NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST
31, 2022
(UNAUDITED)
NOTE
1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
Simplicity
Esports and Gaming Company (the “Company,” “Simplicity,” “we,” or “our”) was organized
as a blank check company under the laws of the State of Delaware on April 17, 2017. The Company was formed under the name I-AM Capital
Acquisition Company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar
business combination with one or more businesses (“Business Combination”). On November 20, 2018, the Company changed its
name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. On January 2, 2019, the Company changed its name from Smaaash
Entertainment Inc. to Simplicity Esports and Gaming Company.
Through
our wholly owned subsidiary, Simplicity Esports, LLC, acquired on January 2, 2019, the Company implements a unique approach to ensure
the ultimate fan friendly esports experience, involving gamers at the grassroots level to feel a sense of unity as we compete with top
class talent. Our management and players are known within the esports community, and we use their skills to create a seamless content
creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity is an established brand in the esports
industry with an engaged fan base competing in popular games across different genres, including PUBG, Gears of War, Smite, Guns of Boom,
and multiple EA Sports titles. Additionally, the Simplicity stream team encompasses a unique group of casters, influencers, and personalities,
all of whom connect to Simplicity’s dedicated fan base. Simplicity also operates esports gaming centers that provide the public
the opportunity to experience and enjoy gaming and esports in a social setting, regardless of skill or experience.
Through
our wholly owned subsidiary, PLAYlive Nation, Inc. (“PLAYlive”), acquired on July 29, 2019, the Company has a network of
franchised esports gaming centers. As of August 31, 2022, the Company had five corporate owned stores and 10 franchised locations operating
in various states including Arizona, California, Florida, Idaho, Maryland, Ohio, South Carolina, Texas and Washington. PLAYlive offers
a video gaming lounge concept to qualified franchisees. PLAYlive currently offers single-unit location franchises, as well as agreements
to develop multiple locations. This PLAYlive model is interlaced with the esports gaming centers mentioned above to create the ultimate
gaming center.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). In the opinion of
management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of a normal recurring nature,
which are necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods
presented.
The
accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K, as filed with the SEC on September 27, 2022. The interim results for the three months ended August 31, 2022 are not necessarily
indicative of the results to be expected for the year ending May 31, 2023 or for any future interim periods.
Basis
of Consolidation
The
accompanying unaudited consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Simplicity
Esports, LLC, PLAYlive, Simplicity Union Gap, LLC, Simplicity Kennewick, LLC, Simplicity Humble, LLC, Simplicity Frisco, LLC, Simplicity
Billings, LLC, Simplicity Brea, LLC, Simplicity Santa Rosa, LLC, Simplicity St. Louis, LLC, Simplicity St. Petersburg, LLC, Simplicity
Fullerton, LLC, Simplicity Salinas, LLC, Simplicity Tracy, LLC, Simplicity Vancouver, LLC, Simplicity Fort Bliss, LLC, and PLAYlive Nation
Holdings, LLC; its 59% owned subsidiary Simplicity One Brasil Ltda. (“Simplicity One”); its 79% owned subsidiaries Simplicity
Happy Valley, LLC and Simplicity Redmond, LLC; and its 51% owned subsidiary Simplicity El Paso.
All
significant intercompany accounts and transactions have been eliminated in consolidation.
Cash
and cash equivalents
The
Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The
Company has no cash equivalents.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable.
Cash and cash equivalents in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000.
The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such
accounts.
Financial
Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards
Board (the “FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the consolidated balance sheet.
Foreign
Currencies
Revenue
and expenses are translated at average rates of exchange prevailing during the period.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue
Recognition
In
accordance with ASC 606, Revenues from Contracts with Customers, the Company recognizes revenue when performance obligations under
the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services.
The
following describes principal activities, separated by major product or service, from which the Company generates its revenues.
The
following describes principal activities, separated by major product or service, from which the Company generates its revenues:
Company-owned
Store Sales
The
Company-owned stores principally generate revenue from retail esports gaming centers. Revenues from Company-owned stores are recognized
when the products are delivered, or the service is provided. After hours, the Company also mines for crypto currency using the computer
equipment at the company-owned stores. Crypto mining revenue is recognized as the mining occurs.
Franchise
Revenues
Franchise
revenues consist of royalties, fees and initial license fee income. Franchise royalties are based on six percent of franchise store sales
after a minimum level of sales occur and are recognized as sales occur. Any royalty reductions, including waivers or those offered as
part of a new store development incentive or as incentive for other behaviors, are recognized at the same time as the related royalty,
as they are not separately distinguishable from the full royalty rate. Franchise royalties are billed on a monthly basis.
The
Company recognizes initial franchise license fee revenue when the Company has performed substantially all the services required in the
franchise agreement. Fees received that do not meet these criteria are recorded as deferred revenues until earned. The pre-opening services
provided to franchisees do not contain separate and distinct performance obligations from the franchise right; thus, the fees collected
will be amortized on a straight-line basis beginning at the store opening date through the term of the franchise agreement, which is
typically 10 years. Franchise license renewal fees, which generally occur every 10 years, are billed before the renewal date. Fees received
for future license renewal periods are amortized over the life of the renewal period.
The
Company offers various incentive programs for franchisees including royalty incentives, new store opening incentives (i.e. development
incentives) and other support initiatives. Royalties and franchise fees sales are reduced to reflect any royalty incentives earned or
granted under these programs that are in the form of discounts.
Commissary
sales are comprised of gaming equipment and supplies sold to franchised stores and are recognized as revenue upon shipment or delivery
of the related products to the franchisees. Payments are generally due within 30 days.
Fees
for information services, including software maintenance fees, marketing fees and website maintenance, graphic and promotion fees are
recognized as revenue as such services are provided.
Esports
Revenue
Esports
is a form of competition using video games. Most commonly, esports takes the form of organized, single player and multiplayer video game
tournaments or leagues, particularly between professional players, individually or as teams. Revenues from Esports revenues are recognized
when the competition is completed, and prize money is awarded. Revenues earned from team sponsorships, prize winnings, league sponsorships,
and from the Company’s share of league revenues are included in esports revenue.
Deferred
Revenues
Deferred
revenues are classified as current or long-term based on when management estimates the revenues will be recognized.
The
Company receives payments from franchisees in advance of all performance obligations having been met, including but not limited to franchise
locations being opened. As certain conditions agreed to in these franchise agreements are performed, revenues are recognized.
Deferred
costs include commissions paid to brokers related to the sale of specific new franchises which have not met revenue recognition criteria
as of August 31, 2022, and May 31, 2022. These costs are recognized in the same period as the initial franchise fee revenue is recognized.
The
table below summarizes Deferred Revenues as of August 31, 2022:
SCHEDULE
OF DEFERRED REVENUES
| | |
May
31, 2022 | | |
Revenue
Recognized | | |
August
31, 2022 | |
| Deferred
Revenue | |
$ | 180,388 | | |
$ | 5,942 | | |
$ | 174,446 | |
| Total | |
$ | 180,388 | | |
$ | 5,942 | | |
$ | 174,446 | |
Accounts
Receivable
The
Company estimates the allowance for doubtful accounts based on an analysis of specific customers (i.e. franchisees), taking into consideration
the age of past due accounts and an assessment of the customer’s ability to pay. Accounts receivable are written off against the
allowance when management determines it is probable the receivable is worthless. Customer account balances with invoices dated over 90
days old are considered delinquent and considered in the allowance assessment. The Company performs credit evaluations of its customers
and, generally, requires no collateral. Management has assessed accounts receivable and an allowance for doubtful accounts of approximately
$68,879 and $39,000 has been recorded as of August 31, 2022, and May 31 2022, respectively.
Inventory
Inventories
are stated at the lower of cost or market. The company periodically reviews the value of items in inventory and provides write-downs
or write-offs of inventory based on its assessment of market conditions. The Company has recorded an impairment of approximately $75,733
during the three months ended August 31, 2022, related to the closure of Company owned stores during the fiscal quarter.
Property
and Equipment
Property
and equipment and leasehold improvements are recorded at its historical cost. The cost of property and equipment is depreciated over
the estimated useful lives, when placed in service (ranging from 3 -5 years), of the related assets utilizing the straight-line method
of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or
the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized
and expensed if they benefit future periods.
The
Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be
recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total
of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess
of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or
the fair value less costs to sell. The Company has recorded impairment charges of approximately $125,622 as of August 31, 2022, related
to the closure of stores during the fiscal quarter.
Intangible
Assets and Impairment
Intangible
assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. These costs were included
in intangible assets on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives
of the costs, which is 3 to 5 years.
The
Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future
cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. For the three months ended August 31, 2022, the Company performed an internal evaluation of
the intangible assets which indicated impairment was required and recorded an impairment charge of approximately $1,004,142 during the
three months ended August 31, 2022, see Note 5. The impairment charges recorded during the quarter relate to the Company’s intention
to potentially integrate a software company through an acquisition which may close in December 2022, provided multiple precedent conditions
have been met.
Goodwill
Goodwill
is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we
assess our goodwill for impairment at least annually. Our assessment date is May 31, and we performed an internal evaluation of the goodwill
value at August 31, 2022 with quantitative and qualitative considerations. Based on this internal evaluation, we recorded an impairment
charge of $1,472,884 during the three months ended August 31, 2022. The impairment charges recorded during the quarter relate to the
Company’s intention to potentially integrate a software company through an acquisition which may close in December 2022, provided
multiple precedent conditions have been met.
Franchise
Locations
Through
PLAYlive, the Company’s wholly owned subsidiary, the Company has entered into franchise agreements with third parties. As of August
31, 2022, 12 franchise locations were considered to be operational in various states including Arizona, California, Florida, Idaho, Maryland,
Ohio, South Carolina, Texas and Washington.
Stock-based
Compensation
The
Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation
The
Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based
Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration
are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service
period, which is generally the vesting period.
Non
employee stock-based payments
The
Company records stock-based payments made to non-employees in accordance with Accounting Standards Update (“ASU”) 2018-07,
Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting
for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions.
Basic
Income (Loss) Per Share
The
Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income (loss) - per
share is calculated by dividing the Company’s net income (loss) by the weighted average number of common shares outstanding during
the period. Diluted earnings or loss per common share is calculated by dividing the Company’s net income or loss available to common
stockholders by the diluted weighted average number of common shares outstanding during the period. The diluted weighted average number
of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. For this calculation
potentially dilutive securities consist primarily of warrants, outstanding options and shares into which the company’s convertible
notes payable are convertible. When the Company records a loss from operations, all potentially dilutive shares are anti-dilutive and
are consequently excluded from the calculation of diluted net loss per common share.
Income
Taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an
asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed
for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in future taxable
or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC
Topic 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statements recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities.
Recently
Issued and Recently Adopted Accounting Pronouncements
Accounting
standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial
statements. The following are a summary of recent accounting developments.
In
August 2020, the FASB issued ASU 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) (“ASU 2020-06”) to simplify accounting for certain financial
instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features
from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts
in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments
that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective June 1, 2023 and should be applied
on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is evaluating the
impact of the adoption of ASU 2020-06 on the Company’s financial statements.
In
May 2021, the FASB issued ASU 2021-04, Earning Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50),
Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic
815-40), which clarified and reduced diversity in an issuer’s accounting for modifications of exchanges of freestanding equity-classified
written call options (such as warrants) that remain equity classified after modification or exchange. This update will be effective for
the Company as of June 1, 2023. The Company is currently assessing the potential impact of ASU 2021-04 to our consolidated financial
statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on the Company’s financial statements.
Going
Concern, Liquidity and Management’s Plan
The
Company’s unaudited consolidated financial statements have been prepared assuming that it will continue as a going concern, which
contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the unaudited consolidated financial statements, as of August 31, 2022, the Company had an accumulated deficit of $33,995,554,
a working capital deficit of $5,515,754, and a net loss attributable to common shareholders of $4,157,110. These factors raise substantial
doubt about the Company’s ability to continue as a going concern within one year from the of the date that the unaudited financial
statements are issued.
The
Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional
funds by way of private and/or public offerings. While the Company believes in the viability of its strategy and its ability to generate
sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional
capital, it may be compelled to reduce the scope of its planned future business activities.
The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.
The
unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a
going concern.
In
December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely
concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections
have been reported globally.
Because
COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued
stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations
and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed
effective April 1, 2020. We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and subsequently reopened the majority of
our company owned stores and franchise locations. Although our franchise agreements with franchisees of Simplicity Gaming Centers require
a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating,
there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly
royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no
longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee.
The
ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may
emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or
the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced
operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse
impact on our business, financial condition and results of operations.
The
measures taken to date impacted the Company’s business for the fiscal year ended May 31, 2022 as well as the fiscal quarter ended
August 31, 2022 and will potentially continue to impact the Company’s business. Management expects that all of its business segments,
across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s
business and the duration for which it may have an impact cannot be determined at this time.
NOTE
3 — DISPOSITIONS
On
June 10, 2022, the Company and Simplicity One, the Company’s majority owned subsidiary, entered into an asset purchase
agreement with a third party in which the third party acquired the Riot Games license for consideration of $391,776
payable in five equal installments between the closing date of the transaction and June 10, 2023. Upon the disposition of the
license, the Company recorded $391,776
as another receivable and recognized a gain of $240,924
during the three months ended August 31, 2022. During the three months ended August 31, 2022, the Company collected $75,500
of the purchase price consideration resulting in an Other receivable sale of Brazil assets balance of $316,276
as of August 31, 2022.
NOTE
4 — PROPERTY, PLANT AND EQUIPMENT
The
following is a summary of property, plant, and equipment—at cost, less accumulated depreciation:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
August
31, 2022 | | |
May
31, 2022 | |
| | |
| | |
| |
| Leasehold
improvements | |
$ | 17,877 | | |
$ | 50,981 | |
| Property
and equipment | |
| 328,811 | | |
| 477,812 | |
| Total
cost | |
| 346,688 | | |
| 528,793 | |
| Less
accumulated depreciation | |
| (295,156 | ) | |
| (333,591 | ) |
| Net
property plant and equipment | |
$ | 51,532 | | |
$ | 195,202 | |
Depreciation
expense for the three months ended August 31, 2022, and 2021 was $18,048 and $81,737, respectively. During the three months ended August
31, 2022, and 2021 impairment expense of $125,622 and $0 was recorded by the Company, respectively.
NOTE
5 — INTANGIBLE ASSETS
The
following table sets forth the intangible assets, including accumulated amortization as of August 31, 2022:
SCHEDULE OF INTANGIBLE ASSETS
| | |
August
31, 2022 |
| | |
Remaining | |
| | |
Accumulated | | |
Net
Carrying | |
| | |
Useful
Life | |
Cost | | |
Amortization | | |
Value | |
| Internet
Domain | |
2
years | |
$ | 3,000 | | |
$ | 3,000 | | |
$ | - | |
| | |
| |
$ | 3,000 | | |
$ | 3,000 | | |
$ | - | |
The
following tables set forth the intangible assets, including accumulated amortization as of May 31, 2022:
| | |
May
31, 2022 |
| | |
Remaining | |
| | |
Accumulated | | |
Net
Carrying | |
| | |
Useful
Life | |
Cost | | |
Amortization | | |
Value | |
| Trademarks | |
Indefinite | |
| 866,000 | | |
| - | | |
| 866,000 | |
| Customer
Database | |
2
months | |
| 35,000 | | |
| 33,542 | | |
| 1,458 | |
| Restrictive
Covenant | |
2
months | |
| 115,000 | | |
| 110,208 | | |
| 4,792 | |
| Customer
Contracts | |
Varies | |
| 185,563 | | |
| 50,671 | | |
| 134,892 | |
| | |
| |
$ | 1,201,563 | | |
$ | 194,421 | | |
$ | 1,007,142 | |
During
the three months ended August 31, 2022 and 2021, the Company recorded impairment expense of $1,004,142 and $0 respectively, related to
intangible assets.
The
following table sets forth the future amortization of the Company’s intangible assets as of August 31, 2022 for the fiscal years
ending May 31:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| | |
2022 | | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
Thereafter | | |
Total | |
| Non-Competes | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| Customer
Contracts | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Restrictive
Covenant | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Customer
Database | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Internet
Domain | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Total | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Amortization
expense for the three months ended August 31, 2022, and 2021 was $333 and $77,188, respectively.
Goodwill
The
Company’s goodwill carrying amounts relate to the acquisitions of Simplicity Esports LLC and PLAYlive. The composition of the goodwill
balance, is as follows:
SCHEDULE
OF GOODWILL
| | |
Three
Months Ended August
31, 2022 | | |
Fiscal
Year Ended May
31, 2022 | |
| | |
| | |
| |
| Simplicity
Esports LLC | |
$ | - | | |
$ | 1,034,662 | |
| PLAYlive
Nation Inc. | |
| - | | |
| 413,222 | |
| Ft.
Bliss | |
| - | | |
| 25,000 | |
| Total
Goodwill | |
$ | - | | |
$ | 1,472,884 | |
During
the three months ended August 31, 2022, and 2021 the Company recorded impairment expense of $1,472,884 and $0 respectively.
NOTE
6 — RELATED PARTY TRANSACTIONS
Kaplan
Promissory Notes
On
December 10, 2021, the Company entered into a related party transaction with Jed Kaplan, the Company’s then Chairman of the Board
and a more than 5% shareholder, to provide a loan to the Company to provide additional operating funds for Simplicity One, the Company’s
majority owned subsidiary. The principal amount of the loan was $247,818.
The loan bears interest at a rate of 5%
per annum and the entire amount of the principal and accrued interest was due on June
10, 2022. For the quarter ended August 31, 2022,
the Company recorded interest expense of $339
with no similar expense in the prior period.
On June 10, 2022, the loan and accrued interest of $6,178 were converted into a 17% equity stake in Simplicity One, increasing Kaplan’s
total stake to 37% and reducing the Company’s stake to 59% (Note 8 - Debt).
NOTE
7 — COMMITMENTS AND CONTINGENCIES
As
of August 31, 2022, the Company has entered into various leases for its corporate office and its gaming centers.
The
following table summarizes the right-of use asset and lease liability as of August 31, 2022:
SUMMARIZES OF
RIGHT OF USE ASSET AND LEASE LIABILITY
| | |
| | |
| Right-of-use
Asset, net | |
$ | 415,958 | |
| | |
| | |
| Lease
Liability | |
| | |
| Current | |
$ | 357,187 | |
| Long
Term | |
| 981,692 | |
| Total | |
$ | 1,338,879 | |
During
the three months ended August 31, 2022, the Company recognized a loss on impairment of $116,935 related to the closure of two Company
owned stores subsequent to the end of the reporting period. The corresponding lease liabilities will remain until the Company concludes
negotiation with the lessors.
The
following table summarizes the Company’s scheduled future minimum lease payments as of August 31, 2022:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS
| | |
| | |
| 2023 | |
$ | 450,377 | |
| 2024 | |
| 452,511 | |
| 2025 | |
| 405,795 | |
| 2026 | |
| 321,952 | |
| 2027
and beyond | |
| 47,500 | |
| Total
Operating Lease Obligations | |
$ | 1,678,135 | |
| Less:
Amount representing imputed interest | |
| (339,256 | ) |
| Present
value of minimum lease payments | |
$ | 1,338,879 | |
| Less
current portion | |
| 357,187 | |
| Long
term portion | |
$ | 981,692 | |
As
of August 31, 2022, and May 31, 2022, the weighted-average remaining lease terms was 3.2 years and 3.6 years, respectively. Due to the
fact that we do not have access to the rate implicit in the lease, we utilized our incremental borrowing rate as the discount rate. The
weighted average discount rate associated with the lease as of August 31, 2022, and May 31, 2022, was 12%, respectively.
Employment
Agreements, Board Compensation and Bonuses
On
July 29, 2020, (i) the Company entered into an employment agreement (the “Kaplan 2020 Agreement”) with Mr. Kaplan; and (ii)
the Board of Directors approved for Mr. Kaplan a $75,000 cash bonus and authorized the issuance of 250,000 shares of the Company’s
common stock, both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2022, the Company still owed
Mr. Kaplan $35,000 of the 2020 bonus award.
Effective
March 29, 2021, the Company promoted Mr. Kaplan to be the Chairman of the Board of Directors, and he ceased to be the Company’s
Chief Executive Officer and Interim Chief Financial Officer. Upon this change, Mr. Kaplan’s new monthly salary became $4,000 per
month and the Kaplan 2020 Agreement was terminated.
On
July 29, 2020, (i) the Company entered into an employment agreement (the “Franklin 2020 Agreement”) with Mr. Franklin; and
(ii) the Board of Directors approved for Mr. Franklin a $75,000 cash bonus and authorized the issuance of 250,000 fully vested shares
of the Company’s common stock, both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2022,
the Company still owed Mr. Franklin $35,000 of the 2020 bonus award.
On
March 25, 2021, the Board of Directors appointed Mr. Franklin as the Company’s Chief Executive Officer, effective March 29, 2021.
Mr. Franklin continues to be a member of our board of directors. In connection with Mr. Franklin’s appointment, on March 25, 2021,
the Company entered into an employment agreement, dated as of March 29, 2021, by and between the Company and Mr. Franklin (the “2021
Franklin Employment Agreement”). Pursuant to the terms of the 2021 Franklin Employment Agreement, in exchange for Mr. Franklin’s
services, the Company agreed to pay Mr. Franklin an annual base salary of $250,000. Mr. Franklin is also eligible to receive a quarterly
bonus of up to $15,000 in the form of a cash bonus and/or equity grant of shares of the Company’s common stock. Mr. Franklin’s
eligibility for any bonus and the amount thereof will be determined solely at the discretion of the Board of Directors.
On
May 11, 2021, the Board appointed Nancy Hennessey to serve as the Company’s Chief Financial Officer, effective May 17, 2021. In
connection with Ms. Hennessey’s appointment as the Company’s Chief Financial officer, the Company entered into an employment
agreement, dated as of May 17, 2021, by and between the Company and Ms. Hennessey (the “Hennessey Employment Agreement”).
Pursuant to the terms of the Hennessey Employment Agreement, in exchange for Ms. Hennessey’s services, the Company agreed to pay
Ms. Hennessey an annual base salary of $140,000. In addition, Ms. Hennessey was entitled to receive compensation in the form of an equity
grant of $5,000 in the Company’s common stock for each quarter during the term of the Hennessey Employment Agreement, which ran
for a period ending one year after May 17, 2021, and automatically renews for successive one year terms unless either party gives 60
days’ advance written notice of its intention not to renew the Hennessey Employment Agreement. Ms. Hennessey was also eligible
to receive a quarterly bonus of up to $12,500 in the form of a cash bonus and/or equity grant of shares of the Company’s common
stock. Pursuant to the terms of the Hennessey Employment Agreement, Ms. Hennessey was also to receive (i) 5,000 shares of common stock
upon filing of the 2021 Annual Report on Form 10-K, if completed before July 31, 2021, and (ii) 5,000 shares of common stock upon completion
of an uplisting to a national exchange, such as The Nasdaq Stock Market or the NYSE American. Ms. Hennessey’s eligibility for any
bonus and the amount thereof was to be determined solely at the discretion of the Board of Directors. On
June 28, 2022, Nancy Hennessey submitted her resignation as the Company’s Chief Financial Officer, effective June 30, 2022. Ms.
Hennessey’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations,
policies or practices.
NOTE
8 - DEBT
The
table below presents the Company’s outstanding debt balances as of August 31, 2022, and May 31, 2022:
SCHEDULE
OF OUTSTANDING DEBT BALANCES
| | |
| | | |
| | | |
| | | |
| | |
| | |
Convertible
Promissory Notes | | |
Secured
Promissory Notes | | |
Related Party
Debt | | |
Short-Term Note
Payable | |
| Principal
Balance as of May 31, 2022 | |
$ | 5,361,347 | | |
$ | 206,772 | | |
$ | 247,818 | | |
$ | 41,735 | |
| Carrying
Value as of May 31, 2022 | |
| 3,093,395 | | |
| 69,636 | | |
| 247,818 | | |
| 41,375 | |
| Principal | |
| | | |
| | | |
| | | |
| | |
| Borrowings | |
| 110,000 | | |
| - | | |
| - | | |
| - | |
| Repayments | |
| - | | |
| (6,922 | ) | |
| (247,818 | ) | |
| - | |
| Conversions | |
| (94,276 | ) | |
| - | | |
| - | | |
| - | |
| Totals | |
| 15,724 | | |
| (6,922 | ) | |
| (247,818 | ) | |
| - | |
| Unamortized
Debt Issuance Costs, Beneficial Conversion Feature, and Warrant Discount | |
| | | |
| | | |
| | | |
| | |
| Beginning
Balance | |
| (2,267,952 | ) | |
| (137,136 | ) | |
| - | | |
| - | |
| Additions | |
| (25,842 | ) | |
| - | | |
| - | | |
| - | |
| Accretion | |
| 784,291 | | |
| 5,193 | | |
| - | | |
| - | |
| Ending
Balance | |
| (1,509,503 | ) | |
| (131,943 | ) | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Principal
Balance as of August 31, 2022 | |
$ | 5,377,071 | | |
$ | 199,850 | | |
$ | - | | |
$ | 41,735 | |
| Carrying
Value as of August 31, 2022 | |
| 3,867,568 | | |
| 67,907 | | |
| - | | |
| 41,735 | |
| Less
Short-Term Portion | |
| 2,809,492 | | |
| - | | |
| - | | |
| 41,735 | |
| Long
Term Portion | |
$ | 1,058,076 | | |
$ | 67,907 | | |
$ | - | | |
$ | - | |
Scheduled
principal maturities of the Company’s outstanding debt over the next five fiscal years is as follows:
SCHEDULE
OF PRINCIPLE MATURITIES OF OUTSTANDING DEBT
| | |
| | |
| Fiscal
year ended May 31, | |
| |
| 2023 | |
$ | 1,956,724 | |
| 2024 | |
| 3,533,026 | |
| 2025 | |
| 46,449 | |
| 2026 | |
| 51,312 | |
| 2027 | |
| 31,145 | |
| Thereafter | |
| - | |
| Outstanding
Debt | |
$ | 5,618,656 | |
Convertible
Promissory Notes
February
19, 2021 Labrys 12% Convertible Promissory Note
On
February 19, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund LP (“Labrys”),
an accredited investor, pursuant to which the Company issued a 12% convertible promissory note (the “Labrys Note”) with a
maturity date of February 19, 2022 (the “Labrys Maturity Date”), in the principal sum of $1,650,000. In addition, the Company
issued 10,000 shares of its common stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys
Note, the Company agreed to pay to $1,650,000 (the “Labrys Principal Sum”) to Labrys and to pay interest on the principal
balance at the rate of 12% per annum (provided that the first twelve months of interest shall be guaranteed). The Labrys Note carries
an original issue discount of $165,000 (“Labrys OID”). Accordingly, the Company received net proceeds of $1,485,000 that
it used for its operational expenses and the repayment of certain existing debt obligations. Labrys may convert the Labrys Note into
the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Note) at any time at a conversion price
equal to $11.50 per share, subject to certain adjustments.
The
Company may prepay the Labrys Note at any time prior to the date that an Event of Default (as defined in the Labrys Note) (each an “Labrys
Event of Default”) occurs at an amount equal to 100% of the Labrys Principal Sum then outstanding plus accrued and unpaid interest
(no prepayment premium). The Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the Labrys Note or Labrys SPA.
Upon
Labrys’s provision of notice to the Company of the occurrence of any Labrys Event of Default, which has not been cured within five
(5) calendar days, the Labrys Note shall become immediately due and payable and the Company shall pay to Labrys, in full satisfaction
of its obligations hereunder, an amount equal to the Labrys Principal Sum then outstanding plus accrued interest multiplied by 125% (the
“Default Amount”). Upon the occurrence of an Labrys Event of Default, additional interest will accrue from the date of the
Labrys Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law.
As
of March 16, 2022, the Company and Labrys entered into an amendment (the “Labrys Amendment”) to the Labrys SPA and the Labrys
Note, as amended. Pursuant to the terms of the Labrys Amendment, the maturity date of the Labrys Note was extended to the earlier of
(i) September 15, 2022, and (ii) the date that the Company’s common stock is listed on the Nasdaq Stock Market or the New York
Stock Exchange. In addition, the Labrys Note was amended to provide that Labrys has the right, at any time on or following the date that
an event of default occurs under the Labrys Note, as amended, to convert all or any portion of the then outstanding and unpaid principal
and interest into common stock, subject to a 4.99% equity blocker. In the Labrys Amendment, the parties also agreed that the Company
has already received cash proceeds in excess of the $2,000,000 minimum threshold referenced in the Labrys Note. Pursuant to the terms
of the Labrys Amendment, Labrys waived its rights to receive any portion of the next $750,000 of cash proceeds received by the Company
to the extent that such amounts are received by the Company between March 15, 2022, and April 9, 2022.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the Labrys Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note, July 2022 GS
Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the Labrys Note was further reduced
from $1.00 per share to $0.10 per share.
During
the quarters ended August 31, 2022, the Company did not make any payments to Labrys. During the quarter ended August 31, 2022, the Company
recognized $33,671 in interest expense associated with the Labrys Note recorded as accrued interest payable.
During
the quarter ended August 31, 2021, the Company paid interim payments to the Holder in the amount of $225,000 comprised of the partial
repayment of the balance of the Labrys Note in the amount of $90,909, the repayment of guaranteed interest in the amount of $109,091
and $25,000 as an amendment fee, and the Company recorded $287,330 in interest expense for the amortization of debt discount.
As
of August 31, 2022, the carrying value and face value of the Labrys Note was $890,591 as the debt discount was fully accreted by that
date.
March
2021 FirstFire Global 12% Convertible Promissory Note
On
March 10, 2021, the Company, entered into a securities purchase agreement (the “March 2021 FirstFire SPA”) with FirstFire
Global Opportunities Fund, LLC, a Delaware limited liability company (the “FirstFire”), pursuant to which the Company issued
a 12% convertible promissory note (“March 2021 FirstFire Note”) with a maturity date of March 10, 2022, in the principal
sum of $560,000. The Company received net proceeds of $130,606, net of an original issue discount of $56,000 (“March 2021 FirstFire
OID”), net of origination fees of $8,394, and the repayment of principal and interest of $365,000 on an existing debt obligation
owed to FirstFire. In addition, the Company issued 3,394 shares of its common stock to the FirstFire as a commitment fee pursuant to
the March 2021 FirstFire SPA. Pursuant to the terms of the March 2021 FirstFire Note, the Company agreed to pay to $560,000 (the “March
2021 FirstFire Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum (provided
that the first twelve months of interest shall be guaranteed). The FirstFire may convert the March 2021 FirstFire Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the March 2021 FirstFire Note) at any time at a conversion
price equal to $11.50 per share, subject to certain adjustments.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the March 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note,
July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the March 2021 FirstFire
Note was further reduced from $1.00 per share to $0.10 per share.
The
Company may prepay the March 2021 FirstFire Note at any time prior to the date that an Event of Default (as defined in the March 2021
FirstFire Note) (each an “March 2021 FirstFire Event of Default”) occurs at an amount equal to 100% of the March 2021 FirstFire
Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The March 2021 FirstFire Note contains customary
events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions
of the March 2021 FirstFire Note or March 2021 FirstFire SPA.
Upon
FirstFire’s provision of notice to the Company of the occurrence of any March 2021 FirstFire Event of Default, which has not been
cured within five (5) calendar days the March 2021 FirstFire Note shall become immediately due and payable and the Company shall pay
to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the March 2021 FirstFire Principal Sum then outstanding
plus accrued interest multiplied by 125% (the “March 2021 FirstFire Default Amount”). Upon the occurrence of a March 2021
FirstFire Event of Default, additional interest will accrue from the date of the March 2021 FirstFire Event of Default at the rate equal
to the lower of 15% per annum or the highest rate permitted by law.
The
Company was required to make an interim payment to FirstFire in the amount of $123,200, on or before September 10, 2021, towards the
repayment of the balance of the March 2021 FirstFire Note. On September 17, 2021, the Company issued to FirstFire a three-year common
stock warrant to purchase of 40,000 shares of the Company’s common stock at $10.73 per share as consideration for FirstFire entering
into a first amendment to the March 2021 FirstFire Note in order to delay this interim payment. Upon the issuance of the warrants, the
Company recorded the fair value of the warrants in the amount of $248,547 and took a related interest expense charge of $248,547.
On
October 1, 2021, the Company issued to FirstFire a second three-year common stock warrant to purchase 40,000 shares of the Company’s
common stock at an exercise price of $10.73 per share as consideration for FirstFire entering into a second amendment to the March 2021
FirstFire Note in order to remove the capital raising ceiling in such note. Upon the issuance of the warrants, the Company recorded the
fair value of the warrants in the amount of $201,351 and took a related interest expense charge of $201,351.
On
April 29, 2022, FirstFire converted $50,000 of the outstanding principal balance of the March 2021 FirstFire Note at an adjusted conversion
price of $1.00 per share. At conversion, the Company issued 50,000 shares of common stock to FirstFire at a fair market value of $2.20
per share and recognized a loss on debt extinguishment of $60,000.
On
July 27, 2022, FirstFire converted $9,500 of the outstanding principal balance of the March 2021 FirstFire Note at an adjusted conversion
price of $0.10 per share. At conversion, the Company issued 95,000 shares of common stock to FirstFire at a fair market value of $0.13
per share and recognized a loss on debt extinguishment of $2,850.
During
the quarter ended August 31, 2022, the Company recognized $14,984 in interest expense associated with the March 2021 FirstFire Note recorded
as accrued interest payable.
During
the quarter ended August 31, 2021, the Company recognized $65,533 of amortization of debt discount related to the March 2021 FirstFire
Note.
As
of May 31, 2022, the carrying value and face value of the March 2021 FirstFire Note was $500,500 as the debt discount was full accreted
by that date.
June
2021 FirstFire Global 12% Convertible Promissory Note
On
June 11, 2021, the Company entered into a securities purchase agreement (the “June 2021 FirstFire SPA”) with FirstFire, pursuant
to which the Company issued (i) a 12% convertible promissory note (the “June 2021 FirstFire Note”) in the principal sum of
$1,266,666 (the “June 2021 FirstFire Principal Sum”), (ii) 11,875 shares of its common stock as a commitment fee (“June
2021 FirstFire Commitment Shares”), and (iii) a three-year warrant (“June 2021 FirstFire Warrant”) to purchase 593,750
shares of the Company’s common stock at an exercise price of $10.73, subject to certain adjustments.
The
following are the material terms of the June 2021 FirstFire SPA and June 2021 FirstFire Note:
| |
● |
The
June 2021 FirstFire Note matures on June 10, 2023 (the “June 2021 FirstFire Maturity Date”). |
| |
● |
At
its election, FirstFire may convert the June 2021 FirstFire Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the June 2021 FirstFire Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the June 2021 Principal Sum at the rate of 12% per annum provided that the first six months of interest
shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the
June 2021 FirstFire Note after 180 days from June 10, 2021. |
| |
● |
The
June 2021 FirstFire Note carries an original issue discount of $126,666 (“June 2021 FirstFire OID”). |
| |
● |
The
Company may prepay the June 2021 FirstFire Note at any time prior to maturity in accordance with the terms of the June 2021 FirstFire
Note. |
| |
● |
The
June 2021 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the June 2021 FirstFire Note or the June 2021 FirstFire SPA. Upon the occurrence of any
event of default (as defined in the June 2021 FirstFire Note) which has not been cured within three calendar days, the June 2021
FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations
hereunder, an amount equal to the June 2021 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the June 2021 FirstFire SPA, the June 2021 FirstFire Commitment Shares and the shares underlying the June 2021 FirstFire Note
and June 2021 FirstFire Warrant carry standard registration rights. |
Upon
issuance of the June 2021 FirstFire Note, the Company received net proceeds of $1,140,000 and used such proceeds for working capital
and to pay off an existing promissory note issued by the Company in favor of Maxim. Upon issuance of the June 2021 FirstFire Commitment
Shares, the June 2021 FirstFire Note, and the June 2021 First Fire Warrant, the Company allocated the $1,140,000 in net proceeds received
between the fair market value of the June 2021 FirstFire Commitment Shares, the beneficial conversion feature of the June 2021 FirstFire
Note, and the June 2021 FirstFire Warrant. The fair value of the June 2021 FirstFire Commitment Shares was $22,949; the fair value of
the beneficial conversion feature of the June 2021 FirstFire Note was $174,851; and the fair value of the June 2021 FirstFire Warrant
was $942,200. The combination of these three components as well as the June 2021 FirstFire OID resulted in a total debt discount at issuance
of $1,266,667 which is accreted over the term of the June 2021 FirstFire Note.
On
September 16, 2021, the Company made an interim payment to the June 2021 FirstFire Note in the amount of $175,000.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the June 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note,
July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the June 2021 FirstFire
Note was further reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $137,580, which was related to the accretion of the debt
discount.
During
the quarter ended August 31, 2021, the Company recorded interest expense of $140,548.
As
of August 31, 2022, the carrying value of the June 2021 FirstFire Note was $668,459, net of $423,208 in unaccreted debt discount.
June
2021 GS Capital Securities 12% Convertible Promissory Note
On
June 16, 2021, the Company entered into a securities purchase agreement (the “June 2021 GS SPA”) with GS Capital Partners,
LLC (“GS”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “June 2021 GS Note”)
in the principal sum of $333,333 (the “June 2021 GS Principal Sum”), (ii) 3,125 shares of its common stock as a commitment
fee (“June 2021 GS Commitment Shares”), and (iii) a three-year warrant (“June 2021 GS Warrant”) to purchase 156,250
shares of the Company’s common stock at an exercise price of $10.73, subject to certain adjustments.
The
following are the material terms of the June 2021 GS SPA and June 2021 GS Note:
| |
● |
The
June 2021 GS Note matures on June 10, 2023 (the “June 2021 GS Maturity Date”). |
| |
● |
At
its election, GS may convert the June 2021 GS Note into the Company’s common stock (subject to the beneficial ownership limitations
of 4.99% in the June 2021 GS Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at
a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the June 2021 GS Principal Sum at the rate of 12% per annum provided that the first six months of
interest shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding
under the June 2021 GS Note after 180 days from June 10, 2021. |
| |
● |
The
June 2021 GS Note carries an original issue discount of $33,333 (“June 2021 GS OID”). |
| |
● |
The
Company may prepay the June 2021 GS Note at any time prior to maturity in accordance with the terms of the June 2021 GS Note. |
| |
● |
The
June 2021 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the June 2021 GS Note or the June 2021 GS SPA. Upon the occurrence of any event of default
(as defined in the June 2021 GS Note) which has not been cured within three calendar days, the June 2021 GS Note shall become immediately
due and payable and the Company shall pay to GS, in full satisfaction of its obligations hereunder, an amount equal to the June 2021
GS Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the June 2021 GS SPA, the June 2021 GS Commitment Shares and the shares underlying the June 2021 GS Note and June 2021 GS Warrant
carry standard registration rights. |
Upon
issuance of the June 2021 GS Note, the Company received net proceeds of $300,000 and used such proceeds for working capital. Upon issuance
of the June 2021 GS Commitment Shares, the June 2021 GS Note, and the June 2021 GS Warrant, the Company allocated the $300,000 in net
proceeds received between the fair market value of the June 2021 GS Commitment Shares, the beneficial conversion feature of the June
2021 GS Note, and the June 2021 GS Warrant. The fair value of the June 2021 GS Commitment Shares was $5,963; the fair value of the beneficial
conversion feature of the June 2021 GS Note was $53,899; and the fair value of the June 2021 GS Warrant was $240,138. The combination
of these three components as well as the June 2021 GS OID resulted in a total debt discount at issuance of $333,333 which is accreted
over the term of the June 2021 GS Note.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the June 2021 GS Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note, July 2022
GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the June 2021 GS Note was further
reduced from $1.00 per share to $0.10 per share.
On
April 18, 2022, GS converted $50,333 of the outstanding principal balance the June 2021 GS Note and $3,389 in associated accrued interest
at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 53,720 shares of common stock to GS at a fair market
value of $2.77 per share and recognized a loss on debt extinguishment of $95,085.
On
July 18, 2022, GS converted $53,000 of the outstanding principal balance the June 2021 GS Note and $6,935 in associated accrued interest
at an adjusted conversion price of $0.10 per share. At conversion, the Company issued 599,350 shares of common stock to GS at a fair
market value of $0.19 per share and recognized a loss on debt extinguishment of $53,942.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $56,212 related to the accretion of the debt discount.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $34,703.
As
of August 31, 2022, the carrying value of the June 2021 GS Note was $140,836, net of $89,164 in unaccreted debt discount.
August
2021 Jefferson Street Capital 12% Convertible Promissory Note
On
August 23, 2021, the Company entered into a securities purchase agreement (the “August 2021 Jefferson SPA”) with Jefferson
Street Capital, LLC (“Jefferson”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “August
2021 Jefferson Note”) in the principal sum of $333,333 (the “August 2021 Jefferson Principal Sum”), (ii) 3,125 shares
of its common stock as a commitment fee (“August 2021 Jefferson Commitment Shares”), and (iii) a three-year warrant (“August
2021 Jefferson Warrant”) to purchase 156,250 shares of the Company’s common stock at an exercise price of $10.73, subject
to certain adjustments.
The
following are the material terms of the August 2021 Jefferson SPA and August 2021 Jefferson Note:
| |
● |
The
August 2021 Jefferson Note matures on August 23, 2023 (the “August 2021 Jefferson Maturity Date”). |
| |
● |
At
its election, Jefferson may convert the August 2021 Jefferson Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the August 2021 Jefferson Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the August 2021 Jefferson Principal Sum at the rate of 12% per annum provided that the first six
months of interest shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding
under the August 2021 Jefferson Note after 180 days from August 23, 2021. |
| |
● |
The
August 2021 Jefferson Note carries an original issue discount of $33,333 (“August 2021 Jefferson OID”). |
| |
● |
The
Company may prepay the August 2021 Jefferson Note at any time prior to maturity in accordance with the terms of the August 2021 Jefferson
Note. |
| |
● |
The
August 2021 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the August 2021 Jefferson Note or the August 2021 Jefferson SPA. Upon the occurrence
of any event of default (as defined in the August 2021 Jefferson Note) which has not been cured within three calendar days, the August
2021 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson, in full satisfaction of its
obligations hereunder, an amount equal to the August 2021 Jefferson Principal Sum then outstanding plus accrued interest multiplied
by 125%. |
| |
● |
Pursuant
to the August 2021 Jefferson SPA, the August 2021 Jefferson Commitment Shares underlying and the shares underlying the August 2021
Jefferson Note and August 2021 Jefferson Warrant carry standard registration rights. |
Upon
issuance of the August 2021 Jefferson Note, the Company received net proceeds of $300,000 and used such proceeds for working capital
as well as the payment of $15,000 in fees associated with the loan. Upon issuance of the August 2021 Jefferson Commitment Shares, the
August 2021 Jefferson Note, and the August 2021 Jefferson Warrant, the Company allocated the $300,000 in net proceeds received between
the fair market value of the August 2021 Jefferson Commitment Shares, the beneficial conversion feature of the August 2021 Jefferson
Note, and the August 2021 Jefferson Warrant. The fair value of the August 2021 Jefferson Commitment Shares was $4,945; the fair value
of the beneficial conversion feature of the August 2021 Jefferson Note was $62,051; and the fair value of the August 2021 Jefferson Warrant
was $233,004. The combination of these three components as well as the August 2021 Jefferson OID resulted in a total debt discount at
issuance of $333,333 which is accreted over the term of the August 2021 Jefferson Note. The $15,000 paid as loan origination fees was
recorded directly to additional paid in capital.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the August 2021 Jefferson Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note,
July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the August 2021 Jefferson
Note was further reduced from $1.00 per share to $0.10 per share.
On
August 23, 2022, GS converted $10,000 of the outstanding principal balance the August 2021 Jefferson Note and $1,000 in associated fees
at an adjusted conversion price of $0.10 per share. At conversion, the Company issued 110,000 shares of common stock to Jefferson at
a fair market value of $0.075 per share and recognized a gain on debt extinguishment of $2,750.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $47,941, comprised of $46,941 related to the accretion of
the debt discount and $1,000 in fees associated with the conversion.
During
the quarter ended August 31, 2021, the Company recorded interest expense of $685.
As
of August 31, 2022, the carrying value of the August 2021 Jefferson Note was $163,882, net of $159,452 in unaccreted debt discount.
August
2021 Lucas Ventures Capital 12% Convertible Note
On
August 31, 2021, the Company entered into a securities purchase agreement (the “August 2021 Lucas SPA”) with Lucas Ventures,
LLC (“Lucas”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “August 2021 Lucas Note”)
in the principal sum of $200,000 (the “August 2021 Lucas Principal Sum”), (ii) 3,749 shares of its common stock as a commitment
fee (“August 2021 Lucas Commitment Shares”), and (iii) a three-year warrant (“August 2021 Lucas Warrant”) to
purchase 187,400 shares of the Company’s common stock at an exercise price of $10.22, subject to certain adjustments.
The
following are the material terms of the August 2021 Lucas SPA and August 2021 Lucas Note:
| |
● |
The
August 2021 Lucas Note matures on August 31, 2023 (the “August 2021 Lucas Maturity Date”). |
| |
● |
At
its election, Lucas may convert the August 2021 Lucas Note into the Company’s common stock (subject to the beneficial ownership
limitations of 4.99% in the August 2021 Lucas Note; provided however, that the limitation on conversion may be waived up to 9.99%)
at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the August 2021 Lucas Principal Sum at the rate of 12% per annum provided that the first six months
of interest shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding
under the August 2021 Lucas Note after 180 days from August 31, 2021. |
| |
● |
The
August 2021 Lucas Note carries an original issue discount of $20,000 (“August 2021 Lucas OID”). |
| |
● |
The
Company may prepay the August 2021 Lucas Note at any time prior to maturity in accordance with the terms of the August 2021 Lucas
Note. |
| |
● |
The
August 2021 Lucas Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the August 2021 Lucas Note or the August 2021 Lucas SPA. Upon the occurrence of any event
of default (as defined in the August 2021 Lucas Note) which has not been cured within three calendar days, the August 2021 Lucas
Note shall become immediately due and payable and the Company shall pay to Lucas, in full satisfaction of its obligations hereunder,
an amount equal to the August 2021 Lucas Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the August 2021 Lucas SPA, the August 2021 Lucas Commitment Shares underlying and the shares underlying the August 2021 Lucas
Note and August 2021 Lucas Warrant carry standard registration rights. |
Upon
issuance of the August 2021 Lucas Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well
as the payment of $9,000 in fees associated with the loan. Upon issuance of the August 2021 Lucas Commitment Shares, the August 2021
Lucas Note, and the August 2021 Lucas Warrant, the Company allocated the $180,000 in net proceeds received between the fair market value
of the August 2021 Lucas Commitment Shares, the beneficial conversion feature of the August 2021 Lucas Note, and the August 2021 Lucas
Warrant. The fair value of the August 2021 Lucas Commitment Shares was $3,903; the fair value of the beneficial conversion feature of
the August 2021 Lucas Note was $22,149; and the fair value of the August 2021 Lucas Warrant was $153,948. The combination of these three
components as well as the August 2021 Lucas OID resulted in a total debt discount at issuance of $200,000 which is accreted over the
term of the August 2021 Lucas Note. The $9,000 paid as loan origination fees was recorded directly to additional paid in capital.
On
March 16, 2022, the Company and Lucas Ventures entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the “Lucas
Amendment”). Pursuant to the terms of the Lucas Amendment, the parties agreed that the conversion price of the August 2021 Lucas
Note was decreased from $11.50 per share to $1.00 per share and that Lucas may not convert the August 2021 Lucas Note, as amended, prior
to September 15, 2022. Upon the issuance of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson
Note described below, the conversion price of the August 2021 Lucas Note was further reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $25,205, related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the August 2021 Lucas Note was $99,999, net of $100,001 in unaccreted debt discount.
August
2021 LGH Investments, LLC 12% Convertible Promissory Note
On
August 31, 2021, the Company and LGH Investments, LLC, (“LGH”) entered into a securities purchase agreement (the “August
2021 LGH SPA”) pursuant to which the Company issued a 12% convertible promissory note (the “August 2021 LGH Note”)
in the principal sum of $200,000 (the “August 2021 LGH Principal Sum”).
The
following are the material terms of the August 2021 LGH SPA and August 2021 LGH Note:
| |
● |
The
August 2021 LGH Note matures on August 31, 2023 (the “August 2021 LGH Maturity Date”). |
| |
● |
At
its election, LGH may convert the August 2021 LGH Note into the Company’s common stock (subject to the beneficial ownership
limitations of 4.99% in the August 2021 LGH Note; provided however, that the limitation on conversion may be waived up to 9.99%)
at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the August 2021 LGH Principal Sum at the rate of 12% per annum provided that the first six months
of interest shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding
under the August 2021 LGH Note after 180 days from August 31, 2021. |
| |
● |
The
August 2021 LGH Note carries an original issue discount of $20,000 (“August 2021 LGH OID”). |
| |
● |
The
Company may prepay the August 2021 LGH Note at any time prior to maturity in accordance with the terms of the August 2021 LGH Note. |
| |
● |
The
August 2021 LGH Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the August 2021 LGH Note or the August 2021 LGH SPA. Upon the occurrence of any event
of default (as defined in the August 2021 LGH Note which has not been cured within three calendar days, the August 2021 LGH Note
shall become immediately due and payable and the Company shall pay to LGH, in full satisfaction of its obligations hereunder, an
amount equal to the August 2021 LGH Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the August 2021 LGH SPA, the shares underlying the August 2021 LGH Note carry standard registration rights. |
Upon
issuance of the August 2021 LGH Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well
as the payment of $6,500 in fees associated with the loan. Upon issuance of the August 2021 LGH, the Company recorded a total debt discount
of $26,500 that includes the LGH OID and the $6,500 paid as fees associated with the issuance of the loan and is accreted over the term
of the August 2021 LGH Note.
As
of March 16, 2022, the Company and LGH entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the “LGH Amendment”).
Pursuant to the terms of the LGH Amendment, the parties agreed that the conversion price of the August 2021 LGH Note was decreased from
$11.50 per share to $1.00 per share and that LGH may not convert the LGH Note, as amended, prior to September 15, 2022. Upon the issuance
of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion
price of the August 2021 LGH Note was further reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $3,340 related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the August 2021 LGH Note was $186,750, net of $13,250 in unaccreted debt discount.
September
2021 Ionic Ventures, LLC 12% Convertible Promissory Note
On
September 28, 2021, the Company entered into a securities purchase agreement (the “September 2021 Ionic SPA”) with Ionic
Ventures, LLC (“Ionic”), pursuant to which the Company issued (i) a 12% convertible promissory note (the “September
2021 Ionic Note”) in the principal sum of $1,555,556 (the “September 2021 Ionic Principal Sum”), (ii) 14,584 shares
of its common stock as a commitment fee (“September 2021 Ionic Commitment Shares”), and (iii) a three-year warrant (“September
2021 Ionic Warrant”) to purchase 729,167 shares of the Company’s common stock at an exercise price of $10.73, subject to
certain adjustments.
The
following are the material terms of the September 2021 Ionic SPA and September 2021 Ionic Note:
| |
● |
The
September 2021 Ionic Note matures on September 28, 2023 (the “September 2021 Ionic Maturity Date”). |
| |
● |
At
its election, Ionic may convert the September 2021 Ionic Note into the Company’s common stock (subject to the beneficial ownership
limitations of 4.99% in the September 2021 Ionic Note; provided however, that the limitation on conversion may be waived up to 9.99%)
at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the September 2021 Ionic Principal Sum at the rate of 12% per annum provided that the first six
months of interest shall be guaranteed, and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding
under the September 2021 Ionic Note after 180 days from September 28, 2021. |
| |
● |
The
September 2021 Ionic Note carries an original issue discount of $155,556 (“September 2021 Ionic OID”). |
| |
● |
The
Company may prepay the September 2021 Ionic Note at any time prior to maturity in accordance with the terms of the September 2021
Ionic Note. |
| |
● |
The
September 2021 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the August 2021 Ionic Note or the September 2021 Ionic SPA. Upon the occurrence of any
event of default (as defined in the September 2021 Ionic Note) which has not been cured within three calendar days, the August 2021
Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction of its obligations hereunder,
an amount equal to the September 2021 Ionic Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the September 2021 Ionic SPA, the September 2021 Ionic Commitment Shares underlying and the shares underlying the September 2021
Ionic Note and September 2021 Ionic Warrant carry standard registration rights. |
Upon
issuance of the September 2021 Ionic Note, the Company received net proceeds of $1,400,000 and used such proceeds for working capital
as well as the payment of $98,000 in fees associated with the loan. Upon issuance of the September 2021 Ionic Commitment Shares, the
September 2021 Ionic Note, and the September 2021 Ionic Warrant, the Company allocated the $1,400,000 in net proceeds received between
the fair market value of the September 2021 Ionic Commitment Shares, the beneficial conversion feature of the September 2021 Ionic Note,
and the September 2021 Ionic Warrant. The fair value of the September 2021 Ionic Commitment Shares was $26,721; the fair value of the
beneficial conversion feature of the September 2021 Ionic Note was $335,303; and the fair value of the September 2021 Ionic Warrant was
$1,037,976. The combination of these three components as well as the September 2021 Ionic OID resulted in a total debt discount at issuance
of $1,555,556 which is accreted over the term of the September 2021 Ionic Note. The $98,000 paid as loan origination fees was recorded
directly to additional paid in capital.
Upon
the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of
the September 2021 Ionic Note was reduced from $11.50 per share to $1.00 per share. Upon the issuance of the July 2022 FirstFire Note,
July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below, the conversion price of the September 2021 Ionic
Note was further reduced from $1.00 per share to $0.10 per share.
On
April 25, 2022, Ionic converted $87,800 of the outstanding principal balance the September 2021 Ionic Note at an adjusted conversion
price of $1.00 per share. At conversion, the Company issued 87,800 shares of common stock to Ionic at a fair market value of $2.61 per
share and recognized a loss on debt extinguishment of $141,358.
On
July 28, 2022, Ionic converted $6,776 of the outstanding principal balance the September 2021 Ionic Note at an adjusted conversion price
of $0.10 per share. At conversion, the Company issued 67,755 shares of common stock to Ionic at a fair market value of $0.13 per share
and recognized a loss on debt extinguishment of $2,033.
On
August 24, 2022, Ionic converted $15,000 of the outstanding principal balance the September 2021 Ionic Note at an adjusted conversion
price of $0.10 per share. At conversion, the Company became obligated to issue 150,000 shares of common stock to Ionic at a fair market
value of $0.075 per share and recognized a gain on debt extinguishment of $4,500. As of August 31, 2022, these shares are classified
as common stock to be issued.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $302,506 related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the September 2021 Ionic Note was $771,322, net of $674,658 in unaccreted debt discount.
March
2022 FirstFire Global 12% Convertible Promissory Note
On
March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 FirstFire SPA”) with FirstFire,
pursuant to which the Company issued (i) a 12% convertible promissory note (the “March 2022 FirstFire Note”) in the principal
sum of $110,000 (the “March 2022 FirstFire Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“March
2022 FirstFire Commitment Shares”), and (iii) a three-year warrant (“March 2022 FirstFire Warrant”) to purchase 50,000
shares of the Company’s common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the March 2022 FirstFire SPA and March 2022 FirstFire Note:
| |
● |
The
March 2022 FirstFire Note matures on September 21, 2022 (the “March 2022 FirstFire Maturity Date”). |
| |
● |
At
its election, FirstFire may convert the March 2022 FirstFire Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the March 2022 FirstFire Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the March 2022 FirstFire Principal Sum at the rate of 12% per annum provided that the first six
months of interest shall be guaranteed. |
| |
● |
The
March 2022 FirstFire Note carries an original issue discount of $10,000 (“March 2022 FirstFire OID”). |
| |
● |
The
Company may prepay the March 2022 FirstFire Note at any time prior to maturity in accordance with the terms of the March 2022 FirstFire
Note. |
| |
● |
The
March 2022 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the March 2022 FirstFire Note or the March 2022 FirstFire SPA. Upon the occurrence of
any event of default (as defined in the March 2022 I FirstFire Note) which has not been cured within the period stipulated by the
March 2022 FirstFire Note, the March 2022 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire,
in full satisfaction of its obligations hereunder, an amount equal to the March 2022 FirstFire Principal Sum then outstanding plus
accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the March 2022 FirstFire SPA, the March 2022 FirstFire Commitment Shares and the shares underlying the March 2022 FirstFire Note
and March 2022 FirstFire Warrant carry standard registration rights. |
Upon
issuance of the March 2022 FirstFire Note, the Company received net proceeds of $100,000 and used such proceeds for working capital.
Upon issuance of the March 2022 FirstFire Commitment Shares, the March 2022 FirstFire Note, and the March 2022 FirstFire Warrant, the
Company allocated the $100,000 in net proceeds received between the fair market value of the March 2022 FirstFire Commitment Shares,
the beneficial conversion feature of the March 2022 FirstFire Note, and the March 2022 FirstFire Warrant. The fair value of the March
2022 FirstFire Commitment Shares was $1,158; the fair value of the beneficial conversion feature of the March 2022 FirstFire Note was
$45,418; and the fair value of the March 2022 FirstFire Warrant was $53,424. The combination of these three components as well as the
March 2022 FirstFire OID resulted in a total debt discount at issuance of $110,000 which is accreted over the term of the March 2022
FirstFire Note.
Upon
the issuance of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below,
the conversion price of the March 2022 FirstFire Note was reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $55,000 related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the March 2022 FirstFire Note was $97,446, net of $12,554 in unaccreted debt discount.
March
2022 GS Capital Securities 12% Convertible Promissory Note
On
March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 GS SPA”) with GS, pursuant to which
the Company issued (i) a 12% convertible promissory note (the “March 2022 GS Note”) in the principal sum of $82,500 (the
“March 2022 GS Principal Sum”), (ii) 703 shares of its common stock as a commitment fee (“March 2022 GS Commitment
Shares”), and (iii) a three-year warrant (“March 2022 GS Warrant”) to purchase 37,500 shares of the Company’s
common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the March 2022 GS SPA and March 2022 GS Note:
| |
● |
The
March 2022 GS Note matures on September 21, 2022 (the “March 2022 GS Maturity Date”). |
| |
● |
At
its election, GS may convert the March 2022 GS Note into the Company’s common stock (subject to the beneficial ownership limitations
of 4.99% in the March 2022 GS Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time at
a conversion price equal to $1.00 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the March 2022 GS Principal Sum at the rate of 12% per annum provided that the first six months
of interest shall be guaranteed. |
| |
● |
The
March 2022 GS Note carries an original issue discount of $7,500 (“March 2022 GS OID”). |
| |
● |
The
Company may prepay the March 2022 GS Note at any time prior to maturity in accordance with the terms of the March 2022 GS Note. |
| |
● |
The
March 2022 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the March 2022 GS Note or the March 2022 GS SPA. Upon the occurrence of any event of
default (as defined in the March 2022 GS Note) which has not been cured within the period stipulated by the March 2022 GS Note, the
March 2022 GS Note shall become immediately due and payable and the Company shall pay to GS, in full satisfaction of its obligations
hereunder, an amount equal to the March 2022 GS Principal Sum then outstanding plus accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the March 2022 GS SPA, the March 2022 GS Commitment Shares and the shares underlying the March 2022 GS Note and March 2022 GS
Warrant carry standard registration rights. |
Upon
issuance of the March 2022 GS Note, the Company received net proceeds of $75,000 and used such proceeds for working capital. Upon issuance
of the March 2022 GS Commitment Shares, the March 2022 GS Note, and the March 2022 GS Warrant, the Company allocated the $75,000 in net
proceeds received between the fair market value of the March 2022 GS Commitment Shares, the beneficial conversion feature of the March
2022 GS Note, and the March 2022 GS Warrant. The fair value of the March 2022 GS Commitment Shares was $871; the fair value of the beneficial
conversion feature of the March 2022 GS Note was $34,062; and the fair value of the March 2022 GS Warrant was $40,067. The combination
of these three components as well as the March 2022 GS OID resulted in a total debt discount at issuance of $82,500 which is accreted
over the term of the March 2022 GS Note.
Upon
the issuance of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below,
the conversion price of the March 2022 GS Note was reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $41,250 related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the March 2022 GS Note was $73,084, net of $9,416 in unaccreted debt discount.
March
2022 Ionic Ventures 12% Convertible Promissory Note
On
March 21, 2022, the Company entered into a securities purchase agreement (the “March 2022 Ionic SPA”) with Ionic, pursuant
to which the Company issued (i) a 12% convertible promissory note (the “March 2022 Ionic Note”) in the principal sum of $110,000
(the “March 2022 Ionic Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“March 2022 Ionic
Commitment Shares”), and (iii) a three-year warrant (“March 2022 Ionic Warrant”) to purchase 50,000 shares of the Company’s
common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the March 2022 Ionic SPA and March 2022 Ionic Note:
| |
● |
The
March 2022 Ionic Note matures on September 21, 2022 (the “March 2022 Ionic Maturity Date”). |
| |
● |
At
its election, Ionic may convert the March 2022 Ionic Note into the Company’s common stock (subject to the beneficial ownership
limitations of 4.99% in the March 2022 Ionic Note; provided however, that the limitation on conversion may be waived up to 9.99%)
at any time at a conversion price equal to $1.00 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the March 2022 Ionic Principal Sum at the rate of 12% per annum provided that the first six months
of interest shall be guaranteed. |
| |
● |
The
March 2022 Ionic Note carries an original issue discount of $10,000 (“March 2022 Ionic OID”). |
| |
● |
The
Company may prepay the March 2022 Ionic Note at any time prior to maturity in accordance with the terms of the March 2022 Ionic Note. |
| |
● |
The
March 2022 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the March 2022 Ionic Note or the March 2022 Ionic SPA. Upon the occurrence of any event
of default (as defined in the March 2022 Ionic Note) which has not been cured within the period stipulated by the March 2022 Ionic
Note, the March 2022 Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction
of its obligations hereunder, an amount equal to the March 2022 Ionic Principal Sum then outstanding plus accrued interest multiplied
by 125%. |
| |
● |
Pursuant
to the March 2022 Ionic SPA, the March 2022 Ionic Commitment Shares and the shares underlying the March 2022 Ionic Note and March
2022 Ionic Warrant carry standard registration rights. |
Upon
issuance of the March 2022 Ionic Note, the Company received net proceeds of $100,000 and used such proceeds for working capital. Upon
issuance of the March 2022 Ionic Commitment Shares, the March 2022 Ionic Note, and the March 2022 Ionic Warrant, the Company allocated
the $100,000 in net proceeds received between the fair market value of the March 2022 Ionic Commitment Shares, the beneficial conversion
feature of the March 2022 Ionic Note, and the March 2022 Ionic Warrant. The fair value of the March 2022 Ionic Commitment Shares was
$1,158; the fair value of the beneficial conversion feature of the March 2022 Ionic Note was $45,418; and the fair value of the March
2022 Ionic Warrant was $53,424. The combination of these three components as well as the March 2022 Ionic OID resulted in a total debt
discount at issuance of $110,000 which is accreted over the term of the March 2022 Ionic Note.
Upon
the issuance of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below,
the conversion price of the March 2022 Ionic Note was reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $55,000related to the accretion of the debt discount.
As
of August 31, 2022, the carrying value of the March 2022 Ionic Note was $97,446, net of $12,554 in unaccreted debt discount.
April
2022 Jefferson Street Capital LLC 12% Convertible Promissory Note
On
April 1, 2022, the Company entered into a securities purchase agreement (the “April 2022 Jefferson SPA”) with Jefferson,
pursuant to which the Company issued (i) a 12% convertible promissory note (the “April 2022 Jefferson Note”) in the principal
sum of $82,500 (the “April 2022 Jefferson Principal Sum”), (ii) 703 shares of its common stock as a commitment fee (“April
2022 Jefferson Commitment Shares”), and (iii) a three-year warrant (“April 2022 Jefferson Warrant”) to purchase 37,500
shares of the Company’s common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the April 2022 Jefferson SPA and April 2022 Jefferson Note:
| |
● |
The
April 2022 Jefferson Note matures on October 1, 2022 (the “April 2022 Jefferson Maturity Date”). |
| |
● |
At
its election, Jefferson may convert the April 2022 Jefferson Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the April 2022 Jefferson Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time at a conversion price equal to $1.00 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the April 2022 Jefferson Principal Sum at the rate of 12% per annum provided that the first six
months of interest shall be guaranteed. |
| |
● |
The
April 2022 Jefferson Note carries an original issue discount of $7,500 (“April 2022 Jefferson OID”). |
| |
● |
The
Company may prepay the April 2022 Jefferson Note at any time prior to maturity in accordance with the terms of the April 2022 Jefferson
Note. |
| |
● |
The
April 2022 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the April 2022 Jefferson Note or the April 2022 Jefferson SPA. Upon the occurrence of
any event of default (as defined in the April 2022 Jefferson Note) which has not been cured within the period stipulated by the April
2022 Jefferson Note, the April 2022 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson,
in full satisfaction of its obligations hereunder, an amount equal to the April 2022 Jefferson Principal Sum then outstanding plus
accrued interest multiplied by 125%. |
| |
● |
Pursuant
to the April 2022 Jefferson SPA, the April 2022 Jefferson Commitment Shares and the shares underlying the April 2022 Jefferson Note
and April 2022 Jefferson Warrant carry standard registration rights. |
Upon
issuance of the April 2022 Jefferson Note, the Company received net proceeds of $75,000 and used such proceeds for working capital. Upon
issuance of the April 2022 Jefferson Commitment Shares, the April 2022 Jefferson Note, and the April 2022 Jefferson Warrant, the Company
allocated the $75,000 in net proceeds received between the fair market value of the April 2022 Jefferson Commitment Shares, the beneficial
conversion feature of the April 2022 Jefferson Note, and the April 2022 Jefferson Warrant. The fair value of the April 2022 Jefferson
Commitment Shares was $871; the fair value of the beneficial conversion feature of the April 2022 Jefferson Note was $34,062; and the
fair value of the April 2022 Jefferson Warrant was $40,067. The combination of these three components as well as the April 2022 Jefferson
OID resulted in a total debt discount at issuance of $82,500 which is accreted over the term of the April 2022 Jefferson Note.
Upon
the issuance of the July 2022 FirstFire Note, July 2022 GS Note, July 2022 Ionic Note, and July 2022 Jefferson Note described below,
the conversion price of the April 2022 Jefferson Note was reduced from $1.00 per share to $0.10 per share.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $41,250 related to the accretion of the debt discount.
As
of May 31, 2022, the carrying value of the April 2022 Jefferson Note was $73,084, net of $9,416 in unaccreted debt discount.
July
2022 FirstFire Global 12% Convertible Promissory Note
On
July 14, 2022, the Company entered into a securities purchase agreement (the “July 2022 FirstFire SPA”) with FirstFire, pursuant
to which the Company issued (i) a 12% convertible promissory note (the “July 2022 FirstFire Note”) in the principal sum of
$27,500 (the “July 2022 FirstFire Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“July 2022
FirstFire Commitment Shares”), and (iii) a three-year warrant (“July 2022 FirstFire Warrant”) to purchase 50,000 shares
of the Company’s common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the July 2022 FirstFire SPA and July 2022 FirstFire Note:
| |
● |
The
July 2022 FirstFire Note matures on September 14, 2022 (the “July 2022 FirstFire Maturity Date”). |
| |
● |
At
its election, FirstFire may convert the July 2022 FirstFire Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the July 2022 FirstFire Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time after 180 days from the date of issuance of the July 2022 FirstFire Note at a conversion price equal to
$0.10 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the July 2022 FirstFire Principal Sum at the rate of 12% per annum provided that the first two months
of interest shall be guaranteed. |
| |
● |
The
July 2022 FirstFire Note carries an original issue discount of $2,500 (“July 2022 FirstFire OID”). |
| |
● |
The
Company may prepay the July 2022 FirstFire Note at any time prior to maturity in accordance with the terms of the July 2022 FirstFire
Note. |
| |
● |
The
July 2022 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the July 2022 FirstFire Note or the July 2022 FirstFire SPA. Upon the occurrence of any
event of default (as defined in the July 2022 FirstFire Note) which has not been cured within the period stipulated by the July 2022
FirstFire Note, the July 2022 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in
full satisfaction of its obligations hereunder, an amount equal to the July 2022 FirstFire Principal Sum then outstanding plus accrued
interest multiplied by 125%. |
Upon
issuance of the July 2022 FirstFire Note, the Company received net proceeds of $25,000 and used such proceeds for working capital. Upon
issuance of the July 2022 FirstFire Commitment Shares, the July 2022 FirstFire Note, and the July 2022 FirstFire Warrant, the Company
allocated the $25,000 in net proceeds received between the fair market value of the July 2022 FirstFire Commitment Shares and the July
2022 FirstFire Warrant. The fair value of the July 2022 FirstFire Commitment Shares was $136, and the fair value of the July 2022 FirstFire
Warrant was $3,825. The combination of these two components as well as the July 2022 FirstFire OID resulted in a total debt discount
at issuance of $6,461 which is accreted over the term of the July 2022 FirstFire Note.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $5,552, which included $5,002 related to the accretion of
the debt discount and accrued interest in the amount of $550. As of August 31, 2022, the carrying value of the July 2022 FirstFire Note
was $26,041, net of $1,459 in unaccreted debt discount.
July
2022 GS Capital Securities 12% Convertible Promissory Note
On
July 14, 2022, the Company entered into a securities purchase agreement (the “July 2022 GS SPA”) with GS, pursuant to which
the Company issued (i) a 12% convertible promissory note (the “July 2022 GS Note”) in the principal sum of $27,500 (the “July
2022 GS Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“July 2022 GS Commitment Shares”),
and (iii) a three-year warrant (“July 2022 GS Warrant”) to purchase 50,000 shares of the Company’s common stock at
an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the July 2022 GS SPA and July 2022 GS Note:
| |
● |
The
July 2022 GS Note matures on September 14, 2022 (the “July 2022 GS Maturity Date”). |
| |
● |
At
its election, GS may convert the July 2022 GS Note into the Company’s common stock (subject to the beneficial ownership limitations
of 4.99% in the July 2022 GS Note; provided however, that the limitation on conversion may be waived up to 9.99%) at any time after
180 days from the date of issuance of the July2022 GS Note at a conversion price equal to $0.10 per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the July 2022 GS Principal Sum at the rate of 12% per annum provided that the first two months of
interest shall be guaranteed. |
| |
● |
The
July 2022 GS Note carries an original issue discount of $2,500 (“July 2022 GS OID”). |
| |
● |
The
Company may prepay the July 2022 GS Note at any time prior to maturity in accordance with the terms of the July 2022 GS Note. |
| |
● |
The
July 2022 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the July 2022 GS Note or the July 2022 GS SPA. Upon the occurrence of any event of default
(as defined in the July 2022 GS Note) which has not been cured within the period stipulated by the July 2022 GS Note, the July 2022
GS Note shall become immediately due and payable and the Company shall pay to GS, in full satisfaction of its obligations hereunder,
an amount equal to the July 2022 GS Principal Sum then outstanding plus accrued interest multiplied by 125%. |
Upon
issuance of the July 2022 GS Note, the Company received net proceeds of $25,000 and used such proceeds for working capital. Upon issuance
of the July 2022 GS Commitment Shares, the July 2022 GS Note, and the July 2022 GS Warrant, the Company allocated the $25,000 in net
proceeds received between the fair market value of the July 2022 GS Commitment Shares and the July 2022 GS Warrant. The fair value of
the July 2022 GS Commitment Shares was $136, and the fair value of the July 2022 GS Warrant was $3,825. The combination of these two
components as well as the July 2022 GS OID resulted in a total debt discount at issuance of $6,461 which is accreted over the term of
the July 2022 GS Note.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $5,552, which included $5,002 related to the accretion of
the debt discount and accrued interest in the amount of $550. As of August 31, 2022, the carrying value of the July 2022 GS Note was
$26,041, net of $1,459 in unaccreted debt discount.
July
2022 Ionic Ventures, LLC 12% Convertible Promissory Note
On
July 14, 2022, the Company entered into a securities purchase agreement (the “July 2022 Ionic SPA”) with Ionic, pursuant
to which the Company issued (i) a 12% convertible promissory note (the “July 2022 Ionic Note”) in the principal sum of $27,500
(the “July 2022 Ionic Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“July 2022 Ionic Commitment
Shares”), and (iii) a three-year warrant (“July 2022 Ionic Warrant”) to purchase 50,000 shares of the Company’s
common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the July 2022 Ionic SPA and July 2022 Ionic Note:
| |
● |
The
July 2022 Ionic Note matures on September 14, 2022 (the “July 2022 Ionic Maturity Date”). |
| |
● |
At
its election, Ionic may convert the July 2022 Ionic Note into the Company’s common stock (subject to the beneficial ownership
limitations of 4.99% in the July 2022 Ionic Note; provided however, that the limitation on conversion may be waived up to 9.99%)
at any time after 180 days from the date of issuance of the July2022 Ionic Note at a conversion price equal to $0.10 per share, subject
to certain adjustments. |
| |
● |
The
Company agree to pay interest on the July 2022 Ionic Principal Sum at the rate of 12% per annum provided that the first two months
of interest shall be guaranteed. |
| |
● |
The
July 2022 Ionic Note carries an original issue discount of $2,500 (“July 2022 Ionic OID”). |
| |
● |
The
Company may prepay the July 2022 Ionic Note at any time prior to maturity in accordance with the terms of the July 2022 Ionic Note. |
| |
● |
The
July 2022 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the July 2022 Ionic Note or the July 2022 Ionic SPA. Upon the occurrence of any event
of default (as defined in the July 2022 Ionic Note) which has not been cured within the period stipulated by the July 2022 Ionic
Note, the July 2022 Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction
of its obligations hereunder, an amount equal to the July 2022 Ionic Principal Sum then outstanding plus accrued interest multiplied
by 125%. |
Upon
issuance of the July 2022 Ionic Note, the Company received net proceeds of $25,000 and used such proceeds for working capital. Upon issuance
of the July 2022 Ionic Commitment Shares, the July 2022 Ionic Note, and the July 2022 Ionic Warrant, the Company allocated the $25,000
in net proceeds received between the fair market value of the July 2022 Ionic Commitment Shares and the July 2022 Ionic Warrant. The
fair value of the July 2022 Ionic Commitment Shares was $136, and the fair value of the July 2022 Ionic Warrant was $3,825. The combination
of these two components as well as the July 2022 Ionic OID resulted in a total debt discount at issuance of $6,461 which is accreted
over the term of the July 2022 Ionic Note.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $5,552, which included $5,002 related to the accretion of
the debt discount and accrued interest in the amount of $550. As of August 31, 2022, the carrying value of the July 2022 Ionic Note was
$26,041, net of $1,459 in unaccreted debt discount.
July
2022 Jefferson Street Capital LLC 12% Convertible Promissory Note
On
July 14, 2022, the Company entered into a securities purchase agreement (the “July 2022 Jefferson SPA”) with Jefferson, pursuant
to which the Company issued (i) a 12% convertible promissory note (the “July 2022 Jefferson Note”) in the principal sum of
$27,500 (the “July 2022 Jefferson Principal Sum”), (ii) 935 shares of its common stock as a commitment fee (“July 2022
Jefferson Commitment Shares”), and (iii) a three-year warrant (“July 2022 Jefferson Warrant”) to purchase 50,000 shares
of the Company’s common stock at an exercise price of $1.00, subject to certain adjustments.
The
following are the material terms of the July 2022 Jefferson SPA and July 2022 Jefferson Note:
| |
● |
The
July 2022 Jefferson Note matures on September 14, 2022 (the “July 2022 Jefferson Maturity Date”). |
| |
● |
At
its election, Jefferson may convert the July 2022 Jefferson Note into the Company’s common stock (subject to the beneficial
ownership limitations of 4.99% in the July 2022 Jefferson Note; provided however, that the limitation on conversion may be waived
up to 9.99%) at any time after 180 days from the date of issuance of the July2022 Jefferson Note at a conversion price equal to $0.10
per share, subject to certain adjustments. |
| |
● |
The
Company agree to pay interest on the July 2022 Jefferson Principal Sum at the rate of 12% per annum provided that the first two months
of interest shall be guaranteed. |
| |
● |
The
July 2022 Jefferson Note carries an original issue discount of $2,500 (“July 2022 Jefferson OID”). |
| |
● |
The
Company may prepay the July 2022 Jefferson Note at any time prior to maturity in accordance with the terms of the July 2022 Jefferson
Note. |
| |
● |
The
July 2022 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations
and warranties, and breach of provisions of the July 2022 Jefferson Note or the July 2022 Jefferson SPA. Upon the occurrence of any
event of default (as defined in the July 2022 Jefferson Note) which has not been cured within the period stipulated by the July 2022
Jefferson Note, the July 2022 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson, in
full satisfaction of its obligations hereunder, an amount equal to the July 2022 Jefferson Principal Sum then outstanding plus accrued
interest multiplied by 125%. |
Upon
issuance of the July 2022 Jefferson Note, the Company received net proceeds of $25,000 and used such proceeds for working capital. Upon
issuance of the July 2022 Jefferson Commitment Shares, the July 2022 Jefferson Note, and the July 2022 Jefferson Warrant, the Company
allocated the $25,000 in net proceeds received between the fair market value of the July 2022 Jefferson Commitment Shares and the July
2022 Jefferson Warrant. The fair value of the July 2022 Jefferson Commitment Shares was $136, and the fair value of the July 2022 Jefferson
Warrant was $3,825. The combination of these two components as well as the July 2022 Jefferson OID resulted in a total debt discount
at issuance of $6,461 which is accreted over the term of the July 2022 Jefferson Note.
During
the quarter ended August 31, 2022, the Company recorded interest expense of $5,552, which included $5,002 related to the accretion of
the debt discount and accrued interest in the amount of $550. As of August 31, 2022, the carrying value of the July 2022 Jefferson Note
was $26,041, net of $1,459 in unaccreted debt discount.
Secured
Promissory Notes
On
November 15, 2021, the Company entered into a 10% secured promissory note with an accredited investor (“Secured Note One”)
for which it received net proceeds of $250,000, consisting of a face amount of $262,500 and an original issuance discount of $12,500
“(Secured Note One OID”). In addition, the Company issued 30,000 commitment warrants to the investor for the purchase of
the Company’s common stock at an exercise price of $10.73 per share (“Secured Note One Warrants”). The Secured Note
One had a perfected security interest in 50 personal computers the Company intended to use in its operations. The Secured Note One required
60 monthly payments of principal and interest in the amount of $5,577.
Upon
issuance of the Secured Note One and Secured Note One Warrants, the Company allocated the $250,000 in net proceeds received between the
fair market value of Secured Note One and the Secured Note One Warrants. The fair value of the Secured Note One Warrants was $84,517.
The combination of fair market value of the Secured Note One Warrant and the Secured Note One OID resulted in a total debt discount at
issuance of $97,017 which is accreted over the term of the Secured Note One.
During
the quarter ended August 31, 2022, the Company made principal payments of $4,500 on Secured Note One. For the quarter ended August 31,
2022, the company recognized $8,007 in total interest expense associated with Secured Note One, comprised of $1,077 in cash interest
payments, $2,079 in accrued interest payable, and $4,851 in accretion expense related to the original issuance discount and debt discount
related to the warrants, with no comparable amounts during the prior period. As of August 31, 2022, the carrying value of Secured Note
One is $42,268, net of $82,464 in unaccreted debt discounts.
On
November 18, 2021, the Company entered into a 10% secured promissory note with an accredited investor (“Secured Note Two”)
for which it received net proceeds of $150,000, consisting of a face amount of $157,500 and an original issuance discount of $7,500 (“Secured
Note Two OID”). In addition, the Company issued 18,000 commitment warrants for the purchase of the Company’s common stock
at an exercise price of $10.73 per share (“Secured Note Two Warrant”). The Secured Note Two has a perfected security interest
in 30 personal computers the Company intended to use in its operations. The Secured Note Two required 60 monthly payments of principal
and interest in the amount of $3,346.
Upon
issuance of the Secured Note Two and Secured Note Two Warrants, the Company allocated the $150,000 in net proceeds received between the
fair market value of Secured Note Two and the Secured Note Two Warrants. The fair value of the Secured Note Two Warrants was $50,710.
The combination of fair market value of the Secured Note Two Warrant and the Secured Note Two OID resulted in a total debt discount at
issuance of $58,210 which is accreted over the term of the Secured Note Two.
During
the quarter ended August 31, 2022, the Company made principal payments of $2,421 on Secured Note Two. For the quarter ended August 31,
2022, the company recognized $4,809 in total interest expense associated with Secured Note Two, comprised of $646 in cash interest payments,
$1,252 in accrued interest payable, and $2,911 in accretion expense related to the original issuance discount and debt discount related
to the warrants, with no comparable amounts in the prior period. As of August 31, 2022, the carrying value of Secured Two Note is $25,640,
net of $49,478 in unaccreted debt discounts.
Related
Party Note Payable
On
December 10, 2021, the Company entered into a loan agreement with Jed Kaplan, the Company’s former Chairman of the Board, that
has a principal amount of $247,818 (See Note 6 - Related Party Transactions). The loan bears interest at a rate of 5% per annum and matured
on June 10, 2022.
On
June 10, 2022, the loan and accrued interest of $6,178 were converted into a 17% equity stake in Simplicity One, increasing Kaplan’s
total stake to 37% and reducing the Company’s stake to 59%.
During
the quarter ended August 31, 2022, the Company recognized interest expense of $339 with no comparable amount during the prior period.
Other
Short Term Note Payable
During
2020, the Company received loan proceeds in the amount of $82,235 under the Paycheck Protection Program established as part of the Coronavirus
Aid, Relief and Economic Security Act (“CARES Act”). During the year ended May 31, 2022, the Company $40,500 of the obligation
was forgiven by the Small Business Administration. As of August 31, 2022, the outstanding balance of this obligation was $41,735.
NOTE
9 -STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of August 31, 2022, there
were one share of preferred stock issued or outstanding. As of May 31, 2022, there were no shares of preferred stock issued and outstanding.
On
August 23, 2022, the Company filed with the Delaware Secretary of State a certificate of designations (the “Certificate of Designations”)
to designate one share of the Company’s preferred stock as the Series X Convertible Preferred Stock (“Series X Preferred”).
The one share of Series X Preferred has a number of votes equal to all of the other votes entitled to be cast on any matter by any other
shares or securities of the Company, plus one. The Series X Preferred does not have any economic or other interest in the Company. The
share of Series X Preferred may not be transferred after issuance. If any transfer is attempted, the Series X Preferred will be automatically
redeemed by the Company at a redemption price of $1.00.
On
August 29, 2022, the Company issued and sold to Roman Franklin, the Company’s Chief Executive Officer, principal financial officer,
principal accounting officer, member of the Company’s Board of Directors, and greater than 5% stockholder, one share of the Company’s
Series X Preferred for a purchase price of $1,000.
At
the election of the Series X Preferred holder at any time following the date that the Company has amended its articles of incorporation
to increase the authorized shares of common stock such that there are sufficient authorized but unissued shares of common stock to permit
conversion of the Series X Preferred as set forth in the Certificate of Designations, the Series X Preferred is convertible into 500,000,000
shares of the Company’s common stock.
Upon
issuance of the Series X Preferred, the Company estimated the fair market value of the Series X Preferred to be $183,498. The Company
recorded stock-based compensation expense of $182,498 related to the sale of the Series X Preferred and an associated receivable of $1,000
for the purchase price of the share.
Common
Stock
The
Company is authorized to issue 36,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the shares of the
Company’s common stock are entitled to one vote for each share. As of August 31, 2022, and May 31, 2022, there were 3,120,161 and
1,830,818 shares of common stock issued and outstanding, respectively.
During
the quarter ended August 31, 2022, the Company issued shares of its common stock as follows:
| |
● |
On
June 1, 2022, the Company issued 100,000 shares of its common stock, valued at $1.22 per share, as consideration for $100,000 in
account payable due to a third-party vendor and recognized a loss on issuance of shares of $22,000; |
| |
● |
On
June 24, 2021, the Company issued 1,667 shares of its common stock, valued at $2.81 per share, as compensation to officers and directors
of the Company and recognized a gain on issuance of shares of $316; |
| |
● |
On
June 24, 2021, the Company issued 3,571 shares of its common stock, valued at $1.35 per share, as compensation to officers and directors
of the Company and recognized a gain on issuance of shares of $179; |
| |
● |
On
June 30, 2022, the Company issued 100,000 shares of its common stock, valued at $0.47 per share, as consideration for $50,000 in
account payable due to a third-party vendor and recognized a gain on issuance of shares of $3,000; |
| |
● |
On
July 18, 2022, the Company issued 599,350 shares of its common stock, valued at $0.19, to an accredited investor upon conversion
of $53,000 in principal and $6,935 in associated accrued interest payable due under a convertible promissory note. In association
with this issuance, the Company recognized $53,942 as a loss on the extinguishment of debt (See Note 8 – Debt); |
| |
● |
On
July 27, 2022, the Company issued 95,000 shares of its common stock, valued at $0.13, to an accredited investor upon conversion of
$9,500 in principal due under a convertible promissory note. In association with this issuance, the Company recognized $2,850 as
a loss on the extinguishment of debt (See Note 8 – Debt); |
| |
● |
On
July 28, 2022, the Company issued 67,755 shares of its common stock, valued at $0.13, to an accredited investor upon conversion of
$6,776 in principal due under a convertible promissory note. In association with this issuance, the Company recognized $2,033 as
a loss on the extinguishment of debt (See Note 8 – Debt); |
| |
● |
On
August 4, 2022, the Company issued 100,000 shares of its common stock, valued at $0.12 per share, as consideration for $5,000 in
account payable due to a third-party vendor and recognized a loss on issuance of shares of $7,000; |
| |
● |
On
August 23, 2022, the Company issued 110,000 shares of its common stock, valued at $0.075, to an accredited investor upon conversion
of $10,000 in principal due under a convertible promissory note and $1,000 in associated fees. In association with this issuance,
the Company recognized $2,750 as a gain on the extinguishment of debt (See Note 8 – Debt); and |
| |
● |
On
August 30, 2022, the Company issued 112,000 shares of its common stock, valued at $0.06 per share, as consideration for $5,000 in
account payable due to a third-party vendor and recognized a loss on issuance of shares of $1,720. |
Warrants
As
of August 31, 2022, the Company has issued and outstanding warrants to purchase shares of its common stock as follows:
SCHEDULE
OF ISSUED AND OUTSTANDING WARRANTS TO PURCHASE
| |
|
|
Number
of |
|
|
|
|
|
|
|
|
|
|
| Issue |
|
|
Warrants |
|
|
Vesting |
|
|
Termination |
|
|
Exercise |
|
| Date |
|
|
Outstanding |
|
|
Date |
|
|
Date |
|
|
Price |
|
| |
11/20/2018 |
|
|
|
682,688 |
|
|
|
11/20/2018 |
|
|
|
11/20/2023 |
|
|
$ |
92.00 |
|
| |
5/31/2019 |
|
|
|
120,313 |
|
|
|
5/31/2019 |
|
|
|
5/31/2024 |
|
|
$ |
32.00 |
|
| |
6/1/2020 |
|
|
|
3,125 |
|
|
|
6/1/2020 |
|
|
|
6/1/2025 |
|
|
$ |
32.00 |
|
| |
6/10/2021 |
|
|
|
750,000 |
|
|
|
6/10/2021 |
|
|
|
6/10/2024 |
|
|
$ |
0.10 |
|
| |
6/18/2021 |
|
|
|
100,000 |
|
|
|
6/18/2021 |
|
|
|
6/10/2024 |
|
|
$ |
20.00 |
|
| |
8/4/2021 |
|
|
|
365,000 |
|
|
|
8/4/2021 |
|
|
|
10/12/2024 |
|
|
$ |
13.00 |
|
| |
8/23/2021 |
|
|
|
156,250 |
|
|
|
8/23/2021 |
|
|
|
8/23/2024 |
|
|
$ |
0.10 |
|
| |
8/31/2021 |
|
|
|
187,480 |
|
|
|
8/31/2021 |
|
|
|
8/31/2024 |
|
|
$ |
0.10 |
|
| |
9/17/2021 |
|
|
|
40,000 |
|
|
|
9/17/2021 |
|
|
|
9/17/2024 |
|
|
$ |
0.10 |
|
| |
9/28/2021 |
|
|
|
729,167 |
|
|
|
9/28/2021 |
|
|
|
9/28/2024 |
|
|
$ |
0.10 |
|
| |
10/1/2021 |
|
|
|
40,000 |
|
|
|
10/1/2021 |
|
|
|
10/1/2024 |
|
|
$ |
0.10 |
|
| |
11/18/2021 |
|
|
|
48,000 |
|
|
|
11/18/2021 |
|
|
|
11/18/2024 |
|
|
$ |
0.10 |
|
| |
3/21/2022 |
|
|
|
137,500 |
|
|
|
3/21/2022 |
|
|
|
3/21/2025 |
|
|
$ |
0.10 |
|
| |
4/1/2022 |
|
|
|
37,500 |
|
|
|
4/1/2022 |
|
|
|
4/1/2025 |
|
|
$ |
0.10 |
|
| |
7/14/2022 |
|
|
|
200,000 |
|
|
|
7/14/2022 |
|
|
|
7/14/2025 |
|
|
$ |
1.00 |
|
| |
|
|
|
|
3,597,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the quarter ended August 31, 2022, the Company issued 200,000 warrants to acquire shares of common stock to accredited investors in association
with issued debt instruments (See Note 8 – Debt). The fair value of these warrants was estimated at the date of issuance using
the Black-Scholes option-pricing model with the following assumptions: (i) exercise price of $1.00 per share; (ii) expected dividend
yield of 0%; (iii) expected volatility of 134%; (iv) risk-free interest rate of 3.16%; and (v) term of 3.0 years.
During
the quarter ended August 31, 2021, the Company issued 1,458,730 warrants to acquire shares of common stock to accredited investors in
association with issued, amended, or extinguished debt instruments.
During
the quarter ended August 31, 2021, the Company sold warrants to an accredited investor for an aggregate purchase price of $100,000 to
purchase 100,000 shares of common stock at an exercise price of $20.00 per share. These warrants became exercisable upon issuance and
expire on the third anniversary of issuance. No similar activity occurred during the quarter ended August 31, 2022.
Stock-Based
Compensation
The
Company did not issue any options to purchase its common shares during the quarters ended August 31, 2022, or 2021.
The
table below presents option activity for the quarter ended August 31, 2022:
SCHEDULE
OF OUTSTANDING STOCK WARRANTS
| | |
Number
of Shares | | |
Weighted Average Exercise
Price per
Share | | |
Weighted Average Remaining
Contractual Life
(in years) | |
| Balance
at May 31, 2022 | |
| 462,500 | | |
$ | 2.77 | | |
| 2.9 | |
| Options
exercised | |
| - | | |
| - | | |
| - | |
| Options
granted | |
| - | | |
| - | | |
| - | |
| Options
expired | |
| - | | |
| - | | |
| - | |
| Options
forfeited | |
| (72,500 | ) | |
| 2.77 | | |
| 2.7 | |
| Outstanding
at August 31, 2022 | |
| 390,000 | | |
$ | 2.77 | | |
| 2.7 | |
| Exercisable
at August 31, 2022 | |
| 320,000 | | |
$ | 2.77 | | |
| 2.7 | |
Stock
based compensation expense related to options for the quarters ended August 31, 2022, and August 31, 2021, amounted to $89,597 and $0,
respectively. Unrecognized compensation expense related to outstanding options amounted to $75,582 and $0 as of August 31, 2022, and
August 31, 2021, respectively.
NOTE
10 — SUBSEQUENT EVENTS
Conversion
of Convertible Promissory Notes
Subsequent
to the reporting period, the holders of $150,535 of the Company’s convertible notes converted principal and accrued interest under
such notes into an aggregate of 3,798,000 shares of common stock.
Approval
of Increase in Authorized Shares of Common Stock
On
September 1, 2022, the Board and stockholders holding of a majority of the voting power of the issued and outstanding capital stock of
the Company, including the Series X Preferred, approved an amendment (the “Amendment”) to the Company’s third amended
and restated certificate of incorporation, as amended (the “Certificate of Incorporation”) increasing the number of our authorized
shares of common stock from 36,000,000 to 250,000,000. On October 20, 2022, the Company filed a preliminary information statement on
Schedule 14C relating to the Amendment. The exact timing of the authorized share increase will be determined by the Company’s Board
based on its evaluation as to when such action will be the most advantageous to the Company and its stockholders, and the effective date
will be publicly announced. In no event will the authorized share increase be effective sooner than 20 days after the Company mails the
definitive information statement on Schedule 14C and accompanying notice to the Company’s stockholders. The Board retains the authority
to abandon the increase in authorized shares for any reason at any time prior to the effective date of the increase in authorized shares.
Ionic,
Jefferson Street and FirstFire Securities Purchase Agreements, Notes and Warrants
In
addition, on September 8, 2022, the Company (i) entered into securities purchase agreements with each of Ionic, Jefferson Street and
FirstFire, (ii) issued 12% convertible promissory notes to each of Ionic, Jefferson Street and FirstFire, and (iii) issued common stock
purchase warrants to each of Ionic, Jefferson Street and FirstFire.
September
2022 Ionic Securities Purchase Agreement & 12% Promissory Note
On
September 8, 2022, the Company entered into a securities purchase agreement (the “September 2022 Ionic SPA”), dated as of
September 8, 2022, with Ionic, pursuant to which the Company issued a 12% promissory convertible note (the “September 2022 Ionic
Note”) with a maturity date of January 8, 2023, in the principal sum of $66,000. Pursuant to the terms of the September 2022 Ionic
Note, the Company agreed to pay to Ionic $66,000 and to pay interest on the principal balance at the rate of 12% per annum. The September
2022 Ionic Note carries an original issue discount of $6,000. Accordingly, Ionic paid the purchase price of $60,000 in exchange for the
September 2022 Ionic Note. The Company intends to use the proceeds for working capital. Ionic may convert the September 2022 Ionic Note
into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the September 2022 Ionic Note; provided
however, that the limitation on conversion may be waived (up to 9.99%) by Ionic upon, at the election of Ionic, not less than 61 days’
prior notice to the Company) at any time at a conversion price equal to $0.02 per share, as the same may be adjusted as provided in the
September 2022 Ionic Note.
The
Company may prepay the September 2022 Ionic Note in accordance with the terms of the September 2022 Ionic Note, with the understanding
that $2,640 of interest is guaranteed and earned in full as of September 8, 2022. The September 2022 Ionic Note contains customary events
of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the
September 2022 Ionic Note or the September 2022 Ionic SPA.
Upon
the occurrence of any Event of Default (as defined in the September 2022 Ionic Note), which has not been cured within the time prescribed
in the September 2022 Ionic Note, it shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction
of its obligations hereunder, an amount equal to the principal amount then outstanding plus accrued interest multiplied by 125%.
September
2022 Ionic Ventures Common Stock Purchase Warrant
Pursuant
to the terms of the September 2022 Ionic SPA, on September 8, 2022, the Company also issued to Ionic a three-year warrant to purchase
120,000 shares of the Company’s common stock at an exercise price of $1.00.
September
2022 Jefferson Street Securities Purchase Agreement & 12% Promissory Note
On
September 8, 2022, the Company entered into a securities purchase agreement (the “September 2022 Ionic SPA”), dated as of
September 8, 2022, with Jefferson Street, pursuant to which the Company issued a 12% promissory convertible note (the “September
2022 Jefferson Street Note”) with a maturity date of January 8, 2023, in the principal sum of $27,500. Pursuant to the terms of
the September 2022 Jefferson Street Note, the Company agreed to pay to Jefferson Street $27,500 and to pay interest on the principal
balance at the rate of 12% per annum. The September 2022 Jefferson Street Note carries an original issue discount of $2,500. Accordingly,
Jefferson Street paid the purchase price of $25,000 in exchange for the September 2022 Jefferson Street Note. The Company intends to
use the proceeds for working capital. Jefferson Street may convert the September 2022 Jefferson Street Note into the Company’s
common stock (subject to the beneficial ownership limitations of 4.99% in the September 2022 Jefferson Street Note; provided however,
that the limitation on conversion may be waived (up to 9.99%) by Jefferson Street upon, at the election of Jefferson Street, not less
than 61 days’ prior notice to the Company) at any time at a conversion price equal to $0.02 per share, as the same may be adjusted
as provided in the September 2022 Jefferson Street Note.
The
Company may prepay the September 2022 Jefferson Street Note in accordance with the terms of the September 2022 Jefferson Street Note,
with the understanding that $1,100 of interest is guaranteed and earned in full as of September 8, 2022. The September 2022 Jefferson
Street Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties,
and breach of provisions of the September 2022 Jefferson Street Note or the September 2022 Jefferson Street SPA.
Upon
the occurrence of any Event of Default (as defined in the September 2022 Jefferson Street Note), which has not been cured within the
time prescribed in the September 2022 Jefferson Street Note, it shall become immediately due and payable and the Company shall pay to
Jefferson Street, in full satisfaction of its obligations hereunder, an amount equal to the principal amount then outstanding plus accrued
interest multiplied by 125%.
September
2022 Jefferson Street Common Stock Purchase Warrant
Pursuant
to the terms of the September 2022 Jefferson Street SPA, on September 8, 2022, the Company also issued to Jefferson Street a three-year
warrant to purchase 45,454 shares of the Company’s common stock at an exercise price of $1.00.
September
2022 FirstFire Securities Purchase Agreement & 12% Promissory Note
On
September 8, 2022, the Company entered into a securities purchase agreement (the “September 2022 FirstFire SPA”), dated as
of September 8, 2022, with FirstFire, pursuant to which the Company issued a 12% promissory convertible note (the “September 2022
FirstFire Note”) with a maturity date of January 8, 2023, in the principal sum of $66,000. Pursuant to the terms of the September
2022 FirstFire Note, the Company agreed to pay to FirstFire $66,000 and to pay interest on the principal balance at the rate of 12% per
annum. The September 2022 FirstFire Note carries an original issue discount of $6,000. Accordingly, FirstFire paid the purchase price
of $60,000 in exchange for the September 2022 FirstFire Note. The Company intends to use the proceeds for working capital. FirstFire
may convert the September 2022 FirstFire Note into the Company’s common stock (subject to the beneficial ownership limitations
of 4.99% in the September 2022 FirstFire Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by FirstFire
upon, at the election of FirstFire, not less than 61 days’ prior notice to the Company) at any time at a conversion price equal
to $0.02 per share, as the same may be adjusted as provided in the September 2022 FirstFire Note.
The
Company may prepay the September 2022 FirstFire Note in accordance with the terms of the September 2022 FirstFire Note, with the understanding
that $2,640 of interest is guaranteed and earned in full as of September 8, 2022. The September 2022 FirstFire Note contains customary
events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions
of the September 2022 FirstFire Note or the September 2022 FirstFire SPA.
Upon
the occurrence of any Event of Default (as defined in the September 2022 FirstFire Note), which has not been cured within the time prescribed
in the September 2022 FirstFire Note, it shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction
of its obligations hereunder, an amount equal to the principal amount then outstanding plus accrued interest multiplied by 125%.
September
2022 FirstFire Common Stock Purchase Warrant
Pursuant
to the terms of the September 2022 FirstFire SPA, on September 8, 2022, the Company also issued to FirstFire a three-year warrant to
purchase 120,000 shares of the Company’s common stock at an exercise price of $1.00.
Diverted
River Exchange Agreement
On
September 28, 2022, the Company entered into an exchange agreement (the “Exchange Agreement”), dated as of September 28,
2022, by and among the Company, Diverted River Technology, LLC (“Diverted River”), the member(s) of Diverted River from time
to time (the “Members”) and Zachary Johnson, as the Members’ representative. Pursuant to the terms of the Exchange
Agreement, the Company agreed to acquire from the Members 100% of the membership interests of Diverted River held by the Members as of
the closing (the “Closing”), in exchange for the issuance by the Company to the Members of shares of the Company’s
common stock equal to 80% of the issued and outstanding shares of the Company’s common stock as of the Closing.
Following
the Closing, Diverted River will become a wholly owned subsidiary of the Company. Also following the Closing, it is expected that the
Company’s name will be changed to Diverted River Technology, Inc., and the business of the Company will become that of Diverted
River, an ETO focused on a sustainable, high margin, recurring revenue business model that requires limited capital expenditures.
At
the Closing, the Company will expand the size of the Company’s Board of Directors (the “Board”) by three persons, to
a total of seven persons, and will name Mr. Johnson and, within 90 days after Closing, two other persons, as directors on the Board,
one of whom will be an independent director. Also at the Closing, the Company will name Mr. Johnson as Chief Executive Officer of the
Company. Within 90 days of Closing, the Board will name a Chief Technology Officer, subject to Mr. Johnson’s approval. At the Closing,
the Company will also enter into employment agreements with Mr. Johnson and certain other Diverted River employees as identified and
agreed by the parties. Within 90 days of Closing, the Company will hire Velocity 42 Limited as its primary software developer.
The
Exchange Agreement contains certain covenants, representations and warranties customary for an agreement of this type. In addition, the
Closing is subject to the satisfaction or waiver of certain conditions, including, but not limited to, (i) the increase by the Company
of its authorized shares of common stock to 250,000,000 shares; (ii) execution by Diverted River of agreements with clients generating
at least $60,000 per month in revenue for at least 24 months following the Closing, with such agreements being in form and substance
as agreed to by the Company and Diverted River; (iii) settlement by the Company of any debt with landlords related to the closure of
the Company’s gaming center venues; (iv) the Company having obtained binding commitments from investors to invest at least $4,000,000,
through the issuance of shares of Company common stock; (v) repayment by the Company of its convertible notes, or execution of agreements
with noteholders to convert such notes into shares of Company common stock comprising no more than 12.5% of the issued and outstanding
common stock of the Company after giving effect to the Closing; (vi) reaching an agreement with warrant holders to amend the exercise
price to be $1.00 per share; (vii) execution of note amendments by holders of Company promissory notes that are not presently convertible
into shares of Company common stock such that the notes will be converted into Company common stock and such notes shall have been converted,
with such shares being included in the 12.5% limitation set forth in clause (v) hereof; (viii) provision by Diverted River of audited
financial statements; and (ix) completion of satisfactory due diligence reviews by the Company and Diverted River.
The
parties may terminate the Exchange Agreement pursuant to the terms of the Exchange Agreement, including, but not limited to, if the conditions
to Closing have not been satisfied or waived by December 15, 2022.