction and the resulting reduction in funds available for contribution to Smaaash. On June 22, 2018,
the Company, Smaaash and the Smaaash Founders entered into that certain
Amendment Cum Addendum
to the Subscription Agreement
, pursuant to which the Subscription Agreement was amended to, among other things, increase
the number of Subscription Shares that the Company would receive for the full Investment Amount from 76,641,157 shares to
89,583,215
shares, which shares would represent approximately 27.53% of the equity capital of Smaaash.
SIMPLICITY
ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED
BALANCE SHEETS
|
|
February
28, 2019
|
|
|
|
|
|
|
(Unaudited)
|
|
|
May
31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,245,666
|
|
|
$
|
458,063
|
|
Prepaid
expenses
|
|
|
54
|
|
|
|
3,168
|
|
Total
Current Assets
|
|
|
1,245,720
|
|
|
|
461,231
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,070,368
|
|
|
|
—
|
|
Property
and equipment
|
|
|
51,350
|
|
|
|
—
|
|
Cash
held in trust account
|
|
|
—
|
|
|
|
52,895,652
|
|
Total
Other Assets
|
|
|
6,121,718
|
|
|
|
52,895,652
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
7,367,438
|
|
|
$
|
53,356,883
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Loan
payable- related party
|
|
$
|
85,238
|
|
|
$
|
81,618
|
|
Private
placement funds received
|
|
|
1,000,003
|
|
|
|
—
|
|
Accrued
expenses
|
|
|
871,315
|
|
|
|
63,579
|
|
Convertible
note payable
|
|
|
1,000,000
|
|
|
|
—
|
|
Deferred
legal fees
|
|
|
—
|
|
|
|
100,000
|
|
Total
Current Liabilities
|
|
|
2,956,556
|
|
|
|
245,197
|
|
|
|
|
|
|
|
|
|
|
Deferred
underwriting fees
|
|
|
—
|
|
|
|
1,820,000
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,956,556
|
|
|
|
2,065,197
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Common
stock subject to possible redemption, $0.0001 par value; -0- and 4,560,757 shares as of February 28, 2019 and May 31, 2018,
respectively at redemption value
|
|
|
—
|
|
|
|
46,291,685
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common
stock - $0.0001 par value; 20,000,000 shares authorized; 6,313,038 and 2,252,743 shares issued and outstanding as of February
28, 2019 and May 31, 2018, respectively
|
|
|
632
|
|
|
|
225
|
|
Common
stock issuable - 2,030,000 shares at February 28, 2019
|
|
|
203
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
7,515,541
|
|
|
|
5,009,310
|
|
Accumulated
deficit
|
|
|
(3,105,494
|
)
|
|
|
(9,534
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
4,410,882
|
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
7,367,438
|
|
|
$
|
53,356,883
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY
ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months
Ended
February 28, 2019
|
|
|
Three
Months
Ended
February 28, 2018
|
|
|
Nine
Months
Ended
February 28, 2019
|
|
|
Nine
Months
Ended
February 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,070
|
|
|
$
|
—
|
|
|
|
14,070
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative expenses
|
|
|
430,010
|
|
|
|
114,465
|
|
|
|
3,811,612
|
|
|
|
305,690
|
|
Loss
from Operations
|
|
|
415,940
|
|
|
|
114,465
|
|
|
|
3,797,542
|
|
|
|
305,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Forgiveness Income
|
|
|
300,000
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
—
|
|
Interest
Income
|
|
|
164
|
|
|
|
158,712
|
|
|
|
401,582
|
|
|
|
312,000
|
|
Total
Other Income
|
|
|
300,164
|
|
|
|
158,712
|
|
|
|
701,582
|
|
|
|
312,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Provision for Income Taxes
|
|
|
(115,776
|
)
|
|
|
44,247
|
|
|
|
(3,095,960
|
)
|
|
|
6,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Provision for Income Taxes
|
|
|
—
|
|
|
|
15,044
|
|
|
|
—
|
|
|
|
2,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(115,776
|
)
|
|
$
|
29,203
|
|
|
$
|
(3,095,960
|
)
|
|
$
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net Income (Loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.87
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of common shares outstanding
|
|
|
5,790,781
|
|
|
|
2,268,539
|
|
|
|
3,575,419
|
|
|
|
2,002,237
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY
ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEAR ENDED MAY 31, 2018 AND THE NINE MONTHS ENDED FEBRUARY 28, 2019
UNAUDITED
|
|
Common
Stock
|
|
|
Common
Stock Issuable
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- May 31, 2017
|
|
|
1,437,500
|
|
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,856
|
|
|
$
|
(672
|
)
|
|
$
|
24,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 5,200,000 Units, net of underwriting discount and offering expenses
|
|
|
5,200,000
|
|
|
|
520
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48,160,700
|
|
|
|
—
|
|
|
|
48,161,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 261,500 Private Units
|
|
|
261,500
|
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,614,974
|
|
|
|
—
|
|
|
|
2,615,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares to underwriter
|
|
|
52,000
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499,995
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Subject to Redemption
|
|
|
(4,560,757
|
)
|
|
|
(456
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(46,291,229
|
)
|
|
|
—
|
|
|
|
(46,291,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Forfeited by Sponsor
|
|
|
(137,500
|
)
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,862
|
)
|
|
|
(8,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- May 31, 2018
|
|
|
2,252,743
|
|
|
$
|
225
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5,009,310
|
|
|
$
|
(9,534
|
)
|
|
$
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Subject to Redemption
|
|
|
112,497
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,635,671
|
)
|
|
|
—
|
|
|
|
(6,635,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for advisory services
|
|
|
208,000
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,124,979
|
|
|
|
—
|
|
|
|
2,125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to Smaaash Founders
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights
shares
|
|
|
546,150
|
|
|
|
55
|
|
|
|
—
|
|
|
|
—
|
|
|
|
383,393
|
|
|
|
—
|
|
|
|
383,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Issued in Acquisition
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,089,900
|
|
|
|
—
|
|
|
|
6,090,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Issuable from Acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Issuable from Employment Agreements
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
3
|
|
|
|
43,650
|
|
|
|
—
|
|
|
|
43,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Common
Shares issued for convertible note
|
|
|
193,648
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499,980
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,095,960
|
)
|
|
|
(3,095,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- February 28, 2019
|
|
|
6,313,038
|
|
|
$
|
632
|
|
|
|
2,030,000
|
|
|
$
|
203
|
|
|
$
|
7,515,541
|
|
|
$
|
(3,105,494
|
)
|
|
$
|
4,410,882
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY
ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
UNAUDITED
|
|
Nine
Months
Ended
February 28, 2019
|
|
|
Nine
Months
Ended
February 28, 2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(3,095,960
|
)
|
|
$
|
4,165
|
|
Adjustments
to reconcile net (loss) income to net cash (used in) operating activities:
|
|
|
|
|
|
|
|
|
Interest
earned on marketable securities held in trust account
|
|
|
(401,582
|
)
|
|
|
(94,359
|
)
|
Impairment
of cost method investment
|
|
|
150,000
|
|
|
|
—
|
|
Debt
forgiveness income
|
|
|
(300,000
|
)
|
|
|
—
|
|
Issuance
of shares for services
|
|
|
2,169,143
|
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
3,114
|
|
|
|
—
|
|
Deferred
legal fees
|
|
|
(100,000
|
)
|
|
|
—
|
|
Accrued
expenses
|
|
|
751,438
|
|
|
|
49,750
|
|
Income
taxes payable
|
|
|
—
|
|
|
|
2,145
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(823,847
|
)
|
|
|
(38,299
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment
of cash in Trust Account
|
|
|
—
|
|
|
|
(52,780,000
|
)
|
Cash
purchased in acquisition
|
|
|
75,930
|
|
|
|
—
|
|
Investment
at cost
|
|
|
(150,000
|
)
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
(51,350
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(125,420
|
)
|
|
|
(52,780,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Gross
proceeds from sale of Units, net of commissions
|
|
|
—
|
|
|
|
50,860,100
|
|
Proceeds
from sale of Private Units
|
|
|
—
|
|
|
|
2,615,000
|
|
Proceeds
from note payable - related party, net
|
|
|
3,620
|
|
|
|
171,035
|
|
Repayment
of note payable - related party, net
|
|
|
—
|
|
|
|
(120,089
|
)
|
Settlement
of redeemable common stock
|
|
|
(46,291,685
|
)
|
|
|
—
|
|
Cash
held in trust account used to settle common stock redemption obligation
|
|
|
(7,620,432
|
)
|
|
|
—
|
|
Cash
in trust
|
|
|
54,645,364
|
|
|
|
—
|
|
Private
placement funds received
|
|
|
1,000,003
|
|
|
|
—
|
|
Repayment
of offering costs
|
|
|
—
|
|
|
|
(253,880
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,736,870
|
|
|
|
53,272,166
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
787,603
|
|
|
|
453,867
|
|
|
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
458,063
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Cash
- end of period
|
|
$
|
1,245,666
|
|
|
$
|
483,867
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Non-Cash Investing and Financing Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
underwriting fees charged to additional paid in capital
|
|
$
|
—
|
|
|
$
|
1,820,000
|
|
Deferred
legal fees charged to additional paid in capital
|
|
$
|
—
|
|
|
$
|
100,000
|
|
Issuance
of common stock issued to underwriters charged to additional paid in capital
|
|
$
|
—
|
|
|
$
|
44,327,271
|
|
Change
in value of common stock subject to possible redemption
|
|
$
|
—
|
|
|
$
|
1,967,441
|
|
Offering
costs charged to additional paid capital
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Common
stock issued for consideration in an acquisition
|
|
$
|
6,090,000
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY
ESPORTS AND GAMING COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY
28, 2019
(UNAUDITED)
NOTE
1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Simplicity
Esports and Gaming Company F/K/A Smaaash Entertainment Inc. (the “Company,” “we,” or “our”),
was a newly organized blank check company organized under the laws of the State of Delaware on April 17, 2017. The Company was
formed under the name I-AM Capital Acquisition Company for the purpose of effecting a merger, share exchange, asset acquisition,
share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”).
On November 20, 2018, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. On January
2, 2019, the Company changed its name from Smaaash Entertainment Inc. to Simplicity Esports and Gaming Company.
Through
our wholly subsidiary, Simplicity Esports, LLC, acquired on January 2, 2019 (see Note 4). The Company has begun to implement a
unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots
level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community
and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other
in the industry. Simplicity is an established brand in the Esports industry with an engaged fan base competing in popular games
across different genres, including Apex Legends, PUBG, Gears of War, Smite, and NHL 19. Additionally, the Simplicity stream team
encompasses a unique group of casters, influencers, and personalities all of whom connect to Simplicity’s dedicated fan
base. Simplicity also plans to open and operate esports gaming centers that will provide the public an opportunity to experience
and enjoy gaming and Esports in a social setting, regardless of skill or experience.
The
Company’s sponsor was I-AM Capital Partners LLC (the “Sponsor”). The Company selected May 31 as its fiscal year
end.
On
November 20, 2018, the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws
of India (“Smaaash”), consummated the initial Business Combination (the “Closing”) as contemplated by
a share subscription agreement dated as of May 3, 2018 (as amended by the Amendment Cum Addendum dated June 22, 2018, the Second
Amendment Cum Addendum dated August 2, 2018, the Third Amendment Cum Addendum dated November 1, 2018 and the Fourth Amendment
Cum Addendum dated November 15, 2018, the “Subscription Agreement”), following the approval at the special meeting
of the stockholders of I-AM Capital held on November 9, 2018 (the “Special Meeting”).
In
connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc.
Financing
The
registration statement for the Company’s initial public offering (as described in Note 3) was declared effective by the
United States Securities and Exchange Commission (the “SEC”) on August 16, 2017. The Company financed the Business
Combination with the net proceeds from the sale of $50,000,000 of units in the initial public offering (the “Public Units”)
and the sale of $2,545,000 of units (the “Private Units” and, together with the Public Units, the “Units”)
in the simultaneous private placement (the “Private Placement” as described in Note 3). Upon the closing of the Initial
Public Offering and the Private Placement on August 22, 2017, $50,750,000 was deposited in a trust account with Continental Stock
Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below.
Contained
in the underwriting agreement for the Initial Public Offering was an over-allotment option allowing the underwriters to purchase
from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company
received a commitment from the Sponsor to purchase up to an additional 26,250 Private Units in order to maintain the amount of
cash in the Trust Account equal to $10.15 per Public Unit sold in the Initial Public Offering. On September 13, 2017, the underwriters
partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per
Unit, generating gross proceeds of $2,000,000. Also on September 13, 2017, simultaneously with the sale of the Over-Allotment
Units, the Company consummated the sale of an additional 7,000 Placement Units (the “Over-Allotment Placement Units”),
generating gross proceeds of $70,000.
Trust
Account
The
Trust Account was invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less
or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, which invested only
in direct U.S. government obligations. Funds were to remain in the Trust Account until the earlier of (i) the consummation of
its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside
the Trust Account were allowed to be used to pay for business, legal and accounting due diligence on prospective acquisitions
and continuing general and administrative expenses.
Business
Combination
The
Company’s management had broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering.
On
August 21, 2018, the Company deposited into the Trust Account an aggregate of $303,610 (including interest earned on the funds
in the Trust Account available for withdrawal), representing $0.058 per public share. As a result of such payment, the Company
extended the period of time it had to consummate a Business Combination by three months to November 21, 2018.
On
November 20, 2018, the parties consummated the initial Business Combination.
Upon
consummation of the Business Combination, the Company issued 208,000 restricted shares to Chardan Capital Markets in consideration
for advisory services provided. These restricted shares are valued at $10.21 per share totaling $2,125,000 and are on the statement
of operations included in general and administrative expenses.
At
the special meeting of stockholders held on November 9, 2018, holders of 4,448,260 shares of the Company’s common stock
sold in its Initial Public Offering (
“
Public Shares”) exercised their right to redeem those shares for cash
at a price of $10.2187363 per share, for an aggregate of approximately $45,455,596. Immediately after giving effect to the initial
Business Combination (including as a result of the redemptions described above) the issuance of 2,000,000 shares of common stock
to the Smaaash founders, the issuance of 520,000 shares of common stock upon conversion of the rights at the Closing and the issuance
of 208,000 shares of common stock to Chardan Capital Markets as consideration for services), there were 5,119,390 shares of common
stock and warrants to purchase approximately 5,461,500 shares of common stock issued and outstanding. Upon the Closing, the Company’s
rights ceased to exist, and its common stock and warrants began trading on The Nasdaq Stock Market (“Nasdaq”).
On
the Closing Date, the Company entered into a master franchise agreement (“Master Franchise Agreement”) and a master
license and distribution agreement (“Master Distribution Agreement”) with Smaaash, as of February 28, 2019 this master
franchise agreement and master distribution agreement are no longer in effect.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for
interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive
presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a
fair presentation of the consolidated financial position, operating results and cash flows for the periods presented.
The
accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report
on Form 10-K as filed with the SEC on July 24, 2018. The interim results for the three and nine months ended February 28, 2019
are not necessarily indicative of the results to be expected for the year ending May 31, 2019 or for any future interim periods.
Emerging
Growth Company
Section
102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from
being required to comply with new or revised financial accounting standards until private companies (that is, those that have
not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective
or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect
to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which
means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Basis
of Consolidation
The
consolidated financial statements include the operations of the Company and its wholly-owned subsidiary, Simplicity Esports, LLC.
All
significant intercompany accounts and transactions have been eliminated in consolidation.
Cash
and cash equivalents
The
Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents.
The Company has no cash equivalents.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial
Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the consolidated balance sheet.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
Recognition
As
of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance
sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S.
GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the
goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that
were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective
method and the adoption did not have a material impact on its financial statements.
The
Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product
sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the
Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first
is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming
tournaments.
Property,
plant and equipment
Property,
plant and equipment and leasehold improvements are recorded at its historical cost. The cost of property, plant, and equipment
is depreciated over the estimated useful lives, when placed in service, (ranging from 5 -39 years) of the related assets utilizing
the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the
length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred
and major repairs will be capitalized and expensed if it benefits future periods.
During
the three months ended February 29, 2019, the Company paid approximately $50,000 for the construction of their first gaming center.
These amounts have been capitalized and are on the balance sheet under the caption property and equipment, net. This asset has
not been placed into service as of February 28, 2019 so no depreciation expense has been recorded.
Intangible
Assets and impairment
Intangible
assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. The Company had
intangible assets subject to amortization related to its asset purchase of a team logo and name. These costs were included in
intangible assets on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful
lives of the costs, which is 5 years.
The
Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value.
Goodwill
Goodwill
is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill,
but we assess our goodwill for impairment at least annually. Our assessment date was January 31, 2019 and qualitative considerations
indicated no impairment.
Restricted
Cash Held in Escrow and Common Stock Redemption Obligations
This
amount is held in escrow with respect to a certain stock purchase agreement with Polar Asset Management Partners Inc. (“Polar”),
pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after
the consummation of the transactions and a separate certain stock purchase agreement with the K2 Principal Fund L.P. (“K2”),
pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after
the consummation of the Transactions. These purchase agreements were subsequently amended as of December 20, 2018, pursuant to
which, among other things, the Company distributed to Polar and K2 an aggregate of $5,133,300 out of the escrow. See Note 8 to
the consolidated financial statements – “Amendments to Forward Purchase Agreements and Warrants,” for a more
detailed description of the amendment. Under the terms of the purchase agreements, as amended, the Company will use the funds
held in escrow to pay for such shares; however, the Company is only required to repurchase shares that were not previously sold
by Polar and K2. Therefore, if the investors had already sold such shares by the determination date, then the Company would be
able to keep a portion of the remaining funds held in escrow, depending on the prices at which the shares were sold by the investors.
Amendments
to Forward Purchase Agreements and Warrants
On
December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant
to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per
share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of
the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20%
of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00
per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original
number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize
the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares
prior to the final closing of the Stock Sales.
Investments
Investments
in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or
the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When
the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s
proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment
accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses
are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports
net income and the Company’s share of that net income exceeds the share of net losses not recognized during the period the
equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other
than temporary has occurred.
Investments
in equity securities that do not have readily determinable fair values and do not qualify for consolidation or the equity method
are carried at cost. Dividends received from those companies are included in other income. Dividends received in excess of the
Company’s proportionate share of accumulated earnings are applied as a reduction of the cost of the investment. Other than
temporary impairments to fair value are charged against current period income. Our investments in privately held entities are
accounted for under the cost method. During the quarter ended February 28, 2019 the Company recognized $150,000 of impairment
expense related to the Smaaash acquisition.
Offering
Costs
The
Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses
of Offering”. Offering costs of approximately $3,728,000 consisting principally of underwriter discounts of $3,250,000 (including
approximately $1,800,000 of which payment was deferred until the Company issued the underwriter a secured demand promissory note
in the amount of $1,800,000) and approximately $478,000 of professional, printing, filing, regulatory and other costs have been
charged to additional paid in capital upon completion of the Initial Public Offering.
Common
stock subject to possible redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “
Distinguishing Liabilities from Equity
.” Common stock subject to mandatory redemption
(if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable common stock (including
common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock are classified as stockholders’ equity. The Company’s common stock features certain redemption
rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
Net
income (loss) per share
The
Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income (loss)
per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the
period. Shares of common stock subject to possible redemption at February 28, 2019 have been excluded from the calculation of
basic income (loss) per share and diluted loss per share for the three and nine months ended February 28, 2019 since such shares,
if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect
of (1) warrants sold in the Initial Public Offering and Private Placement to purchase shares of common stock (2) rights sold in
the Initial Public Offering and Private Placement that convert into shares of common stock, and (3) the unit purchase option granted
to the underwriter in the calculation of diluted income (loss) per share, since the exercise of the warrants and the conversion
of the rights into shares of common stock is contingent upon the occurrence of future events.
Income
Taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740, “
Income Taxes
,” which requires
an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities
are computed for differences between the financial statements and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized.
ASC
Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities.
On
December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform,
the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires
companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue
its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”)
to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The
ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations
and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a
result of Tax Reform.
Recent
Accounting Pronouncements
Accounting
standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future
financial statements. The following are a summary of recent accounting developments.
In
February 2016, the FASB issued authoritative guidance, which is included in ASC 842, “Leases.” This guidance requires
lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is
effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment will
not have a material impact on the financial statements.
In
June 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting
, which aligns accounting for share-based payments issued to nonemployees to that of employees under the
existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to
nonemployees under
Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.
This guidance is effective for
the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment will not have a
material impact on the financial statements.
The
Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable
to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company
expects that none would have a significant impact on its financial statements.
Going
Concern
The
Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which
contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and
net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not
be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private
or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient
revenue 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
sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The
financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE
3 — INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT
Initial
Public Offering
On
August 22, 2017, the Company sold 5,000,000 Public Units at a purchase price of $10.00 per Public Unit in the Initial Public Offering,
generating gross proceeds of $50.0 million. The Company incurred offering costs of approximately $3.7 million, inclusive of approximately
$3.2 million of underwriting fees. The Company paid $1 million of underwriting fees upon the closing of the Initial Public Offering,
issued 50,000 shares of common stock for underwriting fees, and deferred $1.82 million of underwriting fees until the consummation
of the initial Business Combination.
Each
Unit consisted of one share of the Company’s common stock, one right to receive one-tenth of one share of the Company’s
common stock upon consummation of the Company’s initial Business Combination (“Right”), and one redeemable warrant
(“Warrant”). Each Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50
per share, subject to adjustment. No fractional shares will be issued upon exercise of the Warrants. The Warrants became exercisable
30 days after the completion of the initial Business Combination and will expire five years after the completion of the initial
Business Combination or earlier upon redemption or liquidation.
The
Company may redeem the Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day
redemption period”), only in the event that the last sale price of the common stock equals or exceeds $21.00 per share for
any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption
is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants
and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the
Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all
holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders
to exercise their warrants on a “cashless basis,” management will consider, among other factors, the Company’s
cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing
the maximum number of shares of common stock issuable upon the exercise of the Warrants.
Each
holder of a Right received one-tenth (1/10) of one share of common stock upon consummation of the Business Combination. No fractional
shares were issued upon exchange of the Rights. No additional consideration was paid by a holder of Rights in order to receive
its additional shares upon consummation of the Business Combination as the consideration related thereto has been included in
the Unit purchase price paid for by investors in the Initial Public Offering.
The
Company granted the underwriters a 45-day option to purchase up to 750,000 additional Public Units to cover any over-allotment,
at the initial public offering price less any underwriting discounts and commissions. On September 13, 2017 the underwriters purchased
200,000 additional Public Units for gross proceeds of $2,000,000 less commissions of 110,000, of which $70,000 are deferred.
The
Company issued Maxim Group LLC (“Maxim”), as compensation for the Initial Public Offering, an aggregate of 52,000
shares, including 2,000 shares issued in connection with the partial exercise of the over-allotment option. The Company accounted
for the fair value of these shares as an expense of the Initial Public Offering resulting in a charge directly to stockholders’
equity.
Settlement
Agreement
On
November 20, 2018, the Company entered into a settlement and release agreement (“Settlement Agreement”) with Maxim.
Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued the Note in favor of Maxim
in order to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between
the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common
stock held by Maxim and its affiliate. See “Note Payable” under Note 2 above.
Unit
Purchase Option
At
the time of the closing of the Initial Public Offering, the Company sold to Maxim, for an aggregate of $100, an option (the “UPO”)
to purchase 250,000 Units (which increased to 260,000 units upon the partial exercise of the underwriters’ over-allotment
option) (See Note 5). The Company has accounted for the fair value of the UPO, inclusive of the receipt of the $100 cash payment,
as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates
that the fair value of this UPO is approximately $743,600 (or $2.86 per Unit) using the Black-Scholes option-pricing model. The
fair value of the UPO is estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2)
risk-free interest rate of 1.73% and (3) expected life of five years. The UPO may be exercised for cash or on a “cashless”
basis, at the holder’s option (except in the case of a forced cashless exercise upon the Company’s redemption of the
Warrants, as described above), such that the holder may use the appreciated value of the UPO (the difference between the exercise
prices of the UPO and the underlying Warrants and Rights, and the market price of the Units and underlying shares of common stock)
to exercise the UPO without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the
UPO or the Warrants or Rights underlying the UPO. The holder of the UPO will not be entitled to exercise the UPO or the Warrants
or Rights underlying the UPO unless a registration statement covering the securities underlying the UPO is effective or an exemption
from registration is available. If the holder is unable to exercise the UPO or underlying Warrants or Rights, the UPO, Warrants
or Rights, as applicable, will expire worthless.
The
Company granted the holders of the UPO, demand and “piggy back” registration rights for periods of five and seven
years, respectively, from the effective date of the registration statement relating to the Initial Public Offering, including
securities directly and indirectly issuable upon exercise of the UPO.
Private
Placement
Concurrently
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private
Unit, generated gross proceeds of $2,545,000 in a Private Placement. The proceeds from the Private Units was added to the proceeds
from the Initial Public Offering held in the Trust Account. The Private Units (including their component securities) were not
transferable, assignable or salable until 30 days after the completion of the initial Business Combination and the warrants included
in the Private Units (the “Private Placement Warrants”) will be non-redeemable so long as they are held by the Sponsor
or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or their permitted
transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis
as the Warrants included in the Public Units sold in the Initial Public Offering. Otherwise, the Private Placement Warrants and
the Rights underlying the Private Units have terms and provisions that are identical to those of the Warrants and Rights, respectively,
sold as part of the Public Units in the Initial Public Offering and have no net cash settlement provisions.
On
September 13, 2017 the Sponsor purchased 7,000 additional Private Units for gross proceeds of $70,000 upon the partial exercise
of the over-allotment option.
NOTE
4 - ACQUISITIONS
The
Simplicity Esports, LLC Acquisition
On
January 4, 2019, the Company consummated the transactions contemplated by the share exchange agreement, dated December 21, 2018
(as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement,
dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Smaaash Entertainment, Inc. (“Smaaash”),
each of the equity holders of Simplicity (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative
of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred
all the issued and outstanding equity interests of Simplicity to the Company in exchange for newly issued shares of common stock
of the Company (the “Acquisition”).
The
Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional
aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000
shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the
stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity
Esports, LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included
on the balance sheet as common stock issuable at February 28, 2019.
The
acquisition of Simplicity, in an all-stock deal, creates a pure play esports team and entertainment platform opportunity, which
we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar
esports centers.
The
acquisition was accounted for by the Company using the acquisition method under business combination accounting. Under this method,
the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date
based on the fair value. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often
involves the use of significant estimates and assumptions. Certain amounts below are provisional based on our best estimates using
information available as of the reporting date. The Company is waiting for information to become available to finalize its valuation
of certain elements of this transaction. Specifically, the assigned values for intellectual property, trade names and trademarks,
customer relationships, and goodwill are provisional in nature and subject to change upon the completion of the final valuation
of such elements. All fair value measurements of acquired assets and liabilities assumed are non-recurring in nature and classified
as level 3 on the fair value hierarchy.
The
aggregate purchase price consisted of the following:
Restricted
stock consideration
|
|
|
6,090,000
|
|
Total
|
|
$
|
6,090,000
|
|
As
noted in the table above, the Company issued 3,000,000 restricted shares of common stock as consideration which was valued at
market at the date of the closing, fair value of approximately $6,090,000.
The
following table summarizes the estimated fair value of The Simplicity Esports, LLC assets acquired and liabilities assumed at
the date of acquisition:
Cash
|
|
|
76,000
|
|
Property,
plant and equipment (provisional)
|
|
|
0
|
|
Trade
names and trademarks (provisional)
|
|
|
0
|
|
Customer
relationships (provisional)
|
|
|
0
|
|
Accounts
payable and accrued liabilities
|
|
|
(56,000
|
)
|
Goodwill
(provisional)
|
|
|
6,070,000
|
|
Total
|
|
$
|
6,090,000
|
|
Revenue
and net loss included in the nine months ended February 28, 2019 consolidated financial statements attributable to Simplicity
Esports, LLC is approximately $14,000 and $100,000, respectively.
The
following unaudited pro forma information below presents the consolidated results operations data as if the acquisition of Simplicity
Esports, LLC took place on June 1, 2017:
|
|
Nine
Months Ended
February 28 2019
|
|
|
Nine
Months Ended February 28, 2018
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
$
|
45,883
|
|
|
$
|
—
|
|
Net
(Loss) Income
|
|
$
|
(3,330,960
|
)
|
|
$
|
4,165
|
|
Basic Net
Loss Per Share
|
|
$
|
(0.93
|
)
|
|
$
|
0.00
|
|
NOTE
5 — RELATED PARTY TRANSACTIONS
Founder
Shares
On
May 31, 2017, the Company issued 1,437,500 shares of the Company’s common stock to the Sponsor (the “Founder Shares”)
in exchange for a capital contribution of $25,000. 137,500 of the Founder Shares were forfeited by the Sponsor upon the partial
exercise of the underwriters’ over-allotment option.
The
Founder Shares are identical to the shares of common stock included in the Units and holders of Founder Shares have the same stockholder
rights as public stockholders, except that (i) the Founder Shares and the shares of common stock underlying the Private Units
are subject to certain transfer restrictions, and (ii) the Sponsor has entered into a letter agreement, pursuant to which it has
agreed (A) to waive its redemption rights with respect to the Founder Shares, and the shares of common stock underlying the Private
Units and the Public Units in connection with the completion of a Business Combination and (B) to waive its rights to liquidating
distributions from the Trust Account with respect to the Founder Shares and the shares of common stock underlying the Private
Units if the Company fails to complete a Business Combination within 12 months from the closing of the Initial Public Offering
(or up to 21 months from the closing of the Initial Public Offering if the Company extends the period of time to consummate a
Business Combination).
With
certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers
and directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions)
until the earlier of one year after the completion of an initial Business Combination or earlier of (i) subsequent to the Company’s
Business Combination, the last sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing
at least 150 days after an initial Business Combination, or (ii) the date following the completion of an Initial Business Combination
on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders
having the right to exchange their shares of common stock for cash, securities or other property.
Private
Units
In
addition, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private Unit for proceeds of $2,545,000 in
the aggregate in the Private Placement. This purchase took place on a private placement basis simultaneously with the completion
of the Initial Public Offering. This issuance was be made pursuant to the exemption from registration contained in Section 4(a)(2)
of the Securities Act.
The
Sponsor committed to purchase from the Company up to an additional 26,250 Private Units if the underwriters’ over-allotment
option was exercised in full.
On
September 13, 2017, 7,000 additional Private Units were purchased by the Sponsor at $10.00 per Private Unit upon the partial exercise
of the over-allotment option.
Administrative
Service Fee
The
Company agreed, commencing on the effective date of the Initial Public Offering through the earlier of the Company’s consummation
of a Business Combination or its liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial
and administrative support. For the three months ended November 30, 2018, the Company has paid $30,080 which is presented as general
and administrative expense on the accompanying statement of operations. In December 2018, this monthly administrative service
fee agreement was terminated.
Loan
The
Sponsor loaned the Company $201,707 in the aggregate, to be used for a portion of the expenses of the Initial Public Offering
and working capital purposes. The loan is non-interest bearing, unsecured and due at the earlier of December 31, 2017 or the closing
of the Initial Public Offering. As of November 30, 2018, $120,089 of the Sponsor’s loan has been repaid. As of February
28, 2019, the balance of the Sponsor loan is $85,238.
The
Company maintains its cash balance at a financial services company that is owned by an officer of the Company.
NOTE
6 — COMMITMENTS AND CONTINGENCIES
Nasdaq
Delisting
On
December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of
The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2
of the listing rules of Nasdaq (the “Listing Rules”).
The
Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1)
that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence
that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least
400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2)
which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On
January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with
Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional
Shares (the “LAS Notification”).
The
Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed
the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange
Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate
basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination
regarding the Company’s continued listing on Nasdaq.
Management
of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB
is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On
April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and warrants. The Company’s
common stock and warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On
April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and
Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and warrants.
As a result, the Company’s common stock and warrants were delisted from Nasdaq effective April 2, 2019.
The
Company’s common stock and warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,”
respectively.
Registration
Rights
Pursuant
to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private
Units (and constituent securities) at the closing of the Initial Public Offering, the Company is required to register certain
securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to
three demands that the Company register certain of its securities held by them for sale under the Securities Act and to have the
securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have
the right to include their securities in other registration statements filed by the Company. The Company will bear the costs and
expenses of filing any such registration statements.
Unit
Purchase Option
The
Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which
increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50
per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised
for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first
anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the
Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date. The Units issuable
upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the
warrants underlying the Units sold to the underwriters is $13.00 per share.
Note
Payable
On
November 20, 2018, the Company paid its underwriter $20,000 and issued its underwriter a secured demand promissory note (the “Note”)
in the amount of $1,800,000. The Note accrued interest at 8% per annum from the date of the Note through and including May 20,
2019, 12% per annum from and including May 21, 2019 through and including August 20, 2019, and 15% per annum from and including
August 21, 2019, through and including November 20, 2019. If a late payment had occurred and continued, the interest rate would
have increased to 12% per annum from the date of the Note through and including August 20, 2019 and 18% per annum from after August
21, 2019. If a late payment had remained outstanding for over 48 hours, Maxim could have required the Company to redeem all or
any part of the Note at a redemption price equal to 125% of the Alternate Payment Amount.
The
principal and interest of the Note was payable upon demand by Maxim or from time to time, in accordance the following schedule:
|
(i)
|
one
third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
|
|
(ii)
|
one
third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
|
|
(iii)
|
one
third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
|
The
Note was secured by a first priority security interest in all personal property and assets of the Company excluding the assets
held in escrow with respect to (i) that certain stock purchase agreement with Polar, pursuant to which Polar agreed to sell up
to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Business Combination
and (ii) that certain stock purchase agreement with K2, pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s
common stock to the Company thirty days after the consummation of the Business Combination.
The
amount payable under the Note could also have been paid in shares of common stock of the Company or securities convertible or
exercisable into shares of common stock of the Company (the “Alternate Equity Payment”) if and only if the Company
and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security
of the Company issued in such Alternative Equity Payment. Otherwise, the payment should be made in cash only.
So
long as any amount under the Note remained outstanding, all cash proceeds received by the Company from any sales of its securities
was to be used to repay this Note.
Convertible
Note Payable
On
December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group
LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the
Note. In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000
(the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series
A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
The
original amount of the promissory note was $1,800,000, the total amount of the two exchange notes is $1,500,000, and the difference
of $300,000 has been recorded as debt forgiveness income.
The
Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date
of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in
cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company
may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity
Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the
interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms
of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to
be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The
Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial
conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions,
combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted
to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock
in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time,
in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay
all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally,
the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity
Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic
conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder)
on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation
date.
At
any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for
cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal
amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note
(the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have
been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice
of the Optional Redemption is delivered to the date of the Optional Redemption and through and including the date payment of the
Optional Redemption Amount is actually made in full.
Except
as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay
any portion of the principal amount of the note without the prior written consent of the Holder.
The
Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more
than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’
prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic
conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation,
then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until
such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation,
at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The
Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase
any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The
Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity
date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion
price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five
trading days prior to the notice of conversion and $0.50.
As
of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of
the Company’s common stock.
Private
Placement
During
the quarter ended February 28, 2019, the Company raised $1,000,003 in a Private Placement. As of February, 28, 2019 this offering
was not closed and the $1,000,003 is included on the Balance Sheet under Current Liabilities as Private Placement funds received.
NOTE
7 — STOCKHOLDERS’ EQUITY
Common
Stock
The
Company is authorized to issue 20,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the shares
of the Company’s common stock are entitled to one vote for each share. At February 28, 2019, there were 6,313,038 shares
of common stock issued and outstanding.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. At November 30, 2018,
there were no shares of preferred stock issued or outstanding.
NOTE
8 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
The
Trust Account was invested in U.S. government securities, within the meaning set forth in the Investment Company Act, had a maturity
of 180 days or less or in any open-ended investment company that held itself out as a money market fund selected by the Company
meeting the conditions of Rule 2a-7 of the Investment Company Act.
The
Company’s amended and restated certificate of incorporation provided that, other than the withdrawal of interest to pay
income taxes and up to $600,000 of interest to pay working capital expenses if any, none of the funds held in the Trust Account
would be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of 100% of the shares
of common stock included in the Public Units sold in the Initial Public Offering if the Company was unable to complete its initial
Business Combination within 12 months (or 21 months if extended) from the closing of the Initial Public Offering (subject to the
requirements of law). The funds were released from the Trust Account on November 20, 2018 upon the Closing of the initial Business
Combination.
The
Company followed the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company sought to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy was used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
Level
1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
Level
2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
Level
3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis at
November 30, 2018 and May 31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine
such fair value:
Description
|
|
Level
|
|
|
February
28, 2019
|
|
|
May
31, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
-0
|
-
|
|
$
|
52,895,652
|
|
NOTE
9 — SUBSEQUENT EVENTS
On
March 27, 2019, the Company sold an aggregate of 812,500 units (the “Units”) at a purchase price of $2.00 per Unit
to 11 accredited investors in exchange for receipt of $1,625,000. Each unit consists of (i) one share of common stock, and (ii)
a 5-year warrant to purchase one share of common stock at a purchase price of $4.00. The Company sold the Units in reliance on
the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 of Regulation D promulgated under the Securities Act.
In
March of 2019, the Company entered into a settlement agreement with its prior attorney. As of February 28, 2019, the Company owed
this attorney approximately $900,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement
and then another approximate $525,000 to be paid over time.
On
March 27, 2019, pursuant to a Restricted Stock Award, the Company granted Jed Kaplan, the Company’s Chief Executive Officer
and interim Chief Financial Officer and a member of the Company’s board of directors, 120,000 shares of Company restricted
stock. Such shares vest over the next nine months.
Also on March 27, 2019, pursuant to a
Restricted Stock Award, the Company granted Roman Franklin, the Company President and a member of the Company’s board of
directors, 36,000 shares of Company restricted stock. Such shares vest over the next nine months also. Lastly,
on March
27, 2019, pursuant to a Restricted Stock Award and collectively with the Kaplan Restricted Stock Award and the Franklin Restricted
Stock Award, the Company granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of the Company,
24,000 shares of Company restricted stock. Such shares also vest over the next nine months.
Each
of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan,
Franklin and Grossman on December 31, 2018
.
SIMPLICITY
ESPORTS AND GAMING COMPANY
6,449,000
Shares of Common
Stock Underlying Warrants
6,360,617
Shares of Common Stock for Resale by Securityholders
261,500 Warrants to Purchase Common Stock
for Resale by Securityholders
PROSPECTUS
__________,
2019
Until
_______, 2019 (25 days after the date of this prospectus) all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation
to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13.
|
Other
Expenses of Issuance and Distribution.
|
The
following table sets forth the various expenses to be incurred in connection with the registration of the securities being registered
hereby, all of which will be borne by us. All amounts shown are estimates except the SEC registration fee.
SEC
registration fee
|
|
$
|
9,632.79
|
|
Transfer
agent’s fees and expenses
|
|
$
|
*
|
|
Printing
expenses
|
|
$
|
*
|
|
Legal
fees and expenses
|
|
$
|
*
|
|
Accounting
fees and expenses
|
|
$
|
*
|
|
Miscellaneous
|
|
$
|
*
|
|
Total
expenses
|
|
$
|
*
|
|
*
|
Estimated
expenses not presently known.
|
Item
14.
|
Indemnification
of Directors and Officers.
|
Our
third amended and restated certificate of incorporation will provide that all of our directors, officers, employees and agents
shall be entitled to be indemnified by us to the fullest extent permitted by Section 145 of the Delaware General Corporation Law
(the “DGCL”). Section 145 of the DGCL concerning indemnification of officers, directors, employees and agents
is set forth below.
Section
145. Indemnification of officers, directors, employees and agents; insurance.
|
(a)
|
A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s
conduct was unlawful.
|
|
|
|
|
(b)
|
A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem
proper.
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(c)
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To
the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and
reasonably incurred by such person in connection therewith.
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(d)
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Any
indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer
at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
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(e)
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Expenses
(including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses
(including attorneys’ fees) incurred by former officers and directors or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
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(f)
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The
indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s
official capacity and as to action in another capacity while holding such office. A right to indemnification or to advancement
of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by
an amendment to such provision after the occurrence of the act or omission that is the subject of the civil, criminal, administrative
or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision
in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission
has occurred.
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(g)
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A
corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether
or not the corporation would have the power to indemnify such person against such liability under this section.
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(h)
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For
purposes of this section, references to “the corporation” shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to
the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate
existence had continued.
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(i)
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For
purposes of this section, references to “other enterprises” shall include employee benefit plans; references to
“fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references
to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this
section.
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(j)
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The
indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a person.
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(k)
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The
Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses
or indemnification brought under this section or under any by law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Court of Chancery may summarily determine a corporation’s obligation to advance expenses (including
attorneys’ fees).
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Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in
a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
In
accordance with Section 102(b)(7) of the DGCL, our third amended and restated certificate of incorporation, as amended, will provide
that no director shall be personally liable to us or any of our stockholders for monetary damages resulting from breaches of their
fiduciary duty as directors, except to the extent such limitation on or exemption from liability is not permitted under the DGCL.
The effect of this provision of our third amended and restated certificate of incorporation, as amended, is to eliminate our rights
and those of our stockholders (through stockholders’ derivative suits on our behalf) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director, including breaches resulting from negligent or grossly negligent
behavior, except, as restricted by Section 102(b)(7) of the DGCL. However, this provision does not limit or eliminate our rights
or the rights of any stockholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of
a director’s duty of care.
If
the DGCL is amended to authorize corporate action further eliminating or limiting the liability of directors, then, in accordance
with our third amended and restated certificate of incorporation, as amended, the liability of our directors to us or our stockholders
will be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or amendment of provisions
of our third amended and restated certificate of incorporation, as amended, limiting or eliminating the liability of directors,
whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will (unless
otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to further limit
or eliminate the liability of directors on a retroactive basis.
Our
third amended and restated certificate of incorporation, as amended, will also provide that we will, to the fullest extent authorized
or permitted by applicable law, indemnify our current and former officers and directors, as well as those persons who, while directors
or officers of our corporation, are or were serving as directors, officers, employees or agents of another entity, trust or other
enterprise, including service with respect to an employee benefit plan, in connection with any threatened, pending or completed
proceeding, whether civil, criminal, administrative or investigative, against all expense, liability and loss (including, without
limitation, attorney’s fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably
incurred or suffered by any such person in connection with any such proceeding.
Notwithstanding
the foregoing, a person eligible for indemnification pursuant to our third amended and restated certificate of incorporation,
as amended, will be indemnified by us in connection with a proceeding initiated by such person only if such proceeding was authorized
by our board of directors, except for proceedings to enforce rights to indemnification.
The
right to indemnification which will be conferred by our third amended and restated certificate of incorporation, as amended, is
a contract right that includes the right to be paid by us the expenses incurred in defending or otherwise participating in any
proceeding referenced above in advance of its final disposition, provided, however, that if the DGCL requires, an advancement
of expenses incurred by our officer or director (solely in the capacity as an officer or director of our corporation) will be
made only upon delivery to us of an undertaking, by or on behalf of such officer or director, to repay all amounts so advanced
if it is ultimately determined that such person is not entitled to be indemnified for such expenses under our third amended and
restated certificate of incorporation, as amended, or otherwise.
The
rights to indemnification and advancement of expenses will not be deemed exclusive of any other rights which any person covered
by our third amended and restated certificate of incorporation, as amended, may have or hereafter acquire under law, our third
amended and restated certificate of incorporation, as amended, our bylaws, an agreement, vote of stockholders or disinterested
directors, or otherwise.
Any
repeal or amendment of provisions of our third amended and restated certificate of incorporation, as amended, affecting indemnification
rights, whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will
(unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide
broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection
existing at the time of such repeal or amendment or adoption of such inconsistent provision with respect to any act or omission
occurring prior to such repeal or amendment or adoption of such inconsistent provision. Our third amended and restated certificate
of incorporation, as amended, will also permit us, to the extent and in the manner authorized or permitted by law, to indemnify
and to advance expenses to persons other that those specifically covered by our third amended and restated certificate of incorporation,
as amended.
Our
bylaws, include the provisions relating to advancement of expenses and indemnification rights consistent with those which will
be set forth in our third amended and restated certificate of incorporation, as amended. In addition, our bylaws provide for a
right of indemnity to bring a suit in the event a claim for indemnification or advancement of expenses is not paid in full by
us within a specified period of time. Our bylaws also permit us to purchase and maintain insurance, at our expense, to protect
us and/or any director, officer, employee or agent of our corporation or another entity, trust or other enterprise against any
expense, liability or loss, whether or not we would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
Any
repeal or amendment of provisions of our bylaws affecting indemnification rights, whether by our board of directors, stockholders
or by changes in applicable law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required
by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification
rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing thereunder
with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
The
registrant also intends to enter into indemnification agreements with its future directors and executive officers. The registrant
has purchased directors’ and officers’ liability insurance. The registrant believes that this insurance is necessary
to attract and retain qualified directors and officers.
Item
15.
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Recent
Sales of Unregistered Securities.
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The
following is a summary of transactions by us since our inception on April 17, 2018 involving sales of our securities that were
not registered under the Securities Act.
On
May 31, 2017, we issued 1,437,500 Founder Shares to Sponsor in exchange for a capital contribution of $25,000. Upon the partial
exercise of the underwriters’ over-allotment option on September 13, 2017, 137,500 Founder Shares were forfeited by the
Sponsor, for a balance of 1,300,000 Founder Shares held by our Sponsor. Such securities were issued in connection with our organization
pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Our sponsor is an accredited investor
for purposes of Rule 501 of Regulation D. No underwriting discounts or commissions were paid with respect to such sales.
On
August 22, 2017, simultaneously with the consummation of the IPO and the sale of the Public Units, we consummated the private
placement of 254,500 Private Placement Units at a price of $10.00 per unit, generating total gross proceeds of $2,545,000. Each
unit consisted of (i) one share of Common Stock, (ii) one right receive one-tenth (1/10) of one share of Common Stock upon the
consummation of an initial business combination, and (iii) one 5-year warrant to purchase one share of Common Stock at an exercise
price of $11.50 per share. The Private Placement Units, which were purchased by the Sponsor, are identical to the Public Units,
except the Private Placement Warrants underlying the Private Placement Units will be non-redeemable and exercisable on a cashless
basis so long as they are held by the Sponsor or its affiliates or designees. If the Private Placement Units are held by someone
other than the initial holder, or its permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable
by such holders on the same basis as the Public Warrants. The issuance of the Private Placement Units was made pursuant to the
exemption from registration contained in Section 4(a)(2) of the Securities Act.
On
August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Such shares of Common Stock were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities
Act.
On
September 13, 2017, simultaneously with the underwriter’s partial exercise of the over-allotment option, we consummated
the sale of an additional 7,000 Private Placement Units, generating gross proceeds of $70,000. The issuance of additional Private
Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On
September 13, 2018, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
On
November 20, 2018, we issued 2,000,000 shares of our Common Stock to AHA Holdings Private Limited as an upfront portion of the
Transferred Company Shares to be exchange for Additional Smaaash Shares within 6 months after the closing of the Business Combination.
These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
On
November 20, 2018, we issued 208,000 shares of Common Stock to Chardan in consideration of services rendered. These shares were
issued in reliance on Section 4(a)(2) of the Securities Act. The shares issued to Chardan are subject to the same lock-up and
will have the same registration rights as the shares of the Company held by the Sponsor.
On
November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of Common
Stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
In
connection with the closing of the Acquisition of Simplicity Esports LLC, we issued 300,000, 700,000, and 2,000,000 shares of
Common Stock, respectively, to the Simplicity Owners on January 4, 2019, January 7, 2019, and March 27, 2019 in exchange
for all of the issued and outstanding equity interest of Simplicity Esports LLC held by Simplicity Owners.
On
January 4, 2019, upon the closing of the Acquisition of Simplicity Esports LLC, the Series A-1 Note automatically converted into
193,648 shares of Common Stock.
In
2019, we sold an aggregate of 987,500 units at a purchase price of $2.00 per unit to 12 accredited investors in exchange
for receipt of $1,975,000. Each unit consists of (i) one share of Common Stock, and (ii) a 5-year warrant to purchase one
share of Common Stock at a purchase price of $4.00. We sold the Units in reliance on the exemption from registration afforded
by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial
Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.
Such
shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors,
36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of
such shares have vested.
On
March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly
owned subsidiary of our company, 24,000 shares of our restricted Common Stock.
Such shares
vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each
of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan,
Franklin and Grossman on December 31, 2018. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
On
May 31, 2019, we issued 100,000 shares of Common Stock to Polar in exchange for Polar Asset Management Partners Inc.’s
(“Polar”) forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated
as of November 2, 2018, between Polar and us. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
Item
16.
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Exhibits
and Financial Statement Schedules
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(a)
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Exhibits.
The
list of exhibits preceding the signature page of this registration statement is incorporated herein by reference.
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(b)
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Financial
Statements.
See page F-1 for an index to the financial statements and schedules included in the registration statement.
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The
undersigned registrant hereby undertakes:
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(1)
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To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
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(ii)
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To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration
statement; and
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(iii)
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To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
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(2)
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That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial
bona fide
offering thereof.
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(3)
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To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
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(4)
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That,
for purposes of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness.
Provided, however
, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such
date of first use.
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Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant 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 registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The
undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each
purchaser.
EXHIBIT
INDEX
Exhibit
No.
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Exhibit
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2.1
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Share
Subscription Agreement, dated May 3, 2018, by and among the Company, Smaaash Private, and the Smaaash Founders, incorporated
by reference to Annex A to the Company’s Definitive Proxy Statement filed with the SEC on September 19, 2018.
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2.2
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Amendment
Cum Addendum to the Share Subscription Agreement Dated May 03, 2018, incorporated by reference to Annex A to the Company’s
Definitive Proxy Statement filed with the SEC on September 19, 2018.
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2.3
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Second
Amendment Cum Addendum to the Share Subscription Agreement Dated May 03, 2018, incorporated by reference to Annex A to the
Company’s Definitive Proxy Statement filed with the SEC on September 19, 2018.
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2.4
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Third
Amendment Cum Addendum to the Share Subscription Agreement Dated May 03, 2018, incorporated by reference to Annex A to the
Company’s Proxy Statement Supplement, which was filed with the SEC on November 5, 2018
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2.5
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Fourth
Amendment Cum Addendum to the Share Subscription Agreement Dated May 03, 2018, dated as of November 15, 2018(1)
|
3.1
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Third
Amended and Restated Certificate of Incorporation(1)
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3.2
|
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Certificate
of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary
of State on January 2, 2019(10)
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3.3
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Bylaws
(2)
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4.1
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Specimen
Common Stock Certificate (4)
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4.2
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Specimen
Warrant Certificate (4)
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4.3
|
|
Warrant
Agreement, dated August 16, 2017, by and between Continental Stock Transfer & Trust Company and the Company (3)
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5.1
|
|
Opinion
of Anthony L.G., PLLC*
|
10.1
|
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Master
Franchise Agreement, dated November 20, 2018, by and between the Company and Smaaash Private(1)
|
10.2
|
|
Master
License and Distribution Agreement, dated November 20, 2018, by and between the Company and Smaaash Private(1)
|
10.3
|
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Settlement
and Release Agreement, dated November 20, 2018, by and between the Company and Maxim Group LLC(1)
|
10.4
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Demand
Secured Promissory Note, dated November 20, 2018, issued to Maxim Group LLC(1)
|
10.5
|
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Escrow
Agreement, dated November 20, 2018, by and among the Company, Ellenoff Grossman and Schole LLP and Shripal Morakhia(1)
|
10.6
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Smaaash
Entertainment Inc. 2018 Equity Incentive Plan, incorporated by reference to Annex F to the Company’s Proxy Statement
filed with the SEC on September 19, 2018 †
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10.7
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Side
Letter, dated November 16, 2018, by and between the Company and Chardan Capital Markets, LLC (1)
|
10.8
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Letter
of Undertaking, dated November 16, 2018, by Smaaash Private and Smaaash Founders(1)
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10.9
|
|
Addendum
to Master Franchise Agreement, dated November 29, 2018, by and between the Company and Smaaash Private(1)
|
10.10
|
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Promissory
Note, dated May 31, 2017, issued to I-AM Capital Partners LLC, our sponsor (2)
|
10.11
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Letter
Agreement, dated August 16, 2017, by and between the Company, the Sponsor and the officers and directors of the Company (3)
|
10.12
|
|
Registration
Rights Agreement, dated August 16, 2017, by and among the Company and our sponsor (3)
|
10.13
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Securities
Subscription Agreement, dated May 31, 2017, among the Registrant and our sponsor (5)
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10.14
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Amended
and Restated Unit Purchase Agreement, dated August 11, 2017, between the Registrant and our sponsor (6)
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10.15
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Form
of Indemnity Agreement (3)
|
10.16
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|
Administrative
Services Agreement, dated August 16, 2017, by and between the Company and our sponsor (3)
|
10.17
|
|
Shareholders’
Agreement, dated May 3, 2018, by and among the Company, FW Metis Limited, Mitesh R. Gowani, the Smaaash Founders, and Smaaash
Private, incorporated by reference to Annex D to the Company’s Definitive Proxy Statement filed with the SEC on September
19, 2018.
|
10.18
|
|
Stock
Purchase Agreement, dated as of November 2, 2018, by and between the Company and Polar Asset Management Partners Inc. (7)
|
10.19
|
|
Stock
Purchase Agreement, dated as of November 5, 2018, by and between the Company and K2 Principal Fund L.P. (7)
|
10.20
|
|
Amendment,
dated December 20, 2018, by and among the Company, Polar Asset Management Partners Inc., and The K2 Principal Fund L.P. (8)
|
10.21
|
|
Share
Exchange Agreement, dated December 21, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports, LLC, Jed Kaplan
and each of the equity holders of Simplicity Esports, LLC (9)
|
10.22
|
|
Amendment
No. 1 to Share Exchange Agreement, dated December 28, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports, LLC,
Jed Kaplan and each of the equity holders of Simplicity Esports, LLC (9)
|
10.23
|
|
Securities
Exchange Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (9)
|
10.24
|
|
Series
A-1 Exchange Convertible Note (9)
|
10.25
|
|
Series
A-2 Exchange Convertible Note (9)
|
10.26
|
|
Registration
Rights Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (9)
|
10.27
|
|
Lock-Up
Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC (9)
|
10.28
|
|
Amendment
No. 2 to Share Exchange Agreement, dated December 30, 2018, by and among the Company, Simplicity Esports, LLC, and Jed Kaplan(10)
|
10.29
|
|
Voting
Agreement, Dated December 31, 2018, between the Company and the stockholders of the Company party thereto(10)
|
10.30
|
|
Employment
Agreement, dated December 31, 2018, between the Company and Jed Kaplan(10) †
|
10.32
|
|
Employment
Agreement, dated December 31, 2018, between the Company and Roman Franklin(10) †
|
10.33
|
|
Employment
Agreement, dated December 31, 2018, between the Company and Steven Grossman(10) †
|
10.34
|
|
Restricted
Stock Award Agreement dated March 27, 2019 between the registrant and Jed Kaplan(11) †
|
10.35
|
|
Restricted
Stock Award Agreement dated March 27, 2019 between the registrant and Roman Franklin(11) †
|
10.36
|
|
Restricted
Stock Award Agreement dated March 27, 2019 between the registrant and Steve Grossman(11) †
|
14.1
|
|
Code
of Ethics (3)
|
21.1
|
|
List of Subsidiaries*
|
23.1
|
|
Consent
of Prager Metis CPAs, LLC*
|
23.2
|
|
Consent
of Anthony L.G., PLLC (included on Exhibit 5.1)*
|
24.1
|
|
Power
of Attorney (contained on signature page to the registration statement)*
|
*
Filed herewith
†
Includes management contracts and compensation plans and arrangements
(1)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on November 30, 2018
|
(2)
|
Incorporated
by reference to exhibits to the Company’s Registration Statement on Form S-1 filed on July 12, 2017
|
(3)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on August 22, 2017.
|
(4)
|
Incorporated
by reference to exhibits to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on July 31, 2017
|
(5)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on May 9, 2018
|
(6)
|
Incorporated
by reference to exhibits to Amendment No. 2 to the Company’s Registration Statement
on Form
S-1
filed on August 14, 2017
|
(7)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on November 7, 2018
|
(8)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on December 26, 2018
|
(9)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on December 28, 2018
|
(10)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on January 7, 2019.
|
(11)
|
Incorporated
by reference to exhibits to the Company’s Current Report on Form 8-K filed on April 2, 2019.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, New
York, on July 12, 2019.
|
SIMPLICITY
ESPORTS AND GAMING COMPANY
|
|
|
|
|
By:
|
/s/
Jed Kaplan
|
|
|
Jed
Kaplan
|
|
|
Chief
Executive Officer and interim Chief Financial Officer
(principal
executive officer and principal financial officer)
|
SIGNATURES
AND POWER OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Jed Kaplan his true
and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments including post-effective amendments to this registration statement and to file
the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact or his substitute may lawfully do or cause to be done by virtue
thereof.
Pursuant
to the requirements of the Securities Act, this Amendment No. 1 to Registration Statement has been signed by the following persons
in the capacities held on July 12, 2019.
Name
|
|
Position
|
|
Date
|
|
|
|
|
|
/s/ Jed Kaplan
|
|
Chief Executive Officer, interim
|
|
July 12, 2019
|
Jed Kaplan
|
|
Chief Financial Officer, and Director (Principal Executive
Officer and Principal Financial and Accounting Officer)
|
|
|
/s/
Donald R. Caldwell
|
|
Chairman
|
|
July
12, 2019
|
Donald R. Caldwell
|
|
|
|
|
|
|
|
|
|
/s/
F. Jacob Cherian
|
|
Director
|
|
July 12, 2019
|
F. Jacob Cherian
|
|
|
|
|
|
|
|
|
|
/s/
Suhel Kanuga
|
|
Director
|
|
July 12, 2019
|
Suhel Kanuga
|
|
|
|
|
|
|
|
|
|
/s/
Roman Franklin
|
|
Director
|
|
July 12, 2019
|
Roman Franklin
|
|
|
|
|
|
|
|
|
|
/s/
Max Hooper
|
|
Director
|
|
July 12, 2019
|
Max Hooper
|
|
|
|
|
|
|
|
|
|
/s/
Frank Leavy
|
|
Director
|
|
July 12, 2019
|
Frank Leavy
|
|
|
|
|
|
|
|
|
|
/s/
Edward Leonard Jaroski
|
|
Director
|
|
July 12, 2019
|
Edward Leonard Jaroski
|
|
|
|
|
|
|
|
|
|
/s/
William H. Herrmann
|
|
Director
|
|
July 12, 2019
|
William H. Herrmann
|
|
|
|
|
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