I-AM Capital Acquisition Company

Sep 27, 2022

06:03a 09/19 09/27/2022 | 06:11am EDT Message : For the fiscal year ended May 31, 2022 ☐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 (Exact name of registrant as specified in its charter) Delaware Boca Raton, FL (Zip Code) Title of each class None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No☒ 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☒ 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☒ 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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Non-accelerated filer☒ 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. ☐ Smaller reporting company ☒ Emerging growth company ☒ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒ As of November 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the shares of common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price for a share of common stock on November 30, 2021 as reported on the OTCQB market tier of $7.00, was approximately $8,848,448. As of September 26, 2022, there were 3,158,161shares of common stock, par value $0.0001, of the registrant issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE 48 50 57 57 58 59 60 81 83 84 85 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements. Specifically, forward-looking statements may include statements relating to: ● ● ● other statements preceded by, followed by or that include the words "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions. These forward-looking statements are based on information available as of the date hereof and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include: ● ● ● ● ● ● ● ii Business Unless the context otherwise requires, "we," "us," or "the Company" refers to Simplicity Esports and Gaming Company and its consolidated subsidiaries. "Simplicity Esports LLC" means our wholly owned subsidiary, Simplicity Esports, LLC, a Florida limited liability company, and its consolidated subsidiaries. "Simplicity One" means our 76% owned subsidiary, Simplicity One Brasil Ltda, a Brazilian limited liability company, and its consolidated subsidiaries. "Smaaash Private" means Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries. Unless otherwise noted, the share and per share information herein reflects a reverse stock split of the outstanding common stock of the Company at a 1-for-8 ratio, which was effected on November 20, 2020. Industry Overview Esports is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter, and multiplayer online battle arena games. Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions on the Sony PlayStation®, Microsoft Xbox® and WII Nintendo® systems. Although official competitions have long been a part of video game culture, participation and spectatorship of such events have seen a global surge in popularity over the last few years with the rapid growth of online streaming. The advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums, and by online viewers, which regularly exceed 1,000,000 viewers for major tournaments. According to the Sports Business Journal, the 2022 League of Legends® World Championships had peak concurrent viewership of more than 73 million online. Much like how there is a worldwide gaming market for the sports industry, there has now developed a worldwide gaming market for the esports industry. The impact has been so significant that many video game developers are now building features into their games designed to facilitate competition. 1 Business Overview We are a global esports organization, that is capitalizing on the growth in esports through two business units: Simplicity Esports, LLC ("Simplicity Esports LLC") and PLAYlive Nation, Inc. ("PLAYlive"). During the fiscal year ended May 31, 2022, we also had a third business unit: Simplicity One Brasil Ltda ("Simplicity One"). During the first quarter of the fiscal year ending May 31, 2023, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments. Our Esports Teams We own and manage multiple professional esports teams. Revenue is generated from prize winnings, corporate sponsorships, advertising, league subsidy payments and potential league revenue sharing payments from the publishers of video games. Through our wholly owned subsidiary, Simplicity Esports LLC, we own and manage multiple professional esports teams competing in games such as Heroes of the Storm. 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. In addition, from January 2020 to July 2022, we managed Flamengo eSports, one of the leading Brazilian League of Legends® teams competing in the top tier league CBLoL, through our 76% owned subsidiary, Simplicity One. In July 2022, in an effort to focus on business operations that were currently profitable, the Company sold its League of Legends franchise asset, and exited business operations in Brazil. Funding the Brazilian business operations created a monthly cash burn of approximately $45,000. The Company sold the franchise asset to Brazilian esports organization Los Grandes for total consideration of 1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal quarterly installments. 2 Online Tournaments In response to demand from customers for online esports tournaments which was likely triggered by the social distancing protocols attendant to the COVID-19 pandemic, we introduced in March 2020 an initiative of online esports tournaments. Since March 2020, through our wholly owned subsidiary, Simplicity Esports LLC, we had been holding online esports tournaments in the United States. As of August 2022, we have temporarily ceased organizing online tournaments while focusing on expense reduction and operational efficiency. Our Gaming Centers As of May 31, 2022, we had 29 operational locations (17 corporate locations and 12 franchise locations), through our subsidiaries throughout the U.S., giving casual gamers the opportunity to play in a social setting with other members of the gaming community. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months. 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 (online and in-person), 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") measure between 2,000 and 4,000 square feet, with dozens of gaming stations. The Simplicity Esports Gaming Centers 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. As of September 26, 2022, our corporate owned stores operate in approximately 40,000square feet of retail space in desirable, high traffic locations. 3 Creating content that engages fans, sponsors and developers, while promoting our brand is one of our primary goals. In August 2021, we announced a partnership with Television Korea 24 ("ESTV") to provide esports and gaming content for their 24-7 live linear channel around the world. ESTV can be viewed in over 45 countries, including the U.S. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We believe we possess a deep perception of our markets and understand the new age of branding while maintaining authenticity to the gaming community that comprises our fanbase. As a result of COVID-19 (discussed below), all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. See "Risk Factors-Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business." Corporate Gaming Centers As of May 31, 2022, we operated 17 corporate-owned retail Simplicity Esports Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Management is exploring strategic alternatives, including merger and acquisition opportunities, and is focused on high margin, lower capital expenditure business strategies in the esports gaming industry, with a goal of being cash flow positive in the next 12 to 24 months. Franchised Gaming Centers Due to interest from potential franchisees, in 2019 we launched a franchising program to accelerate the expansion of our planned 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. We currently operate 12 fully constructed franchise esports 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 HR functions. Franchisees also have an opportunity to participate in our national esports tournament events. 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. Prior to selling a franchise, among other things, the Company is required to provide a potential franchisee with a franchise disclosure document. We do not currently have an active franchise disclosure document for 2022. 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 one of the largest esports gaming center footprints in North America. 4 Franchise Roll Up Strategy We began implementing a franchise roll-up strategy in July 2020 because 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, including Simon Property Group and Brookfield Asset Management, 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 of revenues rent terms. Our Stream Team The Simplicity Esports LLC stream team encompasses 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 multitude of esports genres. Our Twitch affiliation has enabled our stream team 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. 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. COVID-19 As a result of COVID-19, all of our corporate and franchised Simplicity Esports Gaming Centers were closed effective April 1, 2020. We commenced reopening Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16 corporate and 12 franchised Simplicity Gaming Centers, the majority of which are operating at restricted capacity based on local COVID-19 regulations. Subsequent to May 31, 2022, the Company closed 12 of its 17 corporate owned esports gaming center locations. The Company continues to operate five corporate owned locations and 12 franchisee owned locations. Although our franchise agreements with franchisees of Simplicity Esports Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Esports Gaming Centers are operating, a limited number of the franchisees of Simplicity Esports Gaming Centers have defaulted on their obligations to pay their minimum monthly royalty payment to us. This has resulted 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. As of May 31, 2022, we have recorded an allowance for doubtful accounts of approximately $39,000 and have written off $4,000, partly in conjunction with taking back certain franchises and converting them to Company owned stores. Notwithstanding our efforts to support franchisees and still collect on receivables, it is unclear exactly how much of the increase in accounts receivables is attributable to the impact of COVID-19. We have waived the minimum monthly royalty payment obligations from July 2020 through present day and are instead billing the franchisees a true-up of 6% of gross sales without a minimum. We continue to assess possible similar accommodations to the franchisees in light of the impact of COVID-19. Additionally, the disruptions in commercial real estate caused by COVID-19 lockdowns have allowed the Company to strengthen its existing relationships with national landlords by signing new locations with percentage rent leases. 5 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 during the year ended May 31, 2022 and will potentially continue to impact the Company's business. Management observes that all business segments continue to be impacted by reduced foot traffic that began as a result of COVID-19 lockdowns and has continued as consumer habits have changed. Corporate History Formation We were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital Acquisition Company. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Although we were not limited to a particular industry or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company. Smaaash Entertainment Private Limited Business Combination On November 20, 2018, the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India ("Smaaash Private"), consummated the transactions (the "Transactions" or the "Business Combination") contemplated by the share subscription agreement (as amended, the "Subscription Agreement"), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the "Special Meeting"). Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the "Closing"), representing less than 1% of Smaaash Private at such time. At the time of the Closing, AHA Holdings Private Limited ("AHA Holdings") and Shripal Morakhia (together with AHA Holdings, the "Smaaash Founders") agreed to transfer all of their ownership interest in Smaaash Private (the "Additional Smaaash Shares") to the Company in exchange for newly issued shares of our common stock (the "Transferred Company Shares"). In furtherance of the foregoing, at the Closing, the Company issued an aggregate of 250,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the "Upfront Company Shares"). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares. Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period. In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. changed its stock symbols for its common stock, public rights and public warrants to "IAM," "IAMXR," and "IAMXW," respectively, and entered into a master franchise agreement ("Master Franchise Agreement") and a master license and distribution agreement ("Master Distribution Agreement") with Smaaash Private. After the Closing, the Company's primary assets consisted of shares in Smaaash Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement. Business of Smaaash Private At the time of closing of the Smaaash transaction, Smaaash Private operated 40 games and entertainment centers ("Smaaash Centers"), including 39 Smaaash Centers in India and one international Smaaash Center in the U.S., in addition to carrying out product sales of its games and equipment that Smaaash has developed in-house, supported by its sponsorship and other revenues. Smaaash Private's core concept was to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending Augmented Reality ("AR") and Virtual Reality ("VR") and other games, indoor entertainment, and attractive food and beverage options, customized to the tastes and preferences of a diverse set of customers across age groups, genders and backgrounds, including corporate customers, families, friends and children. Smaaash Private's game concepts are supported by its in-house technology, value engineering and systems integration capabilities. 6 Master Franchise Agreement Under the Master Franchise Agreement, Smaaash Private granted to the Company an exclusive right to establish and operate Smaaash Centers (as defined under the Master Franchise Agreement) and to sublicense the right to establish and operate Smaaash Centers to third party franchisees, and a license to use the products and other services developed by Smaaash Private with respect to the Smaaash Centers, in the United States ("Territory"). Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (as set out in the Master Franchise Agreement) for the purposes of establishing and operating the Smaaash Centers in the Territory. The Master Franchise Agreement was executed on an arms' length basis between Smaaash Private and the Company. Master License and Distribution Agreement Under the Master Distribution Agreement, Smaaash Private granted to the Company an exclusive right to purchase from Smaaash Private specialized video game equipment and products related to sports and recreational activities ("Products") in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master Franchise Agreement. Shift of Business Focus to Esports Gaming Following the January 2019 acquisition of Simplicity Esports LLC described below, we determined to shift our primary business focus to esports gaming. Accordingly, we did not generate any revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities. Polar and K2 On November 2, 2018, the Company entered into a stock purchase agreement with each of Polar Asset Management Partners Inc. ("Polar") and K2 Principal Fund L.P. ("K2"), pursuant to which Polar and K2 agreed to sell up to 61,250 and 27,500 shares, respectively, of the Company's common stock to the Company 30 days after the consummation of the transactions at a price of $89.84 contemplated by the share subscription agreement with Smaaash Private. On December 20, 2018, the Company, Polar, K2 and the escrow agent, entered into an Amendment (the "Amendment"), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the stock sales from $89.84 per share to (1) first $48.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $40.00 per remaining share up to 20% of the original number of Shares, (3) then $32.00 per remaining share up to 20% of the original number of Shares, (4) then $24.00 per remaining Share up to 20% of the original number of Shares, and (5) then $16.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the stock sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the escrow account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the stock sales. 7 The Amendment also included provisions regarding the reduction of the exercise price and amendment of redemption provisions of the Company's public warrants and private placement warrants. On August 18, 2019, the Company held a special meeting of its public warrant holders to approve the foregoing. However, these proposals were not approved by the requisite votes. 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 of 1933, as amended (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 (i.e. November 20, 2023). 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. Acquisition of Simplicity Esports, LLC In connection with the Company's January 2019 acquisition of Simplicity Esports, LLC, the sellers received an aggregate of 37,500 shares of common stock at the closing on January 4, 2019, an additional aggregate of 87,500 shares of common stock on January 7, 2019 and the remaining 250,000 shares in March 2019. In connection with the acquisition of Simplicity Esports, LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company's Third Amended and Restated Certificate of Incorporation (the "Certificate Amendment") with the Delaware Secretary of State to change the Company's name from "Smaaash Entertainment, Inc." to "Simplicity Esports and Gaming Company." In addition, the Company changed the ticker symbols of its common stock and public warrants to "WINR" and "WINRW," respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019. During the year ended May 31, 2021, the Company applied for and received two loans payable under the Payroll Protection Plan ("PPP"). The first loan was for $83,000 and the second loan was for $41,000. During the fiscal year ended May 31, 2022, the Company applied for and was granted loan forgiveness for the first of the PPP loans. As of May 31, 2022, the Company has one outstanding PPP loan in the amount of $41,000. The Company has applied for permanent relief for the second loan payable under the PPP federal guidelines. 8 Debt Obligations The table below presents the Company's outstanding debt balances as of the fiscal years ended May 31, 2022, and May 31, 2021: Convertible $ 2,211,097 Beginning Balance $ 3,093,395 - Scheduled principal maturities of the Company's outstanding debt over the next five fiscal years is as follows: Fiscal year ending May 31, 2023 Series A-2 Exchange Convertible Note On or about December 20, 2018, the Company issued a Series A-2 exchange convertible note in the original principal amount of $1,000,000 (the "Series A-2 Note") to Maxim Group LLC ("Maxim"). The Series A-2 Note accrued interest at a rate of 2.67% per annum, matured on June 20, 2020, and had an initial conversion price of $15.44 per share, subject to certain adjustments. On June 4, 2020, $100,000 in principal was converted into 10,738 shares of common stock. 9 On June 18, 2020, the Company and Maxim entered into the first amendment to the Series A-2 Note (the "First Amendment"), pursuant to which the parties agreed to the following: (i) Maxim's resale of the Company's common stock underlying the Series A-2 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 Series A-2 Note was extended to December 31, 2020, (iii) the principal amount of the Series A-2 Note was increased by $100,000 and (iv) the conversion price was reduced from $15.44 per share to $9.20 per share. On December 31, 2020, the Company and Maxim entered into a second amendment to the Series A-2 Note to extend the maturity date of Series A-2 Note to February 15, 2021. On April 14, 2021, the Company and Maxim entered into the third amendment to the Series A-2 Note with Maxim pursuant to which the parties agreed to the following: (i) (ii) The principal balance of the Series A-2 Note is increased by $50,000 as of April 14, 2021. (iii) The Series A-2 Note was not repaid in its entirety (in cash and/or shares of the Company's common stock pursuant to conversion(s) of the Series A-2 Note) on or before April 30, 2021, and accordingly, the principal balance of the Series A-2 Note increased by an additional $50,000. (iv) The Series A-2 Note was not repaid in its entirety (in cash and/or shares of the Company's common stock pursuant to conversion(s) of the Series A-2 Note) on or before May 15, 2021, and accordingly, the principal balance of the Series A-2 Note increased by an additional $50,000. (v) If the Series A-2 Note is not repaid in its entirety (in cash and/or shares of the Company's common stock pursuant to conversion(s) of the Series A-2 Note) on or before July 15, 2021, the principal balance of the Series A-2 Note will increase by an additional $100,000. (vi) If the Series A-2 Note is not repaid in its entirety (in cash and/or shares of the Company's common stock pursuant to conversion(s) of the Series A-2 Note) on or before September 15, 2021, the principal balance of the Series A-2 Note will increase by an additional $100,000, representing a total cumulative increase in the principal balance of $350,000 if the Series A-2 Note is not repaid in its entirety on or before September 15, 2021. (vii) The Company will, within five business days after the Company's receipt of the Second Tranche Purchase Price of $999,996, pay $500,000 to Maxim, which will reduce the principal owed under the Series A-2 Note by $500,000. On August 4, 2021, the Company and Maxim entered into the fourth amendment (the "Fourth Amendment") to the Series A-2 Note pursuant to which the parties agreed that all obligations under the Series A-2 Note, as amended, shall be extinguished, and the Series A-2 Note, as amended, shall be deemed repaid in its entirety, upon the satisfaction of the following obligations: (i) the Company's payment of $500,000 to Maxim, (ii) the Company's issuance of 20,000 restricted shares of the Company's common stock to Maxim, and (iii) the Company's issuance of a common stock purchase warrant to Maxim for the purchase of 365,000 shares of the Company's common stock at an exercise price of $13.00 per share. As of the effective date of the Fourth Amendment, the principal balance of the Series A-2 Note totaled $1,250,000 with associated accrued interest of $81,508. The fair market value of the common stock was $191,202, and the fair market value of the warrants, estimated utilizing the Black-Scholes option-pricing model, was $2,668,610. The combination of the fair market value of the common stock and warrants, as well as the cash consideration, resulted in a loss on extinguishment of debt in the amount of $2,028,304. During the fiscal year ended May 31, 2022, the Company recognized interest expense in the amount of $5,614 related to the Series A-2 Note. The Series A-2 Note was repaid during the fiscal year ended May 31, 2022. Accordingly, no amount of principal or interest was due as of May 31, 2022. 10 February 19, 2021 Labrys 12% Convertible Promissory Note On February 19, 2021, the Company entered into a securities purchase agreement (the "Labrys SPA") with Labrys Fund LP ("Labrys"), an accredited investor, pursuant to which the Company issued a 12% convertible promissory note (the "Labrys Note") with a maturity date of February 19, 2022 (the "Labrys Maturity Date"), in the principal sum of $1,650,000. In addition, the Company issued 10,000 shares of its common stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys Note, the Company agreed to pay to $1,650,000 (the "Labrys Principal Sum") to Labrys and to pay interest on the principal balance at the rate of 12% per annum (provided that the first twelve months of interest shall be guaranteed). The Labrys Note carries an original issue discount of $165,000 ("Labrys OID"). Accordingly, the Company received net proceeds of $1,485,000 that it used for its operational expenses and the repayment of certain existing debt obligations. Labrys may convert the Labrys Note into the Company's common stock (subject to the beneficial ownership limitations of 4.99% in the Note) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. The Company may prepay the Labrys Note at any time prior to the date that an Event of Default (as defined in the Labrys Note) (each an "Labrys Event of Default") occurs at an amount equal to 100% of the Labrys Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Labrys Note or Labrys SPA. Upon Labrys's provision of notice to the Company of the occurrence of any Labrys Event of Default, which has not been cured within five calendar days, the Labrys Note shall become immediately due and payable and the Company shall pay to Labrys, in full satisfaction of its obligations hereunder, an amount equal to the Labrys Principal Sum then outstanding plus accrued interest multiplied by 125% (the "Default Amount"). Upon the occurrence of an Labrys Event of Default, additional interest will accrue from the date of the Labrys Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. As of March 16, 2022, the Company and Labrys entered into an amendment (the "Labrys Amendment") to the Labrys SPA and the Labrys Note, as amended. Pursuant to the terms of the Labrys Amendment, the maturity date of the Labrys Note was extended to the earlier of (i) September 15, 2022, and (ii) the date that the Company's common stock is listed on the Nasdaq Stock Market or the New York Stock Exchange. In addition, the Labrys Note was amended to provide that Labrys has the right, at any time on or following the date that an event of default occurs under the Labrys Note, as amended, to convert all or any portion of the then outstanding and unpaid principal and interest into common stock, subject to a 4.99% equity blocker. In the Labrys Amendment, the parties also agreed that the Company has already received cash proceeds in excess of the $2,000,000 minimum threshold referenced in the Labrys Note. Pursuant to the terms of the Labrys Amendment, Labrys waived its rights to receive any portion of the next $750,000 of cash proceeds received by the Company to the extent that such amounts are received by the Company between March 15, 2022 and April 9, 2022. Upon the issuance of the March 2022 FirstFire Note (as defined below), March 2022 GS Note (as defined below), and March 2022 Ionic Note (as defined below) described below, the conversion price of the Labrys Note was reduced from $11.50 per share to $1.00 per share. During the fiscal years ended May 31, 2022 and 2021, the Company made principal repayments of $659,409 and $100,000, respectively. During the fiscal year ended May 31, 2022, the Company recognized $904,803 in total interest expense associated with the Labrys Note, comprised of $61,965 in cash interest payments and $842,838 in accretion expense related to the debt discount. As of May 31, 2022, the carrying value and face value of the Labrys Note was $890,591 as the debt discount was full accreted by that date. 11 March 2021 FirstFire Global 12% Convertible Promissory Note On March 10, 2021, the Company, entered into a securities purchase agreement (the "March 2021 FirstFire SPA") with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the "FirstFire"), pursuant to which the Company issued a 12% convertible promissory note ("March 2021 FirstFire Note") with a maturity date of March 10, 2022, in the principal sum of $560,000. The Company received net proceeds of $130,606, net of an original issue discount of $56,000 ("March 2021 FirstFire OID"), net of origination fees of $8,394, and the repayment of principal and interest of $365,000 on an existing debt obligation owed to FirstFire. In addition, the Company issued 3,394 shares of its common stock to the FirstFire as a commitment fee pursuant to the March 2021 FirstFire SPA. Pursuant to the terms of the March 2021 FirstFire Note, the Company agreed to pay to $560,000 (the "March 2021 FirstFire Principal Sum") to the Holder and to pay interest on the principal balance at the rate of 12% per annum (provided that the first twelve months of interest shall be guaranteed). The FirstFire may convert the March 2021 FirstFire Note into the Company's common stock (subject to the beneficial ownership limitations of 4.99% in the March 2021 FirstFire Note) at any time at a conversion price equal to $11.50 per share, subject to certain adjustments. Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the March 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share. The Company may prepay the March 2021 FirstFire Note at any time prior to the date that an Event of Default (as defined in the March 2021 FirstFire Note) (each an "March 2021 FirstFire Event of Default") occurs at an amount equal to 100% of the March 2021 FirstFire Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium). The March 2021 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the March 2021 FirstFire Note or March 2021 FirstFire SPA. Upon FirstFire's provision of notice to the Company of the occurrence of any March 2021 FirstFire Event of Default, which has not been cured within 5 calendar days, the March 2021 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the March 2021 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125% (the "March 2021 FirstFire Default Amount"). Upon the occurrence of a March 2021 FirstFire Event of Default, additional interest will accrue from the date of the March 2021 FirstFire Event of Default at the rate equal to the lower of 15% per annum or the highest rate permitted by law. The Company was required to make an interim payment to FirstFire in the amount of $123,200, on or before September 10, 2021, towards the repayment of the balance of the March 2021 FirstFire Note. On September 17, 2021, the Company issued to FirstFire a three-year common stock warrant to purchase of 40,000 shares of the Company's common stock at an exercise price of $10.73 per share as consideration for FirstFire entering into a first amendment to the March 2021 FirstFire Note in order to delay this interim payment. Upon the issuance of the warrants, the Company recorded the fair value of the warrants in the amount of $248,547 and took a related interest expense charge of $248,547. On October 1, 2021, the Company issued to FirstFire a second three-year common stock warrant to purchase 40,000 shares of the Company's common stock at an exercise price of $10.73 per share as consideration for FirstFire entering into a second amendment to the March 2021 FirstFire Note in order to remove the capital raising ceiling in such note. Upon the issuance of the warrants, the Company recorded the fair value of the warrants in the amount of $201,351 and took a related interest expense charge of $201,351. On April 29, 2022, FirstFire converted $50,000 of the outstanding principal balance of the March 2021 FirstFire Note at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 50,000 shares of common stock to FirstFire at a fair market value of $2.20 per share and recognized a loss on debt extinguishment of $60,000. During the fiscal year ended May 31, 2022, the Company recognized $206,065 of interest expense related to the amortization of debt discount related to the March 2021 FirstFire Note. As of May 31, 2022, the carrying value and face value of the March 2021 FirstFire Note was $510,000 as the debt discount was full accreted by that date. June 2021 FirstFire Global 12% Convertible Promissory Note On June 11, 2021, the Company entered into a securities purchase agreement (the "June 2021 FirstFire SPA") with FirstFire, pursuant to which the Company issued (i) a 12% convertible promissory note (the "June 2021 FirstFire Note") in the principal sum of $1,266,666 (the "June 2021 FirstFire Principal Sum"), (ii) 11,875 shares of its common stock as a commitment fee ("June 2021 FirstFire Commitment Shares"), and (iii) a three-year warrant ("June 2021 FirstFire Warrant") to purchase 593,750 shares of the Company's common stock at an exercise price of $10.73 per share, subject to certain adjustments. 12 The following are the material terms of the June 2021 FirstFire SPA and June 2021 FirstFire Note: ● ● The Company may prepay the June 2021 FirstFire Note at any time prior to maturity in accordance with the terms of the June 2021 FirstFire Note. ● The June 2021 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the June 2021 FirstFire Note or the June 2021 FirstFire SPA. Upon the occurrence of any event of default (as defined in the June 2021 FirstFire Note) which has not been cured within three calendar days, the June 2021 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the June 2021 FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125%. ● Pursuant to the June 2021 FirstFire SPA, the June 2021 FirstFire Commitment Shares and the shares underlying the June 2021 FirstFire Note and June 2021 FirstFire Warrant carry standard registration rights. Upon issuance of the June 2021 FirstFire Note, the Company received net proceeds of $1,140,000 and used such proceeds for working capital and to pay off an existing promissory note issued by the Company in favor of Maxim. Upon issuance of the June 2021 FirstFire Commitment Shares, the June 2021 FirstFire Note, and the June 2021 First Fire Warrant, the Company allocated the $1,140,000 in net proceeds received between the fair market value of the June 2021 FirstFire Commitment Shares, the beneficial conversion feature of the June 2021 FirstFire Note, and the June 2021 FirstFire Warrant. The fair value of the June 2021 FirstFire Commitment Shares was $22,949; the fair value of the beneficial conversion feature of the June 2021 FirstFire Note was $174,851; and the fair value of the June 2021 FirstFire Warrant was $942,200. The combination of these three components as well as the June 2021 FirstFire OID resulted in a total debt discount at issuance of $1,266,667 which is accreted over the term of the June 2021 FirstFire Note. On September 16, 2021, the Company made an interim payment on the June 2021 FirstFire Note in the amount of $175,000. Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the June 2021 FirstFire Note was reduced from $11.50 per share to $1.00 per share. During the fiscal year ended May 31, 2022, the Company recorded interest expense of $978,379, which included $705,879 related to the accretion of the debt discount and accrued interest in the amount of $272,500. As of May 31, 2022, the carrying value of the June 2021 FirstFire Note was $530,879, net of $560,788 in unaccreted debt discount. 13 June 2021 GS Capital Securities 12% Convertible Promissory Note On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 GS SPA") with GS Capital Partners, LLC ("GS"), pursuant to which the Company issued (i) a 12% convertible promissory note (the "June 2021 GS Note") in the principal sum of $333,333 (the "June 2021 GS Principal Sum"), (ii) 3,125 shares of its common stock as a commitment fee ("June 2021 GS Commitment Shares"), and (iii) a three-year warrant ("June 2021 GS Warrant") to purchase 156,250 shares of the Company's common stock at an exercise price of $10.73 per share, subject to certain adjustments. The following are the material terms of the June 2021 GS SPA and June 2021 GS Note: ● ● The Company may prepay the June 2021 GS Note at any time prior to maturity in accordance with the terms of the June 2021 GS Note. ● The June 2021 GS Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the June 2021 GS Note or the June 2021 GS SPA. Upon the occurrence of any event of default (as defined in the June 2021 GS Note) which has not been cured within three calendar days, the June 2021 GS Note shall become immediately due and payable and the Company shall pay to GS, in full satisfaction of its obligations hereunder, an amount equal to the June 2021 GS Principal Sum then outstanding plus accrued interest multiplied by 125%. ● Pursuant to the June 2021 GS SPA, the June 2021 GS Commitment Shares and the shares underlying the June 2021 GS Note and June 2021 GS Warrant carry standard registration rights. Upon issuance of the June 2021 GS Note, the Company received net proceeds of $300,000 and used such proceeds for working capital. Upon issuance of the June 2021 GS Commitment Shares, the June 2021 GS Note, and the June 2021 GS Warrant, the Company allocated the $300,000 in net proceeds received between the fair market value of the June 2021 GS Commitment Shares, the beneficial conversion feature of the June 2021 GS Note, and the June 2021 GS Warrant. The fair value of the June 2021 GS Commitment Shares was $5,963; the fair value of the beneficial conversion feature of the June 2021 GS Note was $53,899; and the fair value of the June 2021 GS Warrant was $240,138. The combination of these three components as well as the June 2021 GS OID resulted in a total debt discount at issuance of $333,333 which is accreted over the term of the June 2021 GS Note. Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the June 2021 GS Note was reduced from $11.50 per share to $1.00 per share. On April 18, 2022, GS converted $50,333 of the outstanding principal balance the June 2021 GS Note and $3,389 in associated accrued interest at an adjusted conversion price of $1.00 per share. At conversion, the Company issued 53,720 shares of common stock to GS at a fair market value of $2.77 per share and recognized a loss on debt extinguishment of $95,085. During the fiscal year ended May 31, 2022, the Company recorded interest expense of $267,957, which included $187,957 related to the accretion of the debt discount and accrued interest in the amount of $80,000. As of May 31, 2022, the carrying value of the June 2021 GS Note was $137,624, net of $145,376 in unaccreted debt discount. 14 August 2021 Jefferson Street Capital 12% Convertible Promissory Note On August 23, 2021, the Company entered into a securities purchase agreement (the "August 2021 Jefferson SPA") with Jefferson Street Capital, LLC ("Jefferson"), pursuant to which the Company issued (i) a 12% convertible promissory note (the "August 2021 Jefferson Note") in the principal sum of $333,333 (the "August 2021 Jefferson Principal Sum"), (ii) 3,125 shares of its common stock as a commitment fee ("August 2021 Jefferson Commitment Shares"), and (iii) a three-year warrant ("August 2021 Jefferson Warrant") to purchase 156,250 shares of the Company's common stock at an exercise price of $10.73 per share, subject to certain adjustments. The following are the material terms of the August 2021 Jefferson SPA and August 2021 Jefferson Note: ● ● The Company may prepay the August 2021 Jefferson Note at any time prior to maturity in accordance with the terms of the August 2021 Jefferson Note. ● The August 2021 Jefferson Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Jefferson Note or the August 2021 Jefferson SPA. Upon the occurrence of any event of default (as defined in the August 2021 Jefferson Note) which has not been cured within three calendar days, the August 2021 Jefferson Note shall become immediately due and payable and the Company shall pay to Jefferson, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 Jefferson Principal Sum then outstanding plus accrued interest multiplied by 125%. ● Pursuant to the August 2021 Jefferson SPA, the August 2021 Jefferson Commitment Shares underlying and the shares underlying the August 2021 Jefferson Note and August 2021 Jefferson Warrant carry standard registration rights. Upon issuance of the August 2021 Jefferson Note, the Company received net proceeds of $300,000 and used such proceeds for working capital as well as the payment of $15,000 in fees associated with the loan. Upon issuance of the August 2021 Jefferson Commitment Shares, the August 2021 Jefferson Note, and the August 2021 Jefferson Warrant, the Company allocated the $300,000 in net proceeds received between the fair market value of the August 2021 Jefferson Commitment Shares, the beneficial conversion feature of the August 2021 Jefferson Note, and the August 2021 Jefferson Warrant. The fair value of the August 2021 Jefferson Commitment Shares was $4,945; the fair value of the beneficial conversion feature of the August 2021 Jefferson Note was $62,051; and the fair value of the August 2021 Jefferson Warrant was $233,004. The combination of these three components as well as the August 2021 Jefferson OID resulted in a total debt discount at issuance of $333,333 which is accreted over the term of the August 2021 Jefferson Note. The $15,000 paid as loan origination fees was recorded directly to additional paid in capital. Upon the issuance of the March 2022 FirstFire Note, March 2022 GS Note, and March 2022 Ionic Note described below, the conversion price of the August 2021 Jefferson Note was reduced from $11.50 per share to $1.00 per share. During the year ended May 31, 2022, the Company recorded interest expense of $206,941, which included $126,941 related to the accretion of the debt discount and accrued interest in the amount of $80,000. As of May 31, 2022, the carrying value of the August 2021 Jefferson Note was $126,941, net of $206,392 in unaccreted debt discount. 15 August 2021 Lucas Ventures Capital 12% Convertible Note On August 31, 2021, the Company entered into a securities purchase agreement (the "August 2021 Lucas SPA") with Lucas Ventures, LLC ("Lucas"), pursuant to which the Company issued (i) a 12% convertible promissory note (the "August 2021 Lucas Note") in the principal sum of $200,000 (the "August 2021 Lucas Principal Sum"), (ii) 3,749 shares of its common stock as a commitment fee ("August 2021 Lucas Commitment Shares"), and (iii) a three-year warrant ("August 2021 Lucas Warrant") to purchase 187,400 shares of the Company's common stock at an exercise price of $10.22 per share, subject to certain adjustments. The following are the material terms of the August 2021 Lucas SPA and August 2021 Lucas Note: ● ● The Company may prepay the August 2021 Lucas Note at any time prior to maturity in accordance with the terms of the August 2021 Lucas Note. ● The August 2021 Lucas Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Lucas Note or the August 2021 Lucas SPA. Upon the occurrence of any event of default (as defined in the August 2021 Lucas Note) which has not been cured within three calendar days, the August 2021 Lucas Note shall become immediately due and payable and the Company shall pay to Lucas, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 Lucas Principal Sum then outstanding plus accrued interest multiplied by 125%. ● Pursuant to the August 2021 Lucas SPA, the August 2021 Lucas Commitment Shares underlying and the shares underlying the August 2021 Lucas Note and August 2021 Lucas Warrant carry standard registration rights. Upon issuance of the August 2021 Lucas Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well as the payment of $9,000 in fees associated with the loan. Upon issuance of the August 2021 Lucas Commitment Shares, the August 2021 Lucas Note, and the August 2021 Lucas Warrant, the Company allocated the $180,000 in net proceeds received between the fair market value of the August 2021 Lucas Commitment Shares, the beneficial conversion feature of the August 2021 Lucas Note, and the August 2021 Lucas Warrant. The fair value of the August 2021 Lucas Commitment Shares was $3,903; the fair value of the beneficial conversion feature of the August 2021 Lucas Note was $22,149; and the fair value of the August 2021 Lucas Warrant was $153,948. The combination of these three components as well as the August 2021 Lucas OID resulted in a total debt discount at issuance of $200,000 which is accreted over the term of the August 2021 Lucas Note. The $9,000 paid as loan origination fees was recorded directly to additional paid in capital. On March 16, 2022, the Company and Lucas Ventures entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the "Lucas Amendment"). Pursuant to the terms of the Lucas Amendment, the parties agreed that the conversion price of the August 2021 Lucas Note was decreased from $11.50 per share to $1.00 per share and that Lucas may not convert the August 2021 Lucas Note, as amended, prior to September 15, 2022. During the fiscal year ended May 31, 2022, the Company recorded interest expense of $122,794, which included $74,794 related to the accretion of the debt discount and accrued interest in the amount of $48,000. As of May 31, 2022, the carrying value of the August 2021 Lucas Note was $74,794, net of $125,206 in unaccreted debt discount. 16 August 2021 LGH Investments, LLC 12% Convertible Promissory Note On August 31, 2021, the Company and LGH Investments, LLC, ("LGH") entered into a securities purchase agreement (the "August 2021 LGH SPA") pursuant to which the Company issued a 12% convertible promissory note (the "August 2021 LGH Note") in the principal sum of $200,000 (the "August 2021 LGH Principal Sum"). The following are the material terms of the August 2021 LGH SPA and August 2021 LGH Note: ● ● The Company may prepay the August 2021 LGH Note at any time prior to maturity in accordance with the terms of the August 2021 LGH Note. ● The August 2021 LGH Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 LGH Note or the August 2021 LGH SPA. Upon the occurrence of any event of default (as defined in the August 2021 LGH Note which has not been cured within three calendar days, the August 2021 LGH Note shall become immediately due and payable and the Company shall pay to LGH, in full satisfaction of its obligations hereunder, an amount equal to the August 2021 LGH Principal Sum then outstanding plus accrued interest multiplied by 125%. ● Pursuant to the August 2021 LGH SPA, the shares underlying the August 2021 LGH Note carry standard registration rights. Upon issuance of the August 2021 LGH Note, the Company received net proceeds of $180,000 and used such proceeds for working capital as well as the payment of $6,500 in fees associated with the loan. Upon issuance of the August 2021 LGH, the Company recorded a total debt discount of $26,500 that includes the LGH OID and the $6,500 paid as fees associated with the issuance of the loan and is accreted over the term of the August 2021 LGH Note. As of March 16, 2022, the Company and LGH entered into an Amendment and Waiver Pursuant to Convertible Promissory Note (the "LGH Amendment"). Pursuant to the terms of the LGH Amendment, the parties agreed that the conversion price of the August 2021 LGH Note was decreased from $11.50 per share to $1.00 per share and that LGH may not convert the LGH Note, as amended, prior to September 15, 2022. During the fiscal year ended May 31, 2022, the Company recorded interest expense of $57,910, which included $9,910 related to the accretion of the debt discount and accrued interest in the amount of $48,000. As of May 31, 2022, the carrying value of the August 2021 LGH Note was $183,410, net of $16,590 in unaccreted debt discount. September 2021 Ionic Ventures, LLC 12% Convertible Promissory Note On September 28, 2021, the Company entered into a securities purchase agreement (the "September 2021 Ionic SPA") with Ionic Ventures, LLC ("Ionic"), pursuant to which the Company issued (i) a 12% convertible promissory note (the "September 2021 Ionic Note") in the principal sum of $1,555,556 (the "September 2021 Ionic Principal Sum"), (ii) 14,584 shares of its common stock as a commitment fee ("September 2021 Ionic Commitment Shares"), and (iii) a three-year warrant ("September 2021 Ionic Warrant") to purchase 729,167 shares of the Company's common stock at an exercise price of $10.73 per share, subject to certain adjustments. 17 The following are the material terms of the September 2021 Ionic SPA and September 2021 Ionic Note: ● ● The Company may prepay the September 2021 Ionic Note at any time prior to maturity in accordance with the terms of the September 2021 Ionic Note. ● The September 2021 Ionic Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the August 2021 Ionic Note or the September 2021 Ionic SPA. Upon the occurrence of any event of default (as defined in the September 2021 Ionic Note) which has not been cured within three calendar days, the August 2021 Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full