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 ~~November 30, 2020~~August 31, 2021

~~[ ]~~☐ 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:~~Act. (Check one):

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☒		Smaller reporting company☒
			Emerging growth company
~~[ ]~~☒	~~[ ]~~	~~[X]~~	~~[X]~~	~~[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 ~~January 14,~~October 11, 2021, there were ~~1,325,453~~ 1,594,803 shares of the Company’s common stock issued and outstanding.

SIMPLICITY ESPORTS AND GAMING COMPANY

~~Form 10-Q~~

~~November 30, 2020~~

Table of Contents

		Page
PART I — FINANCIAL INFORMATION		3

Item 1.	Financial Statements:	3

	Condensed Consolidated Balance Sheets – ~~November 30, 2020~~August 31, 2021 (unaudited) and May 31 ~~2020~~2021 (unaudited)	3

	Condensed Consolidated Statement of Operations – Three months ended August 31, 2021 and ~~Six Months Ended November 30,~~ 2020 ~~and 2019~~ (unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity – ~~Six Months Ended November 30, 2020 and 2019 (unaudited)~~Three months ended August 31, 2021 (unaudited)	~~5-6~~5

	Condensed Consolidated Statement of Cash Flows ~~- Six Months Ended November 30, 2020 and 2019 (unaudited)~~	76

	Notes to Condensed Consolidated financial statements (unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2425

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3538

Item 4.	Controls and Procedures	3538

PART II — OTHER INFORMATION		3639

Item 1.	Legal Proceedings	3639

Item 1A.	Risk Factors	3639

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3639

Item 3.	Defaults Upon Senior Securities	3739

Item 4.	Mine Safety Disclosures	3739

Item 5.	Other Information	3739

Item 6.	Exhibits	3840

Signatures	39	41

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

November 30, 2020 May 31, 2020
(Unaudited)
ASSETS

Current Assets
Cash and cash equivalents $ 543,439 $ 160,208
Accounts receivable, net 131,321 127,653
Inventory 145,186 15,787
Prepaid expenses 114,537 5,588
Total Current Assets 934,483 309,236

Other Assets
Goodwill 5,180,141 5,155,141
Intangible assets, net 1,955,559 2,141,374
Deferred brokerage fees 123,339 149,223
Property and equipment, net 606,254 232,733
Right of use asset, operating leases, net 1,320,846 490,984
Security deposits 14,885 14,885
Due from franchisees’ 45,516 -
Deferred financing costs 235,759 98,198
Total Other Assets 9,482,299 8,282,538

TOTAL ASSETS $ 10,416,782 $ 8,591,774

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable $ 237,311 $ 126,716
Accrued expenses 932,547 1,421,842
Convertible note payable 1,000,000 1,000,000
Notes payable, net of discount 1,100,129 127,320
Note payable - related party - 64,728
Operating lease obligation, current 281,088 151,867
Current portion of deferred revenues 3,795 3,795
Stock payable 50,000 75,000
Total Current Liabilities 3,604,870 2,971,268

Operating lease obligation, net of current portion 1,042,256 339,116
Deferred revenues, less current portion 302,439 365,718

Total Liabilities 4,949,565 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; 1,217,376 and 998,622 shares issued and outstanding as of November 30, 2020 and May 31, 2020, respectively 122 100
Additional paid-in capital 13,128,420 11,132,103
Accumulated deficit (7,855,418 ) (6,195,044 )
Total Simplicity Esports and Gaming Company Stockholders’ Equity 5,273,124 4,937,159
Non-Controlling Interest 194,093 (21,487 )
Total Stockholders’ Equity 5,467,217 4,915,672

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,416,782 $ 8,591,774

(UNAUDITED)

	August 31,			May 31,
	2021			2021
ASSETS

Current Assets
Cash and cash equivalents	$	673,693		$	414,257
Accounts receivable, net		139,166			160,101
Inventory		297,013			206,974
Other current assets		41,250			52,643
Total Current Assets		1,151,122			833,975

Non Current Assets
Goodwill		5,180,141			5,180,141
Intangible assets, net		1,558,039			1,635,227
Deferred brokerage fees		77,539			79,943
Property and equipment, net		566,970			574,308
Right of use asset, operating leases, net		1,562,617			1,533,010
Security deposits		40,307			40,307
Due from franchisees		3,037			23,007
Deferred financing costs		320,399			307,494
Total Non Current Assets		9,309,049			9,373,437

TOTAL ASSETS	$	10,460,171		$	10,207,412

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	209,594		$	438,466
Accrued expenses		1,147,434			1,166,433
Current portion of convertible note payable, net of discount		1,323,051			2,211,097
Loan payable		82,235			82,235
Operating lease obligation, current		311,116			307,013
Current portion of deferred revenues		30,034			30,034
Total Current Liabilities		3,103,464			4,235,278

Operating lease obligation, net of current portion		1,245,699			1,199,748
Deferred revenues, less current portion		176,127			182,342
Non current portion of convertible notes payable, net of discount		235,030			-

Total Non Current Liabilities		1,656,856			1,382,090

Total Liabilities		4,760,320			5,617,368

Commitments and Contingencies - Note 7		-			-

Stockholders’ Equity
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; 0 shares issued and outstanding		-			-
Common stock - $0.0001 par value; 36,000,000 shares authorized; 1,492,595 and 1,427,124 shares issued and outstanding as of August 31, 2021 and May 31, 2021 respectively		149			142
Common stock issuable		850,775			-
Additional paid-in capital		21,233,531			16,708,762
Accumulated deficit		(16,502,806	)		(12,291,899	)
Total Simplicity Esports and Gaming Company Stockholders’ Equity		5,581,649			4,417,005
Non-Controlling Interest		118,202			173,039
Total Stockholders’ Equity		5,699,851			4,590,044

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,460,171		$	10,207,412

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

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~(Unaudited)~~(UNAUDITED)

	For the Three Months Ended						For the Six Months Ended						August 31, 2021			August 31, 2020
	November 30, 2020			November 30, 2019			November 30, 2020			November 30, 2019			For the Three Months Ended
													August 31, 2021			August 31, 2020
Revenues
Franchise royalties and license fees	$	36,877		$	200,274		$	117,695		$	247,012
Franchise termination revenue		54,916			45,224			61,381			-

Revenues:
Franchise revenues													$	62,358		$	87,283
Company-owned stores sales		167,791			-			244,729			49,643			673,501			76,938
Esports revenue		36,962			-			73,342			23,336			168,981			36,380

Total Revenues		296,546			245,498			497,147			319,991			904,840			200,601

Cost of Goods Sold		(67,657	)		-			(108,168	)		-			607,122			67,645

Gross Margin		228,889			245,498			388,979			319,991
Gross Profit														297,718			132,956

Operating Expenses
Operating Expenses:
Compensation and related benefits														1,303,126			302,568
Professional fees														449,353			73,891
General and administrative expenses		(1,013,177	)		(819,305	)		(1,658,539	)		(1,258,257	)		443,695			241,769

Total Operating Expenses														2,196,174			618,228

Loss from Operations		(784,288	)		(573,807	)		(1,269,560	)		(938,266	)		(1,898,456	)		(485,272	)

Other Income / (Expense)
Debt forgiveness Income		15,250			8,523			3,115			93,761
Other Income (Expense):
Loss on extinguishment of debt														(1,759,969	)		(12,135	)
Interest expense		(244,660	)		(6,675	)		(398,788	)		(13,350	)		(659,696	)		(154,128	)
Interest income		5			457			12			2,961			19			7
Other income														52,358			-
Foreign exchange gain/(loss)		-			-			(19,572	)		-			-			(19,572	)

Total Other Income / (Expense)		(229,405	)		2,305			(415,233	)		83,372
Total Other Income (Expense)														(2,367,288	)		(185,828	)

Loss Before Provision for Income Taxes		(1,013,693	)		(571,502	)		(1,684,793	)		(854,894	)		(4,265,744)			(671,100	)

Provision for Income Taxes		-			-			-			-			-			-

Net Loss		(1,013,693	)		(571,502	)		(1,684,793	)		(854,894	)		(4,265,744	)		(671,100	)

Net loss attributable to noncontrolling interest		8,533			8,172			24,419			8,172			54,837			15,886

Net loss attributable to common shareholders	$	(1,005,160	)	$	(563,330	)	$	(1,660,374	)	$	(846,722	)	$	(4,210,907	)	$	(655,214	)

Basic and Diluted Net Loss per share	$	(0.84	)	$	(0.57	)	$	(1.42	)	$	(0.90	)	$	(2.89	)	$	(0.61	)

Basic and diluted Weighted Average Number of Common Shares Outstanding		1,192,945			980,064			1,166,150			943,888			1,459,485			1,074,408

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

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

~~FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2020 and 2019~~(UNAUDITED)

~~(Unaudited)~~

	Shares			Amount		Capital		Interest			Deficit			Equity
						Additional		Non-						Total
	Common Stock					Paid-In		Controlling			Accumulated			Stockholders’
	Shares			Amount		Capital		Interest			Deficit			Equity

Balance - May 31, 2020		998,622		$	100	$	11,132,103	$	(21,487	)	$	(6,195,044	)	$	4,915,672

Shares issued for cash		2,976			-		25,000		-			-			25,000

Shares issued in connection with issuance and amendments of notes payable		23,030			2		202,215					-			202,217

Shares issued for contracted services		6,597			-		68,778		-			-			68,778
Sale of warrants

Shares issued to directors, officers and employees as compensation		116,174			12		819,297		-			-			819,309

Shares issued in connection with franchise acquisition		18,750			2		164,998		-			-			165,000

Non-controlling interest of original investment in subsidiaries		-			-		-		240,000			-			240,000
Common stock issuable

Net loss attributable to noncontrolling interest		-			-		-		(15,886	)		-			(15,886	)
			��
Net Loss												(655,214	)		(655,214	)

Balance - August 31, 2020		1,166,149		$	116	$	12,412,391	$	202,627		$	(6,850,258	)	$	5,764,876

Balance - May 31, 2021		1,427,124		$	142	$	16,708,762	$	173,039		$	(12,291,899	)	$	4,590,044

Shares issued in connection with issuance and amendments of notes payable		38,125			4		4,136,895		-			-			4,136,899

Shares issued for contracted services		21,346			2		224,875		-			-			224,877

Sale of warrants							100,000		-			-			100,000

Shares issued in connection with franchise acquisition		6,000			1		62,999		-			-			63,000

Common stock issuable		-			-		-		-			-			850,775

Net loss attributable to noncontrolling interest		-			-		-		(54,837	)		-			(54,837	)

Net Loss												(4,210,907	)		(4,210,907	)

Balance - August 31, 2021		1,492,595		$	149	$	21,233,531	$	118,202		$	(16,502,806	)	$	5,699,851

Common Stock
Additional
Paid-In

Non-
Controlling
Accumulated
Total
Stockholders’

Shares Amount Capital Interest Deficit Equity

Balance - May 31, 2020 998,622 $ 100 $ 11,132,103 $ (21,487 ) $ (6,195,044 ) $ 4,915,672

Shares issued for cash 2,976 - 25,000 - - 25,000
Shares issued in connection with conversion of note payable 10,738 1 99,999 100,000
Shares issued in connection with notes payable 12,292 1 102,216 102,217
Shares issued in connection with settlement of accounts
Shares issued for payable and accrued liabilities 3,125 - 46,000 46,000
Shares issued in connection with franchise acquisition 18,750 2 164,998 - - 165,000
Shares issued in connection with consulting agreement 3,472 1 22,777 22,778
Shares issued to directors, officers and employees as compensation 116,175 12 819,297 - - 819,309
Non-controlling interest of original investment in subsidiaries - - - 240,000 - 240,000
Net loss attributable to noncontrolling interest - - - (15,866 ) - (15,866 )
Net Loss - - - - (655,214 ) (655,214 )

Balance - August 31, 2020 1,166,150 117 12,412,390 202,647 (6,850,258 ) 5,764,896

Warrants issued in connection with debt - - 157,438 157,438
Shares issued in connection with franchise acquisition 37,941 4 413,540 - - 413,544
Shares issued in connection with consulting agreement 2,813 - 25,420 25,420
Shares issued to directors, officers and employees as compensation 9,844 1 119,632 - - 119,633
Rounding related to reverse stock split 628 - - - - -
Net loss attributable to noncontrolling interest - - - (8,554 ) - (8,554 )
Net Loss - - - - (1,005,160 ) (1,005,160 )

Balance - November 30, 2020 1,217,376 $ 122 $ 13,128,420 $ 194,093 $ (7,855,418 )
$
5,467,217

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

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~CASH FLOWS

~~FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2020 and 2019~~(UNAUDITED)

~~(Unaudited)~~

	August 31, 2021			August 31, 2020
	For the Three Months Ended
	August 31, 2021			August 31, 2020

Cash flows from operating activities:
Net loss	$	(4,265,744	)	$	(671,100	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense		620,178			-
Deferred guaranteed interest		(116,000	)		-
Depreciation expense		81,737			27,135
Amortization expense		77,188			66,614
Provision for uncollectible accounts		14,137			52,549
Loss on extinguishment of debt		1,759,969			-
Stock-based compensation		850,775			-
Lease liability net of leased asset		20,447			-
Deferred financing costs		(12,905	)		(30,416	)
Gain on acquisition		(2,357	)		-
Issuance of shares for services		224,877			150,095
Issuance of shares for interest payment		81,508			-
Issuance of shares for inventory purchases		11,919			-
Changes in operating assets and liabilities:
Accounts receivable		20,935			5,478
Inventory		(90,039	)		11,127
Prepaid expenses		11,393			(17,087	)
Deferred brokerage fees		2,404			4,525
Deferred revenues		(6,215	)		(7,414	)
Accounts payable		(228,872	)		(10,538	)
Accrued expenses		(18,999	)		185,620
Due from franchisee		19,970			-

Net cash used in operating activities		(943,694	)		(233,412	)

Cash flows from investing activities:
Purchase of property and equipment		(20,961	)		-
Net cash provided by (used in) investing activities		(20,961	)		-

Cash flows from financing activities:
Proceeds from sale of warrants		100,000			-
Repayment of note payable		(590,909	)		(201,300	)
Proceeds from note payable		1,715,000			748,150
Proceeds from sale of Private Units		-			25,000

Net cash provided by financing activities		1,224,091			571,850

Net change in cash		259,436			338,438

Cash - beginning of period		414,257			160,208

Cash - end of period	$	673,693		$	498,646

Supplemental Disclosures of Cash Flow Information:

Cash paid for interest	$	109,091		$	48,800
Cash paid for income taxes	$	-		$	-

Supplemental Non-Cash Investing and Financing Information

Common stock issued for consideration in an acquisition of fixed assets	$	63,000		$	165,000
Common stock issued in connection with notes payable	$	238,918		$	-
Beneficial conversion feature with warrants issued for debt discount	$	1,505,387		$	-

Common Stock
Additional
Paid-In

Non-
Controlling
Accumulated
Total
Stockholders’

Shares Amount Capital Interest Deficit Equity

Balance - May 31, 2019 875,497 $ 88 $ 9,442,639 $ - $ (3,574,806 ) $ 5,867,921

Shares issued for PLAYlive Nation acquisition 93,750 9 1,439,991 - - 1,440,000

Vesting of Common Shares - - 27,000 - - 27,000

Net Loss - - - - (283,393 ) (283,393 )

Balance - August 31, 2019 969,247 97 10,909,630 - (3,858,199 ) 7,051,528

Vesting of Common Shares - - 36,000 - - 36,000

Compensation to officer for shares issued for past services - - 90,000 - - 90,000

Shares issued for vesting of employment agreement awards 13,125 1 10 - 11

Non-controlling interest of original investment in subsidiaries - - - 24,013 - 24,013

Net loss attributable to noncontrolling interest - - - (8,172 ) - (8,172 )

Net Loss - - - - (563,329 ) (563,329 )

Balance - November 30, 2019 982,372 $ 98 $ 11,035,640 $ 15,841 $ (4,421,528 ) $ 6,630,051

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

SIMPLICITY ESPORTS AND GAMING COMPANY ~~AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

For the Six Months Ended
November 30, 2020 November 30, 2019

Cash flows from operating activities:
Net loss $ (1,684,794 ) $ (854,895 )
Adjustments to reconcile net loss to net cash (used in) operating activities:
Non-cash interest expense 241,557 -
Depreciation expense 73,249 21,148
Amortization expense 133,229 102,812
Impairment loss 202,586 -
Debt forgiveness income - (93,761 )
Issuance of shares for services 1,033,140 153,011
Changes in operating assets and liabilities:
Accounts receivable (3,668 ) (67,971 )
Inventory (20,676 ) (18,984 )
Prepaid expenses (15,122 ) (5,671 )
Security deposits - (2,568 )
Deferred brokerage fees 25,884 5,056
Deferred revenues (63,279 ) 14,812
Accounts payable 110,595 13,658
Accrued expenses (194,222 ) (89,101 )
Due from franchisees’ (45,516 ) (13,342 )

Net cash used in operating activities (207,037 ) (835,796 )

Cash flows from investing activities:
Cash from acquisition - 26,180
Lease liability net of lease asset 2,499 (776 )
Purchase of property and equipment (1,949 ) (156,319 )

Net cash provided by (used in) investing activities 550 (130,915 )

Cash flows from financing activities:
Repayment of note payable (319,477 ) -
Proceeds from note payable 1,046,756 -
Deferred financing costs (137,561 ) -
Non-controlling interest of original investment in subsidiaries - 24,013
Private placement funds received 25,000 50,000

Net cash provided by financing activities 614,718 74,013

Net change in cash 408,231 (892,698 )

Cash - beginning of period 160,208 1,540,158

Cash - end of period $ 568,439 $ 647,460

Supplemental Disclosures of Cash Flow Information:

Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -

Supplemental Non-Cash Investing and Financing Information

Common stock issued for consideration in an acquisition of assets $ 728,544 $ 1,440,000
Conversion of debt to common shares $ 100,000 $ -
Increase in prepaid expenses and accrued expenses $ 93,827 $ -
Warrants issued for debt discount $ 102,217 $ -

Acquisition of PLAYlive and other Assets:
Goodwill $ - $ 2,226,166
Inventory $
110,310
$ -
Property and equipment $ 443,234 $ 9,503
Intangible Assets $
150,000
$ -
Goodwill $
25,000
$ -
Deferred brokerage fees $ - $ 805,975
Accounts payable $ - $ (3,574 )
Deferred revenue $ - $ (1,624,250 )

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

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(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 ~~League of Legends,~~ 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.

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. The Company is currently list on the OTC Market under the symbol “WINR”.

Through our wholly owned subsidiary, PLAYlive Nation, Inc. (“PLAYlive”), acquired on July 29, 2019, the Company has a network of franchised Gaming Centers. As ~~November 30, 2020, approximately 40~~August 31, 2021 the company had 17 company owned stores and 12 franchise locations ~~were considered to be operational,~~operating in various states including Arizona, California, Florida, Idaho, ~~Florida,~~ Maryland, ~~Michigan, Mississippi, Montana, Oregon,~~Ohio, South Carolina, Texas ~~Utah~~ and Washington. ~~As of November 30, 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.

On August 17, 2020, the Company filed a Certificate of Amendment to increase the authorized shares of common stock from 20,000,000 to 36,000,000. Accordingly, the Company’s authorized capital stock consists of (i) 36,000,000 shares of common stock, and (ii) 1,000,000 shares of preferred stock.

On September 28, 2020, the Company’s board of directors approved the reverse stock split in a ratio of 1-for-6 and on September 29, 2020, the Company filed an amended and restated certificate of amendment to its Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), implementing the reverse stock 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 foregoing reverse stock split to November 4, 2020. On November 17, 2020, the Company filed a certificate of amendment to the Certificate of Incorporation, changing the reverse stock split to a ratio of 1-for-8. The reverse stock split, in the ratio of 1-for-8, became effective on November 20, 2020. The reverse stock split is intended to allow the Company to meet the minimum share price requirement of the Nasdaq Capital Market. There is no assurance that our listing application will be approved by the Nasdaq Capital Market.

~~All share and per share data in the accompanying condensed consolidated financial statements have been retroactively restated to reflect the effect of the reverse stock split.~~

~~In connection with the new business initiatives, the Company has formed the following subsidiaries:~~

	●	~~Simplicity Esports, LLC, a limited liability company incorporated in Florida and a wholly owned subsidiary of the Company.~~
	●	~~PLAYlive Nation, Inc., company incorporated in Delaware and a wholly owned subsidiary of the Company.~~
	●	~~PLAYlive Nation Holdings, LLC, a limited liability company incorporated, and a wholly owned subsidiary of the Company.~~
	●	~~Simplicity One Brasil Ltd, a company incorporated under the laws of Brazil and a 76% owned subsidiary of the Company.~~
	●	~~Simplicity Happy Valley, LLC, a limited liability company incorporated in Oregon and a 79% owned subsidiary of the Company.~~
	●	~~Simplicity Redmond, LLC, a limited liability company incorporated in Washington and a 79% owned subsidiary of the Company.~~
	●	~~Simplicity El Paso, LLC, a limited liability company incorporated in Texas and is 51% owned by the Company (see Note 5).~~
	●	~~Simplicity Union Gap, LLC, a limited liability company incorporated in Washington and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Kennewick, LLC, a limited liability company incorporated in Washington and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Humble, LLC, a limited liability company incorporated in Texas and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Frisco, LLC, a limited liability company incorporated in Texas and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Billings, LLC. a limited liability company incorporated in Montana and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Brea, LLC. a limited liability company incorporated in California and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity Santa Rosa, LLC, a limited liability company incorporated in California and is wholly owned by the Company (see Note 5).~~
	●	~~Simplicity St. Petersburg, LLC, a limited liability company incorporated in Florida and is wholly owned by the Company (see Note 5).~~

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(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, ~~for the year ended May 31, 2020,~~ as filed with the SEC on August ~~31, 2020.~~30, 2021. The interim results for the ~~six~~three months ended ~~November 30, 2020,~~August 31, 2021 are not necessarily indicative of the results to be expected for the year ending May 31, ~~2021~~2022 or for any future interim periods.

Correction of Previously Issued Financial Statements

The accompanying condensed consolidated statement of operations for the three months ended August 31, 2020 has been corrected for a reclassification of depreciation expense of $27,134 to cost of goods sold related to assets utilized in the production of inventory. The Company assessed the materiality of the misstatement quantitatively and qualitatively and has concluded that the correction of the classification error is immaterial to the consolidated financials taken as a whole. As a result of the correction, Cost of Goods Sold increased from $40,511 to $67,645 with a corresponding decrease of General and administrative expenses, resulting in a decrease to Gross Profit from $160,090 to $132,956. The correction had no impact on Total operating loss and Net loss.

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.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

Basis of Consolidation

The condensed consolidated financial statements include the operations of the Company and its ~~wholly-owned~~wholly owned subsidiaries, Simplicity Esports, LLC, PLAYlive Nation, Inc., and ~~majority-owned~~PLAYlive Nation Holdings, LLC, its 76% owned subsidiary Simplicity One Brasil Ltd, its 79% owned subsidiaries Simplicity Happy Valley, LLC and ~~all~~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 no0 cash ~~equivalents as of November 30, 2020 and May 31, 2020.~~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.~~$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 through November 30, 2020.~~accounts.

~~Fair Value of~~ Financial Instruments

The fair value of the Company’s assets and ~~Fair Value Measurements~~

~~FASB ASC~~liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 820, ~~- Fair~~“Fair Value Measurements and Disclosures, ~~defines fair value as~~” approximates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on November 30, 2020. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

~~The three levels of the fair value hierarchy are as follows:~~

	~~Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.~~

	Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

	Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

~~The~~ carrying amounts ~~reported~~represented in the ~~unaudited~~ condensed consolidated balance ~~sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.~~sheet.

Foreign Currencies

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

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

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. ~~Significant estimates during~~

Revenue Recognition

As of January 1, 2018, the six months ended November 30, 2020 and 2019 include estimates for allowance for doubtful accounts on accounts receivable, the estimates for obsolete or slow-moving inventory, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the estimate of the fair value of the right of use asset and lease liability, the value of beneficial conversion features, and the fair value of non-cash equity transactions.

~~Revenue Recognition~~

~~The~~ Company ~~follows Accounting Standards Codification (“ASC”) Topic 606,~~ adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ~~This standard establishes~~The new guidance sets forth a ~~single comprehensive~~new five-step revenue recognition model ~~for entities~~which replaces the prior revenue recognition guidance in its entirety and is intended to ~~use~~eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in ~~accounting for revenue arising from contracts with customers and supersedes most~~GAAP. The underlying principle of the ~~existing revenue recognition guidance. ASC 606 requires an entity to~~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 ~~the consideration to which the entity~~what it expects to ~~be entitled~~receive in exchange for ~~those~~the goods or ~~services and~~services. The standard also requires ~~certain~~more detailed disclosures and provides additional ~~disclosures.~~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.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(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 Revenues

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

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

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

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

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

Esports Revenue

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

Deferred Revenues

Deferred revenues are classified as current ~~and~~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.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(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 ~~November 30, 2020.~~August 31, 2021. These costs are recognized in the same period as the initial franchise fee revenue is ~~recognized.~~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. ~~As of November 30, 2020, management~~Management has ~~recorded~~assessed accounts receivable and an allowance for doubtful accounts of ~~$139,867.~~approximately $42,479 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 -5 years), of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if they benefit future periods. ~~The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.~~

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 32 to 510 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, 2021, 12 franchise locations were considered to be operational in various states including Arizona, California, Florida, Idaho, Maryland, Ohio, South Carolina, Texas and Washington.

Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation 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.

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~Non employee stock-based payments

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

~~In June 2018, the FASB issued~~The Company records stock based payments made to non-employees in accordance with ASU 2018-07, ~~Compensation—Stock~~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. The Company adopted ASU 2018-07 on January 1, 2019. The adoption of ASU 2018 did not have any material impact on the Company’s consolidated financial statements.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

~~Related parties~~Leases

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

~~Leases~~

In February 2016, the ~~Financial~~FASB issued Accounting Standards ~~Board~~Update (“~~FASB”~~ASU”) ~~issued ASU 2016-02,~~ ~~Leases~~No. 2016-02-Leases (Topic 842)~~. The~~, which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, ~~requires lessees~~some leases that did not have to ~~recognize lease assets~~be reported previously are now required to be presented as an asset and ~~lease liabilities for most operating leases.~~liability on the balance sheet. In addition, ~~the updated guidance requires that lessors separate lease~~for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and ~~non-lease components in a contract in accordance with the new revenue guidance in ASC 606.~~interest expense. The ~~updated guidance is effective for interim and annual periods beginning after December 15, 2018.~~

~~On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the~~ Company elected to adopt this update early as of January l, 2019 using the modified retrospective transition method and prior periods have not reassess the following: (i) whether any expired or existing contracts contain leases; and (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contractbeen restated. Upon implementation, the Company ~~assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use~~recognized an initial operating lease right-of-use asset of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

~~Operating lease ROU assets~~ ~~represents the right to use the leased asset for the lease term~~$110,003 and operating lease ~~liabilities are recognized based on~~liability of $107,678. Due to the ~~present value~~simplistic nature of the ~~future minimum lease payments over the lease term at commencement date. As most~~Company’s leases, do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expenseno retained earnings adjustment was required. See Note 6 for ~~minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.~~further details.

Basic ~~Loss~~Income (Loss) Per Share

The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” ~~Basic loss~~Net income (loss) - per share is calculated by dividing the Company’s net ~~loss~~income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings or loss per common share is calculated by dividing the Company’s net income or loss available to common stockholders by the diluted weighted average number of common shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. For this calculation potentially dilutive securities consist primarily of warrants, outstanding options and shares into which the company’s convertible notes payable are convertible. When the Company records a loss from operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share. The following potentially dilutive equity securities outstanding as of November 30, 2020 and 2019 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

November 30,
2020 2019
Stock warrants 820,055 803,001
Convertible notes 108,696 64,750
Total 928,751 867,751

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. As of November 30, 2020 and May 31, 2020, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of November 30, 2020.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(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 August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the condensed consolidated 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 $16,502,806, a working capital deficit of $1,952,342 as of August 31, 2021, and a net loss attributable to common shareholders of ~~$7,855,418, $2,670,387 and $1.684.793, respectively, as of November 30, 2020. Management believes that these matters~~$4,210,907 for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern ~~for twelve months~~within one year from the ~~issuance~~of the date ~~of this report.~~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.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(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 ~~ten corporate~~16 company owned stores and ~~11 franchised Simplicity Gaming Centers as of January 14, 2021, the majority of which are operating at restricted capacity based on local COVID-19 regulations.~~12 franchise locations. Although our franchise agreements with franchisees of Simplicity Gaming Centers require a minimum monthly royalty payment to us from the franchisees regardless of whether the franchised Simplicity Gaming Centers are operating, there is a potential risk that franchisees of Simplicity Gaming Centers will default in their obligations to pay their minimum monthly royalty payment to us resulting in either an increase in accounts receivables or a bad debt expense where account receivables are no longer collectible due to franchisee’s inability to pay the minimum monthly royalty payments owed by the franchisee. We have not written off as bad debt any accounts receivables attributable to franchisee minimum monthly royalty payments owed during the COVID-19 pandemic. 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 ~~have negatively~~ impacted the Company’s business ~~during~~for the ~~six months~~fiscal year ended ~~November 30, 2020~~May 31, 2021 as well as the fiscal quarter ended August 31, 2021 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.

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

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

SCHEDULE OF PROPERTY AND EQUIPMENT

	August 31, 2021			May 31, 2021

Leasehold improvements	$	110,849		$	110,849
Property and equipment		830,141			755,741
Total cost		940,990			866,590
Less accumulated depreciation		(374,020	)		(292,282	)
Net property plant and equipment	$	566,970		$	574,308

November 30, 2020 May 31, 2020

Leasehold improvements $ 110,849 $ 52,189
Property and equipment 631,424 243,314
Total cost 742,273 295,503
Less accumulated depreciation (136,019 ) (62,770 )
Net property and equipment $ 606,254 $ 232,733

~~During~~Depreciation expense for the ~~six~~three months ended ~~November 30,~~August 31, 2021 and 2020 was $81,737 and ~~2019, the Company recorded depreciation expense of $73,249 and $21,148, respectively~~$27,135, respectively.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

NOTE 4 — INTANGIBLE ASSETS

The following table sets forth the intangible assets, including accumulated amortization as of ~~November 30, 2020:~~August 31, 2021:

SCHEDULE OF INTANGIBLE ASSETS

	Useful Life	Cost		Amortization		Value
	August 31, 2021
	Remaining			Accumulated		Net Carrying
	Useful Life	Cost		Amortization		Value
Non-Competes	4 years	$	1,023,118	$	548,642	$	474,476
Trademarks	Indefinite		866,000		-		866,000
Customer database	2 years		35,000		20,417		14,583
Restrictive covenant	2 years		115,000		67,083		47,917
Customer contracts	10 years		546,000		391,270		154,730
Internet domain	2 years		3,000		2,667		333
		$	2,588,118	$	944,537	$	1,558,039

November 30, 2020 May 31, 2020

Remaining
Useful Life

Intangible
Assets

Remaining
Useful Life

Intangible
Assets

Non-Competes 4 years $ 1,023,118 4.50 years $ 1,023,118
Trademarks Indefinite 866,000 Indefinite 866,000
Customer database 2 years 35,000 10 years
—

Restrictive covenant 2 years 115,000 — —
Customer contracts 10 years 343,414 —
546,000

Internet domain 2 years 3,000 2.50 years 3,000
Total intangible assets $ 2,385,532 $ 2,438,118

Accumulated amortization
(429,973)
(296,744 )
Net carrying value $
1,955,559
$ 2,141,374

The following tables set forth the intangible assets, including accumulated amortization as of May 31, 2021:

	Useful Life	Cost		Amortization		Value
	May 31, 2021
	Remaining			Accumulated		Net Carrying
	Useful Life	Cost		Amortization		Value
Non-Competes	4.50 years	$	1,023,118	$	498,799	$	524,319
Trademarks	Indefinite		866,000		-		866,000
Customer Contracts	10 years		546,000		301,675		244,325
Internet domain	2.50 years		3,000		2,417		583
		$	2,438,118	$	802,891	$	1,635,227

The following table sets forth the future amortization of the Company’s intangible assets as of ~~November 30, 2020:~~August 31, 2021 for the fiscal years ending May 31:

SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS

	2022		2023		2024		2025		2026		Thereafter		Total
Non-Competes	$	153,468	$	204,624	$	116,384	$	-	$	-	$	-	$	474,476
Customer contracts		12,158		16,211		16,211		16,211		16,211		77,728		154,730
Restrictive covenant		43,125		4,792				-		-		-		47,917
Customer database		13,125		1,458				-		-		-		14,583
Internet domain		333		-		-		-		-		-		333
Total	$	222,209	$	227,085	$	132,595	$	16,211	$	16,211	$	77,728	$	692,039

For the fiscal years ending May 31:
2021 $ 133,229
2022 266,040
2023 265,457
2024 130,197
2025 10,834
Thereafter 283,802
Total $ 1,089,559

~~During the six months ended November 30, 2020 and 2019, the Company recorded amortization~~Amortization expense of $133,229 and $102,812, respectively. During the six months ended November 30, 2020, the Company recorded $202,586 of impairment loss in relation to the customer contracts resulting from termination of franchise agreements.

~~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:

November 30, 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

~~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, 2021 and 2020 ~~as more fully described in Note 7.~~was $77,188 and $66,614, respectively.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(UNAUDITED)

NOTE 5 — ACQUISITIONS

Simplicity ~~El Paso, LLC:~~Salinas, LLC

On ~~June~~July 26, ~~2020,~~2021 the Company through its wholly owned subsidiary, Simplicity ~~El Paso,~~Salinas, LLC acquired ~~a 51% controlling interest in~~all of the inventory and property, plant and equipment assets of an existing franchise in exchange for ~~150,000~~6,000 shares of common stock at ~~$1.10~~$10.85 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 June 26, 2020:~~NOTE 6 — RELATED PARTY TRANSACTIONS

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

Contract Services

~~Asset Purchase Agreements:~~

~~Simplicity Kennewick, LLC:~~

On September 22, 2020, the Company’s wholly-owned subsidiary, Simplicity Kennewick, LLC (“Simplicity Kennewick”) entered into an Asset Purchase agreement (“APA”) with Ignatious O’Riley, an existing franchisee (“Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 2,990 shares of the Company’s common stock with fair value of $29,416 or $9.84 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

~~Simplicity Union Gap, LLC:~~

On September 23, 2020, the Company’s wholly-owned subsidiary, Simplicity Union Gap, LLC (“Simplicity Union Gap”) entered into an Asset Purchase agreement (“APA”) with Five Point Legacy Corp., an existing franchisee (“Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,506 shares of the Company’s common stock with fair value of $43,974 or $9.76 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

~~Simplicity St Petersburg, LLC:~~

~~On October 1, 2020,~~August 27, 2021 the Company entered into ~~an Asset Purchase agreement (“APA”)~~a contract with ~~Parryproject LLC., Owen Parry~~Laila Cavalcanti Loss, a board member, to provide legal services to its subsidiary Simplicity One Brasil, LTDA. The contract calls for monthly payments of $2,500 and ~~Jennie Parry, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 3,688~~ monthly equity awards of 250 shares of its common stock. The terms of the ~~Company’s common stock with fair value of $38,650 or $10.48 per share based on the fair value of assets acquired. These assets~~contract were ~~transferred~~retroactive to ~~the Company’s wholly-owned subsidiary, Simplicity St. Peterburg, LLC. Pursuant to ASU 2017-01~~July 1, 2020 and ~~ASC 805,~~at August 31, 2021, the Company ~~analyzed the APA to determine if the Company acquired a business or acquired assets.~~

~~Simplicity Humble, LLC:~~

On October 1, 2020, the Company’s wholly-owned subsidiary, Simplicity Humble, LLC (“Simplicity Humble”) entered into an Asset Purchase agreement (“APA”) with Team Centore Entertainment Corp., has accrued $25,000 and ~~Charles Centore, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 8,402~~ 375 shares of stock for the ~~Company’s common stock with fair value~~payments of $88,052 or $10.48 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.this contract.

~~Simplicity Frisco, LLC:~~

On October 12, 2020, the Company’s wholly-owned subsidiary, Simplicity Frisco, LLC (“Simplicity Frisco”) entered into an Asset Purchase agreement (“APA”) with JAR Mathis Holdings, Jared Mathis and Amy Mathis, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 6,202 shares of the Company’s common stock with fair value of $74,423 or $12.00 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

~~Simplicity Santa Rosa, LLC:~~

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Santa Rosa, LLC (“Simplicity Santa Rosa”) entered into an Asset Purchase agreement (“APA”) with B&R Franchise Investments, LLC, Brian Chu and Richard Loo, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,202 shares of the Company’s common stock with fair value of $48,068 or $11.44 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(UNAUDITED)

~~Simplicity Brea, LLC:~~

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Brea, LLC (“Simplicity Brea”) entered into an Asset Purchase agreement (“APA”) with Nextgen Gaming, LLC, Ajay Chunilal Shah and Shweta Shah, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 3,255 shares of the Company’s common stock with fair value of $37,237 or $11.44 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

~~Simplicity Billings, LLC:~~

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Billings, LLC (“Simplicity Billings”) entered into an Asset Purchase agreement (“APA”) with Button Mashers, Inc, Jon Bessmer and Brandy Bessmer, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,696 shares of the Company’s common stock with fair value of $53,725 or $11.44 per share based on the fair value of assets acquired. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the APA to determine if the Company acquired a business or acquired assets.

~~The following table summarizes the total of the assets acquired during the three months ended November 30, 2020:~~

Assets acquired:
Furniture, Fixtures and Equipment $ 330,234
Inventory 83,310
Total assets acquired at fair value $ 413,544

Purchase consideration paid:
37,941 shares of common stock $ 413,544
Total purchase consideration paid $ 413,544

~~NOTE 6 – OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES~~

In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. The Company entered various lease agreements. These leases require the Company to pay a monthly base rent plus a pro rata share of operating expenses beginning 2019 until 2025. The Company recorded right-of-use assets and lease liabilities in aggregate amount of $1,575,265 as of November 30, 2020.

For the six months ended November 30, 2020, lease costs amounted to $83,042 which included base lease costs of $74,452 and common area and other expenses of $8,589, all of which were expensed during the period and included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

~~The significant assumption used to determine the present value of the lease liability was a discount rate of 10% which was based on the Company’s estimated incremental borrowing rate.~~

~~Right-of-use asset (“ROU”) is summarized below:~~

November 30, 2020
Operating leases $ 1,575,265
Less accumulated reduction (254,420 )
Balance of ROU asset as of November 30, 2020 $ 1,320,845

~~Operating lease liability related to the ROU asset is summarized below:~~

November 30, 2020
Operating leases $ 1,575,265
Total lease liabilities 1,575,265
Reduction of lease liability (251,921 )
Total 1,323,344
Less: short term portion as of November 30, 2020 (281,088 )
Long term portion as of November 30, 2020 $ 1,042,256

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

~~Future base lease payments under the non-cancelable operating lease at November 30, 2020 are as follows:~~

Years Ending May 31, Amount
2021 $ 203,709
2022 407,278
2023 391,832
2024 373,870
2025 330,017
2026 110,000
Total minimum non-cancelable operating lease payments 1,816,706
Less: discount to fair value (493,362 )
Total lease liability at November 30, 2020 $ 1,323,344

~~NOTE 7 — RELATED PARTY TRANSACTIONS~~

~~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”) (see Note 9).

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.

NOTE 87 — COMMITMENTS AND CONTINGENCIES

~~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,~~$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~~ $11.50 per Unit pre-reverse split (or an aggregate exercise price of ~~$2,990,000)~~$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~~ $13.00 per ~~share.~~share on a pre-reverse split basis.

Operating Lease Right of Use Obligation

The Company ~~entered into various~~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 ~~agreements; these~~right-of-use assets, Current portion of operating lease liabilities and Operating lease liabilities, net of current portion.

As of August 31, 2021, operating lease right-of-use assets and liabilities arising from operating leases ~~require~~was $1,562,617 and $1,556,815, respectively. During the quarter ended August 31, 2021 and 2020, the Company ~~to pay~~recorded operating lease expense of $140,516 and $20,623.

The following is a ~~monthly base rent plus a pro rata share~~schedule showing the future minimum lease payments under operating leases by fiscal years and the present value of ~~operating expenses beginning 2019 until 2025 (see Note 6).~~the minimum payments as of August 31, 2021.

SCHEDULE SHOWING THE FUTURE MINIMUM LEASE PAYMENTS


2022	$	370,370
2023	$	468,377
2024	$	470,511
2025	$	423,795
2026 and thereafter	$	171,602
Total Operating Lease Obligations	$	1,904,655
Less: Amount representing interest	$	(347,840	)
Present Value of minimum lease payments	$	1,556,815

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(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~~ $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 ~~November 30, 2020,~~August 31, 2021 the Company ~~has accrued $75,000 related~~still owed Mr. Kaplan $35,000 of the 2020 bonus award.

Effective March 29, 2021, the Company promoted Mr. Kaplan to be the Chairmen of the Board of Directors, and he ceased to be the Company’s Chief Executive Officer and Interim Chief Financial Officer. Upon this change, Mr. ~~Kaplans cash bonus. During~~Kaplan’s new monthly salary became $4,000 per month and the ~~six months ended November 30,~~Kaplan 2020 ~~the 250,000 shares of common stock valued at $216,625 were issued.~~Agreement was terminated.

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~~ $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 ~~November 30,~~August 31, 2021, the Company still owed Mr. Franklin $35,000 of the 2020 bonus award.

On March 25, 2021, the Board of Directors appointed Mr. Franklin as the Company’s Chief Executive Officer, effective March 29, 2021. Mr. Franklin continues to be a member of our board of directors. In connection with Mr. Franklin’s appointment, on March 25, 2021, the Company entered into an employment agreement, dated as of March 29, 2021 by and between the Company and Mr. Franklin (the “2021 Franklin Employment Agreement”). Pursuant to the terms of the 2021 Franklin Employment Agreement, in exchange for Mr. Franklin’s services, the Company agreed to pay Mr. Franklin an annual base salary of $250,000. Mr. Franklin is also eligible to receive a quarterly bonus of up to $15,000 in the form of a cash bonus and/or equity grant of shares of the Company’s common stock. Mr. Franklin’s eligibility for any bonus and the amount thereof will be determined solely at the discretion of the Board of Directors.

On May 11, 2021, the Board appointed Nancy Hennessey to serve as the Company’s Chief Financial Officer, effective May 17, 2021. In connection with Ms. Hennessey’s appointment as the Company’s Chief Financial officer, the Company entered into an employment agreement, dated as of May 17, 2021 by and between the Company and Ms. Hennessey (the “Hennessey Employment Agreement”). Pursuant to the terms of the Hennessey Employment Agreement, in exchange for Ms. Hennessey’s services, the Company agreed to pay Ms. Hennessey an annual base salary of $140,000. In addition, Ms. Hennessey is entitled to receive compensation in the form of an equity grant of $5,000 in the Company’s common stock for each quarter during the term of the Hennessey Employment Agreement, which runs for a period ending one year after May 17, 2021 and automatically renews for successive one year terms unless either party gives 60 days’ advance written notice of its intention not to renew the Hennessey Employment Agreement. Ms. Hennessey is also eligible to receive a quarterly bonus of up to $12,500 in the form of a cash bonus and/or equity grant of shares of the Company’s common stock. Pursuant to the terms of the Hennessey Employment Agreement, Ms. Hennessey will also receive (i) 5,000 shares of common stock upon filing of the 2021 Annual Report on Form 10-K, if completed before July 31, 2021, and (ii) 5,000 shares of common stock upon completion of an uplisting to a national exchange, such as The Nasdaq Stock Market or the NYSE American. Ms. Hennessey’s eligibility for any bonus and the amount thereof will be determined solely at the discretion of the Board of Directors

On August 31, 2021, the Company has accrued ~~$75,000 related to Mr. Franklins cash bonus and $216,625 related to~~$5,000 for the ~~Common Shares to be issued to Mr. Franklin.~~quarterly equity grant for Ms. Hennessey.

On ~~July 29, 2020,~~August 20, 2021, the Board of Directors approved ~~the issuance of 192,000~~82,500 shares of stock to its directors and officers with for prior services an issuance date of September 1, 2021. On August 31, 2021, the Company has accrued $833,250 as common stock ~~to an employee and the Directors of the Company for services provided during the fiscal year ended May~~issuable.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, ~~2020.~~2021

(UNAUDITED)

~~Litigation~~

NOTE 8 - DEBT

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. On October 30, 2020 Duncan Wood and Simplicity Esports and Gaming Company executed a mutual General Release and the lawsuit was dismissed with prejudice.

~~NOTE 9 - DEBT~~

The table below presents outstanding debt instruments as of ~~November 30, 2020~~August 31, and May 31, ~~2020:~~2021

SCHEDULE OF OUTSTANDING DEBT INSTRUMENT

November 30, 2020 May 31,2020
10% Fixed Convertible Promissory Note $ — $ 152,500
Self-amortization promissory notes 1,133,023 —
August 7, 2020 self-amortization promissory note 333,333 —
Related Party Note — 64,728
Convertible Note Payable 1,000,000 1,000,000
2,466,356 1,217,228
Less: debt discount (366,227 ) (25,180 )
Total $ 2,100,129 $ 1,192,048

	AUGUST 31, 2021			MAY 31, 2021
Convertible Promissory Notes	$	3,952,424		$	3,157,970
Related Debt Discount		(2,394,343	)		(947,873	)
Total	$	1,558,081		$	2,211,097

Current portion of Convertible Promissory Notes, net	$	1,323,051		$	2,211,097
Non current portion of Convertible Promissory Notes, net		235,030			-

~~10% Fixed~~Amendments to the Series A-2 Exchange Convertible ~~Promissory~~ Note

On ~~April 29, 2020 (the “Effective Date”),~~or about December 20, 2018, the Company issued ~~a 10% Fixed Convertible Promissory~~that certain Series A-2 exchange convertible note in the original principal amount of $1,000,000 (the “Series A-2 Note”) to Maxim. The Series A-2 Note ~~(the “Harbor Gates Note”), with~~has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of ~~October 29,~~June 20, 2020, ~~(the “Maturity Date”)~~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 ~~principal sum of $152,000 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant~~five trading days prior to the ~~terms~~notice of ~~the Harbor Gates Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”)~~conversion and ~~to pay “guaranteed” interest on the~~$0.50.

On June 4, 2020, $100,000 in 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 orwas converted into ~~Company~~85,905 shares of common stock in accordance with the terms of the ~~Harbor Gates~~Maxim Note. ~~The Harbor Gates Note carries an original issue discount (“OID”) of $2,500. Accordingly, on~~

On June 18, 2020, the ~~Effective Date, Harbor Gates delivered $150,000~~Company and Maxim entered into that certain first amendment to the ~~Company in exchange for the Harbor Gates Note.~~

~~In addition~~Series A-2 Note (the “First Amendment”), pursuant to which such parties agreed to the ~~“guaranteed” interest, and upon~~following: (i) Maxim’s resale of the ~~occurrence~~Company’s common stock (the “Common Stock”) underlying the Series A-2 Note shall be limited to 10% of ~~an Event~~the daily volume of ~~Default (as hereinafter defined), additional interest would accrue from~~ the Common Stock on each respective trading day, (ii) the maturity date of the ~~Event~~Series A-2 Note was extended to December 31, 2020, (iii) the principal amount of ~~Default at~~ the ~~rate equal~~Series A-2 Note was increased by $100,000 and (iv) the conversion price was reduced from $15.44 to $9.20.

On December 31, 2020, the Company and Maxim entered into a second amendment to the ~~lower~~Series A-2 Note to extend the maturity date of ~~20% per annum or the highest rate permitted by law.~~Series A-2 Note to February 15, 2021.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOVEMBER 30, 2020~~AUGUST 31, 2021

(UNAUDITED)

~~The~~On April 14, 2021, the Company ~~may prepay~~and Maxim entered into the ~~Harbor Gates Note according~~third amendment to the ~~following schedule:~~Series A-2 Note with Maxim pursuant to which the Company and Maxim agreed to the following:

~~Days Since~~ ~~Effective Date~~(i)		~~Payment Amount~~The maturity date of the Series A-2 Note is extended to October 15, 2021.
~~Under 30~~		~~115% of Principal Amount (as hereinafter defined) so paid~~
~~31-60~~(ii)		~~120%~~The principal balance of ~~Principal Amount so paid~~the Series A-2 Note is increased by $50,000 as of April 14, 2021.
~~61-90~~		~~125% of Principal Amount so paid~~
~~91-180~~(iii)		~~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 The Series A-2 Note was not repaid in its entirety (in cash and/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)~~	~~1,250 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~~pursuant to conversion(s) of the ~~three consecutive trading days immediately preceding~~Series A-2 Note) on or before April 30, 2021, and accordingly, the ~~date which~~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 ~~180~~^th ~~day following~~Company’s common stock pursuant to conversion(s) of the ~~Effective Date~~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 ~~less than $8.00 per share, then Harbor Gates~~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 ~~be entitled, and~~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, ~~issue~~within five business days after the Company’s receipt of the Second Tranche Purchase Price of $999,996, pay $500,000 to ~~Harbor Gates additional shares of common stock as set forth in~~Maxim, which will reduce the ~~Harbor Gates Note.~~principal owed under the Series A-2 Note by $500,000.

~~If an Event~~While any portion of ~~Default (as defined~~the Series A-2 Note is outstanding, if the Company receives cash proceeds from public offerings or private placements of the Company’s common stock to investors (except with respect to proceeds from officers and directors of the Company), the Company will, within five business days of the Company’s receipt of such proceeds, inform Maxim or such receipt, following which Maxim will have the right in its sole discretion to require the ~~Promissory Note) occurs,~~Company to immediately apply up to 25% of such proceeds received by the Company to repay the outstanding ~~Principal Amount of~~amounts owed under the ~~Harbor Gates~~Series A-2 Note. The parties understand that (a) each dollar applied toward repayment pursuant to this clause (viii) will reduce the balance owed under the Series A-2 Note ~~owing in respect thereof through the date of acceleration, shall become, at Harbor Gates’ election, immediately due~~by one dollar, 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~~(b) this clause (viii) will ~~be automatically added~~not apply 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.Tiger Trout transaction.

On ~~July 2, 2020,~~August 19, 2021, the ~~10% Fixed Convertible Promissory~~Company and Maxim entered into the fourth amendment (the “Fourth Amendment”) to the Series A-2 Maxim Note, ~~was~~as amended, pursuant to which the Company and Maxim agreed that all obligations under the Series A-2 Maxim Note, as amended, shall be extinguished, and the Series A-2 Maxim Note, as amended, shall be deemed repaid in ~~full. A cash~~its entirety, upon the satisfaction of the following obligations: (i) the Company’s payment of ~~$201,300 including principal~~$500,000 to Maxim within three business days of ~~$152,500, guaranteed interest~~August 19, 2021, (ii) the Company’s issuance of ~~$15,200~~20,000 restricted shares of the Company’s common stock to Maxim within seven business days of August 19, 2021, and ~~prepayment penalties~~(iii) the Company’s issuance of ~~$33,600 was made~~a common stock purchase warrant to Maxim on August 19, 2021 for the purchase of 365,000 shares of the Company’s common stock. The Company also granted Maxim an irrevocable right of first refusal superseding all others to act as Company’s sole managing underwriter and sole bookrunner or exclusive placement agent or financial advisor, or finder in connection with any public or private offering by the Company or any subsidiary of or successor to the ~~lender. In connection with~~Company (if applicable) of its equity, equity linked or debt securities (including convertible securities) while the ~~repayment~~Company’s common stock is listed on any of the ~~note,~~NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing, each, a “National Exchange”), within the period beginning on August 19, 2021 and ending on the close of business on January 1, 2023.

As a result of the Fourth Amendment, the Company ~~recorded~~issued to Maxim a ~~charge to interest~~common stock purchase warrant (the “Warrant”) for the purchase of 365,000 shares of the Company’s common stock (the “Warrant Shares”) at an exercise price of $13.00. On August 25, 2021, the Company paid Maxim $500,000 and recognized an expense on the extinguishment of debt in the amount of ~~$73,980 comprised~~$1,759,969. On August 30, 2021 the Company issued Maxim 20,000 shares of ~~$48,800 related to interest and prepayment penalties and $25,180 related to accelerated accretion~~its common stock in fulfillment of ~~unamortized debt discount recorded in connection with~~ the ~~original issue discount and in connection with common shares issued to the lender.~~Fourth Amendment.

~~Self-Amortization~~February 19, 2021 12% Promissory ~~Notes~~Note and Securities Purchase Agreement

On ~~June 18, 2020 (the “Issue Date”),~~February 19, 2021, the Company entered into a securities purchase agreement (the ~~“June 18, 2020 SPA”~~“SPA”) dated as of February 19, 2021, with an accredited investor (the “Holder”), pursuant to which the Company issued a ~~12% self-amortization~~12% promissory note (the ~~“June Amortization Note”~~“Note”) with a maturity date of ~~June 18, 2021~~February 19, 2022 (the “Maturity Date”), in the principal sum of ~~$550,000.~~$1,650,000. In addition, the Company issued 10,000 shares of its common stock to the Holder as a commitment fee pursuant to the SPA. Pursuant to the terms of the ~~June Amortization~~ Note, the Company agreed to pay to ~~$550,000~~$1,650,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per ~~annum.~~annum (provided that the first twelve months of interest shall be guaranteed). The ~~Amortization~~ Note carries an original issue discount (“OID”) of ~~$55,000.~~$165,000. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of $1,485,000 in exchange for the Note. The Company ~~received net~~intends to use the proceeds for its operational expenses, the repayment of ~~$467,650, net of original issue discount of $55,000 and origination fees of $27,350. In addition, pursuant~~those certain self-amortization promissory notes previously issued to the ~~terms~~Holder on June 18, 2020 and November 23, 2020, and the repayment of certain other existing debt obligations. The Holder may convert the ~~SPA, the Company issued 6,875 shares of~~Note into the Company’s common stock (subject to the ~~Holder as additional consideration. The 6,875 shares were value~~beneficial ownership limitations of 4.99% in the Note) at ~~$62,150, or $9.04~~any time at a conversion price equal to $11.50 per ~~share, based on the quoted trading price on the date of grant.~~share.

The Company may prepay the ~~June 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~~an interim payment to the Holder in the amount of $363,000, on or before August 19, 2021, towards the repayment of the balance of the Note. The Company and the Holder have agreed to extend the terms of this payment. The extension provides that the Company paid $100,000 to the Holder by the interim payment date and has agreed to pay an additional $100,000 upon the completion of a new debt deal that is anticipated to close by September 1, 2021 and the Company has agreed to pay $163,000 to the Holder at the earlier of the Company stock uplist or September 30, 2021. These extension payments were paid by the Company on September 30,2021.

During the quarter ended August 31, 2021 the Company paid interim payments to the Holder ~~according to~~in the ~~following schedule:~~

Payment Date Payment Amount
10/16/2020 $ 66,125
11/16/2020 66,125
12/16/2020 66,125
01/18/2021 66,125
02/18/2021 66,125
03/18/2021 66,125
04/16/2021 66,125
05/18/2021 66,125
06/18/2021 65,921
Total: $ 594,921

~~In connection with~~amount of $225,000 towards the ~~November 23, 2020 SPA discussed below,~~repayment of the balance of the Note in the amount of $90,909, towards the repayment of guaranteed interest in the amount of $109,091 and $25,000 as an amendment fee and the Company ~~repaid principal and~~recorded $287,330 in interest expense for the amortization of ~~$198,375 on this June 18, 2020 Note.~~debt discount. On August 31, 2021 the balance of the Note, net of the related debt discount is $903,588.

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 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%~~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~~

March 2021 FirstFire Global 12% Promissory 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.Securities Purchase Agreement

On ~~November 25, 2020,~~March 10, 2021, the Company, entered into a securities purchase agreement (the ~~“November 23, 2020~~“March 10 FirstFire SPA”), dated as of ~~November 23, 2020~~March 10, 2021, with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the ~~“Effective Date”~~“FirstFire”) ~~with the Holder,~~, pursuant to which the Company issued a ~~12% self-amortization~~12% promissory note ~~(the “November Amortization~~(“March 10 FirstFire Note”) with a maturity date of ~~November 23, 2021 (the “Maturity Date”)~~March 10, 2022, in the principal sum of ~~$750,000.~~$560,000. The Company received net proceeds of $130,606, net of OID of $56,000, net of origination fees of $8,394, and the repayment of principal and interest of $365,000 on the August 7, 2020 Note. In addition, the Company issued 3,394 shares of its common stock to the FirstFire as a commitment fee pursuant to the SPA. Pursuant to the terms of the ~~November Amortization~~March 10 FirstFire Note, the Company agreed to pay to ~~$750,000~~$560,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of ~~12%~~12% per annum. The Company received net proceeds of $441,375, net of original issue discount of $75,000, origination fees of $35,250, and the partial repayment of principal and interest of $198,375 on the June 18, 2020 Note. In addition, pursuant to the terms of the SPA, the Company granted 17,054 warrants to purchase 17,054 shares of the Company’s common stock, subject to adjustment. In connection with the November Amortization Note, duringannum (provided that the first twelve months of this note, interest equal to $90,000 shall be guaranteed and earned in full as of the Effective Date, provided, however, that if the November Amortization Note is repaid in its entirety on or prior to February 23, 2021, then the interest shall be ~~accrued on a per annum basis based~~guaranteed). The March 10 FirstFire Note carries an OID of $56,000. Accordingly, on the ~~number of days elapsed as of the repayment date from the Effective Date.~~

~~In connection with the November 23, 2020 SPA, the Company shall issue warrants equal to 375,000 divided by the Exercise Price~~Closing Date (as defined ~~below) (the “Warrant Shares”) (whereby such number~~in the March 10 FirstFire SPA), the Holder paid the purchase price of $504,000 in exchange for the Note. The FirstFire may ~~be adjusted from time to time pursuant to~~convert the ~~terms and conditions of this Warrant) at the Exercise Price per share then in effect. For purposes of this Warrant, the term “Exercise Price” shall mean 110% of the public offering price of~~March 10 FirstFire Note into the Company’s common stock ~~under~~(subject to the public offering contemplated by the registration statement on Form S-1 filed by the Company on October 23, 2020 (the “Uplist Offering”), provided, however, that if the Uplist Offering has not been consummated on or before May 23, 2021, then the Exercise Price shall mean the closing bid pricebeneficial ownership limitations of ~~the Company’s common stock on December 23, 2020, subject to adjustment as provided~~4.99% in the ~~warrant (including but not limited~~March 10 FirstFire Note) at any time at a conversion price equal to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the earlier of (i) the date of the Company’s consummation of the Uplist Offering or (ii) May 23, 2021, and ending on the five-year anniversary thereof. In connection with the issuance of these warrants, on the initial measurement date, the relative fair value of the warrants of $157,438 was recorded as a debt discount and an increase in paid-in capital.$11.50 per share.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

The Company may prepay the ~~Amortization~~March 10 FirstFire 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~~March 10 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 ~~Amortization~~March 10 FirstFire Note or March 10 FirstFire SPA.

The Company is required to make ~~ten monthly amortization payments~~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 10 FirstFire Note. On September 17, 2021, the Company issued a common stock purchase warrant for the purchase of 40,000 shares of the Company’s common stock to FirstFire as consideration for FirstFire entering into a first amendment to the ~~Holder~~March 10 FirstFire Note in order to delay an interim payment of ~~$84,000 commencing on February 23, 2021 through November 23,2021. according~~OID and interest due under the March 10 FirstFire Note to the ~~following schedule:~~maturity date of such note.

On October 1, 2021, the Company issued a common stock purchase warrant for the purchase of an additional 40,000 shares of the Company’s common stock to FirstFire as consideration for FirstFire entering into a second amendment to the March 10 FirstFire Note in order to remove the capital raising ceiling in such note.

Upon ~~the Holder’s~~FirstFire’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~~March 10 FirstFire Note), the ~~Amortization~~March 10 FirstFire Note shall become immediately due and payable and the Company shall pay to ~~the Holder,~~FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by ~~125%~~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~~

During 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 Holder shall have the right, at any time following an Uncured Default Date (as defined in this Note), to convert all or any portion of the then outstanding and unpaid principal amount and interest (including any default interest) into shares of the Company’s common stock at the Conversion Price. Following the Uncured Default Date the Conversion Price shall equal the lesser of (i) 105% multiplied by the closing bid price of the Company’s common stock or (ii) the closing bid price of the Company’s common stock immediately preceding the date of the respective conversion (the “Conversion Price”).

~~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.~~

~~As of November 30, 2020, the June and~~quarter ended August ~~Amortization Notes are not in default.~~

~~The Company recorded a total debt discount in the amount of $144,500 in connection with the common shares issued to the Holder and an original issue discount associated with the note.~~

~~In connection with the June and August Amortization Notes, during the six months ended November 30, 2020.~~31, 2021, the Company recognized ~~interest expense~~ $65,533 of ~~$90,474~~amortization of debt discount related to ~~amortization~~the FirstFire Note. On August 31, 2021, the balance of FirstFire Note, net of the related debt discount, is $419,468 all of which is included in the current portion of convertible notes payable, net of debt discount.

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

~~August 7, 2020 Self-Amortization~~June 2021 FirstFire Global 12% Promissory Note and Securities Purchase Agreement

On ~~August 7, 2020 (the “Issue Date”),~~June 11, 2021, the Company entered into a securities purchase agreement (the ~~“SPA”~~“June 11 FirstFire SPA”) dated as of June 10, 2021, with FirstFire Global Opportunities Fund, LLC ~~an accredited investor (the “Holder”~~(“FirstFire”), pursuant to which the Company issued a 12% ~~self-amortization~~ promissory note (the ~~“Amortization~~“June 11 FirstFire Note”) with a maturity date of ~~August 7, 2021~~June 10, 2023 (the ~~“Maturity~~“FirstFire Maturity Date”), in the principal sum of ~~$333,333.~~$1,266,666. In addition, the Company issued 11,875 shares of its common stock to FirstFire as a commitment fee pursuant to the June 11 FirstFire SPA. Pursuant to the terms of the ~~Amortization~~June 11 FirstFire Note, the Company agreed to pay to ~~$333,333 (the “Principal~~$1,266,666 (the “FirstFire Principal Sum”) to ~~the Holder~~FirstFire and to pay interest on the principal balance at the rate of 12% per ~~annum.~~annum (provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the FirstFire Note after 180 days from June 10, 2021). The ~~Amortization~~June 11 FirstFire Note carries an original issue discount (“OID”) of ~~$33,333.~~$126,666. Accordingly, FirstFire paid the purchase price of $1,140,000 in exchange for the FirstFire Note. The Company ~~received net~~intends to use the proceeds ~~of $280,500, net of original issue discount of $33,333~~for working capital and ~~origination fees of $19,500. In addition, pursuant~~ to ~~the terms of the SPA,~~pay off an existing promissory note issued by the Company ~~issued 4,167 shares~~in favor of Maxim. FirstFire may convert the June 11 FirstFire Note into the Company’s common stock (subject to the ~~Holder as additional consideration. The 4,167 shares were value~~beneficial ownership limitations of 4.99% in the June 11 FirstFire Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by FirstFire upon, at ~~$30,166, or $7.24~~ the election of FirstFire, not less than 61 days’ prior notice to the Company) at any time at a conversion price equal to $11.50 per share, ~~based on~~as the ~~quoted trading price on~~same may be adjusted as provided in the ~~date of grant.~~June 11 FirstFire Note.

The Company may prepay the ~~Amortization~~June 11 FirstFire Note at any time prior to maturity in accordance with 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%~~terms of the ~~Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium).~~June 11 FirstFire Note. The ~~Amortization~~June 11 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 ~~Amortization~~June 11 FirstFire Note or the June 11 FirstFire 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 (as defined in the June 11 FirstFire Note), which has not been cured within ~~five (5)~~three 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~~June 11 FirstFire Note shall become immediately due and payable and the Company shall pay to ~~the Holder,~~FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the FirstFire Principal Sum then outstanding plus accrued interest multiplied by 125%.

Pursuant to the terms of the June 11 FirstFire SPA, the Company also issued to FirstFire a three-year warrant (the ~~“Default Amount”~~“June 11 FirstFire Warrant”) to purchase 593,750 shares of the Company’s common stock at an exercise price equal to (i) 110% of the per share offering price of the offering made in connection with any uplisting of the Company’s common stock; or (ii) prior to the determination of the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company also agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of all shares issued or issuable pursuant to the June 11 FirstFire SPA, including shares issued upon conversion of the June 11 FirstFire Note or exercise of the June 11 FirstFire Warrant. The Company agreed to use its commercially reasonable efforts to have the registration statement filed with the SEC within 90 days following June 10, 2021 and to have the registration statement declared effective by the SEC within 120 days following June 10, 2021.

The Company recorded the June 11 FirstFire Note in the amount of $1,266,667 and a related debt discount of $1,266,667, interest payable of $76,000 and additional paid in capital of $1,053,999. ~~Upon~~During the ~~occurrence~~quarter, the Company recorded interest expense of ~~an Event~~$140,548. On August 31, 2021, the balance of ~~Default (as hereinafter defined)~~the June 11 FirstFire Note, net of the related debt discount is $140,548 all of which is included in the long term portion of convertible notes payable, net of related debt discount.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

GS Capital Securities Purchase Agreement & Note

On June 16, 2021, the Company entered into a securities purchase agreement (the “GS SPA”) dated as of June 10, 2021, with GS Capital Partners, LLC (“GS Capital”), ~~additional interest will accrue from~~pursuant to which the Company issued a 12% promissory note (the “GS Note”) with a maturity date of June 10, 2023 (the “GS Maturity Date”), in the ~~Event~~principal sum of ~~Default~~$333,333. In addition, the Company issued 3,125 shares of its common stock to GS as a commitment fee pursuant to the GS SPA. Pursuant to the terms of the GS Note, the Company agreed to pay to $300,000.00 (the “GS Principal Sum”) to GS and to pay interest on the principal balance at the rate ~~equal to the lower~~ of ~~15%~~12% per annum or(provided that the ~~highest rate permitted by law.~~first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the GS Note after 180 days from June 10, 2021). The GS Note carries an original issue discount (“OID”) of $33,333. Accordingly, GS paid the purchase price of $300,000.00 in exchange for the GS Note. The Company ~~shall have~~intends to use the ~~right~~proceeds for working capital and to pay off an existing promissory note issued by the ~~Default Amount~~Company in ~~cash at any time, provided, however that the Holder~~favor of Maxim. GS may convert the ~~Amortization~~GS Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% ~~contained~~ in the ~~Amortization Note)~~GS Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by GS upon, at the election of GS, not less than 61 days’ prior notice to the Company) at any time ~~after~~at a conversion price equal to $11.50 per share, as the ~~date that is five (5)~~same may be adjusted as provided in the GS Note.

The Company may prepay the GS Note at any time prior to maturity in accordance with the terms of the GS Note. The 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 GS Note or the GS SPA.

Upon the occurrence of any Event of Default (as defined in the GS Note), which has not been cured within three calendar days, ~~after~~ the ~~Amortization~~GS Note ~~becomes~~shall become immediately due and payable ~~as a result of an Event of Default until~~and the Company ~~has repaid the Amortization Note~~shall pay to GS, in ~~cash. If the aforementioned event occurs, the conversion price will be~~full satisfaction of its obligations hereunder, an amount 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 noprincipal amount ~~under the Amortization Note is converted into shares of the Company’s common stock.~~

~~In connection with the August 7, 2020 Self-Amortization promissory note, during the six months ended November 30, 2020. the Company recognized~~then outstanding plus accrued interest ~~expense of $38,487 related to amortization of the discount.~~

~~Related Party - Kaplan Promissory Note~~

Pursuant to the terms of the ~~Kaplan~~GS SPA, the Company also issued to GS a three-year warrant to purchase 156,250 shares of the Company’s common stock at an exercise price equal to (i) 110% of the per share offering price of the offering made in connection with any uplisting of the Company’s common stock; or (ii) prior to the determination of the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company also agreed to prepare and file with the SEC a registration statement covering the resale of all shares issued or issuable pursuant to the GS SPA, including shares issued upon conversion of the GS Note or exercise of the GS Warrant. The Company agreed to use its commercially reasonable efforts to have the registration statement filed with the SEC within 90 days following June 10, 2021 and to have the registration statement declared effective by the SEC within 120 days following June 10, 2021.

The Company recorded the GS Note in the amount of $333,333 and a related debt discount of $333,333, interest payable of $20,000 and additional paid in capital of $280,000. During the quarter, the Company recorded interest expense of $34,703. On August 31, 2021, the balance of the GS Note, net of the related debt discount is $34,703 all of which is included in the long term portion of convertible notes payable, net of related debt discount.

Jefferson Street Capital Stock Purchase Agreement & Note

On August 23, 2021, the Company entered into a securities purchase agreement (the “Jefferson SPA”) dated as of August 23, 2021, with Jefferson Street Capital, LLC (“Jefferson”), pursuant to which the Company issued a 12% promissory note (the “Jefferson Note”) with a maturity date of August 23, 2023 (the “Jefferson Maturity Date”), in the principal sum of $333,333. In addition, the Company issued 3,125 shares of its common stock to Jefferson as a commitment fee pursuant to the Jefferson SPA. Pursuant to the terms of the Jefferson Note, the Company agreed to pay to ~~Mr. Kaplan the lesser of (i)~~$300,000.00 (the “Jefferson Principal Sum”) to Jefferson and to pay interest on the principal ~~sum~~balance at the rate of ~~$90,000 (the “Maximum Commitment”), or (ii)~~12% per annum (provided that the ~~aggregate principal~~first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the Jefferson Note after 180 days from August 23, 2021). The Jefferson Note carries an original issue discount (“OID”) of ~~all direct advances~~$33,333. Accordingly, Jefferson paid the purchase price of $300,000.00 in exchange for the Jefferson Note. The Company intends to use the proceeds for working capital and to pay off an existing promissory note issued by the Company in favor of Maxim. Jefferson may convert the ~~Kaplan~~Jefferson Note ~~(each, an “Advance”), together with any interest thereon, and any and all other amounts which~~into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Jefferson Note; provided however, that the limitation on conversion may be ~~due and payable thereunder from time~~waived (up to ~~time.~~

~~Subject~~9.99%) by Jefferson upon, at the election of Jefferson, not less than 61 days’ prior notice 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”) outstandingCompany) 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”)conversion price equal to ~~10% plus~~$11.50 per share, as the ~~Interest Rate;~~same may be adjusted as provided ~~however, that~~ in ~~no event will~~ the ~~Default Rate exceed the maximum rate permitted by law.~~

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~Jefferson Note.

The Company may prepay the ~~Kaplan~~Jefferson 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 six months ended November 30, 2020 Mr. Kaplan advanced an additional $25,272 under~~prior to maturity in accordance with the terms of the ~~note. During~~Jefferson Note. The 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 ~~quarter ended November 30, 2020, Mr. Kaplan exchanged~~Jefferson Note or the ~~note together with accrued interest in exchange for his acquisition~~Jefferson SPA.

Upon the occurrence of ~~a 10% interest~~any Event of Default (as defined in the ~~Company’s wholly owned subsidiary Simplicity Brasil.~~

~~Convertible~~Jefferson Note), which has not been cured within three calendar days, the Jefferson Note ~~Payable~~

~~On December 20, 2018,~~shall become immediately due and payable and the Company ~~entered into a securities exchange agreement (“Exchange Agreement”) with Maxim. Pursuant~~shall pay to ~~the terms~~Jefferson, in full satisfaction of ~~the Exchange Agreement, Maxim agreed~~its obligations hereunder, an amount equal 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 $15.44 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)~~plus 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 writingmultiplied 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.125%.

Pursuant to the terms of the ~~Series A-1 Note,~~Jefferson SPA, the Company ~~was not permitted~~also issued 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~~Jefferson a three-year warrant 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 purchase 156,250 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 $15.44, 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~~at an exercise price equal to ~~the notice of conversion and $4.00.~~

~~As of December 31, 2018, upon the closing~~(i) 110% of the ~~Acquisition,~~per share offering price of the ~~Series A-1 Note automatically converted into 24,206 shares~~offering made in connection with any uplisting of the Company’s common ~~stock~~

~~On June 4, 2020, $100,000~~stock; or (ii) prior to the determination of ~~principal balance was converted into 10,738 shares~~the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in ~~accordance with the terms of the Maxim Note.~~

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

~~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:~~clause (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 increasedis not completed by $100,000, which is included in interest expense on the accompanying condensed consolidated statement of operations, and (iv) the reference to “$15.44” in Section 4(b) of the Maxim Note was replaced with “$9.20”November 1, 2021, $10.73.

The Company also agreed to prepare and file with the SEC a registration statement covering the resale of all shares issued or issuable pursuant to the Jefferson SPA, including shares issued upon conversion of the Jefferson Note or exercise of the Jefferson Warrant. The Company agreed to use its commercially reasonable efforts to have the registration statement filed with the SEC within 90 days following August 23, 2021 and to have the registration statement declared effective by the SEC within 120 days following August 23, 2021.

The Company recorded the Jefferson Note in the amount of $333,333 and a related debt discount of $274,239, interest payable of $20,000 and additional paid in capital of $205,905. During the ~~six months ended November 30, 2020~~quarter, the Company recorded interest expense of ~~$38,069. Total principal and accrued interest on Maxim note amounted to $1,000,000 and $75,894 as~~$685. On August 31, 2021, the balance of ~~November 30, 2020.~~the Jefferson Note, net of the related debt discount is $59,779 all of which is included in the long term portion of convertible notes payable, net of related debt discount.

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

NOTE ~~10 -STOCKHOLDERS’~~9 -STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 1,000,000shares of preferred stock with a par value of ~~$0.0001~~ $0.0001 per share. As of ~~November 30, 2020,~~August 31, 2021 there were no 0shares 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.~~36,000,000. Holders of the shares of the Company’s common stock are entitled to one vote for each share. At ~~November 30, 2020~~August 31, 2021 and May 31, ~~2020,~~2021, there were ~~1,217,376~~1,492,595 and ~~998,622~~1,427,124 shares of common stock issued and outstanding respectively.

Stock - Based Compensation

During the quarter ended August 31, 2021, the company approved stock-based compensation to its officers or directors and share based compensation for the three months ended August 31, 2021 and August 31, 2020 was approximately $838,250 and $150,095, respectively.

~~Common Stock Issued for Cash~~Warrants

~~In May 2020,~~The Company issued warrants related to the convertible notes payable that were issued during the quarter ended August 31, 2021.Additinally, the Company ~~issued 2,976 shares~~sold 100,000 warrants for the purchase of ~~its restricted common stock at a price of $8.72 per share, to William H. Herrmann, Jr. a member of the Company’s board of directors, for an aggregate purchase price of $25,000.~~

~~Common Stock Issued in Connection with Debt~~

~~Effective June 4, 2020, the Company issued 10,738~~100,000 shares of common stock at ~~$9.28~~an exercise price of $20.00 per share ~~in connection with the conversion of $100,000 in principal balance~~to a private investor for $100,000.

A summary of the ~~Convertible Note Payable (see Note 8).~~status of the Company’s outstanding stock warrants as of August 31, 2021 is as follows:

SCHEDULE OF OUTSTANDING STOCK WARRANTS

	Number of Shares		Average Exercise Price
Outstanding – May 31, 2020		803,001	$	83.01

Granted during the year ended May 31, 2021		17,063	$	20.66
Outstanding – May 31, 2021		820,064	$	10.38
Warrants granted during the quarter ended August 31, 2021		1,257,312	$	11.26
Sale of warrants during the quarter		100,000	$	20.00
Warrants exercisable – August 31, 2021		2,177,376	$	38.08

SIMPLICITY ESPORTS AND GAMING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2021

(UNAUDITED)

NOTE 10 — SUBSEQUENT EVENTS

On ~~June 18, 2020, pursuant to the terms of the June 18, 2020 SPA between the Company and an accredited investor, pursuant to which~~September 1, 2021, the Company issued ~~a 12% self-amortization promissory note (Note 8) in the principal amount~~an aggregate of ~~$550,000,~~82,500 restricted common shares of the Company ~~issued 6,875 shares~~to executive officers and directors of ~~common stock at $9.04 per share, to such accredited investor as additional consideration~~the Company for services rendered during the fiscal year ended May 31, 2021 which was approved by the Board of Directors on August 20, 2021 and which expense was accrued for the purchase of such note. The 6,875 shares were value at $62,150, or $9.04 per share, based on the quoted trading price on the date of grant, which was included in debt discount and accreted over the term of the debt.quarter ended August 31, 2021.

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 1,250 shares of our restricted common stock, issued at $7.92 per share, to Harbor Gates Capital, LLC as additional consideration for the purchase of such note. The 1,250 shares were value at $9,900, or $7.92 per share, based on the quoted trading price on the date of grant, which was included in debt discount and accreted over the term of the debt.

~~Effective~~On August ~~10, 2020,~~31, 2021 pursuant to the terms of that certain Securities Purchase Agreement between the Company and ~~an accredited investor pursuant to which we~~Lucas Ventures, LLC, the Company issued a ~~12% self-amortization~~convertible promissory note ~~(Note 8)~~ in the principal amount of ~~$333,333,~~$200,000 with an effective date of September 2, 2021. In addition, the Company issued ~~4,167~~ 3,749 shares of its common stock ~~at $7.28 per share. The 4,167 shares were value at $30,166, or $7.24 per share, based on~~to the ~~quoted trading price on~~investor as a commitment fee pursuant to the ~~date of grant, which was included in debt discount and accreted over the term of the debt.~~

~~Common Stock Issued for Accounts Payable~~

~~On June 4, 2020,~~Securities Purchase Agreement. Furthermore, the Company issued ~~3,125~~ a common stock purchase warrant for the purchase of 187,400 shares of the Company’s common ~~stock at $14.72 per share in satisfaction~~stock.

On August 31, 2021 pursuant to the terms of ~~an outstanding balance owed to a vendor in the amount of $46,000. In connection with this issuance,~~that certain Securities Purchase Agreement between the Company ~~reduced accounts payable by $33,865~~ and ~~recorded debt settlement expense of $12,135.~~

~~Common Stock Issued for Acquisitions~~

~~On July 1, 2020, the Company acquired the assets of one of its franchisee-owned esports gaming centers on Fort Bliss U.S. Military base in El Paso, TX. In connection with the acquisition~~LGH Investments, LLC, the Company issued ~~18,750 restricted shares at $8.80 per share, or $165,000.~~a convertible promissory note in the principal amount of $200,000 effective September 2, 2021.

On September ~~22, 2020, in connection with an Asset Purchase agreement with Ignatious O’Riley, an existing franchisee (“Seller or Franchisee”), to acquire~~17, 2021, the ~~Franchisee’s assets in exchange~~Company issued a common stock purchase warrant for ~~2,989~~ the purchase of 40,000 shares of the Company’s common stock to FirstFire Global Opportunities Fund, LLC (“FirstFire”) as consideration for FirstFire entering into a first amendment to the March 10 FirstFire Note in order to delay an interim payment of OID and interest due under the March 10 FirstFire Note to the maturity date of such note.

On September 28, 2021, the Company entered into a securities purchase agreement (the “Ionic SPA”) dated as of September 28, 2021, with ~~fair value~~Ionic Ventures, LLC (“Ionic”), pursuant to which the Company issued a 12% promissory note (the “Ionic Note”) with a maturity date of ~~$29,416 or $9.84~~ September 28, 2023(the “Ionic Maturity Date”), in the principal sum of $1,555,555.56. In addition, the Company issued 14,584 shares of its common stock to Ionic as a commitment fee pursuant to the Ionic SPA. Pursuant to the terms of the Ionic Note, the Company agreed to pay to $1,400,000.00 (the “Ionic Principal Sum”) to Ionic and to pay interest on the principal balance at the rate of 12% per annum (provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the Ionic Note after 180 days from September 28, 2021). The Ionic Note carries an original issue discount (“OID”) of $155,555.56. Accordingly, Ionic paid the purchase price of $1,400,000.00 in exchange for the Ionic Note. The Company intends to use the proceeds for working capital. Ionic may convert the Ionic Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Ionic Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by Ionic upon, at the election of Ionic, not less than 61 days’ prior notice to the Company) at any time at a conversion price equal to $11.50 per share, ~~(see~~as the same may be adjusted as provided in the Ionic Note.

The Company may prepay the Ionic Note 5)at any time prior to maturity in accordance with the terms of the Ionic Note. The 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 Ionic Note or the Ionic SPA.

Upon the occurrence of any Event of Default (as defined in the Ionic Note), which has not been cured within three calendar days, the Ionic Note shall become immediately due and payable and the Company shall pay to Ionic, in full satisfaction of its obligations hereunder, an amount equal to the principal amount then outstanding plus accrued interest multiplied by 125%.

Pursuant to the terms of the Ionic SPA, the Company also issued to Ionic a three-year warrant to purchase 729,167 shares of the Company’s common stock at an exercise price equal to (i) 110% of the per share offering price of the offering made in connection with any uplisting of the Company’s common stock; or (ii) prior to the determination of the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company also agreed to prepare and file with the SEC a registration statement covering the resale of all shares issued or issuable pursuant to the Ionic SPA, including shares issued upon conversion of the Ionic Note or exercise of the Ionic Warrant. The Company agreed to use its commercially reasonable efforts to have the registration statement filed with the SEC within 90 days following September 28, 2021 and to have the registration statement declared effective by the SEC within 120 days following September 28, 2021.

On September 28, 2021 the Company received notice that the original Paycheck Protection Plan (“PPP”) loan was forgiven in the amount of $40,500. The company will record this along with the related accrued interest as debt forgiveness income in the quarter ending November 30, 2021.

On September ~~23, 2020,~~30, 2021, the Company paid $500,000 to the Holder of the February 19, 2021 12% Promissory Note and Securities Purchase Agreement in compliance with the renegotiated terms of an interim payment that was due on August 19, 2021.

On October 1, 2021, the Company issued a common stock purchase warrant for the purchase of an additional 40,000 shares of the Company’s ~~wholly-owned~~common stock to FirstFire as consideration for FirstFire entering into a second amendment to the March 10 FirstFire Note in order to remove the capital raising ceiling in such note.

On October 7, 2021, the Company’s wholly owned subsidiary Simplicity ~~Union Gap~~Tracy, LLC entered into an Asset Purchase agreement company with ~~Five Point Legacy Corp., an existing~~a former franchisee ~~(“Seller or Franchisee”),~~ to acquire the ~~Franchisee’s~~ assets of the former franchisee in exchange for ~~4,506 shares of the Company’s common stock with fair value of $43,974 or $9.76 per share (see Note 5).~~

~~SIMPLICITY ESPORTS AND GAMING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOVEMBER 30, 2020~~

~~(UNAUDITED)~~

On October 1, 2020, the Company entered into an Asset Purchase agreement with Parryproject LLC., Owen Parry and Jennie Parry, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 3,688 shares of the Company’s common stock with fair value of $38,650 or $10.48 per share (see Note 5).

On October 1, 2020, the Company’s wholly-owned subsidiary, Simplicity Humble entered into an Asset Purchase agreement with Team Centore Entertainment Corp., and Charles Centore, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 8,402 shares of the Company’s common stock with fair value of $88,052 or $10.48 per share (see Note 5).

On October 12, 2020, the Company’s wholly-owned subsidiary, Simplicity Frisco entered into an Asset Purchase agreement with JAR Mathis Holdings, Jared Mathis and Amy Mathis, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 6,202 shares of the Company’s common stock with fair value of $74,423 or $12.00 per share (see Note 5).

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Santa Rosa entered into an Asset Purchase agreement with B&R Franchise Investments, LLC, Brian Chu and Richard Loo, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,202 shares of the Company’s common stock with fair value of $46,068 or $11.44 per share (see Note 5).

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Brea entered into an Asset Purchase agreement (“APA”) with Nextgen Gaming, LLC, Ajay Chunilal Shah and Shweta Shah, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 3,255 shares of the Company’s common stock with fair value of $37,237 or $11.44 per share (see Note 5).

On October 30, 2020, the Company’s wholly-owned subsidiary, Simplicity Billings entered into an Asset Purchase agreement with Button Mashers, Inc, Jon Bessmer and Brandy Bessmer, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,697 shares of the Company’s common stock with fair value of $52,725 or $11.44 per share (see Note 5).

~~Common Stock Issued for Compensation~~

On June 30, 2020, the Company issued 12,334 shares of common stock at $7.76 per share to various employees of the Company as compensation. In connection with the issuance of these shares, the Company recorded stock-based compensation of $95,700.

During the three months ended August 31, 2020, the Company issued 84,062 shares of common stock to executive officers of the Company for services rendered. Additionally, the Company issued 19,779 shares of common stock to employees for services rendered. The shares were valued at per share prices ranging from $6.56 to $14.72, based on the quoted trading price on the date of grant. In connection with the issuance of these shares, during the six months ended November 30, 2020, the Company recorded stock-based compensation of $54,395 and reduced prior accrued compensation by $669,215.

Effective August 1, 2020, the Company entered into a marketing agreement whereby the Company issued 3,472 shares of common stock at $6.56 per share. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $15,185 and prepaid expenses of $7,593 which will be amortized over the remaining service period.

During the three months ended November 30, 2020, the Company issued an aggregate of 9,844 restricted common shares of the Company to executive officers of the Company for services rendered. These shares were valued at $119,632, or per share prices ranging from $9.04 per share to $11.44 per common share, based on the quoted trading price on the date of grant. In connection with the issuance of these shares, during the six months ended November 30, 2020, the Company recorded stock-based compensation of $119,632.

On September 16, 2020, the Company issued an aggregate of 2,813 restricted common shares of the Company to executive officers and employees of the Company for services rendered. These shares were valued at $25,420, or $9.04 per share, based on the quoted trading price on the date of grant. In connection with the issuance of these shares, during the six months ended November 30, 2020, the Company recorded stock-based professional fees of $25,420.

~~Warrants~~

In connection with the November 23, 2020 SPA (see Note 8), the Company shall issue warrants equal to 375,000 divided by the Exercise Price (as defined below) (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. For purposes of this Warrant, the term “Exercise Price” shall mean 110% of the public offering price of the Company’s common stock under the public offering contemplated by the registration statement on Form S-1 filed by the Company on October 23, 2020 (the “Uplist Offering”), provided, however, that if the Uplist Offering has not been consummated on or before May 23, 2021, then the Exercise Price shall mean the closing bid price of the Company’s common stock on December 23, 2020, subject to adjustment as provided in the warrant (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the earlier of (i) the date of the Company’s consummation of the Uplist Offering or (ii) May 23, 2021, and ending on the five-year anniversary thereof. In connection with the issuance of these warrants, on the initial measurement date, the relative fair value of the warrants of $157,438 was recorded as a debt discount and an increase in paid-in capital.

~~Warrant activities for the six months ended November 30, 2020 are summarized as follows:~~

Number of Warrants Weighted Average
Exercise Price Weighted
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic Value
Balance Outstanding May 31, 2020 803,000 $ 83.04 - $ -
Granted 17,054 21.99
Cancelled - -
Balance Outstanding November 30, 2020 820,054 $ 81.74 3.10 $ -
Exercisable, November 30, 2020 820,054 $ 81.74 3.10 $ -

~~NOTE 11 — SUBSEQUENT EVENTS~~

~~On December 3, 2020, the Company issued 5,000~~ 4,500 shares of its common stock in satisfaction of $50,000 in legal fees. These shares were valued at $80,000, or $16.00 per share, based on the quoted trading price on the date of grant. In connection with the issuance of these shares, the Company reduced accounts payable by $50,000 and recorded legal fees of $30,000.stock.

~~On December 18, 2020,~~The above issuances/sales were made pursuant to an exemption from registration as set forth in Section 4(a)(2) of the ~~Company issued an aggregate~~Securities Act and/or Rule 506 of ~~100,000 shares (50,000 each) to two executive officers as a bonus. These shares were valued at $1,410,000, or $14.10 per share, based on~~Regulation D promulgated under the quoted trading price on the date of grant. In connection with the issuance of these shares, the Company recorded stock-based compensation of $1,410,000. Additionally, these officers shall receive a cash bonus of $125,000 each to be paid when funds are available. Securities Act.

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 ~~its subsidiaries.~~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,~~2021, 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, ~~2020,~~2021, 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

~~Nasdaq Delisting and Subsequent Application~~

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 May 22, 2020, the Company submitted formal application to Nasdaq for listing its shares of stock on the Nasdaq Capital Market. Management believes the Company will meet all standards required for listing on the Nasdaq Capital Market during the first calendar quarter of 2021. A reverse stock split, in the ratio of 1-for-8, became effective on November 20, 2020. The reverse stock split is intended to allow the Company to meet the minimum share price requirement of the Nasdaq Capital Market. There is no assurance that our listing application will be approved by the Nasdaq Capital Market.

~~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 center operations including the sale of game time to casual players on our high speed, high performance gaming stations, the sale of gaming related merchandise and accessories including controllers, collectible card games, such as Pokemon Magic the Gathering, and Yugi-Oh, registration fees from local esports tournaments and leagues, and the sale of party packages for party events. 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.

~~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~~

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.

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, ~~Heroes of the Storm~~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,~~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. Flamengo Esports @flaesports was ranked as the 9^th most tweeted about ~~esports~~sports organization in the world in 2020.

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~~4,000 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,~~

Creating content that engages fans, sponsors and developers, while promoting our brand is one of our primary goals. Out talented team will continue to produce unique in-depth content which showcases aspects of esports for fans. We seek to reach a broad demographic encompassing the ~~esports~~casual, amateur and professional gaming ~~centers of Simplicity Esports LLC (“Simplicity Esports Gaming Centers”) will measure between 1,500~~community. Our philosophy is to enhance our footprint for both endemic 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.~~non-endemic partnerships. We believe we possess a deep perception of our ~~brick-and-click strategy will present attractive opportunities for sponsors~~markets and ~~advertisers~~understand the new age of branding while maintaining authenticity to ~~connect with~~the gaming community that comprises our ~~audience, creating an intriguing monetization opportunity for sponsors and advertisers.~~fanbase.

Corporate Gaming Centers

~~Simplicity Esports LLC and other~~As of August 31, 2021 through our subsidiary ~~LLCs are operating 11~~entities, we currently operate 16 corporate-owned retail Simplicity Esports Gaming Centers, ~~eight of which were acquired during~~Furthermore, we have engaged a national tenant representation real estate broker to assist in the ~~quarter. We expect to acquire the assets of four more franchisee owned esports gaming centers,~~strategic planning and ~~convert them to corporate owned gaming centers during the first calendar quarter of 2021.~~negotiations for our future Simplicity Esports Gaming Center locations. 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.The Company intends to continue the expansion of its corporate owned esports gaming center footprint through the buildout of new esports gaming centers. 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. The locations will range between 2,000 and 4,000 sq ft and be primarily located inside of shopping malls.

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.The 12 franchise owned gaming centers that we have acquired to date generated over $1 million of revenue in the fiscal year ended May 31, 2021 despite operating with limited capacity due to COVID-19 restrictions. Due to interest from potential franchisees, we have 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. 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~~HR 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. InOn January 1, 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,~~this time, a pipeline of interested applicants has accumulated, and we anticipate new franchise territory sales over the next 12 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 one of the largest ~~footprint of~~ esports gaming ~~centers~~center footprints 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~~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. To date, we have signed 11 letters of intent and executed definitive agreements for eight of those locations. We anticipate closing the remaining acquisitions during the first calendar quarter of 2021. We expect each of these locations to be profitable as a result of the significant reduced rent expense via the percentage rent structure.terms

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~~three months ended ~~May~~August 31, ~~2020~~2021 and ~~2019,~~2020, we generated revenues of ~~$861,410~~$904,840 and ~~$37,995, respectively,~~$200,601, reported net losses of ~~$2,665,779~~$4,265,744 and ~~$3,565,272,~~$655,214, respectively, and negative cash flow from ~~operating activities~~operations of ~~$1,522,486~~$943,694 and ~~$1,395,255, respectively.~~

For the six months ended November 30, 2020 and 2019, we generated revenues of $497,147 and $319,991, reported net losses of $1,684,793 and $854,894, respectively, and had cash flow used in operating activities of $207,037 and $835,796,$233,412, respectively. As of ~~November 30, 2020,~~August 31, 2021, we had an accumulated deficit of ~~$7,855,418.~~$16,502,806.

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~~The following table summarizes our operating results for the ~~initial public offering, which was consummated on~~three months ended August ~~22, 2017,~~31, 2021 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.~~2020.

	Three Months Ended			Three Months Ended
	August 31, 2021			August 31, 2020

Franchise revenues	$	62,358		$	87,283
Company-owned stores sales		673,501			76,938
Esports revenue		168,981			36,380
Total revenue		904,840			200,601
Less: Cost of goods sold		(607,122	)		(67,645	)
Gross margin		297,718			132,956
Operating expenses		(2,196,174	)		(618,228	)
Other income (expense)		(2,367,288	)		(185,828	)
Net loss attributable to non-controlling interest		54,837			15,886
Net Loss	$	(4,210,907	)	$	(655,214	)

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

Summary of Statement of Operations for the Three ~~and Six~~ Months Ended ~~November 30, 2020~~August 31, 2021 and ~~2019:~~2020:

Revenue

~~For the three and six months ended November 30, 2020, revenues consisted of the following:~~

For the Three Months Ended For the Six Months Ended
November 30, 2020 November 30, 2020
Revenues
Franchise royalties and license fees $ 36,877 $ 200,274 $ 117,695 $ 247,012
Franchise termination revenue 54,916 45,224 61,381 -
Company-owned stores sales 167,791 - 244,729 49,643
Esports revenue 36,962 - 73,342 23,336

Total Revenues $ 296,546 $ 245,498 $ 497,147 $ 319,991

~~For~~The Company’s revenue for the three months ended ~~November 30, 2020, our revenues increased by $51,048, or 20.8%, as compared to~~August 31, 2021 was $904,840, a $704,239 increase over the three months ended ~~November 30, 2019. For the six months ended November 30,~~August 31, 2020 ~~our revenues increased by $177,156, or 55.4%, as compared to the six months ended November 30, 2019. These increases were primarily due to the acquisition~~revenue of PLAYlive, the Company-owned stores and Simplicity One offset by a decrease in franchise royalties and license fees. Our revenue has been affected by the COVID-19 pandemic which caused franchisee business closures.$200,601

Cost of Goods Sold

Cost of goods sold for the three ~~and six~~ months ended ~~November 30,~~August 31, 2021 was $607,122, an increase of $539,477 over the three months ended August 31, 2020 ~~was $67,657 and $108,168, respectively. These costs were related to revenues at PLAYlive and the Company-owned stores. There was no~~ cost of goods sold ~~in the three and six months ended November 30, 2019.~~of $67,645.

~~General and Administrative~~Operating Expenses

~~General and administrative~~Operating expenses for the three months ended ~~November 30, 2020~~August 31, 2021 was ~~$1,013,177~~$2,196,174 as compared to ~~$819,305~~$618,228 for the three months ended ~~November 30, 2019,~~August 31, 2020, an increase of $193,872. General and administrative expenses for the six months ended November 30, 2020 was $1,658,539 as compared to $1,258,257 for the six months ended November 30, 2019, an increase of $400,282. Theses$1,577,946. The change ~~are~~is primarily attributable to ~~the acquisition of PLAYlive, the Company-owned stores~~a $1,000,558 increase in compensation and ~~Simplicity One. General~~benefits, a $375,462 increase in professional fees coupled with a $201,926 increase in general and administrative expenses consist primarily of payroll and related costs, stock-based compensation, operating costs, computer and software related costs, rent and impairments losses incurred from the write off of customer contracts related to the termination of franchisee agreements.expenses. The increase in ~~selling, general~~compensation and ~~administrative expenses~~benefits is ~~primarily~~ related to ~~a $53,000~~an increase in ~~salary~~stock based compensation coupled with higher wages and wage 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.~~

~~Loss from Operations~~

~~For~~taxes on the ~~three months ended November 30, 2020, loss from operations amounted to $784,288 as compared to $573,807 for~~increased number of employees at the three months ended November 30, 2019, an increase of $210,481, or 26.8%. For the six months ended November 30, 2020, loss from operations amounted to $1,269,560 as compared to $938,266 for the six months ended November 30, 2019, an increase of $331,294, or 59835.3%.

~~Other (Expense) Income~~

~~For the three months ended November 30, 2020, other (expense) income amounted to $(229,405) as compared to $2,305 for the three months ended November 30, 2019, a change of $(231,710), or 100.5%.~~company owned stores. The increase in ~~other expenses was~~professional fees is primarily attributable to an increase in ~~interest expense of $237,985~~legal services, coupled with higher accounting and audit fees. The increase in general and administrative costs is primarily related to ~~an increase in debt~~the increased rent, utilities, and operating costs of the ~~amortization of debt discount.~~company owned stores.

~~For~~Other Income

We incurred $2,367,288 of non-operating loss comprised of $1,759,969 of loss on the ~~six~~extinguishment of debt and $52,358 in other income offset by $659,696 in interest expense for the three months ended ~~November 30, 2020, other (expense) income amounted to $(415,233)~~August 31, 2021, as compared to ~~$83,372~~non-operating expense of $185,828, comprised of $154,128 of interest expense, $19,572 of foreign exchange losses and $12,135 of loss on the extinguishment of debt for the ~~six~~three months ended November 30, 2019, a change of $(498,605). The increase in other expenses was primarily attributable to an increase in interest expense of $385,438 related to an increase in debt and the amortization of debt discount and a decrease in debt forgiveness of $90,646.August 31, 2020.

Net Loss

Net loss for the three months ended ~~November 30, 2020~~August 31, 2021 was ~~$1,013,693~~$4,265,744, as compared to a net loss of ~~$571,502~~$671,100 for the three months ended November 30, 2019, an increase of $442,191. Net loss for the six months ended November 30, 2020 was $1,684,793 as compared to $854,894 for the six months ended November 30, 2019, an increase of $829,899.August 31, 2020.

Liquidity and Capital Resources

~~Liquidity is the ability~~As of ~~an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We~~August 31, 2021, we had cash of ~~$543,439~~673,693, which is available for use by us to cover all of the Company’s costs including those associated with due diligence procedures and ~~$160,208~~other general corporate purposes. In addition, as of ~~November 30, 2020 and May~~August 31, ~~2020, respectively.~~

Our primary uses of cash have been for salaries, fees paid to third parties for professional services, computer and internet expenses, and general and administrative expenses. We have received funds from the sales of franchises, from licensing fees, from Company-owned stores sales, and from various financing activities such as from the sale of our common shares and from debt financings. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:

	●	~~An increase in working capital requirements to finance our current business,~~

	●	~~Addition of administrative and sales personnel as the business grows, and~~

	●	~~The cost of being a public company;~~

	●	~~Marketing expense for building brand;~~

	●	~~Capital requirements for the development store locations.~~

~~Since inception,~~2021, we ~~have raised proceeds from the sale of common shares and from debt to fund our operations.~~

~~The following table shows a summary of our cash flows for the six months ended November 30, 2020 and 2019.~~

Six Months Ended
November 30,
2020 2019
Net cash used in operating activities $ (207,037 ) $ (835,796 )
Net cash provided by (used in) operating activities 550 (130,915 )
Net cash provided by financing activities $ 614,718 $ 74,013
Net increase (decrease) in cash $ 408,231 $ (892,698 )
Cash - beginning of the period $ 160,208 $ 1,540,158
Cash - end of the period $ 568,439 $ 647,460

~~Net Cash Used in Operating Activities:~~

Net cash flow used in operating activities for the six months ended November 30, 2020 primarily reflected a net loss of $1,684,794, which was then adjusted for the add-back (deduction) of non-cash items primarily consisting of depreciation of $73,249, amortization expense of $133,229, stock-based compensation expense of $1,033,140, non-cash interest expense related to debt of $241,557, and impairment loss of $166,171, and changes in operating assets and liabilities consisting primarily of an increase in accounts payable of $110,595, a decrease inhad accrued expenses of ~~$194,222, and a decrease in amounts due to related party of $45,516.~~$1,147,434.

For the ~~six~~three months ended ~~November 30, 2019,~~August 31, 2021, cash used in operating activities amounted to ~~$835,796,~~$943,694 primarily resulting from a net loss of ~~$854,894, a decrease of $97,624 of accrued expenses,~~$4,265,744 an increase of ~~accounts receivable of $67,971 and an addback~~$1,759,969 in loss on extinguishment of debt, ~~forgiveness income~~an increase of ~~$85,238, offset by stock~~$620,178 in non-cash interest expense, $168,209 increase in shares issued for services, ~~of $153,000,~~inventory purchases and interest coupled with a $65,176 increase in depreciation and amortization expense, an increase in lease liability net of leased assets of $20,447 offset by a decline of $38,412 in the provision for uncollectible accounts and ~~depreciation expense of $123,960.~~an $116,000 increase in deferred guaranteed interest payments. Changes in our operating liabilities and assets ~~used~~provided cash of ~~$172,635.~~$289,423.

~~Net Cash Provided by (Used in) Investing Activities:~~

Net cash provided by investing activities was $550 for the six months ended November 30, 2020 as compared net cash used in vesting activities of $(130,915) for the six months ended November 30, 2019. During the six months ended November 30, 2019, we primarily used cash for the purchase of property and equipment of $156,319 offset cash acquired from an acquisition of $26,180.

~~Net Cash Provided by Financing Activities:~~

Net cash provided by financing activities was $614,718 for the six months ended November 30, 2020 as compared to $74,013 for the six months ended November 30, 2019. During the six months ended November 30, 2020, we received net cash from notes payable of $1,046,756 and cash from the sale of common stock of $25,000, offset by the repayment of notes payable of $319,477 and the payment of deferred financing costs of $137,561.

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 $16,502,806 a working capital deficit of $1,952,342 as of August 31, 2021, and a net loss attributable to common shareholders of ~~$7,855,418, $2,670,387 and $1.684.793, respectively, as of November 30, 2020. Management believes that these matters~~$4,210,907 for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern ~~for twelve months~~within one year from the ~~issuance~~of the date ~~of this report.~~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 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,~~2020 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 ~~ten~~16 corporate and 1112 franchised Simplicity Gaming Centers as of ~~January 14, 2021, the majority of which are operating at restricted capacity based on local COVID-19 regulations.~~August 31, 2021. 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. As of August 31, 2021 we have recorded an increase in the allowance for doubtful accounts of approximately $14,000 as our collection efforts are ongoing. We have ~~not written off as bad debt any accounts~~experienced a decrease in our account receivables ~~attributable to franchisee minimum monthly royalty payments owed during~~by approximately $13,000 from the ~~COVID-19 pandemic.~~year ended May 31, 2021. 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 measures taken to date ~~have negatively impacted~~did impact the Company’s business ~~during~~for the ~~six months~~fiscal quarter ended ~~November 30, 2020~~August 31, 2021 and the full year ended May 31, 2021 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).

~~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.

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.

~~On December 31, 2020 Maxim and Simplicity executed an amendment of the Note extending the maturity date to February 15, 2021.~~

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. ~~We will also recognize deferred franchise fee revenue upon completing acquisitions of franchisee owned gaming centers and converting them~~

The Company is party to ~~corporate owned centers.~~

~~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 forleases at its corporate office ~~rent is approximately $700 per month. In August~~and at each of ~~2019, the Company opened~~ its ~~second gaming center~~company owned store locations which have various terms 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.payments.

The gaming center acquisitions that occurred in the current period were also complimented by the signing of new lease agreements with the landlords. The leases consist of rent payments to be made as a percentage of each gaming center’s gross sales with a minimum floor payment ranging between $1,000 and $3,000 monthly, representing 50-80% reductions in rent expense from prior leases that were in force while the gaming centers were owned by franchisees.

~~Future base lease payments under the non-cancelable operating lease related to Gaming Centers at November 30, 2020 are as follows:~~

Years Ending May 31, Amount
2021 $ 203,709
2022 407,278
2023 391,832
2024 373,870
2025 330,017
2026 110,000
Total minimum non-cancelable operating lease payments 1,816,706

Debt Obligations

~~10% Fixed~~Amendments to the Series A-2 Exchange Convertible ~~Promissory~~ Note

On ~~April 29, 2020 (the “Effective Date”),~~or about December 20, 2018, the Company issued ~~a 10% Fixed Convertible Promissory~~that certain Series A-2 exchange convertible note in the original principal amount of $1,000,000 (the “Series A-2 Note”) to Maxim. The Series A-2 Note ~~(the “Harbor Gates Note”), with~~has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of ~~October 29,~~June 20, 2020, ~~(the “Maturity Date”),~~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 ~~principal sum of $152,500 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant~~five trading days prior to the ~~terms~~notice of ~~the Harbor Gates Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”)~~conversion and ~~to pay “guaranteed” interest on the~~$0.50.

On June 4, 2020, $100,000 in 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 orwas converted into ~~Company~~85,905 shares of 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 GatesMaxim Note.

~~In addition~~On June 18, 2020, the Company and Maxim entered into that certain first amendment to the ~~“guaranteed” interest, and upon~~Series A-2 Note (the “First Amendment”), pursuant to which such parties agreed to the ~~occurrence~~following: (i) Maxim’s resale of ~~an Event~~the Company’s common stock (the “Common Stock”) underlying the Series A-2 Note shall be limited to 10% of ~~Default (as hereinafter defined), additional interest will accrue from~~ the daily volume of the Common Stock on each respective trading day, (ii) the maturity date of the ~~Event of Default at~~Series A-2 Note was extended to December 31, 2020, (iii) 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~~

On December 31, 2020, the Company 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 addedMaxim entered into a second amendment to the ~~Principal Amount.~~Series A-2 Note to extend the maturity date of Series A-2 Note to February 15, 2021.

~~Pursuant~~

On April 14, 2021, the Company and Maxim entered into the third amendment to the ~~terms of the Harbor Gates~~Series A-2 Note with Maxim pursuant to which the Company and Maxim agreed to ~~issue Harbor Gates~~the following:

(i)

The maturity date of the Series A-2 Note is extended to October 15, 2021.

(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 ~~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~~pursuant to conversion(s) of the ~~three consecutive trading days immediately preceding~~Series A-2 Note) on or before April 30, 2021, and accordingly, the ~~date which~~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 ~~180~~^th ~~day following~~Company’s common stock pursuant to conversion(s) of the ~~Effective Date~~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 ~~less than $1.00 per share, then Harbor Gates~~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 ~~be entitled, and~~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, ~~issue~~within five business days after the Company’s receipt of the Second Tranche Purchase Price of $999,996, pay $500,000 to ~~Harbor Gates additional shares of common stock as set forth in~~Maxim, which will reduce the ~~Harbor Gates Note.~~principal owed under the Series A-2 Note by $500,000.

On August 19, 2021, the Company and Maxim entered into the fourth amendment (the “Fourth Amendment”) to the Series A-2 Maxim Note, as amended, pursuant to which the Company and Maxim agreed that all obligations under the Series A-2 Maxim Note, as amended, shall be extinguished, and the Series A-2 Maxim Note, as amended, shall be deemed repaid in its entirety, upon the satisfaction of the ~~Harbor Gates Note owing in respect thereof through~~following obligations: (i) the ~~date~~Company’s payment of ~~acceleration, shall become, at Harbor Gates’ election, immediately due and payable in cash at~~$500,000 to Maxim within three business days of August 19, 2021, (ii) the ~~“Mandatory Default Amount”. The Mandatory Default Amount means 35%~~Company’s issuance 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 into20,000 restricted shares of the Company’s common stock atto Maxim within seven business days of August 19, 2021, and (iii) the ~~Variable Conversion Price.~~Company’s issuance of a common stock purchase warrant to Maxim on August 19, 2021 for the purchase of 365,000 shares of the Company’s common stock. The ~~“Variable Conversion Price” will be equal~~Company also granted Maxim an irrevocable right of first refusal superseding all others to act as Company’s sole managing underwriter and sole bookrunner or exclusive placement agent or financial advisor, or finder in connection with any public or private offering by the Company or any subsidiary of or successor to the ~~lower of: (a) $1.00,~~Company (if applicable) of its equity, equity linked or ~~(b) 70%~~debt securities (including convertible securities) while the Company’s common stock is listed on any of the ~~lowest volume weighted average price~~NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing, each, a “National Exchange”), within the period beginning on August 19, 2021 and ending on the close of business on January 1, 2023.

As a result of the Fourth Amendment the Company issued to Maxim a common stock purchase warrant (the “Warrant”) for the purchase of 365,000 shares 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~~(the “Warrant Shares”) at an exercise price of ~~the Harbor Gates Note.~~

$13.00. On ~~July 2, 2020,~~August 25, 2021 the Company ~~repaid $152,500~~paid Maxim $500,000 and ~~$15,000 in accrued interest in full satisfaction~~recognized a losson the extinguishment 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~~debt in the amount of ~~$45,000, and one additional Advance to and for~~$1,759,969. On August 30, 2021 the ~~benefit~~Company issued Maxim 20,000 shares of its common stock in fulfillment 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.Fourth Amendment.

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 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 KaplanFebruary 19, 2021 12% 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.~~and Securities Purchase Agreement

~~June 18, 2020 Self-Amortization Promissory Note~~

On ~~June 18, 2020 (the “Issue Date”),~~February 19, 2021, the Company entered into a securities purchase agreement (the “SPA”) dated as of February 19, 2021, with an accredited investor (the “Holder”), pursuant to which the Company issued a 12% ~~self-amortization~~ promissory note (the ~~“Amortization Note”~~“Note”) with a maturity date of ~~June 18, 2021~~February 19, 2022 (the “Maturity Date”), in the principal sum of ~~$550,000.~~$1,650,000. In addition, the Company issued 10,000 shares of its common stock to the Holder as a commitment fee pursuant to the SPA. Pursuant to the terms of the ~~Amortization~~ Note, the Company agreed to pay ~~$550,000~~to $1,650,000 (the “Principal Sum”) to the Holder and to pay interest on the ~~Principal Sum~~principal balance at the rate of 12% per ~~annum.~~annum (provided that the first twelve months of interest shall be guaranteed). The ~~Amortization~~ Note carries an original issue discount (“OID”) of ~~$55,000.~~$165,000. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price of ~~$495,000~~$1,485,000 in exchange for the ~~Amortization~~ Note. ~~In addition, pursuant~~The Company intends to use the proceeds for its operational expenses, the repayment of those certain self-amortization promissory notes previously issued to the ~~terms~~Holder on June 18, 2020 and November 23, 2020, and the repayment of certain other existing debt obligations. The Holder may convert the ~~SPA, the Company agreed to issue 9,167 (55,000 pre-reverse split) shares of~~Note into the Company’s common stock (subject to the ~~Holder as additional consideration.~~beneficial ownership limitations of 4.99% in the Note) at any time at a conversion price equal to $11.50 per share.

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~~(no prepayment ~~premium.~~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.

During the quarter ended August 31, 2021 the Company paid interim payments to the Holder ~~according to~~in the ~~following schedule:~~amount of $225,000 towards the repayment of the balance of the Note in the amount of $90,909, towards the repayment of guaranteed interest in the amount of $109,091 and $25,000 as an amendment fee. On August 31, 2021 the balance of the Note, net of the related debt discount is $903,588 all of which is included in the current portion of convertible notes payable, net of debt discount.

~~In connection with the November 23, 2020 SPA discussed below, we repaid principal and interest of $198,375 on this June 18, 2020 Note.~~

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 ~~as provided in~~(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,~~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~~

March 2021 FirstFire Global 12% Promissory 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.Securities Purchase Agreement

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”),~~March 10, 2021, the Company, entered into a securities purchase agreement (the ~~“SPA”~~“March 10 FirstFire SPA”) dated as of March 10, 2021, with FirstFire Global Opportunities Fund, LLC, ~~an accredited investor~~a Delaware limited liability company (the ~~“Holder”~~“FirstFire”), pursuant to which the Company issued a 12% ~~self-amortization~~ promissory note ~~(the “Self-Amortization~~(“March 10 FirstFire Note”) with a maturity date of ~~August 7, 2021 (the “Maturity Date”),~~March 10, 2022, in the principal sum of ~~$333,333.~~$560,000. The Company received net proceeds of $130,606, net of OID of $56,000, net of origination fees of $8,394, and the repayment of principal and interest of $365,000 on the August 7, 2020 Note. In addition, the Company issued 3,394 shares of its common stock to the FirstFire as a commitment fee pursuant to the SPA. Pursuant to the terms of the ~~Self-Amortization~~March 10 FirstFire Note, the Company agreed to pay ~~$333,333~~to $560,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per ~~annum.~~annum (provided that the first twelve months of interest shall be guaranteed). The ~~Self-Amortization~~March 10 FirstFire Note carries an ~~original issue discount~~OID of ~~$33,333.~~$56,000. Accordingly, on the Closing Date (as defined in the March 10 FirstFire SPA), the Holder paid the purchase price of ~~$300,000~~$504,000 in exchange for the ~~Self-Amortization~~ Note. ~~In addition, pursuant to~~The FirstFire may convert the ~~terms of the SPA, the Company agreed to issue 5,556 (33,333 pre-reverse split) shares of~~March 10 FirstFire Note into the Company’s common stock (subject to the ~~Holder as additional consideration.~~beneficial ownership limitations of 4.99% in the March 10 FirstFire Note) at any time at a conversion price equal to $11.50 per share.

The Company may prepay the ~~Self-Amortization~~March 10 FirstFire 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~~(no prepayment premium). The ~~Amortization~~March 10 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 ~~Amortization~~March 10 FirstFire Note or March 10 FirstFire SPA.

The Company is required to make ~~amortization payments~~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 10 FirstFire Note. On September 17, 2021, the Company issued a common stock purchase warrant for the purchase of 40,000 shares of the Company’s common stock to FirstFire Global Opportunities Fund, LLC (“FirstFire”) as consideration for FirstFire entering into a first amendment to the ~~Holder according~~March 10 FirstFire Note in order to delay an interim payment of OID and interest due under the March 10 FirstFire Note to the ~~following schedule:~~maturity date of such note.

Upon ~~the Holder’s~~FirstFire’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 ~~as provided in~~(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,~~March 10 FirstFire Note), the ~~Amortization~~March 10 FirstFire Note shall become immediately due and payable and the Company shall pay to ~~the Holder,~~FirstFire, 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.

During the quarter ended August 31, 2021, the Company recognized $65,533 of debt discount related to the FirstFire Note. On August 31, 2021, the balance of FirstFire Note, net of the related debt discount, is $419,468 all of which is included in the current portion of convertible notes payable, net of debt discount.

June 2021 FirstFire Global 12% Promissory Note and Securities Purchase Agreement

On June 11, 2021, the Company entered into a securities purchase agreement (the “June 11 FirstFire SPA”) dated as of June 10, 2021, with FirstFire Global Opportunities Fund, LLC (“FirstFire”), pursuant to which the Company issued a 12% promissory note (the “June 11 FirstFire Note”) with a maturity date of June 10, 2023 (the “FirstFire Maturity Date”), in the principal sum of $1,266,666. In addition, the Company issued 11,875 shares of its common stock to FirstFire as a commitment fee pursuant to the June 11 FirstFire SPA. Pursuant to the terms of the June 11 FirstFire Note, the Company agreed to pay to $1,266,666 (the “FirstFire Principal Sum”) to FirstFire and to pay interest on the principal balance at the rate of 12% per annum (provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the FirstFire Note after 180 days from June 10, 2021). The June 11 FirstFire Note carries an original issue discount (“OID”) of $126,666. Accordingly, FirstFire paid the purchase price of $1,140,000 in exchange for the FirstFire Note. The Company ~~shall have~~intends to use the ~~right~~proceeds for working capital and to pay off an existing promissory note issued by the ~~Default Amount~~Company in ~~cash at any time, provided, however that the Holder~~favor of Maxim. FirstFire may convert the ~~Amortization~~June 11 FirstFire Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% ~~contained~~ in the ~~Amortization Note)~~June 11 FirstFire Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by FirstFire upon, at the election of FirstFire, not less than 61 days’ prior notice to the Company) at any time ~~after the date that is five calendar days after the Amortization Note becomes immediately due and payable as~~at 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 $11.50 per share, as 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.

~~November 23, 2020 Self-Amortization Promissory Note~~

On November 25, 2020, the Company entered into a securities purchase agreement (the “November 23, 2020 SPA”), dated as of November 23, 2020 (the “Effective Date”), with the Holder, pursuant to which the Company issued a 12% self-amortization promissory note (the “November Amortization Note”) with a maturity date of November 23, 2021 (the “Maturity Date”), in the principal sum of $750,000. Pursuant to the terms of the November Amortization Note, the Company agreed to pay to $750,000 (the “Principal Sum”) to the Holder and to pay interest on the principal balance at the rate of 12% per annum. The Company received net proceeds of $441,375, net of original issue discount of $75,000, origination fees of $35,250, and the partial repayment of principal and interest of $198,375 on the June 18, 2020 Note. In addition, pursuant to the terms of the SPA, the Company granted 17,054 warrants to purchase 17,054 shares of the Company’s common stock, subject to adjustment. In connection with the November Amortization Note, during the first twelve months of this note, interest equal to $90,000 shall be guaranteed and earned in full as of the Effective Date, provided, however, that if the November Amortization Note is repaid in its entirety on or prior to February 23, 2021, then the interest shall be accrued on a per annum basis based on the number of days elapsed as of the repayment date from the Effective Date.

~~In connection with the November 23, 2020 SPA, the Company shall issue warrants equal to 375,000 divided by the Exercise Price (as defined below) (the “Warrant Shares”) (whereby such number~~same may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. For purposes of this Warrant, the term “Exercise Price” shall mean 110% of the public offering price of the Company’s common stock under the public offering contemplated by the registration statement on Form S-1 filed by the Company on October 23, 2020 (the “Uplist Offering”), provided, however, that if the Uplist Offering has not been consummated on or before May 23, 2021, then the Exercise Price shall mean the closing bid price of the Company’s common stock on December 23, 2020, subject to adjustment as provided in the warrant (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the earlier of (i) the date of the Company’s consummation of the Uplist Offering or (ii) May 23, 2021, and ending on the five-year anniversary thereof. In connection with the issuance of these warrants, on the initial measurement date, the relative fair value of the warrants of $157,438 was recorded as a debt discount and an increase in paid-in capital.June 11 FirstFire Note.

~~The Company is required to make ten monthly amortization payments to the Holder of $84,000 commencing on February 23, 2021 through November 23,2021. according to the following schedule:~~

Pursuant to the terms of the June 11 FirstFire SPA, the Company also issued to FirstFire a three-year warrant (the ~~“Default Amount”~~“June 11 FirstFire Warrant”)~~. Upon~~ to purchase 593,750 shares of the ~~occurrence~~Company’s common stock at an exercise price equal to (i) 110% of ~~an Event~~the per share offering price of ~~Default (as hereinafter defined)~~the offering made in connection with any uplisting of the Company’s common stock; or (ii) prior to the determination of the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company recorded the June 11 FirstFire Note in the amount of $1,266,667 and a related debt discount of $1,061,765, interest payable of $76,000 and additional paid in capital of $1,021,941. During the quarter, the Company recorded interest expense of $140,548. At August 31, 2021, the balance of the June 11 FirstFire Note, net of the related debt discount is $204,902 all of which is included in the long term portion of convertible notes payable, net of debt discount.

GS Capital Securities Purchase Agreement & Note

Upon the occurrence of any Event of Default (as defined in the GS Note), which has not been cured within three calendar days, ~~after~~ the ~~Amortization~~GS Note ~~becomes~~shall become immediately due and payable ~~as a result of an Event of Default until~~and the Company ~~has repaid the Amortization Note~~shall pay to GS, in ~~cash. If the aforementioned event occurs, the conversion price will be~~full satisfaction of its obligations hereunder, an amount equal to the ~~closing bid price~~principal amount then outstanding plus accrued interest multiplied by 125%.

Pursuant to the terms of the ~~Company’s common stock on~~GS SPA, the ~~trading day immediately preceding the date of the respective conversion.~~

~~The Holder shall have the right, at any time following an Uncured Default Date (as defined in this Note),~~Company also issued to ~~convert all or any portion of the then outstanding and unpaid principal amount and interest (including any default interest) into~~GS a three-year warrant to purchase 156,250 shares of the Company’s common stock at an exercise price equal to (i) 110% of the ~~Conversion Price. Following~~per share offering price of the ~~Uncured~~offering made in connection with any uplisting of the Company’s common stock; or (ii) prior to the determination of the per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company recorded the GS Note in the amount of $333,333 and a related debt discount of $245,801, interest payable of $20,000 and additional paid in capital of $192,468. During the quarter, the Company recorded interest expense of $34,703. On August 31, 2021, the balance of the GS Note, net of the related debt discount is $87,532 all of which is included in the long term portion of convertible notes payable, net of debt discount.

Jefferson Street Capital Stock Purchase Agreement & Note

On August 23, 2021, the Company entered into a securities purchase agreement (the “Jefferson SPA”) dated as of August 23, 2021, with Jefferson Street Capital, LLC (“Jefferson”), pursuant to which the Company issued a 12% promissory note (the “Jefferson Note”) with a maturity date of August 23, 2023 (the “Jefferson Maturity Date”), in the principal sum of $333,333. In addition, the Company issued 3,125 shares of its common stock to Jefferson as a commitment fee pursuant to the Jefferson SPA. Pursuant to the terms of the Jefferson Note, the Company agreed to pay to $300,000.00 (the “Jefferson Principal Sum”) to Jefferson and to pay interest on the principal balance at the rate of 12% per annum (provided that the first six months of interest shall be guaranteed and the remaining 18 months of interest shall be deemed earned in full if any amount is outstanding under the Jefferson Note after 180 days from August 23, 2021). The Jefferson Note carries an original issue discount (“OID”) of $33,333. Accordingly, Jefferson paid the purchase price of $300,000.00 in exchange for the Jefferson Note. The Company intends to use the proceeds for working capital and to pay off an existing promissory note issued by the Company in favor of Maxim. Jefferson may convert the Jefferson Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Jefferson Note; provided however, that the limitation on conversion may be waived (up to 9.99%) by Jefferson upon, at the election of Jefferson, not less than 61 days’ prior notice to the Company) at any time at a conversion price equal to $11.50 per share, as the same may be adjusted as provided in the Jefferson Note.

The Company may prepay the Jefferson Note at any time prior to maturity in accordance with the terms of the Jefferson Note. The 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 Jefferson Note or the Jefferson SPA.

Upon the occurrence of any Event of Default ~~Date~~(as defined in the ~~Conversion Price~~Jefferson Note), which has not been cured within three calendar days, the 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 ~~lesser of (i) 105%~~principal amount then outstanding plus accrued interest multiplied by 125%.

Pursuant to the ~~closing bid price~~terms of the Jefferson SPA, the Company also issued to Jefferson a three-year warrant to purchase 156,250 shares of the Company’s common stock ~~or (ii)~~at an exercise price equal to (i) 110% of the ~~closing bid~~per share offering price of the offering made in connection with any uplisting of the Company’s common ~~stock immediately preceding~~stock; or (ii) prior to the ~~date~~determination of the ~~respective~~per share offering price of the offering made in connection with any uplisting of the common stock and following such time if the uplisting contemplated in clause (i) is not completed by November 1, 2021, $10.73.

The Company also agreed to prepare and file with the SEC a registration statement covering the resale of all shares issued or issuable pursuant to the Jefferson SPA, including shares issued upon conversion ~~(the “Conversion Price”).~~of the Jefferson Note or exercise of the Jefferson Warrant. The Company agreed to use its commercially reasonable efforts to have the registration statement filed with the SEC within 90 days following August 23, 2021 and to have the registration statement declared effective by the SEC within 120 days following August 23, 2021.

The Company recorded the Jefferson Note in the amount of $333,333 and a related debt discount of $274,239, interest payable of $20,000 and additional paid in capital of $205,905. During the quarter, the Company recorded interest expense of $685. On August 31, 2021, the balance of the Jefferson Note, net of the related debt discount is $59,779 all of which is included in the long term portion of convertible notes payable, net of debt discount.

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.

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

Company-owned Stores Sales

Franchise Royalties and Fees

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.

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 ~~$140,000~~$42,000 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.

~~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.

~~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. The Company adopted ASU 2018-07 on January 1, 2019. The adoption of ASU 2018 did not have any material impact on the Company’s consolidated financial statements.

~~Leases~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,~~ ~~Leases~~ (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; and (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.

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 ~~November 30,~~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 ~~November 30,~~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.

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~~“2020 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,~~2020, 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~~on May 1, 2020 and have since reopened ~~three~~16 corporate and 2312 franchised Simplicity Gaming Centers as of ~~October 15, 2020.~~August 31, 2021. 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. As of August 31, 2021 we have recorded an increase in the allowance for doubtful accounts of approximately $14,000, as our collection efforts are ongoing. We have ~~not written off as bad debt any accounts~~experienced a decrease in our account receivables ~~attributable to franchisee minimum monthly royalty payments owed during~~by approximately $13,000 from the ~~COVID-19 pandemic.~~year ended May 31, 2021. 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 measures taken to date adversely impacted the Company’s business for the fiscal ~~quarters~~quarter ended August 31, 2021 and the fiscal year ended May 31, ~~2020, August 31, 2020 and November 30, 2020~~2021 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

~~Except as set forth herein or as previously disclosed in the Company’s Current Reports on Form 8-K, the~~The Company did not sell any equity securities during the period covered by this Quarterly Report that were not registered under the Securities ~~Act.~~

On September 16, 2020, the Company issued an aggregate of 2,813 restricted common shares of the Company to executive officers and employees of the Company for services rendered. These shares were valued at $25,420, or $9.04 per share, basedAct, except as previously disclosed in our Current Reports on the quoted trading price on the date of grant. In connection with the issuance of these shares, during the six months ended November 30, 2020, the Company recorded stock-based professional fees of $25,420Form 8-K.

On September 22, 2020, in connection with an Asset Purchase agreement with Ignatious O’Riley, an existing franchisee (“Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 2,989 shares of the Company’s common stock with fair value of $29,416 or $9.84 per share.

On September 23, 2020, the Company’s wholly owned subsidiary, Simplicity Union Gap entered into an Asset Purchase agreement with Five Point Legacy Corp., an existing franchisee (“Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,506 shares of the Company’s common stock with fair value of $43,974 or $9.76 per share.

On October 1, 2020, the Company’s wholly owned subsidiary, Simplicity Humble entered into an Asset Purchase agreement with Team Centore Entertainment Corp., and Charles Centore, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 8,402 shares of the Company’s common stock with fair value of $88,052 or $10.48 per share.

On October 12, 2020, the Company’s wholly owned subsidiary, Simplicity Frisco entered into an Asset Purchase agreement with JAR Mathis Holdings, Jared Mathis and Amy Mathis, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 6,202 shares of the Company’s common stock with fair value of $74,423 or $12.00 per share.

On October 30, 2020, the Company’s wholly owned subsidiary, Simplicity Santa Rosa entered into an Asset Purchase agreement with B&R Franchise Investments, LLC, Brian Chu and Richard Loo, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,202 shares of the Company’s common stock with fair value of $46,068 or $11.44 per share.

On October 30, 2020, the Company’s wholly owned subsidiary, Simplicity Brea entered into an Asset Purchase agreement (“APA”) with Nextgen Gaming, LLC, Ajay Chunilal Shah and Shweta Shah, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 3,255 shares of the Company’s common stock with fair value of $37,237 or $11.44 per share.

On October 30, 2020, the Company’s wholly owned subsidiary, Simplicity Billings entered into an Asset Purchase agreement with Button Mashers, Inc, Jon Bessmer and Brandy Bessmer, an existing franchisee (collectively as “Seller or Franchisee”), to acquire the Franchisee’s assets in exchange for 4,697 shares of the Company’s common stock with fair value of $52,725 or $11.44 per share.

~~The above sales were made pursuant to an exemption from registration as set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

On December 18, 2020, the Company’s Board of Directors approved the issuance of, and the Company issued, 50,000 shares of the Company’s common stock to each of Jed Kaplan, the Company’s Chief Executive Officer, interim Chief Financial Officer, member of the Company’s Board of Directors, and Roman Franklin, the Company’s President and a member of the Company’s Board of Directors, as a bonus. Each of Messrs. Kaplan and Franklin holds over 5% of the Company’s common stock. In addition, the Board of Directors approved the payment of a cash bonus in the amount of $125,000 to each of Messrs. Kaplan and Franklin when funds are available.

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 (incorporated by reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on October 15, 2020).~~2020.

~~3.2~~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).

~~3.3~~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).

~~3.4~~31.1*		Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on November 2, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on November 4, 2020).

~~3.5~~		Certificate of Amendment to Third Amended and Restated Certificate of Incorporation, as amended, filed with Delaware Secretary of State on November 17, 2020 (incorporated by reference to Exhibit 3.1 to registrant’s Current Report on Form 8-K filed with the Commission on November 18, 2020).

~~10.1~~		Self-Amortization Promissory Note dated November 23, 2020, issued by the Company to the Holder (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed with the Commission on December 2, 2020).

~~10.2~~		Securities Purchase Agreement dated November 23, 2020, by and between the Company and the Holder (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed with the Commission on December 2, 2020).

~~10.3~~		Common Stock Purchase Warrant dated November 23, 2020, issued by the Company to the Holder (incorporated by reference to Exhibit 10.3 to registrant’s Current Report on Form 8-K filed with the Commission on December 2, 2020).

31.1*		Certification of the Principal Executive Officer ~~and~~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*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed herewith

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: ~~January 14,~~October 12, 2021		/s/ ~~Jed Kaplan~~Roman Franklin
	Name:	~~Jed Kaplan~~Roman Franklin
	Title:	Chief Executive ~~Officer and interim Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting~~ Officer)

	November 30, 2020			May 31, 2020
	(Unaudited)
ASSETS

Current Assets
Cash and cash equivalents	$	543,439		$	160,208
Accounts receivable, net		131,321			127,653
Inventory		145,186			15,787
Prepaid expenses		114,537			5,588
Total Current Assets		934,483			309,236

Other Assets
Goodwill		5,180,141			5,155,141
Intangible assets, net		1,955,559			2,141,374
Deferred brokerage fees		123,339			149,223
Property and equipment, net		606,254			232,733
Right of use asset, operating leases, net		1,320,846			490,984
Security deposits		14,885			14,885
Due from franchisees’		45,516			-
Deferred financing costs		235,759			98,198
Total Other Assets		9,482,299			8,282,538

TOTAL ASSETS	$	10,416,782		$	8,591,774

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	237,311		$	126,716
Accrued expenses		932,547			1,421,842
Convertible note payable		1,000,000			1,000,000
Notes payable, net of discount		1,100,129			127,320
Note payable - related party		-			64,728
Operating lease obligation, current		281,088			151,867
Current portion of deferred revenues		3,795			3,795
Stock payable		50,000			75,000
Total Current Liabilities		3,604,870			2,971,268

Operating lease obligation, net of current portion		1,042,256			339,116
Deferred revenues, less current portion		302,439			365,718

Total Liabilities		4,949,565			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; 1,217,376 and 998,622 shares issued and outstanding as of November 30, 2020 and May 31, 2020, respectively		122			100
Additional paid-in capital		13,128,420			11,132,103
Accumulated deficit		(7,855,418	)		(6,195,044	)
Total Simplicity Esports and Gaming Company Stockholders’ Equity		5,273,124			4,937,159
Non-Controlling Interest		194,093			(21,487	)
Total Stockholders’ Equity		5,467,217			4,915,672

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,416,782		$	8,591,774

	Common Stock				Additional Paid-In		Non- Controlling			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Interest			Deficit			Equity

Balance - May 31, 2020		998,622	$	100	$	11,132,103	$	(21,487	)	$	(6,195,044	)	$	4,915,672

Shares issued for cash		2,976		-		25,000		-			-			25,000
Shares issued in connection with conversion of note payable		10,738		1		99,999								100,000
Shares issued in connection with notes payable		12,292		1		102,216								102,217
Shares issued in connection with settlement of accounts
Shares issued for payable and accrued liabilities		3,125		-		46,000								46,000
Shares issued in connection with franchise acquisition		18,750		2		164,998		-			-			165,000
Shares issued in connection with consulting agreement		3,472		1		22,777								22,778
Shares issued to directors, officers and employees as compensation		116,175		12		819,297		-			-			819,309
Non-controlling interest of original investment in subsidiaries		-		-		-		240,000			-			240,000
Net loss attributable to noncontrolling interest		-		-		-		(15,866	)		-			(15,866	)
Net Loss		-		-		-		-			(655,214	)		(655,214	)

Balance - August 31, 2020		1,166,150		117		12,412,390		202,647			(6,850,258	)		5,764,896

Warrants issued in connection with debt		-		-		157,438								157,438
Shares issued in connection with franchise acquisition		37,941		4		413,540		-			-			413,544
Shares issued in connection with consulting agreement		2,813		-		25,420								25,420
Shares issued to directors, officers and employees as compensation		9,844		1		119,632		-			-			119,633
Rounding related to reverse stock split		628		-		-		-			-			-
Net loss attributable to noncontrolling interest		-		-		-		(8,554	)		-			(8,554	)
Net Loss		-		-		-		-			(1,005,160	)		(1,005,160	)

Balance - November 30, 2020		1,217,376	$	122	$	13,128,420	$	194,093		$	(7,855,418	)	$	5,467,217

	November 30,
	2020		2019
Stock warrants		820,055		803,001
Convertible notes		108,696		64,750
Total		928,751		867,751

	November 30, 2020			May 31, 2020
	Remaining Useful Life	Intangible Assets		Remaining Useful Life		Intangible Assets
Non-Competes	4 years	$	1,023,118		4.50 years	$	1,023,118
Trademarks	Indefinite		866,000		Indefinite		866,000
Customer database	2 years		35,000		10 years		—
Restrictive covenant	2 years		115,000		—		—
Customer contracts	10 years		343,414		—		546,000
Internet domain	2 years		3,000		2.50 years		3,000
Total intangible assets		$	2,385,532			$	2,438,118

Accumulated amortization			(429,973)				(296,744	)
Net carrying value		$	1,955,559			$	2,141,374

For the fiscal years ending May 31:
2021	$	133,229
2022		266,040
2023		265,457
2024		130,197
2025		10,834
Thereafter		283,802
Total	$	1,089,559

	November 30, 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

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

Assets acquired:
Furniture, Fixtures and Equipment	$	330,234
Inventory		83,310
Total assets acquired at fair value	$	413,544

Purchase consideration paid:
37,941 shares of common stock	$	413,544
Total purchase consideration paid	$	413,544

	November 30, 2020
Operating leases	$	1,575,265
Less accumulated reduction		(254,420	)
Balance of ROU asset as of November 30, 2020	$	1,320,845

Years Ending May 31,	Amount
2021	$	203,709
2022		407,278
2023		391,832
2024		373,870
2025		330,017
2026		110,000
Total minimum non-cancelable operating lease payments		1,816,706
Less: discount to fair value		(493,362	)
Total lease liability at November 30, 2020	$	1,323,344

	November 30, 2020			May 31,2020
10% Fixed Convertible Promissory Note	$	—		$	152,500
Self-amortization promissory notes		1,133,023			—
August 7, 2020 self-amortization promissory note		333,333			—
Related Party Note		—			64,728
Convertible Note Payable		1,000,000			1,000,000
		2,466,356			1,217,228
Less: debt discount		(366,227	)		(25,180	)
Total	$	2,100,129		$	1,192,048

Payment Date	Payment Amount
10/16/2020	$	66,125
11/16/2020		66,125
12/16/2020		66,125
01/18/2021		66,125
02/18/2021		66,125
03/18/2021		66,125
04/16/2021		66,125
05/18/2021		66,125
06/18/2021		65,921
Total:	$	594,921

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

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance Outstanding May 31, 2020		803,000	$	83.04		-	$	-
Granted		17,054		21.99
Cancelled		-		-
Balance Outstanding November 30, 2020		820,054	$	81.74		3.10	$	-
Exercisable, November 30, 2020		820,054	$	81.74		3.10	$	-

	Six Months Ended November 30,
	2020			2019
Net cash used in operating activities	$	(207,037	)	$	(835,796	)
Net cash provided by (used in) operating activities		550			(130,915	)
Net cash provided by financing activities	$	614,718		$	74,013
Net increase (decrease) in cash	$	408,231		$	(892,698	)
Cash - beginning of the period	$	160,208		$	1,540,158
Cash - end of the period	$	568,439		$	647,460