UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
☐ | TRANSITION REPORT |
For the transition period from ______________ to _____________
Commission file number: 333-140645
Clubhouse Media Group, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 99-0364697 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3651 Lindell Road Las Vegas, Nevada | ||
(Address of principal executive offices) | (Zip Code) |
(702)479-3016
(Registrant’s telephone number, including area code)
N/A |
(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 | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | ||
Emerging growth company | ☒ |
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 ☒
As of May 5, 2022, there were shares of common stock, par value $0.001 per share, of the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
FORM 10-Q
CLUBHOUSE MEDIA GROUP, INC.
INDEX
1 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Clubhouse Media Group, Inc.
Consolidated Balance Sheets
As of March 31, | As of December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 80,983 | $ | 299,520 | ||||
Accounts receivable, net | 118,715 | 243,381 | ||||||
Prepaid expense | 54,000 | 449,954 | ||||||
Total current assets | 253,698 | 992,855 | ||||||
Property and equipment, net | 59,138 | 67,651 | ||||||
Intangibles | 542,310 | 458,033 | ||||||
Total assets | $ | 855,146 | $ | 1,518,539 | ||||
Liabilities and stockholders’ equity (deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,762,563 | $ | 1,620,661 | ||||
Deferred revenue | 50,300 | 337,500 | ||||||
Convertible notes payable, net | 7,515,159 | 5,761,479 | ||||||
Shares to be issued | 537,865 | 1,047,885 | ||||||
Derivative liability | 983,630 | 513,959 | ||||||
Total current liabilities | 10,849,517 | 9,281,484 | ||||||
Convertible notes payable, net - related party | 1,258,687 | 1,386,919 | ||||||
Total liabilities | 12,108,204 | 10,668,403 | ||||||
Commitments and contingencies | – | – | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, par value $ , authorized shares; shares issued and outstanding at March 31, 2022 and December 31, 2021 | – | – | ||||||
Common stock, par value $, authorized shares; and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 120,400 | 97,785 | ||||||
Additional paid-in capital | 17,028,768 | 15,656,425 | ||||||
Accumulated deficit | (28,402,226 | ) | (24,904,074 | ) | ||||
Total stockholders’ equity (deficit) | (11,253,058 | ) | (9,149,864 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 855,146 | $ | 1,518,539 |
See accompanying notes to unaudited condensed consolidated financial statementsstatements.
2 |
Clubhouse Media Group, Inc.
Consolidated Statements of registrant as of June 30, 2017 and December 31, 2016 and for the six months ended June 30, 2017 and 2016 follow. The condensedOperations
(Unaudited)
For the Period Ended March 31, 2022 | For the Period Ended March 31, 2021 | |||||||
Total revenue, net | $ | 813,477 | $ | 523,376 | ||||
Cost of sales | 671,148 | 316,684 | ||||||
Gross profit | 142,329 | 206,692 | ||||||
Operating expenses: | ||||||||
Advertising expenses | 45,758 | 239,414 | ||||||
Selling, general, and administrative | 160,069 | 288,560 | ||||||
Salaries & wages | 405,589 | – | ||||||
Professional and consultant fees | 686,661 | 3,228,212 | ||||||
Production expenses | 55,016 | 87,186 | ||||||
Rent expense | 7,395 | 523,991 | ||||||
Total operating expenses | 1,360,488 | 4,367,363 | ||||||
Operating loss | (1,218,159 | ) | (4,160,671 | ) | ||||
Other (income) expenses: | ||||||||
Interest expense, net | 762,655 | 840,138 | ||||||
Amortization of debt discounts, net | 1,349,628 | 495,937 | ||||||
Interest expense - excess derivatives | 245,326 | - | ||||||
Loss in extinguishment of debt - related party | – | 297,138 | ||||||
Other (income) expense, net | – | 54,227 | ||||||
Change in fair value of derivative liability | (77,616 | ) | (49,533 | ) | ||||
Total other (income) expenses | 2,279,993 | 1,637,907 | ||||||
Loss before income taxes | (3,498,152 | ) | (5,798,578 | ) | ||||
Income tax (benefit) expense | - | - | ||||||
Net loss | $ | (3,498,152 | ) | $ | (5,798,578 | ) | ||
Basic and diluted weighted average shares outstanding | 108,753,763 | 93,330,191 | ||||||
Basic and diluted net loss per share | $ | (0.03 | ) | $ | (0.06 | ) |
See accompanying notes to unaudited consolidated financial statements reflect all adjustments which are, instatements.
3 |
Clubhouse Media Group, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Common Stock | Preferred Shares | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance at January 1, 2021 | 92,682,632 | $ | 92,682 | 1 | $ | - | $ | 152,953 | $ | (2,577,721 | ) | $ | (2,332,086 | ) | ||||||||||||||
Stock compensation expense | 207,817 | 208 | - | - | 2,112,980 | - | 2,113,188 | |||||||||||||||||||||
Conversion of convertible debt | 8,197 | 8 | - | - | 12,992 | - | 13,000 | |||||||||||||||||||||
Shares issued to settle accounts payable | 24,460 | 24 | - | - | 148,485 | - | 148,510 | |||||||||||||||||||||
Shares issued as debt issuance costs for convertible notes payable | 645,000 | 645 | - | - | 3,440,755 | - | 3,441,400 | |||||||||||||||||||||
Beneficial conversion features | - | - | - | 51,000 | - | 51,000 | ||||||||||||||||||||||
Acquisition of Magiclytics | 734,689 | 735 | - | - | 19,265 | (80,697 | ) | (60,697 | ) | |||||||||||||||||||
Imputed Interest | - | - | - | 15,920 | - | 15,920 | ||||||||||||||||||||||
Net loss | - | - | - | - | - | (5,798,578 | ) | (5,798,578 | ) | |||||||||||||||||||
Balance at March 31, 2021 | 94,302,795 | $ | 94,302 | 1 | $ | - | $ | 5,954,350 | $ | (8,456,996 | ) | $ | (2,408,344 | ) | ||||||||||||||
Balance at December 31, 2021 | 97,785,111 | $ | 97,785 | 1 | $ | - | $ | 15,656,425 | $ | (24,904,074 | ) | $ | (9,149,864 | ) | ||||||||||||||
Stock compensation expense | 3,385,550 | 3,386 | - | - | 91,145 | - | 94,531 | |||||||||||||||||||||
Shares issued for cash - ELOC | 8,351,960 | 8,352 | - | - | 356,551 | - | 364,903 | |||||||||||||||||||||
Shares to be issued - liability reclass to equity | 6,752,850 | 6,753 | - | - | 710,507 | - | 717,260 | |||||||||||||||||||||
Reclass of derivative liability on conversion | - | - | - | - | 105,516 | - | 105,516 | |||||||||||||||||||||
Convertible debt | 550,000 | 550 | - | - | 22,832 | - | 23,382 | |||||||||||||||||||||
Conversion of convertible debt | 3,574,260 | 3,574 | - | - | 85,792 | - | 89,366 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (3,498,152 | ) | (3,498,152 | ) | |||||||||||||||||||
Balance at March 31, 2022 | 120,399,731 | $ | 120,400 | 1 | $ | - | $ | 17,028,768 | $ | (28,402,226 | ) | $ | (11,253,058 | ) |
See accompanying notes to unaudited consolidated financial statements.
4 |
Clubhouse Media Group, Inc.
Consolidated Statements of Cash Flow
(Unaudited)
For the three months ended March 31, | For the three months ended March 31, | |||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,498,152 | ) | $ | (5,798,578 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 17,727 | 502,871 | ||||||
Imputed interest | – | 15,920 | ||||||
Interest expense - amortization of debt discounts | 1,349,626 | – | ||||||
Additional non-cash interest expense due to debt restructuring | 544,256 | – | ||||||
Stock compensation expense | 94,531 | 2,977,264 | ||||||
Loss in extinguishment of debt - related party | – | 297,138 | ||||||
Change in fair value of derivative liability | (77,616 | ) | (49,533 | ) | ||||
Loss in extinguishment of debt | – | 55,525 | ||||||
Accretion expense - excess derivative liability | 287,755 | – | ||||||
Net changes in operating assets & liabilities: | ||||||||
Accounts receivable | 124,666 | 165,590 | ||||||
Prepaid expense, deposits and other current assets | 395,960 | (181,023 | ) | |||||
Accounts payable, accrued liabilities, due to affiliates, and other long-term liabilities | (120,386 | ) | 386,708 | |||||
Net cash used in operating activities | (881,633 | ) | (1,628,118 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant, and equipment | – | (5,220 | ) | |||||
Purchases of intangible assets | (93,491 | ) | (1,765 | ) | ||||
Cash received from acquisition of Magiclytics | – | 76 | ||||||
Net cash used in investing activities | (93,491 | ) | (6,909 | ) | ||||
Cash flows from financing activities: | ||||||||
Shares issued for cash | 364,903 | - | ||||||
Borrowings from related party note payable | - | 135,000 | ||||||
Repayment to related party convertible note payable | (105,822 | ) | (137,500 | ) | ||||
Borrowings from convertible notes payable | 515,625 | 3,538,000 | ||||||
Repayment to convertible notes payable | (18,119 | ) | - | |||||
Net cash provided by financing activities | 756,587 | 3,535,500 | ||||||
Net (decrease) increase in cash and cash equivalents | (218,537 | ) | 1,900,473 | |||||
Cash and cash equivalents at beginning of period | 299,520 | 37,774 | ||||||
Cash and cash equivalents at end of period | $ | 80,983 | $ | 1,938,247 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Shares issued for conversion from convertible note payable | $ | 89,366 | $ | 13,000 | ||||
Shares issued to settle accounts payable | $ | - | $ | 148,510 |
See accompanying notes to unaudited consolidated financial statements.
5 |
Clubhouse Media Group, Inc.
Notes to the opinion of management, necessary for a fair presentationUnaudited Consolidated Financial Statements
March 31, 2022 and 2021
NOTE 1 - ORGANIZATION AND OPERATIONS
Clubhouse Media Group, Inc. (formerly known as Tongji Healthcare Group, Inc. or the “Company”) was incorporated under the laws of the results for the interim periods presented. All such adjustments areState of a normal and recurring nature.
TONGJI HEALTHCARE GROUP, INC. | ||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
June 30, 2017 | December 31, 2016 | |
(Unaudited) | ||
ASSETS | ||
Current Assets | ||
Cash | $37,490 | $47,597 |
Accounts receivable, net | 171,823 | 239,377 |
Due from related parties | 189,841 | 185,365 |
Other current receivable | 6,403,635 | 7,243,028 |
Medical supplies | 81,472 | 52,357 |
Prepaid expenses and other current assets | 13,403 | 13,087 |
Total Current Assets | 6,897,664 | 7,780,811 |
Equipment, net | 358,972 | 386,158 |
Other non-current receivable (Deposit) | 174,239 | 171,476 |
Intangible assets, net | 21,339 | 25,301 |
TOTAL ASSETS | $7,452,214 | $8,363,746 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||
Current Liabilities | ||
Accounts payable and accrued expenses | $1,045,482 | $997,040 |
Due to related parties | 10,724,039 | 10,371,235 |
Other payable | 727,470 | 1,269,176 |
Settlement payable | 1,443,722 | 1,366,639 |
Current portion of capital lease payable | 534,998 | 522,384 |
Total Current Liabilities | 14,475,711 | 14,526,474 |
Total Liabilities | 14,475,711 | 14,526,474 |
STOCKHOLDERS' DEFICIT | ||
Preferred stock; $0.001 par value, 20,000,000 shares authorized and none issued and outstanding | - | - |
Common stock; $0.001 par value, 50,000,000 shares authorized and 15,812,191 shares issued and outstanding as of June 30, 2017 and December 31, 2016 respectively | 15,812 | 15,812 |
Additional paid in capital | 440,368 | 440,368 |
Accumulated deficit | (7,908,824) | (7,206,416) |
Accumulated other comprehensive income | 429,147 | 587,508 |
Total Stockholders' Deficit | (7,023,497) | (6,162,728) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $7,452,214 | $8,363,746 |
The accompanying notes are an integral part of these consolidated financial statements. |
TONGJI HEALTHCARE GROUP, INC. | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||
(Unaudited) | ||||
For the Six Months Ended June 30 | For the Three Months Ended June 30 | |||
2017 | 2016 | 2017 | 2016 | |
OPERATING REVENUE | ||||
In-patient service revenue | $342,162 | $591,299 | $147,536 | $333,397 |
Out-patient service revenue | 315,537 | 469,627 | 171,767 | 225,863 |
Total operating revenue | 657,699 | 1,060,926 | 319,303 | 559,260 |
OPERATING EXPENSES | ||||
Administrative expenses | 138,097 | 100,539 | 72,868 | 54,623 |
Depreciation and amortization expenses | 40,531 | 36,269 | 20,277 | 18,292 |
Medicine and supplies | 392,392 | 500,413 | 248,342 | 259,111 |
Other operating expenses | 108,999 | 143,682 | 59,250 | 70,429 |
Salary and fringes | 294,234 | 356,637 | 154,340 | 181,478 |
Total operating expenses | 974,253 | 1,137,537 | 555,077 | 583,930 |
LOSS FROM OPERATIONS | (316,554) | (76,611) | (235,774) | (24,670) |
OTHER INCOME (EXPENSE) | ||||
Other income | 14,305 | 14,222 | 7,856 | 6,771 |
Interest expense, net | (158,773) | (90,388) | (69,915) | (9,573) |
Total Other Expense | (144,468) | (76,166) | (62,059) | (2,802) |
LOSS BEFORE INCOME TAXES | (461,022) | (152,777) | (297,833) | (27,472) |
Provision for income taxes | - | - | - | - |
EXTRAORDINARY ITEMS | ||||
Net gain (loss) on sale of assets | (159,258) | - | (159,258) | - |
VAT and other related taxes on assets disposition | (82,128) | - | (82,128) | - |
Extraordinary items after tax | (241,386) | - | (241,386) | - |
NET LOSS | (702,408) | (152,777) | (539,219) | (27,472) |
OTHER COMPREHENSIVE INCOME(LOSS) | ||||
Foreign currency translation gain (loss) | (158,361) | 75,218 | (104,770) | 90,279 |
NET COMPREHENSIVE INCOME (LOSS) | $(860,769) | $(77,559) | $(643,989) | $62,807 |
Net loss per common stock-Basic and Diluted | $(0.054) | $(0.005) | $(0.041) | $0.004 |
Weighted average common stock outstanding | ||||
Basic and Diluted | 15,812,191 | 15,812,191 | 15,812,191 | 15,812,191 |
The accompanying notes are an integral part of these consolidated financial statements. |
TONJI HEALTHCARE GROUP, INC. | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
FOR THE SIX MONTH ENDED JUNE 30 | ||
(Unaudited) | ||
2017 | 2016 | |
Operating activities: | ||
Net loss | $(702,408) | $(152,777) |
Adjustments to reconcile net loss to | ||
Net cash provided by (used in) operating activities: | ||
Depreciation expense | 40,532 | 36,269 |
Net loss on sales of assets | 241,386 | - |
Increase/(decrease) in operating assets and liabilities: | ||
Accounts receivable | 72,350 | (29,993) |
Medical supplies | (27,477) | (66,278) |
Prepaid expense and other current assets | - | 2,821 |
Other receivable | 760,656 | (2,385) |
Accounts payable and accrued expenses | 24,039 | 146,854 |
Other payables | (564,674) | (3,709) |
Settlement payable | 43,491 | 45,983 |
Net Cash Used in Operating Activities | (112,105) | (23,215) |
Investing activities: | ||
Acquisitions of fixed assets | - | (15,302) |
Construction in progress | - | (88,846) |
Net Cash Used in Investing Activities | - | (104,148) |
Financing activities: | ||
Advance from related parties | 100,997 | 154,316 |
Net Cash Provided by Financing Activities | 100,997 | 154,316 |
Effects of foreign currency translation | 1,001 | (711) |
Net increase in Cash | (10,107) | 26,242 |
Cash-Beginning of Period | 47,597 | 10,300 |
Cash-Ending of Period | $37,490 | $36,542 |
Cash Paid During the Year for: | ||
Income taxes | $- | $- |
Interest paid | $6,583 | $6,922 |
The accompanying notes are an integral part of these consolidated financial statements. |
NTH was established in Nanning in the province of Guangxi of the People’s Republic of China ("PRC"(“PRC” or “China”) by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes in the areas of internal medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology, otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination, and prevention.
On December 27, 2006, consolidated entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated as the continuing operating entity. . The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of NTH obtained control of the
Effective December 31, 2017, under the terms of a Bill of Sale, the Company agreed to sell, transfer convey and assign forever all of its rights, title and interest in its equity ownership interest in NTH to Placer Petroleum Co., LLC. Pursuant to the Bill of Sale, consideration for this sale, transfer conveyance and assignment is Placer Petroleum Co., LLC assuming all assets and liabilities of NTH as of December 31, 2017. Thereafter, the Company had minimal operations.
On May 20, 2019, pursuant to Case Number A-19-793075-P, Nevada’s 8th Judicial District, Business Court entered an Order Granting Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to Nevada Revised Statutes (“NRS”) 78.347(1)(b), pursuant to which Mr. Arcaro was appointed custodian of the Company and given authority to reinstate the Company with the State of Nevada under NRS 78.347.
On May 23, 2019, Mr. Arcaro filed a Certificate of Reinstatement of the Company with the Secretary of State of the State of Nevada. In addition, on May 23, 2019, Mr. Arcaro filed an Annual List of the Company with the Secretary of State of the State of Nevada, designating himself as President, Secretary, Treasurer and Director of the Company for the filing period of 2017 to 2019.
On May 29, 2020, Mr. Arcaro, through his ownership of Algonquin Partners Inc. (“Algonquin”), owner 65% of the Company’s common stock, entered into a Stock Purchase Agreement by and among West of Hudson Group, Inc. (“WOHG”), the Company, Algonquin, and Mr. Arcaro. The Stock Purchase Agreement, as subsequently amended, is referred to herein as the “SPA.” Pursuant to the terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, shares of the Company’s common stock in exchange for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). The Stock Purchase closed on June 18, 2020, resulting in a change of control of the Company. Mr. Arcaro resigned from any and all officer and director positions with the Company.
On July 7, 2020, the Company increased the authorized capital stock of the Company to issue 50,000,000550,000,000, comprised of shares of common stock, par value $0.001 per share$ , and 20,000,000 shares of preferred stock, par value $0.001 per share.$ .
West of Hudson Group, Inc. (“WOHG”) was incorporated in the State of Delaware on May 19, 2020 and owned 100% of WOH Brands, LLC (“WOH”), Oopsie Daisy Swimwear, LLC (“Oopsie”), and DAK Brands, LLC (“DAK”), which were incorporated in the State of Delaware on May 13, 2020.
6 |
Doiyen LLC (“Doiyen”), formerly known as WHP Entertainment LLC was incorporated in the State of California on January 2, 2020 and renamed to Doiyen LLC in July 7, 2020 and Doiyen is 100% owned by WOHG.
The Company is an entertainment company engaged in the sale of own brand products, e-commerce platform advertising, and promotion for other companies on their social media accounts.
On November 12, 2020, the Company and WOHG entered into the Merger Agreement, and WOHG thereafter became a wholly owned subsidiary of the Company. WOHG was determined to be the accounting acquirer in the Merger based upon the terms of other factors, including: (1) the security holders owned approximately 50.54% of the Company’s issued and outstanding common stock as of immediately after the closing of the Merger. Following the completion of the Merger, the Company changed its name from Tongji Healthcare Group, Inc. to Clubhouse Media Group, Inc. The Merger was accounted for as a reverse-merger and recapitalization in accordance with accounting principles generally accepted in the United States of America (“GAAP”). WOHG was the acquirer for financial reporting purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the PRC RegulationMerger will be those of Healthcare Institutions, hospitals are subject to registration withWOHG and will be recorded at the health departmenthistorical cost basis of WOHG. The consolidated financial statements after completion of the local government to obtain business license for hospital services. We received our renewed business license from Nanning municipal government in November 2007,Merger include the assets and this license is valid until November, 2020. Other existing regulations having material effects on our business include regulations dealing with physician's licensing, usageliabilities of medicinethe Company and injection,WOHG, historical operations of WOHG and public security in health and medical advertising.
Since September 2021, the Company launched its own subscription-based site HoneyDrip.com, which provides a digital space for public assistance. NTH dedicates a very small percentage of its resourcescreators to providing free public services.
The Company has terminated all leases since December 31, 2021 and focuses on brand deals, Honeydrip platform, and Magiclytics software.
NOTE 2- 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited condensed consolidated financial statements have been prepared by management without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rulesGAAP and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements include all ofadjustments necessary for the adjustments, which, in the opinion of management, are necessary to a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. the periods presented.
The condensedunaudited consolidated balance sheet information as of DecemberMarch 31, 20162022 was derived from the Company’s audited consolidated financial statements included in the Form 10-K. These condensedat that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission, or the SEC, on March 29, 2022, or the Annual Report. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ended onending December 31, 2016(“Form 10-K”), filed with the Commission on April 17, 2017.
Principles of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. Consolidation
The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the condensed consolidated financial statements and the Form 10-K.
Use of Estimates
In preparing the accounting guidance FASB ASC topic 280, “Segment Reporting”.
7 |
Reverse Merger Accounting
The Merger was accounted for as a reverse-merger and such differences mayrecapitalization in accordance with GAAP. WOHG was the acquirer for financial reporting purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger will be material.those of WOHG and will be recorded at the historical cost basis of WOHG since its inception on January 2, 2020. The more significant estimates and assumptions by management include, among others, useful lives and residual values of fixed assets, valuation of inventories, accounts receivable, stock based compensation, and allowance for bad debt. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Business Combination
The Company applies the provisions of FASBthe Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are on deposit with financial institutions without any restrictions. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Advertising
Advertising costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying consolidated statements of operations. We incurred advertising expenses of $45,758 and $239,414 for the three months ended March 31, 2022 and 2021, respectively.
Accounts Receivable
The Company’s accounts receivable arises from providing services. The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Amounts determined to be uncollectible are charged or written-off against the reserve. As of March 31, 2022 and December 31, 2021, there were $0 and $0 for bad debt allowance for accounts receivable.
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Property and equipment, net
Plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation of property, plant and equipment and are calculated on the straight-line method over their estimated useful lives or lease terms generally as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT, NET ESTIMATED USEFUL LIVES
Classification | Useful Life | |
Equipment | 3 years |
Lease
On January 2, 2020, the Company adopted ASC Topic 825, which requires all entities842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative effect adjustment to discloseaccumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated below. As described under “Recently Adopted Accounting Pronouncements,” below, the fair valueprimary impact of financial instruments, bothadopting ASC 842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities recognizedfor operating leases with terms longer than 12 months. The Company elected to use the short-term exception and does not recognized on the balance sheet,record assets/liabilities for which it is practicable to estimate fair value, and defines fair valueshort term leases as of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of June 30, 2017March 31, 2022 and December 31, 20162021.
The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
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Managed Services Revenue
The Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
Based on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement of work. The contract liabilities as of March 31, 2022 and December 31, 2021 were $50,300 and $337,500, respectively.
Subscription-Based Revenue
The Company recognizes subscription-based revenue through Honeydrip.com, its social media website, which allows customers to visit the creator’s personal page over the contract period without taking possession of the products or deliverables. Customers incur costs on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the content. The Company reported the subscription-based revenue at net basis since the Company is acting as an agent solely arranging for the third-party creator or influencer to provide the services directly to the self-service customer through the platform or by posting the requested content.
Software Development Costs
We apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain system projects. These system projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project basis over the expected economic life of the underlying product on a straight-line basis, which is five years. Amortization commences when the software is available for its intended use. Amounts capitalized related to development of internal use software are included in property and equipment, net, on our Consolidated Balance sheets and related depreciation is recorded as a component of amortization of intangible assets and depreciation in our consolidated statements of operations. During the three months ended March 31, 2022 and 2021, we capitalized approximately $93,491and $0, respectively, related to internal use software and recorded $9,214 and $0 in related amortization expense, respectively. Unamortized costs of capitalized internal use software totaled $542,310 and $458,033 as of March 31, 2022 and December 31, 2021, respectively.
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Goodwill Impairment
We test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
For other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values. The Company impaired $0 and $0of cashgoodwill for the three months ended March 31, 2022 and cash equivalents, accounts receivable, other current receivable, accounts payable2021, respectively.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and accrued expenses, settlement payable, lease payable, notes payableequipment and other payables approximatedintangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying value dueamount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the short maturityestimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the instruments, quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.
Income Taxes
The carrying valueCompany accounts for income taxes using the asset and liability approach that requires the recognition of financialdeferred tax assets and liabilities recorded at fair value is measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a non-recurring basis are thosefor the expected future tax consequences of events that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and liabilities carried at fair value on a recurring basis.
The Company recognizes the tax effects of an uncertain tax position resultsonly if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations and cash flows. In addition, the successcomprehensive income (loss) as income tax expense.
Commitments and Contingencies
The Company follows subtopic 450-20 of the Company’s operations is subjectFASB ASC to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, the price of medicine, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on the domestic market of the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to risk of restrictions on the transfer of funds, domestic policy changes, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
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In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counselCompany evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has beenwas incurred and the amount of the liability can be estimated, then the estimated liability would be accrued.accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together withand an estimate of the range of possible losslosses, if determinable and material, would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guaranteeguarantees would be disclosed.
Under the market value and allowance is made for writing down their inventories to market value, if such value is lower.
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNING PER SHARE
For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | |||||||
Numerator: | ||||||||
Net loss | $ | (3,498,152 | ) | $ | (5,798,578 | ) | ||
Denominator: | ||||||||
Weighted average common shares outstanding—basic | 108,753,763 | 93,330,191 | ||||||
Dilutive common stock equivalents | - | - | ||||||
Weighted average common shares outstanding—diluted | 108,753,763 | 93,330,191 | ||||||
Net loss per share: | ||||||||
Basic | $ | (0.03 | ) | $ | (0.06 | ) | ||
Diluted | $ | (0.03 | ) | $ | (0.06 | ) |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
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Stock-based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award) under ASC 718. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurement defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
Fair Value Measurements
The Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three monthlevels of valuation hierarchy are defined as follows:
● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Cash, accounts receivable, accounts payable, and accrued expenses and deferred revenue – The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.
Convertible notes payable – Convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their fair value.
The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using the binomial option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period ended June 30, 2017,end, with any increase or decrease in the averagefair value being recorded in results of operations as adjustments to fair value of derivatives.
The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of March 31, 2022 and December 31, 2021.
SCHEDULE OF ASSETS AND LIABILITIES UNDER FAIR VALUE HIERARCHY
Fair Value | Fair Value Measurements at | |||||||||||||||
As of | March 31, 2022 | |||||||||||||||
Description | March 31, 2022 | Using Fair Value Hierarchy | ||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Derivative liability | $ | 983,630 | $ | - | $ | - | $ | 983,630 | ||||||||
Total | $ | 983,630 | $ | - | $ | - | $ | 983,630 |
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Fair Value | Fair Value Measurements at | |||||||||||||||
As of | December 31, 2021 | |||||||||||||||
Description | December 31, 2021 | Using Fair Value Hierarchy | ||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Derivative liability | $ | 513,959 | $ | - | $ | - | $ | 513,959 | ||||||||
Total | $ | 513,959 | $ | - | $ | - | $ | 513,959 |
Derivative instruments
The fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under other (income) expense.
Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives under ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Beneficial Conversion Features
If a conversion feature did not meet the definition of derivative liability under ASC 815, the Company evaluates the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the common stocknote. If the effective conversion price was less than the exercise pricemarket value of underlying common stock at the inception of the stock options andconvertible promissory note, the Company was in net loss position. Accordingly,recorded the stock options were anti-dilutivedifference as debt discounts and have not been included inamortized over the calculationlife of diluted earnings per share.
Related Parties
The Company follows subtopic 850-10 of the FASB ASC Topic 740, "Income Taxes” requires the recognition of deferred tax assets and liabilities for the expected future tax consequencesidentification of events that have been includedrelated parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include:
a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the financial statements or tax returns. Under this method, deferred income taxes are recognized forelection of the tax consequences in future yearsFV option under the FV Option Subsection of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax 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 expectedSection 825–10–15, to be realized.
New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected forfeiture rate, whichcredit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within those fiscal years. We do not an input, we use these estimates as variables inexpect the Black Scholes model. Depending upon the numberadoption of stock options granted, any fluctuations in these calculations couldthis guidance have a material effectimpact on its consolidated financial statements.
On October 1, 2020, we early adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the results presented in our consolidated statementAccounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance was effective beginning January 1, 2021, with early adoption permitted. The adoption of operations. In addition, any differences between estimated forfeitures and actual forfeitures could alsothis new standard did not have a material impact on our financial statements.
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In August 2020, the FASB issued ASU No. 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 (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. The Company is currently evaluating the timing, method of adoption and overall impact of this standard on its consolidated financial statements.
NOTE 3 – GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation ofassuming that the Company will continue as a going concern. However,concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying financial statements, the Company hashad a net loss of $3,498,152 for the three months ended March 31, 2022, negative working capital of $7,578,047, an accumulated deficit$10,595,819as of $7,908,824,March 31, 2022, and a stockholders’ deficit of $7,023,497 as of June 30, 2017. The$11,253,058. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
While the Company is attempting to generate additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern ultimately is dependent onupon the management’sCompany’s ability to obtain equity or debt financing, attain further operating efficiencies,implement its business plan and achieve profitable operations. generate revenues.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary shouldif the Company not be ableis unable to continue as a going concern.
NOTE 4 – BUSINESS COMBINATIONS
Acquisition of Magiclytics
On February 3, 2021, the necessary capital to continue its operations. These steps included: 1) disposalCompany entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange Agreement”) by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”), each of the construction-in-progress new hospital. 2) planshareholders of Magiclytics (the “Magiclytics Shareholders”) and Christian Young, as the representative of the Magiclytics Shareholders (the “Shareholders’ Representative”). Christian Young is the President, Secretary, and a Director of the Company, and is also an officer, director, and significant shareholder of Magiclytics.
The A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties, which was executed on December 3, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.
On February 3, 2021 (the “Magiclytics Closing Date”), the parties closed on the transactions contemplated in the A&R Share Exchange Agreement, and the Company agreed to convert existed related parties’ loans into equity, 3) planissue shares of Company common stock to increase sales revenue with additional medical equipment, No assurances can be giventhe Magiclytics Shareholders in exchange for all Magiclytics Shares (the “Magiclytics Closing”). On February 3, 2021, pursuant to the closing of the Share Exchange Agreement, we acquired Magiclytics, and Magiclytics thereafter became our wholly owned subsidiary.
At the Magiclytics Closing, we agreed to issue to Christian Young and Wilfred Man each 45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing. shares of Company Common Stock, representing
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The number of shares of the Company common stock issued at the Magiclytics Closing was based on the fair market value of the Company common stock as initially agreed to by the parties, which is $steps takeninitial public offering price per share of the Company common stock in this Offering pursuant to Regulation A is less than the Base Value, then within three (3) business days of the qualification by the SEC of the Offering Statement forming part of this offering circular, the Company will provide necessary capitalissue to the Magiclytics Shareholders a number of additional shares of Company common stock equal to: per share (the “Base Value”). The fair market value was determined based on the volume weighted average closing price of the Company common stock for the twenty (20) trading day period immediately prior to the Magiclytics, In the event that the
(1) | $ divided by the initial public offering price per share of the Company common stock in this Offering pursuant to Regulation A, minus; | |
(2) |
The resulting number of shares of the Company common stock pursuant to the above calculation will be referred to as the “Additional Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective ownership of Magiclytics Shares. The Company issued additional shares in November 2021 based on the offering price of $ in the Regulation A offering.
(iv) | Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in gross revenue following the Tranche 3 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 3 Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 4 Satisfaction Date”). |
Following the Tranche 4 Satisfaction Date, at the end of each 12 month period following such date while the Consulting Agreement is still in effect, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) 4.5% of the Net Income (as defined below) of Magiclytics during such 12 month period divided by (ii) the VWAP as of the last date of such 12 month period. (For purposes of the Consulting Agreement, “Net Income” means the net income of Magiclytics for the Companyapplicable period, as determined in accordance with generally accepted accounting principles in the United States, consistently applied, as determined by the Company’s accountants).
Immediately prior to continue its operations.
Estimated Useful Lives (Years) | June 30, 2017 | December 31, 2016 | |
Office equipment | 5-10 | $79,461 | $77,587 |
Medical equipment | 5 | 1,270,632 | 1,240,674 |
Capital lease equipment | 5 | 1,660,123 | 1,620,982 |
Fixtures | 10 | 104,513 | 102,049 |
Vehicles | 5 | 41,072 | 40,104 |
Total equipment | 3,155,801 | 3,081,396 | |
Less accumulated depreciation | (1,398,184) | (1,329,569) | |
Less impairment of the equipment | (1,398,645) | (1,365,669) | |
Property and equipment, net | $358,972 | $386,158 |
Acquisition Consideration
The following table summarizes the carrying value of purchase price changesconsideration to RMB 84,905,660 (approximately $12,358,902),acquire Magiclytics:
SCHEDULE OF PURCHASE PRICE CONSIDERATION
Description | Amount | |||
Carrying value of purchase consideration: | ||||
Common stock issued | $ | (60,697 | ) | |
Total purchase price | $ | (60,697 | ) |
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Purchase Price Allocation
The following is an allocation of purchase price as of the February 3, 2021 acquisition closing date based upon an estimate of the carrying value of the assets acquired and the final value-added tax (VAT) is RMB 5,094,340 (approximately $741,534). The differences between the actual amount and estimated amount resulted in an additional net loss on sale of assets of RMB 1,094,340 (approximately $159,258) and VAT of RMB 5,094,340 (approximately $82,128) in extraordinary items.
SCHEDULE OF CARRYING VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
Description | Amount | |||
Purchase price allocation: | ||||
Cash | $ | 76 | ||
Intangibles | 77,889 | |||
Related party payable | (97,761 | ) | ||
AP and accrued liabilities | (40,901 | ) | ||
Identifiable net assets acquired | (60,697 | ) | ||
Total purchase price | $ | (60,697 | ) |
NOTE 5 – PREPAID EXPENSE
As of March 31, 2022 and December 31, 2021, the complaint, Tingyouyuxiang assertedCompany has prepaid expense of $54,000 and $449,954, respectively. The prepaid expense mainly consisted of prepaid stock compensation to consultants and employees of $.
NOTE 6 – PROPERTY AND EQUIPMENT
Fixed assets, net consisted of the following:
SCHEDULE OF FIXED ASSETS, NET
March 31, 2022 | December 31, 2021 | Estimated Useful Life | ||||||||
Equipment | $ | 113,638 | $ | 113,638 | 3 years | |||||
Less: accumulated depreciation and amortization | (54,500 | ) | (45,987 | ) | ||||||
Property, plant, and equipment, net | $ | 59,138 | $ | 67,651 |
Depreciation expense were $8,513and $6,935for the three months ended March 31, 2022 and March 31, 2021, respectively.
NOTE 7 – INTANGIBLES
As of March 31, 2022 and December 31, 2021, the Company has intangible assets of $542,310 and $458,033 from and after the acquisition of Magiclytics in February 2021. It is a breachplatform that internally developed for revenue prediction from influencer collaboration and our digital platform Honeydrip.com.
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS ACQUIRED AS PART OF BUSINESS COMBINATION
Weighted Average | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
Useful Life (in Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Value | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||
Developed technology - Magiclytics | 5 | $ | 275,489 | $ | 20,005 | $ | 255,484 | $ | 184,058 | $ | 10,791 | $ | 173,267 | |||||||||||||||
Developed technology - Magiclytics | - | 286,826 | - | 286,826 | 284,766 | - | 284,766 | |||||||||||||||||||||
$ | 562,315 | $ | 20,005 | $ | 542,310 | $ | 468,824 | $ | 10,791 | $ | 458,033 |
Amortization expense were $9,214and $0for the three months ended March 31, 2022 and 2021, respectively
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NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued liabilities at March 31, 2022 and December 31, 2021 consist of contract claim against NTH, alleging that NTHthe following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2022 | 2021 | |||||||
Accounts payable | $ | 244,430 | $ | 429,160 | ||||
Accrued payroll | 715,000 | 520,000 | ||||||
Accrued interest | 681,609 | 550,285 | ||||||
Other | 121,524 | 121,216 | ||||||
Accounts payable and accrued liabilities | $ | 1,762,563 | $ | 1,620,661 |
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Convertible Promissory Note – Scott Hoey
On September 10, 2020, the Company entered into a note purchase agreement with Scott Hoey, pursuant to which, on same date, the Company issued a convertible promissory note to Mr. Hoey the aggregate principal amount of $7,500 for a purchase price of $7,500 (“Hoey Note”).
The Hoey Note had faileda maturity date of September 10, 2022 and bore interest at 8% per year. No payments of the principal amount or interest are due prior to make timely and total payment of RMB 5,050,000 (approximately $800,000) under certain Supplement Agreement by and among NTH, Tingyouyuxiangthe maturity date other than as specifically set forth in the Hoey Note, and the Eighth GroupCompany may prepay all or any portion of Langdong Village Committee, Nanhu Community Office, Qingxiu District, Nanning City (the “Village Committee”the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Hoey had the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 50% of the volume weighted average of the closing price (“VWAP”) during the 20-trading day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
On December 8, 2020, the Company issued to Mr. Hoey 7,500 convertible promissory note issued to Mr. Hoey at a conversion price of $0.69 per share. shares of Company common stock upon the conversion of the $
Since the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The balance of the Hoey Note as of March 31, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible Promissory Note – Cary Niu
On September 18, 2020, the Company entered into a note purchase agreement with Cary Niu, pursuant to which, on same date, the Company issued a convertible promissory note to Ms. Niu the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Niu Note”). One December 30, 2009,
The Niu Note has a maturity date of September 18, 2022 and bears interest at 8% per year. No payments of the People’s Court ruled that NTH shall payprincipal amount or interest are due prior to Tingyouyuxiang damages of RMB 5,050,000 (approximately $800,000) plus interestthe maturity date other than as specifically set forth in the Niu Note, and the court hearing fee approximately $320,000. On March 9, 2013, NTH appealedCompany may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Ms. Niu will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 30% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the Intermediate Court, alleging, among other things, that NTH was never served. On June 6, 2013,option conversion date, subject to customary adjustments for stock splits, etc. occurring after the Intermediate Court remandedissuance date.
Since the caseconversion price is based on 30% of the VWAP during the 20-trading day period immediately prior to the People’s Court.
The balance of the People’s Court. Upon settlementNiu Note as of March 31, 2022 and December 31, 2021 was $0 and $50,000, respectively.
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Convertible Promissory Note – Jesus Galen
On October 6, 2020, the Company entered into a note purchase agreement with Jesus Galen, pursuant to which, on same date, the Company issued a convertible promissory note to Mr. Galen the aggregate principal amount of $30,000 for a purchase price of $30,000 (“Galen Note”).
The Galen Note has a maturity date of October 6, 2022 and bears interest at 8% per year. No payments of the lawsuit,principal amount or interest are due prior to the maturity date other than as specifically set forth in the Galen Note, and the Company hadmay prepay all or any portion of the principal amount and any accrued approximately $1,443,722 settlement payableand unpaid interest at any time without penalty. Mr. Galen will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The balance of the Galen Note as of JuneMarch 31, 2022 and December 31, 2021 was $0 and $30,000, respectively.
Convertible Promissory Note – Darren Huynh
On October 6, 2020, the Company entered into a note purchase agreement with Darren Huynh, pursuant to which, on same date, the Company issued a convertible promissory note to Mr. Huynh the aggregate principal amount of $50,000 for a purchase price of $50,000 (“Huynh Note”).
The Huynh Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Huynh Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Huynh will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
On December 20, 2021, the Company received conversion notice to issue to Mr. Huyng 50,000 principal of his convertible promissory note and $4,789 accrued interest at a conversion price of $0.15 per share The shares have not been issued as of December 31, 2021 and subsequently issued in January 2022. shares of Company common stock upon the conversion of the $
The balance of the Huynh Note as of March 31, 2022 and December 31 2021 was $0 and $0, respectively.
Convertible Promissory Note – Wayne Wong
On October 6, 2020, the Company entered into a note purchase agreement with Wayne Wong, pursuant to which, on same date, the Company issued a convertible promissory note to Mr. Wong the aggregate principal amount of $25,000 for a purchase price of $25,000 (“Wong Note”).
The Wong Note has a maturity date of October 6, 2022, and bears interest at 8% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Wong Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Wong will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 50% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
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Since the conversion price is based on 50% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
On November 8, 2021, the Company issued to Mr. Wong shares of Company common stock upon the conversion of the $25,000 principal of his convertible promissory note and $2,181 accrued interest at a conversion price of $0.57 per share.
The balance of the Wong Note as of March 31, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible Promissory Note – Matthew Singer
On January 3, 2021, the Company entered into a note purchase agreement with Matthew Singer, pursuant to which, on same date, the Company issued a convertible promissory note to Mr. Singer the aggregate principal amount of $13,000 for a purchase price of $13,000 (“Singer Note”).
The Singer Note had a maturity date of January 3, 2023, and bore interest at 8% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Singer Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty. Mr. Singer had the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of 70% of the volume weighted average of the closing price during the 20-trading day period immediately prior to the option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Since the conversion price is based on 70% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
On January 26, 2021, the Company issued to Matthew Singer 13,000 on January 3, 2021 at a conversion price of $1.59 per share. shares of Company common stock upon the conversion of the convertible promissory note issued to Mr. Singer in the principal amount of $
The balance of the Singer Note as of March 31, 2022 and December 31, 2021 was $0 and $0, respectively.
Convertible Promissory Note – ProActive Capital SPV I, LLC
On January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000, reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive Capital shares of Company Common Stock at a purchase price of $ per share. In addition, at the closing of this sale, the Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount ProActive Capital withheld from the total purchase price paid to the Company.
The ProActive Capital Note has a maturity date of January 20, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
On February 4, 2022, the Company amended the convertible promissory note with ProActive Capital SPV I, LLC and extended the maturity date to September 30, 2017.
The ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company purchasesCommon Stock at ProActive Capital’s election at any time following the majoritytime that the SEC qualifies the Company’s offering statement related to the Regulation A Offering, at a conversion price equal to 70% of its medicine supplies from Guangxi Liuzhou Medicine Co., Ltd.the Regulation A Offering Price of the Company Common Stock in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which accountedmay be waived by ProActive Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for 44%any stock splits, etc. which occur following the determination of the conversion price.
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The $25,000 original issue discounts, the fair value of shares issued, and 1%the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory note were $217,024.
The balance of the ProActive Capital Note as of March 31, 2022 and December 31, 2021 was $300,000 and $250,000, respectively.
Convertible Promissory Note – GS Capital Partners #1
On January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital #1”) with GS Capital Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS Capital Note”), and in connection therewith, sold to GS Capital shares of Company Common Stock at a purchase price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all medicine purchasesor any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for six month periodsany stock splits, etc. which occur following the determination of the conversion price.
The $28,889 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory note were $288,889.
The entire principal balance and interest were converted into 20172021. The balance of the GS Capital #1 as of March 31, 2022 and 2016. The rest are from around 13 different suppliers. common shares in the quarter ended June 30,
Convertible Promissory Note – New GS Note #1
On March 25, 2011, the Company completed a financing arrangement with an independent third party to sell and leaseback certain machinery and equipment. The net carrying value of the machinery and equipment sold was $262,683. The machinery and equipment was sold for $371,517, of which $334,365 was received in cash and $37,152 was held as refundable deposit. The transaction has been accounted for as a financing arrangement, wherein the property remains on the Company’s books and will continue to be depreciated. A financing obligation in the amount of $371,517, representing the proceeds, has been recorded under “Capital Lease Payable” in the Company’s Balance Sheet, and is being reduced based on payments under the lease. The lease was not completed as no payment was made in 2016 and first two quarters of 2017. As of June 30, 2017, lease payable was approximately $101,337.
The New GS Note #1 has a maturity date of May 31, 2022 and equipmentbears interest at December 31, 2016. Those equipment are to be placed in service upon usage approval from the Chinese government and hiring qualified personnel. As of June 30, 2017, the Company still has not received the approval. Accumulated depreciation and impairment loss10% per year. No payments of the leased equipmentprincipal amount or interest are due prior to the Maturity Date, other than as specifically set forth in the Note, and there is no prepayment penalty.
The New GS Note #1 provides GS Capital with conversion rights to convert all or any part of the outstanding and unpaid principal amount of the New Note from time to time into fully paid and non-assessable shares of the Company’s common stock, at June 30, 2017 was approximately $1,398,645.a conversion price of $1.00, subject to adjustment as provided in the New Note and subject to a 9.99% equity blocker.
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The New GS Note #1 contains customary events of default, including, but not limited to, failure to pay principal or interest on the New Note when due. If an event of default occurs and continues uncured, GS Capital Lease Payable was approximately $433,661 includingmay declare all or any portion of the then outstanding principal amount of the New Note, together with all accrued and unpaid interest thereon, due and payable, and the New Note will thereupon become immediately due and payable.
The balance of $27,221the New GS Note #1 as of June 30, 2017.
Convertible Promissory Note – GS Capital Partners #2
On February 19, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #2”), pursuant to which, on same date, the Company issued a convertible promissory note (the “GS Capital #2 Note”) to GS Capital the aggregate principal amount of $577,778 for a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection therewith, sold to GS Capital shares of Company’s common stock, par value $ per share at a purchase price of $100, representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The GS Capital #2 Note has a maturity date of February 19, 2022 and bears interest at 10% per year. No payments of the following:
June 30, 2017 | December 31, 2016 | |
Advance from Customers | 0 | 555 |
Accrued Salary | 54,411 | 53,128 |
Taxes Payable | 42,442 | 694,039 |
Other Payable | 630,617 | 521,454 |
Total | 727,470 | 1,269,176 |
The taxes payableGS Capital #2 Note (and the principal amount and any accrued and unpaid interest) is majorly consistconvertible into shares of individual income tax withholdingthe Company Common Stock at GS Capital’s election at any time following the time that the Securities and business tax payable. Other payableExchange Commission (“SEC”) qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended (the “Regulation A Offering”). At such time, the GS Capital #2 Note (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is majorly consistsubject to customary adjustments for any stock splits, etc. which occur following the determination of payable to law firm, payable to accounting firm,the conversion price.
The $57,778 original issue discounts, the fair value of shares issued, and unsettled fund with China UnionPay.
GS Capital converted $96,484 and $3,515 accrued interest in the quarter ended June 30, 2017
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to cancel the conversion exercised in the quarter ended June 30, 2021 and extended the maturity date to August 19, 2022.
The balance of the GS Capital #2 Note as of March 31, 2022 and December 31, 2021 was $ and $ , respectively.
Convertible Promissory Note – GS Capital Partners #3
On March 16, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #3”), pursuant to which, on same date, the Company issued a convertible promissory note (the “GS Capital #3 Note”) to GS Capital the aggregate principal amount of $577,778 for a purchase price of $520,000, reflecting a $57,778 original issue discount, and in connection therewith, sold to GS Capital shares of Company’s common stock, par value $ per share at a purchase price of $100, representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
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The GS Capital #3 Note has a maturity date of March 22, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital #3 Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The GS Capital #3 Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Company’s planned Regulation A Offering. At such time, the GS Capital #3 Note (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
The $57,778 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory note were $577,778.
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to September 22, 2022.
The balance of the GS Capital #3 Note as of March 31, 2022 and December 31, 2021 was $577,778 and $577,778, respectively.
Convertible Promissory Note – GS Capital Partners #4
On April 1, 2021, the Company entered into another securities purchase agreement with GS Capital (the “GS Capital #4”), pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount, and in connection therewith, sold to GS Capital shares of Company’s common stock, par value $ per share at a purchase price of $45, representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The GS Capital Note #4 has a maturity date of April 1, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #4, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The GS Capital Note #4 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Company’s planned Regulation A Offering. At such time, the GS Capital Note #4 (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
The $50,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $550,000.
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to October 1, 2022.
The balance of the GS Capital Note #4 as of March 31, 2022 and December 31, 2021 were $550,000 and $550,000, respectively.
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Convertible Promissory Note – GS Capital Partners #5
On April 29, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) with GS Capital, pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount (the “GS Capital Note #5”) and, in connection therewith, sold to GS Capital shares of the Company’s common stock, par value $ per share, at a purchase price of $125, representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The April 2021 GS Capital Note #5 has a maturity date of April 29, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #5, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The GS Capital Note #5 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company’s Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Company’s planned Regulation A Offering. At such time, the GS Capital Note #5 (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
The $50,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $550,000.
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to October 29, 2022.
The balance of the GS Capital Note #5 as March 31, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible Promissory Note – GS Capital Partners #6
On June 3, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) with GS Capital, pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount (the “GS Capital Note #6”) and, in connection therewith, sold to GS Capital shares of the Company’s Common Stock at a purchase price of $85, representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $5,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.
The GS Capital Note #6 has a maturity date of June 3, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #6, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The GS Capital Note #6 (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company’s Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Company’s planned Regulation A Offering. At such time, the GS Capital Note #6 (and the principal amount and any accrued and unpaid interest) will be convertible at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
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The $50,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $550,000.
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Restructuring Agreement”) with GS Capital Partners, LLC to extend the maturity to December 3, 2022.
The balance of the GS Capital Note #6 as of March 31, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible Promissory Note – Tiger Trout Capital Puerto Rico
On January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same, date, the Company (i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company common stock for a purchase price of $220.00.
The Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if the Company does not pay the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity date.
If the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date, that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”) due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company common stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after the issuance date. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout on 61 days’ notice to the Company.
The $440,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory note were $1,540,000.
On January 25, 2022, the Company entered into an Amendment and Restructuring Agreement (the “Tiger Restructuring Agreement”) with Tiger Trout to extend the maturity to August 24, 2022 and increased the principal amount of the convertible note by $388,378 so the total principal became $1,928,378.
The balance of the Tiger Trout Note as of March 31, 2022 and December 31, 2021 was $1,928,378 and $1,590,000, respectively.
Convertible Promissory Note – Eagle Equities LLC
On April 13, 2021, the Company entered into a securities purchase agreement (the “Eagle SPA”) with Eagle Equities LLC (“Eagle Equities”), pursuant to which, on same date, the Company issued a convertible promissory note to Eagle Equities in the aggregate principal amount of $1,100,000 for a purchase price of $1,000,000, reflecting a $100,000 original issue discount (the “Eagle Equities Note”), and, in connection therewith, sold to Eagle Equities shares of Company Common Stock at a purchase price of $ , representing a per share price of $ per share. In addition, at the closing of this sale, the Company reimbursed Eagle Equities the sum of $10,000 for Eagle Equities’ costs in completing the transaction, which amount Eagle Equities withheld from the total purchase price paid to the Company.
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The Eagle Equities Note has a maturity date of April 13, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than upon the circumstances set forth in the Eagle Equities Note – specifically, if (i) the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended; and (ii) the Company receives $3,500,000 in net proceeds from such Regulation A Offering, then Company must repay the principal amount and any accrued and unpaid interest on the Eagle Equities Note within three (3) business days from the date of such occurrence. The Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The Eagle Equities Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of the Company Common Stock at Eagle Equities’ election at any time following the time that the SEC qualifies the Company’s offering statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) will be convertible in restricted shares of Company Common Stock at a conversion price equal to 70% of the initial offering price of the Company Common Stock in the Regulation A Offering, subject to a customary beneficial ownership limitation of 9.99%, which may be waived by Eagle Equities on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price. Alternatively, if the SEC has not qualified the Company’s offering statement related to the Company’s planned offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933 by October 10, 2021, and Eagle Equities Note has not yet been fully repaid, then Eagle Equities will have the right to convert the Eagle Equities Note (and the principal amount and any accrued and unpaid interest) into restricted shares of Company Common Stock at a conversion price of $6.50 per share (subject to customary adjustments for any stock splits, etc. which occur following the April 13, 2021).
The $100,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $1,100,000.
The balance of the Eagle Equities Note as of March 31, 2022 and December 31, 2021 was $1,100,000 and $1,100,000, respectively. The Company is currently in default of the Eagle Equities Note.
Convertible Promissory Note – Labrys Fund, LP
On March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”), pursuant to which the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the “Labrys Maturity Date”), in the principal sum of $1,000,000. In addition, the Company issued shares of its common stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys Note, the Company agreed to pay to $1,000,000 (the “Principal Sum”) to Labrys and to pay interest on the principal balance at the rate of 10% per annum. The Labrys Note carries an original issue discount (“OID”) of $100,000. Accordingly, on the Closing Date (as defined in the Labrys SPA), Labrys paid the purchase price of $900,000 in exchange for the Labrys Note. Labrys may convert the Labrys Note into the Company’s common stock (subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at any time at a conversion price equal to $. per share
The Company may prepay the Labrys Note at any time prior to the date that an Event of Default (as defined in the Labrys Note) occurs at an amount equal to 100% of the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750.00 for administrative fees. The Labrys Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Labrys Note or Labrys SPA.
Upon the occurrence of any Event of Default, the Labrys Note shall become immediately due and payable and the Company shall pay to Labrys, in full satisfaction of its obligations hereunder, an amount equal to the 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 16% per annum or the highest rate permitted by law.
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The $100,000 original issue discounts, the fair value of shares issued, and the beneficial conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discounts at the inception date of this convertible promissory note were $1,000,000.
On November 26, 2021, the Company entered into an Amendment and Restructuring Agreement (the “Labrys Restructuring Agreement”) with Labrys Fund LP to extend the maturity to November 11, 2022 and increased the principal amount of the convertible note by $116,800 so the total principal became $700,878.
For the year ended December 31, 2021, the Company paid $455,000 cash to reduce the balance of the convertible promissory note from Labrys Fund, LP. On March 30, 2022, Labrys Fund, LP converted $111,065 principal and $32,196 interest and $1,750 for fees totaling $145,011.60 into common shares. The shares has not been issued as of March 31, 2022 and recorded as shares to be issued – liability as of March 31, 2022.
The balance of the Labrys Note as of March 31, 2022 and December 31, 2021 was $589,812 and $545,000, respectively.
Convertible Promissory Note – Chris Etherington
On August 27, 2021, the Company entered into a note purchase agreement (the “Chris Etherington Note Purchase Agreement”) with Chris Etherington, an individual (“Chris Etherington”), with an effective date of August 26, 2021, pursuant to which, on same date, the Company issued a convertible promissory note to Chris Etherington in the aggregate principal amount of $165,000 for a purchase price of $150,000, reflecting a $15,000 original issue discount (the “Chris Etherington Note”) and, in connection therewith, issued to Chris Etherington a Warrant to purchase 37,500 shares of the Company’s common stock, par value $ per share (the “Company Common Stock”) at an exercise price of $2.00 per share, subject to adjustment (the “Chris Etherington Warrant”). In addition, in connection with the Chris Etherington Note Purchase Agreement, the Company entered into a Security Agreement on same date with Chris Etherington, pursuant to which the Company’s obligations under the Chris Etherington Note were secured by a first priority lien and security interest on all of the assets of the Company (the “Chris Etherington Security Agreement”). While each of the Chris Etherington Warrant, Security Agreement, Note, and Note Purchase Agreement have an effective date and/or effective issue date of August 26, 2021, each was entered into and/or issued on August 27, 2021.
The Chris Etherington Note has a maturity date of August 26, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note #6, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The Chris Etherington Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at any time following August 26, 2021 until the note is repaid. The conversion price per share of Common Stock shall initially mean the lesser of (i) $1.00 or (ii) 75% of the lowest daily volume weighted average price of the Common Stock during the twenty (20) Trading Days (as defined in the Chris Etherington Note) immediately preceding the date of the respective conversion. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
Since the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has 20,000,000 determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $15,000 original issue discounts, the fair value of warrants issued, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $165,000. For the excess amount of derivative liability, the Company recorded accretion expense of $160,538 at the inception date of this note.
The balance of the Chris Etherington Note as of March 31, 2022 and December 31, 2021 was $165,000 and $165,000, respectively.
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Convertible Promissory Note – Rui Wu
On August 27, 2021, the Company entered into a note purchase agreement (the “Rui Wu Note Purchase Agreement”) with Rui Wu, an individual (“Rui Wu”), with an effective date of August 26, 2021, pursuant to which, on same date, the Company issued a convertible promissory note to Rui Wu in the aggregate principal amount of $550,000 for a purchase price of $500,000, reflecting a $50,000 original issue discount (the “Rui Wu Note”) and, in connection therewith, issued to Rui Wu a Warrant to purchase 125,000 shares of the Company’s common stock, par value $per share (the “Company Common Stock”) at an exercise price of $2.00 per share, subject to adjustment (the “Rui Wu Warrant”). In addition, in connection with the Rui Wu Note Purchase Agreement, the Company entered into a Security Agreement on same date with Rui Wu, pursuant to which the Company’s obligations under the Rui Wu Note were secured by a first priority lien and security interest on all of the assets of the Company (the “Rui Wu Security Agreement”). While each of the Rui Wu Warrant, Security Agreement, Note, and Note Purchase Agreement have an effective date and/or effective issue date of August 26, 2021, each was entered into and/or issued on August 27, 2021.
The Rui Wu Note has a maturity date of August 26, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Rui Wu Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
The Rui Wu Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at any time following August 26, 2021 until the note is repaid. The conversion price per share of Common Stock shall initially mean the lesser of (i) $1.00 or (ii) 75% of the lowest daily volume weighted average price of the Common Stock during the twenty (20) Trading Days (as defined in the Rui Wu Note) immediately preceding the date of the respective conversion. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.
If an event of default has occurred and is continuing, Rui Wu may declare all or any portion of the then-outstanding principal amount of the Rui Wu Note, together with all accrued and unpaid interest thereon, due and payable, and the Rui Wu Note shall thereupon become immediately due and payable in cash and Rui Wu will also have the right to pursue any other remedies that Rui Wu may have under applicable law. In the event that any amount due under the Rui Wu Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.
Since the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $50,000 original issue discounts, the fair value of warrants issued, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $550,000. For the excess amount of derivative liability, the Company recorded accretion expense of $514,850 at the inception date of this note.
The balance of the Rui Wu Note as of March 31, 2022 and December 31, 2021 was $550,000 and $550,000, respectively.
Convertible Promissory Note – Sixth Street Lending #1
On November 18, 2021, the Company entered into a securities purchase agreement (the “Sixth Street #1 Securities Purchase Agreement”) with Sixth Street Lending LLC (“Sixth Street”), pursuant to which, on the same date, the Company issued a convertible promissory note to Sixth Street in the aggregate principal amount of $224,000 for a purchase price of $203,750, reflecting a $20,250 original issue discount (the “Sixth Street #1 Note”). At closing, the Company reimbursed Sixth Street the sum of $3,750 for Sixth Street’s costs in completing the transaction.
The Sixth Street #1 Note has a maturity date of November 18, 2022 and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the Maturity Date, other than as specifically set forth in the Note. The Company may not prepay the Note prior to the Maturity Date, other than by way of a conversion initiated by Sixth Street.
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The Sixth Street #1 Note provides Sixth Street with conversion rights to convert all or any part of the outstanding and unpaid principal amount of the Note from time to time into fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001 (“Common Stock”). Conversion rights are exercisable at any time during the period beginning on May 17, 2022 (180 days from when the Note was issued) and ending on the later of (i) the Maturity Date and (ii) the date of payment of the amounts due upon an uncured event of default. Any principal that Sixth Street elects to convert will convert at the Conversion Price, which is a Common Stock per share price equal to the lesser of a Variable Conversion Price and $1.00. The Variable Conversion Price is 75% of the Market Price, which is the lowest dollar volume-weighted average sale price (“VWAP”) during the 20-trading day period ending on the trading day immediately preceding the conversion date. VWAP is based on trading prices on the principal market for Company Common Stock or, if none, OTC. Currently, the Common Stock trades OTC. In no event is Sixth Street entitle to convert any portion of the Sixth Street #1 Note upon which conversion Sixth Street and its affiliates would beneficially own more than 4.99% of the outstanding shares of Company Common Stock.
The Sixth Street #1 Note contains customary events of default, including, but not limited to: (1) failure to pay principal or interest on the Note when due; (2) failure to issue and transfer Common Stock upon exercise of Sixth Street of its conversion rights; (3) an uncured breach of any of the Company’s other material obligations contained in the Note; and (4) the Company’s breach of any representation or warranty in the Securities Purchase Agreement or other related agreements.
If an event of default occurs and continues uncured, the Sixth Street #1 Note becomes immediately due and payable. If an event of default occurs because the Company fails to issue shares of Common Stock to Sixth Street within three business days of receiving a notice of conversion from Sixth Street, the Company shall pay an amount equal to 200% of the Default Amount (defined below) in full satisfaction of the Company’s obligations under the Note. If an event of default occurs for any other reason that continues uncured (except in the case of appointment of a receiver, bankruptcy, liquidation, or a similar default), the Company shall pay an amount equal to 150% of the Default Amount (defined below) in full satisfaction of the Company’s obligations under the Sixth Street #1 Note.
The “Default Amount” is equal to the sum of (a) accrued and unpaid interest on the principal amount of the Note to the date of payment plus (b) default interest, which is calculated based on a rate of 22% per year (inclusive of the 10% interest per year that would be due absent an event of default), plus (c) certain other amounts that may be owed under the Note.
Since the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $20,250 original issue discounts, the $3,750 reimbursement, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $173,894.
The balance of the Sixth Street #1 note as of March 31, 2022 and 2021 was $224,000 and $224,000, respectively.
Convertible Promissory Note – Sixth Street Lending #2
On December 9, 2021, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #2 purchase agreement”) dated December 9, 2021, by and between the Company and Sixth Street Lending LLC (the “Buyer”). Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed to purchase (the “Purchase”), a convertible note in the aggregate principal amount of $93,500 (the “Sixth Street #2 Note”). The Sixth Street #2 Note has an original issue discount of $8,500, resulting in gross proceeds to the Company of $85,000.
The Sixth Street #2 Note bears interest at a rate of 10% per annum and matures on December 9, 2022. Any amount of principal or interest on the Note which is not paid when due will bear interest at a rate of 22% per annum. The Note may not be prepaid in whole or in part except as provided in the Note by way of conversion at the option of the Buyer.
The Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following December 9, 2021 and ending on the later of (i) December 9, 2022, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
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The conversion price of the Sixth Street #2 Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The “Variable Conversion Price” means 75% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common stock during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $8,500 original issue discounts, the $3,750 reimbursement, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $79,118.
The balance of the Sixth Street #2 note as of March 31, 2022 and December 31, 2021 was $93,500 and $93,500, respectively.
Convertible Promissory Note – Fast Capital
On January 10, 2022, the Company entered into a Securities Purchase Agreement, (the “Fast Capital purchase agreement”) dated January 10, 2022, by and between the Company and Fast Capital, LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $120,000 (the “Fast Capital Note”). The Fast Capital 2 Note has an original issue discount of $10,000, resulting in gross proceeds to the Company of $110,000.
The Fast Capital Note bears interest at a rate of 10% per annum and matures on January 10, 2023. Any amount of principal or interest on the Note which is not paid when due will bear interest at a rate of 18% per annum. The Note may not be prepaid in whole or in part except as provided in the Note by way of conversion at the option of the Buyer.
The Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following January 10, 2022 and ending on the later of (i) January 10, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the Fast Capital Note equals 70% of the lowest trading price of common stock as reported in the national Quotation Bureau OTC market exchange during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since the conversion price is based on 70% of the lowest trading price of common stock as reported in the national Quotation Bureau OTC market exchange during the 20 trading date period ending on the latest complete trading day prior to the conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $10,000 original issue discounts, the $5,000 reimbursement, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $120,000.
The balance of the Fast Capital note as of March 31, 2022 and December 31, 2021 was $120,000 and $0, respectively.
Convertible Promissory Note – Sixth Street Lending #3
On January 12, 2022, the Company entered into a Securities Purchase Agreement, (the “Sixth Street #3 purchase agreement”) dated January 12, 2022, by and between the Company and Sixth Street Lending LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $70,125 (the “Sixth Street #3 Note”). The Sixth Street #3 Note has an original issue discount of $6,375, resulting in gross proceeds to the Company of $63,750.
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The Sixth Street #3 Note bears interest at a rate of 10% per annum and matures on January 12, 2023. Any amount of principal or interest on the Note which is not paid when due will bear interest at a rate of 22% per annum. The Note may not be prepaid in whole or in part except as provided in the Note by way of conversion at the option of the Buyer.
The Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following January 12, 2022 and ending on the later of (i) January 12, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the Sixth Street #3 Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The “Variable Conversion Price” means 75% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common stock during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Since the conversion price is based on the lesser of (i) $1.00 or (ii) 75% of the VWAP during the 20-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $6,375 original issue discounts and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $50,749.
The balance of the Sixth Street #3 note as of March 31, 2022 and December 31, 2021 was $70,125 and $0, respectively.
Convertible Promissory Note – ONE44 Capital LLC
On February 16, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 Capital purchase agreement”) dated February 16, 2022, by and between the Company and ONE44 Capital LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $175,500 (the “ONE44 Capital Note”). The ONE44 Capital Note has an original issue discount of $17,500, resulting in gross proceeds to the Company of $158,000.
The ONE44 Capital Note bears interest at a rate of 4% per annum and matures on February 16, 2023. Any amount of principal or interest on the Note which is not paid when due will bear interest at a rate of 4% per annum. The Note may not be prepaid in whole or in part except as provided in the Note by way of conversion at the option of the Buyer.
The Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following February 16, 2022 and ending on the later of (i) February 16, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the ONE44 Capital Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The “Variable Conversion Price” means 65% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common stock during the 3 trading date period ending on the latest complete trading day prior to the conversion date.
Since the conversion price is based on 65% of the VWAP during the 3-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $17,500 original issue discounts, the $8,000 reimbursement and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $148,306.
The balance of the ONE44 Capital note as of March 31, 2022 and December 31, 2021 was $175,500 and $0, respectively.
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Convertible Promissory Note – Coventry Enterprise, LLC
On March 3, 2022, the Company entered into a Securities Purchase Agreement, (the “Coventry Enterprise purchase agreement”) dated March 3, 2022, by and between the Company and Coventry Enterprise, LLC. Pursuant to the terms of the SPA, the Company agreed to issue and sell, and the Buyer agreed to purchase, a convertible note in the aggregate principal amount of $150,000 (the “Coventry Enterprise Note”). The Coventry Note has an original issue discount of $30,000, resulting in gross proceeds to the Company of $120,000. Pursuant to the terms of the Coventry SPA, the Company also agreed to issue shares of restricted common stock to Coventry as additional consideration for the purchase of the Coventry Note.
The Coventry Enterprise Note bears interest at a rate of 10% per annum and matures on March 3, 2023. Any amount of principal or interest on the Note which is not paid when due will bear interest at a rate of 18% per annum. The Note may not be prepaid in whole or in part except as provided in the Note by way of conversion at the option of the Buyer.
The Buyer has the right from time to time, and at any time during the period beginning on the date that is 180 days following March 3, 2022 and ending on the later of (i) March 3, 2023, and (ii) the date of payment of the Default Amount (as defined in the Note), to convert all or any part of the outstanding and unpaid principal amount of the Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the Coventry Enterprise Note equals the lesser of the Variable Conversion Price (as hereinafter defined). The “Variable Conversion Price” means 90% multiplied by the lowest VWAP (as defined in the Note) for the Company’s common stock during the 10 trading date period ending on the latest complete trading day prior to the conversion date.
Since the conversion price is based on 90% of the VWAP during the 10-trading day period immediately prior to the option conversion date, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 11.
The $30,000 original issue discounts, shares issued, and the conversion features were recorded as debt discounts and amortized over the term of the note. Therefore, the total debt discount at the inception date of this convertible promissory note were recorded at $150,000.
The balance of the Coventry Enterprise note as of March 31, 2022 and December 31, 2021 was $150,000 and $0, respectively.
Below is the summary of the principal balance and debt discounts as of March 31, 2022.
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SCHEDULE OF CONVERTIBLE PROMISSORY NOTE
Convertible Promissory Note Holder | Start Date | End Date | Initial Note Principal Balance | Current Note Principal Balance | Debt Discounts As of Issuance | Amortization | Debt Discounts As of March 31, 2022 | |||||||||||||||||
Scott Hoey | 9/10/2020 | 9/10/2022 | 7,500 | 0 | 7,500 | (7,500 | ) | - | ||||||||||||||||
Cary Niu | 9/18/2020 | 9/18/2022 | 50,000 | 0 | 50,000 | (50,000 | ) | - | ||||||||||||||||
Jesus Galen | 10/6/2020 | 10/6/2022 | 30,000 | 0 | 30,000 | (30,000 | ) | - | ||||||||||||||||
Darren Huynh | 10/6/2020 | 10/6/2022 | 50,000 | 0 | 50,000 | (50,000 | ) | - | ||||||||||||||||
Wayne Wong | 10/6/2020 | 10/6/2022 | 25,000 | 0 | 25,000 | (25,000 | ) | - | ||||||||||||||||
Matt Singer | 1/3/2021 | 1/3/2023 | 13,000 | 0 | 13,000 | (13,000 | ) | - | ||||||||||||||||
ProActive Capital | 1/20/2021 | 1/20/2022 | 250,000 | 300,000 | 217,024 | (217,024 | ) | - | ||||||||||||||||
GS Capital #1 | 1/25/2021 | 1/25/2022 | 288,889 | 0 | 288,889 | (288,889 | ) | - | ||||||||||||||||
GS Capital #1 replacement | 11/26/2021 | 5/31/2022 | 300,445 | 300,445 | - | - | - | |||||||||||||||||
Tiger Trout SPA | 1/29/2021 | 1/29/2022 | 1,540,000 | 1,928,378 | 1,540,000 | (1,540,000 | ) | - | ||||||||||||||||
GS Capital #2 | 2/16/2021 | 2/16/2022 | 577,778 | 559,659 | 577,778 | (577,778 | ) | - | ||||||||||||||||
Labrys Fund, LLP | 3/11/2021 | 3/11/2022 | 1,000,000 | 589,812 | 1,000,000 | (1,000,000 | ) | - | ||||||||||||||||
GS Capital #3 | 3/16/2021 | 3/16/2022 | 577,778 | 577,778 | 577,778 | (577,778) | - | |||||||||||||||||
GS Capital #4 | 4/1/2021 | 4/1/2022 | 550,000 | 550,000 | 550,000 | (548,493 | ) | 1,507 | ||||||||||||||||
Eagle Equities LLC | 4/13/2021 | 4/13/2022 | 1,100,000 | 1,100,000 | 1,100,000 | (1,060,822 | ) | 39,178 | ||||||||||||||||
GS Capital #5 | 4/29/2021 | 4/29/2022 | 550,000 | 550,000 | 550,000 | (506,302 | ) | 43,698 | ||||||||||||||||
GS Capital #6 | 6/3/2021 | 6/3/2022 | 550,000 | 550,000 | 550,000 | (453,562 | ) | 96,438 | ||||||||||||||||
Chris Etherington | 8/26/2021 | 8/26/2022 | 165,000 | 165,000 | 165,000 | (98,096 | ) | 66,904 | ||||||||||||||||
Rui Wu | 8/26/2021 | 8/26/2022 | 550,000 | 550,000 | 550,000 | (326,987 | ) | 223,013 | ||||||||||||||||
Sixth Street Lending #1 | 11/28/2021 | 11/28/2022 | 224,000 | 224,000 | 173,894 | (63,364 | ) | 110,530 | ||||||||||||||||
Sixth Street Lending #2 | 12/9/2021 | 12/9/2022 | 93,500 | 93,500 | 79,118 | (24,278 | ) | 54,840 | ||||||||||||||||
Fast Capital LLC | 1/10/2022 | 1/10/2023 | 120,000 | 120,000 | 120,000 | (26,301 | ) | 93,699 | ||||||||||||||||
Sixth Street Lending #3 | 1/12/2022 | 1/12/2023 | 70,125 | 70,125 | 50,748 | (10,844 | ) | 39,904 | ||||||||||||||||
One 44 Capital | 2/16/2022 | 2/16/2023 | 175,500 | 175,500 | 148,306 | (17,471 | ) | 130,835 | ||||||||||||||||
Coventry Enterprise | 3/3/2022 | 3/3/2023 | 150,000 | 150,000 | 150,000 | (11,507 | ) | 138,492 | ||||||||||||||||
Total | Total | $ | 1,039,038 | |||||||||||||||||||||
Remaining note principal balance | 8,554,197 | |||||||||||||||||||||||
Total convertible promissory notes, net | $ | 7,515,159 |
Future payments of principal of convertible notes payable at March 31, 2022 are as follows:
SCHEDULE OF FUTURE MATURITIES OF CONVERTIBLE NOTES PAYABLE
Years ending December 31, | ||||
2022 | $ | (8,038,572 | ) | |
2023 | (515,625 | ) | ||
2024 | – | |||
2025 | - | |||
Thereafter | – | |||
Total | $ | (8,554,197 | ) |
Interest expense recorded related to the convertible notes payable for the three months ended March 31, 2022 and 2021 were $762,653 and $840,138, respectively.
The Company amortized $1,349,628 and $495,937 of the discount on the convertible notes payable to interest expense for the three months ended March 31, 2022 and 2021, respectively.
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As of March 31, 2022 and December 31, 2021, the Company entered into various consulting agreements with consultants, directors, and convertible debt. The balances of shares to be issued – liability were $ and $ , respectively. The Company recorded these consultant and director shares under liability based on the shares will be issued at a fixed monetary amount known at inception under ASC 480.
SCHEDULE OF SHARES TO BE ISSUED LIABILITY
Beginning Balance, January 1, 2022 | $ | 1,047,885 | ||
Shares to be issued | 262,465 | |||
Shares issued | (772,485 | ) | ||
Ending Balance, March 31, 2022 | $ | 537,865 |
Shares to be issued - liability is summarized as below:
Beginning Balance, January 1, 2021 | $ | 87,029 | ||
Shares to be issued - liability, beginning balance | $ | 87,029 | ||
Shares to be issued | 6,415,046 | |||
Shares issued | (5,454,190 | ) | ||
Ending Balance, December 31, 2021 | $ | 1,047,885 | ||
Shares to be issued - liability, ending balance | $ | 1,047,885 |
NOTE 11 – DERIVATIVE LIABILITY
The derivative liability is derived from the conversion features in note 10 signed for the period ended December 31, 2021. All were valued using the weighted-average Binomial option pricing model using the assumptions detailed below. As of March 31, 2022 and December 31, 2021, the derivative liability was $983,630 and $513,959, respectively. The Company recorded $77,616 loss and $49,533 loss from changes in derivative liability during the three months ended March 31, 2022 and 2021, respectively. The Binomial model with the following assumption inputs:
SCHEDULE OF DERIVATIVE LIABILITY ASSUMPTIONS INPUT
March 31, 2022 | ||||
Annual Dividend Yield | — | |||
Expected Life (Years) | 0.4 – 0.9 years | |||
Risk-Free Interest Rate | 0.07% - 1.63 | % | ||
Expected Volatility | 179 - 226 | % |
Fair value of the derivative is summarized as below:
SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILITY
Beginning Balance, December 31, 2021 | $ | 513,959 | ||
Additions | 652,803 | |||
Mark to Market | (77,616 | ) | ||
Cancellation of Derivative Liabilities Due to Conversions | - | |||
Reclassification to APIC Due to Conversions | (105,516 | ) | ||
Ending Balance, March 31, 2022 | $ | 983,630 |
December 31, 2021 | ||||
Annual Dividend Yield | — | |||
Expected Life (Years) | 0.6 – 0.8 years | |||
Risk-Free Interest Rate | 0.07% - 0.39 | % | ||
Expected Volatility | 145 - 485 | % |
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Fair value of the derivative is summarized as below:
Beginning Balance, December 31, 2020 | $ | 304,490 | ||
Derivative liability, beginning balance | $ | 304,490 | ||
Additions | 1,343,518 | |||
Mark to Market | (1,029,530 | ) | ||
Cancellation of Derivative Liabilities Due to Conversions | - | |||
Reclassification to APIC Due to Conversions | (104,519 | ) | ||
Ending Balance, December 31, 2021 | $ | 513,959 | ||
Derivative liability, ending balance | $ | 513,959 |
NOTE 12 – NOTE PAYABLE, RELATED PARTY
For the period ended December 31, 2020, the Company signed a note payable agreement (“Amir 2020 note”) with the Company’s Chief Executive Officer for advances up to $5,000,000 at 0% interest rate. The entire balance is due January 31, 2023. As of December 31, the Company has a balance of $2,162,562 owed to the Chief Executive Officer of the Company. The note payable was subsequently amended on February 2, 2021.
On February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal amount of $2,400,000 (the “Amir 2021 Note”) to replace the Amir 2020 note. The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Amir 2021 Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of the Note at any time without penalty.
At the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A, $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value $ per share, of the Company equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered in the Offering Circular.
In accordance with ASC 470-50-40-10 a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date would always be considered substantial and require extinguishment accounting. We concluded the conversion features of the Amir 2021 note is substantial. As a result, we recorded a loss on the extinguishment of debt in the amount of $297,138 in our consolidated statements of operations and credit as premium on the note payable to the related party. The premium will be amortized over the life of the loan which is expired on February 2, 2024.
The Company’s Regulation A Offering Circular was qualified on June 11, 2021. As a result, the principal balance of $1,000,000 has been converted to common stock and recorded under shares to be issued until it is issued.
The Company amortized $22,411 and $15,467 of the discount on the convertible notes payable to interest expense for the three months ended March 31, 2022 and 2021, respectively. The outstanding debt premium as of March 31, 2022 was $94,644.
For the three months ended March 31, 2022 and 2021, the Company paid $105,822 and $0 to the Amir 2021 Note, respectively.
The balance as of March 31, 2022 and December 31, 2021 were $1,164,042 and $1,269,864, respectively.
NOTE 13 – RELATED PARTY TRANSACTIONS
As of December 31, 2020, the Company’s Chief Executive Officer had advanced $2,162,562 to the Company for payment of the Company’s operating expenses. The Company recorded $15,920 and $87,213 as imputed interest and recorded as additional paid in capital for the year ended December 31, 2021 and for the period from January 2, 2020 (inception) to December 31, 2020, respectively from the loan advanced by the Company’s Chief Executive Officer.
On February 2, 2021, the Company and Amir Ben-Yohanan, its Chief Executive Officer, entered into a promissory note in the total principal amount of $2,400,000 (the “Amir 2021 Note”) to replace the Amir 2020 note with a maturity date of February 2, 2024. The Note memorializes a $2,400,000 loan that Mr. Ben-Yohanan previously advanced to the Company and its subsidiaries to fund their operations. The Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of the Note at any time without penalty. The Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of the Note at any time without penalty.
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At the time of the qualification by the SEC of the Company’s Offering Circular, pursuant to Regulation A, $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value $ per share, of the Company equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered in the Offering Circular.
For the three months ended March 31, 2021, the Board of Directors approved and paid $285,000 cash bonuses to Amir Ben-Yohanan, Chris Young, and Simon Yu.
For the three months ended June 30, 2021, the Board of Directors approved and paid $205,000 cash bonuses to Amir Ben-Yohanan, Chris Young, Harris Tulchin, and Simon Yu.
For the three months ended March 31, 2021, the Company’s Chief Executive Officer advanced an additional $135,000 to the Company to pay the Company’s operating expenses.
For the three months ended March 31, 2022 and 2021, the Company paid $105,822 and $0 to the Amir 2021 Note, respectively.
Effective March 4, 2021, the Company entered into three (3) separate director agreements with Amir Ben-Yohanan, Christopher Young, and Simon Yu. The Director Agreements set out terms and conditions of each of Mr. Ben-Yohanan’s, Mr. Young’s, and Mr. Yu’s role as a director of the Company. Mr. Young and Yu resigned from their officer and director positions with the Company on October 8, 2021.
Pursuant to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
● | An issuance of shares of the Company’s common stock, par value par value $ (“Common Stock”), to be issued on the Effective Date, as compensation for services provided by each of the Directors to the Company prior to the Effective Date; and | |
● | An issuance of a number of shares of Common Stock having a fair market value (as defined in each of the Director Agreements) of $25,000 at the end of each calendar quarter that the Director serves as a director. |
As of March 31, 2022 and December 31, 2021, The Company has a payable balance owed to the sellers of Magiclytics of $97,761 and $97,761 from the acquisition of Magiclytics on February 3, 2021.
On October 7, 2021, the Board of Directors of the Company appointed Dmitry Kaplun as the Company’s Chief Financial Officer. Pursuant to the terms of the Employment Agreement, the Board entered into a restricted stock award agreement (the “Restricted Stock Agreement”) dated October 7, 2021. Pursuant to the terms of the Restricted Stock Agreement, the Board granted Mr. Kaplun shares of restricted common stock on October 7, 2021. % of the shares vest on each of the three-month, six-month, nine-month and 12-month anniversaries of the grant date.
On October 8, 2021, each of Christian Young, President, Secretary and Director of the Company, and Simon Yu, Chief Operating Officer and Director of the Company, resigned from all officer and director positions with the Company, effective immediately. Each of Mr. Young and Yu will continue to provide consulting services to the Company. The Company terminated their consulting agreement in the quarter ended December 31, 2021.
On October 12, 2021, the Board appointed Massimiliano Musina to serve as a member of the Company’s Board of Directors. In connection with Mr. Musina’s appointment, the Company and Mr. Musina entered into an Independent Director Agreement dated October 12, 2021 (the “Director Agreement”). Pursuant to the terms of the Director Agreement, the Company agreed to issue to Mr. Musina each quarter a number of shares of common stock having a fair market value of $25,000, in exchange for Mr. Musina’s service as a member of the Company’s Board of Directors.
NOTE 14 – STOCKHOLDERS’ EQUITY (DEFICIT)
The Company’s authorized capital stock consists of shares of common stock, par value $, and shares of preferred stock, authorized with a par value of $0.001. There are no shares issued and outstanding as of June 30, 2017.$. See Note 16.
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Preferred Stock
As of June 30, 2017March 31, 2022 and December 31, 2016,2021, there was preferred share issued and outstanding.
On November 12, 2020, the Company has 50,000,000 filed a Certificate of Designations with the Secretary of State of Nevada to designate one share of the preferred stock of the Company as the Series X Preferred Stock of the Company.
In November 2020, the Company issued and sold to the Company’s Chief Executive Officer share of Series X Preferred Stock, at a purchase price of $ . The share of Series X Preferred Stock shall have a number of votes at any time equal to (i) the number of votes then held or entitled to be made by all other equity securities of the Company, debt securities of the Company or pursuant to any other agreement, contract or understanding of the Company, plus (ii) one (1). The Series X Preferred Stock shall vote on any matter submitted to the holders of the Common Stock, or any class thereof, for a vote, and shall vote together with the Common Stock, or any class thereof, as applicable, on such matter for as long as the share of Series X Preferred Stock is issued and outstanding. The Series X Preferred Stock shall not have the right to vote on any matter as to which solely another class of Preferred Stock of the Company is entitled to vote pursuant to the certificate of designations of such other class of Preferred Stock of the Company.
The Series X Preferred Stock shall not be convertible into shares of any other class of stock of the Company and entitled to receive any dividends paid on any other class of stock of the Company.
In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of the Company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the Series X Preferred Stock shall not be entitled to receive any distribution of any of the assets or surplus funds of the Company and shall not participate with the Common Stock or any other class of stock of the Company therein.
Common Stock
As of March 31, 2022 and December 31, 2021, the Company had shares of common stock authorized with a par value of $0.001.There are 15,812,191 $. There were and shares issued and outstanding as of June 30, 2017March 31, 2022 and December 31, 2016.2021, respectively.
For the three months ended March 31, 2022, the Company issued 364,903 in connection with the ELOC. The Company incurred $56,025 deposit and trading fees from the ELOC. shares with net proceeds of $
For the three months ended March 31, 2022, the Company issued 55,225. shares to consultants and directors at fair value of $
For the three months ended March 31, 2022, the Company issued 89,366 of convertible promissory note principal and accrued interest. shares to settle a conversion of $
For the three months ended March 31, 2022, the Company issued 23,382. shares as debt issuance costs for convertible notes payable at fair value of $
For the three months ended March 31, 2022, the Company issued shares to settle shares to be issued – liabilities at fair value of $ .
For the three months ended March 31, 2021, the Company issued 2,113,188. shares to consultants and directors at fair value of $
For the three months ended March 31, 2021, the Company issued shares to acquire Magiclytics,
For the three months ended March 31, 2021, the Company issued 13,000 convertible promissory note. shares to settle a conversion of $
For the three months ended March 31, 2021, the Company issued 148,510. shares to settle an accounts payable balance of $
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For the three months ended March 31, 2021, the Company issued 3,441,400. shares as debt issuance costs for convertible notes payable at fair value of $
Warrants
A summary of the Company’s stock warrants activity is as follows:
SUMMARY OF WARRANTS ACTIVITY
Number of Options (in thousands) | Weighted- Average Exercise Price | Weighted- Average Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at December 31, 2021 | 165,077 | $ | 2.05 | 4.9 | - | |||||||||||
Granted | - | - | ||||||||||||||
Exercised | - | - | ||||||||||||||
Canceled | - | - | ||||||||||||||
Outstanding at March 31, 2022 | 165,077 | $ | 2.05 | $ | - | |||||||||||
Vested and expected to vest at December 31, 2021 | 165,077 | $ | 2.05 | $ | - | |||||||||||
Exercisable at March 31, 2022 | 165,077 | $ | 2.05 | $ | - |
No stock options were granted by the Company Lawduring the quarter ended March 31, 2022.
SCHEDULE OF FAIR VALUE OF STOCK OPTIONS GRANTED ASSUMPTIONS
March 31, | ||||
2022 | ||||
Weighted-average grant date fair value per share | $ | |||
Risk-free interest rate | % - | % | ||
Dividend yield | % | |||
Expected term (in years) | ||||
Volatility | - | % |
Equity Purchase Agreement and Registration Rights Agreement
On November 2, 2021, the Company entered into an Equity Purchase Agreement (the “Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P., a Delaware limited Partnership (“Investor”), dated as of October 29, 2021, pursuant to which the Company shall have the right, but not the obligation, to direct Investor, to purchase up to $15,000,000 (the “Maximum Commitment Amount”) in shares of the PRC, net incomeCompany’s common stock, par value $ per share (“Common Stock”) in multiple tranches. Further, under the Agreement and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit a Put Notice (as defined in the Agreement) from time to time to Investor (i) in a minimum amount not less than $20,000.00 and (ii) in a maximum amount up to the lesser of (a) $400,000 or (b) 250% of the Average Daily Trading Value (as defined in the Agreement).
In exchange for Investor entering into the Agreement, the Company agreed, among other things, to (A) issue Investor and Peak One Investments, LLC, an aggregate of shares of Common Stock (the “the Commitment Shares”), and (B) file a registration statement registering the Common Stock issued as Commitment Shares or issuable to Investor under the Agreement for resale (the “Registration Statement”) with the Securities and Exchange Commission within 60 calendar days of the Agreement, as more specifically set forth in the Registration Rights Agreement.
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The obligation of Investor to purchase the Company’s Common Stock shall begin on the date of the Agreement, and ending on the earlier of (i) the date on which Investor shall have purchased Common Stock pursuant to this Agreement equal to the Maximum Commitment Amount, (ii) twenty four (24) months after taxation can only be distributed as dividendsthe date of the Agreement, (iii) written notice of termination by the Company to Investor (which shall not occur during any Valuation Period or at any time that Investor holds any of the Put Shares), (iv) the Registration Statement is no longer effective after appropriation has been madethe initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary case or any person commences a proceeding against the Company, a custodian is appointed for the following:
During the Commitment Period, the purchase price to be paid by Investor for the Common Stock under the Agreement shall be 95% of the Market Price, which is defined as the lesser of the (i) closing bid price of the Common Stock on the trading day immediately preceding the respective Put Date (as defined in the Agreement), or (ii) lowest closing bid price of the Common Stock during the Valuation Period (as defined in the Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Investor.
The Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Investor represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
For the three months ended March 31, 2022, the Company issued 364,903 in connection with the ELOC. The Company incurred $56,025 deposit and trading fees from the ELOC. shares with net proceeds of $
NOTE 15 – COMMITMENTS AND CONTINGENCIES
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”), and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The Company’s suppliers may decrease production levels based on factory closures and reduced operating hours in those facilities. Likewise, the Company is dependent on its workforce to deliver its products. Developments such as social distancing and shelter-in-place directives may impact the Company’s ability to deploy its workforce effectively. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.
Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. The Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time. If the pandemic continues, it may have a material effect on the Company’s results of future operations, financial position, and liquidity in the next 12 months.
On March 27, 2020, then-President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company did not obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries.
The Company continues to examine the impact that the CARES Act may have on our business. Currently, management is unable to determine the total impact that the CARES Act will have on our financial condition, results of operations, or liquidity.
NOTE 16 – SUBSEQUENT EVENTS
The Company has evaluated events subsequent to March 31, 2022, to assess the need for potential recognition or disclosure in the consolidated financial statements. Such events were evaluated through April 15, 2022, the date and time the consolidated financial statements were issued, and it was determined that no subsequent events, except as follows, occurred that required recognition or disclosure in the consolidated financial statements.
Ben-Yohanan Employment Agreement
On April 1, 2022, the Company entered into an employment agreement with Amir Ben-Yohanan, the Company’s Chief Executive Officer, effective April 11, 2022. The terms of the employment agreement are substantially similar to the terms of Mr. Ben-Yohanan’s prior employment agreement with the Company. Accordingly, pursuant to the terms of the employment agreement, Mr. Ben-Yohanan will continue to serve as Chief Executive Officer of the Company, reporting to the Board of Directors (the “Board”). As compensation for Mr. Ben-Yohanan’s services, the Company agreed to pay Mr. Mr. Ben-Yohanan an annual base salary of $400,000 (the “Base Salary”) comprised of two parts a “Cash Portion”, and an “Optional Portion”. The Cash Portion is a monthly cash payment of $15,000. The remaining $220,000 per year – the Optional Portion – is payable as follows:
If the Company’s Board determines that the Company has sufficient cash on hand to pay all or a portion of the Optional Portion in cash, such amount shall be paid in cash. | ||
If the Board determines that the Company does not have sufficient cash on hand to |
a. | be paid at a later date, when the Board determines that the Company has sufficient cash on hand to enable the Company to pay the Deferred Portion; or | |
b. | will not be paid in cash – and instead, the Company will issue shares of Company Common Stock equal to | |
(A) the (B) date of issuance of such shares of Company Common Stock. |
In addition, pursuant to the employment agreement, Mr. Ben-Yohanan is entitled to be paid discretionary annual bonuses as determined by the Board, and is also entitled to receive fringe benefits, such as, but not limited to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days, and certain insurances.
The initial term of the employment agreement is one year from April 11, 2022, unless earlier terminated. Thereafter, the term is automatically extended on an annual basis for terms of one year each, unless either the Company or Mr. Ben-Yohanan provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least 30 days prior to the expiration of the then-current term.
Mr. Ben-Yohanan’s employment with the Company shall be “at will,” meaning that either Mr. Ben-Yohanan or the Company may terminate Mr. Ben-Yohanan’s employment at any time and for any reason, subject to certain terms and conditions.
The Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement and Mr. Ben-Yohanan may terminate the employment agreement at any time, with or without “good reason”, as defined in the employment agreement. If the Company terminates the employment agreement for cause or Mr. Ben-Yohanan terminates the employment agreement without good reason, Mr. Ben-Yohanan will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be paid via the issuance of shares of Company Common Stock. Mr. Ben-Yohanan will also be entitled to payment for any unreimbursed expenses as of the termination date. However, any unvested portion of any equity granted to Mr. Ben-Yohanan will be immediately forfeited as of the termination date.
2022 Equity Incentive Plan
On April 19, 2022, the board of directors (the “Board”) of the Company and stockholders holding a majority of the Company’s voting power approved the Clubhouse Media Group, Inc. 2022 Equity Incentive Plan (the “2022 Plan”).
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Authorized Shares
A total of June 30, 2017, shares of the Company’s common stock are authorized for issuance pursuant to the 2022 Plan.
Additionally, if any award issued pursuant to the 2022 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2022 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company had accumulated deficitsdue to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2022 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). Shares that have actually been issued under the 2022 Plan under any award will not be returned to the 2022 Plan and will not become available for future distribution under the 2022 Plan; provided, however, that if shares issued pursuant to awards of $7,908,824. Therefore,restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company didor are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2022 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2022 Plan. To the extent an award under the 2022 Plan is paid out in cash rather than shares, such cash payment will not appropriateresult in reducing the number of shares available for issuance under the 2022 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2022 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any fundshares that become available for issuance under the statutory surplus reserve for2022 Plan in accordance with the six month period ended June 30, 2017.
Increase in Authorized Shares and Other Articles Amendments
On April 19, 2022, the Company filed Articles of Amendment (the “Amendment”) to $0 and $0 for the six month periods ended June 30, 2017 and 2016, respectively.
In addition, the Amendment had the effect of making certain changes with respect to the Company’s CFO. The option vests in three equal installments starting on the first anniversary of grant andvote required for any subsequent anniversaries thereafter, at an exercise price equivalentchanges to the closing price per sharenumbers of authorized shares of classes or series of the Company’s stock. As amended, the Articles provide that, except as otherwise required by the Nevada Revised Statutes, the Articles, or any designation for a class of preferred stock, (i) all shares of the Company’s capital stock will vote together as one class on all matters submitted to a vote of the Company’s stockholders, and (ii) the affirmative vote of a majority of the voting power of all outstanding shares of voting stock entitled to vote in connection with the applicable matter will be required for approval of such matter. For the avoidance of doubt, the intent of the provisions is, and the operation of the provisions will be, that, without limitation, (i) in the event that the vote of the Company’s shareholders is otherwise required by the NRS, the number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company’s stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required; and (ii) in the event that the vote of the Company’s shareholders is otherwise required by the NRS, unless otherwise set forth in a certificate of designations for the applicable class of preferred stock, the number of authorized shares of any class of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company’s stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required. None of these provisions will otherwise affect or limit the power of the Board to change the number of shares of a class or series of authorized stock by increasing or decreasing the number of authorized shares of the class or series and correspondingly increasing or decreasing the number of issued and outstanding shares of the same class or series held by each shareholder without a vote of the shareholders, as set forth in Section 78.207 of the NRS.
Except as specifically required by the NRS or as set forth in any designation for a class of preferred stock, the holders of each class of the Company’s stock are specifically denied the right to vote as a separate class on any proposed Articles amendment that would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares.
The Company’s Board of Directors approved the dateAmendment on April 18, 2022. On April 19, 2022, stockholders holding a majority of grant.
Equity Issuances
For the months ended April 30, 2022, the Company issued shares to Labrys for conversion of convertible note payable principal and interest of $413,932.
For the months ended April 30, 2022, the Company issued 34,874 in connection with the ELOC. with net proceeds of $
For the months ended April 30, 2022, the Company issued 70,500 to Amir Ben-Yohanan. shares for cash of $
For the months ended April 30, 2022, the Company issued the option award is estimated on the date of grant using the Black Scholes model to be $15,400. The valuation was based on the assumptions noted in the following table. shares to a consultant at fair value of
Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value (in thousands) | |
Outstanding at January 1, 2017 | 100,000 | $0.24 | $- |
Granted | - | - | - |
Exercised | - | - | - |
Cancelled/expired | - | - | - |
Outstanding and exercisable at June 30, 2017 | 100,000 | $0.24 | $- |
Related Party | Total | |
2017 | $26,551 | $26,551 |
2018 | 8,850 | 8,850 |
Total | $35,402 | $35,402 |
ITEM 2. Management’sMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this annual report, including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidatedthe financial statements and the related condensed notes includedthereto contained elsewhere in this annual report. Our financial statements have been preparedCertain information contained in accordance with U.S. GAAP. The followingthe discussion and analysis containsset forth below includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected
Overview
We are an influencer-based social media firm and digital talent management agency. Our Company offers management, production and deal-making services to our handpicked influencers, a management division for individual influencer clients, and an investment arm for joint ventures and acquisitions for companies in the forward-looking statements.
Through our subsidiary, West of Hudson Group, Inc. ("NTH"(“WOHG”), we currently generate revenues primarily from talent management of social media influencers and for paid promotion by companies looking to utilize such social media influencers to promote their products or “Tongji Hospital”) was established in Nanning city Guangxi provinceservices. We solicit companies for potential marketing collaborations and cultivated content creation, work with the influencers and the marketing entity to negotiate and formalize a brand deal and then execute the deal and receive a certain percentage from the deal. In addition to the in-house brand deals, we generate income by providing talent management and brand partnership deals to influencers.
Recent Developments
Marenzi Resignation
On January 4, 2022, Gary Marenzi, a member of the Peoples’ RepublicCompany’s Board of China ("PRC"Directors (the “Board”) resigned from his position as a Board member, effectively immediately. Mr. Marenzi’s resignation is not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Fast Capital Securities Purchase Agreement and Convertible Note
On January 13, 2022, the Company entered into a Securities Purchase Agreement, (the “SPA”) dated as of January 10, 2022, by and between the Company and Fast Capital, LLC (“Fast Capital”). Pursuant to the terms of the SPA, the Company agreed to issue and sell, and Fast Capital agreed to purchase, a 10% convertible note in the aggregate principal amount of $120,000 (the “Fast Capital Note”). The Fast Capital Note has an original issue discount (“OID”) of $10,000, resulting in gross proceeds to the Company of $110,000.
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The Fast Capital Note bears interest at a rate of 10% per annum and matures on January 10, 2023. The Fast Capital Note may be prepaid or assigned with the following penalties/premiums:
Prepay Date | Prepay Amount | |
On or before 30 days | 115% of principal plus accrued interest | |
31 – 60 days | 120% of principal plus accrued interest | |
61 – 90 days | 125% of principal plus accrued interest | |
91 – 120 days | 130% of principal plus accrued interest | |
121 – 150 days | 135% of principal plus accrued interest | |
151 – 180 days | 140% of principal plus accrued interest |
The Fast Capital Note may not be prepaid after the 180th day.
Fast Capital has the right from time to time, and at any time after 180 days to convert all or any part of the outstanding and unpaid principal amount of the Fast Capital Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the Fast Capital Note equals 70% of the lowest trading price of the Company’s common stock for the 20 prior trading days, including the day upon which a notice of conversion is delivered.
Sixth Street Securities Purchase Agreement & Convertible Note
On January 12, 2022, the Company entered into a Securities Purchase Agreement (the “Sixth Street SPA”) dated January 12, 2022, by and between the Company and Sixth Street Lending LLC (“Sixth Street”). Pursuant to the terms of the Sixth Street SPA, the Company agreed to issue and sell, and Sixth Street agreed to purchase, a convertible promissory note in the aggregate principal amount of $70,125 (the “Sixth Street Note”). The Sixth Street Note has an OID of $6,375, resulting in gross proceeds to the Company of $63,750.
The Sixth Street Note bears interest at a rate of 10% per annum and matures on January 12, 2023. Any amount of principal or interest on the Sixth Street Note which is not paid when due will bear interest at a rate of 22% per annum. The Sixth Street Note may not be prepaid in whole or in part except as provided in the Sixth Street Note by way of conversion at the option of Sixth Street.
Sixth Street has the right from time to time, and at any time during the period beginning on the date that is 180 days following January 12, 2022 and ending on the later of (i) January 12, 2023, and (ii) the date of payment of the Default Amount (as defined in the Sixth Street Note), to convert all or any part of the outstanding and unpaid principal amount of the Sixth Street Note into common stock, subject to a 4.99% equity blocker.
The conversion price of the Sixth Street Note equals the lesser of the Variable Conversion Price (as hereinafter defined) and $1.00. The “Variable Conversion Price” means 75% multiplied by the lowest VWAP (as defined in the Sixth Street Note) for the Company’s common stock during the 20 trading date period ending on the latest complete trading day prior to the conversion date.
Tiger Trout Note Amendment
On January 29, 2021, the Company issued to Tiger Trout Capital Puerto Rico, LLC (“Tiger Trout”) a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting a $440,000 OID (the “Tiger Trout Note”). The Tiger Trout Note had a maturity date of January 29, 2022.
On January 28, 2022, the parties to the Tiger Trout Note entered into Amendment No. 1 to Convertible Promissory Note, dated as of January 25, 2022 (the “Tiger Trout Note Amendment”). Pursuant to the terms of the Tiger Trout Note Amendment, the maturity date of the Tiger Trout Note was extended to August 24, 2022. As consideration for Tiger Trout’s agreement to extend the maturity date, the principal amount of the Tiger Trout Note was increased by $388,378, to be a total of $1,928,378. As of January 25, 2022, the indebtedness under the Tiger Trout Note was $2,083,090, comprised of $1,928,378 of principal and $154,712 of accrued interest. Following January 25, 2022, interest will continue to accrue on the principal amount of $1,928,378 at an interest rate of 10%.
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The parties further agreed that to the extent the indebtedness under the Tiger Trout Note has not been earlier repaid or converted to common stock as set forth therein, in the event that the Company completes a firm commitment underwritten public offering of its common stock that results in the common stock being successfully listed on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange or the NYSE American prior to the maturity date of the Tiger Trout Note, as amended by the Tiger Trout Note Amendment, then, following completion of the initial public offering, the Company will use the proceeds to repay indebtedness under the Tiger Trout Note in full.
Except as set forth in the Tiger Trout Note Amendment, the terms of the Tiger Trout Note remain in full force and effect.
ProActive Note Amendment
On January 20, 2021, the Company issued to ProActive Capital SPV I, LLC (“ProActive”) a convertible promissory note in the aggregate principal amount of $250,000 for a purchase price of $225,000, reflecting a $25,000 OID (the “ProActive Note”). The ProActive Note had a maturity date of January 20, 2022.
On February 8, 2022, the parties to the ProActive Note entered into Amendment No. 1 to Convertible Promissory Note, dated as of February 4, 2022 (the “ProActive Note Amendment”). Pursuant to the terms of the ProActive Note Amendment, the maturity date of the ProActive Note was extended to September 20, 2022. As consideration for ProActive’s agreement to extend the maturity date, the principal amount of the ProActive Note was increased by $50,000, to be a total of $300,000. As of February 4, 2022, the indebtedness under the ProActive Note was $275,000, comprised of $250,000 of principal and $25,000 of accrued interest. Following February 4, 2022, interest will continue to accrue on the principal amount of $300,000 at an interest rate of 10%.
The parties further agreed that to the extent the indebtedness under the ProActive Note has not been earlier repaid or converted to common stock as set forth therein, in the event that the Company completes a firm commitment underwritten public offering of its common stock that results in the common stock being successfully listed on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange or the NYSE American prior to the maturity date of the ProActive Note, as amended by the ProActive Note Amendment, then, following completion of the initial public offering, the Company will use the proceeds to repay indebtedness under the ProActive Note in full.
Except as set forth in the ProActive Note Amendment, the terms of the ProActive Note remain in full force and effect.
ONE44 Securities Purchase Agreement & Convertible Note
On February 16, 2022, the Company entered into a Securities Purchase Agreement, (the “ONE44 SPA”) by and between the Guangxi Tongji Medical Co. Ltd.Company and an individual on October 30, 2003.
The ONE44 Note bears interest at a rate of 4% per annum and matures on February 16, 2023. Interest must be paid in common stock. The ONE44 Note may be prepaid with the following penalties/premiums:
Prepay Date | Prepay Amount | |
≤ 60 days | 120% of principal plus accrued interest | |
61-120 days | 130% of principal plus accrued interest | |
121-150 days | 140% of principal plus accrued interest | |
151-180 days | 150% of principal plus accrued interest |
The ONE44 Note may not be prepaid after the 180th day.
ONE44 is entitled, at its option, at any time after the sixth monthly anniversary of cash payment, to convert all or any amount then outstanding under the ONE44 Note into shares of common stock at a price per share equal to 65% of the average of the three lowest daily VWAP of the Company’s common stock for the 20 prior trading days, subject to a 4.99% equity blocker and subject to the terms of the ONE44 Note.
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If an Event of Default (as defined in NTHthe ONE44 Note) occurs, unless cured within five days or waived, ONE44 may consider the ONE44 Note immediately due and payable and interest will accrue at a rate of 24% per annum, in addition to certain other remedies.
Coventry Securities Purchase Agreement, Promissory Note & Restricted Stock Issuance
On March 3, 2022, the Company entered into a Securities Purchase Agreement (the “Coventry SPA”) by and between the Company and Coventry Enterprises, LLC (“Coventry”). Pursuant to the terms of the Coventry SPA, the Company agreed to issue and sell, and Coventry agreed to purchase, a promissory note in the aggregate principal amount of $150,000 (the “Coventry Note”). The Coventry Note has an OID of $30,000, resulting in gross proceeds to the Company of $120,000. Pursuant to the terms of the Coventry SPA, the Company also agreed to issue 150,000 shares of restricted common stock to Coventry as additional consideration for the purchase of the Coventry Note.
The Coventry Note bears interest at a rate of 10% per annum, with guaranteed interest (the “Guaranteed Interest”) of $15,000 is deemed earned as of March 3, 2022. The Coventry Note matures on March 3, 2023. The principal amount and the Guaranteed Interest is due and payable in seven equal monthly payments of $23,571.42, beginning on August 3, 2022 and continuing on the third day of each month thereafter until paid in full not later than March 3, 2023.
Any or all of the principal amount and the Guaranteed Interest may be prepaid at any time and from time to time, in each case without penalty or premium.
If an Event of Default (as defined in the Coventry Note) occurs, consistent with the terms of the Coventry Note, the Coventry Note will become convertible, in whole or in part, into shares of the Company’s common stock at Coventry’s option, subject to a 4.99% equity blocker (which may be increased up to 9.99% by Coventry). The conversion price is 90% of the lowest per-share trading price during the 10-trading day period before conversion.
In addition to certain other remedies, if an Event of Default occurs, consistent with the terms of the Coventry Note, the Coventry Note will bear interest on the aggregate unpaid principal amount and Guaranteed Interest at the rate of the lesser of 18% per annum or the maximum rate permitted by law.
Labrys Note Amendment
On March 11, 2021, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”), pursuant to an Agreementwhich the Company issued a 10% promissory note (the “Labrys Note”) with a maturity date of March 11, 2022 (the “Labrys Maturity Date”), in the principal sum of $1,000,000. On March 30, 2021, the Company and Plan of Merger. We issued 15,652,557Labrys entered into Amendment #1 to the Labrys Note pursuant to which Labrys waived certain rights under the Labrys Note and the Company agreed to issue 48,076 shares of common stock to Labrys.
On March 8, 2022, the shareholdersCompany and Labrys entered into Amendment No. 2 (“Amendment No. 2”) to the Labrys Note, as amended. Pursuant to the terms of NTH in exchange for 100%Amendment No. 2, the maturity date of the Labrys Note, as amended, was extended to November 11, 2022 and the principal amount of the Labrys Note, as amended, was increased by $116,800 to a total of $700,877.67. In addition, pursuant to Amendment No. 2, the parties agreed that, to the extent the Labrys Note, as amended, has not be earlier repaid or converted into common stock, in the event that the Company completes a firm commitment underwritten public offering of common stock following March 8, 2022, that results in the common stock being listed on The Nasdaq Global Market, the Nasdaq Capital Market, the NYSE or the NYSE American prior to the maturity date of the Labrys Note, the Company will repay the Labrys Note, as amended, with the proceeds of such offering.
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Ben-Yohanan Employment Agreement
On April 1, 2022, the Company entered into an employment agreement with Amir Ben-Yohanan, the Company’s Chief Executive Officer, effective April 11, 2022. The terms of the employment agreement are substantially similar to the terms of Mr. Ben-Yohanan’s prior employment agreement with the Company. Accordingly, pursuant to the terms of the employment agreement, Mr. Ben-Yohanan will continue to serve as Chief Executive Officer of the Company, reporting to the Board of Directors (the “Board”). As compensation for Mr. Ben-Yohanan’s services, the Company agreed to pay Mr. Mr. Ben-Yohanan an annual base salary of $400,000 (the “Base Salary”) comprised of two parts a “Cash Portion”, and an “Optional Portion”. The Cash Portion is a monthly cash payment of $15,000. The remaining $220,000 per year – the Optional Portion – is payable as follows:
(i) | If the Company’s Board determines that the Company has sufficient cash on hand to pay all or a portion of the Optional Portion in cash, such amount shall be paid in cash. |
(ii) | If the Board determines that the Company does not have sufficient cash on hand to pay all of the Optional Portion in cash, then the portion of the Optional Portion which the Board determines that the Company has sufficient cash on hand to pay in cash will be paid in cash, and the remainder (the “Deferred Portion”) will either: |
a. | be paid at a later date, when the Board determines that the Company has sufficient cash on hand to enable the Company to pay the Deferred Portion; or | |
b. | will not be paid in cash – and instead, the Company will issue shares of Company Common Stock equal to (A) the Deferred Portion, divided by (B) the VWAP (as defined in the employment agreement) as of the date of issuance of such shares of Company Common Stock. |
In addition, pursuant to the employment agreement, Mr. Ben-Yohanan is entitled to be paid discretionary annual bonuses as determined by the Board, and is also entitled to receive fringe benefits, such as, but not limited to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days, and certain insurances.
The initial term of the employment agreement is one year from April 11, 2022, unless earlier terminated. Thereafter, the term is automatically extended on an annual basis for terms of one year each, unless either the Company or Mr. Ben-Yohanan provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least 30 days prior to the expiration of the then-current term.
Mr. Ben-Yohanan’s employment with the Company shall be “at will,” meaning that either Mr. Ben-Yohanan or the Company may terminate Mr. Ben-Yohanan’s employment at any time and for any reason, subject to certain terms and conditions.
The Company may terminate the employment agreement at any time, with or without “cause”, as defined in the employment agreement and Mr. Ben-Yohanan may terminate the employment agreement at any time, with or without “good reason”, as defined in the employment agreement. If the Company terminates the employment agreement for cause or Mr. Ben-Yohanan terminates the employment agreement without good reason, Mr. Ben-Yohanan will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be paid via the issuance of shares of Company Common Stock. Mr. Ben-Yohanan will also be entitled to payment for any unreimbursed expenses as of the termination date. However, any unvested portion of any equity granted to Mr. Ben-Yohanan will be immediately forfeited as of the termination date.
If the Company terminates the employment agreement without cause or Mr. Ben-Yohanan terminates the employment agreement with good reason, Mr. Ben-Yohanan will be entitled to receive the same compensation (unpaid accrued salary and unreimbursed expenses), and, in addition, will be entitled to receive, in one lump sum, the remainder of Mr. Ben-Yohanan’s annual salary that has not yet been paid as of the date of the termination – either in cash, or in shares of Company common stock. Further, any equity grant already made to Mr. Ben-Yohanan shall, to the extent not already vested, be deemed automatically vested.
2022 Equity Incentive Plan
On April 19, 2022, the board of directors (the “Board”) of the Company and stockholders holding a majority of the Company’s voting power approved the Clubhouse Media Group, Inc. 2022 Equity Incentive Plan (the “2022 Plan”).
A total of 26,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2022 Plan.
Additionally, if any award issued pursuant to the 2022 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2022 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2022 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). Shares that have actually been issued under the 2022 Plan under any award will not be returned to the 2022 Plan and will not become available for future distribution under the 2022 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2022 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2022 Plan. To the extent an award under the 2022 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2022 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2022 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under the 2022 Plan in accordance with the foregoing.
Increase in Authorized Shares and Other Articles Amendments
On April 19, 2022, the Company filed Articles of Amendment (the “Amendment”) to the Company’s Articles of Incorporation (the “Articles”) with the Nevada Secretary of State that had the effect of increasing the authorized shares of common stock from 500,000,000 to 2,000,000,000.
In addition, the Amendment had the effect of making certain changes with respect to the vote required for any subsequent changes to the numbers of authorized shares of classes or series of the Company’s stock. As amended, the Articles provide that, except as otherwise required by the Nevada Revised Statutes, the Articles, or any designation for a class of preferred stock, (i) all shares of the Company’s capital stock will vote together as one class on all matters submitted to a vote of the Company’s stockholders, and (ii) the affirmative vote of a majority of the voting power of all outstanding shares of voting stock entitled to vote in connection with the applicable matter will be required for approval of such matter. For the avoidance of doubt, the intent of the provisions is, and the operation of the provisions will be, that, without limitation, (i) in the event that the vote of the Company’s shareholders is otherwise required by the NRS, the number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company’s stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required; and (ii) in the event that the vote of the Company’s shareholders is otherwise required by the NRS, unless otherwise set forth in a certificate of designations for the applicable class of preferred stock, the number of authorized shares of any class of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company’s stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required. None of these provisions will otherwise affect or limit the power of the Board to change the number of shares of a class or series of authorized stock by increasing or decreasing the number of authorized shares of the class or series and correspondingly increasing or decreasing the number of issued and outstanding shares of NTH. Accordingly, NTH becamethe same class or series held by each shareholder without a wholly owned subsidiary of Tongji, Inc. We have been in the business of operating hospitals and providing healthcare services in Nanning, Guangxi provincevote of the PRC.
Except as specifically required by the NRS or as set forth in any designation for a class of preferred stock, the holders of each class of the Company’s stock are specifically denied the right to vote as a reverse acquisition underseparate class on any proposed Articles amendment that would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares.
The Company’s Board of Directors approved the purchase method of accounting since the shareholders of NTH obtained controlAmendment on April 18, 2022. On April 19, 2022, stockholders holding a majority of the consolidated entity. Accordingly,Company’s voting power approved, among other things, the reorganization of the two companies was recorded as a recapitalization of NTH. We treated NTH as the continuing operating entity. We have two sources of operating revenues: in-patient service revenues and out-patient service revenues. In addition to provide services to our patients, we also sell pharmaceutical drugs to our patients. Revenues from such sales are included in either our in-patient service revenues or our out-patient service revenues. Our revenues come from individuals as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon local government established charges. Revenues are recorded at estimated net amounts due from patients or third-party payers. Revenues from pharmaceutical drug sales are recognized upon the drug being administered to a patient or at the time a prescription by a registered physician is filled.Amendment on April 18, 2022.
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Results of Operations
For the closing in May 2017, Guangxi Yida Friendship Hospital Management, Inc. agreed that the sale price and VAT totaled RMB 90,000,000 (approximately $13,100,437) and paid VAT of RMB 5,094,340 (approximately $741,534) and other taxes expenses of RMB 696,838 (approximately $101,366). The final sale price changes to RMB 84,905,660 (approximately $12,358,902), and the final value-added tax (VAT) and other taxes liability is RMB 5,094,340 (approximately $741,534). The differences between the actual amount and estimated amount resulted in an additional net loss on sale of assets of RMB 1,094,340 (approximately $159,258) and VAT and other taxes expense of RMB 5,094,340 (approximately $82,128) in extraordinary items. As of June 30, 2017, we received payment of approximately $5,400,000. The rest is expected to be received in full by December 30, 2017.
Net Revenue
Net revenue was $813,477 for the three months ended June 30, 2017, asMarch 31, 2022, compared to net revenue of $523,376 for the three months ended June 30, 2016, are discussed below.
Cost of Goods Sold
Cost of goods sold was $671,148 for the three months ended March 31, 2022, compared to cost of goods sold of $316,684 for the three months ended March 31, 2021. The increase was due to Alden Reiman has joined Clubhouse Media as a consultant via his company since the last quarter in 2021 and out-patient service,brought significant revenue for the three months ended March 31, 2022 and paid additional consultants or content creators as commissions.
Gross Profit
Gross profit was $319,303,$142,329 for the three months ended March 31, 2022, compared to gross profit of $206,692 for the three months ended March 31, 2021. The gross profit percentage was 17.5% for the three months ended March 31, 2022, compared to 39.5% for the three months ended March 31, 2021.
Operating Expenses
Operating expenses for the three months ended March 31, 2022 were $1,360,488 compared to $4,367,363 for the three months ended March 31, 2021. The variances were as follows: (i) a decrease in rent and utilities expense of $516,596; (ii) a decrease in professional and consultant fees of $2,541,551; (iii) a decrease in sales and marketing expenses of $193,657; (iv) a decrease of $239,957 or 43%, as compared withproduction expense of $32,171; (v) an increase of payroll of $405,589; (vi) a decrease in other selling, general, and administrative expense of $128,491. The overall decrease in total operating expenses resulted from the Company issued less stock compensation to consultants, terminated all leases by the end of 2021, and less advertising expenses to reduce cash expenditure.
Non-cash operating expenses for the three months ended March 31, 2022 were $1,367,353, including (i) depreciation and amortization of $17,727; (ii) stock-based compensation of $1,349,626. Non-cash operating expenses for the three months ended March 31, 2021 were $2,977,264 from stock compensation expense and depreciation expense of $6,934. All these non-cash operating expenses were already included in the operating revenue of $559,260expenses in the paragraph disclosed above.
Other (Income) Expenses
Other (income) expenses for the same period of 2016. Our in-patient service revenue was $147,536 for the three-month periodthree months ended June 30, 2016,March 31, 2022 were $2,279,993, as compared to $333,397$1,637,907 for the same periodthree months ended March 31, 2021. Other expenses for the three months ended March 31, 2022 included (i) change in 2016, a decreasefair value derivative liability of $185,861or 56%.$(77,616); (ii) interest expense of $762,655; (iii) non cash amortization of debt discounts of $1,349,628; and (iv) non cash excess derivatives of $245,326.
Other expenses for the three months ended March 31, 2021 included (i) change in fair value derivative liability of $(49,533) and (ii) interest expense of $840,138; (iii) extinguishment of debt for $297,138; (iv) non cash amortization of debt discounts of $495,937. The decreasechange in derivative liability is the non-cash change in the in-patient service revenue was primarily duefair value and relates to the resignation of physicians especially in orthopedic inpatient department. Our out-patient service revenue was $171,767our derivative instruments.
Net Loss
Net loss for the three-month periodthree months ended June 30, 2016, a decrease of $54,096 or 24% asMarch 31, 2022 was $3,498,152, compared to $225,863$5,798,578 for the same period in 2016. The decrease in the out-patient service revenue was primarily due to the elimination of our prepaid health department and the resignation of physicians.
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Liquidity and Capital Resources
2017 | 2016 | |
Cash provided by (used in) operating activities | $(108,625) | $(23,215) |
Cash (used in) investing activities | $0 | $(104,148) |
Cash provided by financing activities | $97,517 | $154,316 |
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $881,633. This amount was primarily consists ofrelated to a net loss as adjustedof $3,498,152, offset by depreciation, stock option, and changes in operating assets and liabilities such as accounts receivable, medical supplies,(i) a net working capital lease deposits, prepaid expense and other current assets, accounts payables and accrued liabilities , and other payables.
Investment Activities
Net cash used in investing activities was $0 for the sixthree months ended June 30, 2017, a decrease of $104,148 or 100%, as compared withMarch 31, 2022 was $93,491. The Company purchased $93,491 in internally used software during the net cash used in investing activities of $104,148 for the same period in 2016. The decrease in net cash used in investing activities was primarily due to no fixed assets being added compared to the same period of 2016.
Financing Activities
Net cash provided by financing activities primarily consistsfor the three months ended March 31, 2022 was $756,587. The amount was related to shares issued for cash of $364,903; repayment to our Chief Executive Officer and Chairman of the Board of $105,822 and proceeds from related party loans.
Impact of COVID-19 on the six months ended June 30, 2017, a decrease of $53,319 or 35%, as compared with net cash provided by financing activities of $154,316 for the same period in 2016. The decrease was primarily attributable to less money being needed to be financed from our related party.
Due to the increase in related party loansdigital/remote nature of approximately $352,804, the decrease of other current receivables of $839,393,Company’s business, COVID-19 has had, and the decrease in other payables of $541,706.
Going Concern
The Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as follows:
Related Party | Total | |
2017 | $26,551 | $26,551 |
2018 | 8,850 | 8,850 |
Total | $35,402 | $35,402 |
The accompanying consolidatedunaudited financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Companyassuming that we will continue as a going concern. However,While the Company has negative working capitalis attempting to generate additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of $7,578,047, an accumulated deficita public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of $7,908,824,its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a stockholders’ deficitgoing concern is dependent upon the Company’s ability to further implement its business plan and generate revenues. The Company will require additional cash funding to fund operations. Therefore, the Company concluded there was substantial doubt about the Company’s ability to continue as a going concern.
To fund further operations, the Company will need to raise additional capital. The Company may obtain additional financing in the future through the issuance of $7,023,497 as of June 30, 2017.its common stock, or through other equity or debt financings. The Company’s ability to continue as a going concern ultimatelyor meet the minimum liquidity requirements in the future is dependent on the management’sits ability to obtain equityraise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or debtachieved, the Company will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and the Company’s ability to achieve its strategic objective. There can be no assurance that financing attain further operating efficiencies, and achieve profitable operations.will be available on acceptable terms, or at all. The consolidated financial statements do not include anycontain no adjustments relating tofor the recoverability and classificationoutcome of recorded asset amounts or amounts and classification of liabilities that might be necessary shouldthese uncertainties. These factors raise substantial doubt about the Company not be ableCompany’s ability to continue as a going concern.concern and have a material adverse effect on the Company’s future financial results, financial position and cash flows.
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Equity Purchase Agreement and Registration Rights Agreement
On November 2, 2021, the Company entered into an Equity Purchase Agreement and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P. (“Peak One”), dated as of October 29, 2021, pursuant to which the Company has taken certain restructuring stepsthe right, but not the obligation, to provide the necessary capitaldirect Peak One to continue its operations. These steps included: 1) disposalpurchase up to $15,000,000 (the “Maximum Commitment Amount”) in shares of the construction-in-progress new hospital. 2) planCompany’s common stock in multiple tranches (the “Put Shares”). Further, under the Equity Purchase Agreement and subject to convert existed related parties’ loansthe Maximum Commitment Amount, the Company has the right, but not the obligation, to submit a Put Notice (as defined in the Equity Purchase Agreement) from time to time to Peak One (i) in a minimum amount not less than $20,000 and (ii) in a maximum amount up to the lesser of (a) $400,000 or (b) 250% of the Average Daily Trading Value (as defined in the Equity Purchase Agreement).
In exchange for Peak One entering into equity, 3) planthe Equity Purchase Agreement, the Company agreed, among other things, to increase sales revenue(A) issue Peak One and Peak One Investments, LLC, an aggregate of 70,000 shares of common stock (the “Commitment Shares”), and (B) file a registration statement registering the common stock issued as Commitment Shares and issuable to Peak One under the Equity Purchase Agreement for resale (the “Registration Statement”) with additional medical equipment, No assurances can be giventhe SEC within 60 calendar days of the Equity Purchase Agreement, as more specifically set forth in the Registration Rights Agreement.
The obligation of Peak One to purchase the Company’s common stock begins on the date of the Equity Purchase Agreement, and ends on the earlier of (i) the date on which Peak One has purchased common stock pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) 24 months after the date of the Equity Purchase Agreement, (iii) written notice of termination by the Company to Peak One (which shall not occur during any Valuation Period or at any time that Peak One holds any of the Put Shares), (iv) the Registration Statement is no longer effective after the initial effective date of the Registration Statement, or (v) the date that the steps taken will provide necessary capitalCompany commences a voluntary case or any person commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During the Commitment Period, the purchase price to continuebe paid by Peak One for the common stock under the Equity Purchase Agreement shall be 95% of the Market Price, which is defined as the lesser of the (i) closing bid price of the common stock on the trading day immediately preceding the respective Put Date (as defined in the Equity Purchase Agreement), or (ii) lowest closing bid price of the common stock during the Valuation Period (as defined in the Equity Purchase Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Peak One.
The number of Put Shares to be purchased by Peak One shall not exceed the number of such shares that, when aggregated with all other shares of common stock then owned by Peak One beneficially or deemed beneficially owned by Peak One, would result in Peak One owning more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable pursuant to a Put Notice.
In accordance with that certain Registration Rights Agreement, the Selling Securityholders are entitled to certain rights with respect to the registration of the Put Shares and Commitment Shares issued in connection with the Equity Purchase Agreement (the “Registrable Securities”). Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 60 calendar days from the date of the Registration Rights Agreement, (ii) use reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible after the filing thereof, but in any event no later than the 90th calendar day following the date of the Registration Rights Agreement, and (iii) use its operations. reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all of the Commitment Shares and Purchase Shares have been sold thereunder or pursuant to Rule 144. The Company must also take such action as is necessary to register and/or qualify the Registrable Securities under such other securities or blue sky laws of all applicable jurisdictions in the United States.
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Convertible Promissory Notes
See footnotes #9 in the notes to the unaudited consolidated financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet itemsarrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act reasonably likely to have a material effect on our financial condition.
Critical Accounting Policies and Estimates
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in assessing impairment of long-lived assets. Actual results could differ from those estimates.
Reverse Merger Accounting
The Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. WOHG was the acquirer for financial reporting purposes and Clubhouse Media Group, Inc. was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger will be those of WOHG and will be recorded at the historical cost basis of WOHG since its inception on January 2, 2020. The consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and WOHG, historical operations of WOHG since its inception on January 2, 2020 to the closing date of the merger, and operations of the Company from the closing date of the Merger. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction with the Merger, WOHG received no cash and assumed no liabilities from Clubhouse Media Group, Inc. All members of the Company’s executive management are from WOHG.
Lease
On January 2, 2020, the Company adopted FASB ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative effect adjustment to accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated below.
As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC 842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for operating leases with terms longer than 12 months. The Company elected to use the short-term exception and does not records assets/liabilities for short term leases as of September 30, 2021.
The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized on a straight-line basis over the lease term. All leases are terminated since December 31, 2021.
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Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the Company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
Managed Services Revenue
The Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide custom content, influencer marketing, amplification or other campaign management services (“Managed Services”).
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. The Company allocates revenue to each performance obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
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Based on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation to fulfill the performance obligations and it creates, reviews and controls the services. The Company takes on the risk of payment to any third-party creators and it establishes the contract price directly with its customers based on the services requested in the statement of work. The contract liabilities as of March 31, 2022 and December 31, 2021 was $50,300 and $337,500, respectively.
Subscription-Based Revenue
The Company recognize subscription-based revenue through its social media website at Honeydrip.com, which allow customers to visit the creators personal page over the contract period without taking possession of the products or deliverables, are provided on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the content.
Software Development Costs
We apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain system projects. These system projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project basis over the expected economic life of the underlying product on a straight-line basis, which is five years. Amortization commences when the software is available for its intended use. Amounts capitalized related to development of internal use software are included in property and equipment, net, on our Consolidated Balance sheets and related depreciation is recorded as a component of amortization of intangible assets and depreciation in our consolidated statements of operations. During the three months ended March 31, 2022 and 2021, we capitalized approximately $93,491 and $0, respectively, related to internal use software and recorded $9,214 and $0 in related amortization expense, respectively. Unamortized costs of capitalized internal use software totaled $542,310 and $458,033 as of March 31, 2022 and December 31, 2021, respectively.
Goodwill Impairment
We test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
For other intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset’s estimated economic life, except for individually significant customer-related intangible assets that are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values. The Company impaired $0 and $0 of goodwill for the three months ended March 31, 2022 and 2021, respectively.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
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Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of March 31, 2022 and for the year ended December 31, 2021, there was no impairment loss of its long-lived assets.
Income Taxes
The Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations and comprehensive income (loss) as income tax expense.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value.
The Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level 3 inputs.
The Company used Level 3 inputs for its valuation methodology for the derivative liabilities for conversion feature of the convertible notes in determining the fair value the weighted-average Binomial option pricing model following assumption inputs. The fair value of derivative liability as of March 31, 2022 and December 31, 2021 was $983,630 and $513,959, respectively.
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Stock-based Compensation
Stock-based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Derivative Instruments
The fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under other (income) expense.
Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include:
a. | affiliates of the Company; |
b. | entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; |
c. | trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; |
d. | principal owners of the Company; |
e. | management of the Company; |
f. | other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and |
g. | other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. |
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
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New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within those fiscal years. We did not expect the adoption of this guidance have a material impact on its consolidated financial statements.
On October 1, 2020, we early adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance was effective beginning January 1, 2021, with early adoption permitted. The adoption of this new standard did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 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 (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. The Company is currently evaluating the timing, method of adoption and overall impact of this standard on its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls
Disclosure controls andare procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurancewith the objective of ensuring that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act, such as this quarterly report, is recorded, processed, summarized, and reported within the time periodsperiod specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and proceduresare also designed to ensurewith the objective of ensuring that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officerthe chief executive officer and Chief Financial Officer,chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures werewill prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not effective as of June 30, 2017 as a resultabsolute, assurance that the objectives of the material weaknesses identifieddisclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting which are discussed below. Our management considers our internal control over financial reporting to be an integral part of our disclosure controls and procedures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various claims and legal actions arising in the People’s Court. Inordinary course of business. To the complaint, Tingyouyuxiang assertedknowledge of our management, there are no legal proceedings currently pending against us which we believe would have a breachmaterial effect on our business, financial position or results of contract claim against NTH, alleging that NTH had failed to make timelyoperations and, total payment of RMB 5,050,000 (approximately $800,000) under certain Supplement Agreement by and among NTH, Tingyouyuxiang and the Eighth Group of Langdong Village Committee, Nanhu Community Office, Qingxiu District, Nanning City (the “Village Committee”). One December 30, 2009, the People’s Court ruled that NTH shall pay to Tingyouyuxiang damages of RMB 5,050,000 (approximately $800,000) plus interest and the court hearing fee approximately $320,000. On March 9, 2013, NTH appealed to the Intermediate Court, alleging, among other things, that NTH was never served. On September 6, 2013, the Intermediate Court remanded the case to the People’s Court. On April 16, 2014, the Intermediate Court dismissed Tingyouyuxiang’s appeal and affirmed the decisionbest of the People’s Court. Upon settlement of the lawsuit, the Company had accrued approximately $1,443,722 in settlement payable as of June 30, 2017.
Item 1A. Risk Factors.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For the months ended April 30, 2022, the Company issued 16,766,000 shares to Labrys for conversion of principal of $XX.
For the months ended April 30, 2022, the Company issued 2,500,000 with net proceeds of $34,874 in connection with the ELOC.
For the months ended April 30, 2022, the Company issued 2,820,000 shares for cash of $70,500 to Amir Ben-Yohanan.
For the months ended April 30, 2022, the Company issued 928,832 shares to a consultant at fair value of $18,208.
The above issuances were made pursuant to an exemption from registration as set forth in 506 of Regulation D and Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
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* Filed herewith.
** Furnished herewith.
† Management contract, compensation plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CLUBHOUSE MEDIA GROUP, INC. | ||
Date: May 5, 2022 | By: | /s/ Amir Ben-Yohanan |
Name: | Amir Ben-Yohanan | |
Title: | Chief Executive Officer | |
(principal executive officer) | ||
Date: May 5, 2022 | By: | Dmitry Kaplun |
Name: | Dmitry Kaplun | |
Title: | Chief Financial Officer | |
(principal financial officer and principal accounting officer) |