SIMPLICITY ESPORTS & GAMING Co [WINRW] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2023

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

For the transition period from __________ to __________

Commission File Number: 001-38188

SIMPLICITY ESPORTS AND GAMING COMPANY

(Exact name of registrant as specified in its charter)

Delaware		82-1231127
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

7000 W. Palmetto Park Road, Suite 505 Boca Raton, FL		33433
(Address of principal executive offices)		(Zip Code)

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

Not applicable

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

Large accelerated filer	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 April 19, 2023, there were 28,367,796 shares of the Company’s common stock issued and outstanding.

SIMPLICITY ESPORTS AND GAMING COMPANY

Table of Contents

		Page
PART I — FINANCIAL INFORMATION		3

Item 1.	Financial Statements:	3

	Consolidated Balance Sheets – February 28, 2023 (unaudited) and May 31, 2022	3

	Consolidated Statement of Operations – Three and Nine Months Ended February 28, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Changes in Stockholders’ Deficit – Nine Months Ended February 28, 2023 and 2022 (unaudited)	5-6

	Consolidated Statement of Cash Flows - Nine Months Ended February 28, 2023 and 2022 (unaudited)	7

	Condensed Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76

Item 4.	Controls and Procedures	76

PART II — OTHER INFORMATION		77

Item 1.	Legal Proceedings	77

Item 1A.	Risk Factors	77

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	77

Item 4.	Mine Safety Disclosures	77

Item 5.	Other Information	77

Item 6.	Exhibits	78

Signatures		79

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	February 28, 2023			May 31, 2022
	(Unaudited)
ASSETS

Current Assets
Cash	$	29,066		$	103,437
Accounts receivable, net		28,928			60,549
Other receivable – sale of Brazil assets		192,545			-
Inventory		-			115,188
Prepaid expenses		-			154,093
Other current assets		3,000			74,101
Total Current Assets		253,539			507,368

Other Assets
Goodwill		-			1,472,884
Intangible assets, net		-			1,007,142
Deferred brokerage fees		24,807			71,436
Property and equipment, net		3,595			195,202
Right of use asset, operating leases, net		-			532,216
Security deposits		-			40,307
Due from franchisees		-			411
Total Other Assets		28,402			3,319,598

TOTAL ASSETS	$	281,941		$	3,826,966

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable	$	1,103,620		$	779,363
Accrued expenses		1,804,788			1,835,181
Current portion of convertible notes payable, net of discount		4,515,190			1,548,351
Derivative liability		808,412			-
Loan payable		41,735			41,735
Operating lease obligation, current		1,167,601			332,519
Current portion of deferred revenues		6,986			27,768
Related party loan, current portion		-			247,818
Total Current Liabilities		9,448,332			4,812,735

Non-Current Liabilities
Non-current portion of convertible notes payable, net of discount		-			1,545,044
Secured promissory notes payable, net of discount		83,431			69,636
Operating lease obligation, net of current portion		-			1,092,627
Deferred revenues, less current portion		37,251			152,620
Total Non-Current Liabilities		120,682			2,859,927

Total Liabilities		9,569,014			7,672,662

Commitments and Contingencies – Note 7		-			-

Stockholders’ Deficit
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; one share and no shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively		-			-
Common stock - $0.0001 par value; 250,000,000 shares authorized; 21,686,369 and 1,830,818 shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively		2,168			182
Common stock issuable		48,244			57,700
Additional paid-in capital		19,730,713			26,014,021
Accumulated deficit		(29,219,299	)		(29,838,444	)
Total Simplicity Esports and Gaming Company Stockholders’ Deficit		(9,438,174	)		(3,766,541	)
Non-Controlling Interest		151,101			(79,155	)
Total Stockholders’ Deficit		(9,287,073	)		(3,845,696	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	281,941		$	3,826,966

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

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For the Three Months Ended						For the Nine Months Ended
	February 28,2023			February 28,2022			February 28,2023			February 28,2022

Revenues
Franchise royalties, fees and other	$	137,390		$	114,317		$	208,345		$	273,628
Company-owned stores sales		2,518			702,531			446,354			2,057,764
Esports revenue		4,725			71,663			9,364			305,774

Total Revenues		144,633			888,511			664,063			2,637,166

Cost of Goods Sold		(46,151	)		(536,603	)		(214,047	)		(1,629,119	)

Gross Margin		98,482			351,908			450,016			1,008,047

Operating Expenses
Compensation and related benefits		86,925			777,992			880,465			2,927,004
Professional fees		63,147			54,889			339,903			633,965
General and administrative expenses		153,351			531,349			687,105			1,407,171
Impairment loss		-			-			3,258,721			-

Total Operating Expenses		303,423			1,364,230			5,166,194			4,968,140

Loss from Operations		(204,941	)		(1,012,322	)		(4,716,178	)		(3,960,093	)

Other (Expense) Income
Loss on extinguishment of debt		(1,157	)		-			(276,655	)		(1,730,801	)
Interest and financing expense		(476,140	)		(1,003,137	)		(2,043,971	)		(2,808,627	)
Interest income		1			2			1			30
Other income		-			-			65,608			52,564
Loss on issuance of shares to employees and as consideration for accounts payable		-			-			(35,747	)		-
Gain on disposition of assets		-			-			395,272			-
(Loss) gain on change in fair value of derivative liability		(96,971	)		-			7,292,849			-

Total Other (Expense) Income		(574,267	)		(1,003,135	)		5,397,357			(4,486,834	)

(Loss) Income Before Provision for Income Taxes		(779,208	)		(2,015,457	)		681,179			(8,446,927	)

Net (Loss) Income		(779,208	)		(2,015,457	)		681,179			(8,446,927	)

Net Loss (Income) attributable to noncontrolling interest		3,752			60,805			(62,034	)		152,071

Net (Loss) Income attributable to common shareholders	$	(775,456	)	$	(1,954,652	)	$	619,145		$	(8,294,856	)

Basic Net (Loss) Income per share	$	(0.04	)	$	(1.21	)	$	0.07		$	(5.33	)

Diluted Net (Loss) Income Per Share	$	(0.04	)	$	(1.21	)	$	0.06		$	(5.33	)

Basic Weighted Average Number of Common Shares Outstanding		18,761,959			1,616,022			8,975,709			1,555,722

Diluted Weighted Average Number of Common Shares Outstanding		18,761,959			1,616,022			10,940,364			1,555,722

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

SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2023 AND 2022

(UNAUDITED)


	Common Stock										Preferred Stock
	Shares		Par Value		Additional Paid-In Capital			Issuable			Shares		Par Value		Additional Paid-in Capital		Non-Controlling Interest			Accumulated Deficit			Total Stockholders’ Deficit
Balance – May 31, 2022		1,830,818	$	182	$	26,014,021		$	57,700			-	$	-	$	-	$	(79,155	)	$	(29,838,444	)	$	(3,845,696	)

Shares issued in connection with issuance and conversions of notes payable		872,105		87		158,496			-			-		-		-		-			-			158,583

Shares to be issued in connection with issuance of notes payable		-		-		-			11,044			-		-		-		-			-			11,044

Shares issued to directors, officers, or employees as compensation		5,238		1		9,505			(10,000	)		-		-		-		-			-			(494	)

Shares issued as consideration for accounts payable		412,000		41		187,679			-			-		-		-		-			-			187,720

Sale of shares of Series X convertible preferred stock to related party		-		-		-			-			1		-		183,498		-			-			183,498

Stock-based compensation		-		-		89,597			-			-		-		-		-			-			89,597

Non-controlling interest of original investment in subsidiaries		-		-		-			-			-		-		-		253,996			-			253,996

Net income attributable to non-controlling interest		-		-		-			-			-		-		-		72,262			-			72,262

Net Loss		-		-		-			-			-		-		-		-			(4,157,110	)		(4,157,110	)

Balance August 31, 2022		3,120,161	$	311	$	26,459,298		$	58,744			1	$	-	$	183,498	$	247,103		$	(33,995,554	)	$	(7,046,600	)

Shares issued in connection with issuance and conversions of notes payable		5,956,000		596		504,948			(10,500	)		-		-				-						495,044

Shares issued as consideration for accounts payable		500,000		50		40,272			-			-		-		-		-						40,322

Stock-based compensation		-		-		75,582			-			-		-		-		-						75,582

Derivative liability		-		-		(10,485,603	)		-			-		-		-		-						(10,485,603	)

Distributions to minority interest holders		-		-		-			-			-		-		-		(85,774	)					(85,774	)

Net loss attributable to non-controlling interest		-		-		-			-			-		-		-		(6,476	)					(6,476	)

Net Income		-		-		-			-			-		-		-		-			5,551,711			5,551,711

Balance November 30, 2022		9,576,161	$	957	$	16,594,497		$	48,244			1	$	-	$	183,498	$	154,853		$	(28,443,843	)	$	(11,461,794	)

Shares issued in connection with issuance and conversions of notes payable		12,110,208		1,211		274,150			-			-		-		-		-			-			275,361

Adjustments to derivative liability for sequencing		-		-		2,678,568			-			-		-		-		-			-			2,678,568

Net loss attributable to non-controlling interest		-		-		-			-			-		-		-		(3,752	)		-			(3,752	)

Net Loss		-		-		-			-			-		-		-		-			(775,456	)		(775,456	)

Balance February 28, 2023		21,686,369	$	2,168	$	19,547,215		$	48,244			1	$	-	$	183,498	$	151,101		$	(29,219,299	)	$	(9,287,073	)

	Shares		Par Value		Additional Paid-In Capital		Issuable		Shares		Par Value		Additional Paid-in Capital		Non-Controlling Interest			Accumulated Deficit			Total Stockholders’ (Deficit) Equity
	Common Stock								Preferred Stock
	Shares		Par Value		Additional Paid-In Capital		Issuable		Shares		Par Value		Additional Paid-in Capital		Non-Controlling Interest			Accumulated Deficit			Total Stockholders’ Equity
Balance - May 31, 2021		1,427,124	$	142	$	16,708,762	$	-		-	$	-	$	-	$	173,039		$	(12,291,899	)	$	4,590,044

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

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

Sale of warrants		-		-		100,000		-		-		-		-		-			-			100,000

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

Common stock issuable		-		-		-		850,775		-		-		-		-			-			850,775

Net loss attributable to non-controlling interest		-		-		-		-		-		-		-		(54,837	)		-			(54,837	)

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

Balance - August 31, 2021		1,492,595	$	149	$	21,233,531	$	850,775		-	$	-	$	-	$	118,202		$	(16,502,806	)	$	5,699,851

Shares issued in connection with issuance and amendments of notes payable		18,333		1

SIMPLICITY ESPORTS & GAMING Co [WINRW] Filings
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SIMPLICITY ESPORTS & GAMING Co [WINRW] Filings

SIMPLICITY ESPORTS & GAMING Co [WINR] Filings