UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Emerging growth company |
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As of May 8, 2024, there were shares of common stock, par value $0.000001 per share, of the registrant issued and outstanding.
FORM 10-Q
CLUBHOUSE MEDIA GROUP, INC.
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Clubhouse Media Group, Inc.
Consolidated Balance Sheets
| As of March 31,2024 | As of December 31,2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Discontinued operations - current | ||||||||
| Total current assets | ||||||||
| Intangibles | ||||||||
| Discontinued operations - long term | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Convertible notes payable, net | ||||||||
| Shares to be issued | ||||||||
| Derivative liability | ||||||||
| Discontinued operations - current | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, par value $, authorized shares; shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, par value $, authorized shares; shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Clubhouse Media stockholders’ equity (deficit) | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements.
| 3 |
Clubhouse Media Group, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Total revenue, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Advertising expenses | ||||||||
| Selling, general, and administrative | ||||||||
| Salaries & wages | ||||||||
| Professional and consultant fees | ||||||||
| Total operating expenses | ||||||||
| Operating Income (Loss) | ( | ) | ( | ) | ||||
| Other (income) expenses: | ||||||||
| Interest expense, net | ||||||||
| Amortization of debt discounts, net | ||||||||
| Other (income) expense, net | ( | ) | ||||||
| Gain related to debt activities | ( | ) | ||||||
| Change in fair value of derivative liability | ||||||||
| Total other (income) expenses | ||||||||
| Income (Loss) before income taxes | ( | ) | ( | ) | ||||
| Income tax (benefit) expense | ||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ||||
| Net income (loss) from discontinued operations - non-controlling interest | ( | ) | ||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ||||
| Net Income (Loss) from shareholders | $ | ( | ) | $ | ( | ) | ||
| Basic weighted average shares outstanding | ||||||||
| Diluted weighted average shares outstanding | ||||||||
| Basic - net loss from continuing operations per share | $ | ( | ) | $ | ( | ) | ||
| Diluted - net loss from continuing operations per share | $ | ( | ) | $ | ( | ) | ||
| Basic - net loss from discontinued operations per share | $ | ( | ) | $ | ( | ) | ||
| Diluted - net loss from discontinued operations per share | $ | ( | ) | $ | ( | ) | ||
| Basic - net loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted - net loss per share | $ | ( | ) | $ | ( | ) | ||
See Accompanying Notes to Consolidated Financial Statements.
| 4 |
Clubhouse Media Group, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Preferred Stock 50,000,000 shares authorized | Common Stock 25,000,000,000 shares authorized | Total Clubhouse Media | Total | |||||||||||||||||||||||||||||||||
| Par Value | Par Value | Additional |
Stockholders’ | Non- |
Stockholders’ | |||||||||||||||||||||||||||||||
Shares Issued |
$0.001 per share | Shares Issued | $0.000001 per share | Paid in Capital | Accumulated Deficit | Equity (Deficit) | controlling Interest | Equity (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | 6,830,378,163 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Reclass of derivative liability on conversion | - | - | ||||||||||||||||||||||||||||||||||
| Conversion of convertible debt | - | 1,431,944,776 | ||||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, March 31, 2023 (Unaudited) | $ | 8,262,322,939 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2024 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements.
| 5 |
Clubhouse Media Group, Inc.
Consolidated Statements of Cash Flow
(Unaudited)
For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Amortization | ||||||||
| Loss on impairment of intangible | ||||||||
| Imputed interest | ||||||||
| Interest expense - amortization of debt discounts | ||||||||
| Additional non-cash interest expense due to debt restructuring | ||||||||
| Stock compensation expense | ||||||||
| Change in fair value of derivative liability | ||||||||
| Gain or loss in debt settlement | ( | ) | ||||||
| Gain or loss on debt conversion | ||||||||
| Loss in extinguishment of debt | ||||||||
| Accretion expense - excess derivative liability | ||||||||
| Net changes in operating assets & liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expense, deposits and other current assets | ||||||||
| Accounts payable, accrued liabilities, due to affiliates, and other long-term liabilities | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ||||||
| Net cash used in operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant, and equipment | ||||||||
| Purchases of intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities from discontinued operations | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Shares issued for cash | ||||||||
| Borrowings from convertible notes payable | ||||||||
| Borrowings from related parties | ||||||||
| Repayment to convertible notes payable | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by financing activities from discontinued operations-RP | ||||||||
| Net cash provided by financing | ||||||||
| Net increase in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing Activities: | ||||||||
| Shares issued for conversion from convertible note payable | $ | $ | ||||||
| Reclass of derivative liability to additional paid in capital | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements.
| 6 |
Clubhouse Media Group, Inc.
Notes to the Consolidated Financial Statements
March 31, 2024 and 2023
NOTE 1 - ORGANIZATION AND OPERATIONS
Clubhouse Media Group, Inc. (formerly known as Tongji Healthcare Group, Inc. or the “Company”) was incorporated under the laws of the State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji, Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”) by Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes in the areas of internal medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology, otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination, and prevention.
On December 27, 2006, The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of NTH obtained control of the entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated as the continuing operating entity. The Company, through NTH, thereafter operated the hospital until the Company eventually sold NTH, as described below.
Effective December 31, 2017, under the terms of a Bill of Sale, the Company agreed to sell, transfer convey and assign forever all of its rights, title and interest in its equity ownership interest in NTH to Placer Petroleum Co., LLC. Pursuant to the Bill of Sale, consideration for this sale, transfer conveyance and assignment is Placer Petroleum Co., LLC assuming all assets and liabilities of NTH as of December 31, 2017. Thereafter, the Company had minimal operations.
On May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered an Order Granting Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to Nevada Revised Statutes (“NRS”) 78.347(1)(b), pursuant to which Mr. Arcaro was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada under NRS 78.347.
On May 23, 2019, Mr. Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition, on May 23, 2019, Mr. Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On
May 29, 2020, Mr. Arcaro, through his ownership of Algonquin Partners Inc. (“Algonquin”), owner
On
July 7, 2020, the Company increased the authorized capital stock of the Company to
The Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada on June 13, 2022 for the purpose of amending the Articles of Incorporation of the Company to reduce the par value of the common stock of the Company, par value $ per share, from $ to $.
| 7 |
West
of Hudson Group, Inc. (“WOHG”) was incorporated in the State of Delaware on May 19, 2020 and owned
Doiyen
LLC (“Doiyen”), formerly known as WHP Entertainment LLC was incorporated in the State of California on January 2, 2020 and
renamed to Doiyen LLC in July 7, 2020 and Doiyen is
The Company is an entertainment company engaged in the sale of own brand products, e-commerce platform advertising, and promotion for other companies on their social media accounts. As of December 31, 2023, the Company changed focuses from brand deal to e-commerce platform as such Doiyen LLC is included within discontinued operations.
On
November 12, 2020, the Company and WOHG entered into the Merger Agreement, and WOHG thereafter became a wholly owned subsidiary of the
Company. WOHG was determined to be the accounting acquirer in the Merger based upon the terms of other factors, including: (1) the security
holders owned approximately
Since September 2022, the Company launched its own subscription-based site HoneyDrip.com, which provides a digital space for creators to share unique content with their subscribers.
The Company has changed focuses from brand deal to focus efforts on Honeydrip platform since December 31, 2023.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
Principles of Consolidation
The
unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation. The Company includes within the consolidated financial statements the
joint venture, see Note 11, due to ability to exert control over the financial and operating polices which includes ownership of equal
to or greater than
Use of Estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in assessing impairment of long-lived assets. Actual results could differ from those estimates.
| 8 |
Reclassification
Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
Business Combination
The Company applies the provisions of the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date, fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are on deposit with financial institutions without any restrictions. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Advertising
Advertising
costs are expensed when incurred and are included in selling, general, and administrative expenses in the accompanying consolidated statements
of operations. We incurred advertising expenses of $
Accounts Receivable
The Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be uncollectible are charged
or written-off against the reserve. As of March 31, 2024, and December 31, 2023, there were $
As
of March 31, 2024, and December 31, 2023, there were $
Property and equipment, net
Plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation of property, plant and equipment and are calculated on the straight-line method over their estimated useful lives or lease terms generally as follows:
| Classification | Useful Life | |
| Equipment |
| 9 |
Lease
The Company elected to use the short-term exception and does not record assets/liabilities for short term leases as of March 31, 2024 and December 31, 2023.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
Managed Services Revenue
The Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
| 10 |
Based on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement of work. The deferred revenue as of March 31, 2024, and December 31, 2023, was $ and included with discontinued operations on balance sheets. As of December 31, 2023, the Company has shifted focus from managed services to HoneyDrip.com platform as such managed services is included in discontinued operations on statement of operations.
Subscription-Based Revenue
The Company recognizes subscription-based revenue through Honeydrip.com, its social media website, which allows customers to visit the creator’s personal page over the contract period without taking possession of the products or deliverables. Customers incur costs on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the content. The Company reported the subscription-based revenue at net basis since the Company is acting as an agent solely arranging for the third-party creator or influencer to provide the services directly to the self-service customer through the platform or by posting the requested content. In April 2022, the Company determined that it will be recognized at gross because they have control of the services before it is transferred to the end customer. The Company provided services like online chat and other services directly with the end customers by their internal team. Also, the Company will establish the price on behalf of the content creators as disclosed in the agreement. The Company has sole power to change the price based on the market. These are good indicators that the Company controls the specified goods or services before it is transferred to the customer.
Software Development Costs
We
apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain system projects. These system
projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review
of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred
during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the
projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project
basis over the expected economic life of the underlying product on a straight-line basis, which is five years. Amortization commences
when the software is available for its intended use. Amounts capitalized related to development of internal use software are included
in property and equipment, net, on our Consolidated Balance sheets and related depreciation is recorded as a component of amortization
of intangible assets and depreciation in our consolidated statements of operations. For the year ended March 31, 2024, and 2023, we capitalized
$
Goodwill Impairment
We test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
For
other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s
estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total
related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows
and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values. The Company impaired
$
| 11 |
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of and for the three months ended March 31, 2024, and 2023, there were impairment loss of its long-lived assets.
Income Taxes
The Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold is recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold is derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations and comprehensive income (loss) as income tax expense.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
| 12 |
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. Potential common shares consist of the convertible promissory notes payable as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, there were and potential shares issuable upon conversion of convertible notes payable. As of March 31, 2024 and 2023, there were approximately potential shares issuable upon conversion of warrants. All potential shares from convertible notes payable and warrants were considered anti-dilutive as of March 31, 2024 and December 31, 2023.
For the three months ended March 31, 2024 (Unaudited) | For the three months ended March 31, 2023 (Unaudited) | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average common shares outstanding—basic | ||||||||
| Dilutive common stock equivalents | ||||||||
| Weighted average common shares outstanding—diluted | ||||||||
| Net loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
Stock based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award) under ASC 718. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurement defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
Fair Value Measurements
The Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
| 13 |
Cash, accounts receivable, accounts payable, and accrued expenses and deferred revenue – The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.
Convertible notes payable – Convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their fair value.
The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using the binomial option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of March 31, 2024 and December 31, 2023.
| Fair Value | Fair Value Measurements at | |||||||||||||||
| As of | March 31, 2024 | |||||||||||||||
| Description | March 31, 2024 | Using Fair Value Hierarchy | ||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value | Fair Value Measurements at | |||||||||||||||
| As of | December 31, 2023 | |||||||||||||||
| Description | December 31, 2023 | Using Fair Value Hierarchy | ||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Derivative instruments
The fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under other (income) expense.
Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives under ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
| 14 |
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Topic 815): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 requires companies to measure conversion of debt into equity that contain derivatives with difference as a gain or loss. ASU 2020-06 is effective for fiscal years beginning after December 15, 2022, including those interim periods within those fiscal years. The Company adopted and follows ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity as of December 31, 2023.
Beneficial Conversion Features
If a conversion features did not meet the definition of derivative liability under ASC 815, the Company evaluates the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note. If the effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note, the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method.
Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include:
a. Affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825– 10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
New Accounting Pronouncements
Management does not believe that any recently issued and not adopted and/or effective, accounting pronouncements would have a material effect on the accompanying financial statements.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the accompanying financial statements, the Company had a net loss of $(
While the Company is attempting to generate additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| 15 |
NOTE 4 – PROPERTY AND EQUIPMENT
Fixed assets, net consisted of the following:
| March 31, 2024 | December 31, 2023 | Estimated Useful Life | ||||||||
| Equipment | $ | $ | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||||
| Property, plant, and equipment, net, | $ | $ | ||||||||
The
above fixed assets are included in discontinued operations on the balance sheets. Depreciation expenses were $
NOTE 5 – INTANGIBLES
As
of March 31, 2024 and December 31, 2023, the Company had intangible assets of $
The following table sets forth the Company’s infinite and finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:
Weighted Average | March 31, 2024 (Unaudited) | December 31, 2023 (Audited) | ||||||||||||||||||||||||
Useful Life (in Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Value | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Developed technology - Magiclytics | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Developed technology - Magiclytics | - | |||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Amortization
expenses were $
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITES
Accrued liabilities at March 31, 2024 and 2022 consist of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued interest | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| 16 |
NOTE 7 – CONVERTIBLE NOTES PAYABLE
Convertible Promissory Note – GS Capital Partners #2
On
February 19, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #2”),
pursuant to which, on same date, the Company issued a convertible promissory note (the “GS Capital #2 Note”) to GS Capital
the aggregate principal amount of $
The
GS Capital #2 Note has a maturity date of
The
$
Convertible Promissory Note – New GS Note #2
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to cancel the conversion exercised in the quarter ended June 30, 2021.
On June 29, 2022, the “Company entered into an Exchange Agreement (the “Exchange Note”) with GS Capital. The Exchange Note amended and restated in its entirety the previous Note Purchase Agreement between the same parties.
The
Exchange Note replaces the Note Purchase Agreement in its entirety, which was a promissory note carrying an outstanding amount of $
The
change in conversion features were recorded as loss on debt extinguishment of $
GS
Capital converted $
| 17 |
Convertible Promissory Note – GS Capital Partners #3
On
March 16, 2022, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #3”), pursuant
to which, on same date, the Company issued a convertible promissory note (the “GS Capital #3 Note”) to GS Capital the aggregate
principal amount of $
The
GS Capital #3 Note has a maturity date of
The
$
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to September 22, 2022.
The
balance of the GS Capital #3 Note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – GS Capital Partners #4
On
April 1, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #4”), pursuant
to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $
The
GS Capital Note #4 has a maturity date of
| 18 |
The
$
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to October 1, 2022.
The
balance of the GS Capital Note #4 as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – GS Capital Partners #5
On
April 29, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with GS Capital,
pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital in the aggregate principal amount of
$
The
April 2021 GS Capital Note #5 has a maturity date of
The
$
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to October 29, 2022.
The
balance of the GS Capital Note #5 as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – GS Capital Partners #6
On
June 3, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with GS Capital,
pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital in the aggregate principal amount of
$
| 19 |
The
GS Capital Note #6 has a maturity date of
The
$
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to December 3, 2022.
The
balance of the GS Capital Note #6 as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – Eagle Equities LLC
On
April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle
Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate
principal amount of $
The
Eagle Equities Note has a maturity date of
| 20 |
The
$
The
balance of the Eagle Equities Note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – Chris Etherington
On
August 27, 2021, the Company entered into a note purchase agreement (the “Chris Etherington Note Purchase Agreement”) with
Chris Etherington, with an effective date of August 26, 2021, pursuant to which, on same date, the Company issued a convertible promissory
note to Mr. Etherington in the aggregate principal amount of $
The
Chris Etherington Note has a maturity date of
The Chris Etherington Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the Chris Etherington Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by Mr. Etherington: or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, Mr. Etherington may declare all or any portion of the then-outstanding principal amount of the Chris Etherington Note, together with all accrued and unpaid interest thereon, due and payable, and the Chris Etherington Note shall thereupon become immediately due and payable in cash and Mr. Etherington will also have the right to pursue any other remedies that Mr. Etherington may have under applicable law. In the event that any amount due under the Chris Etherington Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
| 21 |
The
$
The
balance of the Chris Etherington Note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – Rui Wu
On
August 27, 2021, the Company entered into a note purchase agreement (the “Rui Wu Note Purchase Agreement”) with Rui Wu, an
individual (“Rui Wu”), with an effective date of August 26, 2021, pursuant to which, on same date, the Company issued a convertible
promissory note to Rui Wu in the aggregate principal amount of $
The
Rui Wu Note has a maturity date of
The Rui Wu Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the Rui Wu Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by Rui Wu: or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) or Section 12(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, Rui Wu may declare all or any portion of the then-outstanding principal amount of the Rui Wu Note, together with all accrued and unpaid interest thereon, due and payable, and the Rui Wu Note shall thereupon become immediately due and payable in cash and Rui Wu will also have the right to pursue any other remedies that Rui Wu may have under applicable law. In the event that any amount due under the Rui Wu Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
The
$
| 22 |
The
balance of the Riu Wu Note as of March 31, 2024 and December 31, 2023 was $
Convertible Note – Fast Capital, LLC
On
January 13, 2022, the Company entered into a Securities Purchase Agreement, (the “SPA”) dated as of January 10, 2022, by
and between the Company and Fast Capital, LLC (the “Buyer”). Pursuant to the terms of the SPA, the Company agreed to issue
and sell, and the Buyer agreed to purchase (the “Purchase”), a
The
Note bears interest at a rate of
| Prepay Date | Prepay Amount | |
| On
or before |
||
The Note may not be prepaid after the 180th day.
The conversion price of the Note equals 70% of the lowest trading price of the Company’s common stock for the 20 prior trading days, including the day upon which a notice of conversion is delivered.
The
balance of the Fast Capital note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – ONE44 Capital LLC
On
February 16, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 Capital purchase agreement”) dated
February 15, 2022, by and between the Company and ONE44 Capital LLC. Pursuant to the terms of the SPA, the Company agreed to issue and
sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $
The
ONE44 Capital Note bears interest at a rate of
The
conversion price of the ONE44 Capital Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $
| 23 |
Since
the conversion price is based on
The
$
ONE44
Capital LLC converted $
On
March 7, 2023, the Company entered into a Debt Repayment and Release Agreement by and between the Company and ONE44 Capital LLC. Pursuant
to the terms of the Agreement, the Company agreed to pay to ONE44 $
The
balance of the ONE44 Capital note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – ONE44 Capital LLC #2
On
May 20, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 Capital purchase agreement #2”) by and
between the Company and ONE44 Capital LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed
to purchase, a convertible note in the aggregate principal amount of $
The
ONE44 Capital Note bears interest at a rate of
Since
the conversion price is based on
The
$
ONE44
Capital LLC converted $
On
May 10, 2023, the Company entered into debt repayment and release agreement with ONE44 Capital LLC. Pursuant to the terms of the Agreement,
the Company agreed to pay to ONE44 $
The
balance of the ONE44 Capital note as of March 31, 2024 and December 31, 2023 was $
| 24 |
Convertible Promissory Note – 1800 Diagonal Lending LLC
On
June 23, 2022, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #4 purchase agreement”), by and
between the Company and Diagonal Lending LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed
to purchase, a convertible note in the aggregate principal amount of $
The
Note has a maturity date of
The
conversion price is equal to the lesser of the variable conversion price and fixed conversion price which is $
Since
the conversion price is based on the lesser of (i) $
The
$
Three
conversions occurred during the period ending March 31, 2023, resulting in a principal reduction of $
On
February 17, 2023, the Company entered into a Settlement and Release Agreement by and between the Company and 1800 Diagonal Lending LLC.
Pursuant to the terms of the Agreement, in full and final settlement of the Diagonal lending LLC notes, the Company agreed to (i) pay
to the Lender $
As a result, as of February 17, 2023, pursuant to the terms of the Agreement, the Debt was settled and all the 1800 Diagonal Lending LLC notes were terminated.
The
balance of the Diagonal note as of March 31, 2024 and December 31, 2023 was $
Convertible Promissory Note – Diagonal Lending LLC
On
July 8, 2022, the Company entered into a Securities Purchase Agreement, (the “1800 Diagonal Lending LLC purchase agreement”),
by and between the Company and Diagonal Lending LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the
Buyer agreed to purchase, a convertible note in the aggregate principal amount of $
| 25 |
The
Note has a maturity date of
The
conversion price is equal to the lesser of the variable conversion price and fixed conversion price which is $
Since
the conversion price is based on the lesser of (i) $
The
$
On
February 17, 2023, the Company entered into a Settlement and Release Agreement by and between the Company and 1800 Diagonal Lending LLC.
Pursuant to the terms of the Agreement, in full and final settlement of the Diagonal lending LLC notes, the Company agreed to (i) pay
to the Lender $
As a result, as of February 17, 2023, pursuant to the terms of the Agreement, the Debt was settled and all the 1800 Diagonal Lending LLC notes were terminated.
The
balance of the Diagonal note as of March 31, 2024 and December 31, 2023 was $
| 26 |
Below is the summary of the principal balance and debt discounts as of March 31, 2024 and December 31, 2023.
| Convertible Promissory Note Holder | Start Date | End Date | Initial Note Principal Balance | Current Note Principal Balance | Debt Discounts As of Issuance | Amortization | Debt Discounts As of December 31, 2023 | |||||||||||||||||
| GS Capital #2 | ( | ) | ||||||||||||||||||||||
| GS Capital #2 - replacement | ||||||||||||||||||||||||
| GS Capital #3 | ( | |||||||||||||||||||||||
| GS Capital #4 | ( | ) | ||||||||||||||||||||||
| Eagle Equities LLC | ( | ) | ||||||||||||||||||||||
| GS Capital #5 | ( | ) | ||||||||||||||||||||||
| GS Capital #6 | ( | ) | ||||||||||||||||||||||
| Chris Etherington | ( | ) | ||||||||||||||||||||||
| Rui Wu | ( | ) | ||||||||||||||||||||||
| Sixth Street Lending #1 | ( | ) | ||||||||||||||||||||||
| Sixth Street Lending #2 | ( | ) | ||||||||||||||||||||||
| Fast Capital LLC | ( | ) | ||||||||||||||||||||||
| Sixth Street Lending #3 | ( | ) | ||||||||||||||||||||||
| One 44 Capital | ( | ) | ||||||||||||||||||||||
| Coventry Enterprise | | | ( | ) | ||||||||||||||||||||
| One 44 Capital #2 | | | ( | ) | ||||||||||||||||||||
| 1800 Diagonal Lending LLC | | | ( | ) | ||||||||||||||||||||
| 1800 Diagonal Lending LLC | | ( | ) | |||||||||||||||||||||
| Total | Total | $ | ||||||||||||||||||||||
| Remaining note principal balance | ||||||||||||||||||||||||
| Total convertible promissory notes, net | $ | |||||||||||||||||||||||
Future payments of principal of convertible notes payable at March 31, 2024 are as follows:
| Years ending December 31, | ||||
| 2024 | $ | ( | ) | |
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | ( | ) | |
Interest
expenses recorded related to the convertible notes payable for the three months ended March 31, 2024 and 2023 were $
The
Company amortized $
| 27 |
As of March 31, 2024 and December 31, 2023, the Company entered into various consulting agreements with consultants, directors, and convertible debt. The balances of shares to be issued – liability was $ and $, respectively. The Company recorded these consultant and director shares under liability based on the shares will be issued at a fixed monetary amount known at inception under ASC 480.
| Beginning Balance, January 1, 2023 | $ | |||
| Shares to be issued | ||||
| Shares issued | ( | ) | ||
| Ending Balance, December 31, 2023 | $ |
Shares to be issued - liability is summarized as below:
| Beginning Balance, January 1, 2024 | $ | |||
| Shares to be issued | ||||
| Shares issued | ||||
| Ending Balance, March 31, 2024 | $ |
NOTE 9 – DERIVATIVE LIABILITY
The
derivative liability is derived from the conversion features in note 8 signed for the period ended December 31, 2023. All were valued
using the weighted-average Binomial option pricing model using the assumptions detailed below. As of March 31, 2024 and December 31,
2023, the derivative liability was $
The Binomial model with the following assumption inputs:
| December 31, 2023 | ||||
| Annual Dividend Yield | ||||
| Expected Life (Years) | ||||
| Risk-Free Interest Rate | % | |||
| Expected Volatility | % |
Fair value of the derivative is summarized as below:
| Beginning Balance, December 31, 2022 | $ | |||
| Additions | ||||
| Mark to Market | ||||
| Cancellation of Derivative Liabilities Due to Conversions | ||||
| Reclassification to APIC Due to Conversions | ( | ) | ||
| Ending Balance, December 31, 2023 | $ |
| March 31, 2024 | ||||
| Annual Dividend Yield | ||||
| Expected Life (Years) | ||||
| Risk-Free Interest Rate | % | |||
| Expected Volatility | % | |||
| 28 |
Fair value of the derivative is summarized as below:
| Beginning Balance, December 31, 2023 | $ | |||
| Additions | ||||
| Mark to Market | ||||
| Cancellation of Derivative Liabilities Due to Conversions | ||||
| Reclassification to Other Income (Loss) Due to Conversions | ||||
| Ending Balance, March 31, 2024 | $ |
NOTE 10 – NOTE PAYABLE, RELATED PARTY
Note payable – Amir without interest
For
the three months ended March 31, 2024 and 2023, the Company borrowed $
Effective March 4, 2021, the Company entered into three (3) separate director agreements with Amir Ben-Yohanan, Christopher Young, and Simon Yu. The Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s, and Mr. Yu’s role as a director of the Company. Mr. Young and Yu resigned from their officer and director positions with the Company on October 8, 2022.
Pursuant to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
| ● | An issuance of shares of the Company’s common stock, par value par value $ (“Common Stock”), to be issued on the Effective Date, as compensation for services provided by each of the Directors to the Company prior to the Effective Date; and | |
| ● | An
issuance of a number of shares of Common Stock having a fair market value (as defined in each of the Director Agreements) of $ |
As
of March 31, 2024 and December 31, 2023, the Company has a payable balance owed to the sellers of Magiclytics of $
During
the year ended December 31, 2023, Mr. Young and Mr. Yu prior accrued and unpaid wages amounting $
On October 7, 2021, the Board of Directors of the Company appointed Dmitry Kaplun as the Company’s Chief Financial Officer. Pursuant to the terms of the Employment Agreement, the Board entered into a restricted stock award agreement (the “Restricted Stock Agreement”) dated October 7, 2022. Pursuant to the terms of the Restricted Stock Agreement, the Board granted Mr. Kaplun shares of restricted common stock on October 7, 2022. % of the shares vest on each of the three-month, six-month, nine-month and 12-month anniversaries of the grant date.
On
October 12, 2021, the Board appointed Massimiliano Musina to serve as a member of the Company’s Board of Directors. In connection
with Mr. Musina’s appointment, the Company and Mr. Musina entered into an Independent Director Agreement dated October 12, 2021
(the “Director Agreement”). Pursuant to the terms of the Director Agreement, the Company agreed to issue to Mr. Musina each
quarter a number of shares of common stock having a fair market value of $
| 29 |
On
April 1, 2022, Clubhouse Media Group, Inc. (the “Company”) entered into an employment agreement with Amir Ben-Yohanan, the
Company’s Chief Executive Officer, effective April 11, 2022. The terms of the employment agreement are substantially similar to
the terms of Mr. Ben-Yohanan’s prior employment agreement with the Company. Accordingly, pursuant to the terms of the employment
agreement, Mr. Ben-Yohanan will continue to serve as Chief Executive Officer of the Company, reporting to the Board of Directors (the
“Board”). As compensation for Mr. Ben-Yohanan’s services, the Company agreed to pay Mr. Mr. Ben-Yohanan an annual base
salary of $
| (i) | If the Company’s Board determines that the Company has sufficient cash on hand to pay all or a portion of the Optional Portion in cash, such amount shall be paid in cash. | |
| (ii) | If the Board determines that the Company does not have sufficient cash on hand to pay all of the Optional Portion in cash, then the portion of the Optional Portion which the Board determines that the Company has sufficient cash on hand to pay in cash will be paid in cash, and the remainder (the “Deferred Portion”) will either: |
| a. | be paid at a later date, when the Board determines that the Company has sufficient cash on hand to enable the Company to pay the Deferred Portion; or | |
| b. | will not be paid in cash – and instead, the Company will issue shares of Company Common Stock equal to (A) the Deferred Portion, divided by (B) the VWAP (as defined in the employment agreement) as of the (B) date of issuance of such shares of Company Common Stock. |
In addition, pursuant to the employment agreement, Mr. Ben-Yohanan is entitled to be paid discretionary annual bonuses as determined by the Board, and is also entitled to receive fringe benefits, such as, but not limited to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days, and certain insurances.
The initial term of the employment agreement is one year from April 11, 2022, unless earlier terminated. Thereafter, the term is automatically extended on an annual basis for terms of one year each, unless either the Company or Mr. Ben-Yohanan provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least 30 days prior to the expiration of the then-current term.
Mr. Ben-Yohanan’s employment with the Company shall be “at will,” meaning that either Mr. Ben-Yohanan or the Company may terminate Mr. Ben-Yohanan’s employment at any time and for any reason, subject to certain terms and conditions.
The Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement and Mr. Ben-Yohanan may terminate the employment agreement at any time, with or without “good reason”, as defined in the employment agreement. If the Company terminates the employment agreement for cause or Mr. Ben-Yohanan terminates the employment agreement without good reason, Mr. Ben-Yohanan will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be paid via the issuance of shares of Company Common Stock. Mr. Ben-Yohanan will also be entitled to payment for any unreimbursed expenses as of the termination date. However, any unvested portion of any equity granted to Mr. Ben-Yohanan will be immediately forfeited as of the termination date.
During
the year ended December 31, 2023, Mr. Ben-Yohanan entered into an agreement with the Company to forgive all prior accrued and unpaid
wages amounting to $
On April 19, 2022, the board of directors (the “Board”) of Clubhouse Media Group, Inc. (the “Company”) and stockholders holding a majority of the Company’s voting power approved the Clubhouse Media Group, Inc. 2022 Equity Incentive Plan (the “2022 Plan”).
NOTE 11 - JOINT VENTURE AGREEMENT- CONSOLIDATED SUBSIDIARY
On
July 31, 2022, the Company entered into a joint venture deal memo with Alden Henri Reiman (“Mr. Reiman”), pursuant to which
the parties agreed to enter into a more permanent joint venture arrangement, involving the creation of a Nevada limited liability company,
The Reiman Agency LLC (the “Agency”), of which the Company shall own
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According to the Joint Venture, Mr. Reiman shall oversee the day-to-day operations of the Agency, but shall consult with the Company on a regular basis and regularly update the Company on the status of deals and the operations of the business. All material business and financial decisions shall be subject to the Company’s final approval. The Company shall not exercise its approval rights in an arbitrary or capricious manner.
In
the event that Mr. Reiman determines that office space is required to properly carry on the business of the Agency, Mr. Reiman shall
have the authority to lease a reasonable office space on behalf of the Agency, subject to the Company’s prior review and approval.
The Company has agreed and approved an office leasing budget of up to $
On the Effective Date, the parties closed the Agreement by executing an Operating Agreement for the Agency, dated the Effective Date, which encapsulates the essential terms and conditions contained in the Agreement.
The
Employment Agreement provides Mr. Reiman with a monthly base salary of $
Additionally, on the last day of each month of the term, Mr. Reiman shall be entitled to an amount of shares equal to seven and one half percent () of the net receipts for the applicable month (“Additional Shares”), divided by the twenty (20) day VWAP of such shares from the last day of the applicable month. All Additional Shares issued to Mr. Reiman pursuant to the Employment Agreement shall be issued to Mr. Reiman within seven (7) business days of the date such shares vest.
Mr.
Reiman shall also be entitled to Twenty-Five Percent (
The
Company allocates the net income or loss of this joint venture to non-controlling interest based on the ownership of this joint venture.
The non-controlling interest for the three months ended March 31, 2024 and 2023, was $
During December 2023, the Company terminated the joint venture agreement with Mr. Reiman due to switching focus away from brand deals. However, the controlling ownership percentage of the Company did not change and will continue until the contracts entered into before termination of agreement are completed.
NOTE 12 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
July 7, 2020, the Company increased the authorized capital stock of the Company to
On April 19, 2022, the Company filed Articles of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State that had the effect of increasing the authorized shares of common stock from to .
The Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada on June 13, 2022 for the purpose of amending the Articles of Incorporation of the Company to reduce the par value of the common stock of the Company, par value $ per share, from $ to $.
On June 23, 2022, the Company filed Articles of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State that had the effect of increasing the authorized shares of common stock from to . The Company’s Preferred Stock was unchanged by the Amendment.
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On
November 15, 2022, the Company filed a certificate of amendment to its Articles of Incorporation to increase the Company’s authorized
shares of common stock, par value $ per share, from to . Accordingly, following the filing of the
Amendment, the Company has
One share of Series X Preferred Stock is outstanding as of December 31, 2022. The single share of Series X Preferred Stock outstanding is held by Amir Ben-Yohanan, the Company’s Chief Executive Officer, who also holds shares of Common Stock as of May 8, 2024.
Preferred Stock
As of March 31, 2024 there was preferred share issued and outstanding.
On November 12, 2020, the Company filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the preferred stock of the Company as the Series X Preferred Stock of the Company.
In November 2020, the Company issued and sold to the Company’s Chief Executive Officer share of Series X Preferred Stock, at a purchase price of $. The share of Series X Preferred Stock shall have a number of votes at any time equal to (i) the number of votes then held or entitled to be made by all other equity securities of the Company, debt securities of the Company or pursuant to any other agreement, contract or understanding of the Company, plus (ii) one (1). The Series X Preferred Stock shall vote on any matter submitted to the holders of the Common Stock, or any class thereof, for a vote, and shall vote together with the Common Stock, or any class thereof, as applicable, on such matter for as long as the share of Series X Preferred Stock is issued and outstanding. The Series X Preferred Stock shall not have the right to vote on any matter as to which solely another class of Preferred Stock of the Company is entitled to vote pursuant to the certificate of designations of such other class of Preferred Stock of the Company.
The Series X Preferred Stock shall not be convertible into shares of any other class of stock of the Company and entitled to receive any dividends paid on any other class of stock of the Company.
In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of the Company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the Series X Preferred Stock shall not be entitled to receive any distribution of any of the assets or surplus funds of the Company and shall not participate with the Common Stock or any other class of stock of the Company therein.
Common Stock
As of March 31, 2024 and December 31, 2023, the Company had shares of common stock authorized with a par value of $. There were shares issued and outstanding at March 31, 2024 and December 31, 2023.
For
the year ended December 31, 2023, the Company issued shares to settle conversions of $
For
the year ended December 31, 2023, the Company issued shares for debt exchange in amount of $
For the year ended December 31, 2023, the Company issued shares for services provided by directors.
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Warrants
A summary of the Company’s stock warrants activity is as follows:
| Number of Options (in thousands) | Weighted- Average Exercise Price | Weighted- Average Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2023 | $ | - | ||||||||||||||
| Issued | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Canceled | - | - | ||||||||||||||
| Outstanding at March 31, 2024 | $ | | $ | - | ||||||||||||
| Vested and expected to vest at March 31, 2024 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | ||||||||||||||
stock options were granted by the Company during the three months ended March 31, 2024.
| Dividend yield | % | |||
| Expected term (in years) | ||||
| Volatility | - | % | ||
Equity Purchase Agreement and Registration Rights Agreement
On
November 2, 2021, Clubhouse Media Group, Inc (the “Company”) entered into an Equity Purchase Agreement (the “Agreement”)
and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P., a Delaware
limited Partnership (“Investor”), dated as of October 29, 2021, pursuant to which the Company shall have the right, but not
the obligation, to direct Investor, to purchase up to $
In exchange for Investor entering into the Agreement, the Company agreed, among other things, to (A) issue Investor and Peak One Investments, LLC, an aggregate of shares of Common Stock (the “the Commitment Shares”), and (B) file a registration statement registering the Common Stock issued as Commitment Shares or issuable to Investor under the Agreement for resale (the “Registration Statement”) with the Securities and Exchange Commission within 60 calendar days of the Agreement, as more specifically set forth in the Registration Rights Agreement.
The obligation of Investor to purchase the Company’s Common Stock shall begin on the date of the Agreement, and ending on the earlier of (i) the date on which Investor shall have purchased Common Stock pursuant to this Agreement equal to the Maximum Commitment Amount, (ii) twenty four (24) months after the date of the Agreement, (iii) written notice of termination by the Company to Investor (which shall not occur during any Valuation Period or at any time that Investor holds any of the Put Shares), (iv) the Registration Statement is no longer effective after the initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary case or any person commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During the Commitment Period, the purchase price to be paid by Investor for the Common Stock under the Agreement shall be 95% of the Market Price, which is defined as the lesser of the (i) closing bid price of the Common Stock on the trading day immediately preceding the respective Put Date (as defined in the Agreement), or (ii) lowest closing bid price of the Common Stock during the Valuation Period (as defined in the Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Investor.
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The Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Investor represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
2023 Equity Incentive Plan
On July 11, 2022, the Board and stockholders holding a majority of the voting power of the Company approved and adopted the Clubhouse Media Group, Inc. 2023 Equity Incentive Plan (the “2023 Plan”).
A total of shares of the Company’s common stock are authorized for issuance pursuant to the 2023 Plan.
Additionally, if any award issued pursuant to the 2023 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2023 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2023 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). Shares that have actually been issued under the 2023 Plan under any award will not be returned to the 2023 Plan and will not become available for future distribution under the 2023 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2023 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2023 Plan. To the extent an award under the 2023 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2023 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2023 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under the 2023 Plan in accordance with the foregoing.
Plan Administration
The Board or one or more committees appointed by the Board will administer the 2023 Plan. In addition, if the Company determines it is desirable to qualify transactions under the 2023 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2023 Plan, the administrator has the power to administer the 2023 Plan and make all determinations deemed necessary or advisable for administering the 2023 Plan, including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2023 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2023 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2023 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
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Eligibility
Awards under the 2023 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary, members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock options may be granted only to employees of the Company or a subsidiary.
Stock Options
Stock options may be granted under the 2023 Plan. The exercise price of options granted under the 2023 Plan generally must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2023 Plan, the administrator determines the other terms of options.
Notwithstanding any other provision of the 2023 Plan to the contrary, the aggregate grant date fair value of all awards granted, under the 2023 Plan, to any director who is not an employee, during any fiscal year of the Company, taken together with any cash compensation paid to such director during such fiscal year, shall not exceed $.
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2023 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2023 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock
Restricted stock may be granted under the 2023 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2023 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture.
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Restricted Stock Units
RSUs may be granted under the 2023 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of the Company’s common stock. Subject to the provisions of the 2023 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
Performance Units and Performance Shares
Performance units and performance shares may be granted under the 2023 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.
Non-Employee Directors
The 2023 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2023 Plan. The 2023 Plan includes a maximum limit of $ of equity awards that may be granted to a non-employee director in any fiscal year. Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”), and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The Company’s suppliers may decrease production levels based on factory closures and reduced operating hours in those facilities. Likewise, the Company is dependent on its workforce to deliver its products. Developments such as social distancing and shelter-in-place directives may impact the Company’s ability to deploy its workforce effectively. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.
Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. The Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time. If the pandemic continues, it may have a material effect on the Company’s results of future operations, financial position, and liquidity in the next 12 months.
NOTE 14 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May __, 2024, the date these financial statements were available to be issued and noted no material subsequent events for disclosure.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this quarterly report, including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this annual report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes thereto contained elsewhere in this quarterly report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a social media firm. Our Company has recently ceased its operations in the agency and brand deal business to instead focus our efforts and resources on growing our wholly owned, creator monetization platform, HoneyDrip.com.
Through our subsidiary, West of Hudson Group, Inc. (“WOHG”), we currently generate revenues primarily through WOH Brands, LLC (“WOH Brands”), a 100% wholly owned subsidiary of WOHG, which operates Honeydrip.com, a new digital platform with a focus on the empowerment of creators. The site allows creators to connect with fans and sell exclusive photo and video content. The company previously generated revenue through The Reiman Agency, a 51% majority held joint venture which brokered brand promotional deals between brands and talent, but has since discontinued these operations.
Recent Developments
None.
Results of Operations
For the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
Net Revenue
Net revenue was $401,546 for the three months ended March 31, 2024, compared to net revenue of $351,777 for the three months ended March 31, 2023. The increase of $49,769 was the result of increase in brand promotional business platform Honeydrip.com.
Cost of Goods Sold
Cost of goods sold was $273,246 for three months ended March 31, 2024, compared to cost of goods sold of $218,888 for the three months ended March 31, 2023. The increase of $54,358 was due to higher sales volume from platform Honeydrip.com which in turn resulted in more commission due to content creators.
Gross Profit
Gross profit was $128,300 for the three months ended March 31, 2024, compared to gross profit of $132,889 for the three months ended March 31, 2023. The gross profit percentage was 24% for the three months ended March 31, 2024, compared to 38% for the three months ended March 31, 2023. The decrease is because the Company has higher commission due to content creators from platform Honeydrip.com.
Operating Expenses
Operating expenses for the three months ended March 31, 2024, were $405,103, compared to $323,614 for the three months ended March 31, 2023. The variances were as follows: (i) increase in professional and consultant fees of $52,816; (ii) a decrease in sales and marketing expenses of $68,711; (iii) a increase of payroll of $109,736; (iv) a decrease in other selling, general, and administrative expense of $12,352. The overall increase in total operating expenses resulted from a increase in the salaries and wages and increase in professional and consulting expenses to the Company.
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Other (Income) Expenses
Other (income) expenses for the three months ended March 31, 2024, were $1,472,347, as compared to $1,668,012 for the three months ended March 31, 2023. Other (income) expenses for the three months ended March 31, 2024, included (i) change in fair value derivative liability of $1,357,384; (ii) interest expense of $186,812; and (iii) gain related to debt of $71,849. Other expenses for the three months ended March 31, 2023 included (i) change in fair value derivative liability of $1,382,822; (ii) interest expense of $171,736; (iii) noncash amortization of debt discounts of $126,991; and (iv) other income of $13,537.
Net Loss from Continuing Operations
Net loss for the three months ended March 31, 2024 was $1,749,150, compared to $1,858,737, for the three ended March 31, 2023.
Net Loss from Discontinued Operations
Net loss for the three months ended March 31, 2024 was $8,960, compared to $363,582, for the three months ended March 31, 2023.
Liquidity and Capital Resources
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2024, was $119,042. This amount was primarily related to a net loss from operations of $(1,749,150), offset by (i) a net working capital increase of $231,482; (ii) non-cash expenses of $1,393,125 including (a) amortization of $32,590; (b) stock-based compensation of $75,000; (c) change in fair value of derivative liability of $1,357,384; (d) discontinued operations of $5,501, and offset by gain in debt settlement of $71,849.
Net cash used in operating activities for the three months ended March 31, 2023, was $221,796. This amount was primarily related to a net loss from operations of $(1,858,737), offset by (i) a net working capital increase of $813,582; (ii) non-cash expenses of $1,564,151 including (a) amortization of $29,336; (b) stock-based compensation of $25,000; (c) change in fair value of derivative liability of $1,382,822; (d) interest expense – amortization of debt discount of $126,993; (e) discontinued operations of $(740,792), and offset by gain in debt settlement of $71,849.
Investment Activities
Net cash used in investing activities for the three months ended March 2024, was $3,825 compared to $19,730 for the three months ended March 31, 2023.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024, was $12,500. The amount was related to borrowing from related party of $12,500. Net cash provided by financing activities for the three months ended March 31, 2022 was $228,774.
Impact of COVID-19 on the Company
Due to the digital/remote nature of the Company’s business, COVID-19 has had, and is expected to have, only a limited effect on the Company’s operations.
Going Concern
The Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.
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The accompanying unaudited consolidated financial statements have been prepared assuming that we will continue as a going concern. While the Company is attempting to generate additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues. The Company will require additional cash funding to fund operations. Therefore, the Company concluded there was substantial doubt about the Company’s ability to continue as a going concern.
To fund further operations, the Company will need to raise additional capital. The Company may obtain additional financing in the future through the issuance of its common stock, or through other equity or debt financing. The Company’s ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, the Company will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and the Company’s ability to achieve its strategic objective. There can be no assurance that financing will be available on acceptable terms, or at all. The financial statements contain no adjustments for the outcome of these uncertainties. These factors raise substantial doubt about the Company’s ability to continue as a going concern and have a material adverse effect on the Company’s future financial results, financial position and cash flows.
Equity Purchase Agreement and Registration Rights Agreement
On November 2, 2021, the Company entered into an Equity Purchase Agreement and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P. (“Peak One”), dated as of October 29, 2021, pursuant to which the Company has the right, but not the obligation, to direct Peak One to purchase up to $15,000,000 (the “Maximum Commitment Amount”) in shares of the Company’s common stock in multiple tranches (the “Put Shares”). Further, under the Equity Purchase Agreement and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit a Put Notice (as defined in the Equity Purchase Agreement) from time to time to Peak One (i) in a minimum amount not less than $20,000 and (ii) in a maximum amount up to the lesser of (a) $400,000 or (b) 250% of the Average Daily Trading Value (as defined in the Equity Purchase Agreement).
In exchange for Peak One entering into the Equity Purchase Agreement, the Company agreed, among other things, to (A) issue Peak One and Peak One Investments, LLC, an aggregate of 70,000 shares of common stock (the “Commitment Shares”), and (B) file a registration statement registering the common stock issued as Commitment Shares and issuable to Peak One under the Equity Purchase Agreement for resale (the “Registration Statement”) with the SEC within 60 calendar days of the Equity Purchase Agreement, as more specifically set forth in the Registration Rights Agreement.
The obligation of Peak One to purchase the Company’s common stock begins on the date of the Equity Purchase Agreement, and ends on the earlier of (i) the date on which Peak One has purchased common stock pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) 24 months after the date of the Equity Purchase Agreement, (iii) written notice of termination by the Company to Peak One (which shall not occur during any Valuation Period or at any time that Peak One holds any of the Put Shares), (iv) the Registration Statement is no longer effective after the initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary case or any person commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
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During the Commitment Period, the purchase price to be paid by Peak One for the common stock under the Equity Purchase Agreement shall be 95% of the Market Price, which is defined as the lesser of the (i) closing bid price of the common stock on the trading day immediately preceding the respective Put Date (as defined in the Equity Purchase Agreement), or (ii) lowest closing bid price of the common stock during the Valuation Period (as defined in the Equity Purchase Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Peak One.
The number of Put Shares to be purchased by Peak One shall not exceed the number of such shares that, when aggregated with all other shares of common stock then owned by Peak One beneficially or deemed beneficially owned by Peak One, would result in Peak One owning more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable pursuant to a Put Notice.
In accordance with that certain Registration Rights Agreement, the Selling Securityholders are entitled to certain rights with respect to the registration of the Put Shares and Commitment Shares issued in connection with the Equity Purchase Agreement (the “Registrable Securities”). Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 60 calendar days from the date of the Registration Rights Agreement, (ii) use reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible after the filing thereof, but in any event no later than the 90th calendar day following the date of the Registration Rights Agreement, and (iii) use its reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all of the Commitment Shares and Purchase Shares have been sold thereunder or pursuant to Rule 144. The Company must also take such action as is necessary to register and/or qualify the Registrable Securities under such other securities or blue sky laws of all applicable jurisdictions in the United States.
Convertible Promissory Notes
The Company did not enter into convertible promissory notes during the period ending March 31, 2024. All outstanding convertible notes at March 31, 2024 and December 31, 2023 are discussed at the related footnote, see footnote #7 in the notes to the consolidated financial statements.
SHARES TO BE ISSUED - LIABILITY
As of March 31, 2024, and 2023, the Company entered into various consulting agreements with consultants, directors, and convertible debt. The Company recorded these consultant and director shares under liability based on the shares will be issued at a fixed monetary amount known at inception under ASC 480.
Off-Balance Sheet Arrangements
As of March 31, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act reasonably likely to have a material effect on our financial condition.
Critical Accounting Policies and Estimates
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in assessing impairment of long-lived assets. Actual results could differ from those estimates.
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Accounts Receivable
The Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be uncollectible are charged or written-off against the reserve. As of March 31, 2024, and December 31, 2023, there were $75 and $79, respectively, for bad debt allowance for accounts receivable.
As of March 31, 2024, and December 31, 2023, there were $3,127 and $2,956, respectively, for bad debt allowance for accounts receivable included with discontinued operations on balance sheets.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
Managed Services Revenue
The Company generates revenue from its managed services when a marketer (typically a brand, agency, or partner) pays the Company to provide custom content, influencer marketing, amplification, or other campaign management services (“Managed Services”).
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
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For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
Based on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation to fulfill the performance obligations and it creates, reviews, and controls the services. The Company takes on the risk of payment to any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement of work. The deferred revenue as of March 31, 2024, and December 31, 2023, was $0 and included with discontinued operations on balance sheets. As of December 31, 2023, the Company has shifted focus from managed services to HoneyDrip.com platform as such managed services is included in discontinued operations on statement of operations.
Subscription-Based Revenue
The Company recognizes subscription-based revenue through Honeydrip.com, its social media website, which allows customers to visit the creator’s personal page over the contract period without taking possession of the products or deliverables. Customers incur costs on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the content. The Company reported the subscription-based revenue at net basis since the Company is acting as an agent solely arranging for the third-party creator or influencer to provide the services directly to the self-service customer through the platform or by posting the requested content. In April 2022, the Company has determined it will be recognized at gross because they have control of the services before it is transferred to the end customer. The Company provided services like online chat and other services directly with the end customers by their internal team. Also, the Company will establish the price on behalf of the content creators as disclosed in the agreement. The Company has sole power to change the price based on the market. These are good indicators that the Company controls the specified goods or services before it is transferred to the customer.
Software Development Costs
We apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain system projects. These system projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project basis over the expected economic life of the underlying product on a straight-line basis, which is five years. Amortization commences when the software is available for its intended use. Amounts capitalized related to development of internal use software are included in property and equipment, net, on our Consolidated Balance sheets and related depreciation is recorded as a component of amortization of intangible assets and depreciation in our consolidated statements of operations. For the year ended March 31, 2024, and 2023, we capitalized $3,825 and $19,730, respectively, related to internal use software and recorded $32,590 and $29,336 in related amortization expense, respectively. Unamortized costs of capitalized internal use software totaled $416,817 and $445,582 as of March 31, 2024, and December 31, 2023, respectively. As of December 31, 2023, the Company fully impaired developed technology-magiclytics
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Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of and for the three months ended March 31, 2024, and 2023, there were no impairment loss of its long-lived assets.
Income Taxes
The Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold is recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold is derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations and comprehensive income (loss) as income tax expense.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value.
The Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which are described below:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Cash, accounts receivable, accounts payable, and accrued expenses and deferred revenue – The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.
Convertible notes payable – Convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their fair value.
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The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using the binomial option-pricing model based on various assumptions. The fair value of derivative liability as of March 31, 2024 and December 31, 2023 was $2,231,297 and $873,913, respectively.
Stock based Compensation
Stock based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award) under ASC 718. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include:
a. affiliates of the Company;
b. entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825– 10–15, to be accounted for by the equity method by the investing entity;
c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management;
d. principal owners of the Company;
e. management of the Company;
f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
New Accounting Pronouncements
Management does not believe that any recently issued and not adopted and/or effective, accounting pronouncements would have a material effect on the accompanying financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer (our “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2024, our disclosure controls and procedures were not effective.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For the three months ended March 31, 2024, the Company did not have any issuances pursuant to an exemption from registration as set forth in 506 of Regulation D and Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
None.
Item 6. Exhibits.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CLUBHOUSE MEDIA GROUP, INC. | ||
| Date: May 13, 2024 | By: | /s/ Amir Ben-Yohanan |
| Name: | Amir Ben-Yohanan | |
| Title: | Chief Executive Officer | |
| (principal executive officer) | ||
| Date: May 13, 2024 | By: | /s/ Scott Hoey |
| Name: | Scott Hoey | |
| Title: | Chief Financial Officer | |
| (principal financial officer and principal accounting officer) | ||
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