Notes
to the Unaudited Consolidated Financial Statements
June
30, 2022 and 2021
NOTE
1 - ORGANIZATION AND OPERATIONS
Clubhouse
Media Group, Inc. (formerly known as Tongji Healthcare Group, Inc. or the “Company”) was incorporated under the laws of the
State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji, Inc., a wholly
owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH
was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”)
by Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH
is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes in the areas of internal
medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology, otolaryngology,
traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination, and prevention.
On
December 27, 2006, Tongji, Inc. acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH
became a wholly owned subsidiary of Tongji, Inc. Pursuant to the Agreement and Plan of Merger, the Company issued 15,652,557 shares of
common stock to the stockholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. The acquisition
of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of NTH obtained control
of the entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated
as the continuing operating entity. The Company, through NTH, thereafter operated the hospital until the Company eventually sold NTH,
as described below.
Effective
December 31, 2017, under the terms of a Bill of Sale, the Company agreed to sell, transfer convey and assign forever all of its rights,
title and interest in its equity ownership interest in NTH to Placer Petroleum Co., LLC. Pursuant to the Bill of Sale, consideration
for this sale, transfer conveyance and assignment is Placer Petroleum Co., LLC assuming all assets and liabilities of NTH as of December
31, 2017. Thereafter, the Company had minimal operations.
On
May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered an Order Granting Application
of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to Nevada Revised Statutes (“NRS”) 78.347(1)(b),
pursuant to which Mr. Arcaro was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada
under NRS 78.347.
On
May 23, 2019, Mr. Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition,
on May 23, 2019, Mr. Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself
as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On
May 29, 2020, Mr. Arcaro, through his ownership of Algonquin Partners Inc. (“Algonquin”), owner 65% of the Company’s
common stock, entered into a Stock Purchase Agreement by and among West of Hudson Group, Inc. (“WOHG”), the Company, Algonquin,
and Mr. Arcaro. The Stock Purchase Agreement, as subsequently amended, is referred to herein as the “SPA.” Pursuant to the
terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the Company’s common stock in exchange
for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). The Stock Purchase closed on June 18, 2020, resulting
in a change of control of the Company. Mr. Arcaro resigned from any and all officer and director positions with the Company.
On
July 7, 2020, the Company increased the authorized capital stock of the Company to 550,000,000,
comprised of 500,000,000
shares of common stock, par value $0.001 per share,
and 50,000,000
shares of preferred stock, par value $0.001 per share.
The
Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada on June
13, 2022 for the purpose of amending the Articles of Incorporation of the Company to reduce the par value of the common stock of the
Company from $0.001
per share to $0.000001
per share.
West
of Hudson Group, Inc. (“WOHG”) was incorporated in the State of Delaware on May 19, 2020 and owned 100% of WOH Brands, LLC
(“WOH”), Oopsie Daisy Swimwear, LLC (“Oopsie”), and DAK Brands, LLC (“DAK”), which were incorporated
in the State of Delaware on May 13, 2020.
Doiyen
LLC (“Doiyen”), formerly known as WHP Entertainment LLC was incorporated in the State of California on January 2, 2020 and
renamed to Doiyen LLC in July 7, 2020 and Doiyen is 100% owned by WOHG.
The
Company is an entertainment company engaged in the sale of own brand products, e-commerce platform advertising, and promotion for other
companies on their social media accounts.
On
November 12, 2020, the Company and WOHG entered into the Merger Agreement, and WOHG thereafter became a wholly owned subsidiary of the
Company. WOHG was determined to be the accounting acquirer in the Merger based upon the terms of other factors, including: (1) the security
holders owned approximately 50.54% of the Company’s issued and outstanding common stock as of immediately after the closing of
the Merger. Following the completion of the Merger, the Company changed its name from Tongji Healthcare Group, Inc. to Clubhouse Media
Group, Inc. The Merger was accounted for as a reverse-merger and recapitalization in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). WOHG was the acquirer for financial reporting purposes and Clubhouse Media
Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical
financial statements prior to the Merger will be those of WOHG and will be recorded at the historical cost basis of WOHG. The consolidated
financial statements after completion of the Merger include the assets and liabilities of the Company and WOHG, historical operations
of WOHG and operations of the Company from the closing date of the Merger. Common stock and the corresponding capital amounts of the
Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. This was a common
control transactions so all amounts were based on historical cost and no goodwill was recorded.
Since
September 2021, the Company launched its own subscription-based site HoneyDrip.com, which provides a digital space for creators to share
unique content with their subscribers.
The
Company has terminated all leases since December 31, 2021 and focuses on brand deals, Honeydrip platform, and Magiclytics software.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position
for the periods presented.
The
unaudited consolidated balance sheet as of June 30, 2022 was derived from the Company’s audited consolidated financial
statements at that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the
audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in the
Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (the “SEC”)
on March 29, 2022. Interim results for the three and six months ended June 30, 2022 are not necessarily
indicative of the results that may be expected for the fiscal year ending December 31, 2022.
Principles
of Consolidation
The
unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Use
of Estimates
In
preparing the consolidated financial statements in conformity with GAAP, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated
financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and
assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful life of fixed
assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in assessing impairment
of long-lived assets. Actual results could differ from those estimates.
Reverse
Merger Accounting
The
Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. WOHG was the acquirer for financial reporting purposes and Clubhouse Media Group, Inc.
was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial
statements prior to the Merger will be those of WOHG and will be recorded at the historical cost basis of WOHG since its inception on
January 2, 2020. The consolidated financial statements after completion of the Merger include the assets and liabilities of the Company
and WOHG, historical operations of WOHG since its inception on January 2, 2020 to the closing date of the merger, and operations of the
Company from the closing date of the Merger. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively
restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction with the Merger, WOHG received no cash and
assumed no liabilities from Clubhouse Media Group, Inc. All members of the Company’s executive management are from WOHG.
Business
Combination
The
Company applies the provisions of the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification
(“ASC”) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from
goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is
measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities
assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to
the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period
or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the consolidated statements of operations.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are
on deposit with financial institutions without any restrictions. The Company maintains its cash with high credit quality financial institutions;
at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured
limits.
Advertising
Advertising
costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying unaudited
consolidated statements of operations. We incurred advertising expenses of $0
and $21,907 for
the three months ended June 30, 2022 and June 30, 2021, respectively. We incurred advertising expenses of $21,329
and $42,452 for
the six months ended June 30, 2022 and June 30, 2021, respectively.
Accounts
Receivable
The
Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects of a
significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale.
The Company does not expect to collect receivables greater than one year from the time of sale.
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be uncollectible are charged
or written-off against the reserve. As of June 30, 2022 and December 31, 2021, there were $0 and $0, respectively, for bad debt allowance for accounts
receivable.
Property
and equipment, net
Plant
and equipment are stated at cost less accumulated depreciation and impairment. Depreciation of property, plant and equipment and are
calculated on the straight-line method over their estimated useful lives or lease terms generally as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT, NET ESTIMATED USEFUL LIVES
| Classification |
|
Useful
Life |
| Equipment |
|
3
years |
Lease
On
January 2, 2020, the Company adopted ASC Topic 842, Leases (“ASC 842”), using the modified retrospective transition method with
a cumulative effect adjustment to accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for
leases as stated below. As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of
adopting ASC 842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and
liabilities for operating leases with terms longer than 12 months. The Company elected to use the short-term exception and does not
record assets/liabilities for short-term leases as of June 30, 2022 and December 31, 2021.
The
Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an
arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with
terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease
term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized
incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term
when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual
lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized
on a straight-line basis over the lease term.
Leased
right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived
assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment
of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present,
the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income,
and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue
Recognition
In
May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606),
which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires
a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the
company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that
have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with
ASU 2014-09 (collectively, the “New Revenue Standards”).
Under
the New Revenue Standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount
that reflects the consideration which it expects to receive in exchange for those goods.
The
Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer;
(ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price
to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company
recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
Managed
Services Revenue
The
Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide
custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The
Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service,
which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services
to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and
does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content
requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a
cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services
are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness
of the customer and payment and transaction history.
For
Managed Services revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations
in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs,
tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing
in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos.
Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding
the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination
of all types of these performance obligations on a statement of work for a lump sum fee. Revenue is accounted for when the performance
obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing
services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits
from the services.
Based
on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation
to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to
any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement
of work. The contract liabilities as of June 30, 2022 and December 31, 2021 were $195,563 and $337,500, respectively.
Subscription-Based
Revenue
The
Company recognizes subscription-based revenue through Honeydrip.com, its social media website, which allows customers to visit the
creator’s personal page over the contract period without taking possession of the products or deliverables. Customers incur
costs on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the
contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the
content. Previously, the Company reported the subscription-based revenue on a net basis since the Company is acting as an agent
solely arranging for the third-party creator or influencer to provide the services directly to the self-service customer through the
platform or by posting the requested content. In April 2022, the Company determined it would recognize subscription-based revenue on
a gross basis because the Company has control of the services before they are transferred to the end customer. The Company provided
services such as online chat and other services directly with the end customers by the Company’s internal team. Also, the
Company establishes the price on behalf of the content creators pursuant to the terms of the relevant agreements between the
Company and the respective content creators. In addition, the Company has sole power to change the price based on the market. These
are good indicators that the Company controls the specified goods or services before they are transferred to the
customer.
Software
Development Costs
We
apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain system projects. These system
projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review
of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred
during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the
projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project
basis over the expected economic life of the underlying product on a straight-line basis, which is five years. Amortization commences
when the software is available for its intended use. Amounts capitalized related to development of internal use software are included
in property and equipment, net, on our consolidated balance sheets and related depreciation is recorded as a component of amortization
of intangible assets and depreciation in our consolidated statements of operations. During the six months ended June 30, 2022 and 2021,
we capitalized approximately $198,182 and $111,867, respectively, related to internal use software and recorded $23,000 and
$0 in related amortization expense, respectively. Unamortized costs of capitalized internal use software totaled $633,215 and
$458,033 as of June 30, 2022 and December 31, 2021, respectively.
Goodwill
Impairment
We
test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount
of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss
on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will
be retained.
For
other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s
estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total
related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows
and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values. The Company impaired
$0 and $0 of goodwill for the six months ended June 30, 2022 and 2021, respectively.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value
of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if
readily determinable. Based on its review, the Company believes that, as of and for the six months ended June 30, 2022 and December
31, 2021, there was no
impairment loss of its long-lived assets.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in
the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company
establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The
Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its
technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities.
Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold
are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies
potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations
and comprehensive income (loss) as income tax expense.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the
financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events
occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in
such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits
of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the
contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on
the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not
materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of accounts receivable. The Company does not require
collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment
practices of its customers to minimize collection risk on accounts receivable.
Basic
Income (Loss) Per Share
Under
the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to
common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss
per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution
limitations. Potential common shares consist of the convertible promissory notes payable as of June 30, 2022 and December 31, 2021. As
of June 30, 2022 and December 31, 2021, there were approximately 793,966,058 and 8,936,529 potential shares issuable upon conversion
of convertible notes payable As of June 30, 2022 and December 31, 2021, there were approximately 165,077 and 165,077, respectively, potential shares
issuable upon conversion of warrants.
The
table below presents the computation of basic and diluted loss per share for the three months ended June, 2022 and 2021:
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNING PER SHARE
| | |
| | | |
| | |
| | |
For
the Three Months Ended
June
30, 2022 | | |
For
the Three Months Ended
June
30, 2021 | |
| Numerator: | |
| | | |
| | |
| Net loss | |
$ | (4,926,112 | ) | |
$ | (7,310,343 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average common shares outstanding—basic | |
| 171,582,787 | | |
| 94,518,186 | |
| Dilutive common stock equivalents | |
| - | | |
| - | |
| Weighted average common shares outstanding—diluted | |
| 171,582,787 | | |
| 94,518,186 | |
| Net loss per share: | |
| | | |
| | |
| Basic | |
$ | (0.03 | ) | |
$ | (0.08 | ) |
| Diluted | |
$ | (0.03 | ) | |
$ | (0.08 | ) |
The
table below presents the computation of basic and diluted loss per share for the six months ended June, 2022 and 2021:
| | |
| | | |
| | |
| | |
For
the Six Months Ended
June
30, 2022 | | |
For
the Six Months Ended
June
30, 2021 | |
| Numerator: | |
| | |
| |
| Net loss | |
$ | (8,424,264 | ) | |
$ | (13,108,921 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average common shares outstanding—basic | |
| 140,059,057 | | |
| 93,330,191 | |
| Dilutive common stock equivalents | |
| - | | |
| - | |
| Weighted average common shares outstanding—diluted | |
| 140,059,057 | | |
| 93,330,191 | |
| Net loss per share: | |
| | | |
| | |
| Basic | |
$ | (0.06 | ) | |
$ | (0.14 | ) |
| Diluted | |
$ | (0.06 | ) | |
$ | (0.14 | ) |
Stock-based Compensation
Stock-based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and
will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award) under ASC
718. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily determinable.
Fair
Value of Financial Instruments
FASB
ASC 820, Fair Value Measurement, defines fair value as the price that would be received upon sale of an asset or paid upon transfer
of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market
for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the
asset or liability, not on assumptions specific to the entity.
Fair
Value Measurements
The
Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.
The three levels of valuation hierarchy are defined as follows:
| |
● |
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| |
● |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| |
● |
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Cash,
accounts receivable, accounts payable, and accrued expenses and deferred revenue – The carrying amounts reported in the consolidated
balance sheets for these items are a reasonable estimate of fair value due to their short-term nature.
Convertible
notes payable – Convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their
fair value.
The
Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using
the binomial option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair
value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair
value of derivatives.
The
following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of June
30, 2022 and December 31, 2021.
SCHEDULE OF ASSETS AND LIABILITIES UNDER FAIR VALUE HIERARCHY
| | |
Fair Value | | |
Fair Value Measurements at | |
| | |
As of | | |
June 30, 2022 | |
| Description | |
June
30, 2022 | | |
Using
Fair Value Hierarchy | |
| | |
| | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| Derivative
liability | |
$ | 4,793,892 | | |
$ | - | | |
$ | - | | |
$ | 4,793,892 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 4,793,892 | | |
$ | - | | |
$ | - | | |
$ | 4,793,892 | |
| | |
Fair Value | | |
Fair Value Measurements at | |
| | |
As of | | |
December 31, 2021 | |
| Description | |
December
31, 2021 | | |
Using
Fair Value Hierarchy |
| | |
| | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| Derivative
liability | |
$ | 513,959 | | |
$ | - | | |
$ | - | | |
$ | 513,959 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 513,959 | | |
$ | - | | |
$ | - | | |
$ | 513,959 | |
Derivative
instruments
The
fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability
are recorded in the consolidated statement of operations under other (income) expense.
Our
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives under ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the
consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model
to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the balance sheet date.
Beneficial
Conversion Features
If
a conversion feature did not meet the definition of derivative liability under ASC 815, the Company evaluates the conversion feature
for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note. If the
effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note,
the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method.
Related
Parties
The
Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions.
Pursuant to Section ASC 850-10-20, related parties include:
a.
affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of
the fair value option under the fair value option subsection of Section 825– 10–15, to be accounted for by the equity
method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed
by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with
which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other
parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the
transacting parties might be prevented from fully pursuing its own separate interests.
New
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology
that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within
those fiscal years. We do not expect the adoption of this guidance have a material impact on its consolidated financial statements.
On
October 1, 2020, we early adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12),
which simplifies the accounting for income taxes. This guidance was effective beginning January 1, 2021, with early adoption permitted.
The adoption of this new standard did not have a material impact on our consolidated financial statements.
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available
for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for
convertible instruments and requires the use of the if-converted method. This guidance was effective for us in the first quarter
of 2022 on a full or modified retrospective basis, with early adoption permitted. The adoption of this new standard did not have a material
impact on our consolidated financial statements.
NOTE
3 – GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going
concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of
business.
As
reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $8,424,264
for the six months ended June 30, 2022, negative working capital of $13,376,217
as of June 30, 2022, and stockholders’ deficit of $14,011,381.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
While
the Company is attempting to generate additional revenues, the Company’s cash position may not be sufficient to support
the Company’s daily operations. Management expects to raise additional funds by way of a public or private offering. Management
believes that the actions presently being taken to further implement the Company’s business plan and generate revenues provide the opportunity
for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and
in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
4 – BUSINESS COMBINATIONS
Acquisition
of Magiclytics
On
February 3, 2021, the Company entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange Agreement”)
by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”),
each of the shareholders of Magiclytics (the “Magiclytics Shareholders”) and Christian Young, as the representative of the
Magiclytics Shareholders (the “Shareholders’ Representative”). Christian Young is the President, Secretary, and a Director
of the Company, and is also an officer, director, and significant shareholder of Magiclytics.
The
A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties,
which was executed on December 3, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.
On
February 3, 2021 (the “Magiclytics Closing Date”), the parties closed on the transactions contemplated in the A&R Share
Exchange Agreement, and the Company agreed to issue 734,689 shares of Company common stock to the Magiclytics Shareholders in exchange
for all 5,000 Magiclytics Shares (the “Magiclytics Closing”). On February 3, 2021, pursuant to the closing of the Share Exchange
Agreement, we acquired Magiclytics, and Magiclytics thereafter became our wholly owned subsidiary.
At
the Magiclytics Closing, we agreed to issue to Christian Young and Wilfred Man each 330,610 shares of Company Common Stock, representing
45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing.
The
number of shares of the Company common stock issued at the Magiclytics Closing was based on the fair market value of the Company common
stock as initially agreed to by the parties, which is $4.76 per share (the “Base Value”). The fair market value was determined
based on the volume weighted average closing price of the Company common stock for the twenty (20) trading day period immediately prior
to the Magiclytics,. In the event that the initial public offering price per share of the Company common stock in this Offering pursuant
to Regulation A is less than the Base Value, then within three (3) business days of the qualification by the SEC of the Offering Statement
forming part of this offering circular, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company
common stock equal to:
| |
(1) |
$3,500,000
divided by the initial public offering price per share of the Company common stock in this Offering pursuant to Regulation A, minus; |
| |
(2) |
734,689 |
The
resulting number of shares of the Company common stock pursuant to the above calculation will be referred to as the “Additional
Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective ownership
of Magiclytics Shares. The Company issued additional 140,311 shares in November 2021 based on the offering price of $4 in the Regulation
A offering.
| |
(iv) |
Upon
the first to occur of (i) Magiclytics actually receiving an additional $500,000 in gross revenue following the Tranche 3 Satisfaction
Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 3
Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided
by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 4 Satisfaction
Date”). |
Following
the Tranche 4 Satisfaction Date, at the end of each 12 month period following such date while the Consulting Agreement is still in effect,
the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) 4.5% of the Net Income (as defined below)
of Magiclytics during such 12 month period divided by (ii) the VWAP as of the last date of such 12 month period. (For purposes of the
Consulting Agreement, “Net Income” means the net income of Magiclytics for the applicable period, as determined in accordance
with generally accepted accounting principles in the United States, consistently applied, as determined by the Company’s accountants).
Immediately
prior to closing of the Agreement, Chris Young, President and a Director of the Company, was the Chief Executive Officer, a
Director, and a principal shareholder of 45% of outstanding capital stock of Magiclytics. As a
result of the common ownership upon closing of the transaction, the acquisition was considered a common-control transaction and was
outside the scope of the business combination guidance in ASC 805-10. The entities are deemed to be under common control as of
February 27, 2018, which was the date that the majority shareholder acquired control of the Company and, therefore, held control
over both companies. The Company recorded the consideration issued to purchase Magiclytics based on the carrying value of the net
assets received and $97,761
related party payables assumed per the acquisition agreement as of February 3, 2021 of $(60,697).
The financial statements as of December 31, 2021 were adjusted as if the acquisition happened at the beginning of the year as of
January 1, 2021.
Acquisition
Consideration
The
following table summarizes the carrying value of purchase price consideration to acquire Magiclytics:
SCHEDULE OF PURCHASE PRICE CONSIDERATION
| Description | |
Amount | |
| Carrying value of purchase consideration: | |
| | |
| Common
stock issued | |
$ | (60,697 | ) |
| Total purchase price | |
$ | (60,697 | ) |
Purchase
Price Allocation
The
following is an allocation of purchase price as of the February 3, 2021 acquisition closing date based upon an estimate of the carrying
value of the assets acquired and the liabilities assumed by the Company in the acquisition:
SCHEDULE OF CARRYING VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| Description | |
Amount | |
| Purchase price allocation: | |
| | |
| Cash | |
$ | 76 | |
| Intangibles | |
| 77,889 | |
| Related party payable | |
| (97,761 | ) |
| Accounts payable
and accrued liabilities | |
| (40,901 | ) |
| Identifiable net assets
acquired | |
| (60,697 | ) |
| Total purchase price | |
$ | (60,697 | ) |
NOTE
5 – PROPERTY AND EQUIPMENT
Fixed
assets, net consisted of the following:
SCHEDULE OF FIXED ASSETS, NET
| | |
June
30, 2022 | | |
December
31, 2021 | | |
Estimated
Useful
Life |
| | |
| | |
| | |
|
| Equipment | |
$ | 118,638 | | |
$ | 113,638 | | |
3 years |
| Less: accumulated depreciation
and amortization | |
| (63,292 | ) | |
| (45,987 | ) | |
|
| Property, plant, and
equipment, net | |
$ | 55,346 | | |
$ | 67,651 | | |
|
Depreciation
expense was $8,792 and $7,080 for the three months ended June 30, 2022 and June 30, 2021, respectively. Depreciation expense was $17,305 and $14,014
for the six months ended June 30, 2022 and June 30, 2021, respectively.
NOTE
6 – INTANGIBLES
As
of June 30, 2022 and December 31, 2021, the Company had intangible assets of $633,215 and
$458,033, respectively, from
and after the acquisition of Magiclytics in February 2021. Magiclytics is a platform that internally developed for revenue prediction from
influencer collaboration and our digital platform Honeydrip.com is a digital space for creators to share unique content with their subscribers.
The
following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases,
which continue to be amortized:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS ACQUIRED AS PART OF BUSINESS COMBINATION
| | |
Weighted
Average | | |
June
30, 2022 | |
| | |
December
31, 2021 | |
| | |
Useful
Life
(in
Years) | | |
Gross
Carrying
Amount | | |
Accumulated
Amortization | | |
Net
Carrying
Amount | | |
Gross
Carrying
Value | | |
Accumulated
Amortization | | |
Net
Carrying
Amount | |
| Developed technology - Honeydrip | |
| 5 | | |
$ | 380,181 | | |
$ | 33,791 | | |
$ | 346,390 | | |
$ | 184,058 | | |
$ | 10,791 | | |
$ | 173,267 | |
| Developed technology -
Magiclytics | |
| - | | |
| 286,825 | | |
| - | | |
| 286,825 | | |
| 284,766 | | |
| - | | |
| 284,766 | |
| | |
| | | |
$ | 667,006 | | |
$ | 33,791 | | |
$ | 633,215 | | |
$ | 468,824 | | |
$ | 10,971 | | |
$ | 458,033 | |
Amortization
expense was $13,786 and $0 for the three months ended June 30, 2022 and June 30, 2021, respectively. Amortization expense was $23,000
and $0 for the six months ended June 30, 2022 and June 30, 2021, respectively.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued
liabilities at June 30, 2022 and December 31, 2021 consist of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | |
2022 | | |
2021 | |
| Accounts payable | |
$ | 187,968 | | |
$ | 429,160 | |
| Accrued payroll | |
| 815,000 | | |
| 520,000 | |
| Accrued interest | |
| 888,660 | | |
| 550,285 | |
| Other | |
| 121,521 | | |
| 121,216 | |
| Accounts payable and
accrued liabilities | |
$ | 2,013,149 | | |
$ | 1,620,661 | |
NOTE
8 – CONVERTIBLE NOTES PAYABLE
Convertible
Promissory Note – Scott Hoey
On
September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey
Note”).
The
Hoey Note had a maturity date of September 10, 2022 and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Hoey Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price (“VWAP”) during the 20-trading day period immediately prior
to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On
December 8, 2020, the Company issued to Mr. Hoey 10,833 shares of Company common stock upon the conversion of the $7,500 convertible
promissory note issued to Mr. Hoey at a conversion price of $0.69 per share.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
The
balance of the Hoey Note as of June 30, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible
Promissory Note – Cary Niu
On
September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company issued
a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu Note”).
The
Niu Note has a maturity date of September 18, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Niu Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 30% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 30% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
In
March 2022, the Company issued to Ms. Niu 1,975,302 shares of Company common stock upon the conversion of $50,000 of the Niu Note.
The
balance of the Niu Note as of June 30, 2022 and December 31, 2021 was $0 and $50,000, respectively.
Convertible
Promissory Note – Jesus Galen
On
October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen Note”).
The
Galen Note has a maturity date of October 6, 2022 and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Galen will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
In
March 2022, the Company issued to Ms. Mr. Galen 1,598,963 shares of Company common stock upon the conversion of $30,000 of the Galen
Note.
The
balance of the Galen Note as of June 30, 2022 and December 31, 2021 was $0 and $30,000, respectively.
Convertible
Promissory Note – Darren Huynh
On
October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh Note”).
The
Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
On
December 20, 2021, the Company received a conversion notice to issue to Mr. Huyng 375,601
shares of Company common stock upon the conversion of the $50,000
principal of his convertible promissory note and $4,789
accrued interest at a conversion price of $0.15
per share. The shares were issued in January 2022.
The
balance of the Huynh Note as of June 30, 2022 and December 31 2021 was $0 and $0, respectively.
Convertible
Promissory Note – Wayne Wong
On
October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company issued
a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong Note”).
The
Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
On
November 8, 2021, the Company issued to Mr. Wong 47,478 shares of Company common stock upon the conversion of the $25,000 principal of
his convertible promissory note and $2,181 accrued interest at a conversion price of $0.57 per share.
The
balance of the Wong Note as of June 30, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible
Promissory Note – Matthew Singer
On
January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the Company
issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000 (“Singer
Note”).
The
Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right, until the Indebtedness
is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion
price of 70% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion
date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since
the conversion price is based on 70% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
On
January 26, 2021, the Company issued to Matthew Singer 8,197 shares of Company common stock upon the conversion of the convertible promissory
note issued to Mr. Singer in the principal amount of $13,000 on January 3, 2021 at a conversion price of $1.59 per share.
The
balance of the Singer Note as of June 30, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible
Promissory Note – ProActive Capital SPV I, LLC
On
January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital
SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i)
issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000,
reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive
Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the
Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount
ProActive Capital withheld from the total purchase price paid to the Company.
The
ProActive Capital Note has a maturity date of January 20, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company may
prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the
Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by ProActive Capital
on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur
following the determination of the conversion price.
The
$25,000 original issue discount, the fair value of 50,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $217,024.
The
balance of the ProActive Capital Note as of June 30, 2022 and December 31, 2021 was $300,000 and $250,000, respectively.
Convertible
Promissory Note – GS Capital Partners #1
On
January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital #1”) with GS Capital Partners,
LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the
aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS
Capital Note”), and in connection therewith, sold to GS Capital 50,000 shares of Company Common Stock at a purchase price of $0.001
per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs
in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any
portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at
GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the
Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the Regulation
A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price.
The
$28,889 original issue discount, the fair value of 50,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $288,889.
The
entire principal balance and interest were converted into 107,301 common shares in the quarter ended June 30, 2021. The balance of the
GS Capital #1 as of June 30, 2022 and December 31, 2021 was $0 and $0, respectively. The Company signed the restructuring agreement below
to return the shares for the new GS note #1, as if the initial conversion had not occurred.
Convertible
Promissory Note – New GS Note #1
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to replacement GS Capital #1 as disclosed above. GS
Capital sold to the Company, and the Company redeemed from GS Capital, the 107,301 Converted Shares, and in exchange therefor, the Company
issued to GS Capital a new convertible promissory note in the aggregate principal amount of $300,445 (the “New GS Note #1”).
The
New GS Note #1 has a maturity date of May 31, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the Maturity Date, other than as specifically set forth in the Note, and there is no prepayment penalty.
The
New GS Note #1 provides GS Capital with conversion rights to convert all or any part of the outstanding and unpaid principal amount of
the New Note from time to time into fully paid and non-assessable shares of the Company’s common stock, at a conversion price of
$1.00, subject to adjustment as provided in the New Note and subject to a 9.99% equity blocker.
The
New GS Note #1 contains customary events of default, including, but not limited to, failure to pay principal or interest on the New Note
when due. If an event of default occurs and continues uncured, GS Capital may declare all or any portion of the then outstanding principal
amount of the New Note, together with all accrued and unpaid interest thereon, due and payable, and the New Note will thereupon become
immediately due and payable.
The
entire principal balance and interest were converted into 318,059 common shares in the quarter ended June 30, 2022. The balance of the
New GS Note #1 as of June 30, 2022 and December 31, 2021 was $0 and $300,445, respectively.
Convertible
Promissory Note – GS Capital Partners #2
On
February 19, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #2”),
pursuant to which, on same date, the Company issued a convertible promissory note (the “GS Capital #2 Note”) to GS Capital
the aggregate principal amount of $577,778 for a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection
therewith, sold to GS Capital 100,000 shares of Company’s common stock, par value $0.001 per share at a purchase price of $100,
representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum
of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price
paid to the Company.
The
GS Capital #2 Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than as specifically set forth in the GS Capital #2 Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital #2 Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at GS Capital’s election at any time following the time that the Securities and Exchange Commission (“SEC”) qualifies
the Company’s offering statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation
A under the Securities Act of 1933, as amended (the “Regulation A Offering”). At such time, the GS Capital #2 Note (and the
principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering
price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which
may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any
stock splits, etc. which occur following the determination of the conversion price.
The
$57,778 original issue discount, the fair value of 100,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $577,778.
GS
Capital converted $96,484
and $3,515
accrued interest in the quarter ended June 30, 2021. The balance of the GS Capital #2 Note as of June 30, 2022 and December 31, 2021
was $0
and $577,778,
respectively.
Convertible
Promissory Note – New GS Note #2
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to cancel the conversion exercised in the quarter ended June 30, 2021.
On
June 29, 2022, the “Company entered into an Exchange Agreement (the “Exchange Note”) with GS Capital. The Exchange
Note amended and restated in its entirety the previous Note Purchase Agreement between the same parties.
The
Exchange Note replaces the Note Purchase Agreement in its entirety, which was a promissory note carrying an outstanding amount of $577,778.
The Exchange Note is thus a new note in the amount of $635,563.48, with a conversion price equal to 85% of the closing per share trading
price of the Company’s shares of common stock, $0.000001 par value per share (“Common Stock”) on the last trading day
prior to the delivery of the notice of conversion, as reported on the National Quotations Bureau OTC Market exchange which the Company’s
shares are traded.
The
change in conversion features were recorded as loss on debt extinguishment of $188,771 and recognition of derivative liability of $416,588
as of June 30, 2022.
The
balance of the GS Capital #2 Note as of June 30, 2022
and December 31, 2021 was $635,563 and $577,778, respectively.
Convertible
Promissory Note – GS Capital Partners #3
On
March 16, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #3”), pursuant
to which, on same date, the Company issued a convertible promissory note (the “GS Capital #3 Note”) to GS Capital the aggregate
principal amount of $577,778 for a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection therewith,
sold to GS Capital 100,000 shares of Company’s common stock, par value $0.000001 per share at a purchase price of $100,
representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum
of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price
paid to the Company.
The
GS Capital #3 Note has a maturity date of March 22, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital #3 Note, and the Company may prepay all or
any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital #3 Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to
the Company’s planned Regulation A Offering. At such time, the GS Capital #3 Note (and the principal amount and any accrued and
unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in
the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price.
The
$57,778 original issue discount, the fair value of 100,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $577,778.
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to extend the maturity to September 22, 2022.
The
balance of the GS Capital #3 Note as of June 30, 2022 and December 31, 2021 was $577,778 and $577,778, respectively.
Convertible
Promissory Note – GS Capital Partners #4
On
April 1, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #4”), pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for
a purchase price of $500,000, reflecting a $50,000 original issue discount, and in connection therewith, sold to GS Capital 45,000 shares
of Company’s common stock, par value $0.001 per share at a purchase price of $45, representing a per share price of $0.001 per
share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in
completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The
GS Capital Note #4 has a maturity date of April 1, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note #4, and the Company may prepay all or
any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note #4 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to
the Company’s planned Regulation A Offering. At such time, the GS Capital Note #4 (and the principal amount and any accrued and
unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in
the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price.
The
$50,000 original issue discount, the fair value of 45,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory
note were recorded at $550,000.
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to extend the maturity to October 1, 2022.
The
balance of the GS Capital Note #4 as of June 30, 2022 and December 31, 2021 were $550,000 and $550,000, respectively.
Convertible
Promissory Note – GS Capital Partners #5
On
April 29, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with GS Capital, pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital
in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount (the “GS
Capital Note #5”) and, in connection therewith, sold to GS Capital 125,000 shares of the Company’s common stock, par value
$0.001 per share, at a purchase price of $125, representing a per share price of $0.001 per share. In addition, at the closing of this
sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s costs in completing the transaction, which amount GS
Capital withheld from the total purchase price paid to the Company.
The
April 2021 GS Capital Note #5 has a maturity date of April 29, 2022 and bears interest at 10% per year. No payments of the principal
amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #5, and the Company
may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note #5 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company’s Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned Regulation A Offering. At such time, the GS Capital Note #5 (and the principal amount and any accrued
and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock
in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61
days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following
the determination of the conversion price.
The
$50,000 original issue discount, the fair value of 125,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory
note were recorded at $550,000.
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to extend the maturity to October 29, 2022.
The
balance of the GS Capital Note #5 as June 30, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible
Promissory Note – GS Capital Partners #6
On
June 3, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with GS Capital, pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital
in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount (the “GS
Capital Note #6”) and, in connection therewith, sold to GS Capital 85,000 shares of the Company’s Common Stock at a purchase
price of $85, representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS
Capital the sum of $5,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total
purchase price paid to the Company.
The
GS Capital Note #6 has a maturity date of June 3, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the GS Capital Note #6, and the Company may prepay all or
any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
GS Capital Note #6 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company’s Common
Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned Regulation A Offering. At such time, the GS Capital Note #6 (and the principal amount and any accrued
and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock
in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61
days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following
the determination of the conversion price.
The
$50,000 original issue discount, the fair value of 85,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory
note were recorded at $550,000.
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with
GS Capital Partners, LLC to extend the maturity to December 3, 2022.
The
balance of the GS Capital Note #6 as of June 30, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible
Promissory Note – Tiger Trout Capital Puerto Rico
On
January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital
Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date, the Company
(i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting
a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company common stock
for a purchase price of $220.00.
The
Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if
the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required
to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity
date.
If
the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date,
that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare
all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”)
due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have
the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of
Company common stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after
the issuance date. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout
on 61 days’ notice to the Company.
The
$440,000 original issue discount, the fair value of 220,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $1,540,000.
On
January 25, 2022, the Company entered into an Amendment and Restructuring Agreement (the “Tiger Restructuring Agreement”)
with Tiger Trout to extend the maturity to August 24, 2022 and increased the principal amount of the convertible note by $388,378 so
the total principal became $1,928,378.
On
June 29, 2022, the Company and Tiger Trout entered into Amendment No. 2 to Convertible Promissory Note, dated as of June 29, 2022 (the
“Note Amendment 2”). Pursuant to the terms of the Note Amendment 2:
| |
(i) |
the
principal amount of the Tiger Trout Note was amended to be $1,250,000; and |
| |
(ii) |
Section
3(c) of the Tiger Trout Note was amended and restated in its entirety to provide a conversion price equal to 85% of the closing per
share trading price of the Company’s Common Stock on the last trading day prior to the delivery of the notice of conversion,
as reported on the National Quotations Bureau OTC Market exchange which the Company’s shares are traded. |
On
June 30, 2022, the Company and Tiger Trout entered into Amendment No. 3 to Convertible Promissory Note, dated as of June 30, 2022 (the
“Note Amendment 3”). Pursuant to the terms of the Note Amendment 3, the Tiger Trout Note was amended as follows:
| |
(i) |
the
principal amount of the Tiger Trout Note was amended to be $1,115,000; and |
| |
(ii) | Notwithstanding
anything to the contrary in the Tiger Trout Note, the parties acknowledge and agree that
Tiger Trout may elect to convert the Tiger Trout Note into “Conversion Shares”
at any time at the election of Tiger Trout, subject to the other limitations and requirements
of the Tiger Trout Note, and the “Conversion Period” (as defined in the Tiger
Trout Note) is amended to be the period from June 30, 2022 to the date of full repayment
of all Indebtedness (as defined in the Tiger Trout Note). |
The
reduction of the principal amount of $813,378 was recorded as gain in debt settlement for the quarter ended June 30, 2022. On June 29,
2022, principal balance of $68,605 was converted into 15,403,092 common shares.
The
balance of the Tiger Trout Note as of June 30, 2022 and December 31, 2021 was $1,046,398 and $1,590,000, respectively.
Convertible
Promissory Note – Eagle Equities LLC
On
April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle
Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate
principal amount of $1,100,000 for a purchase price of $1,000,000, reflecting a $100,000 original issue discount (the “Eagle Equities
Note”), and, in connection therewith, sold to Eagle Equities 165,000 shares of Company Common Stock at a purchase price of $165.00,
representing a per share price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed Eagle Equities the
sum of $10,000 for Eagle Equities’ costs in completing the transaction, which amount Eagle Equities withheld from the total purchase
price paid to the Company.
The
Eagle Equities Note has a maturity date of April 13, 2022 and bears interest at 10% per year. No payments of the principal amount or
interest are due prior to the maturity date other than upon the circumstances set forth in the Eagle Equities Note – specifically,
if (i) the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock
pursuant to Regulation A under the Securities Act of 1933, as amended; and (ii) the Company receives $3,500,000 in net proceeds from
such Regulation A Offering, then Company must repay the principal amount and any accrued and unpaid interest on the Eagle Equities Note
within three (3) business days from the date of such occurrence. The Company may prepay all or any portion of the principal amount and
any accrued and unpaid interest at any time without penalty.
The
Eagle Equities Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock
at Eagle Equities’ election at any time following the time that the SEC qualifies the Company’s offering statement related
to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended.
At such time, the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted
shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation
A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by Eagle Equities on 61 days’
notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the
determination of the conversion price. Alternatively, if the SEC has not qualified the Company’s offering statement related to
the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933 by October 10,
2021, and Eagle Equities Note has not yet been fully repaid, then Eagle Equities will have the right to convert the Eagle Equities Note
(and the principal amount and any accrued and unpaid interest) into restricted shares of Company Common Stock at a conversion price of
$6.50 per share (subject to customary adjustments for any stock splits, etc. which occur following the April 13, 2021).
The
$100,000 original issue discount, the fair value of 165,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory
note were recorded at $1,100,000.
The
balance of the Eagle Equities Note as of June 30, 2022 and December 31, 2021 was $1,100,000 and $1,100,000, respectively. The Company
is currently in default of the Eagle Equities Note.
Convertible
Promissory Note – Labrys Fund, LP
On
March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”),
pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the
“Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued 125,000 shares of its common
stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys Note, the Company agreed to pay to
$1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 10% per annum. The
Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing Date (as defined in the Labrys
SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert the Labrys Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at any time at a conversion price equal to
$10.00 per share.
The
Company may prepay the Labrys Note at any time prior to the date that an Event of Default (as defined in the Labrys Note) occurs at an
amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750.00 for
administrative fees. The Labrys Note contains customary events of default relating to, among other things, payment defaults, breach of
representations and warranties, and breach of provisions of the Labrys Note or Labrys SPA.
Upon
the occurrence of any Event of Default, the Labrys Note shall become immediately due and payable and the Company shall pay to Labrys,
in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied
by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The
$100,000 original issue discount, the fair value of 125,000 shares issued, and the beneficial conversion features were recorded as debt
discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory
note were $1,000,000.
On
November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Labrys Restructuring Agreement”)
with Labrys Fund LP to extend the maturity to November 11, 2022 and increased the principal amount of the convertible note by $116,800
so the total principal became $700,878.
For
the year ended December 31, 2021, the Company paid $455,000 cash to reduce the balance of the convertible promissory note from Labrys
Fund, LP. On March 30, 2022, Labrys Fund, LP converted $111,065 principal and $32,196 interest and $1,750 for fees totaling $145,012
into 5,800,000 common shares. For the quarter ended June 30, 2022, Labrys Fund, LP converted $473,012 principal and $8,750
for fees totaling $481,762 into 22,623,012 common shares.
The
balance of the Labrys Note as of June 30, 2022 and December 31, 2021 was $116,800 and $545,000, respectively.
Convertible
Promissory Note – Chris Etherington
On
August 27, 2021, the Company entered into a note purchase agreement (the “Chris Etherington Note Purchase Agreement”) with
Chris Etherington, an individual (“Chris Etherington”), with an effective date of August 26, 2021, pursuant to which, on
same date, the Company issued a convertible promissory note to Chris Etherington in the aggregate principal amount of $165,000 for a
purchase price of $150,000, reflecting a $15,000 original issue discount (the “Chris Etherington Note”) and, in connection
therewith, issued to Chris Etherington a Warrant to purchase 37,500 shares of the Company’s common stock, par value $0.001 per
share (the “Company Common Stock”) at an exercise price of $2.00 per share, subject to adjustment (the “Chris Etherington
Warrant”). In addition, in connection with the Chris Etherington Note Purchase Agreement, the Company entered into a Security Agreement
on same date with Chris Etherington, pursuant to which the Company’s obligations under the Chris Etherington Note were secured
by a first priority lien and security interest on all of the assets of the Company (the “Chris Etherington Security Agreement”).
While each of the Chris Etherington Warrant, Security Agreement, Note, and Note Purchase Agreement have an effective date and/or effective
issue date of August 26, 2021, each was entered into and/or issued on August 27, 2021.
The
Chris Etherington Note has a maturity date of August 26, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #6, and the Company may prepay
all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The
Chris Etherington Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock
at any time following August 26, 2021 until the note is repaid. The conversion price per share of Common Stock shall initially mean the
lesser of (i) $1.00 or (ii) 75% of the lowest daily volume weighted average price of the Common Stock during the twenty (20) Trading
Days (as defined in the Chris Etherington Note) immediately preceding the date of the respective conversion. The conversion price is
subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$15,000 original issue discount, the fair value of 37,500 warrants issued, and the conversion features were recorded as debt discounts
and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note
were recorded at $165,000. For the excess amount of derivative liability, the Company recorded accretion expense of $160,538 at the inception
date of this note.
The
balance of the Chris Etherington Note as of June 30, 2022 and December 31, 2021 was $165,000 and $165,000, respectively.
Convertible
Promissory Note – Rui Wu
On
August 27, 2021, the Company entered into a note purchase agreement (the “Rui Wu Note Purchase Agreement”) with Rui Wu, an
individual (“Rui Wu”), with an effective date of August 26, 2021, pursuant to which, on same date, the Company issued a convertible
promissory note to Rui Wu in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original
issue discount (the “Rui Wu Note”) and, in connection therewith, issued to Rui Wu a Warrant to purchase 125,000 shares of
the Company’s common stock, par value $0.001 per share (the “Company Common Stock”) at an exercise price of $2.00 per
share, subject to adjustment (the “Rui Wu Warrant”). In addition, in connection with the Rui Wu Note Purchase Agreement,
the Company entered into a Security Agreement on same date with Rui Wu, pursuant to which the Company’s obligations under the Rui
Wu Note were secured by a first priority lien and security interest on all of the assets of the Company (the “Rui Wui Security
Agreement”). While each of the Rui Wu Warrant, Security Agreement, Note, and Note Purchase Agreement have an effective date and/or
effective issue date of August 26, 2021, each was entered into and/or issued on August 27, 2021.
The
Rui Wu Note has a maturity date of August 26, 2022 and bears interest at 10% per year. No payments of the principal amount or interest
are due prior to the maturity date other than as specifically set forth in the Rui Wu Note, and the Company may prepay all or any portion
of the principal amount and any accrued and unpaid interest at any time without penalty.
The
Rui Wu Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at any
time following August 26, 2021 until the note is repaid. The conversion price per share of Common Stock shall initially mean the lesser
of (i) $1.00 or (ii) 75% of the lowest daily volume weighted average price of the Common Stock during the twenty (20) Trading Days (as
defined in the Rui Wu Note) immediately preceding the date of the respective conversion. The conversion price is subject to customary
adjustments for any stock splits, etc. which occur following the determination of the conversion price.
If
an event of default has occurred and is continuing, Rui Wu may declare all or any portion of the then-outstanding principal amount of
the Rui Wu Note, together with all accrued and unpaid interest thereon, due and payable, and the Rui Wu Note shall thereupon become immediately
due and payable in cash and Rui Wu will also have the right to pursue any other remedies that Rui Wu may have under applicable law. In
the event that any amount due under the Rui Wu Note is not paid as and when due, such amounts shall accrue interest at the rate of 18%
per year, simple interest, non-compounding, until paid.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$50,000 original issue discount, the fair value of 125,000 warrants issued, and the conversion features were recorded as debt discounts
and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note
were recorded at $550,000. For the excess amount of derivative liability, the Company recorded accretion expense of $514,850 at the inception
date of this note.
The
balance of the Riu Wu Note as of June 30, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible
Promissory Note – Sixth Street Lending #1
On
November 18, 2021, the Company entered into a securities purchase agreement (the “Sixth Street #1 Securities Purchase Agreement”)
with Sixth Street Lending LLC (“Sixth Street”), pursuant to which, on the same date, the Company issued a convertible promissory
note to Sixth Street in the aggregate principal amount of $224,000 for a purchase price of $203,750, reflecting a $20,250 original issue
discount (the “Sixth Street #1 Note”). At closing, the Company reimbursed Sixth Street the sum of $3,750 for Sixth Street’s
costs in completing the transaction.
The
Sixth Street #1 Note has a maturity date of November 18, 2022 and bears interest at 10% per year. No payments of the principal amount
or interest are due prior to the Maturity Date, other than as specifically set forth in the Note. The Company may not prepay the Note
prior to the Maturity Date, other than by way of a conversion initiated by Sixth Street.
The
Sixth Street #1 Note provides Sixth Street with conversion rights to convert all or any part of the outstanding and unpaid principal
amount of the Note from time to time into fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001
(“Common Stock”). Conversion rights are exercisable at any time during the period beginning on May 17, 2022 (180 days from
when the Note was issued) and ending on the later of (i) the Maturity Date and (ii) the date of payment of the amounts due upon an uncured
event of default. Any principal that Sixth Street elects to convert will convert at the Conversion Price, which is a Common Stock per
share price equal to the lesser of a Variable Conversion Price and $1.00. The Variable Conversion Price is 75% of the Market Price, which
is the lowest dollar volume-weighted average sale price (“VWAP”) during the 20-trading day period ending on the trading day
immediately preceding the conversion date. VWAP is based on trading prices on the principal market for Company Common Stock or, if none,
OTC. Currently, the Common Stock trades OTC. In no event is Sixth Street entitle to convert any portion of the Sixth Street #1 Note upon
which conversion Sixth Street and its affiliates would beneficially own more than 4.99% of the outstanding shares of Company Common Stock.
The
Sixth Street #1 Note contains customary events of default, including, but not limited to: (1) failure to pay principal or interest on
the Note when due; (2) failure to issue and transfer Common Stock upon exercise of Sixth Street of its conversion rights; (3) an uncured
breach of any of the Company’s other material obligations contained in the Note; and (4) the Company’s breach of any representation
or warranty in the Securities Purchase Agreement or other related agreements.
If
an event of default occurs and continues uncured, the Sixth Street #1 Note becomes immediately due and payable. If an event of default
occurs because the Company fails to issue shares of Common Stock to Sixth Street within three business days of receiving a notice of
conversion from Sixth Street, the Company shall pay an amount equal to 200% of the Default Amount (defined below) in full satisfaction
of the Company’s obligations under the Note. If an event of default occurs for any other reason that continues uncured (except
in the case of appointment of a receiver, bankruptcy, liquidation, or a similar default), the Company shall pay an amount equal to 150%
of the Default Amount (defined below) in full satisfaction of the Company’s obligations under the Sixth Street #1 Note.
The
“Default Amount” is equal to the sum of (a) accrued and unpaid interest on the principal amount of the Note to the date of
payment plus (b) default interest, which is calculated based on a rate of 22% per year (inclusive of the 10% interest per year that would
be due absent an event of default), plus (c) certain other amounts that may be owed under the Note.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$20,250 original issue discount, the $3,750 reimbursement, and the conversion features were recorded as debt discounts and amortized
over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded
at $173,894.
For
the quarter ended June 30, 2022, Sixth Street converted the entire principal and accrued interest into 87,367,129 common
shares.
The
balance of the Sixth Street #1 note as of June 30, 2022 and 2021 was $0 and $224,000, respectively.
Convertible
Promissory Note – Sixth Street Lending #2
On
December 9, 2021, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #2 purchase agreement”) dated
December 9, 2021, by and between the Company and Sixth Street Lending LLC (the “Buyer”). Pursuant to the terms of the SPA,
the Company agreed to issue and sell, and the Buyer agreed to purchase (the “Purchase”), a convertible note in the aggregate
principal amount of $93,500 (the “Sixth Street #2 Note”). The Sixth Street #2 Note has an original issue discount of $8,500,
resulting in gross proceeds to the Company of $85,000.
The
Sixth Street #2 Note bears interest at a rate of 10% per annum and matures on December 9, 2022. Any amount of principal or interest on
the Note which is not paid when due will bear interest at a rate of 22% per annum. The Note may not be prepaid in whole or in part except
as provided in the Note by way of conversion at the option of the Buyer.
The
Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following December 9,
2021 and ending on the later of (i) December 9, 2022, and (ii) the date of payment of the Default Amount (as defined in the Note), to
convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The
conversion price of the Sixth Street #2 Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The
“Variable Conversion Price” means 75% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common
stock during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$8,500 original issue discount, the $3,750 reimbursement, and the conversion features were recorded as debt discounts and amortized
over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded
at $79,118.
For
the quarter ended June 30, 2022, Sixth Street converted the $90,000 principal into 50,000,000 common shares.
The
balance of the Sixth Street #2 note as of June 30, 2022 and December 31, 2021 was $3,500 and $93,500, respectively.
Convertible
Promissory Note – Fast Capital
On
January 10, 2022, the Company entered into a Securities Purchase Agreement, (the “Fast Capital purchase agreement”) dated
January 10, 2022, by and between the Company and Fast Capital, LLC. Pursuant to the terms of the SPA, the Company agreed to issue and
sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $120,000 (the “Fast Capital Note”).
The Fast Capital 2 Note has an original issue discount of $10,000, resulting in gross proceeds to the Company of $110,000.
The
Fast Capital Note bears interest at a rate of 10% per annum and matures on January 10, 2023. Any amount of principal or interest on the
Note which is not paid when due will bear interest at a rate of 18% per annum. The Note may not be prepaid in whole or in part except
as provided in the Note by way of conversion at the option of the Buyer.
The
Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following January 10,
2022 and ending on the later of (i) January 10, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to
convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The
conversion price of the Fast Capital Note equals 70% of the lowest trading price of common stock as reported in the national Quotation
Bureau OTC market exchange during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since
the conversion price is based on 70% of the lowest trading price of common stock as reported in the national Quotation Bureau OTC market
exchange during the 20 trading date period ending on the latest complete trading day prior to the conversion date, the Company has determined
that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
The
$10,000 original issue discount, the $5,000 reimbursement, and the conversion features were recorded as debt discounts and amortized
over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded
at $120,000.
The
balance of the Fast Capital note as of June 30, 2022 and December 31, 2021 was $120,000 and $0, respectively.
Convertible
Promissory Note – Sixth Street Lending #3
On
January 12, 2022, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #3 purchase agreement”) dated
January 12, 2022, by and between the Company and Sixth Street Lending LLC. Pursuant to the terms of the SPA, the Company agreed to issue
and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $70,125 (the “Sixth Street
#3 Note”). The Sixth Street #3 Note has an original issue discount of $6,375, resulting in gross proceeds to the Company of $63,750.
The
Sixth Street #3 Note bears interest at a rate of 10% per annum and matures on January 12, 2023. Any amount of principal or interest on
the Note which is not paid when due will bear interest at a rate of 22% per annum. The Note may not be prepaid in whole or in part except
as provided in the Note by way of conversion at the option of the Buyer.
The
Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following January 12,
2022 and ending on the later of (i) January 12, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to
convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The
conversion price of the Sixth Street #3 Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The
“Variable Conversion Price” means 75% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common
stock during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$6,375 original issue discount and the conversion features were recorded as debt discounts and amortized over the term of the note.
Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $50,749.
The
balance of the Sixth Street #3 note as of June 30, 2022 and December 31, 2021 was $70,125 and $0, respectively.
Convertible
Promissory Note – ONE44 Capital LLC
On
February 16, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 Capital purchase agreement”) dated
February 15, 2022, by and between the Company and ONE44 Capital LLC. Pursuant to the terms of the SPA, the Company agreed to issue and
sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $175,500 (the “ONE44 Capital Note”).
The ONE44 Capital Note has an original issue discount of $17,500, resulting in gross proceeds to the Company of $158,000.
The
ONE44 Capital Note bears interest at a rate of 4% per annum and matures on February 16, 2023. Any amount of principal or interest on
the Note which is not paid when due will bear interest at a rate of 4% per annum. The Note may not be prepaid in whole or in part except
as provided in the Note by way of conversion at the option of the Buyer.
The
Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following February 16,
2022 and ending on the later of (i) February 16, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to
convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The
conversion price of the ONE44 Capital Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The
“Variable Conversion Price” means 65% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common
stock during the 3 trading date period ending on the latest complete trading day prior to the conversion date.
Since
the conversion price is based on 65% of the VWAP during the 3-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
The
$17,500 original issue discount, the $8,000 reimbursement and the conversion features were recorded as debt discounts and amortized
over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded
at $148,306.
The
balance of the ONE44 Capital note as of June 30, 2022 and December 31, 2021 was $175,500 and $0, respectively.
Convertible
Promissory Note – Coventry Enterprise, LLC
On
March 3, 2022, the Company entered into a Securities Purchase Agreement, (the “Coventry Enterprise purchase agreement”)
dated March 3, 2023, by and between the Company and Coventry Enterprise, LLC. Pursuant to the terms of the SPA, the Company agreed to
issue and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $150,000 (the “Coventry
Enterprise Note”). The Coventry Note has an original issue discount of $30,000, resulting in gross proceeds to the Company of $120,000.
Pursuant to the terms of the Coventry SPA, the Company also agreed to issue 150,000 shares of restricted common stock to Coventry as
additional consideration for the purchase of the Coventry Note.
The
Coventry Enterprise Note bears interest at a rate of 10% per annum and matures on March 3, 2023. Any amount of principal or interest
on the Note which is not paid when due will bear interest at a rate of 18% per annum. The Note may not be prepaid in whole or in part
except as provided in the Note by way of conversion at the option of the Buyer.
The
Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following March 3, 2022
and ending on the later of (i) March 3, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert
all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The
conversion price of the Coventry Enterprise Note equals the lesser of the Variable Conversion Price (as hereinafter defined). The “Variable
Conversion Price” means 90% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common stock during
the 10 trading date period ending on the latest complete trading day prior to the conversion date.
Since
the conversion price is based on 90% of the VWAP during the 10-trading day period immediately prior to the option conversion date, the
Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 10.
The
$30,000 original issue discount, 150,000 shares issued, and the conversion features were recorded as debt discounts and amortized over
the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $150,000.
The
balance of the Coventry Enterprise note as of June 30, 2022 and December 31, 2021 was $150,000 and $0, respectively.
Convertible
Promissory Note – ONE44 Capital LLC #2
On
May 20, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 Capital purchase agreement #2”) by and
between the Company and ONE44 Capital LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed
to purchase, a convertible note in the aggregate principal amount of $115,000 (the “ONE44 Capital Note”). The ONE44 Capital
Note has an original issue discount of $10,000 and reimbursement of $5,000, resulting in gross proceeds to the Company of $100,000.
The
ONE44 Capital Note bears interest at a rate of 4% per annum and matures on May 20, 2023. Any amount of principal or interest on the Note
which is not paid when due will bear interest at a rate of 4% per annum. The Note may not be prepaid in whole or in part except as provided
in the Note by way of conversion at the option of the Buyer.
ONE44
is entitled, at its option, at any time after the sixth monthly anniversary of cash payment, to convert all or any amount then outstanding
under the May 2022 ONE44 Note into shares of common stock at a price per share equal to 55% of the lowest daily trading VWAP of the Company’s
common stock for the 20 prior trading days, subject to a 4.99% equity blocker and subject to the terms of the May 2022 ONE44 Note.
Since
the conversion price is based on 55% of the lowest daily trading VWAP of the Company’s common stock for the 20 prior trading days,
the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note
10.
The
$10,000 original issue discount, the $5,000 reimbursement and the conversion features were recorded as debt discounts and amortized
over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded
at $115,000.
The
balance of the ONE44 Capital note as of June 30, 2022 and December 31, 2021 was $115,000 and $0, respectively.
Convertible
Promissory Note – Diagonal Lending LLC
On
June 23, 2022, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #4 purchase agreement”), by and
between the Company and Diagonal Lending LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed
to purchase, a convertible note in the aggregate principal amount of $86,625 (the “Diagonal Note”). The Diagonal Note has
an original issue discount of $7,875, $3,000.00 paid to legal counsel for the Company, and $750.00 which amount was retained by the Investor
as a due diligence fee resulting in gross proceeds to the Company of $75,000.
The
Note has a maturity date of June 23, 2023 and bears interest at 10% per annum. No payments of the principal amount or interest are due
prior to the maturity date, other than as specifically set forth in the Note. The Company may not prepay the Note prior to the maturity
date, other than by way of a conversion initiated by Investor.
The
Note provides Investor with conversion rights to convert all or any part of the outstanding and unpaid principal amount of the Note at
any time, from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following
the date of the Note and ending on the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as defined
in the Note). Notwithstanding the foregoing, the Investor shall not be entitled to a conversion under the Note upon which the sum of
(1) the number of shares of common stock, $0.000001 par value per share (“Common Stock”) beneficially owned by the Investor
and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted
portion of the Note or the unexercised or unconverted portion of any other security of the Company subject to a similar limitation on
conversion or exercise) and (2) the number of shares of Common Stock issuable upon the conversion would result in beneficial ownership
by the Investor and its affiliates of more than 4.99% of the outstanding shares of Common Stock.
The
conversion price is equal to the lesser of the variable conversion price and fixed conversion price which is $1.00. The variable conversion
price is defined in the Note as 75% multiplied by the lowest VWAP for shares of Common Stock during the 20 trading days immediately preceding
the Conversion Date.
Since
the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to
the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company,
which is detailed in Note 10.
The
$11,625 original issue discount and the conversion features were recorded as debt discounts and amortized over the term
of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $86,625.
The
balance of the Diagonal note as of June 30, 2022 and December 31, 2021 was $86,625 and $0, respectively.
Below
is the summary of the principal balance and debt discounts as of June 30, 2022.
SCHEDULE
OF CONVERTIBLE PROMISSORY NOTE
Convertible
Promissory
Note
Holder | |
Start Date | |
End Date | |
Initial
Note
Principal
Balance | | |
Current
Note
Principal
Balance | | |
Debt
Discounts
As
of
Issuance | | |
Amortization | | |
Debt
Discounts
As
of June
30,
2022 | |
| Scott Hoey | |
9/10/2020 | |
9/10/2022 | |
$ | 7,500 | | |
$ | - | | |
$ | 7,500 | | |
$ | (7,500 | ) | |
$ | - | |
| Cary Niu | |
9/18/2020 | |
9/18/2022 | |
| 50,000 | | |
| - | | |
| 50,000 | | |
| (50,000 | ) | |
| - | |
| Jesus Galen | |
10/6/2020 | |
10/6/2022 | |
| 30,000 | | |
| - | | |
| 30,000 | | |
| (30,000 | ) | |
| - | |
| Darren Huynh | |
10/6/2020 | |
10/6/2022 | |
| 50,000 | | |
| - | | |
| 50,000 | | |
| (50,000 | ) | |
| - | |
| Wayne Wong | |
10/6/2020 | |
10/6/2022 | |
| 25,000 | | |
| - | | |
| 25,000 | | |
| (25,000 | ) | |
| - | |
| Matt Singer | |
1/3/2021 | |
1/3/2023 | |
| 13,000 | | |
| - | | |
| 13,000 | | |
| (13,000 | ) | |
| - | |
| ProActive Capital | |
1/20/2021 | |
1/20/2022 | |
| 250,000 | | |
| 300,000 | | |
| 217,024 | | |
| (217,024 | ) | |
| - | |
| GS Capital #1 | |
1/25/2021 | |
1/25/2022 | |
| 288,889 | | |
| - | | |
| 288,889 | | |
| (288,889 | ) | |
| - | |
| GS Capital #1 replacement | |
11/26/2021 | |
5/31/2022 | |
| 300,445 | | |
| - | | |
| - | | |
| - | | |
| - | |
| Tiger Trout SPA | |
1/29/2021 | |
1/29/2022 | |
| 1,540,000 | | |
| 1,046,395 | | |
| 1,540,000 | | |
| (1,540,000 | ) | |
| - | |
| GS Capital #2 | |
2/16/2021 | |
2/16/2022 | |
| 577,778 | | |
| - | | |
| 577,778 | | |
| (577,778 | ) | |
| - | |
| GS Capital #2 - replacement | |
6/29/2022 | |
8/16/2022 | |
| 635,563 | | |
| 635,563 | | |
| - | | |
| - | | |
| - | |
| Labrys Fund, LLP | |
3/11/2021 | |
3/11/2022 | |
| 1,000,000 | | |
| 116,800 | | |
| 1,000,000 | | |
| (1,000,000 | ) | |
| - | |
| GS Capital #3 | |
3/16/2021 | |
3/16/2022 | |
| 577,778 | | |
| 577,778 | | |
| 577,778 | | |
| (577
778) | | |
| - | |
| GS Capital #4 | |
4/1/2021 | |
4/1/2022 | |
| 550,000 | | |
| 550,000 | | |
| 550,000 | | |
| (550,000 | ) | |
| - | |
| Eagle Equities LLC | |
4/13/2021 | |
4/13/2022 | |
| 1,100,000 | | |
| 1,100,000 | | |
| 1,100,000 | | |
| (1,100,000 | ) | |
| - | |
| GS Capital #5 | |
4/29/2021 | |
4/29/2022 | |
| 550,000 | | |
| 550,000 | | |
| 550,000 | | |
| (550,000 | ) | |
| - | |
| GS Capital #6 | |
6/3/2021 | |
6/3/2022 | |
| 550,000 | | |
| 550,000 | | |
| 550,000 | | |
| (550,000 | ) | |
| - | |
| Chris Etherington | |
8/26/2021 | |
8/26/2022 | |
| 165,000 | | |
| 165,000 | | |
| 165,000 | | |
| (139,233 | ) | |
| 25,767 | |
| Rui Wu | |
8/26/2021 | |
8/26/2022 | |
| 550,000 | | |
| 550,000 | | |
| 550,000 | | |
| (464,110 | ) | |
| 85,890 | |
| Sixth Street Lending #1 | |
11/28/2021 | |
11/28/2022 | |
| 224,000 | | |
| - | | |
| 173,894 | | |
| (173,894 | ) | |
| - | |
| Sixth Street Lending #2 | |
12/9/2021 | |
12/9/2022 | |
| 93,500 | | |
| 3,500 | | |
| 79,118 | | |
| (79,118 | ) | |
| - | |
| Fast Capital LLC | |
1/10/2022 | |
1/10/2023 | |
| 120,000 | | |
| 120,000 | | |
| 120,000 | | |
| (55,935 | ) | |
| 64,065 | |
| Sixth Street Lending #3 | |
1/12/2022 | |
1/12/2023 | |
| 70,125 | | |
| 70,125 | | |
| 50,748 | | |
| (23,387 | ) | |
| 27,361 | |
| One 44 Capital | |
2/16/2022 | |
2/16/2023 | |
| 175,500 | | |
| 175,500 | | |
| 148,306 | | |
| (54,446 | ) | |
| 93,860 | |
| Coventry Enterprise | |
3/3/2022 | |
3/3/2023 | |
| 150,000 | | |
| 150,000 | | |
| 150,000 | | |
| (48,904 | ) | |
| 101,096 | |
| One 44 Capital #2 | |
5/20/2022 | |
5/20/2023 | |
| 115,000 | | |
| 115,000 | | |
| 115,000 | | |
| (12,918 | ) | |
| 102,082 | |
| | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| 1800 Diagonal Lending
LLC | |
6/23/2022 | |
6/23/2023 | |
| 86,625 | | |
| 86,625 | | |
| 86,625 | | |
| (1,662 | ) | |
| 84,963 | |
| Total | |
| |
| |
| | | |
| | | |
| | | |
| Total | | |
$ | 585,084 | |
| | |
| |
| |
| | | |
| | | |
| | | |
| Remaining
note principal balance | | |
| 6,862,286 | |
| | |
| |
| |
| | | |
| | | |
| | | |
| Total
convertible promissory notes, net | | |
$ | 6,277,202 | |
Future
payments of principal of convertible notes payable at June 30, 2022 are as follows:
SCHEDULE
OF FUTURE MATURITIES OF CONVERTIBLE NOTES PAYABLE
| Years ending
December 31, | |
| |
| 2022 | |
$ | (6,145,036 | ) |
| 2023 | |
| (717,250 | ) |
| 2024 | |
| – | |
| 2025 | |
| - | |
| Thereafter | |
| – | |
| Total | |
$ | (6,862,286 | ) |
Interest
expense recorded related to the convertible notes payable for the six months ended June 30, 2022 and 2021 were $965,075 and $193,224,
respectively.
The
Company amortized $1,991,246 and $2,656,996 of the discount on the convertible notes payable to interest expense for the
six months ended June 30, 2022 and 2021, respectively.
The
Company recognized additional non-cash interest expense from excess derivative of $670,927 and $0 for the six months ended June 30, 2022
and 2021, respectively.
NOTE
9 – SHARES TO BE ISSUED - LIABILITY
As
of June 30, 2022 and December 31, 2021, the Company entered into various consulting agreements with consultants, directors, and convertible
debt. The balances of shares to be issued – liability were $583,605 and $1,047,885, respectively. The Company recorded these consultant
and director shares under liability based on the shares will be issued at a fixed monetary amount known at inception under ASC 480.
Shares
to be issued - liability is summarized as below:
SCHEDULE OF SHARES TO BE ISSUED LIABILITY
| | |
| | |
| Beginning Balance, January 1, 2022 | |
$ | 1,047,885 | |
| Shares to be issued | |
| 514,485 | |
| Shares issued | |
| (978,765 | ) |
| Ending Balance, June 30, 2022 | |
$ | 583,605 | |
Shares
to be issued - liability is summarized as below:
| | |
| |
| Beginning Balance, January 1, 2021 | |
$ | 87,029 | |
| Shares to be issued - liability, beginning balance | |
$ | 87,029 | |
| Shares to be issued | |
| 6,415,046 | |
| Shares issued | |
| (5,454,190 | ) |
| Ending Balance, December 31, 2021 | |
$ | 1,047,885 | |
| Shares to be issued - liability, ending balance | |
$ | 1,047,885 | |
NOTE
10 – DERIVATIVE LIABILITY
The
derivative liability is derived from the conversion features in note 8 signed for the period ended December 31, 2021. All were valued
using the weighted-average Binomial option pricing model using the assumptions detailed below. As of June 30, 2022 and December 31, 2021,
the derivative liability was $4,793,892 and $513,959, respectively. The Company recorded $2,786,066 loss and $75,299 loss from changes
in derivative liability during the three months ended June 30, 2022 and 2021, respectively. The Company recorded $2,708,450 loss
and $25,765 loss from changes in derivative liability during the six months ended June 30, 2022 and 2021, respectively.
The
Binomial model with the following assumption inputs:
SCHEDULE OF DERIVATIVE LIABILITY ASSUMPTIONS INPUT
| | |
June
30, 2022 | |
| Annual Dividend Yield | |
| — | |
| Expected Life (Years) | |
| 0.2
– 1.0 years | |
| Risk-Free Interest Rate | |
| 0.01%
- 0.03 % | |
| Expected Volatility | |
| 259
- 594 % | |
Fair
value of the derivative is summarized as below:
SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILITY
| | |
| | |
| Beginning Balance, December 31, 2021 | |
$ | 513,959 | |
| Additions | |
| 2,314,606 | |
| Mark to Market | |
| 2,708,450 | |
| Cancellation of Derivative Liabilities Due
to Conversions | |
| - | |
| Reclassification to Additional Paid In Capital
Due to Conversions | |
| (743,123 | ) |
| Ending Balance, June 30, 2022 | |
$ | 4,793,892 | |
NOTE
11 – NOTE PAYABLE, RELATED PARTY
For
the period ended December 31, 2020, the Company signed a note payable agreement (the “Ben-Yohanan 2020 Note”) with the
Company’s Chief Executive Officer for advances up to $5,000,000
at 0%
interest rate. The entire balance is due January 31, 2023. As of December 31, the Company has a balance of $2,162,562
owed to the Chief Executive Officer of the Company. The note payable was subsequently amended on February 2, 2021.
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total
principal amount of $2,400,000
(the “Ben-Yohanan 2021 Note”) to replace the Ben-Yohanan 2020 Note. The Amir 2021 Note memorializes a $2,400,000 loan
that Mr. Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Ben-Yohanan 2021 Note bears
simple interest at a rate of eight percent (8%)
per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of the Note at
any time without penalty.
At
the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A, $1,000,000 of the Indebtedness
shall, automatically and without any further action of the Company or the Holder, be converted into a number of restricted fully paid
and non-assessable shares of shares of common stock, par value $0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii)
the price per share of the Common Stock as offered in the Offering Circular.
In
accordance with ASC 470-50-40-10 a modification or an exchange of debt that adds or eliminates a substantive conversion option as of
the conversion date would always be considered substantial and require extinguishment accounting. We concluded the conversion features
of the Ben-Yohanan 2021 Note are substantial. As a result, we recorded a loss on the extinguishment of debt in the amount of $297,138 in our
consolidated statements of operations and credit as premium on the note payable to the related party. The premium will be amortized over
the life of the loan which is expired on February 2, 2024.
The
Company’s Regulation A Offering Circular was qualified on June 11, 2021. As a result, the principal balance of $1,000,000 has been
converted to common stock and recorded under shares to be issued until it is issued.
The
Company amortized $36,372 and $152,009 of the discount on the convertible notes payable to interest expense for the six months ended
June 30, 2022 and 2021, respectively. The outstanding debt premium as of June 30, 2022 was $80,683.
For
the six months ended June 30, 2022 and 2021, the Company paid $105,822 and $0 to the Ben-Yohanan 2021 Note, respectively.
The
balance of the Ben-Yohanan 2021 Note as of June 30, 2022 and December 31, 2021 was $1,164,042 and $1,269,864, respectively.
Note
payable – Mr. Ben-Yohanan
For
the six months ended June 30, 2022 and 2021, the Company borrowed $79,000 and $0 from Mr. Ben-Yohanan. The maturity date of the note is July 1,
2024 and the Company has to pay $3,292 per month commencing August 1, 2022 and has no interest.
The
balance of the note payable as of June 30, 2022 and December 31, 2021 were $79,000 and $0, respectively.
NOTE
12 – RELATED PARTY TRANSACTIONS
As
of December 31, 2020, the Company’s Chief Executive Officer had advanced $2,162,562 to the Company for payment of the Company’s
operating expenses. The Company recorded $15,920 and $87,213 as imputed interest and recorded as additional paid in capital
for the year ended December 31, 2021 and for the period from January 2, 2020 (inception) to December 31, 2020, respectively from the
loan advanced by the Company’s Chief Executive Officer.
On
February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal
amount of $2,400,000 (the “Ben-Yohanan 2021 Note”) to replace the Ben-Yohanan 2020 Note with a maturity date of February 2, 2024. The Note
memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations.
The Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal
amount and any accrued and unpaid interest of the Note at any time without penalty. The Note bears simple interest at a rate of eight
percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of
the Note at any time without penalty.
At
the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A, $1,000,000 of the Indebtedness
shall, automatically and without any further action of the Company or the Holder, be converted into a number of restricted fully paid
and non-assessable shares of shares of common stock, par value $0.001 per share, of the Company equal to (i) $1,000,000 divided by (ii)
the price per share of the Common Stock as offered in the Offering Circular.
For
the three months ended March 31, 2021, the Board of Directors approved and paid $285,000 cash bonuses to Amir Ben-Yohanan, Chris Young,
and Simon Yu.
For
the three months ended June 30, 2021, the Board of Directors approved and paid $205,000 cash bonuses to Amir Ben-Yohanan, Chris Young,
Harris Tulchin, and Simon Yu.
For
the three months ended March 31, 2021, the Company’s Chief Executive Officer advanced an additional $135,000 to the Company to
pay the Company’s operating expenses.
For
the six months ended June 30, 2022 and 2021, the Company paid $105,822
and $137,500
to the Amir 2021 Note, respectively.
Effective
March 4, 2021, the Company entered into three (3) separate director agreements with Amir Ben-Yohanan, Christopher Young, and Simon Yu.
The Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s, and Mr. Yu’s role as
a director of the Company. Mr. Young and Yu resigned from their officer and director positions with the Company on October 8, 2021.
Pursuant
to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
| |
● |
An
issuance of 31,821 shares of the Company’s common stock, par value par value $0.000001 (“Common Stock”), to be
issued on the Effective Date, as compensation for services provided by each of the Directors to the Company prior to the Effective
Date; and |
| |
● |
An
issuance of a number of shares of Common Stock having a fair market value (as defined in each of the Director Agreements) of $25,000
at the end of each calendar quarter that the Director serves as a director. |
As
of June 30, 2022 and December 31, 2021, the Company has a payable balance owed to the sellers of Magiclytics of $97,761 and $97,761 from
the acquisition of Magiclytics on February 3, 2021.
On
October 7, 2021, the Board of Directors of the Company appointed Dmitry Kaplun as the Company’s Chief Financial Officer. Pursuant
to the terms of the Employment Agreement, the Board entered into a restricted stock award agreement (the “Restricted Stock Agreement”)
dated October 7, 2021. Pursuant to the terms of the Restricted Stock Agreement, the Board granted Mr. Kaplun 58,824 shares of restricted
common stock on October 7, 2021. 25% of the shares vest on each of the three-month, six-month, nine-month and 12-month anniversaries
of the grant date. Mr. Kaplun ceased to be an executive officer on May 27, 2022. See “—Kaplun Resignation” below.
On
October 8, 2021, each of Christian Young, President, Secretary and Director of the Company, and Simon Yu, Chief Operating Officer and
Director of the Company, resigned from all officer and director positions with the Company, effective immediately. Each of Mr. Young
and Yu will continue to provide consulting services to the Company. The Company terminated their consulting agreements in the quarter
ended December 31, 2021.
On
October 12, 2021, the Board appointed Massimiliano Musina to serve as a member of the Company’s Board of Directors. In connection
with Mr. Musina’s appointment, the Company and Mr. Musina entered into an Independent Director Agreement dated October 12, 2021
(the “Director Agreement”). Pursuant to the terms of the Director Agreement, the Company agreed to issue to Mr. Musina each
quarter a number of shares of common stock having a fair market value of $25,000, in exchange for Mr. Musina’s service as a member
of the Company’s Board of Directors.
On
April 1, 2022, Clubhouse Media Group, Inc. (the “Company”) entered into an employment agreement with Amir Ben-Yohanan, the
Company’s Chief Executive Officer, effective April 11, 2022. The terms of the employment agreement are substantially similar to
the terms of Mr. Ben-Yohanan’s prior employment agreement with the Company. Accordingly, pursuant to the terms of the employment
agreement, Mr. Ben-Yohanan will continue to serve as Chief Executive Officer of the Company, reporting to the Board of Directors (the
“Board”). As compensation for Mr. Ben-Yohanan’s services, the Company agreed to pay Mr. Mr. Ben-Yohanan an annual base
salary of $400,000 (the “Base Salary”) comprised of two parts a “Cash Portion”, and an “Optional Portion”.
The Cash Portion is a monthly cash payment of $15,000. The remaining $220,000 per year – the Optional Portion – is payable
as follows:
| |
(i) |
If
the Company’s Board determines that the Company has sufficient cash on hand to pay
all or a portion of the Optional Portion in cash, such amount shall be paid in cash. |
| |
(ii) |
If
the Board determines that the Company does not have sufficient cash on hand to pay all of
the Optional Portion in cash, then the portion of the Optional Portion which the Board determines
that the Company has sufficient cash on hand to pay in cash will be paid in cash, and the
remainder (the “Deferred Portion”) will either: |
| |
a. |
be
paid at a later date, when the Board determines that the Company has sufficient cash on hand
to enable the Company to pay the Deferred Portion; or |
| |
b. |
will
not be paid in cash – and instead, the Company will issue shares of Company Common
Stock equal to
(A)
the Deferred Portion, divided by (B) the VWAP (as defined in the employment agreement) as of the
(B)
date of issuance of such shares of Company Common Stock. |
In
addition, pursuant to the employment agreement, Mr. Ben-Yohanan is entitled to be paid discretionary annual bonuses as determined by
the Board, and is also entitled to receive fringe benefits, such as, but not limited to, reimbursement for reimbursement for all reasonable
and necessary out-of-pocket business, entertainment and travel, vacation days, and certain insurances.
The
initial term of the employment agreement is one year from April 11, 2022, unless earlier terminated. Thereafter, the term is automatically
extended on an annual basis for terms of one year each, unless either the Company or Mr. Ben-Yohanan provides notice to the other party
of their desire to not so renew the term of the agreement (as applicable) at least 30 days prior to the expiration of the then-current
term.
Mr.
Ben-Yohanan’s employment with the Company shall be “at will,” meaning that either Mr. Ben-Yohanan or the Company may
terminate Mr. Ben-Yohanan’s employment at any time and for any reason, subject to certain terms and conditions.
The
Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement
and Mr. Ben-Yohanan may terminate the employment agreement at any time, with or without “good reason”, as defined in the
employment agreement. If the Company terminates the employment agreement for cause or Mr. Ben-Yohanan terminates the employment agreement
without good reason, Mr. Ben-Yohanan will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares
of Company Common Stock owed or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion
which had been agreed to be paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such
amount had been agreed to be paid via the issuance of shares of Company Common Stock. Mr. Ben-Yohanan will also be entitled to payment
for any unreimbursed expenses as of the termination date. However, any unvested portion of any equity granted to Mr. Ben-Yohanan will
be immediately forfeited as of the termination date.
On
April 19, 2022, the board of directors (the “Board”) of Clubhouse Media Group, Inc. (the “Company”) and stockholders
holding a majority of the Company’s voting power approved the Clubhouse Media Group, Inc. 2022 Equity Incentive Plan (the “2022
Plan”).
For
the six months ended June 30, 2022 and 2021, the Company borrowed $79,000 and $0 from Amir. The maturity date of the note is July 1,
2024 and the Company has to pay $3,292 per month commencing August 1, 2022.
The
balance of the note payable as of June 30, 2022 and December 31, 2021 were $79,000 and $0, respectively.
Kaplun
Resignation
On
May 27, 2022, Dmitry Kaplun resigned as the Company’s Chief Financial Officer, principal financial officer and principal accounting
officer, effective immediately. Mr. Kaplun resigned for personal reasons and in order to pursue other opportunities, and agreed to continue
to provide consulting services to the Company for at least 90 days.
Termination
and Release Agreement
In
connection with Mr. Kaplun’s resignation, the Company entered into a Termination and Release Agreement, dated as of May 27, 2022,
by and between the Company and Mr. Kaplun (the “Termination Agreement”). Pursuant to the terms of the Termination Agreement,
the parties to the Termination Agreement agreed to terminate the Executive Employment Agreement, dated as of October 7, 2021, by and
between the Company and Mr. Kaplun.
NOTE
13 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
April 19, 2022, the Company filed Articles of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of
State that had the effect of increasing the authorized shares of common stock from 500,000,000 to 2,000,000,000.
The
Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada on June
13, 2022 for the purpose of amending the Articles of Incorporation of the Company to reduce the par value of the common stock of the
Company from $0.001 per
share to $0.000001 per
share.
On
June 23, 2022, the Company filed Articles of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of
State that had the effect of increasing the authorized shares of common stock from 2,000,000,000 to 8,000,000,000. The Company’s
Preferred Stock was unchanged by the Amendment.
One
share of Series X Preferred Stock is outstanding as of June 30, 2022. The single share of Series X Preferred Stock outstanding is held
by Amir Ben-Yohanan, the Company’s Chief Executive Officer, who also holds 56,847,213 shares of Common Stock as of June 23, 2022.
In the aggregate, Mr. Ben-Yohanan holds 61.68% of the voting power of the Company as of June 23, 2022.
Preferred
Stock
As
of June 30, 2022 and December 31, 2021, there was 1 preferred share issued and outstanding.
On
November 12, 2020, the Company filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the
preferred stock of the Company as the Series X Preferred Stock of the Company.
In
November 2020, the Company issued and sold to the Company’s Chief Executive Officer 1 share of Series X Preferred Stock, at a purchase
price of $1.00. The share of Series X Preferred Stock shall have a number of votes at any time equal to (i) the number of votes then
held or entitled to be made by all other equity securities of the Company, debt securities of the Company or pursuant to any other agreement,
contract or understanding of the Company, plus (ii) one (1). The Series X Preferred Stock shall vote on any matter submitted to the holders
of the Common Stock, or any class thereof, for a vote, and shall vote together with the Common Stock, or any class thereof, as applicable,
on such matter for as long as the share of Series X Preferred Stock is issued and outstanding. The Series X Preferred Stock shall not
have the right to vote on any matter as to which solely another class of Preferred Stock of the Company is entitled to vote pursuant
to the certificate of designations of such other class of Preferred Stock of the Company.
The
Series X Preferred Stock shall not be convertible into shares of any other class of stock of the Company and entitled to receive any
dividends paid on any other class of stock of the Company.
In
the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation
of the Company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the
Series X Preferred Stock shall not be entitled to receive any distribution of any of the assets or surplus funds of the Company and shall
not participate with the Common Stock or any other class of stock of the Company therein.
Common
Stock
As
of June 30, 2022 and December 31, 2021, the Company had 8,000,000,000
shares of common stock authorized with a par value of $0.000001 per
share. There were 338,333,081 and 97,785,111
shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.
For
the three months ended June 30, 2022, the Company issued 39,900,000 shares with net proceeds of $137,198 in connection with the ELOC.
For
the three months ended June 30, 2022, the Company issued 2,820,000 shares for cash of $71,000.
For
the three months ended June 30, 2022, the Company issued 7,950,620 shares to consultants and directors at fair value of $71,798.
For
the three months ended June 30, 2022, the Company issued 166,107,730 shares to settle a conversion of $1,238,913 of convertible promissory
note principal and accrued interest.
For
the three months ended June 30, 2022, the Company issued 1,155,000 shares as debt issuance costs for convertible notes payable at fair
value of $11,273.
For
the three months ended March 31, 2022, the Company issued 8,351,960 shares with net proceeds of $364,903 in connection with the ELOC.
The Company incurred $56,025 deposit and trading fees from the ELOC.
For
the three months ended March 31, 2022, the Company issued 3,385,550 shares to consultants and directors at fair value of $94,531.
For
the three months ended March 31, 2022, the Company issued 3,574,260 shares to settle a conversion of $89,366 of convertible promissory
note principal and accrued interest.
For
the three months ended March 31, 2022, the Company issued 550,000 shares as debt issuance costs for convertible notes payable at fair
value of $23,382.
For
the three months ended March 31, 2022, the Company issued 6,752,830 shares to settle shares to be issued – liabilities at fair
value of $717,260.
For
the three months ended March 31, 2021, the Company issued 207,817 shares to consultants and directors at fair value of $2,113,188.
For
the three months ended March 31, 2021, the Company issued 734,689 shares to acquire Magiclytics,
For
the three months ended March 31, 2021, the Company issued 8,197 shares to settle a conversion of $13,000 convertible promissory note.
F or
the three months ended March 31, 2021, the Company issued 24,460 shares to settle an accounts payable balance of $148,510.
For
the three months ended March 31, 2021, the Company issued 645,000 shares as debt issuance costs for convertible notes payable at fair
value of $3,441,400.
For
the three months ended June 30, 2021, the Company issued 175,070 shares to consultants and directors at fair value of $1,546,413.
For
the three months ended June 30, 2021, the Company issued 22,250 shares to settle an accounts payable balance of $164,520.
For
the three months ended June 30, 2021, the Company issued 383,080 shares as debt issuance costs for convertible notes payable at fair
value of $2,875,589.
For
the three months ended June 30, 2021, the Company issued warrants at fair value of $15,797 to an non-employee as compensation.
Warrants
A
summary of the Company’s stock warrants activity is as follows:
SUMMARY OF WARRANTS ACTIVITY
| | |
Number
of
Options
(in
thousands) | | |
Weighted-
Average
Exercise
Price | | |
Weighted-
Average
Contractual
Term
(in
years) | | |
Aggregate
Intrinsic
Value | |
| Outstanding at December 31, 2021 | |
| 165,077 | | |
$ | 2.05 | | |
| 4.9 | | |
| - | |
| Granted | |
| - | | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Canceled | |
| - | | |
| - | | |
| - | | |
| - | |
| Outstanding at June 30, 2022 | |
| 165,077 | | |
$ | 2.05 | | |
| 4.3 | | |
$ | - | |
| Vested and expected
to vest at December 31, 2021 | |
| 165,077 | | |
$ | 2.05 | | |
| 4.3 | | |
$ | - | |
| Exercisable at June 30, 2022 | |
| 165,077 | | |
$ | 2.05 | | |
| 4.3 | | |
$ | - | |
No
stock options were granted by the Company during the six months ended June 30, 2022.
The
fair values of warrants granted in 2021 were estimated using the Black-Scholes option pricing model on the grant date using the following
assumptions:
SCHEDULE OF FAIR VALUE OF STOCK OPTIONS GRANTED ASSUMPTIONS
| Dividend yield | |
| — | % |
| Expected term (in years) | |
| 5 | |
| Volatility | |
| 368
- 369 | % |
Equity
Purchase Agreement and Registration Rights Agreement
On
November 2, 2021, the Company entered into an Equity Purchase Agreement (the “Agreement”)
and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P., a Delaware
limited Partnership (“Investor”), dated as of October 29, 2021, pursuant to which the Company shall have the right, but not
the obligation, to direct Investor, to purchase up to $15,000,000.00 (the “Maximum Commitment Amount”) in shares of the Company’s
common stock, par value $0.000001 per share (“Common Stock”) in multiple tranches. Further, under the Agreement
and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit a Put Notice (as defined in
the Agreement) from time to time to Investor (i) in a minimum amount not less than $20,000.00 and (ii) in a maximum amount up to the
lesser of (a) $400,000.00 or (b) 250% of the Average Daily Trading Value (as defined in the Agreement).
In
exchange for Investor entering into the Agreement, the Company agreed, among other things, to (A) issue Investor and Peak One Investments,
LLC, an aggregate of 70,000 shares of Common Stock (the “the Commitment Shares”), and (B) file a registration statement registering
the Common Stock issued as Commitment Shares or issuable to Investor under the Agreement for resale (the “Registration Statement”)
with the Securities and Exchange Commission within 60 calendar days of the Agreement, as more specifically set forth in the Registration
Rights Agreement.
The
obligation of Investor to purchase the Company’s Common Stock shall begin on the date of the Agreement, and ending on the earlier
of (i) the date on which Investor shall have purchased Common Stock pursuant to this Agreement equal to the Maximum Commitment Amount,
(ii) twenty four (24) months after the date of the Agreement, (iii) written notice of termination by the Company to Investor (which shall
not occur during any Valuation Period or at any time that Investor holds any of the Put Shares), (iv) the Registration Statement is no
longer effective after the initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary
case or any person commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all
of its property or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During
the Commitment Period, the purchase price to be paid by Investor for the Common Stock under the Agreement shall be 95% of the Market
Price, which is defined as the lesser of the (i) closing bid price of the Common Stock on the trading day immediately preceding the respective
Put Date (as defined in the Agreement), or (ii) lowest closing bid price of the Common Stock during the Valuation Period (as defined
in the Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Investor.
The
Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing
future sale transactions, indemnification rights and obligations of the parties. Among other things, Investor represented to the Company,
that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933,
as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained
in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
2022
Equity Incentive Plan
A
total of 26,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2022 Plan.
Additionally,
if any award issued pursuant to the 2022 Plan expires or becomes unexercisable without having been exercised in full, is surrendered
pursuant to an exchange program, as provided in the 2022 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”),
performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares
(or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto
will become available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). With respect to stock appreciation
rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2022 Plan; all remaining
shares under stock appreciation rights will remain available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated).
Shares that have actually been issued under the 2022 Plan under any award will not be returned to the 2022 Plan and will not become available
for future distribution under the 2022 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted
stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure
to vest, such shares will become available for future grant under the 2022 Plan. Shares used to pay the exercise price of an award or
to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2022 Plan. To the extent
an award under the 2022 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares
available for issuance under the 2022 Plan.
Notwithstanding
the foregoing and, subject to adjustment as provided in the 2022 Plan, the maximum number of shares that may be issued upon the exercise
of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the
Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under
the 2022 Plan in accordance with the foregoing.
Plan
Administration
The
Board or one or more committees appointed by the Board will administer the 2022 Plan. In addition, if the Company determines it is desirable
to qualify transactions under the 2022 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, such transactions
will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the
2022 Plan, the administrator has the power to administer the 2022 Plan and make all determinations deemed necessary or advisable for
administering the 2022 Plan, including the power to determine the fair market value of the Company’s common stock, select the service
providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for
use under the 2022 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards
may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award
or the shares relating thereto), construe and interpret the terms of the 2022 Plan and awards granted under it, prescribe, amend and
rescind rules relating to the 2022 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority
to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended
past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would
otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to
transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange
program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or
lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is
increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
Eligibility
Awards
under the 2022 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary,
members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock
options may be granted only to employees of the Company or a subsidiary.
Stock
Options
Stock
options may be granted under the 2022 Plan. The exercise price of options granted under the 2022 Plan generally must at least be equal
to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable
award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine
the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator,
as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant,
they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award
agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the
absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service.
An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2022 Plan, the administrator determines
the other terms of options.
Notwithstanding
any other provision of the 2022 Plan to the contrary, the aggregate grant date fair value of all awards granted, under the 2022 Plan,
to any director who is not an employee, during any fiscal year of the Company, taken together with any cash compensation paid to such
director during such fiscal year, shall not exceed $300,000.
Stock
Appreciation Rights
Stock
appreciation rights may be granted under the 2022 Plan. Stock appreciation rights allow the recipient to receive the appreciation in
the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights
may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their
stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time
in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months.
In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for
three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration
of its term. Subject to the provisions of the 2022 Plan, the administrator determines the other terms of stock appreciation rights, including
when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common
stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock
appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted
Stock
Restricted
stock may be granted under the 2022 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest
in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted
stock granted to any employee, director or consultant and, subject to the provisions of the 2022 Plan, will determine the terms and conditions
of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator
may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however,
that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients
of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting,
unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of
repurchase or forfeiture.
Restricted
Stock Units
RSUs
may be granted under the 2022 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of
the Company’s common stock. Subject to the provisions of the 2022 Plan, the administrator determines the terms and conditions of
RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement
of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state
securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may
pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the
foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
Performance
Units and Performance Shares
Performance
units and performance shares may be granted under the 2022 Plan. Performance units and performance shares are awards that will result
in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The
administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which
they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The
administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals
(including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator
in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce
or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall
have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial
value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion,
may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.
Non-Employee
Directors
The
2022 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options)
under the 2022 Plan. The 2022 Plan includes a maximum limit of $300,000 of equity awards that may be granted to a non-employee director
in any fiscal year. Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other
than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size
of any potential compensation or equity awards to the Company’s non-employee directors.
NOTE
14 – COMMITMENTS AND CONTINGENCIES
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus
originating in Wuhan, China (the “COVID-19 outbreak”), and the risks to the international community as the virus spreads
globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase
in exposure globally. The Company’s suppliers may decrease production levels based on factory closures and reduced operating hours
in those facilities. Likewise, the Company is dependent on its workforce to deliver its products. Developments such as social distancing
and shelter-in-place directives may impact the Company’s ability to deploy its workforce effectively. The full impact of the COVID-19
outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will
have on the Company’s financial condition, liquidity, and future results of operations.
Management
is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and
workforce. The Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time. If the pandemic continues,
it may have a material effect on the Company’s results of future operations, financial position, and liquidity in the next 12 months.
On
March 27, 2020, then-President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.”
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social
security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest
deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation
methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are
forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to
small businesses harmed by COVID-19. The Company did not obtain CARES Act relief financing under the Paycheck Protection Program
(“PPP Loans”) for each of its operating subsidiaries.
The
Company continues to examine the impact that the CARES Act may have on our business. Currently, management is unable to determine the
total impact that the CARES Act will have on our financial condition, results of operations, or liquidity.
NOTE
15 – SUBSEQUENT EVENTS
The
Company has evaluated events subsequent to June 30, 2022, to assess the need for potential recognition or disclosure in the
consolidated financial statements. Such events were evaluated through August 15, 2022, the date and time the unaudited consolidated
financial statements were issued, and it was determined that no subsequent events, except as follows, occurred that required
recognition or disclosure in the unaudited consolidated financial statements.
On
July 11, 2022, the Company entered into a securities purchase agreement, dated as of July 8, 2022, with 1800 Diagonal Lending LLC (“Diagonal
Lending”), pursuant to which the Company issued, on July 11, 2022, a convertible promissory note to Diagonal Lending in the aggregate
principal amount of $61,812.50 for a purchase price of $56,437.50, reflecting a $5,375.00 original issue discount.
The
Note has a maturity date of July 8, 2023 (the “Maturity Date”) and bears interest at 10% per annum. No payments of the principal
amount or interest are due prior to the Maturity Date, other than as specifically set forth in the Note. The Company may not prepay the
Note prior to the Maturity Date, other than by way of a conversion initiated by Diagonal Lending.
The
Note provides Diagonal Lending with conversion rights to convert all or any part of the outstanding and unpaid principal amount of the
Note at any time, from time to time, and at any time during the period beginning on the date which is 180 days following the date of
the Note and ending on the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as defined in the Note).
Notwithstanding the foregoing, Diagonal Lending shall not be entitled to a conversion under the Note upon which the sum of (1) the number
of shares of the Company’s common stock beneficially owned by Diagonal Lending and its affiliates (other than shares of common
stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Note or the unexercised or unconverted
portion of any other security of the Company subject to a similar limitation on conversion or exercise) and (2) the number of shares
of common stock issuable upon the conversion would result in beneficial ownership by Diagonal Lending and its affiliates of more than
4.99% of the outstanding shares of common stock.
The
conversion price (“Conversion Price”) is equal to the lesser of the Variable Conversion Price (as defined in the Note) and
Fixed Conversion Price (as defined in the Note), which is $1.00. The “Variable Conversion Price” is defined in the Note as
75% multiplied by the lowest VWAP for shares of Common Stock during the 20 trading days immediately preceding the Conversion Date (as
defined in the Note).
2023
Equity Incentive Plan
On
July 11, 2022, the Board and stockholders holding a majority of the voting power of the Company approved and adopted the Clubhouse Media
Group, Inc. 2023 Equity Incentive Plan (the “2023 Plan”).
A
total of 75,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2023 Plan.
Additionally,
if any award issued pursuant to the 2023 Plan expires or becomes unexercisable without having been exercised in full, is surrendered
pursuant to an exchange program, as provided in the 2023 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”),
performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares
(or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto
will become available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). With respect to stock appreciation
rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2023 Plan; all remaining
shares under stock appreciation rights will remain available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated).
Shares that have actually been issued under the 2023 Plan under any award will not be returned to the 2023 Plan and will not become available
for future distribution under the 2023 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted
stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure
to vest, such shares will become available for future grant under the 2023 Plan. Shares used to pay the exercise price of an award or
to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2023 Plan. To the extent
an award under the 2023 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares
available for issuance under the 2023 Plan.
Notwithstanding
the foregoing and, subject to adjustment as provided in the 2023 Plan, the maximum number of shares that may be issued upon the exercise
of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the
Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under
the 2023 Plan in accordance with the foregoing.
Reiman
Joint Venture & Employment Agreement
On
July 31, 2022 (the “Effective Date”), the Company entered into a joint venture deal memo (the “Agreement”) with
Alden Henri Reiman, pursuant to which the parties agreed to enter into a more permanent joint venture arrangement, involving the creation
of a Nevada limited liability company, The Reiman Agency LLC (the “Agency”), of which the Company shall own 51% of the membership
units, and Mr. Reiman shall own 49% of the membership units. The parties’ respective membership interests will be non-transferrable,
and the Agency will not issue additional membership interests, unless the parties mutually consent in each instance.
Mr.
Reiman will oversee the day-to-day operations of the Agency, but will consult with the Company on a regular basis and regularly update
the Company on the status of deals and the operations of the business. All material business and financial decisions will be subject
to the Company’s final approval.
In
the event that Mr. Reiman determines that office space is required to properly carry on the business of the Agency, Mr. Reiman shall
have the authority to lease a reasonable office space on behalf of the Agency, subject to the Company’s prior review and approval.
The Company has agreed and approved an office leasing budget of up to $200,000 annually.
On
the Effective Date, the parties closed the Agreement by executing an Operating Agreement for the Agency, dated the Effective Date, which
encapsulates the essential terms and conditions contained in the Agreement.
Mr.
Reiman was appointed as President of the Agency. In connection therewith, on the Effective Date, the Company and the Agency, a majority
owned subsidiary of the Company, entered into a written Executive Employment Agreement (the “Employment Agreement”) with
Mr. Reiman for a term of two years following the Effective Date (the “Initial Term”). The Initial Term and any renewal term
shall automatically be extended for up to two more additional terms of two years, for an aggregate of up to six years.
The
Employment Agreement provides Mr. Reiman with an monthly base salary of $37,500 per month; provided however, that if within the three
month period following execution of the Employment Agreement the Agency is profitable, the base salary will increase to $42,500 per month.
Mr.
Reiman is also entitled to:
(i) A
one-time signing bonus of $125,000, as well as an additional $125,000, which shall be paid in equal monthly installments over the first
three months, subject to a reasonable claw back in the event of a termination for cause; and
(ii) 25,000,000
shares of unregistered Company common stock.
Additionally,
on the last day of each month of the term, Mr. Reiman shall be entitled to an amount of shares equal to 7.5% of the net receipts for
the applicable month (“Additional Shares”), divided by the 20-day VWAP of such shares from the last day of the applicable
month. All Additional Shares issued to Mr. Reiman pursuant to the Employment Agreement shall be issued to Mr. Reiman within seven business
days of the date such shares vest.
Mr.
Reiman shall also be entitled to 25% of the net receipts, generated by the Agency during each month.
Subsequent
Issuance:
In
July 2022, the Company issued 342,288,233 shares to settle a conversion of $786,432 convertible promissory note principal and
accrued interest.
In
July 2022, the Company issued 4,437,873 shares to a directors for his second quarter services.