0001493152-20-019513.txt : 20201015 0001493152-20-019513.hdr.sgml : 20201015 20201015171738 ACCESSION NUMBER: 0001493152-20-019513 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 63 CONFORMED PERIOD OF REPORT: 20200831 FILED AS OF DATE: 20201015 DATE AS OF CHANGE: 20201015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPLICITY ESPORTS & GAMING Co CENTRAL INDEX KEY: 0001708410 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING & DRINKING PLACES [5810] IRS NUMBER: 821231127 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38188 FILM NUMBER: 201242129 BUSINESS ADDRESS: STREET 1: 7000 W. PALMETTO PARK RD., STREET 2: SUITE 210, CITY: BOCA RATON, STATE: FL ZIP: 33433 BUSINESS PHONE: 855-345-9467 MAIL ADDRESS: STREET 1: 7000 W. PALMETTO PARK RD., STREET 2: SUITE 210, CITY: BOCA RATON, STATE: FL ZIP: 33433 FORMER COMPANY: FORMER CONFORMED NAME: SMAAASH ENTERTAINMENT INC. DATE OF NAME CHANGE: 20181127 FORMER COMPANY: FORMER CONFORMED NAME: I-AM CAPITAL ACQUISITION Co DATE OF NAME CHANGE: 20170605 10-Q 1 form10q.htm

  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 31, 2020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 001-38188

 

SIMPLICITY ESPORTS AND GAMING COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware   82-1231127

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

7000 W. Palmetto Park Road, Suite 505

Boca Raton, FL

  33433
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (855) 345-9467

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all 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. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer [  ]   Accelerated filer [  ]  
  Non-accelerated filer [X]   Smaller reporting company [X]  
      Emerging growth company [X]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of October 14, 2020, there were 9,329,190 shares of the Company’s common stock issued and outstanding.

 

 

 

 
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

 

Table of Contents

 

    Page
PART I — FINANCIAL INFORMATION 3
     
Item 1. Financial Statements: 3
     
  Condensed Consolidated Balance Sheets – August 31, 2020 (unaudited) and May 31 2020 3
     
  Condensed Consolidated Statement of Operations – Three months ended August 31, 2020 and 2019 (unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity – Three months ended August 31, 2020 (unaudited) 5-6
     
  Condensed Consolidated Statement of Cash Flows 7
     
  Notes to Condensed Consolidated financial statements (unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
     
Item 4. Controls and Procedures 43
     
PART II — OTHER INFORMATION 44
     
Item 1. Legal Proceedings 44
     
Item 1A. Risk Factors 44
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
     
Item 3. Defaults Upon Senior Securities 44
     
Item 4. Mine Safety Disclosures 44
     
Item 5. Other Information 45
     
Item 6. Exhibits 46
     
Signatures 47

 

2
 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   August 31, 2020   May 31, 2020 
   (UNAUDITED)     
ASSETS          
           
Current Assets          
Cash and cash equivalents  $498,645   $160,208 
Accounts receivable, net   122,175    127,653 
Inventory   31,660    15,787 
Prepaid expenses   22,675    5,588 
Total Current Assets   675,155    309,236 
           
Other Assets          
Goodwill   5,180,141    5,155,141 
Intangible assets, net   2,224,760    2,141,374 
Deferred brokerage fees   144,698    149,223 
Property and equipment   318,598    232,733 
Right of use asset, operating lease   441,986    490,984 
Security deposits   14,885    14,885 
Deferred equity issuance costs   128,614    98,198 
Total Other Assets   8,453,682    8,282,538 
           
TOTAL ASSETS  $9,128,837   $8,591,774 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities          
Accounts payable  $116,178   $126,716 
Accrued expenses   764,818    1,421,842 
Convertible note payable   1,603,881    1,127,320 
Note payable – related party   -    64,728 
Operating lease obligation, current   136,630    151,867 
Current portion of deferred revenues   3,795    3,795 
Common stock payable   75,000    75,000 
Total Current Liabilities   2,700,302    2,971,268 
           
Operating lease obligation, net of current portion   305,355    339,116 
Deferred revenues   358,304    365,718 
           
Total Liabilities   3,363,961    3,676,102 
           
Commitments and Contingencies – Note 6   -    - 
           
Stockholders’ Equity          
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding   -    - 
Common stock - $0.0001 par value; 36,000,000 shares authorized; 9,329,190 and 7,988,975 shares issued and outstanding as of August 31, 2020 and May 31, 2020, respectively   933    799 
Additional paid-in capital   

12,411,574

    11,131,404 
Accumulated deficit   (6,850,258)   (6,195,044)
Total Simplicity Esports and Gaming Company Stockholders’ Equity   5,562,249    4,937,159 
Non-Controlling Interest   202,627    (21,487)

Total Stockholders’ Equity

   5,764,876    4,915,672 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $9,128,837   $8,591,774 

 

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

 

3
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   For the Three Months Ended 
   August 31, 2020   August 31, 2019 
         
Revenue          
Franchise royalties and license fees  $80,818   $46,738 
Franchise termination revenue   6,465    - 
Company-owned store sales   76,938    4,419 
Esports revenue   36,380    23,336 
Total Revenue   200,601    74,493 
           
Cost of Goods Sold   (40,511)   - 
           
Gross Profit   160,090    74,493 
           
Operating Expenses          
General and Administrative Expenses   (645,362)   (438,953)
Loss from Operations   (485,272)   (364,460)
           
Other (Expense) Income          
Debt Forgiveness (Expense) Income   (12,135)   85,238 
Interest Expense   (154,128)   (6,675)
Interest Income   7    2,504 
Foreign exchange loss   (19,572)   - 
Total Other (Expense) Income   (185,828)   81,067 
           
Loss Before Provision for Income Taxes   (671,100)   (283,393)
           
Provision for Income Taxes   -    - 
           
Net income attributable to noncontrolling interest   15,886    - 
           
Net loss available to common shareholders  $(655,214)  $(283,393)
           
Basic and diluted net loss per share  $(0.08)  $(0.04)
           
Basic and diluted weighted average number of common shares outstanding   8,595,266    7,264,845 

 

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

   Common Stock   Additional Paid-In   Non-Controlling   Accumulated   Total Stockholders’ 
   Shares   Amount   Capital   Interest   Deficit   Equity 
                         
Balance - May 31, 2019   7,003,975   $700   $9,442,027   $-   $(3,574,806)  $5,867,921 
                               
Shares issued for PLAYlive Nation acquisition   750,000    75    1,439,925    -    -    1,440,000 
Vesting of Common Shares   -    -    27,000    -    -    27,000 
Net loss   -    -    -    -    (283,393)   (283,393)
                               
Balance – August 31, 2019   7,753,975   $775   $10,908,952   $-   $(3,858,199)  $7,051,528 

  

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements

 

5
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

   Common Stock   Additional Paid-In   Non-Controlling   Accumulated   Total Stockholders’ 
   Shares   Amount   Capital   Interest   Deficit   Equity 
                         
Balance - May 31, 2020   7,988,975   $799   $11,131,404   $(21,487)  $(6,195,044)  $4,915,672 
                               
Shares issued for cash   23,809    2    24,998    -    -    25,000 
Shares issued in connection with conversion of note payable   85,905    9    99,991    -    -    100,000 
Shares issued in connection with notes payable   98,333    10    102,207    -    -    102,217 
Shares issued in connection with settlement of accounts payable and accrued liabilities   25,000    2    45,998    -    -    46,000 
Shares issued in connection with franchise acquisition   150,000    15    164,985    -    -    165,000 
Shares issued in connection with consulting agreement   27,778    3    22,775    -    -    22,778 
Shares issued to directors, officers and employees as compensation   929,390    93    819,216    -    -    819,309 
Non-controlling interest of original investment in subsidiaries   -    -    -    240,000    -    240,000 
Net loss attributable to non-controlling interest   -    -    -    (15,886)   -    (15,866)
Net loss   -    -    -    -    (655,214)   (655,214)
                               
Balance - August 31, 2020   9,329,190   $933   $12,411,574   $202,627   $(6,850,258)  $5,764,876 

 

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.

 

6
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Three Months Ended 
   August 31, 2020   August 31, 2019 
         
Cash flows from operating activities:          
Net loss  $(671,101)  $(283,393)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   27,135    8,651 
Amortization expense   66,614    51,406 
Debt forgiveness income   -    (85,238)
Issuance of shares for services   150,095    27,000 
Provision for uncollectible accounts   52,549    - 
Changes in operating assets and liabilities:          
Accounts receivable   5,478    (57,074)
Inventory   11,127    - 
Prepaid expenses   (17,087)   - 
Security deposits   -    (2,568)
Deferred brokerage fees   4,525    - 
Deferred revenues   (7,414)   - 
Accounts payable   (10,538)   6,004 
Accrued expenses   

185,620

   (223,603)
Due from related party   -    (14,108)
Net cash (used in) operating activities   (202,997)   (572,923)
           
Cash flows from investing activities:          
Cash purchased in acquisition   -    26,180 
Lease liability net of lease asset   -    (776)
Purchase of property and equipment   -    (96,506)
Net cash used in investing activities   -    (71,102)
           
Cash flows from financing activities:          
Proceeds from notes payable   748,150    - 
Repayment of note payable   (201,300)   - 
Deferred financing costs   (30,416)   - 
Private placement funds received   25,000    50,000 
Net cash provided by financing activities   541,434    50,000 
           
Net change in cash   338,437    (594,025)
           
Cash - beginning of period   160,208    1,540,158 
           
Cash - end of period  $498,645   $946,133 
           
Supplemental Disclosures of Cash Flow Information:          
           
Cash paid for interest  $48,800   $- 
Cash paid for income taxes  $-   $- 
Supplemental Non-Cash Investing and Financing Information:          
Common stock issued in franchise repurchase (Merchandise $14,500, FF&E $59,000, customer database $18,500, Goodwill $13,000, restrictive covenant $60,000)  $165,000   $- 

Common stock issued in connection with acquisition

  $ -   $1,440,000 

Common stock issued in connection with settlement of accounts payable

  $46,000   $- 

Common stock issued in connection with previously accrued compensation

  $629,115   $- 

  

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.

 

7
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Simplicity Esports and Gaming Company F/K/A Smaaash Entertainment Inc. (the “Company,” “we,” or “our”), was organized as a blank check company organized under the laws of the State of Delaware on April 17, 2017. The Company was formed under the name I-AM Capital Acquisition Company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). On November 20, 2018, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. On January 2, 2019, the Company changed its name from Smaaash Entertainment Inc. to Simplicity Esports and Gaming Company.

 

Through our wholly owned subsidiary, Simplicity Esports, LLC, acquired on January 2, 2019, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including PUBG, Gears of War, Smite, Guns of Boom, and multiple EA Sports titles. Additionally, the Simplicity stream team encompasses a unique group of casters, influencers, and personalities, all of whom connect to Simplicity’s dedicated fan base. Simplicity also has begun to open and operate esports gaming centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.

 

Through our wholly owned subsidiary, PLAYlive Nation, Inc. (“PLAYlive”), acquired on July 29, 2019, the Company has a network of franchised Gaming Centers. As August 31, 2020, approximately 41 locations were considered to be operational, in various states including Arizona, California, Idaho, Florida, Maryland, Michigan, Mississippi, Montana, Oregon, South Carolina, Texas, Utah and Washington. As of August 31, 2020, a number of these locations were unable to resume regular operations as the result of restrictions imposed by municipalities related to COVID-19 (Note 2). PLAYlive offers a video gaming lounge concept to qualified franchisees. PLAYlive currently offers single-unit location franchises, as well as agreements to develop multiple locations. This PLAYlive model is being interlaced with the esports gaming centers mentioned above to create the ultimate gaming center.

  

8
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the condensed consolidated financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as filed with the SEC on August 31, 2020. The interim results for the three months ended August 31, 2020, are not necessarily indicative of the results to be expected for the year ending May 31, 2021 or for any future interim periods.

 

Emerging Growth Company

 

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

 

9
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Basis of Consolidation

 

The condensed consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Simplicity Esports, LLC, PLAYlive Nation, Inc., and PLAYlive Nation Holdings, LLC, its 76% owned subsidiary Simplicity One Brasil Ltd, its 79% owned subsidiaries Simplicity Happy Valley, LLC and Simplicity Redmond, LLC, and its 51% owned subsidiary Simplicity El Paso, LLC.

 

All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and cash equivalents

 

The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed consolidated balance sheet.

 

Foreign Currencies 

 

Revenue and expenses are translated at average rates of exchange prevailing during the year.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on the Company’s consolidated financial statements.

 

10
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from the three sources listed below.

 

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

 

Company-owned Store Sales

 

The Company-owned stores principally generate revenue from retail esports gaming centers. Revenues from Company-owned stores are recognized when the products are delivered, or the service is provided.

 

Franchise Royalties and Fees

 

Franchise royalties are based on six percent of franchise store sales after a minimum level of sales occur and are recognized as sales occur. Any royalty reductions, including waivers or those offered as part of a new store development incentive or as incentive for other behaviors, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate. Franchise royalties are billed on, a monthly basis.

 

The Company recognizes initial franchise license fee revenue when the Company has performed substantially all the services required in the franchise agreement. Fees received that do not meet these criteria are recorded as deferred revenues until earned. The pre-opening services provided to franchisees do not contain separate and distinct performance obligations from the franchise right; thus, the fees collected will be amortized on a straight-line basis beginning at the store opening date through the term of the franchise agreement, which is typically 10 years. Franchise license renewal fees, which generally occur every 10 years, are billed before the renewal date. Fees received for future license renewal periods are amortized over the life of the renewal period.

 

The Company offers various incentive programs for franchisees including royalty incentives, new store opening incentives (i.e. development incentives) and other support initiatives. Royalties and franchise fees sales are reduced to reflect any royalty incentives earned or granted under these programs that are in the form of discounts.

 

Commissary sales are comprised of gaming equipment and supplies sold to franchised stores and are recognized as revenue upon shipment or delivery of the related products to the franchisees. Payments are generally due within 30 days.

 

Fees for information services, including software maintenance fees, marketing fees and website maintenance, graphic and promotion fees are recognized as revenue as such services are provided.

 

Esports Revenue

 

Esports is a form of competition using video games. Most commonly, esports takes the form of organized, single player and multiplayer video game tournaments or leagues, particularly between professional players, individually or as teams. Revenues from Esports revenues are recognized when the competition is completed, and prize money is awarded. Revenues earned from team sponsorships, prize winnings, league sponsorships, and from the Company’s share of league revenues are included in esports revenue.

 

Deferred Revenues

 

Deferred revenues are classified as current or long-term based on when management estimates the revenues will be recognized.

 

The Company receives payments from franchisees in advance of all performance obligations having been met, including but not limited to franchise locations being opened. As certain conditions agreed to in these franchise agreements are performed, revenues are recognized.

 

11
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Deferred costs include commissions paid to brokers related to the sale of specific new franchises which have not met revenue recognition criteria as of August 31, 2020. These costs are recognized in the same period as the initial franchise fee revenue is recognized.

 

Accounts Receivable

 

The Company estimates the allowance for doubtful accounts based on an analysis of specific customers (i.e. franchisees), taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. Accounts receivable are written off against the allowance when management determines it is probable the receivable is worthless. Customer account balances with invoices dated over 90 days old are considered delinquent and considered in the allowance assessment. The Company performs credit evaluations of its customers and, generally, requires no collateral. Management has assessed accounts receivable and an allowance for doubtful accounts of approximately $105,000 has been recorded.

 

Property and Equipment

 

Property and equipment and leasehold improvements are recorded at its historical cost. The cost of property and equipment is depreciated over the estimated useful lives, when placed in service (ranging from 3 -5 years), of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if they benefit future periods.

 

Intangible Assets and Impairment

 

Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. These costs are included in intangible assets on our condensed consolidated balance sheet and amortized on a straight-line basis when placed into service over their estimated useful lives of the costs, which is 3 to 5 years.

 

The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

 

Goodwill

 

Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. We have assessed goodwill and qualitative considerations indicated no impairment.

 

Franchise Locations

 

Through PLAYlive, the Company’s wholly owned subsidiary, the Company has entered into franchise agreements with third parties. As of August 31, 2020, 41 locations were considered to be operational, in various states including Arizona, California, Idaho, Florida, Maryland, Michigan, Mississippi, Montana, Oregon, South Carolina, Texas, Utah and Washington. As of August 31, 2020, a number of these locations were unable to resume regular operations as a result of the restrictions imposed by municipalities related to COVID-19. In addition, we have five additional franchise locations that are currently in the final stages of preparation for opening.

 

Stock-based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

 

12
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Leases

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02-Leases (Topic 842), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company elected to adopt this update early as of January l, 2019 using the modified retrospective transition method and prior periods have not been restated. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $110,003 and operating lease liability of $107,678. Due to the simplistic nature of the Company’s leases, no retained earnings adjustment was required. See Note 6 for further details.

 

Basic Loss Per Share

 

The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Basic loss per share is calculated by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the Company’s net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. When the Company records a loss from operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share.

 

Income Taxes

 

The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform.

 

13
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Recently Issued and Recently Adopted Accounting Pronouncements

 

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following is summary of recent accounting developments.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance is effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.

 

The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its financial statements.

 

Going Concern, Liquidity and Management’s Plan

 

The Company’s unaudited condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the unaudited condensed consolidated financial statements, the Company has an accumulated deficit of approximately $6.9 million, a working capital deficit of approximately $2.0 million as of August 31, 2020, and a net loss of approximately $0.7 million for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the unaudited financial statements are issued.

 

The Company has commenced operations and has begun to generate revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of private and/or public offerings. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.

 

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

14
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and have since reopened three corporate and 23 franchised Simplicity Gaming Centers as of October 15, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. However, we have recorded an allowance for doubtful accounts of approximately $105,000, as our collection efforts are ongoing. We have experienced an increase in our account receivables by approximately $32,000 and $14,000 during the quarters ended May 31, 2020 and August 31, 2020, respectively. Notwithstanding, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. For the months of July and August 2020, we have waived the minimum monthly royalty payment obligations for the months of July and August 2020 and are instead billing the franchisees a true-up of 6% of gross sales without a minimum.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

The measures taken to date will impact the Company’s business for the fiscal quarters ended May 31, 2020 and August 31, 2020 and will potentially continue to impact the Company’s business. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

 

The following is a summary of property, plant, and equipment—at cost, less accumulated depreciation:

 

   August 31, 2020   May 31, 2020 
         
Leasehold improvements  $52,189   $52,189 
Property and equipment   356,314    243,314 
Total cost   408,503    295,503 
Less accumulated depreciation   (89,905)   (62,770)
Net property plant and equipment  $318,598   $232,713 

 

Depreciation expense for the three months ended August 31, 2020 and 2019 was $27,135 and $8,651, respectively.

 

15
 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 4 — INTANGIBLE ASSETS

 

The following table sets forth the intangible assets, including accumulated amortization as of August 31, 2020:

 

   August 31, 2020
   Remaining      Accumulated   Net Carrying 
   Useful Life  Cost   Amortization   Value 
Non-Competes  4 years  $1,023,118   $341,039   $682,079 
Trademarks  Indefinite   866,000    -    866,000 
Customer database  2 years   35,000    2,917    32,083 
Restrictive covenant  2 years   115,000    9,583    105,417 
Customer contracts  10 years   546,000    8,152    537,848 
Internet domain  2 years   3,000    1,667    1,333 
      $2,588,118   $363,358   $2,224,760 

 

The following tables set forth the intangible assets, including accumulated amortization as of May 31, 2020:

 

   May 31, 2020
   Remaining      Accumulated   Net Carrying 
   Useful Life  Cost   Amortization   Value 
Non-Competes  4.50 years  $1,023,118   $289,884   $733,234 
Trademarks  Indefinite   866,000    -    866,000 
Customer Contracts  10 years   546,000    5,443    540,557 
Internet domain  2.50 years   3,000    1,417    1,583 
      $2,438,118   $296,744   $2,141,374 

 

The following table sets forth the future amortization of the Company’s intangible assets as of August 31, 2020 for the fiscal years ending May 31:

 

   2021   2022   2023   2024   2025   Thereafter   Total 
Non-Competes  $153,468   $204,624   $204,624   $119,363   $-   $-   $682,079 
Customer contracts   53,785    53,785    53,785    53,785    53,785    268,923    537,848 
Restrictive covenant   43,125    57,500    4,792    -    -    -    105,417 
Customer database   13,125    17,500    1,458    -    -    -    32,083 
Internet domain   750    583    -    -    -    -    1,333 
Total  $264,253   $333,992   $264,659   $173,148   $

53,785

   $

268,923

   $1,358,760 

 

Amortization expense for the three months ended August 31, 2020 and 2019 was $66,614 and $51,406, respectively.

 

Goodwill

 

The Company’s goodwill carrying amounts relate to the acquisitions of Simplicity Esports LLC, PLAYlive Nation Inc. and Simplicity El Paso, LLC. The composition of the goodwill balance, is as follows:

 

   August 31, 2020   May 31, 2020 
         
Simplicity Esports, LLC  $4,456,250   $4,456,250 
Simplicity El Paso, LLC   25,000    - 
PLAYlive Nation Inc.   698,891    698,891 
Total Goodwill  $5,180,141   $5,155,141 

 

16

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 5 — ACQUISITIONS

 

The Simplicity One Acquisition

 

On January 14, 2020 the Company acquired a 90% interest in Simplicity One Brasil Ltda, for approximately $2,000. This interest was reduced during the three months ended August 31, 2020 as more fully described in Note 6.

 

Simplicity El Paso, LLC

 

On June 26, 2020, the Company through its wholly owned subsidiary, Simplicity El Paso, LLC acquired a 51% controlling interest in an existing franchise in exchange for 150,000 shares of common stock at $1.10 per share. The total purchase price for the acquisition was $315,000 of which $150,000 was paid in cash by the 49% minority interest owner, an unrelated third party, and $165,000 in common stock by the Company. This has been accounted for by the Company using the acquisition method under business combination accounting. Under this method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. All fair value measurements of acquired assets and liabilities are non-recurring in nature and classified as level 3 on the fair value hierarchy.

 

The table below presents a provisional allocation of the gross $315,000 purchase price as of August 31, 2020

 

Merchandise  $27,000 
Furniture, Fixtures and Equipment   113,000 
Customer Database   35,000 
Goodwill   25,000 
Restrictive Covenant   115,000 
Total value of acquisition  $315,000 

 

NOTE 6 — RELATED PARTY TRANSACTIONS

 

Private Units

 

In addition, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private Unit for proceeds of $2,545,000 in the aggregate in the Private Placement. This purchase took place on a private placement basis simultaneously with the completion of the Initial Public Offering. This issuance was be made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

 

The Sponsor committed to purchase from the Company up to an additional 26,250 Private Units if the underwriters’ over-allotment option was exercised in full.

 

On September 13, 2017, 7,000 additional Private Units were purchased by the Sponsor at $10.00 per Private Unit upon the partial exercise of the over-allotment option.

 

Kaplan Promissory Note

 

On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s majority owned subsidiary (“Simplicity Brasil”).

 

As of May 31, 2020, advances under the terms of this note were $64,728. On various dates subsequent to May 31, 2020, Mr. Kaplan funded $25,272 pursuant to the Kaplan Promissory Note. With the contributions subsequent to May 31, 2020, the principal balances outstanding and due Mr. Kaplan amounted to $90,000. On June 22, 2020, Mr. Kaplan agreed to exchange the debt of the Kaplan Promissory Note with a principal balance of $90,000 in exchange for the Company assigning to Mr. Kaplan a 10% equity interest in Simplicity One Brasil, Ltda, a subsidiary of the Company.

 

17

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Equity Sales

 

Effective June 1, 2020, the Company issued 23,809 shares of our restricted Common Stock., sold effective May 7, 2020 at a price of $1.09 per share, to William H. Herrmann, Jr. a member of our board of directors, for an aggregate purchase price of $25,000.

 

The Company maintains its cash balance at a financial services company that is owned by an officer of the Company.

 

The Company maintains a portion of its cash balance at a financial services company that is owned by an officer of the Company.

 

NOTE 7 — COMMITMENTS AND CONTINGENCIES

 

Nasdaq Delisting

 

On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).

 

The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.

 

On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).

 

The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.

 

Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.

 

On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and warrants. The Company’s common stock and warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.

 

On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and warrants. As a result, the Company’s common stock and warrants were delisted from Nasdaq effective April 2, 2019.

 

The Company’s common stock and warrants are quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.

 

18

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Registration Rights

 

Pursuant to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private Units (and constituent securities) at the closing of the Initial Public Offering, the Company is required to register certain securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to three demands that the Company register certain of its securities held by them for sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by the Company. The Company will bear the costs and expenses of filing any such registration statements.

 

Unit Purchase Option

 

The Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50 per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date. The Units issuable upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the warrants underlying the Units sold to the underwriters is $13.00 per share.

 

Operating Lease Right of Use Obligation

 

The Company adopted Topic 842 on January 1, 2019. The Company elected to adopt this standard using the optional modified retrospective transition method and recognized a cumulative-effect adjustment to the consolidated balance sheet on the date of adoption. Comparative periods have not been restated. With the adoption of Topic 842, the Company’s condensed consolidated balance sheet now contains the following line items: Operating lease right-of-use assets, Current portion of operating lease liabilities and Operating lease liabilities, net of current portion.

 

As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases, so we used our incremental borrowing rate as the discount rate. Our weighted average discount rate is 10.4% and the weighted average remaining lease terms are 41 months.

 

As of August 31, 2020, operating lease right-of-use assets and liabilities arising from operating leases was $441,986 and $441,985, respectively. During the year ended May 31, 2020, the Company recorded operating lease expense of approximately $56,000.

 

The following is a schedule showing the future minimum lease payments under operating leases by fiscal years and the present value of the minimum payments as of August 31, 2020.

 

2021  $126,395 
2022  $147,278 
2023  $151,832 
2024  $133,900 
2025  $90,017 
Total Operating Lease Obligations  $649,422 
Less: Amount representing interest  $(207,436)
Present Value of minimum lease payments  $441,986 

 

19

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Employment Agreements, Board Compensation and Bonuses

 

On July 29, 2020, the Company entered into a new employment agreement (the “Kaplan 2020 Agreement”) with Mr. Kaplan. Such employment agreement replaced the Kaplan 2018 Agreement. As a result, the Kaplan 2018 Agreement was terminated and is of no further force or effect. Pursuant to the terms of the Kaplan 2020 Agreement, the Company agreed to pay Mr. Kaplan a monthly base salary of $5,000; provided, however, that the parties agreed that such base salary will be deferred and will accumulate until the Company has sufficient cash available to make such payments, to be reasonably determined by the Board of Directors and Mr. Kaplan, at which time all accrued and unpaid base salary will be paid. In addition, Mr. Kaplan will receive an equity grant of 15,000 shares of common stock per month, which shares will be fully vested upon grant. Mr. Kaplan will also be eligible to receive a quarterly bonus in the form of cash or equity shares and will be entitled to participate in the Company’s employee benefit plans. In addition, if, during the term of the Kaplan 2020 Agreement, the Company’s shares are approved for listing on a U.S. national securities exchange, the Company will pay Mr. Kaplan a $50,000 cash bonus, to be paid upon such listing begin effective.

 

The term of the Kaplan 2020 Agreement is for an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance written notice of its intention not to renew the Kaplan 2020 Agreement at the conclusion of the then applicable term. The term of the Kaplan 2020 Agreement may be terminated by the Company with or without cause or by Mr. Kaplan with or without good reason, as such terms are defined therein.

 

On July 29, 2020, the Board of Directors approved for Mr. Kaplan a $75,000 cash bonus and authorized the issuance of 250,000 shares of the Company’s common stock both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2020, the Company has accrued $75,000 related to Mr. Kaplans cash bonus. During the three months ended August 31, 2020, the 250,000 shares of common stock valued at $216,625 were issued.

 

On July 29, 2020, the Company entered into a new employment agreement (the “Franklin 2020 Agreement”) with Mr. Franklin. Such employment agreement replaced the Franklin 2018 Agreement. As a result, the Franklin 2018 Agreement was terminated and is of no further force or effect. Pursuant to the terms of the Franklin 2020 Agreement, the Company agreed to pay Mr. Franklin a monthly base salary of $12,500; provided, however, that the parties agreed that such base salary will be deferred and will accumulate until the Company has sufficient cash available to make such payments, to be reasonably determined by the Board of Directors and Mr. Franklin, at which time all accrued and unpaid base salary will be paid. In addition, Mr. Franklin will receive an equity grant of 6,250 shares of common stock per month, which shares will be fully vested upon grant. Mr. Franklin will also be eligible to receive a quarterly bonus in the form of cash or equity shares and will be entitled to participate in the Company’s employee benefit plans. In addition, if, during the term of the Franklin 2020 Agreement, the Company’s shares are approved for listing on a U.S. national securities exchange, the Company will pay Mr. Franklin a $50,000 cash bonus, to be paid upon such listing begin effective.

 

On July 29, 2020, the Board of Directors approved for Mr. Franklin a $75,000 cash bonus and authorized the issuance of 250,000 fully vested shares of the Company’s common stock both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2020, the Company has accrued $75,000 related to Mr. Franklins cash bonus and $216,625 related to the Common Shares to be issued to Mr. Franklin.

 

On July 29, 2020, the Board of Directors approved the issuance of 192,000 shares of common stock to an employee and the Directors of the Company for services provided during the fiscal year ended May 31, 2020.

 

Litigation

 

On August 5, 2020, a lawsuit styled Duncan Wood v. PLAYlive Nation, Inc. and Simplicity eSports and Gaming Company (Case No. 20-1043) was filed in the U.S. District Court for the District of Delaware. The complaint alleges unlawful failure to make timely and reasonable payment of wages, breach of contract, breach of the duty of good faith and fair dealing and unjust enrichment. The plaintiff seeks monetary damages for compensation alleged to be owed, treble damages, interest on all wage compensation, reasonable attorneys’ fees and other relief as the Court deems just and proper. Defendants’ responsive pleading is not yet due and has not been filed. The litigation is in its initial stages and the Company is unable to reasonably predict its potential outcome. The Company, however, believes that the lawsuit is without merit and intends to vigorously defend the claims and remains in discussion with the counter-party.

 

20

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 8 - DEBT

 

The table below presents outstanding debt instruments as of August 31, and May 31, 2020:

 

   AUGUST 31, 2020  

MAY 31,

2020

 
10% Fixed Convertible Promissory Note  $-   $152,500 
Discount 10% Convertible Promissory Note   -    (25,180)
June 18, 2020 self-amortization promissory note   555,000    - 
Discount June 18, 2020 self-amortization promissory note   (119,190)   - 
August 7, 2020 self-amortization promissory note   333,333    - 
Discount August 7, 2020 self-amortization promissory note   (65,262)   - 
Related Party Note   -    64,728 
Convertible Note Payable   900,000    1,000,000 
           
Total  $1,603,881   $1,192,048 

 

10% Fixed Convertible Promissory Note

 

On April 29, 2020 (the “Effective Date”), the Company issued a 10% Fixed Convertible Promissory Note (the “Harbor Gates Note”), with a maturity date of October 29, 2020 (the “Maturity Date”), in the principal sum of $152,000 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant to the terms of the Harbor Gates Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”) and to pay “guaranteed” interest on the principal balance at an amount equivalent to 10% of the Principal Sum, to the extent such Principal Sum and “guaranteed” interest and any other interest, fees, liquidated damages and/or items due to Harbor Gates have not been repaid or converted into Company common stock in accordance with the terms of the Harbor Gates Note. The Harbor Gates Note carries an original issue discount (“OID”) of $2,500. Accordingly, on the Effective Date, Harbor Gates delivered $150,000 to the Company in exchange for the Harbor Gates Note.

 

In addition to the “guaranteed” interest, and upon the occurrence of an Event of Default (as hereinafter defined), additional interest would accrue from the date of the Event of Default at the rate equal to the lower of 20% per annum or the highest rate permitted by law.

 

The Company may prepay the Harbor Gates Note according to the following schedule:

 

Days Since
Effective Date
  Payment Amount
Under 30   115% of Principal Amount (as hereinafter defined) so paid
31-60   120% of Principal Amount so paid
61-90   125% of Principal Amount so paid
91-180   135% of Principal Amount so paid

 

135% of the remaining unpaid and unconverted Principal Amount, plus all accrued and unpaid interest will be due and payable on the Maturity Date. “Principal Amount” refers to the sum of (i) the original principal amount of the Harbor Gates Note (including the OID, prorated if the Harbor Gates Note has not been funded in full); (ii) all guaranteed and other accrued but unpaid interest under the Harbor Gates Note; (iii) any fees due under the Harbor Gates Notes; (iv) liquidated damages; and (v) any default payments owing under the Harbor Gates Note, in each case previously paid or added to the Principal Amount.

 

Pursuant to the terms of the Harbor Gates Note, the Company agreed to issue Harbor Gates shares of Company common stock in two tranches as follows:

 

  (i) 10,000 shares of common stock within three trading days of the Effective Date; and
  (ii) In the event the average of the three volume weighted average prices for the Company’s common stock during the three consecutive trading days immediately preceding the date which is the 180th day following the Effective Date is less than $1.00 per share, then Harbor Gates will be entitled, and the Company will issue to Harbor Gates additional shares of common stock as set forth in the Harbor Gates Note.

 

21

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

If an Event of Default (as defined in the Promissory Note) occurs, the outstanding Principal Amount of the Harbor Gates Note owing in respect thereof through the date of acceleration, shall become, at Harbor Gates’ election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means 35% of the outstanding Principal Amount of the Harbor Gates Note will be automatically added to the Principal Sum of the Harbor Gates Note and tack back to the Effective Date for purposes of Rule 144 promulgated under the 1934 Act. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of the Harbor Gates Note, the Harbor Gates Note will accrue additional interest, in addition to the Harbor Gates Note’s “guaranteed” interest, at a rate equal to the lesser of 20% per annum or the maximum rate permitted under applicable law.

 

If the Harbor Gates Note was not retired on or before the Maturity Date, then at any time and from time to time after the Maturity Date, and subject to the terms hereof and restrictions and limitations contained in the Harbor Gates Note, Harbor Gates had the right, at Harbor Gates’ sole option, to convert in whole or in part the outstanding and unpaid Principal Amount under the Harbor Gates Note into shares of the Company’s common stock at the Variable Conversion Price. The “Variable Conversion Price” will be equal to the lower of: (a) $1.00, or (b) 70% of the lowest volume weighted average price of the Company’s common stock during the 15 consecutive trading days prior to the date on Harbor Gates elects to convert all or part of the Harbor Gates Note. The Company intends to prepay the Harbor Gates Note in accordance with its terms so that no amount under the Harbor Gates Note is converted into shares of the Company’s common stock.

 

On July 2, 2020, the 10% Fixed Convertible Promissory Note was repaid in full. A cash payment of $201,300 including principal of $152,500, guaranteed interest of $15,200 and prepayment penalties of $33,600 was made to the lender. In connection with the repayment of the note the Company recorded a charge to interest expense in the amount of $73,980 comprised of $48,800 related to interest and prepayment penalties and $25,180 related to accelerated accretion of unamortized debt discount recorded in connection with the original issue discount and in connection with common shares issued to the lender.

 

June 18, 2020 Self-Amortization Promissory Note

 

On June 18, 2020 (the “Issue Date”), Simplicity Esports and Gaming Company, a Delaware corporation (the “Company”), entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Amortization Note”) with a maturity date of June 18, 2021 (the “Maturity Date”), in the principal sum of $550,000. Pursuant to the terms of the Amortization Note, the Company agreed to pay to $550,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Amortization Note carries an original issue discount (“OID”) of $55,000. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $495,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company issued 55,000 shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

22

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date  Payment Amount 
10/16/2020  $66,125.00 
11/16/2020  $66,125.00 
12/16/2020  $66,125.00 
01/18/2021  $66,125.00 
02/18/2021  $66,125.00 
03/18/2021  $66,125.00 
04/16/2021  $66,125.00 
05/18/2021  $66,125.00 
06/18/2021  $65,921.26 
Total:  $594,921.26 

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five (5) calendar days (provided, however, that this five (5) calendar day cure period shall not apply to any event of default under Sections 3.1, 3.2, and 3.19 of the Amortization Note), the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five (5) calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

The Company recorded a total debt discount in the amount of $149,500 in connection with the common shares issued to the lender an original issue discount associated with the note. The Company recognized interest expense of $30,310 related to amortization of the discount during the quarter ended August 31, 2020.

 

August 7, 2020 Self-Amortization Promissory Note

 

On August 7, 2020 (the “Issue Date”), the Company, entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities Fund, LLC, an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Amortization Note”) with a maturity date of August 7, 2021 (the “Maturity Date”), in the principal sum of $333,333. Pursuant to the terms of the Amortization Note, the Company agreed to pay to $333,333 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Amortization Note carries an original issue discount (“OID”) of $33,333. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $300,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company agreed to issue 33,333 shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date  Payment Amount 
12/07/2020  $40,075.75 
01/07/2021  $40,075.75 
02/08/2021  $40,075.75 
03/08/2021  $40,075.75 
04/07/2021  $40,075.75 
05/07/2021  $40,075.75 
06/07/2021  $40,075.75 
07/07/2021  $40,075.75 
08/07/2021  $39,952.34 
Total:  $360,558.34 

 

23

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five (5) calendar days (provided, however, that this five (5) calendar day cure period shall not apply to any event of default under Sections 3.1, 3.2, and 3.19 of the Amortization Note), the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five (5) calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

The Company recorded a total debt discount in the amount of $82,999 in connection with the common shares issued to the lender an original issue discount associated with the note. The Company recognized interest expense of $23,477 related to amortization of the discount during the quarter ended August 31, 2020.

 

Related Party - Kaplan Promissory Note

 

On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s majority owned subsidiary (“Simplicity Brasil”).

 

Pursuant to the terms of the Kaplan Note, the Company agreed to pay to Mr. Kaplan the lesser of (i) the principal sum of $90,000 (the “Maximum Commitment”), or (ii) the aggregate principal amount of all direct advances of the proceeds of the Kaplan Note (each, an “Advance”), together with any interest thereon, and any and all other amounts which may be due and payable thereunder from time to time.

 

Subject to the terms of the Kaplan Note, Mr. Kaplan agreed to make one direct Advance to and for the benefit of the Company on the Issue Date in the amount of $45,000, and one additional Advance to and for the benefit of the Company at such time as the Company may request during the two month period following the Issue Date. The total of the aggregate principal balance of all Advances (collectively referred to herein as the “Principal Amount”) outstanding at any time shall not exceed the Maximum Commitment. Advances made by Mr. Kaplan to the Company under the Kaplan Note which have been repaid may not be borrowed again.

 

Prior to the Maturity Date or an Event of Default (as hereinafter defined), the Principal Amount outstanding under the Kaplan Note will bear interest at a rate of 3% (the “Interest Rate”). From and after the Maturity Date or upon and during the continuance of an Event of Default, interest will accrue on the unpaid Principal Amount during any such period at an annual rate (the “Default Rate”) equal to 10% plus the Interest Rate; provided, however, that in no event will the Default Rate exceed the maximum rate permitted by law.

 

The Company may prepay the Kaplan Note, in whole or in part, without a prepayment penalty, at any time provided that an Event of Default has not then occurred.

 

As of May 31, 2020, the balance of the Kaplan noted was $64,728. During the three months ended August 31, 2020 Mr. Kaplan advanced an additional $25,272 under the terms of the note. During the quarter ended August 31, 2020, Mr. Kaplan exchanged the note together with accrued interest in exchange for his acquisition of a 10% interest in the Company’s wholly owned subsidiary Simplicity Brasil.

 

24

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Convertible Note Payable

 

On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim. Pursuant to the terms of the Exchange Agreement, Maxim agreed to surrender and exchange the Note. In exchange, the Company issued to Maxim a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”). As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.

 

The original amount of the promissory note was $1,800,000, the total amount of the two exchange notes is $1,500,000, and the difference of $300,000 was recorded as debt forgiveness income.

 

Prior to conversion, the Series A-1 Note bore interest at 2.67% per annum, was payable quarterly and had a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company was permitted to pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company could only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) had been met (unless waived by Maxim in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company had provided proper notice pursuant to the terms of the note and (iii) the Company had delivered to Maxims’ account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.

 

The Series A-1 Note was convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price was automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. Maxim was permitted to convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion Maxim, the Company had the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.

 

Additionally, the Series A-1 Note would have automatically converted into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then existed, and (ii) solely if such automatic conversion date was also the Maturity Date, each of the Equity Conditions had been met (unless waived in writing by Maxim) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.

 

At any time prior to the Maturity Date, the Company also had the right to elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company could only effect an Optional Redemption if each of the Equity Conditions had been met (unless waived in writing by Maxim) on each trading day during the period commencing on the date when the notice of the Optional Redemption was delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount was actually made in full.

 

25

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of Maxim.

 

Pursuant to the terms of the Series A-1 Note, the Company was not permitted to convert any portion of the Series A-1 Note if doing so results in Maxim beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from Maxim to the Company, that percentage could increase to 9.99%. However, if there was an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation would be held in abeyance for the benefit of Maxim until such time or times, if ever, as its right thereto would not result in Maxim exceeding the beneficial ownership limitation, at which time or times Maxim would be issued such shares to the same extent as if there had been no such limitation.

 

The Series A-1 Note contained restrictive covenants which, among other things, restricted the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.

 

The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020, and an initial conversion price of $1.93, which will be automatically adjusted to the lower of (i) the conversion price then in effect, and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.

 

As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock

 

On June 4, 2020, $100,000 in principal was converted into 85,905 shares of common stock in accordance with the terms of the Maxim Note.

 

On June 18, 2020, the Company and Maxim entered into that certain first amendment to the Maxim Note (the “Amendment”), pursuant to which the Parties agreed to the following: (i) Maxim’s resale of the Company’s common stock (the “Common Stock”) underling the Maxim Note shall be limited to 10% of the daily volume of the Common Stock on each respective trading day, (ii) the maturity date of the Maxim Note was extended to December 31, 2020, (iii) the principal amount of the Maxim Note was increased by $100,000, and (iv) the reference to “$1.93” in Section 4(b) of the Maxim Note was replaced with “$1.15”.

 

During the three months ended August 31, 2020 the company recorded interest expense of $18,044, total principal and accrued interest on Maxim note amounted to $900,000 and $55,869 as of August 31, 2020.

 

26

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 9 -STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of August 31, 2020, there were no shares of preferred stock issued or outstanding.

 

Common Stock

 

On August 17, 2020, the Company amended its certificate of incorporation to increase the total number of authorized shares of the Company’s common stock from 20,000,000 to 36,000,000. Holders of the shares of the Company’s common stock are entitled to one vote for each share. At, August 31, 2020 and May 31, 2020, there were 9,929,190 and 7,988,975 shares of common stock issued and outstanding respectively.

 

Excluded from the Company’s outstanding shares as of August 31, 2020 are 600,000 shares issued to Triton Funds, LP., the Company’s transfer agent erroneously transferred 725,000 shares of common stock under the Equity Line to the custodial account of Triton, resulting in an over-issuance of 600,000 shares to Triton. The Company notified Triton of this error and that the Company terminated the Common Stock Purchase Agreement with Triton. As of October 15, 2020, the Company is currently awaiting the return of the shares issued in error from Triton to the treasury so such shares will no longer be issued and outstanding. In order to effectuate the return of the shares, the Company’s transfer agent is requiring a medallion guaranteed stock power from Triton. Triton is cooperating and is currently seeking a medallion guaranteed stock power to facilitate the cancellation of such shares.

 

Effective June 1, 2020, the Company issued 23,809 shares of our restricted common stock, sold effective May 7, 2020 at a price of $1.09 per share, to William H. Herrmann, Jr. a member of our board of directors, for an aggregate purchase price of $25,000.

 

Effective June 4, 2020, the Company issued 85,905 shares of common stock at $1.16 per share in connection with the conversion of $100,000 in principal of the Convertible Note Payable, Note 8.

 

Effective June 18, 2020, pursuant to the terms of that certain Securities Purchase Agreement between the Company and an accredited investor, pursuant to which the Company issued a 12% self-amortization promissory note (Note 8) in the principal amount of $550,000, the Company issued 55,000 shares of common stock at $1.13 per share, to such accredited investor as additional consideration for the purchase of such note.

 

Effective June 30, 2020, the company issued 78,890 shares of common stock at $0.97 per share to various employees of the Company as compensation.

 

Effective July 1, 2020 we issued 25,000 shares of common stock at $1.84 per share in satisfaction of an outstanding balance owed to a vendor.

 

Effective July 1,2020 pursuant to the terms of that certain 10% Fixed Convertible Promissory Note dated April 29, 2020 in the principal amount of $152,500 issued by the Company in favor of Harbor Gates Capital, LLC, the Company issued 10,000 shares of our restricted common stock, issued at $0.99 per share, to Harbor Gates Capital, LLC as additional consideration for the purchase of such note.

 

27

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

On July 1, 2020, the Company acquired the assets of one of its top performing franchisee owned esports gaming centers on Fort Bliss U.S. Military base in El Paso, TX. In connection with the acquisition the Company issued 150,000 restricted shares at $1.65 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 320,000 and 45,000 shares of common stock to Mr. Kaplan in connection with previously accrued compensation and current period compensation. Common shares were valued as follows; 250,000 at $0.865 per share, 50,000 at $1.01 per share, 10,000 at $1.84 per share, 20,000 at $0.93 per share 20,000 at $1.38 per share and 15,000 at $0.82 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 271,000 and 16,500 shares of common stock to Mr. Franklin in connection with previously accrued compensation and current period compensation. Common shares were valued as follows; 250,000 at $0.865 per share, 15,000 at $1.01 per share 3,000 at $1.84 per share, 3,000 at $0.93 per share, 9,000 at $1.38 per share and 7,500 at $0.82 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 190,000 shares of common stock valued at $0.87 per share and 6,000 shares of common stock valued at $1.01 per share to the Directors and an employee of the Company in connection with previously accrued compensation and current period compensation.

 

Effective August 1, 2020, the Company entered into a marketing agreement whereby the Company issued 27,778 shares of common stock at $1.10 per share.

 

Effective August 10, 2020, pursuant to the terms of that certain Securities Purchase Agreement between the Company and an accredited investor pursuant to which we issued a 12% self-amortization promissory note (Note 8) in the principal amount of $333,333, the Company issued 33,333 shares of common stock at $0.91 per share.

 

28

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

Stock - Based Compensation

 

Effective June 30, 2020, the company issued 78,890 shares of common stock at $0.97 per share to various employees of the Company as compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 320,000 and 45,000 shares of common stock to Mr. Kaplan in connection with previously accrued compensation and current period compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 271,000 and 16,500 shares of common stock to Mr. Franklin in connection with previously accrued compensation and current period compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 190,000 and 6,000 shares of common stock to the Directors and an employee of the Company in connection with previously accrued compensation and current period compensation.

 

Share based compensation for the three months ended August 31, 2020 and August 31, 2019 was $150,095 and $45,000, respectively.

 

Warrants

 

The Company did not issue any warrants during the quarter ended August 31, 2020.

 

A summary of the status of the Company’s outstanding stock warrants as of August 31, 2020 is as follows:

 

   Number of
Shares
   Average
Exercise
Price
   Expiration
Date
Outstanding – May 31, 2020   6,424,000   $10.38    
              
Granted – August 31, 2020   -         
Outstanding – August 31, 2020   6,424.000   $10.38   May, 2024
Warrants exercisable – August 31, 2020   6,424,000         

 

29

 

 

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2020

(UNAUDITED)

 

NOTE 10 — SEGMENT AND RELATED INFORMATION

 

Historically, the Company had one operating segment. However, with the acquisition of PLAYlive and the opening of Company-owned retail stores, the Company’s operations are now managed through three operating segments: Franchise royalties and license fees, Company-owned stores and Esports revenue. These three operating segments and corporate are presented below as its reportable segments.

 

Summarized financial information concerning our reportable segments for the three months ended August 31 is shown in the following tables:

 

August 31, 2020: 

 

    Revenues     Net
Loss
    Depreciation
and
Amortization
    Capital
Expenditures
    Goodwill     Total
Assets
 
                                     
Franchise royalties and fees   $ 87,000     $ (3,000 )   $ -     $                   -     $ 699,000     $ 1,721,000  
Company-owned stores     77,000       (38,000 )     38,000       -       25,000       1,329,000  
Esports revenue     37,000       (105,000 )     55,000       -       4,456,000       5,665,000  
Corporate     -       (509,000 )     -       -       -       414,000  
Total   $ 201,000     $ (655,000 )   $ 93,000     $ -     $ 5,180,000     $ 9,129,000  

 

August 31, 2019:

 

   Revenues   Net
Loss
   Depreciation
and
Amortization
  Capital
Expenditures
   Goodwill   Total
Assets
 
                        
Franchise royalties and fees  $47,000   $500   $400   $                    -   $2,226,000   $2,263,000 
Company-owned stores   4,000    (24,000)   7,200    97,000    -    440,000 
Esports revenue   23,000    (62,500)   -    -    4,456,000    5,947,000 
Corporate   -    (197,000)   1,000    -    -    1,000,000 
Total  $74,000   $283,000   $8,600   $97,000   $6,682,000   $9,650,000 

 

NOTE 11 — SUBSEQUENT EVENTS

 

The Company has applied to list its common stock and warrants on the Nasdaq Capital Market. In order to obtain Nasdaq Capital Market listing approval, the Company obtained approval of its Board of Directors and stockholders of (i) a reverse stock split of the outstanding shares of the Company’s common stock in the range from 1-for-2 to 1-for-10, which ratio was to be selected by the Company’s Board of Directors, with any fractional shares being rounded up to the next higher whole shares (the “Reverse Split”), and (ii) an increase in the Company’s authorized shares of common stock from 20,000,000 to 36,000,000 shares of common stock. The increase in authorized shares became effective on August 17, 2020.

 

On September 28, 2020, the Company’s Board of Directors approved the Reverse Split in a ratio of 1-for-6 and on September 29, 2020, the Company filed an amended and restated certificate of amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), implementing the Reverse Split in a ratio of 1-for-6, effective October 13, 2020. On October 12, 2020, the Company filed a certificate of amendment to the Certificate of Incorporation changing the effective date of the Reverse Split, in a ratio of 1-for-6, to November 4, 2020. The Company expects that the Reverse Split in a ratio of 1-for-6 will be effective on or about November 4, 2020; provided, however, that in no event will the Reverse Split become effective until it has been processed by the Financial Industry Regulatory Authority (FINRA). The Reverse Split is intended to allow the Company to meet the minimum share price requirement of the Nasdaq Capital Market. There is no assurance that the Company’s listing application will be approved by the Nasdaq Capital Market.

 

On April 10, 2020, the Company filed a registration statement on Form S-1 with the SEC relating to the offer by the Company of units of the Company, each of which consists of one share of common stock and one warrant to purchase one share of our common stock. No sales of units will be made prior to effectiveness of the registration statement on Form S-1. On September 28, 2020, the Company filed Pre-Effective Amendment No. 1 to the registration statement on Form S-1 with the SEC. There can be no assurance that the registration statement on Form S-1, as amended, will be declared effective by the SEC.

 

On September 30, 2019, the SEC declared effective the Company’s registration statement on Form S-1 (the “September 2019 Registration Statement”) related to (i) the issuance by the Company of up to 6,449,000 shares of common stock, which consist of (a) 5,200,000 shares of common stock that may be issued upon the exercise of 5,200,000 warrants (the “Public Warrants”) originally sold as part of units in the Company’s initial public offering (the “IPO”) and which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, (b) 261,500 shares of common stock that may be issued upon the exercise of 261,500 warrants (the “Private Placement Warrants”) underlying units originally issued in a private placement that closed simultaneously with the consummation of the IPO (the “Private Placement Units”), which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, and (c) 987,500 shares of our common stock, which represent shares of common stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”, and together with the Public Warrants and Private Placement Warrants, the “Warrants”) originally sold as part of units in a private placement that commenced on March 27, 2019 (the “2019 Private Placement”) and which entitle the holder to purchase common stock at an exercise price of $4.00 per share of common stock, and (ii) the resale from time to time of 6,465,617 shares of common stock and 261,500 Private Placement Warrants by the selling securityholders named in the prospectus or their permitted transferees. On October 13, 2020, the SEC declared effective the Company’s post-effective amendment, filed on October 5, 2020 (the “Post-Effective Amendment”), to the September 2019 Registration Statement. The Post-Effective Amendment updates the financial statements and other information contained in the September 2019 Registration Statement. No additional securities were registered pursuant to the Post-Effective Amendment. 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company, formerly known as Smaaash Entertainment Inc. and prior to that as I-AM Capital Acquisition Company. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report and with the audited condensed consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019, as filed with the Securities and Exchange Commission (the “SEC”).

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “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. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors sections of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019, as filed with the SEC, and the Company’s Registration Statement on Form S-1 declared effective by the SEC on March 30, 2020, as the same may be updated from time to time, including in this Quarterly Report. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview

 

We are a global esports organization, with an established brand, that is capitalizing on the growth in esports through three business units, Simplicity One Brasil Ltda (“Simplicity One”), Simplicity Esports, LLC (“Simplicity Esports LLC”) and PLAYlive Nation, Inc. (“PLAYlive”).

 

Online Tournaments

 

We have acquired a database of over 400,000 paying esports gaming center customers in the acquisition of PLAYlive Nation. In response to demand from customers for online esports tournaments, we introduced a new initiative of weekly online esports tournaments. We will directly promote our online Simplicity Esports tournaments to this database of over 400,000 existing customers via text messages. If we can convert merely 1% of these existing customers from the PLAYlive Nation database to play in paid entry online Simplicity Esports tournaments, this may be a profitable business unit resulting in approximately $1,000,000 in annual revenues. Management also intends to sell sponsorship and marketing activations for these online tournaments that would create additional revenue.

 

Esports Teams

 

We own and manage numerous professional esports teams domestically and internationally. Revenue is generated from prize winnings, corporate sponsorships, advertising, league subsidy payments and potential league revenue sharing payments from the publishers of video games.

 

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Domestic Esports Teams – Simplicity Esports LLC

 

Through our wholly owned subsidiary Simplicity Esports LLC, we own and manage numerous professional esports teams competing in games such as Overwatch, Apex Legends, PUBG and more. We are committed to growing and enhancing the esports industry, fostering the development of amateurs to compete professionally and signing established professional gamers to support their paths to greater success.

 

International Esports Team - Simplicity One

 

Since January 2020, through our 76% owned subsidiary Simplicity One, we own and manage Flamengo ESports, one of the leading Brazilian League of Legends® teams. Flamengo ESports was established in 2017 as the Esports division of Clube de Regatas do Flamengo, a successful Brazilian sports organization, with over 40 million followers across social media accounts, known for its world-famous soccer team. Flamengo ESports’ League of Legends® team won the CBLoL Championship in September 2019, which qualified the team to compete at the 2019 League of Legends® World Championship in Europe as one of 24 teams from 13 different regions around the world.

 

Gaming Centers

 

We own and operate corporate and franchise esports gaming centers, through our wholly owned subsidiaries Simplicity Esports LLC and PLAYlive, throughout the U.S. giving casual gamers the opportunity to play in a social setting with other members of the gaming community. In addition, aspiring and established professional gamers have an opportunity to compete in local and national esports tournaments held in our gaming centers for prizes, notoriety, and potential contracts to play for one of our professional esports teams. In this business unit, revenue is generated from franchise royalties, the sale of game time, memberships, tournament entry fees, birthday party events, corporate party events, concessions and gaming-related merchandise.

 

Our business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals, which we believe to be unique in the industry. The physical centers, together with our esports teams, lifestyle brand and marketing campaigns offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360-degree approach driving traffic to both our digital platform, tournaments, and physical real estate to maximize the monetization opportunities with these relationships. In addition, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.

 

Optimally, the esports gaming centers of Simplicity Esports LLC (“Simplicity Esports Gaming Centers”) will measure between 1,200 and 2,000 square feet, with dozens of gaming stations. The Simplicity Esports Gaming Centers will feature cutting edge technology, futuristic aesthetic décor and dynamic high-speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing monetization opportunity for sponsors and advertisers.

 

Optimally, the esports gaming centers of Simplicity Esports LLC (“Simplicity Esports Gaming Centers”) will measure between 1,500 and 3,000 square feet, with dozens of gaming stations. The Simplicity Esports Gaming Centers will feature cutting edge technology, modern aesthetic décor and dynamic high-speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing monetization opportunity for sponsors and advertisers.

 

Corporate Gaming Centers

 

Simplicity Esports LLC has already opened and is operating four corporate-owned retail Simplicity Esports Gaming Centers. Our first Simplicity Esports Gaming Center was opened on May 3, 2019. We contemplate that new Simplicity Esports Gaming Centers will be funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships.

 

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Franchised Gaming Centers

 

We have launched a franchising program to accelerate the expansion of our nationwide footprint. We sell specific franchise territories, through our wholly owned subsidiary PLAYlive, and assist with the establishment and buildout of esports gaming centers to potential business owners that desire to use our branding, infrastructure and process to open and operate gaming centers. Franchise revenue is generated from the sale of franchise territories, supplying furniture, equipment and merchandise to the franchisees for buildout of their centers, a gross sales royalty fee and a national marketing fee. We license the use of our branding, assist in identifying and negotiating commercial locations, assist in overseeing the buildout and development, provide access to proprietary software for point of sale, inventory management, employee training and other human resource functions. Franchisees also have an opportunity to participate in our national esports tournament events, and benefit from the growing profile of our professional esports teams. Once an esports gaming center is opened, we provide operational guidance, support and use of branding elements in exchange for a monthly royalty fee calculated as 6% of gross sales. In 2020, we implemented a national marketing fee of 1% of gross sales. To date, we have sold five of these franchise territories. COVID-19 travel restrictions caused us to suspend the sale of new franchise territories from April 1, 2020 until October 1, 2020. During these six months, a pipeline of interested applicants has accumulated, and we anticipate new franchise territory sales over the next three months, as a result.

 

The combination of the esports gaming centers, owned or franchised by our wholly owned subsidiaries Simplicity Esports LLC or PLAYlive, provides us with what we believe is the largest footprint of esports gaming centers in North America. Over the next 12 months, existing PLAYlive esports gaming centers will be rebranded to Simplicity Esports gaming centers. All newly opened franchise esports gaming centers will be branded as Simplicity Esports gaming centers and have numerous gaming PC’s. All gaming centers in our footprint will be participating venues in our national esports tournaments.

 

Franchise Roll-Up Strategy

 

We began implementing a franchise roll-up strategy in July 2020, as a result of the disruption caused by COVID-19 related stay at home orders, and the disruption it caused to the commercial real estate market. The reduction in revenues for some franchisees because of stay at home orders, and government mandates to remain closed created significant accrued rent payments due to landlords. We have been able to come to terms with many franchisees to acquire the assets of their gaming centers and make them corporate owned. We have simultaneously negotiated new leases with some of the largest national mall chains and are in the process of negotiating additional locations with other landlords. The new leases involve significant reductions in or elimination of fixed rent and the addition of percentage rent terms. To date, we have signed nine letters of intent and executed definitive agreements for three of those locations. We anticipate closing the remaining acquisitions by October, 31, 2020. The nine franchise gaming centers for which we have signed letters of intent to acquire, generated approximately $2,000,000 in total sales in 2019. We expect each of these locations to be profitable as a result of the significant reduced rent expense.

 

Our Stream Team

 

The Simplicity Esports LLC stream team encompasses over 30 commentators (commonly known as “casters”), influencers and personalities who connect to a dedicated fan base. Our electric group of live personalities represent our organization to the fullest with their own unique style. We are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis. Our notoriety in the industry is evidenced by our audience that views millions of minutes of Simplicity Esports’ content monthly, via various social media outlets including YouTube, Twitter and Twitch. Through Simplicity Esports LLC, we have begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry.

 

Our Financial Position

 

For the fiscal years ended May 31, 2020 and 2019, we generated revenues of $861,410 and $37,995, respectively, reported net losses of $2,620,238 and $3,565,272, respectively, and negative cash flow from operating activities of $1,522,486 and $1,395,255, respectively.

 

For the three months ended August 31, 2020 and 2019, we generated revenues of $200,601 and $74,493, reported net losses of $655,214 and $283,393, respectively, and cash flow used in operating activities of $202,997 and negative cash flow of $572,923, respectively. As of August 31, 2020, we had an accumulated deficit of $6,850,258.

 

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There is substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings.

 

Results of Operations

 

Our only activities from April 17, 2017 (date of inception) through November 20, 2018 were organizational activities, those necessary to prepare for the initial public offering, which was consummated on August 22, 2017, and identifying a target company for a business combination. Following the initial public offering through and after our business combination, we had not generated any operating revenues.

 

Following the acquisition of Simplicity Esports, LLC the Company began generating revenue and incurring additional expenses.

 

Segment and Related Information

 

Historically, the Company had one operating segment. However, with the acquisition of PLAYlive and the opening of Company-owned retail stores, the Company’s operations are now managed through three operating segments: Franchise royalties and license fees, Company-owned stores and Esports revenue. These three operating segments and corporate are presented below as its reportable segments.

 

Summarized financial information concerning our reportable segments for the three months ended August 31, 2020 is shown in the following table:

 

   Revenues   Net
Loss
   Depreciation
and
Amortization
   Capital
Expenditures
   Goodwill   Total
Assets
 
                         
Franchise royalties and fees  $87,000   $(3,000)  $-   $-   $699,000   $1,721,000 
Company-owned stores   77,000    (38,000)   38,000    -    25,000    1,329,000 
Esports revenue   37,000    (105,000)   55,000    -    4,456,000    5,665,000 
Corporate   -    (509,000)   -    -    -    414,000 
Total  $201,000   $(655,000)  $93,000   $-   $5,180,000   $9,129,000 

 

Summary of Statement of Operations for the Three Months Ended August 31, 2020 and 2019:

 

Revenue

 

The Company’s revenue for the three months ended August 31, 2020 was $200,601, a $126,108 increase over the three months ended August 31, 2019 revenue of $74,493. This increase is due to the acquisition of PLAYlive, the Company-owned stores and Simplicity One.

 

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Cost of Goods Sold

 

Cost of goods sold for the three months ended August 31, 2020 was $40,511. These costs were related to revenues at PLAYlive and the Company-owned stores. There was no cost of goods sold in the three months ended August 31, 2019.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended August 31, 2020 was $645,362 as compared to $438,952 for the three months ended August 31, 2019, an increase of $206,410. The change is primarily attributable to the acquisition of PLAYlive Company-owned stores and Simplicity One. The selling, general and administrative expenses of these entities consist primarily of payroll and related costs, share based compensation, operating costs, computer and software related costs and rent. The increase in selling, general and administrative expenses is primarily related to a $53,000 increase in salary related expenses, a $53,000 increase in bad debt expense and a $123,000 increase in stock based compensation, offset by other minor reductions in other expense categories.

 

Other Income

 

We incurred $185,828 of non-operating expense, comprised of $7 of interest income, $154,128 in interest expense, $12,135 in debt forgiveness expense and $19,572 in foreign exchange losses, for the three months ended August 31, 2020, as compared to non-operating income of $81,067, comprised of $6,675 of interest expense, $2,504 of interest income and $85,238 in debt forgiveness income for the three months ended August 31, 2019.

 

Net Loss

 

Net loss for the three months ended August 31, 2020 was $655,214, as compared to net loss of $283,393 for the three months ended August 31, 2019.

 

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Liquidity and Capital Resources

 

As of August 31, 2020, we had cash of $498,645, which is available for use by us to cover all of the Company’s costs including those associated with due diligence procedures and other general corporate purposes. In addition, as of August 31, 2020, we had accrued expenses of $764,818.

 

For the three months ended August 31, 2020, cash used in operating activities amounted to $202,997, primarily resulting from net loss of $671,101, a decrease of $185,620 of accrued expenses, a decrease of accounts receivable of $5,478, offset by stock issued for services of $150,095, and amortization and depreciation expense of $93,749. Changes in our operating liabilities and assets provided cash of $171,711.

 

We will need to raise additional funds in order to meet the expenditures required for operating our business.

 

Off-balance sheet financing arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

 

Going Concern

 

The Company’s unaudited consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the unaudited condensed consolidated financial statements, the Company has an accumulated deficit of approximately $6.9 million a working capital deficit of approximately $2.0 million as of August 31, 2020, and a net loss of approximately $0.7 million for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the unaudited financial statements are issued.

 

The Company has commenced operations and has begun to generate revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

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Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and have since reopened three corporate and 23 franchised Simplicity Gaming Centers as of October 15, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. However, we have recorded an allowance for doubtful accounts of approximately $105,000, as our collection efforts are ongoing. We have experienced an increase in our account receivables by approximately $32,000 and $14,000 during the quarters ended May 31, 2020 and August 31, 2020, respectively. Notwithstanding, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. For the months of July and August 2020, we have waived the minimum monthly royalty payment obligations for the months of July and August 2020 and are instead billing the franchisees a true-up of 6% of gross sales without a minimum.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

The measures taken to date will impact the Company’s business for the fiscal quarters ended May 31, 2020 and August 31, 2020 and will potentially continue to impact the Company’s business. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

Contractual obligations

 

We do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities, except as follows:

 

Attorney Settlement Agreement

 

In March 2019, the Company entered into a settlement agreement with its prior attorney. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $525,000 to be paid over time. As of October 5, 2020, the Company owes this attorney approximately $300,000.

 

Maxim Settlement Agreement

 

On November 20, 2018, the Company entered into a settlement and release agreement with Maxim Group, LLC (“Maxim”), the underwriter for the Company’s initial public offering. Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note (the “Maxim Note”) in favor of Maxim in the amount of $1.8 million to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate. The Note was surrendered and exchanged pursuant to the Exchange Agreement (as defined below).

 

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Maxim Exchange Agreement

 

On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim. Pursuant to the terms of the Exchange Agreement, Maxim agreed to surrender and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed immediately above). In exchange, the Company issued to the Maxim a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).

 

As of December 31, 2018, upon the closing of the Simplicity Esports Acquisition, the Series A-1 Note automatically converted into 32,275 (193,648 pre-reverse split) shares of the Company’s common stock.

 

The Series A-2 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.

 

The Series A-2 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $11.58 ($1.93 pre-reverse split) per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the Maturity of the Series A-2 Note, the conversion price will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the volume weighted average price of the Company’s common stock in the five trading days prior to the notice of conversion and $3.00 ($0.50 pre-reverse split) . The Holder may convert the Series A-2 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-2 Note included in the notice of conversion.

 

Additionally, the Series A-2 Note will automatically convert into shares of the Company’s common stock on the Maturity Date provided that (i) no event of default then exists, and (ii) each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.

 

At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.

 

Except as otherwise provided in the Series A-2 Note, including, without limitation, an Optional Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.

 

The Company is not permitted to convert any portion of the Series A-2 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.


 

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The Series A-2 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.

 

Operating Lease

 

We have long-term operating lease obligations and deferred revenues related to franchise fees to be recognized over the term of franchise agreements with our franchises, generally ten years. We will begin to recognize deferred franchise fee revenue at the time a franchise commences operations.

 

In February 2019, the Company entered into a 5-year operating lease in Boca Raton, Florida in connection with the opening of its first gaming center. Rent is approximately $2,300 per month for the first year and contains customary escalation clauses. In June of 2019, the Company entered into a 5-year operating lease for its corporate office, rent is approximately $700 per month. In August of 2019, the Company opened its second gaming center and in connection with this gaming center entered into a 5-year operating lease in Deland, Florida. Rent is approximately $2,500 per month for the first year and contains customary escalation clauses. On June 26, 2020, the Company entered into a 10-year operating lease in El Paso, Texas for a corporate gaming center in Fort Bliss. It is a percentage rent lease (without a base rent) which provides for the (i) first and second year of the lease, the rent would be 10% of gross sales of such gaming center per year, (iii) third fourth and fifth year of the lease, the rent would be 12% of gross sales of such gaming center per year, and (iv) sixth, seventh, eighth, nineth and tenth year of the lease, the rent would be 14% of the gross sales of such gaming center per year.

 

Debt Obligations

 

10% Fixed Convertible Promissory Note

 

On April 29, 2020 (the “Effective Date”), the Company issued a 10% Fixed Convertible Promissory Note (the “Harbor Gates Note”), with a maturity date of October 29, 2020 (the “Maturity Date”), in the principal sum of $152,500 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant to the terms of the Harbor Gates Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”) and to pay “guaranteed” interest on the principal balance at an amount equivalent to 10% of the Principal Sum, to the extent such Principal Sum and “guaranteed” interest and any other interest, fees, liquidated damages and/or items due to Harbor Gates have not been repaid or converted into Company common stock in accordance with the terms of the Harbor Gates Note. The Harbor Gates Note carries an original issue discount (“OID”) of $2,500. Accordingly, on the Effective Date, Harbor Gates delivered $150,000 to the Company in exchange for the Harbor Gates Note.

 

In addition to the “guaranteed” interest, and upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 20% per annum or the highest rate permitted by law.

 

The Company may prepay the Harbor Gates Note according to the following schedule:

 

Days Since
Effective Date
   Payment Amount
Under 30    115% of Principal Amount (as hereinafter defined) so paid
31-60    120% of Principal Amount so paid
61-90    125% of Principal Amount so paid
91-180    135% of Principal Amount so paid

 

135% of the remaining unpaid and unconverted Principal Amount, plus all accrued and unpaid interest will be due and payable on the Maturity Date. “Principal Amount” refers to the sum of (i) the original principal amount of the Harbor Gates Note (including the OID); (ii) all guaranteed and other accrued but unpaid interest under the Harbor Gates Note; (iii) any fees due under the Harbor Gates Notes; (iv) liquidated damages; and (v) any default payments owing under the Harbor Gates Note, in each case previously paid or added to the Principal Amount.

 

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Pursuant to the terms of the Harbor Gates Note, the Company agreed to issue Harbor Gates shares of Company common stock in two tranches as follows:

 

   (i) 10,000 shares of common stock within three trading days of the Effective Date; and
   (ii) In the event the average of the three volume weighted average prices for the Company’s common stock during the three consecutive trading days immediately preceding the date which is the 180th  day following the Effective Date is less than $1.00 per share, then Harbor Gates will be entitled, and the Company will issue to Harbor Gates additional shares of common stock as set forth in the Harbor Gates Note.

 

If an Event of Default (as defined in the Promissory Note) occurs, the outstanding Principal Amount of the Harbor Gates Note owing in respect thereof through the date of acceleration, shall become, at Harbor Gates’ election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means 35% of the outstanding Principal Amount of the Harbor Gates Note will be automatically added to the Principal Sum of the Harbor Gates Note and tack back to the Effective Date for purposes of Rule 144 promulgated under the 1934 Act. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of the Harbor Gates Note, the Harbor Gates Note will accrue additional interest, in addition to the Harbor Gates Note’s “guaranteed” interest, at a rate equal to the lesser of 20% per annum or the maximum rate permitted under applicable law.

 

If the Harbor Gates Note is not retired on or before the Maturity Date, then at any time and from time to time after the Maturity Date, and subject to the terms hereof and restrictions and limitations contained in the Harbor Gates Note, Harbor Gates has the right, at Harbor Gates’ sole option, to convert in whole or in part the outstanding and unpaid Principal Amount under the Harbor Gates Note into shares of the Company’s common stock at the Variable Conversion Price. The “Variable Conversion Price” will be equal to the lower of: (a) $1.00, or (b) 70% of the lowest volume weighted average price of the Company’s common stock during the 15 consecutive trading days prior to the date on Harbor Gates elects to convert all or part of the Harbor Gates Note.

 

On July 2, 2020, the Company repaid $152,500 and $15,000 in accrued interest in full satisfaction of the 10% Convertible Promissory Harbor Gates Note.

 

Related Party - Kaplan Promissory Note

 

On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on October 12, 2020 (the “Maturity Date”). The Company has used the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s majority owned subsidiary (“Simplicity Brasil”).

 

Pursuant to the terms of the Kaplan Note, the Company agreed to pay to Mr. Kaplan the lesser of (i) the principal sum of $90,000 (the “Maximum Commitment”), or (ii) the aggregate principal amount of all direct advances of the proceeds of the Kaplan Note (each, an “Advance”), together with any interest thereon, and any and all other amounts which may be due and payable thereunder from time to time.

 

Subject to the terms of the Kaplan Note, Mr. Kaplan agreed to make one direct Advance to and for the benefit of the Company on the Issue Date in the amount of $45,000, and one additional Advance to and for the benefit of the Company at such time as the Company may request during the two month period following the Issue Date. The total of the aggregate principal balance of all Advances (collectively referred to herein as the “Principal Amount”) outstanding at any time shall not exceed the Maximum Commitment. Advances made by Mr. Kaplan to the Company under the Kaplan Note which have been repaid may not be borrowed again.

 

Prior to the Maturity Date or an Event of Default (as hereinafter defined), the Principal Amount outstanding under the Kaplan Note will bear interest at a rate of 3% (the “Interest Rate”). From and after the Maturity Date or upon and during the continuance of an Event of Default, interest will accrue on the unpaid Principal Amount during any such period at an annual rate (the “Default Rate”) equal to 10% plus the Interest Rate; provided, however, that in no event will the Default Rate exceed the maximum rate permitted by law.

 

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The Company could prepay the Kaplan Note, in whole or in part, without a prepayment penalty, at any time provided that an Event of Default has not then occurred.

 

As of May 31, 2020, advances under the terms of this note were $64,728. On various dates subsequent to May 31, 2020, Mr. Kaplan funded $25,272 pursuant to the Kaplan Promissory Note. With the contributions subsequent to May 31, 2020, the principal balances outstanding and due Mr. Kaplan amounted to $90,000. On June 22, 2020, Mr. Kaplan agreed to exchange the debt of the Kaplan Promissory Note with a principal balance of $90,000 in exchange for the Company assigning to Mr. Kaplan a 10% equity interest in Simplicity One Brasil, Ltda, a subsidiary of the Company.

 

June 18, 2020 Self-Amortization Promissory Note

 

On June 18, 2020 (the “Issue Date”), the Company entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Amortization Note”) with a maturity date of June 18, 2021 (the “Maturity Date”), in the principal sum of $550,000. Pursuant to the terms of the Amortization Note, the Company agreed to pay $550,000 (the “Principal Sum”) to the Holder and to pay interest on the Principal Sum at the rate of 12% per annum. The Amortization Note carries an original issue discount (“OID”) of $55,000. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $495,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company agreed to issue 9,167 (55,000 pre-reverse split) shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest with no prepayment premium. The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date  Payment Amount 
10/16/2020  $66,125.00 
11/16/2020  $66,125.00 
12/16/2020  $66,125.00 
01/18/2021  $66,125.00 
02/18/2021  $66,125.00 
03/18/2021  $66,125.00 
04/16/2021  $66,125.00 
05/18/2021  $66,125.00 
06/18/2021  $65,921.26 
Total:  $594,921.26 

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five calendar days as provided in the Amortization Note, the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

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While any portion of this Note is outstanding, if the Company receives cash proceeds of more than $2,000,000.00 (the “Minimum Threshold”) in the aggregate from public offerings or private placements to investors, the Company shall, within two business days of Company’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company after the Minimum Threshold is reached to repay the outstanding amounts owed under this Note.

 

August 7, 2020 Self-Amortization Promissory Note

 

On August 7, 2020 (the “Issue Date”), the Company entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities Fund, LLC, an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Self-Amortization Note”) with a maturity date of August 7, 2021 (the “Maturity Date”), in the principal sum of $333,333. Pursuant to the terms of the Self-Amortization Note, the Company agreed to pay $333,333 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Self-Amortization Note carries an original issue discount of $33,333. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $300,000 in exchange for the Self-Amortization Note. In addition, pursuant to the terms of the SPA, the Company agreed to issue 5,556 (33,333 pre-reverse split) shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Self-Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest with no prepayment premium). The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date 

Payment

Amount

 
12/07/2020  $40,075.75 
01/07/2021  $40,075.75 
02/08/2021  $40,075.75 
03/08/2021  $40,075.75 
04/07/2021  $40,075.75 
05/07/2021  $40,075.75 
06/07/2021  $40,075.75 
07/07/2021  $40,075.75 
08/07/2021  $39,952.34 
Total:  $360,558.34 

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five calendar days as provided in the Amortization Note, the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

While any portion of this Note is outstanding, if the Company receives cash proceeds of more than $2,000,000.00 (the “Minimum Threshold”) in the aggregate from public offerings or private placements to investors, the Company shall, within two business days of Company’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company after the Minimum Threshold is reached to repay the outstanding amounts owed under this Note.

 

Adoption of 2020 Omnibus Incentive Plan

 

The board and shareholders of the Company approved of the Simplicity Esports and Gaming Company 2020 Omnibus Incentive Plan (the “2020 Plan”) on April 22, 2020 and June 23, 2020, respectively. The 2020 Plan provides for various stock-based incentive awards, including incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, and other equity-based or cash-based awards.

 

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Critical Accounting Policies

 

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its financial statements.

 

The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.

 

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

 

Company-owned Stores Sales

 

The Company-owned stores principally generate revenue from retail esports gaming centers. Revenues from Company-owned stores are recognized when the products are delivered, or the service is provided.

 

Franchise Royalties and Fees

 

Franchise royalties are based on six percent of franchise store sales after a minimum level of sales occur and are recognized as sales occur. Any royalty reductions, including waivers or those offered as part of a new store development incentive or as incentive for other behaviors, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate. Franchise royalties are billed on a monthly basis.

 

The Company recognizes initial franchise license fee revenue net of costs incurred, when the Company has performed substantially all the services required in the franchise agreement. Fees received that do not meet these criteria are recorded as deferred revenues until earned. Initial franchise fees are generally recognized once a location is opened to the public which is when management deems substantially all services required under the franchise agreements have been performed.

 

The Company offers various incentive programs for franchisees including royalty incentives, new restaurant opening incentives (i.e. development incentives) and other support initiatives. Royalties and franchise fees sales are reduced to reflect any royalty incentives earned or granted under these programs that are in the form of discounts.

 

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Esports revenue

 

Esports revenue is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Revenues from esports revenue are recognized when the competition is completed, and prize money is awarded.

 

Accounts Receivable

 

The Company estimates the allowance for doubtful accounts based on an analysis of specific customers (i.e. franchisees), taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. Accounts receivable are written off against the allowance when management determines it is probable the receivable is worthless. Customer account balances with invoices dated over 90 days old are considered delinquent and considered in the allowance assessment. The Company performs credit evaluations of its customers and, generally, requires no collateral. Management has assessed accounts receivable and an allowance for doubtful accounts of approximately $105,000 has been recorded.

 

Goodwill

 

Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually.

 

Intangible Assets and Impairment

 

Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. The Company had intangible assets subject to amortization related to its acquisition of Simplicity Esports, LLC. These costs were included in intangible assets on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the costs, which is 3 to 10 years.

 

The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Interim Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2020. Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of August 31, 2020.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The Company expects to implement changes to its internal control over financial reporting to enhance the evaluation of accounting transactions and its financial reporting process over the next year.

 

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PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (the “2019 10-K”). However, in light of the recent coronavirus (COVID-19) pandemic, set forth below is a risk factor relating to COVID-19. Other than as set forth below, as of the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors faced by the Company from those previously disclosed in the 2020 10-K.

 

Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Gaming Centers on May 1, 2020 and have since reopened three corporate and 23 franchised Simplicity Gaming Centers as of October 5, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. However, we have recorded an allowance for doubtful accounts of approximately $105,000, as our collection efforts are ongoing. We have experienced an increase in our account receivables by approximately $32,000 and $14,000 during the quarters ended May 31, 2020 and August 31, 2020, respectively. Notwithstanding it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. For the months of July and August 2020, we have waived the minimum monthly royalty payment obligations for the months of July and August 2020 and are instead billing the franchisees a true-up of 6% of gross sales without a minimum.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

The measures taken to date adversely impacted the Company’s business for the fiscal quarters ended May 31, 2020 and August 31, 2020 and will potentially continue to impact the Company’s business. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The Company did not sell any equity securities during the period covered by this Quarterly Report that were not registered under the Securities Act, except as previously disclosed in our Current Reports on Form 8-K.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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ITEM 5. OTHER INFORMATION

 

As previously disclosed, the Company has applied to list its common stock and warrants on the Nasdaq Capital Market. In order to obtain Nasdaq Capital Market listing approval, the Company obtained approval of its Board of Directors and stockholders of (i) a reverse stock split of the outstanding shares of the Company’s common stock in the range from 1-for-2 to 1-for-10, which ratio was to be selected by the Company’s Board of Directors, with any fractional shares being rounded up to the next higher whole shares (the “Reverse Split”), and (ii) an increase in the Company’s authorized shares of common stock from 20,000,000 to 36,000,000 shares of common stock. The increase in authorized shares became effective on August 17, 2020.

 

On September 18, 2020, the Company filed a certificate of amendment (the “September 18th Amendment”) to the Company’s Third Amendment and Restated Certificate of Incorporation, as amended, setting the Reverse Split ratio at 1-for 5. On September 29, 2020, the Company filed an amended and restated certificate of amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, implementing the Reverse Split in a ratio of 1-for-6, effective October 13, 2020.

 

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on October 13, 2020, on October 12, 2020, the Company filed a certificate of amendment (the “October Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, changing the effective date of the Reverse Split from October 13, 2020 to November 4, 2020; provided, however, that in no event will the Reverse Split become effective until it has been processed by the Financial Industry Regulatory Authority (FINRA). The Company expects that the Reverse Split in a ratio of 1-for-6 will be effective on or about November 4, 2020. The Reverse Split is intended to allow the Company to meet the minimum share price requirement of the Nasdaq Capital Market. There is no assurance that the Company’s listing application will be approved by the Nasdaq Capital Market.

 

The foregoing description of the September 18th Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the September 18th Amendment, a copy of which is filed hereto as Exhibit 3.2 and is incorporated herein by reference. A copy of the October Amendment was filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on October 13, 2020.

 

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ITEM 6. EXHIBITS

 

Exhibit

Number

   Description
        
3.1   Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on August 17, 2020 (incorporated by reference to Exhibit 3.3 to the registrant’s Annual Report on Form 10-K filed with the Commission on August 31, 2020).
     
3.2*   Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on September 18, 2020.
     
3.3   Amended and Restated Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on September 29, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 5, 2020).
     
3.4  

Amended and Restated Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on October 12, 2020. (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).

     
31.1*    Certification of the Principal Executive Officer And Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
        
32.1*    Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
        
101.INS*    XBRL Instance Document
101.SCH*    XBRL Taxonomy Extension Schema Document
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*    XBRL Taxonomy Extension Label Linkbase Document
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed 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.

 

   SIMPLICITY ESPORTS AND GAMING COMPANY
        
Dated: October 15, 2020    /s/ Jed Kaplan
   Name: Jed Kaplan
   Title: Chief Executive Officer and interim Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

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EX-3.2 2 ex3-2.htm

 

Exhibit 3.2

 

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT TO

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,

AS AMENDED,

OF

SIMPLICITY ESPORTS AND GAMING COMPANY

 

Under Section 242 of the Delaware General Corporation Law

 

Simplicity Esports and Gaming Company, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify:

 

FIRST: The name of the Corporation is Simplicity Esports and Gaming Company. The Corporation was originally incorporated under the name “I-AM Capital Acquisition Company”. The Corporation’s original certificate of incorporation was filed with the Secretary of State of the State of Delaware on April 17, 2017 (the “Original Certificate”). An amended and restated certificate of incorporation which restated and amended the provisions of the Original Certificate was filed with the Secretary of State of the State of Delaware on May 31, 2017 (the “Amended and Restated Certificate”). A second amended and restated certificate of incorporation which restated and amended the provisions of the Amended and Restated Certificate was filed with the Secretary of State of the State of Delaware on August 16, 2017 (the “Second Amended and Restated Certificate”). A third amended and restated certificate of incorporation which restated and amended the provisions of the Second Amended and Restated Certificate was filed with the Secretary of State of the State of Delaware on November 20, 2018 (the “Third Amended and Restated Certificate”). A certificate of amendment which amended the provisions of the Third Amended and Restated Certificate was filed with the Secretary of State of the State of Delaware on January 2, 2019.

 

SECOND: The Third Amended and Restated Certificate, as amended, is hereby amended as follows:

 

Section 4.1 Authorized Capital Stock lasses and Number of Shares. The total number of shares of all classes of capital stock which the Corporation is authorized to issue is 21,000,000 shares, consisting of (a) 20,000,000 shares of common stock, par value $0.0001 per share (the “Common Stock”) and (b) 1,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”). Upon the Effective Time (as defined below) of this Certificate of Amendment, each one (1) share of the Corporation’s Common Stock issued and outstanding immediately prior to the Effective Time will be and hereby is automatically reclassified and changed (without any further act) into one-fifth (1/5) of a validly issued, fully-paid and non-assessable share of Common Stock, without increasing or decreasing the par value thereof, provided that no fractional shares shall be issued in respect of any shares of Common Stock held by any holder in any one account which account has fewer than five (5) shares of Common Stock immediately prior to the Effective Time, and that, instead of issuing such fractional shares, any fractional shares shall be rounded up to the next higher whole share.

 

THIRD: The remaining provisions of the Third Amended and Restated Certificate, as amended, not affected by the aforementioned amendments shall remain in full force and not be affected by this Certificate of Amendment.

 

 

 
 

 

FOURTH: The amendment of the Third Amended and Restated Certificate, as amended, effected by this Certificate of Amendment was duly authorized by the stockholders of the Corporation on June 23, 2020, after first having been declared advisable by the Board of Directors of the Corporation on April 22, 2020, and subsequently approved by the Board of Directors on September 11, 2020, all in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FIFTH: This Certificate of Amendment will become effective on October 13, 2020 (the “Effective Time”).

 

IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by its duly authorized officer this 18th day of September, 2020.

 

  By: /s/ Jed Kaplan
  Name:  Jed Kaplan
  Title: Chief Executive Officer and interim Chief Financial Officer

 

 

 

EX-31.1 3 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, Jed Kaplan, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended August 31, 2020 of Simplicity Esports and Gaming Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 15, 2020 /s/ Jed Kaplan
  Chief Executive Officer and interim Chief Financial Officer
  (principal executive officer and principal financial officer)

 

 
EX-32.1 4 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Simplicity Esports and Gaming Company (the “Company”) on Form 10-Q for the period ended August 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jed Kaplan, Chief Executive Officer and interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: October 15, 2020 /s/ Jed Kaplan
  Jed Kaplan
  Chief Executive Officer and interim Chief Financial Officer
  (principal executive officer and principal financial officer)

 

 
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Business combination recognized identifiable assets acquired and liabilities assumed merchandise. Business combination recognized identifiable assets acquired and liabilities assumed customer database. Business combination recognized identifiable assets acquired and liabilities assumed restrictive covenant. Common stock issued in connection with settlement of accounts payable. Working capital deficit. 2019 Private Placement [Member] Private Placement Warrants [Member] Common stock issued in franchise repurchase. Common stock issued in connection with previously accrued compensation. Repurchase of franchise. Merchandise [Member] FF&E [Member] Unrelated Third Party [Member] Debt Instrument [Axis] [Default Label] Smaaash Entertainment Private Limited [Member] Jed Kaplan [Member] [Default Label] Assets, Current Assets, Noncurrent Liabilities, Current Liabilities Stockholders' Equity Attributable to Parent Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest Liabilities and Equity Cost of Goods and Services Sold Gross Profit General and Administrative Expense Operating Income (Loss) Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest Net Income (Loss) Attributable to Noncontrolling Interest Shares, Outstanding Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase (Decrease) in Prepaid Expense Increase (Decrease) in Security Deposits IncreaseDecreaseInDeferredBrokerageFees Increase (Decrease) in Deferred Revenue Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Liabilities Increase (Decrease) Due from Other Related Parties Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Repayments of Notes Payable Payments of Financing Costs Net Cash Provided by (Used in) Financing Activities Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Including Disposal Group and Discontinued Operations Stockholders' Equity Note Disclosure [Text Block] Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment Finite-Lived Intangible Assets, Net Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net Lessee, Operating Lease, Liability, to be Paid, Remainder of Fiscal Year Lessee, Operating Lease, Liability, to be Paid, Year One Lessee, Operating Lease, Liability, to be Paid, Year Two Lessee, Operating Lease, Liability, to be Paid, Year Three Lessee, Operating Lease, Liability, to be Paid, Year Four Lessee, Operating Lease, Liability, to be Paid Lessee, Operating Lease, Liability, Undiscounted Excess Amount Long-term Debt Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionsOutstandingWeightedAverageExercisePrice1 EX-101.PRE 11 winr-20200831_pre.xml XBRL PRESENTATION FILE XML 12 R1.htm IDEA: XBRL DOCUMENT v3.20.2
Document and Entity Information - shares
3 Months Ended
Aug. 31, 2020
Oct. 14, 2020
Cover [Abstract]    
Entity Registrant Name SIMPLICITY ESPORTS & GAMING Co  
Entity Central Index Key 0001708410  
Document Type 10-Q  
Document Period End Date Aug. 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --05-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   9,329,190
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2021  
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
Aug. 31, 2020
May 31, 2020
Current Assets    
Cash and cash equivalents $ 498,645 $ 160,208
Accounts receivable, net 122,175 127,653
Inventory 31,660 15,787
Prepaid expenses 22,675 5,588
Total Current Assets 675,155 309,236
Other Assets    
Goodwill 5,180,141 5,155,141
Intangible assets, net 2,224,760 2,141,374
Deferred brokerage fees 144,698 149,223
Property and equipment 318,598 232,733
Right of use asset, operating lease 441,986 490,984
Security deposits 14,885 14,885
Deferred equity issuance costs 128,614 98,198
Total Other Assets 8,453,682 8,282,538
TOTAL ASSETS 9,128,837 8,591,774
Current Liabilities    
Accounts payable 116,178 126,716
Accrued expenses 764,818 1,421,842
Convertible note payable 1,603,881 1,127,320
Note payable - related party 64,728
Operating lease obligation, current 136,630 151,867
Current portion of deferred revenues 3,795 3,795
Common stock payable 75,000 75,000
Total Current Liabilities 2,700,302 2,971,268
Operating lease obligation, net of current portion 305,355 339,116
Deferred revenues 358,304 365,718
Total Liabilities 3,363,961 3,676,102
Commitments and Contingencies - Note 6
Stockholders' Equity    
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding
Common stock - $0.0001 par value; 36,000,000 shares authorized; 9,929,190 and 7,988,975 shares issued and outstanding as of August 31, 2020 and May 31, 2020, respectively 933 799
Additional paid-in capital 12,411,574 11,131,404
Accumulated deficit (6,850,258) (6,195,044)
Total Simplicity Esports and Gaming Company Stockholders' Equity 5,562,249 4,937,159
Non-Controlling Interest 202,627 (21,487)
Total Stockholder's Equity 5,764,876 4,915,672
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,128,837 $ 8,591,774
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Aug. 31, 2020
May 31, 2020
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized 1,000,000 1,000,000
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized 36,000,000 36,000,000
Common stock, issued 9,329,190 7,988,975
Common stock, outstanding 9,329,190 7,988,975
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
Revenue    
Total Revenue $ 200,601 $ 74,000
Cost of Goods Sold (40,511)
Gross Profit 160,090 74,493
Operating Expenses    
General and Administrative Expenses (645,362) (438,953)
Loss from Operations (485,272) (364,460)
Other (Expense) Income    
Debt Forgiveness (Expense) Income (12,135) 85,238
Interest Expense (154,128) (6,675)
Interest Income 7 2,504
Foreign exchange loss (19,572)
Total Other (Expense) Income (185,828) 81,067
Loss Before Provision for Income Taxes (671,100) (283,393)
Provision for Income Taxes
Net income attributable to noncontrolling interest 15,886
Net loss available to common shareholders $ (655,214) $ (283,393)
Basic and diluted net loss per share $ (0.08) $ (0.04)
Basic and diluted weighted average number of common shares outstanding 8,595,266 7,264,845
Franchise Royalties and License Fees [Member]    
Revenue    
Total Revenue $ 80,818 $ 46,738
Franchise Termination Revenue [Member]    
Revenue    
Total Revenue 6,465
Company-Owned Stores Sales [Member]    
Revenue    
Total Revenue 76,938 4,419
Esports Revenue [Member]    
Revenue    
Total Revenue $ 36,380 $ 23,336
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Non-Controlling Interest [Member]
Accumulated Deficit [Member]
Total
Beginning balance at May. 31, 2019 $ 700 $ 9,442,027 $ (3,574,806) $ 5,867,921
Beginning balance, shares at May. 31, 2019 7,003,975        
Shares issued for PLAYlive Nation acquisition $ 75 1,439,925 1,440,000
Shares issued for PLAYlive Nation acquisition, shares 750,000        
Vesting of Common Shares 27,000 27,000
Net loss attributable to non-controlling interest        
Net loss       (283,393) (283,393)
Ending balance at Aug. 31, 2019 $ 775 10,908,952 (3,858,199) 7,051,528
Ending balance, shares at Aug. 31, 2019 7,753,975        
Beginning balance at May. 31, 2019 $ 700 9,442,027 (3,574,806) 5,867,921
Beginning balance, shares at May. 31, 2019 7,003,975        
Ending balance at May. 31, 2020 $ 799 11,131,404 (21,487) (6,195,044) 4,915,672
Ending balance, shares at May. 31, 2020 7,988,975        
Shares issued for cash $ 2 24,998 $ 25,000
Shares issued for cash, shares 23,809       250,000
Shares issued in connection with conversion of note payable $ 9 99,991 $ 100,000
Shares issued in connection with conversion of note payable, shares 85,905        
Shares issued in connection with notes payable $ 10 102,207 102,217
Shares issued in connection with notes payable, shares 98,333        
Shares issued in connection with settlement of accounts payable and accrued liabilities $ 2 45,998 46,000
Shares issued in connection with settlement of accounts payable and accrued liabilities, shares 25,000        
Shares issued in connection with franchise acquisition $ 15 164,985 165,000
Shares issued in connection with franchise acquisition, shares 150,000        
Shares issued in connection with consulting agreement $ 3 22,775 22,778
Shares issued in connection with consulting agreement, shares 27,778        
Shares issued to directors, officers and employees as compensation $ 93 819,216 $ 819,309
Shares issued to directors, officers and employees as compensation, shares 929,390       250,000
Non-controlling interest of original investment in subsidiaries 240,000 $ 240,000
Net loss attributable to non-controlling interest (15,886) 15,886
Net loss (655,214) (655,214)
Ending balance at Aug. 31, 2020 $ 933 $ 12,411,574 $ 202,627 $ (6,850,258) $ 5,764,876
Ending balance, shares at Aug. 31, 2020 9,329,190        
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
Cash flows from operating activities:    
Net loss $ (671,101) $ 283,000
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 27,135 8,651
Amortization expense 66,614 51,406
Debt forgiveness income 12,135 (85,238)
Issuance of shares for services 150,095 27,000
Provision for uncollectible accounts 52,549
Changes in operating assets and liabilities:    
Accounts receivable 5,478 (57,074)
Inventory 11,127
Prepaid expenses (17,087)
Security deposits (2,568)
Deferred brokerage fees 4,525
Deferred revenues (7,414)
Accounts payable (10,538) 6,004
Accrued expenses 185,620 (223,603)
Due from related party (14,108)
Net cash (used in) operating activities (202,997) (572,923)
Cash flows from investing activities:    
Cash purchased in acquisition 26,180
Lease liability net of lease asset (776)
Purchase of property and equipment (96,506)
Net cash used in investing activities (71,102)
Cash flows from financing activities:    
Proceeds from notes payable 748,150
Repayment of note payable (201,300)
Deferred financing costs (30,416)
Private placement funds received 25,000 50,000
Net cash provided by financing activities 541,434 50,000
Net change in cash 338,437 (594,025)
Cash - beginning of period 160,208 1,540,158
Cash - end of period 498,645 946,133
Supplemental Disclosures of Cash Flow Information:    
Cash paid for interest 48,800
Cash paid for income taxes
Supplemental Non-Cash Investing and Financing Information:    
Common stock issued in franchise repurchase (Merchandise $14,500, FF&E $59,000, customer database $18,500, Goodwill $13,000, restrictive covenant $60,000) 165,000
Common stock issued in connection with acquisition 1,440,000
Common stock issued in connection with settlement of accounts payable 46,000
Common stock issued in connection with previously accrued compensation $ 629,115
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
Merchandise [Member]    
Repurchase of franchise $ 14,500 $ 14,500
FF&E [Member]    
Repurchase of franchise 59,000 59,000
Customer Database [Member]    
Repurchase of franchise 18,500 18,500
Goodwill [Member]    
Repurchase of franchise 13,000 13,000
Restrictive Covenant [Member]    
Repurchase of franchise $ 60,000 $ 60,000
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Organization and Description of Business
3 Months Ended
Aug. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Simplicity Esports and Gaming Company F/K/A Smaaash Entertainment Inc. (the “Company,” “we,” or “our”), was organized as a blank check company organized under the laws of the State of Delaware on April 17, 2017. The Company was formed under the name I-AM Capital Acquisition Company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). On November 20, 2018, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. On January 2, 2019, the Company changed its name from Smaaash Entertainment Inc. to Simplicity Esports and Gaming Company.

 

Through our wholly owned subsidiary, Simplicity Esports, LLC, acquired on January 2, 2019, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including PUBG, Gears of War, Smite, Guns of Boom, and multiple EA Sports titles. Additionally, the Simplicity stream team encompasses a unique group of casters, influencers, and personalities, all of whom connect to Simplicity’s dedicated fan base. Simplicity also has begun to open and operate esports gaming centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.

 

Through our wholly owned subsidiary, PLAYlive Nation, Inc. (“PLAYlive”), acquired on July 29, 2019, the Company has a network of franchised Gaming Centers. As August 31, 2020, approximately 41 locations were considered to be operational, in various states including Arizona, California, Idaho, Florida, Maryland, Michigan, Mississippi, Montana, Oregon, South Carolina, Texas, Utah and Washington. As of August 31, 2020, a number of these locations were unable to resume regular operations as the result of restrictions imposed by municipalities related to COVID-19 (Note 2). PLAYlive offers a video gaming lounge concept to qualified franchisees. PLAYlive currently offers single-unit location franchises, as well as agreements to develop multiple locations. This PLAYlive model is being interlaced with the esports gaming centers mentioned above to create the ultimate gaming center.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies
3 Months Ended
Aug. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the condensed consolidated financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as filed with the SEC on August 31, 2020. The interim results for the three months ended August 31, 2020, are not necessarily indicative of the results to be expected for the year ending May 31, 2021 or for any future interim periods.

 

Emerging Growth Company

 

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

 

Basis of Consolidation

 

The condensed consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Simplicity Esports, LLC, PLAYlive Nation, Inc., and PLAYlive Nation Holdings, LLC, its 76% owned subsidiary Simplicity One Brasil Ltd, its 79% owned subsidiaries Simplicity Happy Valley, LLC and Simplicity Redmond, LLC, and its 51% owned subsidiary Simplicity El Paso, LLC.

 

All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and cash equivalents

 

The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed consolidated balance sheet.

 

Foreign Currencies 

 

Revenue and expenses are translated at average rates of exchange prevailing during the year.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on the Company’s consolidated financial statements.

 

The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from the three sources listed below.

 

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

 

Company-owned Store Sales

 

The Company-owned stores principally generate revenue from retail esports gaming centers. Revenues from Company-owned stores are recognized when the products are delivered, or the service is provided.

 

Franchise Royalties and Fees

 

Franchise royalties are based on six percent of franchise store sales after a minimum level of sales occur and are recognized as sales occur. Any royalty reductions, including waivers or those offered as part of a new store development incentive or as incentive for other behaviors, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate. Franchise royalties are billed on, a monthly basis.

 

The Company recognizes initial franchise license fee revenue when the Company has performed substantially all the services required in the franchise agreement. Fees received that do not meet these criteria are recorded as deferred revenues until earned. The pre-opening services provided to franchisees do not contain separate and distinct performance obligations from the franchise right; thus, the fees collected will be amortized on a straight-line basis beginning at the store opening date through the term of the franchise agreement, which is typically 10 years. Franchise license renewal fees, which generally occur every 10 years, are billed before the renewal date. Fees received for future license renewal periods are amortized over the life of the renewal period.

 

The Company offers various incentive programs for franchisees including royalty incentives, new store opening incentives (i.e. development incentives) and other support initiatives. Royalties and franchise fees sales are reduced to reflect any royalty incentives earned or granted under these programs that are in the form of discounts.

 

Commissary sales are comprised of gaming equipment and supplies sold to franchised stores and are recognized as revenue upon shipment or delivery of the related products to the franchisees. Payments are generally due within 30 days.

 

Fees for information services, including software maintenance fees, marketing fees and website maintenance, graphic and promotion fees are recognized as revenue as such services are provided.

 

Esports Revenue

 

Esports is a form of competition using video games. Most commonly, esports takes the form of organized, single player and multiplayer video game tournaments or leagues, particularly between professional players, individually or as teams. Revenues from Esports revenues are recognized when the competition is completed, and prize money is awarded. Revenues earned from team sponsorships, prize winnings, league sponsorships, and from the Company’s share of league revenues are included in esports revenue.

 

Deferred Revenues

 

Deferred revenues are classified as current or long-term based on when management estimates the revenues will be recognized.

 

The Company receives payments from franchisees in advance of all performance obligations having been met, including but not limited to franchise locations being opened. As certain conditions agreed to in these franchise agreements are performed, revenues are recognized.

 

Deferred costs include commissions paid to brokers related to the sale of specific new franchises which have not met revenue recognition criteria as of August 31, 2020. These costs are recognized in the same period as the initial franchise fee revenue is recognized.

 

Accounts Receivable

 

The Company estimates the allowance for doubtful accounts based on an analysis of specific customers (i.e. franchisees), taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. Accounts receivable are written off against the allowance when management determines it is probable the receivable is worthless. Customer account balances with invoices dated over 90 days old are considered delinquent and considered in the allowance assessment. The Company performs credit evaluations of its customers and, generally, requires no collateral. Management has assessed accounts receivable and an allowance for doubtful accounts of approximately $105,000 has been recorded.

 

Property and Equipment

 

Property and equipment and leasehold improvements are recorded at its historical cost. The cost of property and equipment is depreciated over the estimated useful lives, when placed in service (ranging from 3 -5 years), of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if they benefit future periods.

 

Intangible Assets and Impairment

 

Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. These costs are included in intangible assets on our condensed consolidated balance sheet and amortized on a straight-line basis when placed into service over their estimated useful lives of the costs, which is 3 to 5 years.

 

The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

 

Goodwill

 

Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. We have assessed goodwill and qualitative considerations indicated no impairment.

 

Franchise Locations

 

Through PLAYlive, the Company’s wholly owned subsidiary, the Company has entered into franchise agreements with third parties. As of August 31, 2020, 41 locations were considered to be operational, in various states including Arizona, California, Idaho, Florida, Maryland, Michigan, Mississippi, Montana, Oregon, South Carolina, Texas, Utah and Washington. As of August 31, 2020, a number of these locations were unable to resume regular operations as a result of the restrictions imposed by municipalities related to COVID-19. In addition, we have five additional franchise locations that are currently in the final stages of preparation for opening.

 

Stock-based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

 

Leases

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02-Leases (Topic 842), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company elected to adopt this update early as of January l, 2019 using the modified retrospective transition method and prior periods have not been restated. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $110,003 and operating lease liability of $107,678. Due to the simplistic nature of the Company’s leases, no retained earnings adjustment was required. See Note 6 for further details.

 

Basic Loss Per Share

 

The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Basic loss per share is calculated by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the Company’s net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. When the Company records a loss from operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share.

 

Income Taxes

 

The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform.

 

Recently Issued and Recently Adopted Accounting Pronouncements

 

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following is summary of recent accounting developments.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance is effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.

 

The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its financial statements.

 

Going Concern, Liquidity and Management’s Plan

 

The Company’s unaudited condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the unaudited condensed consolidated financial statements, the Company has an accumulated deficit of approximately $6.9 million, a working capital deficit of approximately $2.0 million as of August 31, 2020, and a net loss of approximately $0.7 million for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the unaudited financial statements are issued.

 

The Company has commenced operations and has begun to generate revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of private and/or public offerings. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.

 

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and have since reopened three corporate and 23 franchised Simplicity Gaming Centers as of October 15, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. However, we have recorded an allowance for doubtful accounts of approximately $105,000, as our collection efforts are ongoing. We have experienced an increase in our account receivables by approximately $32,000 and $14,000 during the quarters ended May 31, 2020 and August 31, 2020, respectively. Notwithstanding, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. For the months of July and August 2020, we have waived the minimum monthly royalty payment obligations for the months of July and August 2020 and are instead billing the franchisees a true-up of 6% of gross sales without a minimum.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

The measures taken to date will impact the Company’s business for the fiscal quarters ended May 31, 2020 and August 31, 2020 and will potentially continue to impact the Company’s business. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Property, Plant and Equipment
3 Months Ended
Aug. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

 

The following is a summary of property, plant, and equipment—at cost, less accumulated depreciation:

 

    August 31, 2020     May 31, 2020  
             
Leasehold improvements   $ 52,189     $ 52,189  
Property and equipment     356,314       243,314  
Total cost     408,503       295,503  
Less accumulated depreciation     (89,905 )     (62,770 )
Net property plant and equipment   $ 318,598     $ 232,713  

 

Depreciation expense for the three months ended August 31, 2020 and 2019 was $27,135 and $8,651, respectively.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets
3 Months Ended
Aug. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

NOTE 4 — INTANGIBLE ASSETS

 

The following table sets forth the intangible assets, including accumulated amortization as of August 31, 2020:

 

    August 31, 2020
    Remaining         Accumulated     Net Carrying  
    Useful Life   Cost     Amortization     Value  
Non-Competes   4 years   $ 1,023,118     $ 341,039     $ 682,079  
Trademarks   Indefinite     866,000       -       866,000  
Customer database   2 years     35,000       2,917       32,083  
Restrictive covenant   2 years     115,000       9,583       105,417  
Customer contracts   10 years     546,000       8,152       537,848  
Internet domain   2 years     3,000       1,667       1,333  
        $ 2,588,118     $ 363,358     $ 2,224,760  

 

The following tables set forth the intangible assets, including accumulated amortization as of May 31, 2020:

 

    May 31, 2020
    Remaining         Accumulated     Net Carrying  
    Useful Life   Cost     Amortization     Value  
Non-Competes   4.50 years   $ 1,023,118     $ 289,884     $ 733,234  
Trademarks   Indefinite     866,000       -       866,000  
Customer Contracts   10 years     546,000       5,443       540,557  
Internet domain   2.50 years     3,000       1,417       1,583  
        $ 2,438,118     $ 296,744     $ 2,141,374  

 

The following table sets forth the future amortization of the Company’s intangible assets as of August 31, 2020 for the fiscal years ending May 31:

 

    2021     2022     2023     2024     2025     Thereafter     Total  
Non-Competes   $ 153,468     $ 204,624     $ 204,624     $ 119,363     $ -     $ -     $ 682,079  
Customer contracts     53,785       53,785       53,785       53,785       53,785       268,923       537,848  
Restrictive covenant     43,125       57,500       4,792       -       -       -       105,417  
Customer database     13,125       17,500       1,458       -       -       -       32,083  
Internet domain     750       583       -       -       -       -       1,333  
Total   $ 264,253     $ 333,992     $ 264,659     $ 173,148     $ 53,785     $ 268,923     $ 1,358,760  

 

Amortization expense for the three months ended August 31, 2020 and 2019 was $66,614 and $51,406, respectively.

 

Goodwill

 

The Company’s goodwill carrying amounts relate to the acquisitions of Simplicity Esports LLC, PLAYlive Nation Inc. and Simplicity El Paso, LLC. The composition of the goodwill balance, is as follows:

 

    August 31, 2020     May 31, 2020  
             
Simplicity Esports, LLC   $ 4,456,250     $ 4,456,250  
Simplicity El Paso, LLC     25,000       -  
PLAYlive Nation Inc.     698,891       698,891  
Total Goodwill   $ 5,180,141     $ 5,155,141  
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Acquisitions
3 Months Ended
Aug. 31, 2020
Business Combinations [Abstract]  
Acquisitions

NOTE 5 — ACQUISITIONS

 

The Simplicity One Acquisition

 

On January 14, 2020 the Company acquired a 90% interest in Simplicity One Brasil Ltda, for approximately $2,000. This interest was reduced during the three months ended August 31, 2020 as more fully described in Note 6.

 

Simplicity El Paso, LLC

 

On June 26, 2020, the Company through its wholly owned subsidiary, Simplicity El Paso, LLC acquired a 51% controlling interest in an existing franchise in exchange for 150,000 shares of common stock at $1.10 per share. The total purchase price for the acquisition was $315,000 of which $150,000 was paid in cash by the 49% minority interest owner, an unrelated third party, and $165,000 in common stock by the Company. This has been accounted for by the Company using the acquisition method under business combination accounting. Under this method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. All fair value measurements of acquired assets and liabilities are non-recurring in nature and classified as level 3 on the fair value hierarchy.

 

The table below presents a provisional allocation of the gross $315,000 purchase price as of August 31, 2020

 

Merchandise   $ 27,000  
Furniture, Fixtures and Equipment     113,000  
Customer Database     35,000  
Goodwill     25,000  
Restrictive Covenant     115,000  
Total value of acquisition   $ 315,000  

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions
3 Months Ended
Aug. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 6 — RELATED PARTY TRANSACTIONS

 

Private Units

 

In addition, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private Unit for proceeds of $2,545,000 in the aggregate in the Private Placement. This purchase took place on a private placement basis simultaneously with the completion of the Initial Public Offering. This issuance was be made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

 

The Sponsor committed to purchase from the Company up to an additional 26,250 Private Units if the underwriters’ over-allotment option was exercised in full.

 

On September 13, 2017, 7,000 additional Private Units were purchased by the Sponsor at $10.00 per Private Unit upon the partial exercise of the over-allotment option.

 

Kaplan Promissory Note

 

On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s majority owned subsidiary (“Simplicity Brasil”).

 

As of May 31, 2020, advances under the terms of this note were $64,728. On various dates subsequent to May 31, 2020, Mr. Kaplan funded $25,272 pursuant to the Kaplan Promissory Note. With the contributions subsequent to May 31, 2020, the principal balances outstanding and due Mr. Kaplan amounted to $90,000. On June 22, 2020, Mr. Kaplan agreed to exchange the debt of the Kaplan Promissory Note with a principal balance of $90,000 in exchange for the Company assigning to Mr. Kaplan a 10% equity interest in Simplicity One Brasil, Ltda, a subsidiary of the Company.

 

Equity Sales

 

Effective June 1, 2020, the Company issued 23,809 shares of our restricted Common Stock., sold effective May 7, 2020 at a price of $1.09 per share, to William H. Herrmann, Jr. a member of our board of directors, for an aggregate purchase price of $25,000.

 

The Company maintains its cash balance at a financial services company that is owned by an officer of the Company.

 

The Company maintains a portion of its cash balance at a financial services company that is owned by an officer of the Company.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies
3 Months Ended
Aug. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 7 — COMMITMENTS AND CONTINGENCIES

 

Nasdaq Delisting

 

On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).

 

The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.

 

On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).

 

The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.

 

Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.

 

On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and warrants. The Company’s common stock and warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.

 

On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and warrants. As a result, the Company’s common stock and warrants were delisted from Nasdaq effective April 2, 2019.

 

The Company’s common stock and warrants are quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.

 

Registration Rights

 

Pursuant to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private Units (and constituent securities) at the closing of the Initial Public Offering, the Company is required to register certain securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to three demands that the Company register certain of its securities held by them for sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by the Company. The Company will bear the costs and expenses of filing any such registration statements.

 

Unit Purchase Option

 

The Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50 per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date. The Units issuable upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the warrants underlying the Units sold to the underwriters is $13.00 per share.

 

Operating Lease Right of Use Obligation

 

The Company adopted Topic 842 on January 1, 2019. The Company elected to adopt this standard using the optional modified retrospective transition method and recognized a cumulative-effect adjustment to the consolidated balance sheet on the date of adoption. Comparative periods have not been restated. With the adoption of Topic 842, the Company’s condensed consolidated balance sheet now contains the following line items: Operating lease right-of-use assets, Current portion of operating lease liabilities and Operating lease liabilities, net of current portion.

 

As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases, so we used our incremental borrowing rate as the discount rate. Our weighted average discount rate is 10.4% and the weighted average remaining lease terms are 41 months.

 

As of August 31, 2020, operating lease right-of-use assets and liabilities arising from operating leases was $441,986 and $441,985, respectively. During the year ended May 31, 2020, the Company recorded operating lease expense of approximately $56,000.

 

The following is a schedule showing the future minimum lease payments under operating leases by fiscal years and the present value of the minimum payments as of August 31, 2020.

 

2021   $ 126,395  
2022   $ 147,278  
2023   $ 151,832  
2024   $ 133,900  
2025   $ 90,017  
Total Operating Lease Obligations   $ 649,422  
Less: Amount representing interest   $ (207,436 )
Present Value of minimum lease payments   $ 441,986  

  

Employment Agreements, Board Compensation and Bonuses

 

On July 29, 2020, the Company entered into a new employment agreement (the “Kaplan 2020 Agreement”) with Mr. Kaplan. Such employment agreement replaced the Kaplan 2018 Agreement. As a result, the Kaplan 2018 Agreement was terminated and is of no further force or effect. Pursuant to the terms of the Kaplan 2020 Agreement, the Company agreed to pay Mr. Kaplan a monthly base salary of $5,000; provided, however, that the parties agreed that such base salary will be deferred and will accumulate until the Company has sufficient cash available to make such payments, to be reasonably determined by the Board of Directors and Mr. Kaplan, at which time all accrued and unpaid base salary will be paid. In addition, Mr. Kaplan will receive an equity grant of 15,000 shares of common stock per month, which shares will be fully vested upon grant. Mr. Kaplan will also be eligible to receive a quarterly bonus in the form of cash or equity shares and will be entitled to participate in the Company’s employee benefit plans. In addition, if, during the term of the Kaplan 2020 Agreement, the Company’s shares are approved for listing on a U.S. national securities exchange, the Company will pay Mr. Kaplan a $50,000 cash bonus, to be paid upon such listing begin effective.

 

The term of the Kaplan 2020 Agreement is for an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance written notice of its intention not to renew the Kaplan 2020 Agreement at the conclusion of the then applicable term. The term of the Kaplan 2020 Agreement may be terminated by the Company with or without cause or by Mr. Kaplan with or without good reason, as such terms are defined therein.

 

On July 29, 2020, the Board of Directors approved for Mr. Kaplan a $75,000 cash bonus and authorized the issuance of 250,000 shares of the Company’s common stock both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2020, the Company has accrued $75,000 related to Mr. Kaplans cash bonus. During the three months ended August 31, 2020, the 250,000 shares of common stock valued at $216,625 were issued.

 

On July 29, 2020, the Company entered into a new employment agreement (the “Franklin 2020 Agreement”) with Mr. Franklin. Such employment agreement replaced the Franklin 2018 Agreement. As a result, the Franklin 2018 Agreement was terminated and is of no further force or effect. Pursuant to the terms of the Franklin 2020 Agreement, the Company agreed to pay Mr. Franklin a monthly base salary of $12,500; provided, however, that the parties agreed that such base salary will be deferred and will accumulate until the Company has sufficient cash available to make such payments, to be reasonably determined by the Board of Directors and Mr. Franklin, at which time all accrued and unpaid base salary will be paid. In addition, Mr. Franklin will receive an equity grant of 6,250 shares of common stock per month, which shares will be fully vested upon grant. Mr. Franklin will also be eligible to receive a quarterly bonus in the form of cash or equity shares and will be entitled to participate in the Company’s employee benefit plans. In addition, if, during the term of the Franklin 2020 Agreement, the Company’s shares are approved for listing on a U.S. national securities exchange, the Company will pay Mr. Franklin a $50,000 cash bonus, to be paid upon such listing begin effective.

 

On July 29, 2020, the Board of Directors approved for Mr. Franklin a $75,000 cash bonus and authorized the issuance of 250,000 fully vested shares of the Company’s common stock both related to his performance during the fiscal year ended May 31, 2020. As of August 31, 2020, the Company has accrued $75,000 related to Mr. Franklins cash bonus and $216,625 related to the Common Shares to be issued to Mr. Franklin.

 

On July 29, 2020, the Board of Directors approved the issuance of 192,000 shares of common stock to an employee and the Directors of the Company for services provided during the fiscal year ended May 31, 2020.

 

Litigation

 

On August 5, 2020, a lawsuit styled Duncan Wood v. PLAYlive Nation, Inc. and Simplicity eSports and Gaming Company (Case No. 20-1043) was filed in the U.S. District Court for the District of Delaware. The complaint alleges unlawful failure to make timely and reasonable payment of wages, breach of contract, breach of the duty of good faith and fair dealing and unjust enrichment. The plaintiff seeks monetary damages for compensation alleged to be owed, treble damages, interest on all wage compensation, reasonable attorneys’ fees and other relief as the Court deems just and proper. Defendants’ responsive pleading is not yet due and has not been filed. The litigation is in its initial stages and the Company is unable to reasonably predict its potential outcome. The Company, however, believes that the lawsuit is without merit and intends to vigorously defend the claims and remains in discussion with the counter-party.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Debt
3 Months Ended
Aug. 31, 2020
Debt Disclosure [Abstract]  
Debt

NOTE 8 - DEBT

 

The table below presents outstanding debt instruments as of August 31, and May 31, 2020:

 

    AUGUST 31, 2020    

MAY 31,

2020

 
10% Fixed Convertible Promissory Note   $ -     $ 152,500  
Discount 10% Convertible Promissory Note     -       (25,180 )
June 18, 2020 self-amortization promissory note     555,000       -  
Discount June 18, 2020 self-amortization promissory note     (119,190 )     -  
August 7, 2020 self-amortization promissory note     333,333       -  
Discount August 7, 2020 self-amortization promissory note     (65,262 )     -  
Related Party Note     -       64,728  
Convertible Note Payable     900,000       1,000,000  
                 
Total   $ 1,603,881     $ 1,192,048  

 

10% Fixed Convertible Promissory Note

 

On April 29, 2020 (the “Effective Date”), the Company issued a 10% Fixed Convertible Promissory Note (the “Harbor Gates Note”), with a maturity date of October 29, 2020 (the “Maturity Date”), in the principal sum of $152,000 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant to the terms of the Harbor Gates Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”) and to pay “guaranteed” interest on the principal balance at an amount equivalent to 10% of the Principal Sum, to the extent such Principal Sum and “guaranteed” interest and any other interest, fees, liquidated damages and/or items due to Harbor Gates have not been repaid or converted into Company common stock in accordance with the terms of the Harbor Gates Note. The Harbor Gates Note carries an original issue discount (“OID”) of $2,500. Accordingly, on the Effective Date, Harbor Gates delivered $150,000 to the Company in exchange for the Harbor Gates Note.

 

In addition to the “guaranteed” interest, and upon the occurrence of an Event of Default (as hereinafter defined), additional interest would accrue from the date of the Event of Default at the rate equal to the lower of 20% per annum or the highest rate permitted by law.

 

The Company may prepay the Harbor Gates Note according to the following schedule:

 

Days Since
Effective Date
  Payment Amount
Under 30   115% of Principal Amount (as hereinafter defined) so paid
31-60   120% of Principal Amount so paid
61-90   125% of Principal Amount so paid
91-180   135% of Principal Amount so paid

 

135% of the remaining unpaid and unconverted Principal Amount, plus all accrued and unpaid interest will be due and payable on the Maturity Date. “Principal Amount” refers to the sum of (i) the original principal amount of the Harbor Gates Note (including the OID, prorated if the Harbor Gates Note has not been funded in full); (ii) all guaranteed and other accrued but unpaid interest under the Harbor Gates Note; (iii) any fees due under the Harbor Gates Notes; (iv) liquidated damages; and (v) any default payments owing under the Harbor Gates Note, in each case previously paid or added to the Principal Amount.

 

Pursuant to the terms of the Harbor Gates Note, the Company agreed to issue Harbor Gates shares of Company common stock in two tranches as follows:

 

  (i) 10,000 shares of common stock within three trading days of the Effective Date; and
  (ii) In the event the average of the three volume weighted average prices for the Company’s common stock during the three consecutive trading days immediately preceding the date which is the 180th day following the Effective Date is less than $1.00 per share, then Harbor Gates will be entitled, and the Company will issue to Harbor Gates additional shares of common stock as set forth in the Harbor Gates Note.

  

If an Event of Default (as defined in the Promissory Note) occurs, the outstanding Principal Amount of the Harbor Gates Note owing in respect thereof through the date of acceleration, shall become, at Harbor Gates’ election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means 35% of the outstanding Principal Amount of the Harbor Gates Note will be automatically added to the Principal Sum of the Harbor Gates Note and tack back to the Effective Date for purposes of Rule 144 promulgated under the 1934 Act. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of the Harbor Gates Note, the Harbor Gates Note will accrue additional interest, in addition to the Harbor Gates Note’s “guaranteed” interest, at a rate equal to the lesser of 20% per annum or the maximum rate permitted under applicable law.

 

If the Harbor Gates Note was not retired on or before the Maturity Date, then at any time and from time to time after the Maturity Date, and subject to the terms hereof and restrictions and limitations contained in the Harbor Gates Note, Harbor Gates had the right, at Harbor Gates’ sole option, to convert in whole or in part the outstanding and unpaid Principal Amount under the Harbor Gates Note into shares of the Company’s common stock at the Variable Conversion Price. The “Variable Conversion Price” will be equal to the lower of: (a) $1.00, or (b) 70% of the lowest volume weighted average price of the Company’s common stock during the 15 consecutive trading days prior to the date on Harbor Gates elects to convert all or part of the Harbor Gates Note. The Company intends to prepay the Harbor Gates Note in accordance with its terms so that no amount under the Harbor Gates Note is converted into shares of the Company’s common stock.

 

On July 2, 2020, the 10% Fixed Convertible Promissory Note was repaid in full. A cash payment of $201,300 including principal of $152,500, guaranteed interest of $15,200 and prepayment penalties of $33,600 was made to the lender. In connection with the repayment of the note the Company recorded a charge to interest expense in the amount of $73,980 comprised of $48,800 related to interest and prepayment penalties and $25,180 related to accelerated accretion of unamortized debt discount recorded in connection with the original issue discount and in connection with common shares issued to the lender.

 

June 18, 2020 Self-Amortization Promissory Note

 

On June 18, 2020 (the “Issue Date”), Simplicity Esports and Gaming Company, a Delaware corporation (the “Company”), entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Amortization Note”) with a maturity date of June 18, 2021 (the “Maturity Date”), in the principal sum of $550,000. Pursuant to the terms of the Amortization Note, the Company agreed to pay to $550,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Amortization Note carries an original issue discount (“OID”) of $55,000. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $495,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company issued 55,000 shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date   Payment Amount  
10/16/2020   $ 66,125.00  
11/16/2020   $ 66,125.00  
12/16/2020   $ 66,125.00  
01/18/2021   $ 66,125.00  
02/18/2021   $ 66,125.00  
03/18/2021   $ 66,125.00  
04/16/2021   $ 66,125.00  
05/18/2021   $ 66,125.00  
06/18/2021   $ 65,921.26  
Total:   $ 594,921.26  

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five (5) calendar days (provided, however, that this five (5) calendar day cure period shall not apply to any event of default under Sections 3.1, 3.2, and 3.19 of the Amortization Note), the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five (5) calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

The Company recorded a total debt discount in the amount of $149,500 in connection with the common shares issued to the lender an original issue discount associated with the note. The Company recognized interest expense of $30,310 related to amortization of the discount during the quarter ended August 31, 2020.

 

August 7, 2020 Self-Amortization Promissory Note

 

On August 7, 2020 (the “Issue Date”), the Company, entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities Fund, LLC, an accredited investor (the “Holder”), pursuant to which the Company issued a 12% self-amortization promissory note (the “Amortization Note”) with a maturity date of August 7, 2021 (the “Maturity Date”), in the principal sum of $333,333. Pursuant to the terms of the Amortization Note, the Company agreed to pay to $333,333 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Amortization Note carries an original issue discount (“OID”) of $33,333. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $300,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company agreed to issue 33,333 shares of the Company’s common stock to the Holder as additional consideration.

 

The Company may prepay the Amortization Note at any time prior to the date that an Event of Default (as defined in the Amortization Note) (each an “Event of Default”) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Amortization Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Amortization Note or SPA.

 

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date   Payment Amount  
12/07/2020   $ 40,075.75  
01/07/2021   $ 40,075.75  
02/08/2021   $ 40,075.75  
03/08/2021   $ 40,075.75  
04/07/2021   $ 40,075.75  
05/07/2021   $ 40,075.75  
06/07/2021   $ 40,075.75  
07/07/2021   $ 40,075.75  
08/07/2021   $ 39,952.34  
Total:   $ 360,558.34  

 

Upon the Holder’s provision of notice to the Company of the occurrence of any Event of Default, which has not been cured within five (5) calendar days (provided, however, that this five (5) calendar day cure period shall not apply to any event of default under Sections 3.1, 3.2, and 3.19 of the Amortization Note), the Amortization Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company shall have the right to pay the Default Amount in cash at any time, provided, however that the Holder may convert the Amortization Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% contained in the Amortization Note) at any time after the date that is five (5) calendar days after the Amortization Note becomes immediately due and payable as a result of an Event of Default until the Company has repaid the Amortization Note in cash. If the aforementioned event occurs, the conversion price will be equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company intends to repay the Amortization Note in accordance with its terms so that no amount under the Amortization Note is converted into shares of the Company’s common stock.

 

The Company recorded a total debt discount in the amount of $82,999 in connection with the common shares issued to the lender an original issue discount associated with the note. The Company recognized interest expense of $23,477 related to amortization of the discount during the quarter ended August 31, 2020.

 

Related Party - Kaplan Promissory Note

 

On May 12, 2020 (the “Issue Date”), the Company issued a promissory note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s majority owned subsidiary (“Simplicity Brasil”).

 

Pursuant to the terms of the Kaplan Note, the Company agreed to pay to Mr. Kaplan the lesser of (i) the principal sum of $90,000 (the “Maximum Commitment”), or (ii) the aggregate principal amount of all direct advances of the proceeds of the Kaplan Note (each, an “Advance”), together with any interest thereon, and any and all other amounts which may be due and payable thereunder from time to time.

 

Subject to the terms of the Kaplan Note, Mr. Kaplan agreed to make one direct Advance to and for the benefit of the Company on the Issue Date in the amount of $45,000, and one additional Advance to and for the benefit of the Company at such time as the Company may request during the two month period following the Issue Date. The total of the aggregate principal balance of all Advances (collectively referred to herein as the “Principal Amount”) outstanding at any time shall not exceed the Maximum Commitment. Advances made by Mr. Kaplan to the Company under the Kaplan Note which have been repaid may not be borrowed again.

 

Prior to the Maturity Date or an Event of Default (as hereinafter defined), the Principal Amount outstanding under the Kaplan Note will bear interest at a rate of 3% (the “Interest Rate”). From and after the Maturity Date or upon and during the continuance of an Event of Default, interest will accrue on the unpaid Principal Amount during any such period at an annual rate (the “Default Rate”) equal to 10% plus the Interest Rate; provided, however, that in no event will the Default Rate exceed the maximum rate permitted by law.

 

The Company may prepay the Kaplan Note, in whole or in part, without a prepayment penalty, at any time provided that an Event of Default has not then occurred.

 

As of May 31, 2020, the balance of the Kaplan noted was $64,728. During the three months ended August 31, 2020 Mr. Kaplan advanced an additional $25,272 under the terms of the note. During the quarter ended August 31, 2020, Mr. Kaplan exchanged the note together with accrued interest in exchange for his acquisition of a 10% interest in the Company’s wholly owned subsidiary Simplicity Brasil.

  

Convertible Note Payable

 

On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim. Pursuant to the terms of the Exchange Agreement, Maxim agreed to surrender and exchange the Note. In exchange, the Company issued to Maxim a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”). As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.

 

The original amount of the promissory note was $1,800,000, the total amount of the two exchange notes is $1,500,000, and the difference of $300,000 was recorded as debt forgiveness income.

 

Prior to conversion, the Series A-1 Note bore interest at 2.67% per annum, was payable quarterly and had a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company was permitted to pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company could only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) had been met (unless waived by Maxim in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company had provided proper notice pursuant to the terms of the note and (iii) the Company had delivered to Maxims’ account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.

 

The Series A-1 Note was convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price was automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. Maxim was permitted to convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion Maxim, the Company had the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.

 

Additionally, the Series A-1 Note would have automatically converted into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then existed, and (ii) solely if such automatic conversion date was also the Maturity Date, each of the Equity Conditions had been met (unless waived in writing by Maxim) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.

 

At any time prior to the Maturity Date, the Company also had the right to elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company could only effect an Optional Redemption if each of the Equity Conditions had been met (unless waived in writing by Maxim) on each trading day during the period commencing on the date when the notice of the Optional Redemption was delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount was actually made in full.

  

Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of Maxim.

 

Pursuant to the terms of the Series A-1 Note, the Company was not permitted to convert any portion of the Series A-1 Note if doing so results in Maxim beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from Maxim to the Company, that percentage could increase to 9.99%. However, if there was an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation would be held in abeyance for the benefit of Maxim until such time or times, if ever, as its right thereto would not result in Maxim exceeding the beneficial ownership limitation, at which time or times Maxim would be issued such shares to the same extent as if there had been no such limitation.

 

The Series A-1 Note contained restrictive covenants which, among other things, restricted the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.

 

The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020, and an initial conversion price of $1.93, which will be automatically adjusted to the lower of (i) the conversion price then in effect, and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.

 

As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock

 

On June 4, 2020, $100,000 in principal was converted into 85,905 shares of common stock in accordance with the terms of the Maxim Note.

 

On June 18, 2020, the Company and Maxim entered into that certain first amendment to the Maxim Note (the “Amendment”), pursuant to which the Parties agreed to the following: (i) Maxim’s resale of the Company’s common stock (the “Common Stock”) underling the Maxim Note shall be limited to 10% of the daily volume of the Common Stock on each respective trading day, (ii) the maturity date of the Maxim Note was extended to December 31, 2020, (iii) the principal amount of the Maxim Note was increased by $100,000, and (iv) the reference to “$1.93” in Section 4(b) of the Maxim Note was replaced with “$1.15”.

 

During the three months ended August 31, 2020 the company recorded interest expense of $18,044, total principal and accrued interest on Maxim note amounted to $900,000 and $55,869 as of August 31, 2020.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity
3 Months Ended
Aug. 31, 2020
Equity [Abstract]  
Stockholders' Equity

NOTE 9 -STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of August 31, 2020, there were no shares of preferred stock issued or outstanding.

 

Common Stock

 

On August 17, 2020, the Company amended its certificate of incorporation to increase the total number of authorized shares of the Company’s common stock from 20,000,000 to 36,000,000. Holders of the shares of the Company’s common stock are entitled to one vote for each share. At, August 31, 2020 and May 31, 2020, there were 9,929,190 and 7,988,975 shares of common stock issued and outstanding respectively.

 

Excluded from the Company’s outstanding shares as of August 31, 2020 are 600,000 shares issued to Triton Funds, LP., the Company’s transfer agent erroneously transferred 725,000 shares of common stock under the Equity Line to the custodial account of Triton, resulting in an over-issuance of 600,000 shares to Triton. The Company notified Triton of this error and that the Company terminated the Common Stock Purchase Agreement with Triton. As of October 15, 2020, the Company is currently awaiting the return of the shares issued in error from Triton to the treasury so such shares will no longer be issued and outstanding. In order to effectuate the return of the shares, the Company’s transfer agent is requiring a medallion guaranteed stock power from Triton. Triton is cooperating and is currently seeking a medallion guaranteed stock power to facilitate the cancellation of such shares.

 

Effective June 1, 2020, the Company issued 23,809 shares of our restricted common stock, sold effective May 7, 2020 at a price of $1.09 per share, to William H. Herrmann, Jr. a member of our board of directors, for an aggregate purchase price of $25,000.

 

Effective June 4, 2020, the Company issued 85,905 shares of common stock at $1.16 per share in connection with the conversion of $100,000 in principal of the Convertible Note Payable, Note 8.

 

Effective June 18, 2020, pursuant to the terms of that certain Securities Purchase Agreement between the Company and an accredited investor, pursuant to which the Company issued a 12% self-amortization promissory note (Note 8) in the principal amount of $550,000, the Company issued 55,000 shares of common stock at $1.13 per share, to such accredited investor as additional consideration for the purchase of such note.

 

Effective June 30, 2020, the company issued 78,890 shares of common stock at $0.97 per share to various employees of the Company as compensation.

 

Effective July 1, 2020 we issued 25,000 shares of common stock at $1.84 per share in satisfaction of an outstanding balance owed to a vendor.

 

Effective July 1,2020 pursuant to the terms of that certain 10% Fixed Convertible Promissory Note dated April 29, 2020 in the principal amount of $152,500 issued by the Company in favor of Harbor Gates Capital, LLC, the Company issued 10,000 shares of our restricted common stock, issued at $0.99 per share, to Harbor Gates Capital, LLC as additional consideration for the purchase of such note.

  

On July 1, 2020, the Company acquired the assets of one of its top performing franchisee owned esports gaming centers on Fort Bliss U.S. Military base in El Paso, TX. In connection with the acquisition the Company issued 150,000 restricted shares at $1.65 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 320,000 and 45,000 shares of common stock to Mr. Kaplan in connection with previously accrued compensation and current period compensation. Common shares were valued as follows; 250,000 at $0.865 per share, 50,000 at $1.01 per share, 10,000 at $1.84 per share, 20,000 at $0.93 per share 20,000 at $1.38 per share and 15,000 at $0.82 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 271,000 and 16,500 shares of common stock to Mr. Franklin in connection with previously accrued compensation and current period compensation. Common shares were valued as follows; 250,000 at $0.865 per share, 15,000 at $1.01 per share 3,000 at $1.84 per share, 3,000 at $0.93 per share, 9,000 at $1.38 per share and 7,500 at $0.82 per share.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 190,000 shares of common stock valued at $0.87 per share and 6,000 shares of common stock valued at $1.01 per share to the Directors and an employee of the Company in connection with previously accrued compensation and current period compensation.

 

Effective August 1, 2020, the Company entered into a marketing agreement whereby the Company issued 27,778 shares of common stock at $1.10 per share.

 

Effective August 10, 2020, pursuant to the terms of that certain Securities Purchase Agreement between the Company and an accredited investor pursuant to which we issued a 12% self-amortization promissory note (Note 8) in the principal amount of $333,333, the Company issued 33,333 shares of common stock at $0.91 per share.

  

Stock - Based Compensation

 

Effective June 30, 2020, the company issued 78,890 shares of common stock at $0.97 per share to various employees of the Company as compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 320,000 and 45,000 shares of common stock to Mr. Kaplan in connection with previously accrued compensation and current period compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 271,000 and 16,500 shares of common stock to Mr. Franklin in connection with previously accrued compensation and current period compensation.

 

Effective July 31, 2020 and August 31, 2020, the Company issued 190,000 and 6,000 shares of common stock to the Directors and an employee of the Company in connection with previously accrued compensation and current period compensation.

 

Share based compensation for the three months ended August 31, 2020 and August 31, 2019 was $150,095 and $45,000, respectively.

 

Warrants

 

The Company did not issue any warrants during the quarter ended August 31, 2020.

 

A summary of the status of the Company’s outstanding stock warrants as of August 31, 2020 is as follows:

 

    Number of
Shares
    Average
Exercise
Price
    Expiration
Date
Outstanding – May 31, 2020     6,424,000     $ 10.38      
                     
Granted – August 31, 2020     -              
Outstanding – August 31, 2020     6,424.000     $ 10.38     May, 2024
Warrants exercisable – August 31, 2020     6,424,000              

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Segment and Related Information
3 Months Ended
Aug. 31, 2020
Segment Reporting [Abstract]  
Segment and Related Information

NOTE 10 — SEGMENT AND RELATED INFORMATION

 

Historically, the Company had one operating segment. However, with the acquisition of PLAYlive and the opening of Company-owned retail stores, the Company’s operations are now managed through three operating segments: Franchise royalties and license fees, Company-owned stores and Esports revenue. These three operating segments and corporate are presented below as its reportable segments.

 

Summarized financial information concerning our reportable segments for the three months ended August 31 is shown in the following tables:

 

August 31, 2020: 

 

    Revenues     Net
Loss
    Depreciation
and
Amortization
    Capital
Expenditures
    Goodwill     Total
Assets
 
                                     
Franchise royalties and fees   $ 87,000     $ (3,000 )   $ -     $                   -     $ 699,000     $ 1,721,000  
Company-owned stores     77,000       (38,000 )     38,000       -       25,000       1,329,000  
Esports revenue     37,000       (105,000 )     55,000       -       4,456,000       5,665,000  
Corporate     -       (509,000 )     -       -       -       414,000  
Total   $ 201,000     $ (655,000 )   $ 93,000     $ -     $ 5,180,000     $ 9,129,000  

 

August 31, 2019:

 

    Revenues     Net
Loss
    Depreciation
and
Amortization
  Capital
Expenditures
    Goodwill     Total
Assets
 
                                   
Franchise royalties and fees   $ 47,000     $ 500     $ 400     $                     -     $ 2,226,000     $ 2,263,000  
Company-owned stores     4,000       (24,000 )     7,200       97,000       -       440,000  
Esports revenue     23,000       (62,500 )     -       -       4,456,000       5,947,000  
Corporate     -       (197,000 )     1,000       -       -       1,000,000  
Total   $ 74,000     $ 283,000     $ 8,600     $ 97,000     $ 6,682,000     $ 9,650,000  
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Subsequent Events
3 Months Ended
Aug. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

NOTE 11 — SUBSEQUENT EVENTS

 

The Company has applied to list its common stock and warrants on the Nasdaq Capital Market. In order to obtain Nasdaq Capital Market listing approval, the Company obtained approval of its Board of Directors and stockholders of (i) a reverse stock split of the outstanding shares of the Company’s common stock in the range from 1-for-2 to 1-for-10, which ratio was to be selected by the Company’s Board of Directors, with any fractional shares being rounded up to the next higher whole shares (the “Reverse Split”), and (ii) an increase in the Company’s authorized shares of common stock from 20,000,000 to 36,000,000 shares of common stock. The increase in authorized shares became effective on August 17, 2020.

 

On September 28, 2020, the Company’s Board of Directors approved the Reverse Split in a ratio of 1-for-6 and on September 29, 2020, the Company filed an amended and restated certificate of amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), implementing the Reverse Split in a ratio of 1-for-6, effective October 13, 2020. On October 12, 2020, the Company filed a certificate of amendment to the Certificate of Incorporation changing the effective date of the Reverse Split, in a ratio of 1-for-6, to November 4, 2020. The Company expects that the Reverse Split in a ratio of 1-for-6 will be effective on or about November 4, 2020; provided, however, that in no event will the Reverse Split become effective until it has been processed by the Financial Industry Regulatory Authority (FINRA). The Reverse Split is intended to allow the Company to meet the minimum share price requirement of the Nasdaq Capital Market. There is no assurance that the Company’s listing application will be approved by the Nasdaq Capital Market.

 

On April 10, 2020, the Company filed a registration statement on Form S-1 with the SEC relating to the offer by the Company of units of the Company, each of which consists of one share of common stock and one warrant to purchase one share of our common stock. No sales of units will be made prior to effectiveness of the registration statement on Form S-1. On September 28, 2020, the Company filed Pre-Effective Amendment No. 1 to the registration statement on Form S-1 with the SEC. There can be no assurance that the registration statement on Form S-1, as amended, will be declared effective by the SEC.

 

On September 30, 2019, the SEC declared effective the Company’s registration statement on Form S-1 (the “September 2019 Registration Statement”) related to (i) the issuance by the Company of up to 6,449,000 shares of common stock, which consist of (a) 5,200,000 shares of common stock that may be issued upon the exercise of 5,200,000 warrants (the “Public Warrants”) originally sold as part of units in the Company’s initial public offering (the “IPO”) and which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, (b) 261,500 shares of common stock that may be issued upon the exercise of 261,500 warrants (the “Private Placement Warrants”) underlying units originally issued in a private placement that closed simultaneously with the consummation of the IPO (the “Private Placement Units”), which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, and (c) 987,500 shares of our common stock, which represent shares of common stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”, and together with the Public Warrants and Private Placement Warrants, the “Warrants”) originally sold as part of units in a private placement that commenced on March 27, 2019 (the “2019 Private Placement”) and which entitle the holder to purchase common stock at an exercise price of $4.00 per share of common stock, and (ii) the resale from time to time of 6,465,617 shares of common stock and 261,500 Private Placement Warrants by the selling securityholders named in the prospectus or their permitted transferees. On October 13, 2020, the SEC declared effective the Company’s post-effective amendment, filed on October 5, 2020 (the “Post-Effective Amendment”), to the September 2019 Registration Statement. The Post-Effective Amendment updates the financial statements and other information contained in the September 2019 Registration Statement. No additional securities were registered pursuant to the Post-Effective Amendment. 

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Aug. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the condensed consolidated financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as filed with the SEC on August 31, 2020. The interim results for the three months ended August 31, 2020, are not necessarily indicative of the results to be expected for the year ending May 31, 2021 or for any future interim periods.

Emerging Growth Company

Emerging Growth Company

 

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

Basis of Consolidation

Basis of Consolidation

 

The condensed consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Simplicity Esports, LLC, PLAYlive Nation, Inc., and PLAYlive Nation Holdings, LLC, its 76% owned subsidiary Simplicity One Brasil Ltd, its 79% owned subsidiaries Simplicity Happy Valley, LLC and Simplicity Redmond, LLC, and its 51% owned subsidiary Simplicity El Paso, LLC.

 

All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents

 

The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents.

Concentration of Credit Risk

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Financial Instruments

Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed consolidated balance sheet.

Foreign Currencies

Foreign Currencies 

 

Revenue and expenses are translated at average rates of exchange prevailing during the year.

Use of Estimates

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

 

As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on the Company’s consolidated financial statements.

  

The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from the three sources listed below.

 

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

Company-owned Stores Sales

Company-owned Store Sales

 

The Company-owned stores principally generate revenue from retail esports gaming centers. Revenues from Company-owned stores are recognized when the products are delivered, or the service is provided.

Franchise Royalties and Fees

Franchise Royalties and Fees

 

Franchise royalties are based on six percent of franchise store sales after a minimum level of sales occur and are recognized as sales occur. Any royalty reductions, including waivers or those offered as part of a new store development incentive or as incentive for other behaviors, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate. Franchise royalties are billed on, a monthly basis.

 

The Company recognizes initial franchise license fee revenue when the Company has performed substantially all the services required in the franchise agreement. Fees received that do not meet these criteria are recorded as deferred revenues until earned. The pre-opening services provided to franchisees do not contain separate and distinct performance obligations from the franchise right; thus, the fees collected will be amortized on a straight-line basis beginning at the store opening date through the term of the franchise agreement, which is typically 10 years. Franchise license renewal fees, which generally occur every 10 years, are billed before the renewal date. Fees received for future license renewal periods are amortized over the life of the renewal period.

 

The Company offers various incentive programs for franchisees including royalty incentives, new store opening incentives (i.e. development incentives) and other support initiatives. Royalties and franchise fees sales are reduced to reflect any royalty incentives earned or granted under these programs that are in the form of discounts.

 

Commissary sales are comprised of gaming equipment and supplies sold to franchised stores and are recognized as revenue upon shipment or delivery of the related products to the franchisees. Payments are generally due within 30 days.

 

Fees for information services, including software maintenance fees, marketing fees and website maintenance, graphic and promotion fees are recognized as revenue as such services are provided.

Esports Revenue

Esports Revenue

 

Esports is a form of competition using video games. Most commonly, esports takes the form of organized, single player and multiplayer video game tournaments or leagues, particularly between professional players, individually or as teams. Revenues from Esports revenues are recognized when the competition is completed, and prize money is awarded. Revenues earned from team sponsorships, prize winnings, league sponsorships, and from the Company’s share of league revenues are included in esports revenue.

Deferred Revenues

Deferred Revenues

 

Deferred revenues are classified as current or long-term based on when management estimates the revenues will be recognized.

 

The Company receives payments from franchisees in advance of all performance obligations having been met, including but not limited to franchise locations being opened. As certain conditions agreed to in these franchise agreements are performed, revenues are recognized.

  

Deferred costs include commissions paid to brokers related to the sale of specific new franchises which have not met revenue recognition criteria as of August 31, 2020. These costs are recognized in the same period as the initial franchise fee revenue is recognized.

Accounts Receivable

Accounts Receivable

 

The Company estimates the allowance for doubtful accounts based on an analysis of specific customers (i.e. franchisees), taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. Accounts receivable are written off against the allowance when management determines it is probable the receivable is worthless. Customer account balances with invoices dated over 90 days old are considered delinquent and considered in the allowance assessment. The Company performs credit evaluations of its customers and, generally, requires no collateral. Management has assessed accounts receivable and an allowance for doubtful accounts of approximately $105,000 has been recorded.

Property and Equipment

Property and Equipment

 

Property and equipment and leasehold improvements are recorded at its historical cost. The cost of property and equipment is depreciated over the estimated useful lives, when placed in service (ranging from 3 -5 years), of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if they benefit future periods.

Intangible Assets and Impairment

Intangible Assets and Impairment

 

Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. These costs are included in intangible assets on our condensed consolidated balance sheet and amortized on a straight-line basis when placed into service over their estimated useful lives of the costs, which is 3 to 5 years.

 

The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Goodwill

Goodwill

 

Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. We have assessed goodwill and qualitative considerations indicated no impairment.

Franchise Locations

Franchise Locations

 

Through PLAYlive, the Company’s wholly owned subsidiary, the Company has entered into franchise agreements with third parties. As of August 31, 2020, 41 locations were considered to be operational, in various states including Arizona, California, Idaho, Florida, Maryland, Michigan, Mississippi, Montana, Oregon, South Carolina, Texas, Utah and Washington. As of August 31, 2020, a number of these locations were unable to resume regular operations as a result of the restrictions imposed by municipalities related to COVID-19. In addition, we have five additional franchise locations that are currently in the final stages of preparation for opening.

Stock-based Compensation

Stock-based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

Leases

Leases

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02-Leases (Topic 842), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company elected to adopt this update early as of January l, 2019 using the modified retrospective transition method and prior periods have not been restated. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $110,003 and operating lease liability of $107,678. Due to the simplistic nature of the Company’s leases, no retained earnings adjustment was required. See Note 6 for further details.

Basic Loss Per Share

Basic Loss Per Share

 

The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Basic loss per share is calculated by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the Company’s net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. When the Company records a loss from operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share.

Income Taxes

Income Taxes

 

The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform.

Recently Issued and Recently Adopted Accounting Pronouncements

Recently Issued and Recently Adopted Accounting Pronouncements

 

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following is summary of recent accounting developments.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance is effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.

 

The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its financial statements.

Going Concern, Liquidity and Management's Plan

Going Concern, Liquidity and Management’s Plan

 

The Company’s unaudited condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the unaudited condensed consolidated financial statements, the Company has an accumulated deficit of approximately $6.9 million, a working capital deficit of approximately $2.0 million as of August 31, 2020, and a net loss of approximately $0.7 million for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the unaudited financial statements are issued.

 

The Company has commenced operations and has begun to generate revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of private and/or public offerings. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.

 

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, all of our corporate and franchised Simplicity Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Gaming Centers as of May 1, 2020 and have since reopened three corporate and 23 franchised Simplicity Gaming Centers as of October 15, 2020. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. However, we have recorded an allowance for doubtful accounts of approximately $105,000, as our collection efforts are ongoing. We have experienced an increase in our account receivables by approximately $32,000 and $14,000 during the quarters ended May 31, 2020 and August 31, 2020, respectively. Notwithstanding, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. For the months of July and August 2020, we have waived the minimum monthly royalty payment obligations for the months of July and August 2020 and are instead billing the franchisees a true-up of 6% of gross sales without a minimum.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

The measures taken to date will impact the Company’s business for the fiscal quarters ended May 31, 2020 and August 31, 2020 and will potentially continue to impact the Company’s business. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Property, Plant and Equipment (Tables)
3 Months Ended
Aug. 31, 2020
Property, Plant and Equipment [Abstract]  
Schedule of Property, Plant and Equipment

The following is a summary of property, plant, and equipment—at cost, less accumulated depreciation:

 

    August 31, 2020     May 31, 2020  
             
Leasehold improvements   $ 52,189     $ 52,189  
Property and equipment     356,314       243,314  
Total cost     408,503       295,503  
Less accumulated depreciation     (89,905 )     (62,770 )
Net property plant and equipment   $ 318,598     $ 232,713  
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets (Tables)
3 Months Ended
Aug. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

The following table sets forth the intangible assets, including accumulated amortization as of August 31, 2020:

 

    August 31, 2020
    Remaining         Accumulated     Net Carrying  
    Useful Life   Cost     Amortization     Value  
Non-Competes   4 years   $ 1,023,118     $ 341,039     $ 682,079  
Trademarks   Indefinite     866,000       -       866,000  
Customer database   2 years     35,000       2,917       32,083  
Restrictive covenant   2 years     115,000       9,583       105,417  
Customer contracts   10 years     546,000       8,152       537,848  
Internet domain   2 years     3,000       1,667       1,333  
        $ 2,588,118     $ 363,358     $ 2,224,760  

 

The following tables set forth the intangible assets, including accumulated amortization as of May 31, 2020:

 

    May 31, 2020
    Remaining         Accumulated     Net Carrying  
    Useful Life   Cost     Amortization     Value  
Non-Competes   4.50 years   $ 1,023,118     $ 289,884     $ 733,234  
Trademarks   Indefinite     866,000       -       866,000  
Customer Contracts   10 years     546,000       5,443       540,557  
Internet domain   2.50 years     3,000       1,417       1,583  
        $ 2,438,118     $ 296,744     $ 2,141,374  
Schedule of Future Amortization of Intangible Assets

The following table sets forth the future amortization of the Company’s intangible assets as of August 31, 2020 for the fiscal years ending May 31:

 

    2021     2022     2023     2024     2025     Thereafter     Total  
Non-Competes   $ 153,468     $ 204,624     $ 204,624     $ 119,363     $ -     $ -     $ 682,079  
Customer contracts     53,785       53,785       53,785       53,785       53,785       268,923       537,848  
Restrictive covenant     43,125       57,500       4,792       -       -       -       105,417  
Customer database     13,125       17,500       1,458       -       -       -       32,083  
Internet domain     750       583       -       -       -       -       1,333  
Total   $ 264,253     $ 333,992     $ 264,659     $ 173,148     $ 53,785     $ 268,923     $ 1,358,760  
Schedule of Goodwill

The composition of the goodwill balance, is as follows:

 

    August 31, 2020     May 31, 2020  
             
Simplicity Esports, LLC   $ 4,456,250     $ 4,456,250  
Simplicity El Paso, LLC     25,000       -  
PLAYlive Nation Inc.     698,891       698,891  
Total Goodwill   $ 5,180,141     $ 5,155,141
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Acquisitions (Tables)
3 Months Ended
Aug. 31, 2020
Business Combinations [Abstract]  
Schedule of Estimated Fair Value of Assets Acquired and Liabilities

The table below presents a provisional allocation of the gross $315,000 purchase price as of August 31, 2020

 

Merchandise   $ 27,000  
Furniture, Fixtures and Equipment     113,000  
Customer Database     35,000  
Goodwill     25,000  
Restrictive Covenant     115,000  
Total value of acquisition   $ 315,000  
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies (Tables)
3 Months Ended
Aug. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Schedule Showing the Future Minimum Lease Payments

The following is a schedule showing the future minimum lease payments under operating leases by fiscal years and the present value of the minimum payments as of August 31, 2020.

 

2021   $ 126,395  
2022   $ 147,278  
2023   $ 151,832  
2024   $ 133,900  
2025   $ 90,017  
Total Operating Lease Obligations   $ 649,422  
Less: Amount representing interest   $ (207,436 )
Present Value of minimum lease payments   $ 441,986  
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Debt (Tables)
3 Months Ended
Aug. 31, 2020
Schedule of Outstanding Debt Instrument

The table below presents outstanding debt instruments as of August 31, and May 31, 2020:

 

    AUGUST 31, 2020    

MAY 31,

2020

 
10% Fixed Convertible Promissory Note   $ -     $ 152,500  
Discount 10% Convertible Promissory Note     -       (25,180 )
June 18, 2020 self-amortization promissory note     555,000       -  
Discount June 18, 2020 self-amortization promissory note     (119,190 )     -  
August 7, 2020 self-amortization promissory note     333,333       -  
Discount August 7, 2020 self-amortization promissory note     (65,262 )     -  
Related Party Note     -       64,728  
Convertible Note Payable     900,000       1,000,000  
                 
Total   $ 1,603,881     $ 1,192,048  

Schedule of Prepayment of Debt Note

The Company may prepay the Harbor Gates Note according to the following schedule:

 

Days Since
Effective Date
  Payment Amount
Under 30   115% of Principal Amount (as hereinafter defined) so paid
31-60   120% of Principal Amount so paid
61-90   125% of Principal Amount so paid
91-180   135% of Principal Amount so paid

Schedule of Amortization Payments
June 18, 2020 Self-Amortization Note [Member]  
Schedule of Amortization Payments

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date   Payment Amount  
10/16/2020   $ 66,125.00  
11/16/2020   $ 66,125.00  
12/16/2020   $ 66,125.00  
01/18/2021   $ 66,125.00  
02/18/2021   $ 66,125.00  
03/18/2021   $ 66,125.00  
04/16/2021   $ 66,125.00  
05/18/2021   $ 66,125.00  
06/18/2021   $ 65,921.26  
Total:   $ 594,921.26  

August 7, 2020 Self-Amortization Note [Member]  
Schedule of Amortization Payments

The Company is required to make amortization payments to the Holder according to the following schedule:

 

Payment Date   Payment Amount  
12/07/2020   $ 40,075.75  
01/07/2021   $ 40,075.75  
02/08/2021   $ 40,075.75  
03/08/2021   $ 40,075.75  
04/07/2021   $ 40,075.75  
05/07/2021   $ 40,075.75  
06/07/2021   $ 40,075.75  
07/07/2021   $ 40,075.75  
08/07/2021   $ 39,952.34  
Total:   $ 360,558.34  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity (Tables)
3 Months Ended
Aug. 31, 2020
Equity [Abstract]  
Schedule of Outstanding Stock Warrants

A summary of the status of the Company’s outstanding stock warrants as of August 31, 2020 is as follows:

 

    Number of
Shares
    Average
Exercise
Price
    Expiration
Date
Outstanding – May 31, 2020     6,424,000     $ 10.38      
                     
Granted – August 31, 2020     -              
Outstanding – August 31, 2020     6,424.000     $ 10.38     May, 2024
Warrants exercisable – August 31, 2020     6,424,000              

XML 37 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Segment and Related Information (Tables)
3 Months Ended
Aug. 31, 2020
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information

Summarized financial information concerning our reportable segments for the three months ended August 31 is shown in the following tables:

 

August 31, 2020: 

 

    Revenues     Net
Loss
    Depreciation
and
Amortization
    Capital
Expenditures
    Goodwill     Total
Assets
 
                                     
Franchise royalties and fees   $ 87,000     $ (3,000 )   $ -     $                   -     $ 699,000     $ 1,721,000  
Company-owned stores     77,000       (38,000 )     38,000       -       25,000       1,329,000  
Esports revenue     37,000       (105,000 )     55,000       -       4,456,000       5,665,000  
Corporate     -       (509,000 )     -       -       -       414,000  
Total   $ 201,000     $ (655,000 )   $ 93,000     $ -     $ 5,180,000     $ 9,129,000  

 

August 31, 2019:

 

    Revenues     Net
Loss
    Depreciation
and
Amortization
  Capital
Expenditures
    Goodwill     Total
Assets
 
                                   
Franchise royalties and fees   $ 47,000     $ 500     $ 400     $                     -     $ 2,226,000     $ 2,263,000  
Company-owned stores     4,000       (24,000 )     7,200       97,000       -       440,000  
Esports revenue     23,000       (62,500 )     -       -       4,456,000       5,947,000  
Corporate     -       (197,000 )     1,000       -       -       1,000,000  
Total   $ 74,000     $ 283,000     $ 8,600     $ 97,000     $ 6,682,000     $ 9,650,000  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended
Dec. 22, 2017
Aug. 31, 2020
May 31, 2020
Aug. 31, 2019
Dec. 31, 2019
Jan. 01, 2019
Federal depository insurance coverage   $ 250,000        
Allowance for doubtful accounts   105,000     $ 105,000  
Operating lease right-of-use asset   441,986 $ 490,984      
Operating lease liability   $ 136,630 151,867      
Statutory tax rate 35.00% 21.00%        
Increase in accounts reeivable   $ 14,000 32,000      
Accumulated deficit   (6,850,258) $ (6,195,044)      
Working capital deficit   (2,000,000)        
Net loss   $ (671,101)   $ 283,000    
Accounting Standards Update 2016-02 [Member]            
Operating lease right-of-use asset           $ 110,003
Accounting Standards Update 2016-02 [Member] | Operating Lease Current Liabilities [Member]            
Operating lease liability           $ 107,678
Minimum [Member]            
Property, plant and equipment, useful life   3 years        
Finite lived intangible asset, useful life   3 years        
Maximum [Member]            
Property, plant and equipment, useful life   5 years        
Finite lived intangible asset, useful life   5 years        
Minimum monthly royalty payment obligations percentage   6.00%        
Simplicity One Brasil Ltd [Member]            
Equity method investment, ownership percentage   76.00%        
Simplicity Happy Valley, LLC and Simplicity Redmond, LLC [Member]            
Equity method investment, ownership percentage   79.00%        
Simplicity El Paso, LLC [Member]            
Equity method investment, ownership percentage   51.00%        
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.20.2
Property, Plant and Equipment (Details Narrative) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 27,135 $ 8,651
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.20.2
Property, Plant and Equipment - Schedule of Property, Plant and Equipment (Details) - USD ($)
Aug. 31, 2020
May 31, 2020
Property, Plant and Equipment [Line Items]    
Total cost $ 408,503 $ 295,503
Less accumulated depreciation (89,905) (62,770)
Net property plant and equipment 318,598 232,733
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Total cost 52,189 52,189
Property and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Total cost $ 356,314 $ 243,314
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets (Details Narrative) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization expense $ 66,614 $ 51,406
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)
3 Months Ended 12 Months Ended
Aug. 31, 2020
May 31, 2020
Finite-Lived Intangible Assets [Line Items]    
Finite lived intangible assets, Cost $ 2,588,118 $ 2,438,118
Accumulated Amortization 363,358 296,744
Intangible assets, Net Carrying Value $ 2,224,760 $ 2,141,374
Non-Competes [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life 4 years 4 years 6 months
Finite lived intangible assets, Cost $ 1,023,118 $ 1,023,118
Accumulated Amortization 341,039 289,884
Intangible assets, Net Carrying Value $ 682,079 $ 733,234
Trademarks [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life, description Indefinite Indefinite
Finite lived intangible assets, Cost $ 866,000 $ 866,000
Accumulated Amortization
Intangible assets, Net Carrying Value $ 866,000 $ 866,000
Customer Database [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life 2 years  
Finite lived intangible assets, Cost $ 35,000  
Accumulated Amortization 2,917  
Intangible assets, Net Carrying Value $ 32,083  
Restrictive Covenant [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life 2 years  
Finite lived intangible assets, Cost $ 115,000  
Accumulated Amortization 9,583  
Intangible assets, Net Carrying Value $ 105,417  
Customer Contracts [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life 10 years 10 years
Finite lived intangible assets, Cost $ 546,000 $ 546,000
Accumulated Amortization 8,152 5,443
Intangible assets, Net Carrying Value $ 537,848 $ 540,557
Internet Domain [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, useful life 2 years 2 years 6 months
Finite lived intangible assets, Cost $ 3,000 $ 3,000
Accumulated Amortization 1,667 1,417
Intangible assets, Net Carrying Value $ 1,333 $ 1,583
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets - Schedule of Future Amortization of Intangible Assets (Details)
Aug. 31, 2020
USD ($)
2021 $ 264,253
2022 333,992
2023 264,659
2024 173,148
2025 53,785
Thereafter 268,923
Total 1,358,760
Non-Competes [Member]  
2021 153,468
2022 204,624
2023 204,624
2024 119,363
2025
Thereafter
Total 682,079
Customer Contracts [Member]  
2021 53,785
2022 53,785
2023 53,785
2024 53,785
2025 53,785
Thereafter 268,923
Total 537,848
Restrictive Covenant [Member]  
2021 43,125
2022 57,500
2023 4,792
2024
2025
Thereafter
Total 105,417
Customer Database [Member]  
2021 13,125
2022 17,500
2023 1,458
2024
2025
Thereafter
Total 32,083
Internet Domain [Member]  
2021 750
2022 583
2023
2024
2025
Thereafter
Total $ 1,333
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.20.2
Intangible Assets - Schedule of Goodwill (Details) - USD ($)
Aug. 31, 2020
May 31, 2020
Aug. 31, 2019
Goodwill $ 5,180,141 $ 5,155,141 $ 6,682,000
The Simplicity Esports, LLC [Member]      
Goodwill 4,456,250 4,456,250  
Simplicity El Paso, LLC [Member]      
Goodwill 25,000  
PLAYLive Nation, Inc [Member]      
Goodwill $ 698,891 $ 698,891  
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.20.2
Acquisitions (Details Narrative) - USD ($)
3 Months Ended
Jun. 26, 2020
Jan. 14, 2020
Aug. 31, 2020
Jul. 01, 2020
Jun. 04, 2020
Percentage interest acquired 49.00%        
Payment on acquisition $ 150,000        
Share issued price per share       $ 1.84 $ 1.16
Purchase price 315,000        
Common stock issued during the period     $ 25,000    
Unrelated Third Party [Member]          
Common stock issued during the period $ 165,000        
Simplicity One Brasil Ltd [Member]          
Percentage interest acquired   90.00%      
Payment on acquisition   $ 2,000      
Simplicity El Paso, LLC [Member]          
Percentage interest acquired 51.00%        
Shares issued franchise acquisition 150,000        
Share issued price per share $ 1.10        
Purchase price     $ 315,000    
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.20.2
Acquisitions - Schedule of Estimated Fair Value of Assets Acquired and Liabilities (Details) - USD ($)
Aug. 31, 2020
May 31, 2020
Aug. 31, 2019
Goodwill $ 5,180,141 $ 5,155,141 $ 6,682,000
Simplicity El Paso, LLC [Member]      
Merchandise 27,000    
Furniture, Fixtures and Equipment 113,000    
Customer Database 35,000    
Goodwill 25,000  
Restrictive Covenant 115,000    
Total value of acquisition $ 315,000    
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions (Details Narrative) - USD ($)
3 Months Ended
Jul. 01, 2020
Jun. 02, 2020
Sep. 30, 2019
Sep. 13, 2017
Aug. 31, 2020
Oct. 13, 2020
Jun. 22, 2020
May 31, 2020
May 12, 2020
May 07, 2020
Number of shares purchased     6,465,617              
Number of shares issued restricted shares 150,000                  
William H. Herrmann [Member]                    
Number of shares issued restricted shares   23,809                
William H. Herrmann [Member] | Restricted Stock [Member]                    
Sale of stock, price per share                   $ 1.09
Number of shares issued restricted shares   23,809                
Number of shares issued restricted shares, value   $ 25,000                
Kaplan Promissory Note [Member]                    
Debt instrument, face amount                 $ 45,000  
Kaplan Promissory Note [Member] | Jed Kaplan [Member]                    
Debt instrument, face amount         $ 25,272 $ 25,272 $ 90,000 $ 64,728 $ 90,000  
Equity method investment, ownership percentage         10.00%   10.00%   5.00%  
Debt principal amount           $ 90,000        
I-AM Capital Partners LLC (the "Sponsor") [Member]                    
Number of shares agreed to be purchased under commitment         26,250          
Private Placement [Member]                    
Number of shares purchased         254,500          
Sale of stock, price per share         $ 10.00          
Proceeds from sale of private units         $ 2,545,000          
Private Placement [Member] | I-AM Capital Partners LLC (the "Sponsor") [Member]                    
Number of shares purchased       7,000            
Sale of stock, price per share       $ 10.00            
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Aug. 31, 2020
Jul. 31, 2020
Jul. 29, 2020
Sep. 30, 2019
Aug. 31, 2020
May 31, 2020
Other Commitments [Line Items]            
Number of shares issued under purchase option       6,465,617    
Weighted average discount rate 10.40%       10.40%  
Weighted average remaining lease term 41 months       41 months  
Operating lease right-of-use assets $ 441,986       $ 441,986 $ 490,984
Operating lease expense           $ 56,000
Number of common stock shares issued         250,000  
Accrued interest 216,625       $ 216,625  
Operating Lease Liabilities [Member]            
Other Commitments [Line Items]            
Operating lease liabilities $ 441,986       $ 441,986  
Underwriter [Member]            
Other Commitments [Line Items]            
Sale of stock, price per share $ 13.00       $ 13.00  
Jed Kaplan [Member]            
Other Commitments [Line Items]            
Cash bonus     $ 75,000      
Number of common stock shares issued 45,000 320,000        
Accrued interest $ 75,000       $ 75,000  
Jed Kaplan [Member] | Kaplan 2020 Agreement [Member]            
Other Commitments [Line Items]            
Monthly base salary     $ 5,000      
Number of shares of common stock fully vested upon grant     15,000      
Cash bonus     $ 50,000      
Initial term     1 year      
Board of Directors [Member]            
Other Commitments [Line Items]            
Number of common stock shares issued           250,000
Mr. Franklin [Member]            
Other Commitments [Line Items]            
Number of shares of common stock fully vested upon grant     250,000      
Cash bonus $ 216,625   $ 75,000   216,625  
Number of common stock shares issued 16,500 271,000        
Accrued interest $ 75,000       75,000  
Mr. Franklin [Member] | Franklin 2020 Agreement [Member]            
Other Commitments [Line Items]            
Monthly base salary     $ 12,500      
Number of shares of common stock fully vested upon grant     6,250      
Cash bonus     $ 50,000      
Employee and Directors [Member]            
Other Commitments [Line Items]            
Number of common stock shares issued for services     192,000      
Initial Public Offering [Member]            
Other Commitments [Line Items]            
Market value of shares held $ 15,000,000       15,000,000  
Initial Public Offering [Member] | Underwriters [Member]            
Other Commitments [Line Items]            
Aggregate exercise price of unit sold to underwriters         $ 100  
Number of shares issued under purchase option         250,000  
Options exercisable, per unit 11.50       11.50  
Over-Allotment Option [Member] | Underwriters [Member]            
Other Commitments [Line Items]            
Aggregate exercise price of unit sold to underwriters         $ 2,990,000  
Number of shares issued under purchase option         260,000  
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies - Schedule Showing the Future Minimum Lease Payments (Details) - Operating Lease Liabilities [Member]
Aug. 31, 2020
USD ($)
2021 $ 126,395
2022 147,278
2023 151,832
2024 133,900
2025 90,017
Total Operating Lease Obligations 649,422
Less: Amount representing interest (207,436)
Present Value of minimum lease payments $ 441,986
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.20.2
Debt (Details Narrative) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 10, 2020
Aug. 07, 2020
Jul. 31, 2020
Jul. 02, 2020
Jul. 01, 2020
Jun. 18, 2020
Jun. 04, 2020
Apr. 29, 2020
Dec. 31, 2018
Dec. 31, 2018
Dec. 20, 2018
Aug. 31, 2020
Aug. 31, 2019
Oct. 13, 2020
Jun. 22, 2020
May 31, 2020
May 12, 2020
Number of common stock issued           25,000   85,905         250,000          
Interest expenses                         $ 154,128 $ 6,675        
Principal amount of convertible securities               $ 100,000         100,000          
Jed Kaplan [Member]                                    
Number of common stock issued 45,000     320,000                            
Securities Purchase Agreement [Member]                                    
Debt instrument, default interest rate   12.00%                                
Principal amount of debt instrument   $ 333,333                                
Number of common stock issued   33,333                                
Series A-1 Exchange Convertible Note [Member]                                    
Number of conversion of shares                     193,648              
Series A-1 Exchange Convertible Note [Member] | Accredited Investor [Member]                                    
Debt instrument, default interest rate             12.00%                      
Number of common stock issued             55,000                      
FirstFire Global Oppurtunities Fund, LLC [Member] | Securities Purchase Agreement [Member] | Accredited Investor [Member]                                    
Debt instrument, default interest rate     12.00%                              
Debt maturity date     Aug. 07, 2021                              
Principal amount of debt instrument     $ 333,333                              
Repayment of debt     333,333                              
Original issue discount     $ 33,333                              
Number of common stock issued     33,333                              
FirstFire Global Oppurtunities Fund, LLC [Member] | Securities Purchase Agreement [Member] | Accredited Investor [Member] | Paid the Purchase Price In Exchange Of Amortization of Notes [Member]                                    
Repayment of debt     $ 300,000                              
Securities Exchange Agreement [Member] | Series A-1 Exchange Convertible Note [Member]                                    
Principal amount of convertible securities                         1,500,000          
Debt forgiveness income                         $ 300,000          
10% Fixed Convertible Promissory Note [Member]                                    
Debt instrument, default interest rate         10.00%                          
Principal amount of debt instrument         $ 152,500                          
Repayment of debt         201,300                          
Interest repaid         15,200                          
Prepaid penalties         33,600                          
Debt interest expenses         73,980                          
Debt principal         48,800                          
Interest and prepayment penalties         $ 25,180                          
10% Fixed Convertible Promissory Note [Member] | Harbor Gates Capital, LLC [Member]                                    
Debt instrument, default interest rate                 10.00%                  
Debt maturity date                 Oct. 29, 2020                  
Principal amount of debt instrument                 $ 152,000                  
Repayment of debt                 152,500                  
Original issue discount                 $ 2,500                  
Remaining unpaid principal amount percentage                 135.00%                  
Number of common stock issued           10,000                        
10% Fixed Convertible Promissory Note [Member] | Harbor Gates Capital, LLC [Member] | Two Tranches [Member]                                    
Debt description                 10,000 shares of common stock within three trading days of the Effective Date; and In the event the average of the three volume weighted average prices for the Company's common stock during the three consecutive trading days immediately preceding the date which is the 180th day following the Effective Date is less than $1.00 per share, then Harbor Gates will be entitled, and the Company will issue to Harbor Gates additional shares of common stock as set forth in the Harbor Gates Note.                  
Number of common stock issued                 10,000                  
10% Fixed Convertible Promissory Note [Member] | Harbor Gates Capital, LLC [Member] | Guaranteed [Member]                                    
Debt instrument, default interest rate                 20.00%                  
10% Fixed Convertible Promissory Note [Member] | Harbor Gates Capital, LLC [Member] | Mandatory Default Amount [Member]                                    
Debt instrument, default interest rate 35.00%                       35.00%          
Harbor Gates Note [Member]                                    
Variable Conversion price of common stock description                         The "Variable Conversion Price" will be equal to the lower of: (a) $1.00, or (b) 70% of the lowest volume weighted average price of the Company's common stock during the 15 consecutive trading days prior to the date on Harbor Gates elects to convert all or part of the Harbor Gates Note.          
Self-Amortization Note [Member] | Delaware Corporation [Member] | Securities Purchase Agreement [Member]                                    
Original issue discount     $ 82,999       $ 149,500                      
Interest expenses                         $ 30,310          
Self-Amortization Note [Member] | Delaware Corporation [Member] | Securities Purchase Agreement [Member] | Accredited Investor [Member]                                    
Debt instrument, default interest rate             12.00%                      
Debt maturity date             Jun. 18, 2021                      
Principal amount of debt instrument             $ 550,000                      
Repayment of debt             550,000                      
Original issue discount             $ 55,000                      
Debt description             The Holder paid the purchase price of $495,000 in exchange for the Amortization Note. In addition, pursuant to the terms of the SPA, the Company agreed to issue 55,000 shares of the Company's common stock to the Holder as additional consideration.                      
Number of common stock issued             55,000                      
Self-Amortization Note [Member] | Delaware Corporation [Member] | Securities Purchase Agreement [Member] | Holders [Member]                                    
Debt instrument, default interest rate     125.00%       125.00%                      
Equity method investment, ownership percentage     4.99%       4.99%                      
Self-Amortization Note [Member] | Delaware Corporation [Member] | Securities Purchase Agreement [Member] | Holders [Member] | Minimum [Member]                                    
Debt instrument, default interest rate     15.00%       15.00%                      
Self-Amortization Note [Member] | Delaware Corporation [Member] | Securities Purchase Agreement [Member] | Lenders [Member]                                    
Interest expenses                         23,477          
Kaplan Promissory Note [Member]                                    
Principal amount of debt instrument                                   $ 45,000
Kaplan Promissory Note [Member] | Jed Kaplan [Member]                                    
Debt instrument, default interest rate                                   3.00%
Principal amount of debt instrument $ 25,272                       $ 25,272   $ 25,272 $ 90,000 $ 64,728 $ 90,000
Equity method investment, ownership percentage 10.00%                       10.00%     10.00%   5.00%
Debt instrument, effective interest percentage                                   10.00%
Series A 1 Exchange Convertible Note [Member]                                    
Number of conversion of shares                   193,648                
Series A 1 Exchange Convertible Note [Member] | Securities Exchange Agreement [Member] | Series A-1 Exchange Convertible Note [Member]                                    
Debt instrument, default interest rate                       2.67%            
Principal amount of convertible securities                       $ 500,000            
Description of payment terms                       The Company was permitted to pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company could only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note ("Equity Conditions") had been met (unless waived by Maxim in writing) during the 20 trading days immediately prior to the interest payment date ("Interest Notice Period"), (ii) the Company had provided proper notice pursuant to the terms of the note and (iii) the Company had delivered to Maxims' account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.            
Conversion price                       $ 1.93            
Description of restrictive conversion terms                       The Company was not permitted to convert any portion of the Series A-1 Note if doing so results in Maxim beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days' prior written notice from Maxim to the Company, that percentage could increase to 9.99%.            
Series A 2 Exchange Convertible Note [Member] | Securities Exchange Agreement [Member] | Series A-1 Exchange Convertible Note [Member]                                    
Principal amount of convertible securities                       $ 1,000,000            
Description of conversion terms                       Automatically adjusted to the lower of (i) the conversion price then in effect, and (ii) the greater of the arithmetic average of the VWAP of the Company's common stock in the five trading days prior to the notice of conversion and $0.50.            
Promissory Note [Member] | Securities Exchange Agreement [Member] | Series A-1 Exchange Convertible Note [Member]                                    
Principal amount of debt instrument $ 1,800,000                       $ 1,800,000          
Maxim Note [Member]                                    
Debt instrument, default interest rate             10.00%                      
Debt description             The Parties agreed to the following: (i) Maxim's resale of the Company's common stock (the "Common Stock") underling the Maxim Note shall be limited to 10% of the daily volume of the Common Stock on each respective trading day, (ii) the maturity date of the Maxim Note was extended to December 31, 2020, (iii) the principal amount of the Maxim Note was increased by $100,000, and (iv) the reference to "$1.93" in Section 4(b) of the Maxim Note was replaced with "$1.15".                      
Debt interest expenses                         18,044          
Debt principal                         900,000          
Interest and prepayment penalties                         $ 55,869          
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Outstanding Debt Instrument (Details) - USD ($)
Aug. 31, 2020
May 31, 2020
Total $ 1,603,881 $ 1,192,048
10% Fixed Convertible Promissory Note [Member]    
Total 152,500
Discount 10% Convertible Promissory Note [Member]    
Total (25,180)
June 18, 2020 Self-Amortization Note [Member]    
Total 555,000
Discount June 18, 2020 Self-Amortization Note [Member]    
Total (119,190)
August 7, 2020 Self-Amortization Note [Member]    
Total 333,333
Discount August 7, 2020 Self-Amortization Note [Member]    
Total (65,262)
Related Party Note [Member]    
Total 64,728
Convertible Note Payable [Member]    
Total $ 900,000 $ 1,000,000
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Prepayment of Debt Note (Details)
3 Months Ended
Aug. 31, 2020
Under 30 [Member]  
Payment Amount 115% of Principal Amount (as hereinafter defined) so paid
Debt interest rate 115.00%
31-60 [Member]  
Payment Amount 120% of Principal Amount so paid
Debt interest rate 120.00%
61-90 [Member]  
Payment Amount 125% of Principal Amount so paid
Debt interest rate 125.00%
91-180 [Member]  
Payment Amount 135% of Principal Amount so paid
Debt interest rate 135.00%
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Amortization Payments (Details)
Aug. 31, 2020
USD ($)
June 18, 2020 Self-Amortization Note [Member] | Holders [Member]  
Total $ 594,921
June 18, 2020 Self-Amortization Note [Member] | 10/16/2020 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 11/16/2020 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 12/16/2020 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 01/18/2021 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 02/18/2021 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 03/18/2021 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 04/16/2021 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 05/18/2021 [Member]  
Total 66,125
June 18, 2020 Self-Amortization Note [Member] | 06/18/2021 [Member]  
Total 65,921
August 7, 2020 Self-Amortization Note [Member] | Holders [Member]  
Total 360,558
August 7, 2020 Self-Amortization Note [Member] | 12/07/2020 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 01/07/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 02/08/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 03/08/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 04/07/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 05/07/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 06/07/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 07/07/2021 [Member]  
Total 40,075
August 7, 2020 Self-Amortization Note [Member] | 08/07/2021 [Member]  
Total $ 39,952
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity (Details Narrative) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 10, 2020
Aug. 01, 2020
Jul. 31, 2020
Jul. 01, 2020
Jun. 30, 2020
Jun. 18, 2020
Jun. 04, 2020
Jun. 02, 2020
Aug. 31, 2020
Aug. 31, 2019
Aug. 17, 2020
Aug. 16, 2020
Jul. 02, 2020
May 31, 2020
May 07, 2020
Apr. 29, 2020
Class of Stock [Line Items]                                  
Preferred stock, authorized 1,000,000                 1,000,000         1,000,000    
Preferred stock, par value $ 0.0001                 $ 0.0001         $ 0.0001    
Preferred stock, issued                            
Preferred stock, outstanding                            
Common stock, authorized 36,000,000                 36,000,000   36,000,000 20,000,000   36,000,000    
Common stock holders rights                   One vote for each share.              
Common stock, issued 9,329,190                 9,329,190         7,988,975    
Common stock, outstanding 9,329,190                 9,329,190         7,988,975    
Number of common stock shares issued         25,000     85,905   250,000              
Number of shares of common stock restricted         150,000                        
Share price         $ 1.84     $ 1.16                  
Proceeds from issuance of common stock               $ 100,000                  
Number of common stock shares issued stock based compensation                   250,000              
Stock-based compensation                   $ 150,095 $ 45,000            
10% Fixed Convertible Promissory Note [Member]                                  
Class of Stock [Line Items]                                  
Debt instrument, default interest rate                           10.00%      
Debt instrument, face amount                           $ 152,500      
Marketing Agreement [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued     27,778                            
Share price     $ 1.10                            
Securities Purchase Agreement [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued   33,333                              
Share price   $ 0.91                              
Debt instrument, default interest rate   12.00%                              
Debt instrument, face amount   $ 333,333                              
William H. Herrmann [Member]                                  
Class of Stock [Line Items]                                  
Number of shares of common stock restricted                 23,809                
Share price                               $ 1.09  
Proceeds from issuance of common stock                 $ 25,000                
Accredited Investor [Member] | Series A-1 Exchange Convertible Note [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued             55,000                    
Share price             $ 1.13                    
Proceeds from issuance of common stock             $ 550,000                    
Debt instrument, default interest rate             12.00%                    
Employees [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued           78,890                      
Share price           $ 0.97                      
Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 45,000     320,000                          
Number of common stock shares issued stock based compensation 45,000     320,000                          
Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 16,500     271,000                          
Number of common stock shares issued stock based compensation 16,500     271,000                          
Directors and Employee [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 6,000     190,000                          
Share price $ 1.01     $ 0.87           $ 1.01              
Number of common stock shares issued stock based compensation 6,000     190,000                          
Various Employees [Member]                                  
Class of Stock [Line Items]                                  
Share price           $ 0.97                      
Number of common stock shares issued stock based compensation           78,890                      
Harbor Gates Capital, LLC [Member] | 10% Fixed Convertible Promissory Note [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued         10,000                        
Share price                                 $ 0.99
Debt instrument, default interest rate                                 10.00%
Debt instrument, face amount                                 $ 152,000
Common Stock [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued                   23,809              
Number of common stock shares issued stock based compensation                   929,390              
Common Stock [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 250,000     250,000                          
Share price $ 0.865     $ 0.865           $ 0.865              
Common Stock [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 250,000     250,000                          
Share price $ 0.865     $ 0.865           $ 0.865              
Common Stock [Member] | Triton Funds LP [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued                   600,000              
Common Stock One [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 50,000     50,000                          
Share price $ 1.01     $ 1.01           $ 1.01              
Common Stock One [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 15,000     15,000                          
Share price $ 1.01     $ 1.01           $ 1.01              
Common Stock One [Member] | Triton Funds LP [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued                   725,000              
Common Stock Two [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 10,000     10,000                          
Share price $ 1.84     $ 1.84           $ 1.84              
Common Stock Two [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 3,000     3,000                          
Share price $ 1.84     $ 1.84           $ 1.84              
Common Stock Two [Member] | Triton Funds LP [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued                   600,000              
Common Stock Three [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 20,000     20,000                          
Share price $ 0.93     $ 0.93           $ 0.93              
Common Stock Three [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 3,000     3,000                          
Share price $ 0.93     $ 0.93           0.93              
Common Stock Four [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 20,000     20,000                          
Share price $ 1.38     $ 1.38           1.38              
Common Stock Four [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 9,000     9,000                          
Share price $ 1.38     $ 1.38           1.38              
Common Stock Five [Member] | Jed Kaplan [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 15,000     15,000                          
Share price $ 0.82     $ 0.82           0.82              
Common Stock Five [Member] | Mr. Franklin [Member]                                  
Class of Stock [Line Items]                                  
Number of common stock shares issued 7,500     7,500                          
Share price $ 0.82     $ 0.82           $ 0.82              
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity - Schedule of Outstanding Stock Warrants (Details) - Warrant [Member]
3 Months Ended
Aug. 31, 2020
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Number of shares stock warrants outstanding, Beginning balance 6,424,000
Number of shares stock warrants, Granted
Number of shares stock warrants outstanding, Ending balance 6,424.000
Warrants exercisable, Ending 6,424,000
Average exercise price stock warrants, Beginning balance | $ / shares $ 10.38
Average exercise price stock warrants, Granted | $ / shares
Average exercise price stock warrants, Ending balance | $ / shares $ 10.38
Stock warrants granted shares, Expiration Date May 2024
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.20.2
Segment and Related Information (Details Narrative)
3 Months Ended
Aug. 31, 2020
Integer
Segment Reporting [Abstract]  
Number of operating segments 3
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.20.2
Segment and Related Information - Schedule of Segment Reporting Information (Details) - USD ($)
3 Months Ended
Aug. 31, 2020
Aug. 31, 2019
May 31, 2020
Revenues $ 200,601 $ 74,000  
Net Loss (671,101) 283,000  
Depreciation and Amortization 93,000 8,600  
Capital Expenditures 97,000  
Goodwill 5,180,141 6,682,000 $ 5,155,141
Total Assets 9,128,837 9,650,000 $ 8,591,774
Franchise Royalties and Fees [Member]      
Revenues 87,000 47,000  
Net Loss (3,000) 500  
Depreciation and Amortization 400  
Capital Expenditures  
Goodwill 699,000 2,226,000  
Total Assets 1,721,000 2,263,000  
Company Owned Stores [Member]      
Revenues 77,000    
Net Loss (38,000)    
Depreciation and Amortization 38,000    
Capital Expenditures    
Goodwill 25,000    
Total Assets 1,329,000    
Esports Revenue [Member]      
Revenues 37,000 23,000  
Net Loss (105,000) (62,500)  
Depreciation and Amortization 55,000  
Capital Expenditures  
Goodwill 4,456,000 4,456,000  
Total Assets 5,665,000 5,947,000  
Corporates [Member]      
Revenues    
Net Loss (509,000)    
Depreciation and Amortization    
Capital Expenditures    
Goodwill    
Total Assets $ 414,000    
Company Owned Stores [Member]      
Revenues   4,000  
Net Loss   (24,000)  
Depreciation and Amortization   7,200  
Capital Expenditures   97,000  
Goodwill    
Total Assets   440,000  
Corporate [Member]      
Revenues    
Net Loss   (197,000)  
Depreciation and Amortization   1,000  
Capital Expenditures    
Goodwill    
Total Assets   $ 1,000,000  
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.20.2
Subsequent Events (Details Narrative) - $ / shares
3 Months Ended
Jul. 01, 2020
Jun. 04, 2020
Sep. 30, 2019
Aug. 31, 2020
Aug. 17, 2020
Aug. 16, 2020
May 31, 2020
Reverse stock split       A reverse stock split of the outstanding shares of the Company's common stock in the range from 1-for-2 to 1-for-10      
Common stock, authorized       36,000,000 36,000,000 20,000,000 36,000,000
Number of common stock shares issued 25,000 85,905   250,000      
Resale of common stock     6,465,617        
Common stock description     The Company's registration statement on Form S-1 (the "September 2019 Registration Statement") related to (i) the issuance by the Company of up to 6,449,000 shares of common stock, which consist of (a) 5,200,000 shares of common stock that may be issued upon the exercise of 5,200,000 warrants (the "Public Warrants") originally sold as part of units in the Company's initial public offering (the "IPO") and which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, (b) 261,500 shares of common stock that may be issued upon the exercise of 261,500 warrants (the "Private Placement Warrants") underlying units originally issued in a private placement that closed simultaneously with the consummation of the IPO (the "Private Placement Units"), which entitle the holder to purchase common stock at an exercise price of $11.50 per share of common stock, and (c) 987,500 shares of our common stock, which represent shares of common stock that may be issued upon the exercise of 987,500 warrants (the "2019 Warrants", and together with the Public Warrants and Private Placement Warrants, the "Warrants") originally sold as part of units in a private placement that commenced on March 27, 2019 (the "2019 Private Placement") and which entitle the holder to purchase common stock at an exercise price of $4.00 per share of common stock, and (ii) the resale from time to time of 6,465,617 shares of common stock and 261,500 Private Placement Warrants by the selling securityholders named in the prospectus or their permitted transferees.        
Initial Public Offering [Member]              
Shared issued upon exercise     5,200,000        
Number of warrants sold     5,200,000        
Common stock exercise price     $ 11.50        
Private Placement [Member]              
Shared issued upon exercise     261,500        
Number of warrants sold     261,500        
Common stock exercise price     $ 11.50        
Resale of common stock       254,500      
2019 Private Placement [Member]              
Shared issued upon exercise     987,500        
Number of warrants sold     987,500        
Common stock exercise price     $ 4.00        
Private Placement Warrants [Member]              
Number of warrants sold     261,500        
Maximum [Member]              
Number of common stock shares issued     6,449,000        
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